The key strengths of Sava Insurance Group are the following: an established position in the Slovenian market, solid capitalization, and underwriting combined with conservative reinsurance protection and sensible investment strategy, all of which support operating performance. The outlook is also stable.
According to S&P, Sava Insurance Group (Sava) managed to solidify its domestic market position in the Slovenian insurance market, with the consolidation of NLB Vita. They believe that a robust balance sheet, strong domestic position with improved scale and diversification, and good risk controls will safeguard stable business development, both domestically and internationally. The acquisitions and operational adjustments Sava made in the past two years, as well as good underwriting controls, will help the Company maintain good top and bottom line performance during motor lines claim frequency normalization, as well as through the impact of higher inflation on claims and costs. S&P also believes the Company will use its solid credentials to get profitable growth opportunities in domestic and international insurance and reinsurance markets. They also expect the growth of the premiums to remain solid in 2022, at app. 5-7%, and then gradually decrease towards a long-term growth of 3-5% over 2023 and 2024.
Furthermore, S&P notes that capitalization remains one of Sava’s key strengths, with the Company maintaining buffers above the “AAA” level in the capital model. The robust capitalization as well as the strong and stable earnings allow Sava to maintain sound capital levels. Because of the conservative asset structure, as well as a favorable capital structure mainly composed of shareholder equity, S&P does not consider the recent capital market volatility had a significant impact on Sava’s capital position. They also believe that the Company could use some of these capital buffers to overcome moderate deterioration in economic and capital market conditions, as well as faster business expansion, given the opportunity.
Moving on, Sava’s FY 2021 and H1 2022 performance remained resilient and compares well with its European, Middle Eastern, and Africa (EMEA) peer group. The 2021 net profit was further strengthened through the consolidation of NLB Vita and through ongoing operating profitability, while also observing some frequency benefits from lockdowns in 2021. In 2021, the Company maintained a strong ROE of 15.8%. S&P expects that the frequency benefit will disappear in 2022, leading to normalization in performance. Even so, they expect Sava’s performance to remain solid due to the robust performance of Slovenian primary insurance operations. With an H1 2022 combined ratio of 92.3% and a net income of EUR 28.9m, Sava is well positioned to reach its 2022 performance targets of above EUR 60m. For 2023-2024, S&P expects resilient performance, backed by good underwriting results, with a combined ratio at or below 94%, and a net income between EUR 53m and EUR 65m.
S&P also commented on the outlook for Sava, and is currently stable. This is due to S&P’s expectation that Sava’s management will continue to implement its strategy of solid operating performance and profitable growth, while further diversifying premiums and solidifying its income streams. Despite the expectation of a deterioration in the macroeconomic conditions, they expect Sava to sustain a strong balance sheet with very strong capitalization and strong and stable earnings over the next two years, allowing the Company to continue developing its domestic and foreign operations.
They also commented on the potential downside and upside scenarios for this outlook.
In terms of the downside scenario, S&P could lower the rating in the next two years if Sava’s competitive positions were to weaken because of significantly eroded volumes or prolonged negative profitability trends, caused by, for example, external conditions that could derail the macroeconomic development in Slovenia.
In terms of the upside scenario, they said that they are unlikely to issue an upgrade in the next two years. An upgrade would be contingent on Sava further improving its competitive position, which could happen, for example, if sustainable economic growth pushes Slovenia’s income in GDP per capita terms towards the eurozone average and strengthens prospects for profitable domestic growth, something they do not estimate will happen in the next 12 to 24 months.
