Just like most sectors, insurers were not spared of a negative impact of the Covid-19 pandemic. What can we expect in 2020 regarding GWPs for Triglav & Sava Re, find out in this brief article.

In the early stages of the Covid-19 outbreak we published a blog on Slovenian financials (Triglav, Sava Re and NLB) and tried to estimate the early impact of the pandemic on the fundamentals. Since then, much has changed from the country going to a lockdown to a relaxation of measures, while in mid May Slovenia became the first country in Europe to declare the end of the pandemic. Besides that, Slovenian insurers have revised their 2020 outlooks, which can be found here for Triglav and here for Sava Insurance Group. Furthermore, the companies have decided to to abide by the recommendation of the Insurance Supervisory Agency for Slovenian Insures and suspend dividend payments until October 2020.

Insurance in Slovenia

In the first 4 months of 2020, the Slovenian insurance market observed an increase in both life and non-life segment, leading to a total GWP growth of 4.66% YoY, amounting to EUR 935.13m. Non-life segment, which accounts for 72.1% of the total GWPs, recorded also an increase of 5.3%. Such an increase came on the back of a very strong health insurance performance, which recorded an increase of 12.6% YoY and is the largest non-life item in Slovenia (23.7% of total GWPs).

When observing solely April, GWPs recorded a slight decrease of 0.9% YoY, indicating that insurers were only slightly grazed by the lock down which occurred throughout the whole month.  We do not see the positive trend going further in the year and expect to see decreases in both Life and Non-life segment at the end of the year.

GWPs by Segment

Given that both Triglav’s and Sava Re’s GWP structure is mostly composed of the Non-life segment (more than two thirds of GWP for both insurers), we see this segment as the biggest driver of the decrease on the yearly basis. To be specific, the decrease is likely to come on the back of the motor business, primarily related to the decline in sales of new vehicles, deregistration of existing vehicles, especially goods vehicles and purchase of narrower covers.

Besides that, the Covid-19 outbreak will have an impact on credit insurance premiums. In 2020 we expect to see a significant decrease in consumer lending in Slovenia, and other SEE markets in which Triglav and Sava Re operate, which will therefore have a negative impact on credit insurance. We also expect to see a lower demand for general liability insurance and significantly lower demand for travel insurance. However, it is important to add that these segments play an insignificant role in both Triglav’s and Sava Re’s GWPs.

On the Life segment, we expect to see a decrease on a YoY basis, as a result of the maturing of policies which were underwritten coupled with lower savings through life insurance. Besides that, restricted contact with customers will add an additional burden to the creation of new insurance. Such development could already be observed in the Slovenian market (as a whole), which witnessed a strong decrease of 7.1% in life insurance in April.

The mentioned decreases could be partially offset for Triglav by the solid performance on the Health insurance segment, which accounts for roughly 15% of the company’s GWPs. This could already be observed in the Slovenian market where health segment showed strong performance in the first 4 months (+12.6% YoY). Note that such an increase mostly came on the back of higher pricing of health insurance premiums. However, it might be also plausible to expect that the outbreak of Covid-19 will lead to a shift in people’s behavior regarding how they perceive their health, which could lead to an increase in health insurance premiums.

For Sava Re, the decrease could be partially offset by a solid performance of the Group’s Reinsurance segment, which accounts for roughly 15% of the consolidated GWPs. The positive sentiment regarding increasing prices during the renewals season could be observed in Q1, where the company recorded a strong growth of 22.6%, as a result of organic growth and new contracts, especially in Asian markets. The reinsurance segment has globally benefited by a growing momentum of price rises following two consecutive years of significant catastrophe losses. Therefore, in this year it is reasonable to expect a solid performance of the reinsurance segment for Sava Re, regardless of the current market situation.

Return on portfolio

The outbreak of Covid-19 and its implications have already distressed the global financial markets, causing a negative effect on the net investment income of insurers. There is no doubt that this item will be the most affected of all. It is important to note that change in price of most instruments is recorded in equity and not through P&L. Therefore, in the P&L the company recognizes coupons from bonds, dividends from their equity (not held for trading) in their portfolio and all realized gains/losses from any sale made that year. As a result, we expect to see Triglav’s and Sava Re’s equity partially affected by the current situation. The structure of investment portfolio of both Triglav and Sava Re is a conservative one, as fixed income financial investments account for the vast majority of the total portfolio. Given that Triglav’s exposure to equities is somewhat higher (roughly 8%) than Sava Re’s exposure (less than 2%), it is reasonable to expect that the company will have a relatively larger impact on its equity.