New circumstances primarily relate to Covid-19–related claims on policies written in the Irish market and reinsurance contracts written in the United Kingdom for business interruption coverage, which may potentially have an adverse effect on the Group’s business results and solvency position.
Sava RE published an announcement on the Ljubljana Stock Exchange stating that the Company’s Management and Supervisory boards, with all due care, believe that at the moment it is in the best interest of Sava Re, the Group and its policyholders that the general meeting be cancelled and dividend payments in respect of 2019 be temporarily suspended.
As a reminder, in mid-October of this year, Sava RE proposed EUR 16.27m (of distributable profit of EUR 34.7m) to be paid out as dividends, which translates into a dividend per share of EUR 1.05.
The reason behind such a decision was explained by the following. After the general meeting had been called, some days ago Sava Re was informed of and faced with new circumstances that had arisen in certain EU insurance markets and in the United Kingdom that are in contrast to previously obtained legal advice.
These primarily include legal and regulatory practices and other material facts related to potential additional adverse effects of the Covid-19 pandemic on the operations of the insurer Zavarovalnica Sava and the reinsurer Sava Re. These new circumstances primarily relate to Covid-19–related claims on policies written in the Irish market (under the 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.
As a reminder, the implementation of the dividend policy is subordinated to achieving the medium-term sustainable target capital adequacy of the Group. Sava Insurance Group noted early into the pandemic that even in the most stressful scenario, capital adequacy would not drop by more than 10. p.p. compared to their plan of 203%. As a reminder, the Group’s solvency is targeted to be maintained in the 180% to 220% range in the strategy period (2020 – 2022), which represents the optimal level of capitalization based on the Group’s risk appetite.
In this regard, Sava Re has also been called upon by the Slovenian Insurance Supervision Agency to reconsider its position relating to the assessment of risks in the above-mentioned markets, as well as any impacts on its solvency position. In line with the Group’s risk management policy, the Company immediately started assessing the likelihood and severity of such risks occurring and add that this will take some time.
The companies Zavarovalnica Sava and Sava Re have started compiling additional information to assess their exposure to these new risks and the likelihood of these risks being realised and to calculate any potential impact on the separate and consolidated results and the solvency position of the companies and the Group. The Company will assess the size and likelihood of potential claims in the 2020 annual report and the following quarterly financial reports.
The company further added that 9M 2020 results, which will be published on 19 November 2020, are favourable and consistent with published plans. Any potential effects that may arise from the new risks have neither materialised yet nor impacted the results of the 9M of 2020, but they could affect future results.
Such news took investors by surprise, which led to the share price dropping by 4.65% on Friday, ending the day at EUR 16.4 per share. At the current share price the company is traded at a P/B of 0.61.
