Pozavarovalnica Triglav Re, d.d.
SUMMARY OF THE ANNUAL REPORT 2018 TRIGLAV RE / Business Report 2018
TABLE OF CONTENTS
STATEMENT OF MANAGEMENT’S RESPONSIBILITIES 5
1. OPERATING PERFORMANCE AND EVENTS IN 2018 8 1.1. FINANCIAL HIGHLIGHTS OF TRIGLAV RE, D.D. 8 1.2. SIGNIFICANT EVENTS IN 2018 8 1.3. SIGNIFICANT EVENTS AFTER THE END OF 2018 9 1.4. ADDRESS BY THE PRESIDENT OF THE MANAGEMENT BOARD 10
2. REPORT OF THE SUPERVISORY BOARD 13
3. GENERAL INFORMATION ON TRIGLAV RE, D.D. 20 3.1. COMPANY PROFILE 20 3 3.2. BASIC DATA ON TRIGLAV RE, D.D. 20 3.3. TRIGLAV GROUP 22 3.4. SHAREHOLDERS’ EQUITY AND SHAREHOLDERS OF TRIGLAV RE, D.D. 23 3.5. CREDIT RATING OF TRIGLAV RE, D.D. 23
4. DECLARATION OF THE COMPANY MANAGEMENT 25 4.1. GOVERNANCE POLICY 25 4.2. STATEMENT OF COMPLIANCE WITH THE CORPORATE GOVERNANCE 25 CODE OF THE COMPANIES WITH THE STATE CAPITAL INVESTMENT AND COMMITMENT TO THE OTHER CODES
5. GENERAL ECONOMIC ENVIRONMENT IN 2018 28 5.1. ECONOMIC ENVIRONMENT 28 5.2. CAPITAL MARKETS 30 5.3.. INSURANCE MARKET 31 5.4. INSURANCE MARKET IN SLOVENIA 32
6. RISK MANAGEMENT 35 6.1. RISK MANAGEMENT SYSTEM 36 6.2. PROCESS OF RISK MANAGEMENT 39 6.3. OWN RISK AND SOLVENCY ASSESSMENT (ORSA) 40 6.4. CAPITAL MANAGEMENT 41 6.5. TYPES OF RISKS AND THEIR MANAGEMENT SYSTEM 42 6.6. FUTURE CHALLENGES IN RISK MANAGEMENT 59 TRIGLAV RE / Business Report 2018
7. FINANCIAL RESULTS 61 7.1. REINSURANCE PREMIUMS 61 7.2. REINSURANCE CLAIMS 63 7.3. GROSS LOSS RATIO 64 7.4. COMMISSION INCOME AND EXPENSES 64 7.5. FINANCIAL INCOME AND EXPENSES 64 7.6. OPERATING EXPENSES 66 7.7. FINANCIAL RESULT INDICATORS 66
8. FINANCIAL POSITION 68 8.1. FINANCIAL ASSETS 68 8.2. FINANCIAL LIABILITIES 68 4 8.3. FINANCIAL POSITION INDICATORS 69
9. SIGNIFICANT EVENTS AFTER THE END OF ACCOUNTING PERIOD AND TRANSPARENCY OF FINANCIAL RELATIONS 71 9.1. SIGNIFICANT EVENTS AFTER THE END OF ACCOUNTING PERIOD 71 9.2. TRANSPARENCY OF FINANCIAL RELATIONS 71
10. FINANCIAL STATEMENTS AND EXPLANATORY NOTES 73 10.1. STATEMENT OF FINANCIAL POSITION 74 10.2. INCOME STATEMENT 75 10.3. STATEMENT OF COMPREHENSIVE INCOME 76 10.4. CASH FLOW STATEMENT 77 10.5 STATEMENT OF CHANGES IN EQUITY 78 TRIGLAV RE / Business Report 2018
STATEMENT OF MANAGEMENT’S RESPONSIBILITIES
The Management Board hereby confirms that the Annual Report of Triglav Re, d.d. with all its integral parts is written in accordance with the Companies Act and the International Financial Reporting Standards.
The Management is responsible for preparing the annual report so that it gives a true and fair view of the Company’s financial position and its operating results for the year ended 31 December 2018.
The Management Board also confirms that the appropriate accounting policies have been consistently applied and that the accounting estimates have been prepared with due care and 5 diligence. Furthermore, the Management Board affirms that the financial statements together with related notes have been prepared on the basis of the assumption on further operating activities of the Company and in accordance with the applicable law and International Accounting Standards.
The Management is also responsible for keeping proper and adequate accounting, for taking reasonable asset protection measures and the measures for prevention and detection of fraud and irregularities.
The tax authorities may at any time within five (5) years from the date on which the tax was charged, check the Company’s operations, which may result in additional tax liabilities, interest on arrears, penalties from the corporate income tax or other taxes and duties. The Management Board further states that they are not aware of any circumstances that may give rise to any potential material liability in this respect.
Ljubljana, 27 March 2019 TRIGLAV RE / Business Report 2018
6 United Nations A/C.2/72/L.32
General Assembly Distr.: Limited 18 October 2017
Original: English
Seventy-second session Second Committee Agenda item 19 Sustainable development
Albania, Argentina, Armenia, Australia, Austria, Bangladesh, Bhutan, Bosnia and Herzegovina, Burkina Faso, Canada, Chile, Colombia, Costa Rica, Croatia, Cuba, Finland, Georgia, Greece, Guatemala, Honduras, Hungary, India, Iraq, Ireland, Israel, Italy, Japan, Kazakhstan, Liechtenstein, Luxembourg, Malaysia, Malta, Monaco, Montenegro, New Zealand, Norway, Panama, Paraguay, Poland, Portugal, Republic of Moldova, Romania, Russian Federation, Serbia, Seychelles, Singapore, Slovakia, Slovenia, Spain, Sri Lanka, Thailand, the Former Yugoslav Republic of Macedonia, Turkey, Ukraine and Viet Nam: draft resolution
World Bee Day
The General Assembly, Reaffirming its resolution 70/1 of 25 September 2015, entitled “Transforming our world: the 2030 Agenda for Sustainable Development”, in which it adopted a comprehensive, far-reaching and people-centred set of universal and transformative Sustainable Development Goals and targets, its commitment to working tirelessly for the full implementation of this Agenda by 2030, its recognition that eradicating poverty in all its forms and dimensions, including extreme poverty, is the greatest global challenge and an indispensable requirement for sustainable development, its commitment to achieving sustainable development in its three dimensions — economic, social and environmental — in a balanced and integrated manner, and to building upon the achievements of the Millennium Development Goals and seeking to address their unfinished business, WORLD Reaffirming also its resolutions 53/199 of 15 December 1998 and 61/185 of 20APPROVEDA DecemberAP 2006BEE on theDAY proclamation of international years, and Economic and Social PCouncilInP 2015PR Rthe Oresolution Republic of Slovenia,1980/67 at ofthe 25 July 1980 on international years and anniversaries,initiative particularly ofO theVV SlovenianEE paragraphs Beekeepers’ 1 to 10 of the annex thereto on the agreed Association, began proceduresDD at the criteria forFood the and proclamation Agriculture Organization of international of years, as well as paragraphs 13 and 14, in whichthe it Unitedis stated Nations that for anthe declarationinternational day or year should not be proclaimed of World Bee Day and to propose a before theresolution basic arrangements underlining the forimportance its organization and financing have been made, of bees and other pollinators. The RecognizingUnited Nations the importance General Assembly of promoting sustainable development in its three dimensionsadopted in an byinnov consensusative, acoordinated, resolution environmentally sound, open and shared declaring 20 May as World Bee Day.
17-18445 (E) 201017 *1718445* Text on graphics: afterwww.worldbeeday.org
TRIGLAV RE / Business Report 2018
1. OPERATING PERFORMANCE AND EVENTS IN 2018
1.1. Financial highlights of Triglav Re, d.d.
in EUR YEAR 2018 YEAR 2017 INDEX Gross reinsurance premium written 131,170,639 123,713,912 106 Gross claims paid 69,994,751 56,764,142 123 Gross operating expenses* 3,492,598 3,329,916 105 Return on investment 3,002,587 3,936,068 76 Technical provisions 166,335,963 163,462,462 102 Equity 79,944,828 82,693,155 97 Return on Equity 5.6% 7.7% / 8 Net profit 4,532,787 6,347,139 71 Number of employees at the year-end 50 46 109 *Gross operating expenses by functional groups
1.2. Significant events in 2018
JUNE In June 2018, the Company paid out EUR 4.4 million of dividends for the business year 2017 to its owner Zavarovalnica Triglav d.d. in compliance with the amended dividend policy.
SEPTEMBER On 7 September 2018, the rating agency, Standard and Poor’s, reaffirmed the long-term credit rating and the financial strength rating “A” to the Triglav Group, and thus to the parent company Zavarovalnica Triglav, d.d. and its subsidiary Triglav Re, d.d.. Both credit ratings have a stable medium-term outlook.
NOVEMBER On 29 November 2018, the 31st General Meeting of Triglav Re, d.d. took place, at which the shareholders were briefed on the resignation statement of David Benedek, a member of the Supervisory Board of Triglav Re d.d., and the Supervisory Board appointed a new member, Janko Šemrov. TRIGLAV RE / Business Report 2018
DECEMBER At a regular annual review on 3 December 2018, the rating agency A.M. Best reaffirmed the long-term credit rating and the financial strength rating “A” to the parent company Zavarovalnica Triglav, d.d. and its subsidiary Triglav Re, d.d. The credit ratings have a stable medium-term outlook. Considering a high credit rating of our company Triglav Re, d.d., the rating agency A.M. Best stressed its key reinsurance role in all the companies of Triglav Group. Triglav Re, d.d. has already started to implement the new IT system. At the end of 2018, the Company was in the follow-up phase of data migration process, and it started with the functional system testing.
1.3. Significant events after the end of 2018
After the end of 2018, there were no significant events that could affect the Company’s performance.
9 TRIGLAV RE / Business Report 2018
1.4. Address by the President of the Management Board
Dear All,
Despite the challenges in the field of investment returns and high expenses due to natural disasters, we can be satisfied with the results of the 2018 business year, at the end of which we celebrated the 20th anniversary of the founding of our Company. With a 6 percent growth in gross premiums written, achieved in all lines of business, we generated EUR 4.5 million of net profit with a combined ratio of 96.2 percent, which is 2 percentage points higher than the year before, due to large losses. Realised returns on investments have dropped significantly, which is also due to the considerable negative exchange rate differences in relation to transactions in Turkey, Russia and India. Capital adequacy remains at a high level and is comparable to that of 2017, which means that the risk profile has not changed significantly - this is also confirmed by the excellent (“A”) credit rating of S&P Global Ratings and A.M. Best.
The macroeconomic conditions in the domestic and international environment continue to be favourable. A solid growth of the global economy continues, but the indicators of a slowdown in the economy are evident. The reason for this is the growing protectionism and trade tensions between the world powers. Political tensions are also present in Europe, such as uncertainties about the outcome of the United Kingdom’s withdrawal from the EU and 10 the protests in France. According to the preliminary data of the Statistical Office, the GDP in Slovenia increased by 4.1 percent in real terms in 2018, which is above the euro area average. The most important indicators for a growth are the export and the strengthening of private consumption, facilitated by the situation on the labour market. In the reinsurance market, we expect that the natural disasters from the second half of 2018 will have a considerable impact on the reinsurance prices, especially in the affected areas.
For the reinsurance companies, 2018 was more favourable compared to the previous year in terms of loss events, but historically, it was the fourth costliest in terms of insured losses since 1980. Major loss events include large fires and hurricanes on the American continent and devastating typhoons in Asia. The overall economic impact in the insurance industry is estimated to be approximately USD 80 billion, which is almost twice as much as the 30- year average. The specificity of losses occurred in 2018 is the level of insured losses, which significantly deviates from the previous years because the insured losses represent as much as 50 percent of the economic loss. Our Company was adversely affected by these events as well. Typhoon Jebi was the most intense tropical cyclone in Japan since 1993, which, according to the latest estimation, could represent even a historical record loss for our Company. Additionally, Typhoon Trami also struck Japan with high winds and flooding rain in September 2018 and the devastating winter storm Friederike in western Europe, which is estimated to have caused around EUR 1 billion in damages in Germany. However, we have noted that the extent of losses will not have dramatic consequences for our Company and that it is in line with the estimates of our quantitative models. TRIGLAV RE / Business Report 2018
The Company’s good result, achieved despite the large-scale natural disasters in 2018, is a consequence of the knowledge and experience gained over the Company’s 20 years of operation and it inspires us with good prospects for the future. With the updated strategy 2019-2022, we will continue to provide business partners with flexible and comprehensive reinsurance services. I believe that the motivated and professional employees of Triglav Re, d.d. will realise the ambitious strategic goals by using the renewed and upgraded IT processes. On the 20th anniversary of the Company’s operations, I would once again like to thank my colleagues and all the former employees of our Company for their diligent and successful work.
Gregor Stražar (MBA)
11 20 May is the world bee day and it is also the birth date of Anton Janša (1734–1773), a Slovenian beekeeper, the pioneer of modern beekeeping and one of the greatest authorities on the subject of bees. His interest came early on, since his father had over one hundred hives at home and neighbouring farmers would gather at the village and discuss farming and bee-keeping. In 1769 he began to work full-time as a bee-keeper and a year later became the first royally appointed teacher 20 of apiculture for all Austrian lands. May TRIGLAV RE / Business Report 2018
2. REPORT OF THE SUPERVISORY BOARD
Report of the Supervisory Board on the Verification of the Annual Report of Triglav Re, d.d. for 2018
1. Introduction
In 2018, the Supervisory Board actively monitored and supervised the operations of Triglav Re, d.d. (hereinafter “the Company”). It regularly examined the reports on the various aspects of the Company’s operations, adopted the appropriate decisions and monitored their implementation. 13 The Supervisory Board performed its duties within the scope of its powers and competences prescribed by the statutory provisions, the Company’s Articles of Association and the Rules of Procedure of the Supervisory Board. It also took into consideration the Guidelines of the corporate governance of Zavarovalnica Triglav d.d., as the parent company of the Triglav Group.
Pursuant to the provision of Article 282 of the Companies Act, the Supervisory Board verified the Company’s Annual Report for 2018 and presented its views in the Report on the Verification of the Annual Report of Triglav Re, d.d. The Supervisory Board also reviewed and adopted the Company’s Annual report on the internal audit.
2. General information
In 2018, the Supervisory Board was composed of the following members:
the shareholder’s representatives: Andrej Slapar (Chairman), Tomaž Žust, David Benedek (until 29 November 2018), Janko Šemrov (as from 30 November 2018).
the employees’ representative: Sebastjan Debevc. TRIGLAV RE / Business Report 2018
There were seven meetings of the Supervisory Board in 2018. The Audit Committee was formed within the Supervisory Board.
3. Operations of the Supervisory Board and Scope of verification of the Company’s governance in 2018
The Supervisory Board’s duties, monitoring and verification of the Company’s operations in 2018 are based on the supervision of the Company’s operations performed by the Supervisory Board in accordance with its respective competences. The Supervisory Board’s responsibility is to supervise the Company’s business operations and to perform other duties in line with the Companies Act, the Insurance Act, the Articles of Association and the Rules of Procedure of the Supervisory Board.
With regard to its core competences, the Supervisory Board in 2018: dealt with the Business plan of Triglav Re, d.d. for 2019; adopted the audited Annual Report of Triglav Re, d.d. for 2017 and was briefed on the Independent Auditor’s Report; adopted the Report of the Supervisory Board of Triglav Re, d.d. on the verification of the Annual report of Triglav Re, d.d. for 2017; gave a proposal on the distribution of the net profit and gave discharge to the Company’s Management Board for 2017; was briefed on the Management report of Triglav Re, d.d. for the period 1 January 2017 14 to 31 December 2017 and also on the Quarterly Business Reports for 2018; gave its consent to the Solvency and Financial Condition Report for 2017 and was briefed on the Independent Auditor’s Opinion; was briefed on the Auditor’s Report on the relations with the related companies and on the Auditor’s Opinion on the Report on the relations with the related companies as at 31 December 2017; was briefed on the Auditor’s report as at 31 December 2017; was briefed on the regular quarterly reports on the Company’s risk profile and gave its consent to the Risk Appetite Statement for 2018; was briefed on the Own Risk and Solvency Assessment Report of Triglav Re, d.d. for the year 2018; was briefed on the Annual report on the internal audit in 2017 and also on the half- yearly reports on the internal auditing; gave its opinion to the Annual report on the internal auditing for the year 2017; gave its consent to the key acts and amendments to the acts relating to the Company’s governance; monitored the overhaul of IT reinsurance project.
3.1. Audit Committee
The members of the Audit Committee in 2018 were: Tomaž Žust (Chairman), Sebastjan Debevc, David Benedek (until 29 November 2018) and Mojca Lahajner as an independent external expert. There were six meetings of the Audit Committee in 2018. TRIGLAV RE / Business Report 2018
The duties and competences of the Audit Committee are determined in the Companies Act, the Rules of Procedure of the Supervisory Board, the Rules of Procedure of the Audit Committee and the decisions adopted by the Supervisory Board. Among others, the Audit Committee: monitored the financial reporting procedures; monitored the functioning and efficiency of the Company’s internal controls, of the internal audit and of the risk management systems; monitored the statutory audits of the annual and consolidated financial statements; monitored and reviewed the auditor’s independence related to the company’s annual report, in particular within the framework of the non-auditing control and consulting services; proposed the appointment of an auditor for the company’s annual report to the Supervisory Board; monitored and controlled the integrity of financial information provided by the Company; assessed the preparation of the annual report, including a formation of the proposal for the Supervisory Board; participated in determining the most important parts of auditing; reported on its activities at the Supervisory Board meetings.
The Audit Committee conducted a self-assessment of its performed procedures in terms of providing a continuous improvement and quality of its performance. 15 3.2. Performance of Self-Assessment
The Supervisory Board has established the Audit Committee in accordance with the Companies Act. The Chairman of the Audit Committee has regularly reported on the performed activities at the Supervisory Board meetings, where the adopted decisions, the submitted recommendations and opinions were discussed. Based on the diligent assessment, the Supervisory Board adopted the relevant decisions.
All the members of the Supervisory Board should be actively involved in its performance. They contribute to the effective performance of the Board’s duties by their presence in the meetings, and the active participation in discussions and in decision-making. The Supervisory Board’s Rules of Procedure also include the rules regulating the procedures in case of a potential conflict of interest. Within the scope of its duties, the Supervisory Board also adopted the Rules on managing the conflicts of interest relating to the Supervisory Board and its members.
The Supervisory Board is of the opinion that the cooperation with the Management Board was appropriate and in line with the applicable legislation and good practice and that it was informed on all events of the material significance for the assessment of a situation and its consequences, and also to the supervision of the Company’s performance. The Supervisory Board regularly monitored the implementation of its own decisions and the decisions of the Audit Committee. In 2018, the Supervisory Board also performed a self-assessment of its activities. TRIGLAV RE / Business Report 2018
The Supervisory Board is of the opinion that its composition in 2018 was proportionate to the Company’s size, its business activities and the set objectives, as well as appropriate with regard to the independence or dependence of its members within the meaning of the Corporate Governance Code.
Based on the above, the Supervisory Board is of the opinion that its performance and the performance of the Audit Committee in 2018 were successful.
4. Annual Report of Triglav Re, d.d.
The Supervisory Board verified all the legal aspects relating to the Company’s annual report for the year 2018.
The Supervisory Board confirmed that the annual report for 2018 was prepared in line with the legally prescribed period. Taking into account the statements of the Management Board, of the appointed external auditor (Ernst & Young, d.o.o., Ljubljana) and the authorised actuary Milan Stjepanović (MSc), the Supervisory Board confirmed that the Annual report covers all the parts prescribed by the Companies Act, the Insurance Act and the applicable regulations.
The annual report includes: Accounting report: the financial statements which contain the balance sheet, the income statement, the statement of changes in equity, the cash flow statement, and 16 the notes to the financial statements, Management report.
The following reports are submitted to the annual report: Independent Auditor’s Report, Authorized Actuary’s Report as at 31 December 2018.
The Annual Report contains all the parts prescribed by the law.
The Company set up the insurance technical provisions and other provisions from the profit. The authorized actuary and the external auditor approved the regularity and sufficiency of the insurance technical provisions.
According to the decision of the General Meeting on the appointment of the auditor for the financial years 2016, 2017 and 2018, the external auditor, the agency Ernst & Young, d.o.o., Dunajska 111, Ljubljana, performed the audit of the balance sheet as at 31 December 2018, of the income statement, the statement of changes in equity and of the cash flow statement for the year then ended and of the summary of the significant accounting policies and the other explanatory notes. On that basis, the Independent Auditor’s Report was issued on 29 March 2019.
In accordance with the requirements of the Insurance Act, the authorized actuary Milan Stjepanović (MSc) verified the Company’s performance in 2018 and on 15 March 2019, the Authorized Actuary’s Report as at 31 December 2018 was submitted. TRIGLAV RE / Business Report 2018
In accordance with the provisions of the Companies Act, the Management Board submitted the Annual Report, including the Auditor’s Report and the Authorized Actuary’s Report, as at 31 December 2018 to the Supervisory Board to verify it.
5. Proposal for the distribution of net profit recorded as at 31 December 2018
The Supervisory Board verified the Management Board’s proposal for the distribution of the profit recorded as at 31 December 2018.
The Supervisory Board agrees with the Management Board’s proposal on the distribution of the net profit and will submit to the General Meeting the proposal to adopt the decision on the profit distribution.
6. Opinion on the Annual report submitted by the Internal Auditing Service
At the meeting on 20 March 2019, the Supervisory Board dealt with and then approved the annual report on the internal audit in 2018 prepared by the internal auditing service based on the performed business operations in 2018. The Supervisory Board is of the opinion that 17 the Company’s internal auditing service performed its duties in accordance with the annual plan of the internal auditing service for the year 2018, and thus significantly contributed to the improved functioning of the internal control system and to a more appropriate risk management system of Triglav Re, d.d.
7. Reporting of the Management Board
The Supervisory Board is of the opinion that the reports provided by the Management Board enabled the appropriate monitoring and controlling the Company’s governance and performance. The cooperation with the Management Board is considered to be adequate and in accordance with the legislation.
8. Independent auditor’s report and Auditor’s Opinion on the Report on relations with related companies as at 31 December 2018
In compliance with the competences under the law and the Articles of Association, the Supervisory Board was presented with the Independent Auditor’s Report, whereby the independent auditor confirms that the Company’s financial statements for 2018 in all respects present a true and fair picture of the financial position of Triglav Re, d.d. and that they are prepared in accordance with the International Financial Reporting Standards. TRIGLAV RE / Business Report 2018
The Supervisory Board was informed and subsequently verified the Report on the relations with related companies and the Statement within this Report prepared by the Company’s Management Board. The Supervisory Board made no comments on the Statement of the Management Board. The Supervisory Board was also informed on the Auditor’s Report on the Report on the relations with the related companies as at 31 December 2018, whereby the auditor confirms that the information provided in the Report on the relations with related companies is accurate and true in all material respects.
9. Actuarial Report as at 31 December 2018
In compliance with the competences under the legislation and the Articles of Association, the Supervisory Board was presented with the Report of the authorized actuary whereby he confirmed that the level of the premium written in 2018 and the level of the insurance technical provisions as at 31 December 2018 are appropriate and that, within the reasonable actuarial expectations, they ensure the Company’s continuous fulfillment of all liabilities arising from the reinsurance contracts. Furthermore, he confirmed that the assets exceed the level of insurance technical provisions and that are invested and dispersed in accordance with the regulations, and that the Company met the regulatory requirements on the capital adequacy. The authorized actuary presented his opinion on the Company’s performance in 2018 to the Supervisory Board. 18 10. Comments of the Supervisory Board on the Annual Report for 2018
The Supervisory Board has no comments to the Annual Report for 2018, which would retain the adoption of the decision to approve the Company’s Annual Report.
11. Approval of the Annual Report for 2018
The Supervisory Board approved the Annual Report for the year 2018 within the prescribed period, that is, before the expiry of one month from the submission of the Annual report 2018 to the Supervisory Board.
Ljubljana, 18 April 2019 Andrej Slapar Chairman of the Supervisory Board of Triglav Re, d.d. THE IM- PORTANCE OF BEE
Bees and other pollinators pollinate of nearly three quarters of the plants that produce 90% of the world’s food. A third of the world’s food production Bees are vital for the depends on bees, i.e. preservation of ecological every third spoonful balance and biodiversity in nature. They provide of food depends on pollination, which is what pollination. makes food production possible. By doing so, they protect and maintain ecosystems as well as animal and plant species, and contribute to genetic and FOOD biotic diversity. SECURITY Bees are renowned for their role in providing high-quality food (honey, royal jelly and pollen) and other products used in healthcare and other sectors (beeswax, propolis, honey bee venom). BIODIVERSITY AND ENVIRONMENTAL ECONOMY Over the past 50 years, PROTECTION the amount of crops that depend on pollinators (i.e. fruit, vegetables, seeds, nuts and oilseeds) has tripled. Bees play an important role in relation to the scope of agricultural production. Effective pollination increases the amount of agricultural produce, improves their quality and enhances plants’ resistance to pests. TRIGLAV RE / Business Report 2018
3. GENERAL INFORMATION ON TRIGLAV RE, D.D.
3.1. Company profile
Company Name: Pozavarovalnica Triglav Re, d.d. Short name: Triglav Re, d.d. Legal form: Company limited by shares Registered office: Miklošičeva 19, 1000 Ljubljana, Slovenia Website: www.triglavre.si E-mail address: [email protected] Company identification number: 13 62 992 20 Tax number: 16465423 Entry into the Companies Register: District Court in Ljubljana, Entry No. 1/31/403/00 on 31 December 1998 Share capital: EUR 4,950,000.00 President of the Management Board: Gregor Stražar, M.Sc. (Econ) President of the Supervisory Board: Andrej Slapar Activity according to the Standard Classification of K65.200 - Reinsurance Activities: Credit rating: Standard & Poor's: A A.M. Best: A Ownership structure: Zavarovalnica Triglav d.d. (100 %). Triglav Re is an integral part of the Triglav Group.
3.2. Basic data on Triglav Re, d.d.
3.2.1. History of Triglav Re, d.d.
Triglav Re, d.d. was founded in 1998 and at the end of December 2018 it celebrated the 20th anniversary of the Company’s operation. In the first year of its operations, the Company only reinsured the portfolio of Zavarovalnica Triglav, d.d. and reached a positive operating result. The Company thus fulfilled the founders’ expectations and had a significant impact on the risk equalization and risk management in the Slovenian market. In 2000, the Company started its operations on the international market for the first time. TRIGLAV RE / Business Report 2018
Taking into account a prudent and conservative policy of the risk assumption, the effective risk management system and the recapitalisation in 2001, the Company has become a reliable partner in the European reinsurance market, especially in the area of Central Europe.
The year 2008 marked a turning point in the company’s future performance, since the Standard & Poor’s Rating Services (the S&P) assigned it an “A -” rating which has a direct impact on the growth of business with the Cedants outside the Triglav Group. In 2009, the rating was upgraded to “A” with stable outlook, which the Company succeeded to retain in 2011 despite the tense market conditions. In 2012, S&P downgraded the credit rating to “A -” because of the drop in the credit rating of the Republic of Slovenia.
In February 2013, S&P downgraded the Company’s long-term credit rating “A -” by one notch to “BBB +” and removed the warning about a possible downgrade. However, already in July 2013, the S&P upgraded the Company by one notch to “A -” with a stable medium-term outlook. In 2013, Triglav Re, d.d. was also assessed by the rating agency A. M. Best and so the Company obtained the credit rating “A -” with stable medium-term outlook. In 2014 and 2015, both rating agencies reaffirmed the rating of “A -”. At the regular annual reviews in 2016, both credit rating agencies, the S&P and A.M. Best, upgraded the Company’s financial strength rating of “A -” to “A”. In 2017, both agencies confirmed the Company’s financial strength rating of “A” from 2016.
In 2018, both credit rating agencies again reconfirmed the Company’s credit rating of financial strength “A”. Beside carrying out the professional tasks as a reinsurance provider for the 21 whole Triglav Group, Triglav Re, d.d. concluded 555 reinsurance contracts with 251 cedants from 68 countries outside the Group.
3.2.2. Anticipated development of Triglav Re, d.d. in 2019
In spite of the growing risks in the global economy and challenging conditions with a rather high competitiveness in the (re)insurance industry, Triglav Re, d.d. expects a successful further development. One of the Company’s objectives in 2019 is to maintain the current credit rating of the “A” as assessed by the S&P and A.M. Best. The assigned ratings are essential for the Company, because the credit rating “A” enables the access to the reinsurance markets, in which the cooperation with the companies assessed by the appropriate level of credit rating is required, or due to the requirements of the local insurance market regulator or due to the Cendant’s internal rules.
In accordance with the business plan for 2019 and the strategic plan for the period 2019- 2022, the Company is determined to maintain the focus on the reinsurance operations with the Cedants outside of the Triglav Group and on providing the reinsurance programs within the Triglav Group. As in the previous years, the growth will be based on the conservative underwriting policy and a further maintenance of the stable and profit-generating portfolio. TRIGLAV RE / Business Report 2018
3.3. Triglav Group
The Reinsurance Company Triglav Re, d.d. is a subsidiary of Zavarovalnica Triglav, d.d., Ljubljana, Miklošičeva 19.
The scheme below shows the subsidiaries and associates in the Triglav Group as at 31 December 2018.
19 Scheme of subsidiaries and associates in the Triglav Group as at 31 December 2018 Subsidiaries and associates of the Triglav Group as at 31 December 2018 and their equity stake
100.00% Triglav, Zdravstvena zavarovalnica d.d., Koper
100.00% Skupna pokojninska družba d.d., Ljubljana 34.00% Društvo za upravljanje EDPF a.d., Banja Luka 51.00% 100.00% Pozavarovalnica Triglav Re d.d., Ljubljana 49.00% TRI-LIFE d.o.o., Zagreb 51.00% 100.00% Triglav Svetovanje d.o.o., Ljubljana 49.00% Triglav Savetovanje d.o.o., Belgrade 51.00% 49.00% Triglav Savjetovanje d.o.o., Sarajevo
100.00% Autocentar BH d.o.o., Sarajevo 97.78% Triglav Osiguranje d.d., Sarajevo 93.02% Sarajevostan d.o.o., Sarajevo 100.00% Unis automobili i dijelovi d.o.o., Sarajevo 100.00% Triglav Osiguranje d.d., Zagreb
100.00% Triglav INT d.d., Ljubljana 99.88% Triglav Osiguranje a.d.o., Belgrade 100.00% Triglav Osiguranje a.d., Banja Luka 100.00% Triglav Auto d.o.o., Banja22 Luka
96.59% Lovćen Osiguranje a.d., Podgorica 100.00% Lovćen životna osiguranja a.d., Podgorica Zavarovalnica Triglav d.d. 100.00% Lovćen Auto d.o.o., Nikšić
80.35% Triglav Osiguruvanje a.d., Skopje 20.00% 80.00% Triglav Osiguruvanje Život a.d., Skopje 100.00% Triglav Avtoservis d.o.o., Ljubljana 62.54% PROF-IN d.o.o., Sarajevo 67.50% Triglav Skladi d.o.o., Ljubljana 11.72% 10.37% IF Prof Plus d.d., Sarajevo
80.73% Golf Arboretum d.o.o., Domžale
100.00% Triglav upravljanje nekretninama d.o.o., Zagreb 100.00% Triglav, Upravljanje nepremičnin d.d., Ljubljana 100.00% Triglav upravljanje nekretninama d.o.o., Podgorica
100.00% Hotel grad Podvin d.d., Radovljica
100.00% Ljubljanica, finančne storitve d.o.o., Ljubljana 49.90% TRIGAL, upravljanje naložb in svetovalne storitve d.o.o., Ljubljana 100.00% Loma Center, nepremičnine d.o.o., Ljubljana 100.00% Vse bo v redu, Zavod za družbeno odgovornost 100.00% KRDU Building, družba za investiranje d.o.o., Ljubljana 38.47% Triglavko d.o.o., Ljubljana Shareholder 39.07% Nama, trgovsko podjetje d.d., Ljubljana Zavarovalnica Triglav d.d. Subsidiary Two or more subsidiaries 50.00% ZTSR, raziskovanje trga d.o.o., Ljubljana Equity stake TRIGLAV RE / Business Report 2018
3.4. Shareholders’ equity and the shareholders of Triglav Re, d.d.
As at 31 December 2018, the equity of Triglav Re amounted to EUR 79,944,828. The share capital of EUR 4,950,000 is divided into 15,000 ordinary no-par value registered shares. Each share amounting to EUR 330.00 has an equal portion and corresponding amount in the share capital.
Table 1: Shareholders of Triglav Re, d.d. as at 31 December 2018
OWNERSHIP STRUCTURE (in %) NUMBER OF SHARES Zavarovalnica Triglav, d.d. 100.00 15,000 TOTAL 100.00 15,000
3.5. Credit rating of Triglav Re
On 7 September 2018, the credit rating agency Standard & Poor’s reaffirmed the long-term credit rating and financial strength rating of “A” to the Triglav Group, and thereby to the controlling company Zavarovalnica Triglav d.d. and its subsidiary Triglav Re, d.d. Both ratings have a stable medium-term outlook.
At a regular annual review on 3 December 2018, the credit rating agency A.M. Best also 23 reconfirmed the rating of the financial strength “A” (excellent) and the credit rating of the issuer “a” (excellent) to Zavarovalnica Triglav, d.d. and Triglav Re, d.d. The credit rating agency emphasized the key role of Triglav Re, d.d. as the Reinsurer of all the companies in the Triglav Group. The ratings of both companies have a stable medium-term outlook. TO BEE OR NOT TO BEE ?
Bees have become increasingly endangered of late, which is also confirmed by the recent reports by world-renowned organisations. The 2015 IUCN report, which contains the first comprehensive assessment of the European bee species, states that nearly 10% of bees are facing extinction, and around 5% of them are probably endangered, while no data is available for nearly 57% of species.
The main reasons for the mortality of bees:
• varroa mites, nosema disease and complications with queen bees, and viral infections in Europe; • mass use of products intended to protect plants in modern farming and their potential impact on pollinators, especially plant protection products in the neonicotinoids classification, as their harmful effect on bees has been thoroughly documented; • new pests, which spread faster around the world due to globalisation; • urbanisation, which is shrinking the agricultural space; • climate change; • global trade in low-quality honey, which impacts the beekeeping economy.
If bee families continue to disappear in Europe at current or even higher rates, this could lead to the breakdown of the economy and put our health and well- being at risk. TRIGLAV RE / Business Report 2018
4. DECLARATION ON THE COMPANY MANAGEMENT
4.1. Governance Policy
The Governance System and Policy of Triglav Re d.d., are adopted by the Management and Supervisory Boards which respect the principles of good and responsible governance, define the main guidelines for the Company’s management, while also respecting the set long-term strategic objectives and values of the whole Triglav Group. They represent the foundation for setting up and implementing a reliable governance system, which is based on the efficient risk management system and enables the implementation of the Company’s business strategy. 25
4.2. Statement of compliance with the Corporate Governance Code of the Companies with the state capital investment and Commitment to the other Codes
Triglav Re, d.d. is a subsidiary of the controlling company Zavarovalnica Triglav, d.d, which is a company with the state capital, and thus Triglav Re, d.d. in its day-to-day operations shall respect the Corporate Governance Code for State-Owned Enterprises (the Code). The Code is available in Slovene and English on the Slovenian Sovereign Holding website (www.sdh.si).
Triglav Re derogates from the Code in the following provisions:
The composition of the Supervisory Board The Company derogates from the Code with regard to the ownership structure, the size of the company, the number of Supervisory Board members and the Company’s position in the Group and it cannot therefore guarantee the international, age and gender diversity in the Supervisory Board composition.
The Supervisory Board prepares the required skill profile for the Supervisory Board members in view of the optimal size and composition of the Supervisory Board and place it on the Company’s website. In this part, the Company partially derogates from the Code, as the skill profile for the members of the Supervisory Board was not placed on the website. Zavarovalnica Triglav d.d. as a sole TRIGLAV RE / Business Report 2018
shareholder of Triglav Re, d.d. defines the procedure for appointing the members of the Supervisory Board in the Corporate Governance Policy of the Triglav Group. A three-member Nomination Committee of the parent company, taking into account the skills of a candidate, proposes the candidates for the members of the Supervisory Board. The candidates for the members of the Supervisory Board are subject to the conditions specified in the Insurance Act, the Companies Act and to the criteria of competence and suitability, as set out in the Policy on the ability and suitability evaluation of the members of the Management Board and the Supervisory Board of Triglav Re, d.d.
The Supervisory Board consists of independent members. In this part, the Company partially derogates from the Code, because the Supervisory Board members are either the members of the management bodies or the employees of the parent company in order to achieve a better and more efficient management of Triglav Re, d.d. The employees’ representative has a contract of employment with the Company.
The Company discloses the earnings of the members of the Supervisory Board, i.e. of the employees’ representatives. In this part, the Company partially derogates from the Code, as in accordance with the legislation governing the personal data protection does not disclose the earnings from employment of the Supervisory Board member who is an employee representative.
In its policies and procedures, the Company is also bound to the Insurance Code, which is available on the website of the Slovenian Insurance Association www.zav-zdruzenje.si. 26
The Code of the Triglav Group, which is available on the website www.triglav.eu also binds the Company since it is a member of the Triglav Group. The Triglav Group Code presents the core values and operating principles for legal and ethical achievement of the business objectives, strategic direction and competitive advantages, while respecting the principles and standards of a fair and transparent business.
In order to operate continuously and successfully, and thus maintaining the highest standards of business ethics, the Management Board of Triglav Re, d.d. adopted the Code of good business practices on 25 April 2015. The Code does not apply only to the employees and the business partners but also to the shareholders, the members of the public, private individuals, groups of persons, organizations, institutions, corporations and government bodies.
4.2.1. Policy of Diversity
The Company has not yet adopted the policy of diversity. TRIGLAV RE / Business Report 2018
TO BEE WITHOUT 27 BEE ?
The 2015 IUCN report, which contains the first comprehensive assessment of the European bee species, states that nearly 10% of bees are facing extinction, and around 5% of them are probably endangered, while no data is available for nearly 57% of species.
The number of pollinators is in decline around the world, while the need for pollination is on the rise, especially in developing countries. In some parts, this situation has become known as ”the pollinator crisis”.
A mass disappearance of bees occurred in California in 2004. Since then, the US beekeepers have been facing great losses of bees over winter, which causes enormous economic damage. Bee losses have occurred in Europe as well. There are great differences in terms of individual countries and individual over-winterings of bee colonies, with 12% of bee colonies perishing on average in 2016. TRIGLAV RE / Business Report 2018
5. GENERAL ECONOMIC ENVIRONMENT IN 2018
5.1. Economic environment 1
Despite the rising risks in the international environment, the solid growth of the global economy is expected to continue in the last quarter of 2018, although some survey indicators are showing a slowdown in the economy for several months. The growth forecast for 2019 is also slightly lower. According to estimates of the ECB, the growth of world trade will slow 28 down in 2019 as the global economic cycle passes to a mature stage and the impact of trade tensions is increasing, especially between the US and China. The slowdown in the euro area expansion is also continuing, as indicated by the fall in the composite PMI indicator, which reached its lowest level in December 2018 over the last four years. Less optimistic business climate and conditions in the international environment are already reflected in the assessment of the economic growth of the main trading partners of Slovenia.
For the years 2018 and 2019, most international institutions project a slightly lower global growth than in their previous projections. In 2018, it is assumed to be 3.7 percent, while in 2019 slightly lower, on average 3.6 percent. In 2019, the IMF expects an unchanged growth of the world economy in comparison with 2018, while the OECD and the European Commission expect a slightly lower growth of 3.5%.
Risks in the international environment are increasing. The growing risk of weaker growth represents the trade dispute between the US and China – despite the 3 month ceasefire in the trade war from December – and the growing number of protectionist measures. In Europe, there are mainly political tensions linked to the protests in France and the uncertainty about the outcome of the United Kingdom’s withdrawal from the EU. The deterioration in monetary policy in the United States represents also a negative impact on the future economic growth, which impairs the financial conditions, especially for some developing countries.
1 Source: Central Bank of Slovenia, The economic and financial developments, January 2019; Summary of macroeconomic developments, March 2019; UMAR, Economic mirror, No. 1/2019. TRIGLAV RE / Business Report 2018
Slovenia’s economic growth somewhat slowed down in the last quarter of 2018. GDP grew by 0.8% on a quarterly basis and year-on-year by 4.1%. In both cases, this continues to be substantially stronger than the euro area average. The services of the private sector continued to play an important role in the growth, partly because of the further rapid growth of the exports, and partly because of the strengthening of private consumption provided by the conditions on the labour market. Despite the increased growth in import of goods that is a consequence of the increased private consumption, the growth in total exports exceeded the growth of the imports due to the almost zero growth in service imports. Therefore, a positive contribution to the net external trade continued.
Despite lower economic growth, high employment growth was maintained until the end of the year. In the last quarter of 2018, the number of persons employed increased by 28 thousand persons or 2.8 percent year-on-year. The survey unemployment rate has declined to 4.4 percent. Labour productivity growth fell by 0.4 percentage points to 1.5 percent in comparison with the year before, suggesting that the pattern of labour-extensive growth continued, which has been a characteristic since the beginning of the current economic cycle.
In December 2018, consumer price inflation declined considerably (1.4%), while on average in 2018 (1.7%) it was somewhat higher than the year before. In addition to services, the prices of petroleum products and food significantly contributed to inflation for the majority of the year. At the end of the year, their contribution declined sharply, resulting in a significant decline in year-on-year growth in consumer prices. The harmonised index of consumer prices, which is used for international comparisons, also shows a 1.4 percent inflation in December 2018, 29 which is 0.2 percentage points lower than inflation in the euro area.
The current account surplus reached a new maximum value in 2018, despite a decrease in the surplus in goods. It amounted to 7.4 percent of GDP, which is 0.2 percentage points higher than in 2017, as the growth in exports of services remained high and the decrease in interest expenses on public debt continued.
Loans to households continue to increase and the asset quality is improving. Households mainly accumulate debt in the form of housing and consumer loans. The year-on-year growth of the latter since May 2017 exceeds 10 percent, and their maturity is prolonged.
Towards the end of 2018, the government surplus increased to EUR 785.1million, which was influenced by one-off inflows. Income from dividends has strongly boosted the growth of non- tax revenues, which remained below the level of the same period of 2017 until September. Growth in income from taxes and social contributions by November 2018 also exceeded the growth in the same period of the previous year, which was influenced by the favourable economic conditions, especially in the labour market. TRIGLAV RE / Business Report 2018
Table 2: Forecast of economic development
Real GDP Growth Consumer Price Index Unemployment Rate 2017 2018 2019 2017 2018 2019 2017 2018 2019 Advanced Economies 2.3 2.4 2.1 1.7 2.0 1.9 5.6 5.2 5.0 Euro Area 2.4 2.0 1.9 1.5 1.7 1.7 9.1 8.3 8.0 Spain 3.0 2.7 2.2 2.0 1.8 1.8 17.2 15.6 14.7 Sweden 2.1 2.4 2.2 1.9 1.9 1.7 6.7 6.2 6.2 Slovenia 5.0 4.5 3.4 1.4 2.1 2.0 6.6 5.8 5.4 Israel 3.3 3.6 3.5 0.2 0.9 1.3 4.2 3.9 3.9 South Korea 3.1 2.8 2.6 1.9 1.5 1.8 3.7 3.7 3.7 Germany 2.5 1.9 1.9 1.7 1.8 1.8 3.8 3.5 3.4 Italy 1.5 1.2 1.0 1.3 1.3 1.4 11.3 10.8 10.5 Austria 3.0 2.8 2.2 2.2 2.0 2.1 5.5 5.2 5.1 China 6.9 6.6 6.2 1.6 2.2 2.4 3.9 4.0 4.0 Croatia 2.8 2.8 2.6 1.1 1.6 1.5 12.4 12.0 11.2 Montenegro 4.3 3.7 2.5 2.4 2.8 2.0 / / / Iran 3.7 -1.5 -3.6 9.6 29.6 34.1 11.8 12.8 14.3 Turkey 7.4 3.5 0.4 11.1 15.0 16.7 10.9 11.0 12.3 Source: IMF, World Economic Outlook, October 2018.
The macroeconomic environment in Slovenia indicates that the economic activity will continue to grow in 2019, but at a more moderate pace. The growth is expected to be lower than in 30 2018 when, according to the first data of the Statistical Office, the growth was 4.1 percent. This could have a positive impact on the development of the Slovenian market premium and consequently on the reinsurance premium volume of Triglav Re d.d. The forecasts on the most important foreign markets are also rather favourable, which could be an additional indicator for a global premium growth. It should be noted that there is an increase in premium rates in the regions affected by catastrophic loss events in 2018 (USA, Japan). There is still a surplus of reinsurance capacities in the global reinsurance market; but for some insurance classes is lower than in the previous year.
5.2. Capital markets 2
After 2017 when the return of 12.39% was recorded, the SBI TOP stock index slipped slightly in 2018 and ended the year with a negative return of 0.18%. Compared to 2017, the market capitalisation of shares increased, but on the contrary, the turnover of securities decreased. The total turnover amounted to EUR 337.3 million, which is 2.9% less compared to the previous year. The highest turnover was recorded in shares, i.e. EUR 327.7 million or 97.1% of the total turnover. The share of bonds in the total turnover structure is 2.9 percent. In 2018, the most traded were again the shares of Krka (KRKG). They generated 25.6 percent of the turnover of all shares of the stock exchange. Zavarovalnica Triglav shares (ZVTG) took third place in terms of the achieved turnover, with a 12.8% share, the exchange rate of which increased by 4.84%. This was also the third largest annual change in the exchange rate among the first listing shares.
The analysis of unconsolidated financial accounts shows that the Slovenian economy TRIGLAV RE / Business Report 2018
continues to save more than invest. Corporate indebtedness is low on the European scale and their funding continues to be largely within the sector. The increase in retained earnings and equity capital is followed by the growth in the investment activity of companies, and the spacing between savings and corporate investments has become somewhat negative for the first time since 2011 at least in the financial accounts. In the household sector, the disposable income continued to increase in the third quarter of last year, but their indebtedness remained low. The volume of household investments continued to increase faster than liabilities. With domestic banks, the trend of gradual debt repayment abroad and the simultaneous increase in liabilities from deposits of households and non-financial corporations continues.
5.3. Insurance market 3
According to the data provided by Swiss Re, the global growth of non-life insurance premiums in 2018 is expected to be 3 percent. In the years 2019 and 2020, growth is expected to remain similar. In advanced economies, in 2018, mainly due to the expected favourable macroeconomic conditions, a 2.0 percent growth is projected. In emerging markets, growth is expected to remain high, close to 8.0 percent, while the highest in China amounting to 11.9 percent.
Experts for the global sector of non-life (re)insurance from Swiss Re expect a positive insurance technical result, i.e. about 1% of the premium. The basis for this is the absence of major catastrophic loss events compared to the year before. Similar results are expected in 31 2019 as in 2018 for the reinsurance industry. The increase in premium rates from the beginning of the year in regions affected by catastrophic losses in 2017 (US, Latin America) is expected to be short-lived, but the aforementioned events could bring increases in premium prices.
The world premium of life (re)insurance is projected to increase by 1.6 percent in 2018, which is less than the average of the last five years. The main reason for this is China, where the premium growth in the partial data for 2018 has stopped.
The important areas of the premium growth for life (re)insurance will continue to be emerging markets; despite the aforementioned slowdown in growth, China is expected to stand out. The economic background in this country remains strong; this year’s slowdown in growth is therefore considered a unique event. It is expected that the impact of stricter regulation of asset management will diminish. Expected growth in developed economies remains stable at the level of 2018.
According to Munich Re data, 2018 was the fourth most negative year after 1980 for (re) insurance companies after payment of compensations for natural disasters. Due to hurricanes and other natural disasters, (re)insurance companies around the world had to pay out approximately USD 80.0 billion in compensation, which is still much less than in 2017 (USD
2, 3 Sources: Ljubljana Stock Exchange, Central Bank of Slovenia: The economic and financial developments, January 2019; Swiss Re: Sigma No 3/2018; World Insurance in 2017 – solid but mature life markets weigh on growth; Sigma No 5/2018; November 2018; Munich Re: The natural disasters of 2018 in figures, January 2019 TRIGLAV RE / Business Report 2018
135.0 billion). Economic damage incurred from the same disasters amounted to USD 160.0 billion. The main cause are natural catastrophes which occurred on the American continent (Hurricanes Michael and Florence, fires in California) and in Asia (Typhoons Jebi, Manghut, Trami).
In 2018, Europe’s share in the global insurance market continues to decline. According to the latest available data from Swiss Re, Europe collected approximately 30.2 percent of the total insurance premium in 2017, which is 0.5 percentage points less than the year before, taking into account the inflation. In 2017, North and South America collected approximately the same share as in 2016 and accounted for just over 34.0 percent of the world’s share. Asia strengthened its position again. Its share grew by 5.7 percentage points and amounted to 32.5 percent. Africa and Oceania together collected 3.2 percent of the global insurance premium. On the global insurance scale for 2017, the Slovenian insurance market is in the 55th place, which means the same as in 2016 – 0.05 percent of the entire world market. In 2017, Slovenia ranked 32nd in the world according to the premium per capita (one place higher than the year before) and 30th in terms of insurance penetration, i.e. share of premium in GDP (same as in 2016).
5.4. Insurance market in Slovenia
In 2018, fourteen (14) insurance companies and five (5) foreign branches operated in the Slovenian insurance market. Among the traditional insurance companies, there were eleven 32 composite companies, seven specialized companies (e.g. for life, health, pension or non-life insurance), and a mutual company the Fund of Craftsmen and other Entrepreneurs which also operates in the Slovenian market. The total insurance premium collected in 2018 amounted to EUR 2.364 billion, which is slightly more than in the previous year (index 107.7). In the total premium volume, the non-life premium represents a share of 69.8 percent and the life insurance premium of 30.2 percent, which shows that the non-life insurance premium volume increased (index 107.0) compared to the previous year and the life insurance premium by 9.3 percent. These figures do not include the insurance operations performed directly by the insurance companies from the other EU Member States. Their share is increasing, but according to our estimation it is still negligible.
The four largest insurance companies controlled 70.2 percent share of the Slovenian insurance market (in 2017: 71.6 percent). In 2018, Zavarovalnica Triglav, d.d. maintained its leading position with a market share of 27.9 percent. The insurance companies with majority foreign capital (e.g. the insurance companies Generali, Merkur, Grawe, Wiener Städtische Group, Allianz, Ergo, Arag SE) collected a total premium volume of nearly EUR 253.0 million but their market share fell from 11.4 percent in 2017 to 10.7 percent in 2018.
As at 31 December 2018, the market share of Triglav Re, d.d. amounted to 46.4 percent and it increased by 1.7 percentage point compared to the previous year. TRIGLAV RE / Business Report 2018
Market shares of insurance companies Market shares of reinsurance companies operating in Slovenia in 2018 operating in Slovenia in 2018
Zavarovalnica Triglav Re Triglav d.d. 46.4% 27.9%
33 TRIGLAV RE / Business Report 2018
34
1 Plant or sow honey plants on balconies, terraces and gardens. 2 Set up a nesting box for bees. 3 Maintain flowering meadows by using a greater variety of plants. 4 Avoid mowing grass during the peak flourishing of plants and mow grass in the evening hours. 5 As regards spraying, use pesticides that are harmless to bees and spray plants in windless weather conditions early in the morning or late in the evening, when bees are back to their hives. 6 Buy honey and other bee products from a local beekeeper.
Photo: Franc Lanjšček Feri, https://commons.wikimedia.org/wiki/File:Čebela_na_cvetu_marelice.jpg TRIGLAV RE / Business Report 2018
6. RISK MANAGEMENT
The effective risk management system is an essential part of the business operations of each (re)insurance company. The aim of a comprehensive and independent risk management system is to ensure the implementation of strategic and business objectives of the Company.
The Company’s risk management system is transparent, structured and documented, and it is implemented in its day-to-day business operations. It represents a part of the Triglav Group risk management system.
The following priorities were fulfilled in the year 2018: Triglav Re has upgraded the existing risk management system taking into account the Triglav Group Guidelines; Triglav Re has fulfilled the prescribed regulatory reporting requirements on time; Triglav Re has successfully maintained its high capital adequacy, as the available 35 capital continuously enabled to meet the capital requirements estimated by using the applicable regulations and the Company’s own risk and solvency assessment; Triglav Re has continued to implement the conservative policy of risk assumption and operated within the set limits of the risk appetite; Triglav Re has carried out a regular annual review of the key documentation in the risk management system;
The requirements of all three pillars of Solvency II regime were thus fulfilled:
Pillar 1 The required volume and quality of the capital should reflect the risk profile to which an individual (re)insurance company is exposed in its operations.
Pillar 2 The effective and consistent management system and risk management system must be established including a reliable and comprehensive internal control. A part of the second pillar also comprises the Company’s own risk assessment, which must be taken into account when making business decisions.
Pillar 3 The Company must provide the necessary reporting system and public disclosure of information. TRIGLAV RE / Business Report 2018
In 2018, the Company’s key activities in the field of risk management were: consistent with the applicable legislation, the Company effectively implemented the regular quarterly and annual reporting system on the capital adequacy, periodic informing of the Supervisory Board by providing the Regular supervisory report, regular updating of the management and the supervisory bodies on the key risk exposures, implementation of the Company’s own risk and solvency assessment (ORSA), upgrading the centralized risk management system taking into account the guidelines of the parent company, regular review of the internal acts that precisely regulate the Company’s governance, the risk management and the compliance systems, upgrading the risk measurement methodologies, data quality improvement, participation in the project of upgrading and renewal of the IT system providing a training for the staff members to identify the potential and existing operational risks, public disclosure of the Company’s solvency and financial condition report (the SFCR), providing the relevant training programs to understand the importance of the proper risk management system and internal control system.
6.1. Risk management system 36
The risk management system can be described as a system that supports a reasonable and responsible exposure to the diversified risks, depending on the Company’s interest and ability to assume a risk. In order to ensure a safe and successful operating performance, the Company shall establish the effective and comprehensive risk management system that provides the appropriate manners of the risk management and control, thereby enabling the better business decisions.
The Company’s key principles of risk assumption and management are: involvement of the management and supervisory bodies in the risk management process, the assumption of risks within the Company’s capacities and its capital strength, timely payments of all outstanding liabilities, appropriate organizational structure with clearly defined competences and responsibilities, securing and spreading the appropriate risk management culture, business operation in compliance with the valid legislation and the individual regulations, business activities with due regard for the risk management guidelines of the Triglav Group
The essential documents of the Company’s risk management system are the Risk Underwriting and Management Strategy (hereinafter: the Strategy) and the Risk Appetite Statement (hereinafter: the Risk Appetite) which represent a basis for the internal acts relating to the TRIGLAV RE / Business Report 2018
policy, the methodologies and instructions for the risk management.
The Strategy determines the competences and responsibilities in the risk management process, the system and the main principles of risk management and also the Company’s interest to assume a particular risk. The Risk Appetite quantitatively defines the level to which the Company is able and willing to expose itself in an individual risk segments, taking into account its capital strength and strategic objectives.
The risk management is a governance system, which ensures that the Company’s risk profile is within the limits set in the Risk Appetite. The risk management system is based on the Three Lines of Defence model.
The first line of defence consists of the business functions, which actively manage a concrete business risks through their business decisions and are primarily responsible for the risk identification and underwriting, the effective internal controls and performance of the business operations within the prescribed limits, policies and the strategic goals.
The second line of defence consists of the following key business functions: the risk management function, the actuarial function, the compliance function and the Risk Management Committee. The role of the second level is to implement the effective risk management system, which includes the coordination of activities related to risk management, preparation of the methodologies for risk identification, the risk measurement 37 and assessment, the exposure limit system, controlling and monitoring the exposure to a risk and verifying the compliance with the valid regulations.
The third line of defence includes the internal audit, which is independent from all other organizational units in the Company, its main task is to give independent opinions on the form and functioning of the risk management system and to assess the adequacy and effectiveness of the internal controls. The role of Internal Audit is thus to verify the performance of the first and the second line of defence.
The Management and Supervisory Boards are not directly a part of the three lines of defence, even though they play the essential role in the risk management system. Both Boards are the key stakeholders informed by all three lines of defence and they are responsible for the functioning of three lines of defence within the risk management system and control processes.
Within the second and third line of defence there are four key functions that must be independent and clearly separated so that none of them can be jeopardized in its capacity to perform its tasks in an objective, fair and independent manner. They have the unlimited access to all information they may require to carry out their duties. They cooperate with each other and share the necessary information.
The Company has implemented the internal regulations governing the risk management, the internal controls, the compliance function, the internal audit and the outsourcing service provider with clearly defined responsibilities, objectives, processes and reporting procedures that must be used. The internal regulations must comply with the general business strategy. TRIGLAV RE / Business Report 2018
The risk management function is responsible for supporting the management and supervisory authorities and other functions in the efficient management of the company. It ensures the appropriate risk management system, including the identification, measurement, monitoring and reporting of the risks. In addition to the legislation, it takes also into consideration the Minimum Standards applicable in the Triglav Group. Its main duties are to participate in important risk management decisions, to coordinate and control activities in the area of risk management (capital adequacy measurement, own risk and solvency assessment), monitoring the Company’s risk profile and reporting to the management and supervisory authorities on the exposure to significant risks.
The compliance function is the essential part of the Company’s control system, which duties comprise: the evaluation of a possible impact of the legislative changes on the Company’s performance and informing the Company’s management as well as other departments, services and functions, the identification and assessment of the Company’s non-compliance with the valid legislation and internal rules, the regular reporting to the Management and Supervisory Boards on the compliance of operations, including on a possible risk of non-compliance and providing the guidelines and the recommendations, the participation in preparation and updating the compliance programs in the certain Company’s departments, including the internal controls, reviewing the implementation of compliance of operations on a regular basis. 38
The internal audit function is responsible for the implementation of the efficient, comprehensive and continuous control over the Company’s governance to increase the benefits of its operations. The internal auditor also carries out the advisory services, cooperates with the external auditors and other supervisory bodies and monitors the implementation of the recommendations given by the internal auditors. At least twice a year, the Management Board, the Audit Committee and the Supervisory Board are informed on the activities and findings of the internal audit. The internal auditors must be independent and competent in their work and they must avoid a collision of interest. They are therefore not allowed to perform any development or operational tasks that could result in a collision of interests or are likely to affect their impartiality. They are also not allowed to decide on the activities related to the internal auditing.
The most important part of the actuarial function is related to the calculation of insurance technical provisions and thus ensuring: the use of the appropriate methods and assumptions for the calculation of the insurance technical provisions, assessing the appropriateness, the adequacy and the quality of data for calculation of the insurance technical provisions, the verification of the Company’s general policy related to the risks assumption and the reinsurance program, giving his own opinion on the level of the insurance technical provisions and their sufficiency to cover all contractual liabilities. TRIGLAV RE / Business Report 2018
Furthermore, the actuarial function is closely connected with the risk management function, as it actively participates in the implementation of the risk management system, particularly in the risk identification process, in the development of new methodologies for the risk assessment, in monitoring the appropriateness of the capital requirement calculation and in conducting its own risk and solvency assessment (ORSA).
The Supervisory Board gives his its approval to the key directions for the risk management system, including also the Strategy and the Risk Appetite. It is regularly informed on the Company’s risk exposure and its capital adequacy, the Report on the own risk assessment and solvency. It also gives its approval to the Management Board on the Report on the solvency and financial position. The Supervisory Board has appointed the Audit Committee as a working body for a professional assistance when deciding on the adequacy of the risk management system. The Audit Committee monitors the suitability and effectiveness of the established risk management system and focuses on monitoring the Company’s overall risk profile.
The Management Board is responsible for the establishment and operation of a reliable and efficient internal management system, which also includes an effective process of assuming and managing the risks in accordance with the applicable legislation. It confirms all internal acts and important reports in the area of risk management, including the Report on the Exposure to Risks, the Report on own risk and solvency assessment, the Report on Capital Adequacy and the Report on Solvency and Financial Position of the Company. The Management Board strives for the optimal level of profitability within the adopted Risk Appetite. 39
The Management Board appointed the Risk Management Committee as a professional advisory body to which it transferred a part of its responsibilities relating to the risk management. Its key tasks are the following: monitoring the risk profile, supervision of the operations of the risk management system, preliminary evaluation of the internal acts relating to the risk management, validation of risk measurement methodologies, identification and monitoring the exposure to significant risks and concentration of risks, evaluation of the risk appetite proposal, as well as a regular review of the efficiency of risk management system and compliance between individual business functions, monitoring the effectiveness of a third-party service management system.
6.2. Process of risk management
The process of the effective risk management system consists of the following parts:
Risk identification is the process to identify and understand all the risks that occurred or would occur in the Company’s operations. For this purpose, the Company has prepared and implemented the Risk Catalogue which contains the descriptions of all existing and potential risk types. The risk management service conducts the annual interviews with the individual business areas in order to identify the key risks and stress scenarios to which the Company is potentially the most exposed. TRIGLAV RE / Business Report 2018
Risk measurement and assessment: The risks are measured by defining and monitoring the quantitative risk measures that are generally adopted in the insurance and banking sectors by using the methodologies based on the mathematical and statistical techniques. The risks, which are difficult to be measured, are estimated by the professional approaches. Based on an existing risk exposure, the Company shall take and implement appropriate risk management measures and monitor movements in the exposure to a particular risk.
Management and control of defined risks: The Company’s response to the risk occurrence depends on its capital strength and performance, on the risk appetite and on the regulatory and economic environment. The Company needs to measure, analyze and evaluate the risk factors, which are continuously monitored by the risk management service. The management of the identified risks is carried out by means of: the limits set up for the individual risks (e.g. the investment limits, the limitations in exposures to the counterparties, the limits relating to the interest and currency consistency of the balance sheet, etc.), the retrocession contracts in order protect the Company’s performance against the potential catastrophic losses, the protection against the market risk by means of the derivatives, that the Company may use only for the purpose of hedging against the risks and not for the speculative purposes. In 2018, the Company did not use any derivatives.
The risk controlling and ensuring the early warning system in case of deviations and/or violations shall be carried out regularly and according to the comprehensive risk profile of 40 the Company, as well as according to the frequency and a type of changes in the business environment. The risk control is managed by the Company’s risk management service.
Risk reporting system must provide the efficient and timely access to information on the risks in order to ensure the optimal functioning of the Company and its prompt and suitable reaction. The reports must be submitted to the management and supervisory bodies and other competent authorities that are involved in the decision-making process. The results on the risk exposure must be provided in the periodic statements on the risk exposure, the Report on the own risk and solvency assessment (ORSA) and the Solvency and financial condition report (SFCR).
6.3. Own risk and solvency assessment (ORSA)
In 2018, the Company again carried out its own risk and solvency assessment (ORSA). The purpose of the ORSA process is to ensure that the Company has a sufficient quantitative and qualitative capital available in relation to its risk profile and business strategy, and to ensure the adequate capital reserves that protect the Company against the negative future effects of the possible financial or economic crisis.
The ORSA process is carried out at least once per year. On a basis of the business strategy and future expectations, it is necessary to identify the key risks and stress scenarios, which could have a negative impact on the achievement of the planned objectives and limits within the Risk Appetite. All organizational units are included in the ORSA process and are regularly TRIGLAV RE / Business Report 2018
informed on the results.
The application of the ORSA process enables the Company to identify the risks and the stress scenarios, which are classified according to the probability of occurrence and the extent of impact. At the same time, the Company evaluates the adequacy of the standard formula of calculating the capital requirements. If it is established that the standard formula is not sufficient to cover the identified risks, the Company shall make additional capital requirements that are set by the Company.
The results of the ORSA process are provided in the ORSA Report. The Management Board, the Senior Management and the Supervisory Board must be informed on the achieved results.
The execution of the ORSA process in 2018 reaffirmed the Company’s strong capital position in relation to the identified risks.
6.4. Capital management
The capital represents the prime criterion for assessing the Company’s solvency, as in its operations the Company must permanently possess the adequate capital in order to protect the owner’s and the contractual partners’ assets. The adequate capital base represents a safety margin for various risks the Company is exposed to and protects the Company against any unexpected adverse events. The Company is obliged to keep the sufficient assets 41 corresponding to the Company’s exposure and business strategy.
The Company has defined the following three criteria for the assessment of its capital strength, which are also taken into account in determining its dividend policy: the regulatory capital adequacy, the capital adequacy based on its own risk and solvency assessment and the assigned ratings by the S&P.
In 2018, the Company remained sufficiently capitalized.
Capital adequacy risk and the compliance with capital requirements
The capital risk is a risk of the loss due to an inadequate and inappropriate capital structure with regard to the business volume, the way of conducting business or the problems encountered by the Company when acquiring a fresh capital, especially in a case of the unfavorable operating conditions or the need for a rapid capital increase.
In line with the applicable legislation, the Company quarterly calculates the amount of the available capital to meet the statutory solvency capital requirements. In 2018, the capital requirements remained unchanged as there were no significant changes in the risk profile. The capital adequacy may also be monitored through the capital model of the S&P agency. The implementation of the ORSA process is of the utmost importance in the capital adequacy management. The regular monitoring of the key performance indicators and the capital adequacy indicators allows the Company to optimize the business operations in accordance TRIGLAV RE / Business Report 2018
with its strategic objectives.
The Company’s unaudited available capital increased by EUR 2,497,000 in the first three quarters of 2018 and the Company complied with the regulatory capital adequacy requirements throughout 2018. The total capital can be ranked among the basic own funds of the first class representing the highest quality capital.
On 30 September 2018, the unaudited available capital amounted to EUR 104,298,000. The ordinary share capital of EUR 4,950,000 and the excess of the assets over the liabilities (the reconciliation reserve of EUR 99,348,000) are the Company’s own basic funds. In 2018, the Company had no ancillary funds and any deductible items from the capital.
Table 3: The unaudited current best estimate of the solvency ratio according to the requirements of Solvency II on 30 September 2018
30 September 2018 31 December 2017 Total appropriate capital to cover SCR (in EUR) 104,298,035 101,801,421 Total appropriate capital to cover MCR (in EUR) 104,298,035 101,801,421 SCR – Solvency capital requirement (in EUR) 37,289,787 37,289,787 MCR – Minimum capital requirement (in EUR) 14,660,142 13,262,395 Capital adequacy in relation to SCR 280% 273% (appropriate capital to cover SCR/SCR) Capital adequacy in relation to MCR 711% 768 % (appropriate capital to cover MCR/MCR) 42 *According to the Solvency II methodology, the capital requirements are calculated regularly on an annual basis. Financial data as at 30 September 2018 are not audited.
As shown in the table above, the Company has a strong capital base, as demonstrated by the own risk and solvency assessment as well as by the credit rating of S&P and A.M. Best agencies. As at 31 December 2018, the Company had the “A” credit rating with a stable medium-term outlook.
The detailed disclosures on the capital adequacy for the year 2018 will be provided in the Report on the solvency and financial condition of the Company.
6.5. Types of risks and their management system
The overall Company’s business is exposed to the multiple risks as described in the following section.
Underwriting risk
Underwriting risks are the risks arising from the Company’s core business, i.e. reinsurance business. They are related to the risk of a possible loss occurrence or to an increase in insurance liabilities due to an inadequate premium volume, to the inappropriate figures used in the calculation of insurance technical provisions, to the inappropriate risk assumption, the changed trends in the loss occurrences, and also due to the changes in the natural, TRIGLAV RE / Business Report 2018
economic, political, technological, social and cultural environment. The risk of insufficient insurance technical provisions, the premium risk and the major loss risk as a result of natural catastrophes are also classified among the underwriting risks.
Risk of insufficient insurance technical provisions
The Company must set up corresponding insurance technical provisions for all assumed reinsurance business in order to cover all future liabilities from reinsurance contracts and the possible losses arising from the assumed risks. The risk related to insurance technical provisions is a potential risk that the volume of insurance technical provisions is not sufficient to cover all liabilities. This risk is primarily managed by the evaluation of the previous provisions for outstanding claims and the subsequent actual liabilities incurred, by applying the appropriate actuarial methods in setting up the specific insurance technical provisions and by the prudent formation of provisions for outstanding claims.
According to the International Accounting Standards and the Insurance Act, the Company sets up the following insurance technical provisions: the provisions for unearned premiums, the provisions for outstanding claims, the equalization provisions for credit insurance which are recorded under equity, the provisions for bonuses, rebates and cancellations, and other technical provisions, such as the provisions for unexpired risks. The sufficiency of the formed insurance technical provisions is verified with the liability adequacy test (LAT).
To calculate capital adequacy, the Company forms the insurance technical provisions based 43 on the Insurance Act-1. The volume of the insurance technical provisions shall be equal to the sum of a best estimate and a risk adjustment. The best estimate and the risk adjustment shall be calculated separately. The duties of the key actuarial function are to coordinate the calculation of the insurance technical provisions, to ensure the use of appropriate methods, models and assumptions, to evaluate the suitability, adequacy and quality of data needed for the calculation of insurance technical provisions, and to compare the amount of insurance technical provisions using empirical data.
Due to the peculiarities in the reinsurance business, the Company cannot use the triangle method for the provisions for outstanding claims prepared on the basis of loss occurrence, but it prepares the data on the settled claims by the underwriting years and then by using the appropriate actuarial methods it estimates the expected future liabilities by an individual underwriting year. The provisions for outstanding claims are not discounted. The excess of net provisions in the total amount of all underwriting years is positive, reflecting the fact that the risk of the insufficient insurance technical provisions was well-managed also in 2018.
As at 31 December 2018, the Company recorded the total net insurance technical provisions of EUR 114,377,365. The net insurance technical provisions by a type of provisions on 31 December 2018 are shown in the table below. TRIGLAV RE / Business Report 2018
Table 4: Structure of net insurance technical provisions
in EUR YEAR 2018 YEAR 2017 Net provisions for unearned premium 17,229,146 16,182,917 Net provisions for bonuses, rebates and cancellations 487,159 227,178 Net provisions for outstanding claims 95,677,057 91,167,398 Provisions for unexpired risks 984,003 179,531 TOTAL 114,377,365 107,757,024
In 2018, the net insurance technical provisions increased by 6.1 percent and as at 31 December 2018, are fully covered by the assets.
Premium risk versus claims
The inadequate premium risk is a risk that the reinsurance claims would be higher than expected and/or that the premiums earned would be lower than expected.
Premium risk management is a responsibility of the heads of departments who underwrite the reinsurance business. They have precisely defined powers and responsibilities for underwriting and are responsible that all procedures related to the underwriting are carried out at a highly professional level. They are also responsible for the establishment of a basic strategy related to the Company’s exposure to a particular catastrophic event in the certain 44 areas.
A crucial reinsurance risk faced by the Company is the risk of a huge loss arising from a particular event or a series of events. Such loss can affect a number of reinsurance contracts, which cover the same territorial scope, and a number of different insurance classes covered by the reinsurance contract. These risks can arise from loss events with low frequency (e.g. natural disasters), from unexpected demographic changes (e.g. ageing, mortality rate) or unexpected changes in legislation that could have a negative impact on the amount of compensation. The Company provides an appropriate reinsurance program according to which that part of the assumed business is covered which exceeds the maximum reinsurance covers defined in the maximum retention lines. The Company manages this risk through professional underwriting, through measuring the exposure to the various natural hazards by the geographic areas and particularly through the properly determined retention limits.
Major loss risk as a result of natural catastrophes
The Company is operating with the companies in different regions worldwide. According to the guidelines, the Company is primarily focused on the short-term non-life business. The non-life reinsurance business generally includes cover for losses caused by various natural catastrophes. The most exposed classes are fire and technical insurance classes, motor and crop insurance.
Natural catastrophes are considered to be events with a low frequency but with devastating effects, e.g. earthquakes, floods, storms, hail, sleet. The extent of this risk is affected by TRIGLAV RE / Business Report 2018
different characteristics such as, the scope of reinsurance cover in regions that are historically more exposed to the occurrence of natural disasters, the geographic dispersion, the reinsurance terms and conditions governing the cover of the natural catastrophes.
In assessing the potential loss arising from a natural disaster, some professional models and methods can be used to simulate various catastrophes on the basis of which the loss amount can be estimated taking into account different return periods for a particular part of the reinsurance portfolio. The Company is monitoring its exposure using a reference loss event with a return period of 200 years.
The Company regularly monitors its exposure to natural catastrophes by risk type and by geographical region. The outward reinsurance contracts (retrocession contracts) are concluded to cover a part of the already assumed risks providing a better control of the Company’s exposure and thereby protecting the Company’s assets. The previous reinsurance programs have proved to be appropriate, as the Company continuously fulfilled all liabilities arising from the insurance contracts without any increased liquidity risk.
Market risks
Market risk is a risk of a loss due to the unfavourable changes in the financial markets, for instance, due to the changes in the financial instrument prices, in the interests and exchange rates, in the credit spreads, etc. which can have a negative impact on the Company’s assets and liabilities. 45
The investment portfolio is subject to a risk of the loss arising from the adverse changes in the market risk factors that may adversely affect the value of financial investments.
The basic rules of the market risk management arising from the investment portfolio are based on: sufficient funds to cover liabilities arising from the reinsurance contracts, adequate dispersion of the investments so as to avoid an excessive dependence on an individual type of investment, on an individual issuer, a group of companies, a geographical area and an excessive accumulation of risk in the total portfolio, good credit quality of the debt portfolio and high liquidity investment.
The main instrument for market risk management is represented by the limits representing the restrictions on taking the market risks. The limits arise from the risk appetite and they take into account the capital position of the Company, its strategic business objectives and the current situation on the financial markets. The exposure to individual investment classes is limited, taking into account a type of the financial instrument, of the issuer and his credit quality. The limits determine the acceptable types of investments and prohibit the use of financial instruments for the purpose of speculation. They also restrict the maximum permissible exposure to a single person or a group of related persons.
By monitoring the market risk indicators, using the sensitivity analyses and by the stress scenarios, the Company regularly verifies its vulnerability to the changes in the various market TRIGLAV RE / Business Report 2018
risk factors and then adapt to them accordingly.
Interest rate risk is a risk of loss due to the changes in the value of interest-sensitive financial instruments resulting from the adverse changes in interest rates and an inadequate interest rate consistency of assets and liabilities.
The Company manages interest rate risk by buying or selling financial instruments with the appropriate maturity and the interest rates, by the various deposits, by choosing the appropriate duration of the interest rate periods and by adjusting the maturity of the liabilities arising from the reinsurance contracts.
By monitoring interest rate indicators, using sensitivity analyses and by the stress scenarios, the Company regularly verifies its vulnerability to changes in interest rates and then adapt to them accordingly.
Risk of variations of interest rates
Table 5: Structure of debt securities
in EUR 31. 12. 2018 31. 12. 2017 Debt securities 167,460,575 167,321,631 - Government securities 78,531,611 82,496,257 46 - Securities of financial institutions 53,854,804 49,574,987 - Corporate securities 35,074,160 35,250,387 - Compound securities 0 0 Financial derivatives 0 0 TOTAL EXPOSED ASSETS 167,460,575 167,321,631 TOTAL OTHER ASSETS 7,991,799 7,824,060 TOTAL FINANCIAL ASSETS 175,452,374 175,145,691
Interest rate risk is a risk of loss due to a change in the value of interest-sensitive financial assets and liabilities arising from an unfavourable change in the market level of interest rates and an inadequate interest rate adjustment of assets and liabilities. In case of the interest-sensitive assets that pay coupons until maturity, the Company is also exposed to reinvestment risk, which is especially relevant in a period of low market interest rates. The Company maintains a partial mismatch between the maturity of assets and liabilities in order to generate additional returns.
A criterion of the interest rate risk is a difference in duration of the assets and liabilities, which is limited by the internal limit. In 2018, the difference in duration decreased which indicates a lower exposure to the interest rate risk.
The interest rate risk is managed by the appropriate investment diversification between investments with a fixed return and with a variable return and provisions that are covered by these investments. The Company can control the variations of interest rate risk with interest rate derivatives, but in 2018, the Company did not have any such instruments. TRIGLAV RE / Business Report 2018
The Company’s exposure to the market risk due to variations in interest rates is accumulated in the interest-sensitive investment portfolio, as shown in the table above. The Company is also exposed to risk of changes in future cash flows due to variations in market interest rates. In 2018, the Company fixed the assets to the call option only on deposits with an interest rate of 0.00 percent to 0.01 percent. All deposits were with a fixed interest rate.
The Company continuously observes its exposure to interest rate risk by monitoring the interest consistency in assets (investment portfolio) and liabilities (insurance provisions). In addition, the Company regularly reviews and makes estimates of the cash flows and the impact of variations in interest rates relating to the investment portfolio and insurance provisions. The overall objective of these strategies is to limit the net difference in the value of the assets and liabilities resulting from the variations in interest rates.
Sensitivity analysis of financial assets to interest rate risk
Sensitivity of the financial assets to interest rates is expressed as an effect of the parallel shift of the interest rate curve by +/- 100 base points on the fair value of all interest-sensitive financial assets, i.e. the debt securities recorded as “available-for-sale” and “at fair value through profit or loss”.
The table below shows that the sensitivity of financial assets to interest rate risk decreased in 2018. The positive and negative variations in interest rates still had the greatest impact on the government securities, which represent the largest part of the Company’s portfolio. 47
Table 6: Sensitivity analysis of financial assets to interest rate risk
in EUR 31. 12. 2018 31. 12. 2017 +100bp -100bp +100bp -100bp Government securities -3,134,624 3,375,268 -2,702,899 2,886,238 Securities of financial -1,328,178 1,390,779 -1,549,364 1,634,976 institutions Corporate securities -904,345 944,938 -1,153,878 1,214,444 Compound securities 0 0 0 0 Other 0 0 0 0 TOTAL -5,367,146 5,710,985 -5,406,142 5,735,658 Impact on equity -5,367,146 5,710,985 -5,406,142 5,735,658 Impact on profit/loss 0 0 0 0 TRIGLAV RE / Business Report 2018
Share price risk
Table 7: Structure of equity securities
in EUR 31. 12. 2018 31. 12. 2017 Equity securities and investment funds 1,186,586 1,281,511 Shares in EU 1,052,883 1,088,891 Shares in USA 0 0 Shares in Asia 0 0 Shares in emerging markets 133,703 192,619 Global shares* 0 0 TOTAL EXPOSED ASSETS 1,186,586 1,281,511 TOTAL OTHER ASSETS 174,265,788 173,864,180 TOTAL FINANCIAL ASSETS 175,452,374 175,145,691 *Investments in shares with global investment diversification
The equity portfolio that is recognized in the statement of financial position “at fair value”, is exposed to the share price risk. The share price risk is a risk that the value of equity will fluctuate as a result of share prices changes, whether those changes are caused by factors specific to an individual instrument or its issuer or by the factors affecting all instruments traded in the market. 48 The Company’s aim is to achieve competitive returns by investing in a diversified portfolio of high quality liquid securities. The Company carries out a regular analysis of portfolio characteristics. The Company’s assets presented in the securities are invested in various companies in different industries. The limits set by the Company’s management substantially limit the exposure to the share price risk. At the end of 2018, the Company did not have a position in investment funds.
Table 8: Sensitivity analysis of financial assets related to the risk of share price changes
in EUR 31. 12. 2018 31. 12. 2017 +10% -10% +10% -10% Shares in EU 105,288 -105,288 108,889 -108,889 Shares in USA 0 0 0 0 Shares in emerging markets 13,370 -13,370 19,262 -19,262 Global shares* 0 0 0 0 TOTAL 118,659 -118,659 128,151 -128,151 Impact on equity 118,659 -118,659 128,151 -128,151 Impact on profit/loss 0 0 0 0 * Investments in shares with global investment diversification TRIGLAV RE / Business Report 2018
Foreign currency risk
A foreign currency risk is a risk of loss due to variations in foreign currency exchange rates and an inadequate currency matching of assets and liabilities. Foreign currency risk can be presented by the amount of open foreign currency positions, the foreign currency fluctuation and instability and the market liquidity for an individual foreign currency.
The Company is exposed to foreign currency risk and therefore it is necessary to balance the existing and the future assets and liabilities in each foreign currency. The currency structure of investments must reflect the currency structure of liabilities arising from the reinsurance contracts.
The Company has established the foreign currency limits, which represent a key tool for the foreign currency risk management and any individual open foreign currency position is quarterly monitored by an independent risk management service, which regularly informs the Risk Management Committee. The Committee also adopts the decisions concerning a reduction of the open foreign currency positions.
The transactions in foreign currencies are translated into euro at the reference exchange rate of the European Central Bank valid for the day. Monetary assets and liabilities denominated in foreign currency on the reporting day are translated into euro at the reference exchange rate of the European Central Bank valid on the balance sheet date. The profit or loss on monetary items in foreign currency is the difference between the nominal amount (amortized cost) 49 in the functional currency at the beginning of the period, adjusted for the effective interest and the payments during the period, and the nominal amount (amortized cost) in the foreign currency translated at the exchange rate of the European Central Bank at the end of the period. The non-monetary assets and liabilities denominated in foreign currencies that are measured “at fair value” are translated to euro at the reference exchange rate of the European Central Bank valid on the day when the fair value was determined. The exchange rate differences resulting from the translation are recognized in the profit and loss or in the capital, depending on the accounting classification of each non-cash asset.
Foreign currency risk is the risk of a loss due to a change in foreign exchange rates (an unfavourable exchange rate change may result in a decrease in the value of foreign currency assets or an increase in the value of foreign currency liabilities) and due to an inadequate currency matching of assets and liabilities. Foreign currency risks arise from all balance sheet and off-balance sheet items in foreign currency. This type of risk is managed by balancing investments with the amount of liabilities or with the amount of insurance technical provisions, which are expressed by the foreign currency clause. This risk also occurs in liabilities and receivables, especially from reinsurance business abroad, due to the movement of the exchange rate. The currency risk is mitigated by ensuring the currency consistency of receivables and liabilities with the same partners.
The currency structure of financial investments contains all the financial investments, including the Company’s financial investments under the reinsurance contracts with the Cedants. TRIGLAV RE / Business Report 2018
Table 9: Currency structure of financial assets investments
in EUR TECHNICAL FINANCIAL YEAR 2018 in % PROVISIONS CEDED in % INVESTMENTS TO REINSURANCE EUR 157,877,511 90.0% 51,090,436 98.3% USD 8,584,034 4.9% 453,640 0.9% TRY 1,635,504 0.9% 0 0.0% CZK 1,319,800 0.8% 0 0.0% ZAR 1,147,471 0.7% 0 0.0% OTHER 4,888,053 2.8% 414,522 0.8% TOTAL 175,452,374 100.0% 51,958,598 100.0%
in EUR TECHNICAL FINANCIAL YEAR 2017 in % PROVISIONS CEDED in % INVESTMENTS TO REINSURANCE EUR 160,462,687 91.6% 54,692,415 98.2% USD 6,059,697 3.5% 424,244 0.8% INR 1,342,761 0.8% 0 0.0% TRY 1,683,319 1.0% 0 0.0% ZAR 1,312,234 0.7% 0 0.0% OTHER 4,284,993 2.4% 588,779 1.1% TOTAL 175,145,691 100.0% 55,705,438 100.0% 50
Table 10: Currency structure of net insurance technical provisions
in EUR Net technical Net technical Currency in % Currency in % provisions 2018 provisions 2017 EUR 87,391,386 76.4% EUR 84,392,105 78.3% USD 8,291,052 7.2% USD 6,566,379 6.1% JPY 3,179,326 2.8% TRY 1,943,040 1.8% TRY 2,110,381 1.8% ZAR 1,939,493 1.8% CNY 1,981,624 1.7% KRW 1,687,369 1.6% KRW 1,792,336 1.6% INR 1,593,401 1.5% INR 1,360,389 1.2% CNY 1,332,912 1.2% Other 8,270,871 7.2% Other 8,302,325 7.7% TOTAL 114,377,365 100.0% 107,757,024 100.0% Insurance technical 114,377,365 100.0% 107,757,024 100.0% provisions Equalisation provisions 0 0.0% 0 0.0% TRIGLAV RE / Business Report 2018
Table 11: Currency sensitivity for five largest open currency positions
in EUR Appreciation Appreciation Open foreign of foreign of foreign 31.12.2018 ASSETS LIABILITIES currency currency vs. currency vs. position EUR by 10 % EUR by 10 % JPY - Japanese yen 104,666 3,183,385 -3,078,719 -307,872 307,872 KRW - South Korean won 473,101 2,171,697 -1,698,596 -169,860 169,860 HKD - Hong Kong dollar 115,481 1,434,911 -1,319,430 -131,943 131,943 USD - US dollar 12,475,165 11,326,408 1,148,756 114,876 -114,876 CNY - Chinese yuan 2,234,450 2,887,862 -653,412 -65,341 65,341
in EUR Appreciation Appreciation Open foreign of foreign of foreign 31.12.2017 ASSETS LIABILITIES currency currency vs. currency vs. position EUR by 10 % EUR by 10 % KRW - South Korean won 216,602 1,903,114 -1,686,513 -168,651 168,651 HKD - Hong Kong dollar 527,349 1,779,748 -1,252,398 -125,240 125,240 ZAR - South African rand 1,388,726 1,945,607 -556,881 -55,688 55,688 RUB - Russian rouble 541,619 1,045,972 -504,354 -50,435 50,435 TWD - New Taiwan dollar 58,689 391,214 -332,525 -33,253 33,253
At the end of 2018, the company recorded the largest currency mismatch between the assets and 51 liabilities in the JPY currency, which resulted from the formation of gross technical provisions. The Company had for EUR 3,078,719 more liabilities than assets in JPY, so it is vulnerable to the appreciation of the JPY in relation to EUR. In the case of 10% appreciation of JPY in relation to EUR, the Company would record a negative impact amounting to EUR 308,000 at the end of 2018. The Company’s sensitivity was also noticeable in the appreciation of KRW against EUR.
Liquidity risk
The liquidity risk is a risk of loss, which may occur if the Company is not able to pay outstanding liabilities or is forced to provide sufficient liquid assets at the price that is significantly higher than normal. The liquidity risk is also a risk of the limited access to financial funds needed for the payments of liabilities arising from the reinsurance contract and also of other liabilities.
The main objective of the liquidity risk management is to ensure that the Company has, at any time, sufficient liquid assets to pay all current liabilities within the prescribed terms.
The Company manages the liquidity risk by monitoring internally determined liquidity ratios, by weekly planning of the liquidity position, by monitoring the historical data on the Company’s liquidity position (especially in case of the major loss events), by the highly liquid assets and a dispersion of deposits by maturity and of free funds in bank accounts. The Company has a portfolio of liquid assets, which is a part of its liquidity risk management strategy in order to ensure the business continuity and compliance with legal requirements. In order to provide liquidity resources, the Company could establish a system of credit lines that could enable the withdrawal of cash in the event of liquidity needs.
The Company’s portfolio consists of liquid assets, which is a part of its strategy for the liquidity risk management, so that the Company can ensure the payment of all financial TRIGLAV RE / Business Report 2018
liabilities also in tense circumstances and without any noticeably higher additional costs.
The liquidity risk is managed by: regular monitoring of the planned cash flows from the assets and liabilities, daily liquidity management, annual planning of the short-term investments and operational management of the short-term investments, regular monitoring of the costs for the alternative financing sources of (e.g. granting new credit lines) regular informing on the extent of free funds, providing the assessment of the changes in the insurance technical provisions by months for the following calendar year, providing the regular reports on the liquidity position of the Company through structural liquidity indicators.
In 2018, the Company maintained a strong liquidity position with the sufficient quantity of the liquid assets for the timely payments of its liabilities.
The table below shows the structure of undiscounted expected cash flows of the assets and liabilities.
Table 12: Structure of undiscounted expected future cash flows of assets and liabilities 52 31.12.2018 in EUR FINANCIAL ASSETS AND NOT LESS THAN 1 TO 5 5 TO 10 OVER 10 TOTAL Book value LIABILITIES TO REINSURERS DEFINED 1 YEAR YEARS YEARS YEARS Total financial investments 1,196,586 32,491,170 104,504,465 42,034,886 7,276,395 187,503,502 175,452,374 Debt securities 0 25,695,957 104,504,465 42,034,886 7,276,395 179,511,703 167,460,575 - held to maturity 0 0 0 0 0 0 0 - at fair value through profit or 0 0 0 0 0 0 0 loss - available-for-sale 0 25,695,957 104,504,465 42,034,886 7,276,395 179,511,703 167,460,575 - loans and receivables 0 0 0 0 0 0 0 Equity securities 1,186,586 0 0 0 0 1,186,586 1,186,586 - at fair value through profit or 0 0 0 0 0 0 0 loss - available-for-sale 1,186,586 0 0 0 0 1,186,586 1,186,586 Financial derivatives 0 0 0 0 0 0 0 Loans and receivables 10,000 6,795,212 0 0 0 6,805,212 6,805,212 Technical provisions ceded to 0 21,423,509 15,948,180 8,116,011 6,470,898 51,958,598 51,958,598 Reinsurers Operating receivables 0 56,669,922 0 0 0 56,669,921 56,669,922 Cash and cash equivalents 0 381,707 0 0 0 381,707 381,707 TOTAL FINANCIAL ASSETS AND 1,196,586 110,966,307 120,452,645 50,150,897 13,747,293 296,513,729 284,462,600 LIABILITIES TO REINSURERS
FINANCIAL ASSETS AND NOT LESS THAN 1 TO 5 5 TO 10 OVER 10 Book value TOTAL PROVISIONS DEFINED 1 YEAR YEARS YEARS YEARS Insurance technical provisions 0 86,191,730 43,607,661 16,153,909 20,382,663 166,335,963 166,335,963 Other provisions 0 95,607 6,495 22,697 76,625 201,424 201,424 Operating liabilities 0 37,730,428 0 0 0 37,730,428 37,730,428 Other liabilities 0 1,288,472 0 0 0 1,288,472 1,288,472 TOTAL FINANCIAL ASSETS AND 0 125,306,238 43,614,156 16,176,606 20,459,289 205,556,287 205,556,288 PROVISIONS TRIGLAV RE / Business Report 2018
31.12.2017 in EUR FINANCIAL ASSETS AND NOT LESS THAN 1 TO 5 5 TO 10 OVER 10 TOTAL Book value LIABILITIES TO REINSURERS DEFINED 1 YEAR YEARS YEARS YEARS Total financial investments 1,291,511 25,707,100 113,641,688 35,753,621 5,934,753 182,328,673 175,145,691 Debt securities 0 19,174,550 113,641,688 35,753,621 5,934,753 174,504,613 167,321,631 - held to maturity 0 0 0 0 0 0 0 - at fair value through profit 0 0 0 0 0 0 0 or loss - available-for-sale 0 19,174,550 113,641,688 35,753,621 5,934,753 174,504,613 167,321,631 - loans and receivables 0 0 0 0 0 0 0 Equity securities 1,281,511 0 0 0 0 1,281,511 1,281,511 - at fair value through profit 0 0 0 0 0 0 0 or loss - available-for-sale 1,281,511 0 0 0 0 1,281,511 1,281,511 Financial derivatives 0 0 0 0 0 0 0 Loans and receivables 10,000 6,532,549 0 0 0 6,542,549 6,542,549 Technical provisions ceded to 0 28,423,104 16,136,081 7,415,010 3,731,244 55,705,438 55,705,438 Reinsurers Operating receivables 0 48,937,780 3,670 0 0 48,941,449 48,941,449 Cash and cash equivalents 0 246,461 0 0 0 246,461 246,461 TOTAL FINANCIAL ASSETS AND 1,291,511 103,314,444 129,781,438 43,168,631 9,665,997 287,222,021 280,039,039 LIABILITIES TO REINSURERS
FINANCIAL ASSETS AND NOT LESS THAN 1 TO 5 5 TO 10 OVER 10 Book value TOTAL PROVISIONS DEFINED 1 YEAR YEARS YEARS YEARS Insurance technical provisions 0 99,501,641 45,548,010 12,958,777 5,454,036 163,462,462 163,462,462 53 Other provisions 0 96,162 8,584 11,626 77,473 193,846 193,846 Operating liabilities 0 31,941,079 0 0 0 31,941,079 31,941,079 Other liabilities 0 899,377 0 0 0 899,377 899,377 TOTAL FINANCIAL ASSETS AND 0 132,438,259 45,556,593 12,970,403 5,531,509 196,496,764 196,496,764 PROVISIONS
The liabilities and assets are not discounted, but estimated by the sum of expected future cash flows. In 2018, gross provisions relating to reinsurance contracts amounted to EUR 166,335,963 (in 2017 to EUR 163,462,462).
The Company maintains a partial mismatch between the maturity of assets and liabilities and thus generates a part of its yield. The Company pays the current liabilities by the current income, but it also provides the possibility of selling the financial instruments and therefore maintains the high liquidity of the investment portfolio.
Among all the securities, thirty-two debt securities are such that they can be recalled earlier by the issuers. At the reporting date, their total book value amounted to EUR 14,837,624 (in 2017 to EUR 14,149,044).
Credit risk
Credit risk, or default risk, is the risk that a financial loss will be incurred if a counterparty does not fulfil its financial obligations in a timely manner. It can be also defined as a risk of default or credit quality deterioration due to fluctuations in the credit position of issuers of TRIGLAV RE / Business Report 2018
securities, counterparties and potential debtors to which the Company is exposed. Default risk has a significant effect on the value of a bond: if a debtor’s ability to repay debt is impaired, default risk is higher and the value of the bond will decline.
The credit risks may arise due to: the outward reinsurance business (retrocession). This risk reflects the possible losses due to the payment inability or the reinsurers’ (retrocessionaires’) worse credit position. the financial investments. This risk reflects the possible losses due to the payment inability or the poorer credit position of the issuers of the financial investments and of the counterparties in the business operations with the financial derivative instruments. The risk concentration is also included. the claims against other debtors (e.g. cedant’s claims arising from the premium payments)
In accordance with internal rules, the credit risk arising from reinsurance contracts is managed by the selection of the Reinsurers (Retrocessionaires) and their credit ratings which generally should not be lower than “BBB +” by Standard and Poor’s rating, respectively “bbb +” by A. M. Best, except for outward reinsurance of the liability and the motor insurance classes, where the credit rating generally must not be lower than “A –“ by the S&P, respectively “a-“ by A. M. Best.
The maximum exposure to the banks and banking groups is determined by internal methodology for the assessment of the credit quality taking into account their financial 54 position and the credit ratings of internationally recognized rating agencies.
The selection of an issuer with appropriate credit rating and consideration of the maximum exposure to an individual issuer or a group of related persons are the main concerns in the investment portfolio management.
The credit risk also includes the concentration risk that is measured in all business operations. Concentration risk within the credit risk is a risk of loss in case of an excessive exposure to a single party, a group of related parties and parties who are associated by the common risk factors such as industry, a geographical area or country.
Table 13: Structure of assets exposed to the credit risk
in EUR ASSETS YEAR 2018 YEAR 2017 Equity securities 1,186,586 1,281,511 Debt securities 167,460,575 167,321,631 Investment funds 0 0 Technical provisions ceded to Reinsurers 51,958,598 55,705,438 Loans and receivables 6,805,213 6,542,549 Financial derivates 0 0 Receivables 56,669,922 48,941,449 TOTAL EXPOSED ASSETS 284,080,893 279,792,578 TRIGLAV RE / Business Report 2018
Table 14: Credit risk in debt securities portfolio (taking into account the book value)
in EUR CREDIT RATING YEAR 2018 in % YEAR 2017 in % AAA 31,169,805 19% 31,560,907 19% AA 8,196,468 5% 14,366,623 9% A 51,646,695 31% 43,241,987 26% BBB 59,182,016 35% 57,281,365 34% BB 10,834,570 6% 15,471,520 9% B 1,816,483 1% 287,283 0% without credit rating 4,614,539 3% 5,111,947 3% TOTAL 167,460,575 100% 167,321,631 100%
Credit risk is managed by the appropriate diversification of better credit quality investments. On 31 December 2018, investments in foreign securities amounted to EUR 137,039,246. The average credit rating in the bond portfolio was “A” assessed by the S&P.
Investments in securities of the Republic of Slovenia and in the securities guaranteed by the Republic of Slovenia amounted to EUR 27,844,925 at the end of 2018 (at the end of 2017 to EUR 22,177,882), which represent a share of 16.5 percent of all securities owned by the Company. On 31 December 2018, the securities portfolio of the Republic of Slovenia had the credit rating of “A-“ by Fitch. The Company also owns the debt securities without a credit rating and they were mostly issued by the Slovenia financial and corporate sector. The largest part of bonds 55 of class “A” are the Slovenian government bonds.
Table 15: The credit risk of loans and receivables, which include the Company’s deposits with banks and financial investments under reinsurance contracts with the Cedants
in EUR CREDIT RATING YEAR 2018 in % YEAR 2017 in % AA 475,859 7% 347,999 5% A 1,449,192 21% 1,555,239 24% BBB 4,043 0% 105,887 2% BB 93,047 1% 231,846 4% without credit rating 4,783,072 70% 4,301,579 66% TOTAL 6,805,213 100% 6,542,549 100%
Receivables are also exposed to credit risk. Credit risk considerably affects characteristics of reinsurance contracts, and the Company manages this risk by the mutual offset of the receivables and the liabilities for losses relating to the same reinsurer (offset of receivables for the premiums and liabilities for losses and commission payable in inwards reinsurance, and offset of receivables for losses and commission and liabilities for premiums payable in outwards reinsurance).
The below table shows the maturity structure of the already offset receivables and liabilities arising from the outward and inward reinsurance contracts. TRIGLAV RE / Business Report 2018
Table 16: The maturity structure of receivables and liabilities from reinsurance operations (i.e. inward and outward reinsurance operations)
in EUR YEAR 2018 Not matured Maturity up Maturity over Total yet to 180 days 180 days Inward operations 16,193,374 1,069,044 -110,656 17,151,762 - receivables for premium from reinsurance 38,242,466 5,632,026 539,098 44,413,590 assumed - liabilities to Reinsurers for shares in claims -12,936,101 -2,864,046 -509,087 -16,309,234 - other liabilities from coinsurance and -9,112,991 -1,698,936 -140,667 -10,952,593 reinsurance
Outward operatins -322,739 1,322,693 369,738 1,369,692 - liabilities to retrocession premium -8,550,514 -1,902,119 -15,968 -10,468,601 - receivables for Reinsurers' shares in claims 5,973,699 2,734,421 383,453 9,091,573 - other receivables from coinsurance and 2,254,076 490,391 2,253 2,746,720 reinsurance TOTAL 13,907,112 774,111 -106,644 14,574,579
in EUR YEAR 2017 Not matured Maturity up Maturity over Total yet to 180 days 180 days Inward operations 17,968,404 956,324 -158,441 18,766,286 - receivables for premium from reinsurance 37,362,743 3,688,970 605,538 41,657,251 56 assumed - liabilities to Reinsurers for shares in claims -10,365,063 -1,605,827 -593,545 -12,564,435 - other liabilities from coinsurance and -9,029,276 -1,126,819 -170,434 -10,326,530 reinsurance
Outward operatins -2,623,115 511,565 452,701 -1,658,848 - liabilities to retrocession premium -8,779,769 -142,864 -11,003 -8,933,635 - receivables for Reinsurers' shares in claims 3,804,988 644,498 457,497 4,906,983 - other receivables from coinsurance and 2,351,666 9,931 6,207 2,367,804 reinsurance TOTAL 15,345,289 1,467,889 294,260 17,107,438
Table17: Structure of receivables by maturity
in EUR YEAR 2018 Not matured Maturity up Maturity over Total yet to 180 days 180 days Receivables from coinsurance and 46,470,241 8,856,838 924,804 56,251,883 reinsurance - receivables for premium from reinsurance 38,242,466 5,632,026 539,098 44,413,590 assumed - receivables to Reinsurers for shares in 5,973,699 2,734,421 383,453 9,091,573 claims - other receivables from coinsurance and 2,254,076 490,391 2,253 2,746,720 reinsurance Other receivables 24,333 0 0 24,333 TOTAL 46,494,574 8,856,838 924,804 56,276,217 TRIGLAV RE / Business Report 2018
in EUR YEAR 2017 Not matured Maturity up Maturity over Total yet to 180 days 180 days Receivables from coinsurance and 43,519,397 4,343,399 1,069,242 48,932,037 reinsurance - receivables for premium from reinsurance 37,362,743 3,688,970 605,538 41,657,251 assumed - receivables to Reinsurers for shares in 3,804,988 644,498 457,497 4,906,983 claims - other receivables from coinsurance and 2,351,666 9,931 6,207 2,367,804 reinsurance Other receivables 9,412 0 0 9,412 TOTAL 43,528,809 4,343,399 1,069,242 48,941,449
Credit risk can also result from retrocessions in the event that a reinsurer (retrocessionaire) does not fully and timely settle its obligations. In order to diminish this risk, the Company has established business and financial standards for assessing the reinsurers, based on credit ratings provided by internationally recognized credit rating agencies and on valid market information. The Company monitors the financial position of the business partners and, as a general rule, the retrocession contracts are concluded with the reinsurers of credit rating at least “A-” according to S & P, or the equivalent to other credit rating agencies for liability reinsurance and at least “BBB +” according to S & P.
The table below shows the structure of retroceded insurance technical provisions by the 57 Retrocedants’ credit rating as of 31 December 2018 compared to the preceding year.
Table 18: Structure of retroceded insurance technical provisions by the Retrocedant’s credit rating
in EUR Reinsurers credit rating (S&P's) YEAR 2018 YEAR 2017 AAA 0 0 AA 24,115,542 26,090,519 A 24,412,818 27,270,918 BBB 298,549 727,120 BB 335,835 119,453 without credit rating 2,795,853 1,497,428 TOTAL 51,958,598 55,705,438
TRIGLAV RE / Business Report 2018
Operational risk
The Company pays a special attention to the operational risk management. The operational risk is arising from inadequate or failed activities such as:
implementation of an internal process (an inadequate organization and inappropriate business processes can result in the business interruptions, a lack of information, an inappropriate cost management, a poor document management and control, an unsuitable management of the internal changes, etc.), activities of employees (human resources risk can be found in inadequate human resource management, a staffing mistake, an inadequate internal regulations, etc.), functioning of the implemented systems (risk of an inadequate information technology, which includes the applications and infrastructure, technical aids, etc.) monitoring and management of external events and their effects (a legal risk, loss of credit ratings, unfair competition, etc.).
The definition of operational risk includes information and cyber risks, legal risk (including the risk of compliance), the risk of effective and successful implementation of projects and the risk of outsourcing services, but does not include strategic risk and loss of reputation risk.
The management of operational risks is based on the efficient system of internal controls that must be improved and updated from year to year. The Company manages the organizational risk by adjustments in the internal organizational structure, by strictly defined responsibilities 58 of all employees and a gradual computerization of business processes. The staffing risk is managed by applying the knowledge transfer system among employees and by the consistent and planned training courses. A key part of managing information technology risk is the restructuring and upgrading of information technology systems that will additionally support all reinsurance processes; whereas a key part of the legal risk management is a continuous monitoring of the current legislation and the participation of the legal professional in all business decisions.
In 2018, the Company continued with the renewal of its reinsurance IT system, which will enable more comprehensive support to the reinsurance processes, and will meet the needs for data processing and reduce the risk of data quality assurance.
The Company has also established a reporting system and a system for centralized management of losses and incidents arising from operational risk. Appointed employees from each organizational unit are responsible to fulfil the reporting requirements, and furthermore, the possibility of anonymous reporting was introduced. Losses are recorded in a central loss event database, which is handled by an independent Risk Management Service. The database of loss events contains a description, cause, consequences, preventive measures and an estimate of the costs of each reported loss. The Risk management committee, the Management Board, the Audit Committee and the Supervisory Board are regularly informed on the occurred losses. TRIGLAV RE / Business Report 2018
Strategic and reputational risk
Strategic risk is the risk of a loss arising from the wrong business decisions, insufficient execution of decisions, from inadequate asset allocations or a failure to react effectively to changes in the business environment. The Company’s Management Board and Senior Management promptly exchange information relevant for making business decisions, for achieving short-term and long-term goals and for decisions regarding strategic risk management.
Identifying and assessing a strategic risk is carried out at least once a year, when the actual and potential strategic risks to which the Company is exposed are identified and assessed.
Reputational risk, often called reputation risk, is the risk of a loss resulting from the negative image of the Company, which may result in the increased operating, capital or regulatory costs, in legal disputes that can cause the loss of clients and business partner(s) leading consequently to financial loss. The management of reputation risk is a duty of all employees of Triglav Re, including its supervisory bodies. The identification of a reputation risk is made by reporting of loss events arising from operational risk as well as by internal workshops that are also intended to risk self- identification.
6.6. Future challenges in risk management 59
Triglav Re, d.d. will continue to upgrade the risk management system, which will improve the process of making the business decisions and will ensure the Company’s sound and prudent operations and its financial integrity. It will take into account regulatory requirements, good practices and risk management guidelines in the Triglav Group.
The Company will continuously monitor the changes in the internal and external environment and will adapt to them accordingly. The renewal and implementation of the reinsurance IT system will enable the better data quality, and it will represent a key contribution to diminish the IT risk exposure.
The harmonization of the risk management system with the parent company, which will ensure a greater uniformity of risk measurement methods used by the Triglav Group companies, a further development of the own risk and solvency assessment and of the risk exposure reporting will provide a better coordination of management processes within the Triglav Group. However, the Company must take into account the specifics of the reinsurance business, the own risk profile and the extent and complexity of reinsurance business. “If the bee disappears from the surface of the earth, man would have no more than four years to live.” Alber Einstein
Bees play an absolutely essential role in the pollination of fruit trees, because they pollinate as much as 70% to 80% of blossoms, with this share rising due to increasingly intensive agricultural activity and production. The most visible and widely demonstrated role of bees is therefore the pollination of apple, pear, peach and cherry trees and strawberries, cucumbre ... TRIGLAV RE / Business Report 2018
7. FINANCIAL RESULTS
As of 1 January 2018, disclosure of items in the Income Statement has changed. This means that among other insurance incomes, exchange gains arising from the revaluation or repayment of operating receivables or liabilities are also recorded from 1 January 2018. In previous financial statements, this item was recorded under “income from financial assets or investments”. The same change is also recorded under “other insurance expenses”. The comparative financial statements of last year and the planned figures were adjusted to these changes. That change has influenced the expenditure ratio and the combined ratio for both periods shown. 61 In 2018, Triglav Re, d.d. generated a net profit amounting to EUR 4,532,787 which is 13 percent less than planned and 29 percent less than in 2017. The combined ratio for the Company’s performance in 2018 amounts to 96.2 percent, while the planned ratio was 94.9 percent. The combined ratio in 2017 was 94.2 percent. In 2018, investment returns were more favorable than planned, and the Company’s result was also improved by lower operating costs.
7.1. Reinsurance premiums
In 2018, the gross reinsurance premium amounted to EUR 131,170,639 and in comparison to 2017, it increased by 6.0 percent.
Table 19: Gross reinsurance premium in 2018 and 2017
in EUR YEAR 2018 YEAR 2017 INDEX PLAN 2017 INDEX TO PLAN GROSS PREMIUM TOTAL 131,170,639 123,713,912 106.0 125,289,900 104.7 NET PREMIUM TOTAL 80,527,140 74,300,049 108.4 76,361,022 105.5 TRIGLAV RE / Business Report 2018
Breakdown of gross reinsurance premium by territories
Carribean and Central America 0.9% Oceania 0.9% South America 0.3% Western Europe 9.7% Central and West Asia 6.9% East Asia 8.0% South and South-East Asia 2.1% South and Nord Africa 0.4% Eastern Europe 5.2% Northern Europe 3.9%
Southern Europe 61.7%
Compared to the previous year, the net premium volume increased by 8.4 percent due the increased inward reinsurance business in 2018.
Structure of gross reinsurance premium Structure of net reinsurance premium in 2018 in 2018
Other Liability Other Reinsurance 4.3% Other Liability Other Reinsurance 2.6% Reinsurance 5.9% Reinsurance 6.2% Motor Reinsurance Motor Reinsurance 62 17.8% 19.3%
Marine and Marine and Aviation Aviation Reinsurance Reinsurance 5.5% 6.7%
Property Reinsurance 66.5% Property Reinsurance 65.2%
The largest part in the gross reinsurance premium is represented by property reinsurance business, yet it decreased in 2018 by 1.1 percentage point compared to 2017. The most significant increase of 0.5 percentage point in 2018 was recorded in the motor business. The share of marine, aviation and other liability lines of business increased by 0.3 percentage point compared to 2017. On the other hand, the share of other reinsurance business decreased by 0.1 percentage point.
In the net reinsurance premium structure, the share of other liability reinsurance business increased by 1.0 percentage point and of marine and aviation business by 0.5 percentage point. The share of property reinsurance decreased by 1.0 percentage point, of other reinsurance lines by 0.3 percentage point and of motor reinsurance by 0.2 percentage point.
The net reinsurance premium income (calculated from the gross reinsurance premiums reduced by the reinsurers’ share and adjusted by a change in gross unearned premium, TRIGLAV RE / Business Report 2018
corrected for the reinsurers’ share in the unearned premium) amounted to EUR 79,480,911 in 2018 and it increased by 8.2 percent compared to 2017.
7.2. Reinsurance claims
In comparison with the preceding year, the gross claims in 2018 amounted to EUR 69,994,751 and they increased by 23.3 percent which means that they were for 8.4 percent higher than planned. The net claims were for 6.4 percent higher than planned.
Table 20: Settled claims in 2018 compared to 2017
in EUR YEAR 2018 YEAR 2017 INDEX PLAN 2018 INDEX TO PLAN GROSS CLAIMS TOTAL 69,994,751 56,764,142 123.3 64,552,476 108.4 NET CLAIMS TOTAL 47,872,963 41,177,234 116.3 44,991,813 106.4
Structure of gross reinsurance claims Structure of net reinsurance claims in 2018 in 2018
Other Liability Other Reinsurance 2.3% Other Liability Other Reinsurance 1.6% Reinsurance 5.2% Reinsurance 3.0% Motor Reinsurance Motor Reinsurance 63 19.1% 24.3%
Marine and Marine and Aviation Aviation Reinsurance Reinsurance 4.8% 6.5%
Property Reinsurance 68.7% Property Reinsurance 64.6%
In 2018, the majority of gross claims affected the property and motor reinsurance business. Compared to 2017, the highest increase in gross claims, i.e. by 4.4 percentage points, was recorded in the property reinsurance business; while the most significant decrease of 4.0 percentage point was noted in the marine and aviation business.
The net claims structure in 2018 is similar to the gross claims structure since the majority of net claims is related to the property reinsurance, i.e. 64.6 percent, and a share of 24.3 percent to the motor reinsurance.
In 2018, net claims incurred (gross claims incurred, reduced by the reinsured share and adjusted by a change in the gross claims provisions corrected for the reinsurers’ share in these provisions) amounted to EUR 52,382,621 and they increased by 11.9 percent compared to 2017. TRIGLAV RE / Business Report 2018
7.3. Gross loss ratio
The gross loss ratio representing a ratio of the gross claims paid to the gross premiums written, increased by 7.5 percentage point in 2018, which is mostly the result of substantial increase of gross claims settled in 2018.
Gross loss ratio in EUR 0 20% 40% 60% 80% 100%
2017 45.9%
2018 53.4%
0 20,000,000 40,000,000 60,000,000 80,000,000 100,000,000 120,000,000
GROSS REINSURANCE PREMIUM GROSS CLAIMS PAID GROSS LOSS RATIO
7.4. Commission income and expenses
The commission income in 2018 amounted to EUR 10,400,900 and compared to the previous year it decreased by EUR 425,000 or by 3.9 percent; while the commission expenses of EUR 29,753,081 increased by 1.1 percent in 2018, so that the net commission expenses in 2018 64 amounted to EUR 19,352,181.
7.5. Financial income and expenses
The financial investment position on 31 December 2018 stood at EUR 175,452,374 and in comparison with the previous year it increased by EUR 307,000 which equals 0.2 percent.
Table 21: Structure of financial investments
in EUR STRUCTURE STRUCTURE 31. 12. 2018 31. 12. 2017 INDEX 2018 2017 Shares and other variable yield 1,186,586 0.7% 1,281,511 0.7% 92.6 securities Debt and other fixed yield 167,460,575 95.4% 167,321,631 95.5% 100.1 securities Shares in investment funds 0 0.0% 0 0.0% / Bank deposits 513,937 0.3% 864,936 0.5% 59.4 Financial derivatives 0 0.0% 0 0.0% / Other financial investments 10,000 0.0% 10,000 0.0% 100.0 Reinsurers' investments from 6,281,276 3.6% 5,667,613 3.2% 110.8 reinsurance contracts TOTAL FINANCIAL INVESTMENTS 175,452,374 100% 175,145,691 100% 100.2 TRIGLAV RE / Business Report 2018
The Company reported the following investment structure by maturity as of 31 December 2018: long-term financial investments amounting to EUR 162,478,229; short-term financial investments amounting to EUR 1,553,226; financial investments in the Triglav Group companies amounting to EUR 5,139,643; retained premiums at Cedants, earned from reinsurance contracts amounting to EUR 6,281,276.
The largest part of investments is represented by debt securities, followed by financial investments from reinsurance contracts. The shares and other variable yield securities represent a part of 0.7 percent, while the bank deposits and other financial investments represent the lowest amount in the investment structure.
The structure of individual types of investments has barely changed in comparison with the previous year. The share of financial investments of reinsurers from reinsurance contracts recorded the largest increase of 0.4 percentage point. On the other hand, the share of debt and other fixed yield securities fell by 0.1 percentage point and of bank deposits by 0.2 percentage point. The volume of shares, other financial investments and the financial derivatives remained in 2018 at the same level as in 2017.
The book value return of the entire investment portfolio amounted to 1.7 percent in 2018, while in 2017 to 2.2 percent. 65 Investment income, investment expenses and return on investments in EUR
2017 3,936,068
2018 3,002,587
0 1,000,000 2,000,000 3,000,000 4,000,000 5,000,000 6,000,000 7,000,000 8,000,000 9,000,000
INVESTMENT EXPENSES RETURN ON INVESTMENTS NVESTMENT INCOME
Investment income in 2018 amounted to EUR 4,480,082, whereas the investment expenses to EUR 1,477,495. The total return on investments amounted to EUR 3,002,587, which is by 23.7 percent less than in the previous year.
The Company’s investment policy in 2018 followed the principles of safety, liquidity, diversification, making more profit and covering of provisions by matching assets. TRIGLAV RE / Business Report 2018
7.6. Operating expenses
In 2018, the gross operating expenses increased by 6.0 percent, whereas the depreciation expenses decreased by 11.4 percent and other operating expenses by 6.1 percent. The labor costs increased by 10.2 percent and the costs of services provided by individuals by 23.6 percent. The asset management expenses for 2018 amounted to EUR 278,358 (in 2017 to EUR 228,601) and are recorded in the income statement under the Expenditure from financial assets and liabilities.
Table 22: Breakdown of operating expenses
in EUR YEAR 2018 YEAR 2017 INDEX Depreciation of operating assets 70,722 79,828 88.6 Labour costs 2,838,599 2,576,040 110.2 Costs of services provided by individuals not engaged in business activity, including 57,241 46,293 123.6 contributions Other operating expenses 804,395 856,357 93.9 TOTAL OPERATING EXPENSES 3,770,956 3,558,518 106.0
7.7. Financial result indicators 66
Table 23: Indicators of the financial result
YEAR 2018 YEAR 2017 Retention rate 61.4% 60.1% Share of net operating expenses to gross premium 2.9% 2.9% Loss ratio 66.9% 63.6% Expense ratio 29.3% 30.6% Combined ratio 96.2% 94.2% Apis mellifera carnica, known also as the Carniolan honey bee, is an indigenous Slovenian subspecies of bee renowned for its docility, hard work, humility and excellent sense of orientation. It is also distinguished by its industriousness, low winter mortality, and exceptionally intensive springtime development. It is much valued for its ability to defend itself successfully against insect pests and gentle behaviour towards beekeepers. A symbol of hard work and practical wisdom, this bee variety is regarded as the second most widespread in the world and is protected as an indigenous subspecies in Slovenia. TRIGLAV RE / Business Report 2018
7. FINANCIAL POSITION
On 31 December 2018, the Company’s balance sheet total amounted to EUR 285,974,561 an increase of 2.0 percent compared to 31 December 2017.
8.1. Financial assets
On 31 December 2018, the financial assets, which represent a share of 79.5 percent of total assets, decreased by 1.5 percent compared to 31 December 2017. However, the intangible long-term assets increased in relative terms the most, and represent a share of only 0.5 percent of the total assets. The receivables, which represent a share of 19.8 percent of total 68 assets, increased by 15.8 percent compared to 31 December 2017.
Structure of financial assets in EUR
31 . 12. 2017 230,851,129 48,941,449 535,118
31. 12. 2018 227,410,972 56,669,922 1,893,668
0 30,000,000 60,000,000 90,000,000 120,000,000 150,000,000 180,000,000 210,000,000 240,000,000 270,000,000 300,000,000
INVESTMENTS (including technical provisions ceded to Reinsurers and financial investment) RECEIVABLES OTHER
8.2. Financial liabilities
The gross insurance technical provisions, reaching as much as 58.2 percent, represent the largest amount of liabilities. As of 31 December 2018, the total equity of the Company amounted to EUR 79,944,828 and it decreased by 3.3 percent in comparison to 31 December 2017. A considerable part of the liabilities is represented by the other liabilities amounting to EUR 38,203,873 or a share 13.4 percent of the total liabilities and is mainly related to the liabilities arising from reinsurance operations. TRIGLAV RE / Business Report 2018
Structure of liabilities in EUR
31 . 12. 2017 82,693,155 163,462,462 33,078,856 1,093,223
31. 12. 2018 79,944,828 166,335,963 38,203,873 1,489,897
0 30,000,000 60,000,000 90,000,000 120,000,000 150,000,000 180,000,000 210,000,000 240,000,000 270,000,000 300,000,000
EQUITY GROSS TECHNICAL PROVISIONS OTHER LIABILITIES OTHER
8.3. Financial position indicators
Table 24: Financial position indicators
YEAR 2018 YEAR 2017 Share of capital in total liabilities 28.0% 29.5% Return on equity 5.6% 7.7% Share of gross technical provisions in total liabilities 58.2% 58.3% Share of financial assets in total assets 61.4% 62.5% 69 its Beehive panel paintings emerged on its own, from folk imagination. The imagination allowed everything, so when making these paintings the sky was the limit for creativity, which only became stronger through the motifs, colours, and patterns. This folk art, which is a typical Slovenian form of art, emerged in Gorenjska and Koroška. Soon, it was adopted by all Slovenian regions where Slovenian wooden panels were used. Beehive panels grace the front panel of a beehive. The oldest ones date back to the 18th century. This incredibly beautiful and simple craft continued to be BEE used by Slovenians until the end of World War II. INSPIRED TRIGLAV RE / Business Report 2018
9. SIGNIFICANT EVENTS AFTER THE END OF ACCOUNTING PERIOD AND TRANSPARENCY OF FINANCIAL RELATIONS 71
9.1. Significant events after the end of accounting period
There were no significant events after the end of the accounting period.
9.2. Transparency of financial relations
According to the Act on transparency of financial relations and the separate accounts for various activities, the Company is listed within the public undertakings and public credit institutions.
In 2018, the Company did not receive any public funds listed in the said Act. BEE IS GOLD. LITERARY. Honey is written about in hieroglyphics. Egyptians would used hony as a form of payment. TRIGLAV RE / Business Report 2018
10. FINANCIAL STATEMENTS AND EXPLANATORY NOTES
The financial statements of Triglav Re, d.d. have been drafted in conformity with the International Financial Reporting Standards (IFRS) as adopted by the European Union and the explanatory notes adopted by the International Financial Reporting Interpretations Committee (IFRIC) which were also adopted by the European Union. The financial statements are also prepared in line with the provisions of the Companies Act. 73 At the balance sheet date, taking into account the standards-approving process in the European Union, there is no difference in the Company’s accounting policy between the IFRS applied by the Company and IFRS adopted by the European Union.
The accounting policy used in the preparation of the Company’s financial statements is the same as in the preparation of the financial statements for the year ending 31 December 2017. The only exceptions are newly adopted or amended standards and interpretations that are effective for the annual periods beginning on or after 1 January 2018. All the accounting policies and explanatory notes of Triglav Re, d.d. are set out in the Annual Report, Chapter 15.
The whole Annual Report of Triglav Re, d.d. for 2018 accompanied by the Independent Auditor’s Report is available on the Company’s website www.triglavre.si/letno-porocilo-za-leto-2018 in the Slovene language.
The Summary of the Annual Report for 2018 contains the selected information from the Annual Report of Triglav Re d.d. TRIGLAV RE / Business Report 2018
10.1. Statement of financial position
in EUR 31 December 2018 31 December 2017 ASSETS 285,974,561 280,327,696 Intangible assets 1,317,588 80,040 Property, plant & equipment 96,816 134,095 Financial investments in Group's companies 5,139,643 5,332,265 Financial investments in other companies 170,312,731 169,813,426 - loans and deposits 6,805,213 6,542,549 - available for sale 163,507,518 163,270,877 Technical provisions ceded to Reinsurers 51,958,598 55,705,438 Receivables 56,669,922 48,941,449 - receivables from reinsurance and co-insurance operations 56,251,883 48,932,037 - current tax receivables 393,705 0 - other receivables 24,334 9,412 Other assets 97,557 74,522 Cash and cash equivalents 381,707 246,461 EQUITY AND LIABILITIES 285,974,561 280,327,696 Equity 79,944,828 82,693,155 - share capital 4,950,000 4,950,000 - share premium 1,146,704 1,146,704 - reserves from profit 1,139,723 1,139,723 - revaluation surplus 3,546,254 6,384,370 74 - retained earnings 64,629,361 62,725,218 - net profit for the year 4,532,787 6,347,139 Insurance technical provisions 166,335,963 163,462,462 - unearned premiums 25,226,008 24,723,943 - provisions for outstanding claims 139,638,793 138,331,811 - other insurance technical provisions 1,471,162 406,709 Other provisions 201,424 193,846 Deferred tax liabilies 473,445 1,137,776 Operating liabilities 37,730,428 31,941,079 - liabilities from reinsurance and co-insurance operations 37,730,428 31,824,600 - current tax liabilities 0 116,479 Other liabilities 1,288,472 899,377
The explanatory notes to the financial statements are a part of the financial statements and must be read in conjunction with them. TRIGLAV RE / Business Report 2018
10.2. Income statement
in EUR YEAR 2018 YEAR 2017 NET PREMIUMS EARNED 79,480,911 73,424,783 - gross reinsurance premiums written 131,170,639 123,713,912 - premiums written ceded for retrocession -50,643,499 -49,413,862 - change in unearned premiums -1,046,229 -875,267 TOTAL INCOME FROM FINANCIAL ASSETS 4,480,082 6,027,675 - income from financial assets in related companies 154,842 153,541 - income from financial assets in other companies 4,325,240 5,874,134 OTHER REINSURANCE INCOME 11,440,508 11,700,107 - commission income 10,400,900 10,825,690 - other reinsurance income 1,039,608 874,417 OTHER INCOME 1,946 32,445 NET CLAIMS INCURRED -52,382,621 -46,803,391 - gross claims paid -69,994,751 -56,764,142 - retrocessionaires' share of claims paid 22,121,788 15,586,908 - change in provisions for outstanding claims -4,509,658 -5,626,157 CHANGE IN OTHER INSURANCE TECHNICAL PROVISIONS -804,472 66,363 CHANGE IN LIABILITIES FROM FINANCIAL CONTRACTS 0 0 EXPENSES FOR BONUSES AND REBATES -259,981 -37,622 OPERATING EXPENSES -3,492,598 -3,329,916 - insurance acquisition costs -1,450,328 -1,298,683 75 - other operating expenses -2,042,270 -2,031,233 EXPENSES FROM FINANCIAL ASSETS AND LIABILITIES -1,477,495 -2,091,608 - Expenses from financial assests in related companies -312,413 -300,182 - Expenses from financial assests in other companies -1,165,082 -1,791,426 - losses on disposal of investments -62,220 -166,214 - other financial expenses -1,102,862 -1,625,212 OTHER REINSURANCE EXPENSES -30,951,094 -30,789,367 - commission expenses -29,753,081 -29,433,951 - other reinsurance expenses -1,198,013 -1,355,416 OTHER EXPENSES -554,863 -372,370 PROFIT BEFORE TAX 5,480,323 7,827,101 TAX EXPENSES -947,536 -1,479,962 NET PROFIT FOR THE PERIOD 4,532,787 6,347,139 Basic net earnings per share 302 Euros/share 434 Euros/share Diluted net earnings per share 302 Euros/share 434 Euros/share
The explanatory notes to the financial statements are a part of the financial statements and must be read in conjunction with them. TRIGLAV RE / Business Report 2018
10.3. Statement of comprehensive income
in EUR YEAR 2018 YEAR 2017 Net profit for the year after tax 4,532,787 6,347,139 Other comprehensive income after tax -2,838,116 -1,106,705 a) Items which will not be transferred to profit or loss 0 0 in future periods b) Items which could be transferred to profit or loss in -2,838,116 -1,106,705 future periods Net gains/losses on revaluation of available-for-sale -3,503,847 -1,366,303 financial assets - gains/losses recognized in revaluation surplus -2,589,775 1,004,230 - transfer of gains/losses from revaluation surplus to -914,072 -2,370,533 profit or loss Tax on other comprehensive income 665,731 259,598 Comprehensive income for the year after tax 1,694,671 5,240,434 Basic net earnings per share 302 Euros/share 423 Euros/share Diluted net earnings per share 302 Euros/share 423 Euros/share
The explanatory notes to the financial statements are a part of the financial statements and must be read in conjunction with them. 76 10.4. Cash flow statement TRIGLAV RE / Business Report 2018
in EUR YEAR 2018 YEAR 2017 OPERATING CASH FLOW Income statement items 7,365,042 9,003,454 Net written premium for the period 80,527,140 74,300,050 Investment income (excluding financial income) arising from: 1,079,009 874,417 - insurance technical provisions 1,079,009 874,417 - other sources 0 0 Other operating income (excluding revaluation and provisions reductions) and financial income 1,946 3,218 from operating receivables Net claims paid -47,872,963 -41,177,234 Bonuses and rebates paid 0 0 Net operating expenses excluding amortization costs and accrued insurance acquisition expenses -23,430,846 -22,435,386 Investment expenses (excluding amortization costs and financial expenses) financed from: -1,438,575 -1,606,256 - technical sources -1,420,528 -1,586,496 - other sources -18,046 -19,760 Other operating expenses excluding amortization costs (except for revaluation and without -160,828 -160,292 increasing provisions) Income tax and other taxes excluded from operating expenses -1,339,841 -795,063 Changes in net current assets - operating balance sheet items -1,217,409 -2,560,452 - movements in receivables from direct insurance operations 0 0 - movements in receivables from reinsurance operations -7,319,846 -3,670,279 - movements in other receivables from (re)insurance operations -14,921 -4,510 - movements in other receivables and assets 0 0 - movements in deferred tax assets 0 0 - movements in inventories 0 0 - movements in debts from direct insurance operations 0 0 - movements in debts from reinsurance operations 5,905,828 1,137,421 - movements in other operating debts 211,530 -23,084 - movements in other liabilities (excluding unearned premiums) 0 0 - movements in deferred tax liabilities 0 0 Total cash flow from operating activities 6,147,633 6,443,002 CASH FLOWS FROM INVESTING ACTIVITIES Cash inflows from investing activities 70,809,924 79,385,491 Cash inflows from interest from investing activities: 3,898,858 3,925,790 - investments financed by insurance technical provisions 3,866,983 3,812,561 - other investments 31,875 113,229 Cash inflows from dividends received and profit sharing, arising from: 148,984 73,084 - investments financed by insurance technical provisions 148,984 50,259 - other investments 0 22,825 77 Cash inflows from the disposal of intangible assets financed by: 0 0 - insurance technical provisions 0 0 - other sources 0 0 Cash inflows from the disposal of property, plant and equipment financed by: 0 26,412 - insurance technical provisions 0 0 - other sources 0 26,412 Cash inflows from the disposal of non-current investments financed by: 39,733,255 47,004,228 - insurance technical provisions 39,716,812 44,979,958 - other sources 16,443 2,024,270 Cash inflows from the disposal of current investments financed by: 27,028,827 28,355,977 - insurance technical provisions 26,718,000 27,888,679 - other sources 310,827 467,298 Cash inflows from the disposal of investments in subsidiaries and associates financed by: 0 0 - insurance technical provisions 0 0 - other sources 0 0 Total cash flow from investing activities -72,379,314 -81,173,260 Cash outflows for the purchase of intangible assets -1,254,006 -7,200 Cash outflows for the purchase of property, plant and equipment financed by:: -18,008 -23,675 - insurance technical provisions 0 0 - other sources -18,008 -23,675 Cash outflows for the purchase of non-current investments financed by: -43,815,810 -52,644,586 - insurance technical provisions -43,815,810 -50,126,445 - other sources 0 -2,518,141 Cash outflows for the purchase of current investments financed by: -27,291,490 -27,408,173 - insurance technical provisions -26,367,001 -26,445,067 - other sources -924,489 -963,106 Cash outflows for the purchase of investments in subsidiaries and associates financed by: 0 -1,089,626 - insurance technical provisions 0 -1,089,626 - other sources 0 0 Total cash flow from investing activities -1,569,390 -1,787,769 CASH FLOWS FROM FINANCING ACTIVITIES Cash inflows from financing activities 0 0 Cash inflows from paid-in capital 0 0 Cash outflows from financing activities -4,442,997 -4,556,549 Cash outflows from dividends paid and profit sharing -4,442,997 -4,556,549 Total cash flow from financing activities -4,442,997 -4,556,549 Closing balance of cash and cash equivalents 381,707 246,461 x) Net cash flow for the period 135,246 98,684 y) Opening balance of cash and cash equivalents 246,461 147,777 The explanatory notes to the financial statements are a part of the financial statements and must be read in conjunction with them. TRIGLAV RE / Business Report 2018
10.5. Statement of changes in equity
in EUR Net profit Share Fair value Net profit/ TOTAL Share capital Reserves from profit brought premium reserve loss EQUITY forward Legal and Net profit/ Credit risk Other statutory loss for the reserves reserves resereves year As at 1 January 2017 4,950,000 1,146,704 519,762 0 619,961 7,491,076 60,772,412 6,509,356 82,009,270 Comprehensive income for the -1,106,705 6,347,139 5,240,434 year after tax a) Net Profit or Loss 6,347,139 6,347,139 b) Other comprehensive income -1,106,705 -1,106,705 New paid-in capital 0 Capital repayment 0 Net purchase/sale of the 0 Company's shares Payment of dividend/bonus by 0 shares Dividend payment -4,556,549 -4,556,549 Net profit allocation to profit 0 reserves Offset of loss from previous years 0 Allocation of net profit to credit 0 risk reserve and cat. losses Transfer of net profit to retained 6,509,356 -6,509,356 0 net profit or loss As at 31 December 2017 4,950,000 1,146,704 519,762 0 619,961 6,384,370 62,725,219 6,347,139 7882,693,155 As at 1 January 2018 4,950,000 1,146,704 519,762 0 619,961 6,384,370 62,725,219 6,347,139 82,693,155 Comprehensive income for the -2,838,116 4,532,787 1,694,671 year after tax a) Net Profit or Loss 4,532,787 4,532,787 b) Other comprehensive income -2,838,116 -2,838,116 New paid-in capital 0 Capital repayment 0 Net purchase/sale of the 0 Company's shares Payment of dividend/bonus by 0 shares Dividend payment -4,442,997 -4,442,997 Net profit allocation to profit 0 reserves Offset of loss from previous years 0 Allocation of net profit to credit 0 risk reserve and cat. losses Transfer of net profit to retained 6,347,139 -6,347,139 0 net profit or loss As at 31 December 2018 4,950,000 1,146,704 519,762 0 619,961 3,546,254 64,629,361 4,532,787 79,944,828
The explanatory notes to the financial statements are a part of the financial statements and must be read in conjunction with them. TRIGLAV RE / Business Report 2018
79
BUSINESS REPORT 2018 Publisher: Triglav Re, Reinsurance Company Ltd. Production: Triglav Re, Reinsurance Company Ltd. Ljubljana, June 2019