Sava Re has announced that S&P Global has affirmed ‘A’ ratings on Sava Re and Zavarovalnica Sava with a stable outlook. In this overview, we’re bringing you the overview.
Several days ago, Sava Re announced that S&P Global Ratings affirmed its ‘A’ long-term issuer credit and financial strength ratings on Sava Re, as well as the ‘A’ financial strength rating on the Group’s core entity, Zavarovalnica Sava. The outlook remains stable.
This came due to several reasons. Firstly, according to S&P, Sava is well-positioned to continue to leverage the favorable market environment for its insurance and reinsurance business. The Group showed exceptionally strong premium growth of 14.4% in 2023 and 18.3% in Q1 2024. The growth was widespread in terms of products and geographics and was mainly due to price increases from inflation, as well as some new risk additions in the insurance and reinsurance business. Furthermore, due to the natural disasters in Slovenia and the wider Adria region in 2023, the Group is increasing the prices in the property and commercial lines. This has boosted Q1 results and is expected to continue boosting results in the next several quarters. In the longer term, as inflation subsides and given these price increases already taking place, a more normalized premium growth is expected, at 4-8% in the 2024-2026 period.
Secondly, S&P had a really strong start in 2024 with a non-life combined ratio of 83.8%, solid CSM growth, and a Group net income of EUR 29.8m in Q1. S&P believes these results reflected the benign level of large claims in the non-life primary and reinsurance business. They also believe that the combined ratio should return to 92-95% for the rest of 2024, as normalization of larger claims takes place. Furthermore, continued growth is expected in the life insurance and asset management business. As such, they expect a net income of EUR 60-75m in 2024, with an ROE of 10-13% in the coming period.
Thirdly, S&P thinks that Sava’s capital is a rating strength and will remain so through 2026. The Group’s risk-based capital adequacy continues to display sizable capital buffers in an extreme stress scenario under the 99.99% confidence level. This view is further supported by Sava’s solvency ratio of 191% at the end of 2023. The Group displays conservative capital and financial management including strong reserving practices. This contributed to a smooth transition to IFRS17, under which shareholders’ equity has gone up by app. 27% and total adjusted capital has increased. Sava’s solidly profitable and stable insurance business is also resulting in material CSM, which S&P fully recognizes as part of the capital position in their model.
Fourthly, S&P expects the Group will maintain a very strong capital and earnings in 2024 and beyond. The strong earnings will allow the group to finance continued growth and keep distributing moderate dividend payments. Combined with the sizable capital buffers for any macroeconomic uncertainties and capital market volatility, S&P expects Sava will maintain at least 99.95% capitalization in the next two to three years.
Lastly, Sava’s risk profile has remained stable and supports its very strong financial profile. In S&P’s view, the Group pursues a conservative investment strategy. They believe that Sava will continue to benefit from a gradual increase in investment income due to higher reinvestment rates.
In terms of the outlook, the stable view on the Sava’s core op. entities reflect S&P’s expectation that the Group’s management will continue to implement its strategy of solid op. performance and profitable growth, while further diversifying premiums and solidifying its income streams. Furthermore, they also expect that Sava will sustain a strong balance sheet with at least very strong capitalization and strong and stable earnings over the next two years, enabling it to continue developing its domestic and foreign operations.
Finally, in terms of the downside or upside scenario, a downside scenario could occur if Sava’s competitive position in the next two years is weakened due to significantly eroded volumes or a prolonged loss or profitability, triggered for example by external conditions that could also derail macroeconomic development in Slovenia. On the other hand, an upside scenario could occur in the next two years, if the Group further improves its competitive position, for example, sustainable economic growth propels Slovenia’s GDP per capita closer to the eurozone average and strengthens its prospects for profitable domestic growth. Also, if Sava’s absolute capital levels continue to increase while relative exposure to investment and underwriting risks remains limited, supporting the sustainability of Sava’s financial risk profile at above 99.99% confidence level, the upside upgrade could also occur.
