Great opportunities will emerge during the gradual recovery from the crisisAdriatic Journal 16 February 2021
The key risks for insurance companies because of the reduction of entrepreneurial activity will be related to the business conditions in which companies emerge from the crisis. The recovery will be uneven across sectors and countries, and the economies will on average only reach the level of activity before the epidemic in the middle of 2022, estimates David Benedek, a member of the management board of Zavarovalnica Triglav, the largest Slovenian insurance company. Benedek also emphasizes the growth potential opportunities in the Adriatic region in the forthcoming time, especially in the two largest insurance markets, Croatia and Serbia.
Authors: Jan Tomše
Photos: Ciril Jazbec
How would you in the Triglav Group assess your operations in the Adriatic region last year?
The spread of the coronavirus with the onset of the pandemic has caused a decline in the macroeconomic indicators resulting in the extreme volatility of global financial markets. In these demanding conditions, we operated profitably, safely and under the strategic guidelines, and even more directly implemented our mission to create a safer future. We dynamically adapted our operations in individual markets with measures that protect the health of employees, customers and other stakeholders, while continuously providing services and remaining sustainably oriented and closely connected to the environment in which we operate.
As far as annual results are concerned, we estimate that the planned annual profit before tax of the Triglav Group for 2020 (between EUR 95 and 105 million) will be reduced by between 10 and 25 per cent. As originally planned, the Group expects to record around EUR 1.2 billion in consolidated gross written premiums from insurance operations, with a combined ratio of below 95%. Based on current analysis, we estimate that our insurance and investment portfolio is sufficiently resilient and that the capital position is adequate to be able to deal with increased risks. This is also confirmed by high credit ratings (“A”) received in 2020 with a stable medium-term outlook from two reputable credit rating agencies. We expect that some claims that were not reported due to lower economic activity or other restrictions on the movement of policyholders during last year will be paid in the financial year 2021. For this purpose, we have formed appropriate technical provisions, ensuring the long-term security of policyholders.
What were the biggest business challenges from the business environment perspective and approach to business – given the specific circumstances related to the corona crisis?
We primarily took care of the health of our employees, customers and other stakeholders and ensured that our services were continuously available. The epidemic did not catch us unprepared. For many years the Triglav Group has been digitalizing our processes in order to offer our services remotely. The state of emergency even stimulated and brought additional impetus to some planned strategic development activities. We believe that we have taken an additional step towards the digital transformation of the Group.
Specifically, last year we upgraded our key processes at Zavarovalnica Triglav with solutions that enable signing of documents remotely, , online claims reporting and greater use of i.triglav digital platform. An important additional step was the introduction of video identification of customers, which is required by law for life insurance policies. We are proud that our customers welcomed our solutions, which was also reflected in the measured increase of customer satisfaction and the increase in the share of promoters during the (worst) crisis.
Due to extraordinary circumstances, the insurance industry significantly sped up some processes last year. How did you strengthen and upgrade the digitalisation of internal processes and processes related to customer relations (B2B, B2C) in the Triglav Group?
We recognise digitalisation as an important component of our business – both in terms of better understanding of customer needs and accessibility of services, as well as strengthening the efficiency of our business. We want to offer comprehensive and, above all, simple solutions. The extraordinary situation encouraged the use of digital and other solutions that we have established in recent years, mainly through introducing an omni-channel sales approach to customers and implementing solutions for remote and paperless operations. We will continue to make improvements in this area in the future, as we are convinced that digitalization and the development of modern technological solutions help us improve customer relationships and simplify our services.
What is the strategic view of the Triglav Group in 2021 for its operations and positioning in the Adriatic region?
For 2021, we estimate that the macroeconomic environment for our operations will improve compared to the previous year and that there could be a gradual economic recovery, with GDP not returning to the level before 2020. The extent of the epidemiological situation at the global level remains unknown and is a factor of high uncertainty. There is risk that the period of severely paralysed economic activity will last longer and that the decline in GDP will be greater and more lasting. In 2021, the Triglav Group remains focused on fulfilling our strategy, which commits us to dynamically pursue new business opportunities, which is the foundation of our responsible long-term development, and operating profitably and safely. Based on the selected probable scenario of business conditions, we plan an annual profit before tax of between EUR 85 and 95 million, an increased premium volume of between EUR 1.2 and 1.3 billion and keeping the combined ratio below 95 per cent.
What will be the biggest challenges for you as a powerful player in the insurance industry, and where do you see the biggest opportunities in the region?
We operate in a dynamic activity defined partially by the wider environment. For example, population ageing, financial market conditions, economic and political conditions, technological development, cyber risks or information security risks, climate change and, last but not least, the pandemic will all have an important impact going forward for the economy in general. In addition insurance industry is also facing intensified competition, , changes in legislation and digitalisation. The third dimension is influenced by customers’ demand, their needs and expectations. We also consider such trends when designing strategies and plans. This allows us to respond appropriately even in extraordinary circumstances, where we focus on implementing strategic guidelines. I would like to stress that insurance is a highly regulated activity with strict rules and supervision aimed at protecting policyholders and other stakeholders.
We believe the insurance markets in the region, from Croatia to North Macedonia, are among the areas with growth potential, especially the two largest markets, Croatia and Serbia. We intend to continue to strengthen and consolidate the Group’s position outside Slovenia, and our actions toward growth and development will be prudent and aimed at increasing the Group’s value. In the long run, we see an opportunity for growth in health, life and pension insurance. In the region, we expect long-term growth of insurance markets and a consequent increase in the share of total premiums generated by the Group in markets outside Slovenia.
How did the partial or, in some cases, complete cessation of production or operations affect the insurance market and the economy in Slovenia and the region?
The world economy, affected by the COVID-19 pandemic, recovered slowly in the third quarter, after a historically high decline in the first half of the year. Economic activity has remained below the level since the beginning of the year, with some activities, such as transport and tourism, suffering severe consequences. While financial market conditions continued to stabilise and even improve towards the end of 2020, the resurgence of the new coronavirus marked the beginning of 2021 in Europe.
In its December publication, the Institute of Macroeconomic Analysis and Development of Slovenia announced a decline in real GDP of 6.6% in 2020, which is a slightly milder recession than in the Euro area, and we expect consumer prices to stagnate with zero inflation. Slovenian industrial production has recovered markedly over the second half of the year 2020, but the more modest recovery in the services sector has significantly contributed to the slower activity and international trade. At the same time, government aid packages halted significant reduction in household consumption and mitigated the decline in employment. The survey unemployment rate rose moderately to 5.1%, but this is a significantly lower level than during the previous financial crisis. The budget deficit and gross government debt increased strongly.
What is your view on the risks associated with the cessation of production or operations in 2021?
The COVID-19 pandemic has curtailed the operations of companies in the tourism, hospitality, transport and culture sectors…, which were partly addressed by central bank measures and state aid. To what extent the measures were appropriate and effective, remains to be seen in 2021 when the epidemiological picture will recover and restrictions for business operators will be removed. The key risks are connected with the financial conditions of companies, which is directly related to the unemployment rate.
For 2021, the outlook for the global and European economy is moderately favourable and uncertain. Most official institutions envisage a solution to the health crisis and the phasing out of containment measures. These, together with sustainable development programs, will boost growth. We can expect the recovery to be uneven across sectors and countries, and the level of pre-epidemic activity will not be reached before until mid-2022. The institutions estimate that the euro area and Slovenia will record around 4% real GDP growth and 1% inflation rate in 2021. The situation will require the continuation of loose economic policies, so we can expect the extensive quantitative programs of central banks will keep most yields on government bonds at negative levels. In the absence of unpredictable shocks, corporate bond yields, especially those not paralysed by the pandemic, will remain low and equity investment will be an attractive investment alternative in these circumstances.
What will be the impact of these risks on the insurance industry?
The success of the insurance industry largely depends on the strength and increase in economic activity in the coming years. With the contraction of the economy, we can expect a decrease in the volume of insurance premiums,and thus a deterioration in the profitability of operations. The impact will largely depend on the severity of the events. As a result, because of increased risks in the environment, an increase in the cost of obtaining new capital can also be expected. I would like to emphasise that in the Triglav Group we carefully and comprehensively manage risks and maintain the strength of our capital position.