Yesterday, Sava Re published a press release talking about its Strategy for 2023-2027, Business Plan for 2023, as well as the implementation of the IFRS 17 and IFRS 9.
According to the Company, it achieved all its key objectives in the 2020-2022 strategy period. Through organic growth and the acquisition of Vita, the Group increased its revenue by 23% to EUR 720m during the three years and achieved an average ROE of over 13%.
For the 2023-2027 period, the Group has adopted a new strategy focusing on three key priorities.
Firstly, the Group will take its customer-centric approach to the next level, ensuring that customers, their wishes, and their needs are central to the way business is done. To achieve this, they have set out three objectives. Firstly, the integration of all communication channels through a centralized customer relationship management system. Second, the establishment of a hybrid sales model, and third, the set up of self-care digital solutions.
The second priority is the optimization of business processes. This will include the speed up and simplification of customer service as well as internal processes. This will also help with cost efficiency, especially in the current macroeconomic environment. To achieve this, the Group will run a comprehensive review of its processes to identify opportunities for improvement.
The third priority is to pursue sustainability in all key areas, including the environment, society, and governance. They will continue supporting the global sustainability trends and focus on goals related to climate change and care for the health and well-being of its customers, employees, and the wider community.
Regarding growth and profitability, the Group has set the following strategic targets for the period 2023-2027:
The Group’s op. revenue (GWPs +other op. revenue) is planned to grow at an avg. annual rate of at least 4%, reaching more than EUR 900m in 2027. The primary goal of the Group will remain to maintain appropriate profitability as measured by the combined ratios, which are estimated to stay under 95% for the insurance and reinsurance business. Through this, the Group will focus on cost efficiency, which should come under pressure from the inflation as well as CAPEX needed to realize the key business goals. Target ROE is set between 9.5% and 10.5%, already taking into account the new accounting standard, IFRS 17, which will enter into force on 1 January 2023. The transition to the new accounting standard will not change the business model, long-term profitability, or cash flow generation capacity, although the outputs of financial reporting are expected to change. Management also expects a slight increase in equity.
The main objectives of the investment policy continue to be maintaining a safe structure and strong rating profile of the investment portfolio, ensuring the Group has sufficient assets to meet its liabilities under insurance contracts and making sure that financial market volatility has only a limited impact on the profit for the year. Given the current state of the financial markets, the rise in interest rates will positively impact investment income and consequently profit growth. Over the strategy period, the return on an investment portfolio is expected to rise to 2.2% in 2027.
At the same time, the Group plans to ensure a high level of financial stability, aiming at a solvency ratio of 170-210%, which is the optimal level of capitalization for the risk appetite set in the new strategy period. The dividend policy remains consistent with that of the current strategy period and, to support a policy of stable dividend growth, a dividend payout ratio of between 35% and 45% of the Group’s net profit is estimated.
The Group also briefly commented on the business plan for 2023.
Activities in 2023 will be aligned with key strategic priorities. In 2023, the Group plans to generate more than EUR 800m in op. revenue, representing a 4% growth compared to 2022, with growth planned across all markets where the Group is present. The target combined ratio is expected to remain below 95%, and the return on an investment portfolio is planned at more than 1.5%. The Group expects to achieve a net profit of at least EUR 53m, which translates into an ROE of at least 9.5%. This takes into account both the IFRS 17 and IFRS 9 accounting standards.
Expanding on these standards further, the Group’s financial targets are based on both of them, as they come into effect on 1 January 2023. They are not expected to have a material impact on reported profit as 60% of the Group’s current op. revenue is accounted for using the “simplified method”, which is very similar to the current approach. Under the current circumstances, the impact on the investment result is expected to be minor due to the high quality of the investment portfolio.