SAVA RE, d. d., Ljubljana
Assessed impact of COVID-19 on 2020 performance reflects expected high resilience
Pursuant to the rules of the Ljubljana Stock Exchange d.d. Ljubljana and the Market in Financial Instruments Act, Sava Re d.d., Dunajska 56, 1000 Ljubljana (also the “Company”) announces the following:
The business of the Sava Insurance Group is to help protect its customers when they need it most. Covid-19 affects all of us. Almost all the Group’s employees have been moved to home working, for protection and to allow them to continue to serve customers and business partners. The Group continues to process customer claims in the normal way, and also continues renewal and sale of insurance policies for protection in the future. The Group’s financial position is strong allowing it to continue meeting its obligations. There will be an impact on the Group’s business, as set out below, but the Sava Insurance Group intends to continue to invest in growth and progress in line with its strategic goals for the 2020–2022 period.
In its SEOnet announcement “Amendment to financial calendar” of 26 March 2020, the Sava Insurance Group announced it would prepare a preliminary assessment of the impacts of the circumstances related to COVID-19 on the operations of the Group and its solvency position. This assessment is presented below. The assessment is based on the latest forecasts of economic trends issued by the Office of the Republic of Slovenia for Macroeconomic Analyses and Development (https://www.umar.gov.si), predicting a fall in Slovenian GDP of between 6% and 8%. How low GDP will fall, depends on the further spread of the epidemic and its duration. According to UMAR, during the emergency situation Slovenia is facing a fall in activities in industry and services, a decline in imports and exports, a fall in added value in a number of sectors, lower private consumption, lower investments, lower employment and an increased number of unemployed. Given the circumstances, it is difficult to make a reliable estimate of future impacts, and the actual development up to the end of the year may differ significantly from the assumptions used in this assessment.
We have prepared our assessment of the impacts on the profit for 2020 and the Company’s solvency position at the end of 2020 based on the following assumptions:
- In terms of impact on operations, we have looked at two periods, the first period stretching until the end of May, in which the Group expects a direct impact on insurance underwriting and contacts with customers but with a lighter claims burden, and the second period, from early June to the end of the year, in which we expect an indirect impact on operations due to lower GDP than originally forecast.
- We estimate that the largest loss of premiums compared to our plan will be in non-life business, in motor business, primarily related to the decline in sales of new vehicles, lapsed registrations of vehicles, especially goods vehicles and purchase of narrower covers. Premiums are also expected to decline in travel insurance and assistance business. In life insurance, we expect that new business volume will decline as the result of restricted contact with customers. Reinsurance business is expected to shrink in the proportional business segment. Operating revenues of pension companies and the investment fund management company will decline because of a drop in assets under management as the result of falling financial markets.
- Impacts on financial investments were calculated based on circumstances in financial markets as at 20 March 2020. As circumstances have improved since then, we consider the scenario sufficiently prudent. The basis for calculating impacts was the revised estimated portfolio of financial investments compared to the planned 2020 figures, assuming that spread risk for debt instruments remains at the Q4 2019 level. The assessed impacts of COVID-19 show the following changes in the value of financial investments and the related spread risk for debt instruments:
|
|
Average change in | |
|
|
value |
spread risk |
|
Government bonds |
-3.7% |
+80 bp |
|
Corporate bonds |
-4.1% |
+150 bp |
|
Shares |
-37% |
|
|
Property |
-8% |
|
|
Infrastructure projects |
-12% |
|
- The assessment includes lower operating costs, since, to mitigate the negative impacts on business, the Group streamlined its expenses, where possible and meaningful, without disturbing segments that would halt or slow strategic development or the achievement of strategic goals.
- In our assessment of the solvency position, we adjusted the planned solvency as at 31 December 2020 to the impacts mentioned above on insurance and investment business. The largest impact on solvency is the fall in the value of investments, directly reducing eligible own funds. On the other hand, the lower value of investments reduces the solvency capital requirement (SCR), which slightly offsets the decline in the solvency ratio.
The estimated business results made considering the COVID-19 circumstances are strongest impacted by the assumptions relating to the movement in the value of the investment portfolio. If the year yields a positive development in financial markets (especially shares) compared to 20 March 2020, the impact will be smaller than the one assessed in this document.
Based on the assumptions set out above, the Company assesses that the potential impact on the major planning categories of the Sava Insurance Group are:
|
Planning category |
Basic plan 2020 |
Assessment |
|
Operating revenue |
> EUR 610 million |
drop of between 5% and 7% |
|
Net profit for the period |
> EUR 45 million |
drop of between 15% and 20% |
|
Solvency ratio as at 31 December 2020 |
203% |
drop of between 10 and 15 p.p. |
The Sava Insurance Group will publish its revised financial plan for the 2020–2022 period together with its results for the first half of 2020 scheduled for 20 August 2020. The revised financial plan will include the impact of the COVID-19 outbreak on business projections, as well as the impact of the acquisition of NLB Vita if closed by that time.
This announcement will also be available on the Company’s website, at www.sava-re.si, for at least five years from the date of this announcement.