Interview: Matjaž Rakovec, Triglav Group

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How is the current crisis affecting Triglav? The insurance business is very specific, are you more or less affected by the current situation than the average insurer?

Even in tight financial conditions and the economic downturn, insurance is an attractive business. Nevertheless, good business performance is an ambitious task, difficult to attain without commitment, deep analyses and strategic considerations in decision making. In 2010, Triglav started redefining its strategy by shifting the focus from market share to boosting returns in the period 2011-2015. Despite demanding market conditions, this has proved to be a good decision. During the next period these demanding conditions will primarily take the form of turbulence and gradual recovery of the economies in South East Europe (SEE).
From the beginning of the recession until now, the insurance sector has fared better than most other industries because some insurance products are absolutely necessary – car insurance as a precondition for car registration or home insurance traditionally sought by almost everybody, etc. In spite of that, the crisis has primarily reduced the number of insurance policies which are combined with a savings component, such as unit-linked life and pension insurance. This is logical as the crisis has brought about lower purchasing power and real income reduction. It is obvious that household, corporate and general government debt should go down and that strong players are seeking to increase their market share in SEE. Nevertheless, in spite of the recession, our strategy for the future remains unchanged. Triglav is not interested in mere growth in market share but moreso in profit. Our recipe is simple: in this time of crisis, the volume of operations in financial terms and expenses have to be decreased, development momentum has to be maintained and enough capital accumulated to restart growth in the future.

What are your advantages in comparison to the competition? Why should someone be insured by Triglav and not by another company?

Changes in capital markets together with substantial damage due to adverse weather events only increase the need for security. Insurance remains an irreplaceable mechanism for providing different elements of security to individuals within society. Clients trust that it is Zavarovalnica Triglav who will best secure their property, health, life and investments is being upheld every day, particularly in times of dire straits. A good insurance company shows its value in times of trouble. Triglav is exceedingly good at quick and effective claim settlement and primarily draws strength from its network of insurance agents and quality after-sales activities. Our mission is to build a safer future, whilst committed to high professional standards, security and corporate social responsibility, which helps us remain the largest Slovene insurer. The Triglav Group is one of the leading insurance/financial groups in SEE, present in as many as seven European countries and eight markets. In terms of operating results, Triglav is the best performing financial institution in Slovenia, meeting set targets.

What are your major business plans for the next year?

With its new 2011-2015 business strategy, Triglav Group has undertaken to boost returns, i.e. to maximise the return on capital and return on invested assets from the shareholders perspective, replacing the previous objective of maximising market share. As a result, last year Triglav for the first time posted profit from its core business (insurance). Gross written premiums will again become the focus of our attention, once we realise that such a shift is reasonable and as soon as insurance premium boosting becomes the right strategy for boosting business returns. By the end of the current strategy period, return on equity is planned to reach 12% and the combined ratio to stay below 95%. The strategy foresees all of Triglav’s subsidiaries operating at a profit with total written premiums of EUR 1.1bn.

Are you satisfied with your results in SEE? Is the crisis affecting the Triglav INT project?

Similarly to most other economic entities, the Triglav Group in the markets of SEE was, in 2011, faced with the overwhelming European debt crisis. Market confidence stagnated, debates persisted over developments in the banking sector, corporate financing conditions and the labour market situation got tougher and in addition, Slovenia experienced a deepening crisis in the construction industry. Despite all that, the Triglav Group performed well, its results were better than in 2010 which was also true of the parent company – Zavarovalnica Triglav. Net profit of the Triglav Group and Zavarovalnica Triglav were EUR 47.5m and EUR 43.8m respectively, 78% and 36% higher than in 2010. Return on equity of both the Triglav Group and Zavarovalnica Triglav dramatically improved and moved closer to 12% – the target value for 2015. The combined ratios were 90.1% at the Group level and 83.0% for the parent company. Good performance of both Zavarovalnica Triglav and the Triglav Group continued in 2012. The results achieved in the first half of 2012 are the result of hard work and strict adherence to strategic guidelines, centred on the core insurance business and business returns. The new business policy in non-life insurance resulted in higher profit. In the first half of 2012 22% growth in profit was recorded, which was EUR 41,6 million of net profit. Total gross written premium dropped by 5% due to a decrease in the demand for some insurance products caused by the lower economic activity, decline in exports and imports, new bankruptcies, reduced purchasing power of households, higher unemployment, reduction in bank lending, etc. The combined ratio of the Triglav Group – a measure of profitability in core non-life insurance operations – reached 88,0%. Despite a relatively conservative investment policy, the value of some investments decreased, which in turn resulted in a capital reduction of Zavarovalnica Triglav and its lower net profit, both in 2011 and 2012. Nevertheless, Triglav has maintained its strong financial stability.
Last year saw the beginning of discussions and negotiations for the entry of the strategic partner, the International Finance Corporation (IFC), into the Triglav Group through the company Triglav INT; a process which was formally finalised this year. Triglav is actually very important for the financial stability not only of Slovenia but increasingly also of the Western Balkans. The IFC, as a member of the World Bank, does not see Slovenia as its main investment target, but rather it seeks those partners who wish to transfer their experience to other, less-developed markets where they want to achieve growth. The IFC has identified Triglav as the partner with whom to develop the insurance sector in the region. Our sole opportunity for success lies in foreign markets. Triglav has market knowledge, Triglav is a symbol of quality, safety and stability and Triglav is a famous export brand of Slovenia.

What do you expect from the Slovenian Government in the next few months? What are the crucial steps in terms of finance?

In addition to health reform, a comprehensive pension reform is indispensable for ensuring stable economic conditions. It must be focused on establishing a long-term stable pension system with a gradually decreasing role of the social state. Voluntary insurance, which guarantees adequate social security to people in their old age, will gain importance. Buying such insurance will become a necessity not just a choice. Non-life insurance is highly developed in Slovenia – the country ranks above the average even when compared to Western Europe, whereas in life insurance it is lagging. This applies to both health and long-term life insurance.

Will you try to attract a potential strategic partner or do you think that you can be successful in the context of the current ownership structure?

Zavarovalnica Triglav has a strong capital base, as proven by its capital adequacy ratios. Despite a rating cut by Standard & Poor’s of the Triglav Group (which also applies to Zavarovalnica Triglav and Pozavarovalnica Triglav Re) by one notch down to “A-“, caused by a recent downgrade of the Republic of Slovenia, the credit rating of the Triglav Group has remained high and comparable to other reputable insurers in Europe, such as Austrian Uniqa, Swiss Life Holding, Spanish Mapfre, Dutch Delta Lloyd NV and Italian Assicurazioni Generali.
In the IFC, Zavarovalnica Triglav has found the strategic partner with whom it will realise the planned future investments of the Triglav Group in the development of the insurance sector outside Slovenia. The raising of additional capital in Triglav INT by a reputable and strong financial institution provides fresh development capital and a contribution to the risk-bearing capacity in the emerging markets of SEE, potentially (and slowly) developing in the long run. We are extremely proud of having the IFC as a shareholder in Triglav INT, our subsidiary which combines Triglav’s insurance companies in SEE. Partnership with such a renowned institution for Triglav is proof that it is on the right track. Cooperating with the IFC introduces a new dimension of stability and represents a commitment to our aim of developing into the insurance centre of SEE. We will certainly continue pursuing our strategic objectives at four levels, which Triglav has already started to successfully realise in 2011: the promotion of staff potential, the upgrading of processes and the organisational structure, further client relationship building and the raising of the financial level. In line with our strategy, we will keep achieving these key objectives also in the future, hand in hand with our strategic partner.