20 November 2020
Nine-month 2020 results: Sava Insurance Group generates EUR 489.5 million in operating revenue and EUR 47.6 million in net profit
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, 1000 Ljubljana, makes the following announcement:
At its regular meeting yesterday, the Sava Re supervisory board was presented with the unaudited financial results of the Sava Insurance Group and Sava Re for the nine months to 30 September 2020.
In the period January–September 2020, the Sava Insurance Group grew operating revenue by 16.4% and net profit by 26.4% year on year. After the reporting date, an increased risk was observed relating to potential additional negative effects of the Covid-19 pandemic on the operations of the Group, resulting in the cancellation of the general meeting called to decide on the appropriation of profit.
Growth in operating revenue
In the first nine months of the year, the Group’s operating revenue grew by 16.4% year on year. This growth was mainly driven by the inclusion of the life insurer Vita in the Group, expansion of freedom of services business written by Zavarovalnica Sava in EU member states, and greater volumes of Slovenian non-life business and international reinsurance business. Operating revenue generated by the Sava Insurance Group reached 76.5% of the full-year target set in the revised 2020 plan.
The net expense ratio improved by 1.6 p.p. year on year, also as the result of the integration of Vita into the Group, which operates at an even more favourable expense ratio compared to other Group members. Improved expense ratios were also achieved in the reinsurance and Slovenian non-life segments, mainly because income grew faster than expenses due to both the fixed nature of certain expenses and certain cost optimisation measures adopted to mitigate the negative impacts of Covid-19 on Group operations.
Benign incurred loss ratio for non-life insurance business
Profitability was also supported by a more favourable claims experience thanks to a lower loss rate in motor business and the absence of catastrophic loss events.
Positive effect of Vita acquisition on Group profitability
In the period January–September 2020, the Group generated a net profit of EUR 47.6 million, an increase of 26.4% year on year. EUR 9.9 million of this increase came from the acquisition of Vita, consolidated in the Group accounts as from 31 May 2020. The trading profit of Vita since its inclusion in the Group was EUR 2.9 million and in addition EUR 7.0 million was one-off income from the excess of the fair value of the net assets acquired over the purchase price. Without the effect of Vita, the Group’s net profit would broadly be at the same level year on year. The nine-month net profit reached 95.2% of the full-year target set in the 2020 revised plan.
Portfolio structure resilient to financial market volatility
The return on the investment portfolio in the first nine months of the year was 1.7%, which is 0.3 p.p. above the plan. The portfolio of predominantly highly rated government and corporate bonds has been fairly resilient to financial market volatility. The key goal of the Group’s investment policy is to maintain low volatility and a high level of security of assets intended for covering obligations arising from insurance contracts, as well as to ensure high liquidity and risk diversification.
“A” credit ratings affirmed
Following their regular annual rating reviews, the rating agencies Standard & Poor’s and AM Best affirmed the “A” (excellent) insurer financial strength ratings of Sava Re. The outlook in both instances is stable.
Increased Covid-19–related risks
After the reporting date, Sava Re was informed of new circumstances that had arisen in certain EU insurance markets and in the United Kingdom related to potential additional adverse effects of the Covid-19 pandemic on the operations of Zavarovalnica Sava and Sava Re. These new circumstances primarily pertain to Covid-19–related claims on policies written in the market of the Republic of Ireland (under freedom of services rules) and reinsurance contracts written in the United Kingdom for business interruption coverage as part of property policies, which under new court and regulatory practices may potentially have an adverse effect on the Group’s business results and solvency position. Based on current detailed analyses of its insurance exposure, the Group has concluded that Covid-related business interruption claims are not covered under its policies written directly under freedom of services rules in the European Union. Regarding its exposure under reinsurance contracts, there may be coverage in some cases. In line with preliminary estimates, in the last quarter of 2020, the Group will most likely set a provision of up to EUR 10 million for potential legal expenses and reinsurance claims in this regard.
Even with this provision for Covid claims, management expects – in the absence of any major loss events – the Group to achieve its full-year 2020 plan.
The document “Unaudited financial report of the Sava Insurance Group and financial statements of Sava Re d.d. for the nine months to 2020” and a presentation of results for January–September 2020 are attached hereto.
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