Assessed impact of the pandemic on Triglav Group’s performance in 2020


Assessed impact of the pandemic on Triglav Group’s performance in 2020

In accordance with the Ljubljana Stock Exchange Rules and the applicable legislation, ZAVAROVALNICA TRIGLAV d.d., Ljubljana hereby publishes the following notice:

The Triglav Group ended 2019 financially sound and with good results. In accordance with its good transparent information practice, the Group published its business plan for 2020 in December 2019, which was developed on the bases and assumptions known at that time. Due to the pandemic and the situation on international financial markets, these bases and assumptions have changed. As the future development of the pandemic and its impact on the economy and financial markets remain uncertain and because the financial markets are highly volatile, it is currently difficult to reliably assess the impact on the Group’s operations. The Group therefore assesses the impact on its operations based on various scenarios that it considers most likely in the current situation.

The impact assessment is based on the following:

- In March 2020, the Bank of Slovenia published an analysis of Covid-19 impact on the Slovene economy, estimating that this year's GDP decline is expected at 6–16%, without taking into account the Government’s fiscal measures. Based on the fiscal measures already adopted and announced, it is estimated that the actual decline in GDP in Slovenia this year will be slightly lower than expected. The scenarios are based on different estimates of the expected standstill of economic activity and the speed of recovery following the lifting of restrictions.  Similar effects can be expected in the wider region where the Triglav Group is present.

- The scenarios account for shocks of varying intensity in the international financial markets, specifically the impact on credit spreads on government and corporate bonds, share prices and real property prices. The scenarios foresee higher baseline shocks, followed by a gradual easing of the situation by the end of 2020.


Range of values in the scenarios in relation to 31 December 2019

Average credit spreads

(government bonds, 10-year)

Baseline shock: from +75 bp to +200 bp

2020 year-end: from +40 bp to +135 bp

Average credit spreads

(corporate bonds, 10-year)

Baseline shock: from +140 bp to +250 bp

2020 year-end: from +70 bp to +170 bp

Share prices

from –20% to –35%

Real property prices

from 0% to –15%

- The projected deterioration of the economic situation and the suspended activity in the manufacturing and service sectors in both Slovenia and the region will impact the Triglav Group’s underwriting activities. It is estimated that primarily the written premium and claims result of the non-life insurance segment will be affected. In relation to the plan, the volume of motor vehicle insurance premium (motor hull insurance and motor vehicle liability insurance) is expected to fall mainly as a result of lower sales of new vehicles, deregistration of existing vehicles and smaller coverage. Individual scenarios also accounted for lower sales due to obstacles to taking out such insurance policies. As a result of lower economic activity, a decrease in life insurance premium and premium written in real property insurance, credit insurance and general liability insurance is expected, in addition to lower demand for travel insurance. Due to the impact of unearned premium, the expected decline in net premium income will be lower than the decrease in gross written premium. In parallel, lower net claims incurred are anticipated for some insurance classes due to reduced economic activity and movement restrictions. As a consequence of the pandemic, the life insurance segment accounted for the probability of somewhat increased payouts due to death and an increase in early termination of life insurance policies.

- Shocks on the financial markets, particularly changes in credit spreads on government and corporate bonds, affect not only the return on investment but also the market value of assets and liabilities of the Triglav Group and thus the capital adequacy ratio. The decrease in the market value and thus the amount of financial assets under management is also reflected in lower income from the management of clients’ assets.

- The impact assessment takes into account both lower investments and decreased operating expenses. In this regard, the Triglav Group expects a reduction in those expenses and investments that are not absolutely necessary for the implementation of strategic projects and other development activities outlined in the strategy. According to the scenarios, acquisition costs will be lower due to a decrease in the volume of written premium.

The Triglav Group assesses that its insurance and investment portfolios are sufficiently resilient and that its capital position is appropriate to effectively cope with increased risks arising from the COVID-19 pandemic situation. Considering the above, the assessed impact on the main categories of the Triglav Group’s business plan for 2020 will be as follows:

Main categories

Plan for 2020

Likely impact of scenarios or the planned value

Profit before tax

between EUR 95 and 105 million

decrease of 10–25%

Insurance premium

around EUR 1.2 billion

decrease of 3–5%

Combined ratio

below 95%

below 95% 

According to these scenarios, the assessed impact on the Triglav Group's capital adequacy at the end of 2020 will be a decline of 15–30 percentage points. As part of the impact analysis of the pandemic on the Group’s performance in 2020, the effects of a significant negative shock on the financial markets was further examined, in which the fall in share and real property prices and credit spread growth would be comparable to the situation in the last financial crisis of 2008, while the risk-free interest rate term structure would further decrease. In the event of such a scenario, it is estimated that the Group's capital adequacy would be further reduced, but still likely to remain above 175%.

The Triglav Group remains committed to its strategy and will continue to adapt its implementation to the business environment. During the pandemic, priority was given to protecting the health of employees, clients, partners and other stakeholders, as well as to maintaining business continuity in all markets. To this end, the Group employs an omni-channel sales approach and strategic solutions for providing its services remotely, which have gained additional momentum in the current situation. Measurements taken in April show that clients received this way of doing business well and their satisfaction with Triglav’s services even improved compared to last year.

The Triglav Group anticipates that it will be able to assess the impact of the changed and challenging circumstances on this year’s operations at the end of the second quarter with a much higher degree of certainty and, on that basis, revise the annual business plan for 2020. In that case, the revised business plan will be published on 18 August 2020 together with the performance results in the first half of 2020.

This information will be published on the website of Zavarovalnica Triglav d.d. at as of 22 April 2020 and will remain available on the Company's public website for a period of at least five years.