IC Market Espresso 23 Jun 2020

Slovenian Insurers – Where Are We Now?

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.

Triglav Group GWPs (Q1 2020) (%)

Sava Insurance Group GWPs (Q1 2020) (%)

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 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.

Triglav Group Financial Assets Breakdown (Q1 2020)

Sava Insurance Group Financial Assets Breakdown (Q1 2020)

Dalekovod Concludes Deals in Slovenia Worth HRK 450m

To put things into a perspective, the concluded deals account for 34.2% of the company’s consolidated T12 revenues, while they amount to 3.7x it’s market cap.

Dalekovod published an announcement on the Zagreb Stock Exchange stating that the company has signed contracts for two interconnected projects with Eles, a Slovenian national operator of the electricity transmission system.

The larger project, Cirkovce – Pince, includes the construction of a total of 80 kilometers long, new double 400 kV transmission line and will be completed in 2022, while works on the reconstruction and construction of 220 kV transmission line Cirkovce – Žerjavinec are scheduled for the second part of 2020.

Upon completion, sections will connect Hungarian and Slovenian transmission networks at a voltage level of 400 kV and thus increase the capacity of both transmission systems and provide preconditions for future energy projects.

New contracts continue the presence of the Dalekovod Group on the Slovenian market, where preparatory works are already underway for the reconstruction of the double 400 kV transmission line Beričevo – Okroglo with a total length of 32.5 kilometers

The total value of works on all three projects, which should be realized by 2022, is almost HRK  450m. To put things into a perspective, the concluded deals account for 34.2% of the company’s consolidated T12 revenues. We find such news very accommodative for the share price, as the deals amount to 3.7X it’s market cap. This proved to be true, given that after the announcement, the stock closed at HRK 4.9 per share, marking a +7.69% daily increase (with most of it coming after the mentioned announcement).

Adris Launches New Share Buyback Program Worth up to HRK 900m
The mentioned program will include a buyback of maximum 1.64m shares or up to HRK 900m and should end by 18 June 2021.  

Adris published a document stating that they are launching a new share buyback program starting on 19 June. The mentioned program will include a buyback of maximum 1.64m shares or up to HRK 900m, while the company is entitled to acquire up to 10% of their share capital.  

The share price at which Adris will be concluding the buyback should not exceed or be lower than 10% of the average market price of the previous day. The buyback program should end by 18 June 2021.  

We are proud to state that, once again, Adris’ share buyback program will be conducted by InterCapital Securities.

Note that Adris currently owns 105.466 of regular shares, representing 1.09% of shares and 521,184 of preferred shares, representing 7.68% of shares. Combined the company owns 626,630 of treasury shares, which represents 3.82% of their share capital.

It is worth noting that this is a continuation of the buyback program following up a program which started on 16 June 2019 and ended on 19 June 2020.

As a reminder, in February 2019, the company concluded a share buyback program in form of book building worth HRK 58m, which you can read more about here. The mentioned share buyback tender lasted from 15 till 25 February 2019.

Luka Koper Receives EUR 1.07 DPS Counterproposal

Luka Koper has received a dividend counterproposal in the amount of EUR 1.07 DPS, which translates to a dividend yield of 5.8%.

Luka Koper released a statement yesterday in which they announced that they have received a dividend counterproposal in the amount of EUR 1.07 per share.

At the current share price, the newly propose dividend translates to a dividend yield of 5.8%, while the proposed ex-dividend date remains September 23rd, 2020. The dividend should be paid out on 25 September 2020.

To read more about the initial proposal and Luka Koper’s historical dividend payments click here.

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