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20 August 2020

Revised strategic plan of the Sava Insurance Group for 2020–2022

Pursuant to the rules of the Ljubljana Stock Exchange d.d., Ljubljana, and the Market in Financial Instruments Act, Sava Re d.d., Dunajska 56, Ljubljana, makes the following announcement:

The Sava Insurance Group revised its strategic plan for 2020–2022 for two reasons: first because of the acquisition of the life insurance company NLB Vita, which was completed on 31 May 2020, and second because of the Covid-19 pandemic and the related impacts on Group companies’ operations. The strategy of the Sava Insurance Group for 2020–2022 has remained unchanged in terms of substance, but the financial plan for 2020–2022 has been changed to reflect the above impacts on the Group’s operations.

The Sava Insurance Group has three key development focuses for 2020–2022:

• Digital transformation and placing the customer at the centre: improving customer experience and tailoring our services to the wishes and needs of our customers;
• IT transformation: developing modern and flexible technology in order to gain a competitive advantage;
• Acquisitions-based growth: complementing our efficient organic growth in a strategic and prudent manner.

Key growth and profitability directions of the Group for 2020–2022

We expect the Group’s operating revenue to grow on average by 5% annually throughout the 2020–2022 strategy period. Thus, the total income of the Group will exceed EUR 720 million in 2022, meaning that the Group’s annual income will increase by more than EUR 130 million over the three-year period.

The acquisition of Vita assisted the Group in optimising its use of finance resources. Vita, with its high solvency and return on equity, will contribute to an increase in target return on equity of the Sava Insurance Group by one percentage point in the next three-year period. The rate of return on equity in the strategy period is thus expected to exceed an ambitious 12%. The acquisition also made use of funds from the subordinated debt issued successfully and cost-efficiently in 2019, with a positive impact on the Group’s profitability.

Growth of the Slovenian insurance business is expected to slow down in the medium term because of the expected drop in new vehicle sales, whereas after 2020 stronger premium growth rates are planned for the insurance business in the Adria region, reinsurance, pensions and asset management business. For non-life insurance business in 2020 we are planning annual growth of more than 2% for Slovenia and more than 4% for the Adriatic region. The acquisition of Vita led to a significant strengthening of the life operating segment, which is expected to generate over EUR 140 million in gross premiums written in 2022. Life insurance premiums in the Adriatic region are also planned to grow significantly, with gross premiums written to exceed EUR 11 million in 2022. Reinsurance business is planned to grow by more than 3%.

In this strategy period, organic growth will continue to be secondary to our primary goal of maintaining appropriate profitability as measured by combined ratios, which are envisaged to be under 95% for the insurance and reinsurance business.

The Group’s investment policy includes maintaining a high level of security and low volatility of invested insurance contract assets, as well as ensuring high liquidity and risk diversification. It also includes achieving a high degree of asset-liability matching, particularly as regards the life business. We expect that asset management will continue to be affected by low interest rates in the medium term, which is why we are planning to maintain a return above 1.4% in 2020 and above 1.5% in 2021 and 2022. Investments in bonds, deposits and cash equivalents will represent at least 80% of the investment portfolio, and the Group will seek to ensure that at least 75% of its investment portfolio is investment grade. Part of the investment portfolio will be directed towards real estate, infrastructure and sustainable investments in a prudent and diversified way. These investments are expected to reach an allocation of more than 5% of the investment portfolio at the end of the strategy period. At least 85% of the Group’s funds supporting technical provisions will be comply with UN PRI guidelines.

The Group will maintain its solvency in the 180–220% range in the strategy period, the optimal level of capitalisation based on the Group’s risk appetite. As part of its capital management policy, the Group will use part of its surplus funds for growth through acquisitions and partially for its organic expansion. Furthermore, Sava Re will ensure its shareholders stable growth in dividends, on average by 10% annually, thus distributing between 35% and 45% of the Sava Insurance Group’s profits.

We are building a customer-centric, modern, digital, community-minded and sustainable insurance group. Through commitment and constant progress, we ensure security and quality of life. We are aware that we have set ambitious goals for the 2020–2022 strategic period. We also believe we have the knowledge, experience and dedication required to successfully realise the activities planned.

Attachment:

Revised strategic plan for 2020–2022