Yesterday, S&P Affirmed the “A” financial strength and issuer credit ratings with a stable medium-term outlook of the Triglav Group, its parent company Zavarovalnica Triglav and the Group member Pozavarovalnica Triglav Re. The day before, Zavarovalnica Triglav published it is engaged in activities to potentially issue a new subordinated bond to serve as additional capital (Tier 2).

According to S&P, the affirmation reflects their view that Triglav’s capital adequacy will remain very robust, as well as that the Group’s performance is set to significantly recover following the adverse impact of natural catastrophes and health care reform in 2023.

Diving into the main drivers, the Agency divided the logic behind its affirmation into several main ones. Firstly, Triglav’s capital adequacy at the end of 2023 exceeded the 99.99% confidence level, implying strong capitalization. Furthermore, its regulatory solvency ratio was solid at 200% without transitional adjustments. Despite the weaker earnings in 2023, Triglav still distributed moderate dividends in 2024 and is expected to continue to do so. The Group also practices conservative capital and financial management, including strong reserving practices, which helps with the transition to the new reporting standards (IFRS 17). At the same time, S&P notes that the shareholders’ equity increased by 19%, boosting the total adjusted capital. Under the new capital criteria, Triglav’s capital adequacy buffers were strengthened due to higher future profits in life insurance and better diversification credit. The Group’s cons. Capital remains of good quality, as its stems primarily from shareholders’ equity.

The Group’s capital adequacy should remain above the highest confidence level through 2026. Continued optimizations of underwriting and investment exposure, maintenance of a conservative asset allocation, and reduction of the exposure to market risks from equity and private equity portfolios are also expected. The Group is also optimizing the underwriting volatility in natural catastrophe-exposed lines. Its robust capital levels provide a substantial buffer, which allows it to pursue growth opportunities in insurance and AM as well as manage increased risk retention from natural catastrophes, economic uncertainty, and moderate capital market volatility. As such, Triglav is expected to maintain capitalization at least at the 99.95% confidence level in the next couple of years.

In terms of the op. performance, S&P noted that it improved significantly in Q1 2024, with a non-life combined ratio of 87.9%, strong new business margins in life insurance, as well as overall CSM growth. In Q1, the Group recorded a net income of EUR 36.6m, up 154% YoY, due to material price increases offsetting inflation and fewer large claims in the non-life primary and reinsurance business. With the normalization of large claims expected for the rest of 2024, the combined ratio should stabilize between 90-94%. Continued strong earnings from the life insurance and AM business are also expected. As such, the Group is well positioned to achieve a net income of EUR 80m-100m, with an ROE of 9-11% in 2024 and beyond.

Meanwhile, the discontinuation of Triglav’s supplementary health line at the end of 2023 is considered credit neutral, as the business was transferred to the state universal health insurance. This transfer and Triglav’s adjustments to its health operations are not expected to have a negative impact on 2024. Furthermore, the Group has also agreed with the state on the compensation for the state-induced price cap that caused health insurance losses in 2023, which resulted in a one-off payment of EUR 11m in 2024. As such, Triglav is expected to continue developing complementary health insurance offerings in its primary insurance markets.

S&P also noted that after severe natural disasters in 2023, Triglav secured robust reinsurance protection for 2042 despite the lower capacity and higher prices in the international reinsurance markets. Triglav also readjusted its reinsurance program slightly, leading to a more moderate increase in risk retention. However, S&P doesn’t expect this to cause significant capital or earnings volatility due to Triglav’s balance sheet buffers and ongoing adjustments to the price and scope of coverage in its catastrophe-exposed lines. Triglav is anticipated to continue protecting its balance sheet from significant volatility with effective and cost-competitive reinsurance protection.

Also, strong premiums and revenue growth in 2023 and Q1 2024 are expected to support Triglav’s further underwriting results. The Group achieved a 12% premium growth in 2024, and although the Q1 2024 growth was flat due to the discontinued supplementary health business in Slovenia. However, Triglav’s non-life business growth in Q1 almost offset the loss in this category. In terms of the ongoing business, revenue growth is widespread in both products and regions. Much of the growth comes from increased prices due to incorporating the most recent loss cost trends. The Group also continues to add risk in its domestic and international primary, as well as reinsurance businesses. Still, with inflation falling, combined with the strong price increases in the Group’s Slovenian motor business, S&P expects growth will by mainly supported by property insurance in Slovenia and abroad. With continued expansion, S&P expects premium growth will remain strong in 2025-2026, at 5-8%.

Lastly, S&P commented on what could lead to a raise or a decline in the rating in the next 2 years.

A raise in this period could come if: firstly, Triglav further diversifies its operations, materially improves its performance and the scale of its core foreign operations, and retains sound overall profitability and capital adequacy. Secondly, if Triglav’s absolute capital continues to increase while the relative exposure to investment and underwriting risks remains limited, supporting the sustainability of Triglav’s financial risk profile. Thirdly, if sustainable economic growth increases Slovenia’s GDP per capita further towards the eurozone average, strengthening the Group’s prospects for profitable domestic growth and solidifying its risk profile.

On the other hand, S&P could lower the ratings if Triglav incurs very large losses, for example, due to severe combined global and domestic market stress while external conditions derail sound economic developments in Slovenia.

Further, Triglav recently notified of the possible issuance of a subordinated bond (Tier 2). The potential amount was not specifically stated. However, as stated by the company, the issuance will “provide an appropriate basis for growth and development”, alongside regular capital management activities, thus ensuring optimal structure of capital. This could mean that potentially Triglav might soon grow on the back of M&A activities. To emphasize, Triglav Group has already issued EUR 50m of one subordinated bond prior to this.