by Georgi Georgiev
What market conditions did Triglav Group face in 2011 in the countries part of its footprint in Southeast Europe?
Similarly to most other business entities, in its operations in SEE in 2011 Triglav Group was faced with the overwhelming effects from the 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 on top of that the crisis in Slovenia’s construction industry deteriorated further. Pressure on GDP in the region mounted, which was also reflected in lower purchasing power and muted consumption.
What were some of the key market trends that shaped the group’s business performance last year and how did they differ from market to market?
In SEE, unemployment rates remain high, household income is low and purchasing power is on the decrease. It is obvious that household, corporate and general government debt should go down and that the strong market players are seeking to increase their footprint.
The slight decline in Triglav’s gross written premiums at group level continued in 2011 and you have forecast it will extend into 2012 as well. When do you anticipate a turnaround and what factors could help you achieve it?
Macroeconomic trends and further development of the financial and economic crisis will play an important role. With its new 2011-2015 Business Strategy, Triglav Group has under taken to boost returns, i.e. maximise return on capital and return on invested assets from the shareholders’ perspective, which replaced the previous objective of pursuing a higher and higher market share. As a result, last year Triglav for the first time posted a profit from its core business – insurance. Gross written premiums will again become the focus of our attention only once such a shift becomes reasonable and as soon as raising insurance premiums becomes the right way to bolster business returns. By the end of the current strategy period, return on equity is planned to reach 12% with the combined ratio staying below 95%. Under the strategy, all Triglav subsidiaries should be operating at a profit with a total written premium of 1.1 billion euro. This can be achieved not only through consolidation on the existing markets but also with organic growth and new acquisitions. Triglav’s potential new acquisitions will be mainly focused on attractive targets in the Adria region.
Triglav subsidiaries outside Slovenia contributed 18.3% of the group’s total gross written premiums last year, which represents a slight improvement on 2010. Do you plan to actively pursue an increase in that share over the medium term and at what pace?
On the foreign markets we have not yet achieved our business volume goals and target economies of scale which would be the basis for boosting our return rates going forward. Since these SEE economies are still under pressure and experiencing a crisis that is unlikely to end soon, no concrete premium growth can be expected over the short or medium term. Still, the region has enormous potential due to the very low premiums level at the moment and the sheer size of its population. Once the financial and economic conditions stabilise, regional GDP would grow again and so will the income of both businesses and households. According to our estimates, a tangible premium growth should be expected after 2015, but before that premium volumes will remain more or less unchanged.
In 2011, which SEE markets posed the biggest challenge for the profitability of your units there? How do you plan to deal with these challenges going forward as you work to make all of your subsidiaries profitable by 2015?
Non-life insurance products have been available on the markets of the Triglav Group for quite some time, as they were already commonplace across former Yugoslavia. On the other hand, life insurance represents a big challenge. Its development depends on the course and pace of development of each individual country. By all means, health and pension reforms in SEE countries are urgently needed and practically unavoidable. Triglav, as the leading insurance group in the markets of South East Europe, sees life, health and pension insurance as a great opportunity, where it expects to achieve the strongest business and premium growth rates. Expansion is anticipated mainly in health insurance, especially after the strategic partner IFC became a shareholder of Triglav INT − a subsidiary combining all Triglav’s insurance companies outside Slovenia.
Triglav is the market leader in Macedonia and enjoys relatively small exposure in Croatia and Serbia which have the highest potential going forward in terms of insurance density and insurance penetration. This means that in these two most promising markets of the Adriatic region, where our 3.0%-4.0% market shares are insufficient for the return rates we are targeting, we will have to consider how to consolidate our market position, since the return targets cannot be achieved without higher written premiums.
Could you provide a market-by-market update on your plans to introduce your life, health and pension insurance products to new markets?
We already sell life insurance in Croatia and over the coming years serious expansion is planned also in the health insurance segment, perhaps by combining the health insurance
markets of Slovenia and Croatia. In Bosnia and Herzegovina, Triglav offers life insurance
in the Muslim-Croat Federation entity while the group’s unit in the other autonomous entity, the Serb Republic, has no plans to tackle the life insurance segment in the near future. In Montenegro, Triglav started a life insurance operation in 2011 but that market is relatively small. Due to its size, Serbia represents one of the greatest opportunities for the Triglav Group and we already sell life insurance products there. However, health and pension reforms in Serbia have been hit by delays. In Macedonia we offer non-life insurance products and are seriously considering entering the life insurance market as well, especially in view of the government’s health reform plans.
What is your view of how the insurance industry in the SEE region fared in 2011 and what were some of the main factors that set the tone for its performance?
Since the beginning of the recession, the insurance sector has fared better than most other industries because some insurance products are absolutely necessary − such as car or home insurance. In spite of that, the crisis has pushed down primarily the number of insurance policies combined with a savings component, such as unit-linked life and pension insurance. This is logical to a certain extent, since the crisis has resulted in weaker purchasing power and a decline in real income.
Could you elaborate on the goals that you will be pursuing within the framework of your strategic partnership with the International Finance Corporation (IFC)?
We are extremely proud of having the IFC as a shareholder in Triglav INT, our subsidiary combining Triglav’s insurance companies in SEE. The cooperation with the IFC introduces a new dimension of stability and represents a commitment to our goal of developing into an insurance hub for the SEE region. A partnership with such an institution entails different working methods, commitment to greater transparency, compliance with new rules and deadlines, stricter risk management and better environmental performance.