Spotlight: Triglav Group - The insurance summit of the SEE region
This report is (co-) sponsored with financial contribution provided by the subject of the report. Founded over 120 years ago, Zavarovalnica Triglav d.d. is the largest and oldest insurance company in Slovenia. Headquartered in Ljubljana, Slovenia, it acts as the controlling company of the Triglav Group, which comprised 54 companies as at June 30, 2024, including 31 subsidiaries, 12 associates, and 10 joint ventures. With a dominant almost 40% market share, Triglav is the leading insurance provider in Slovenia. It has expanded its presence throughout the Balkans and operates subsidiaries in Croatia, Bosnia&Herzegovina, Serbia, Montenegro and North Macedonia. In Montenegro, Triglav is the market leader with a share of 35%, while in North Macedonia it holds the third-largest position with a market share of around 13%. Its business activities are split into four main segments, namely non-life insurance and reinsurance (which accounted for 69% of business volume in FY 23), life insurance (16%), health insurance (12%) and asset management and other (3%). The rating agencies S&P Global Ratings and AM Best have given the Group an “A rating with a stable outlook." The Slovenian state currently controls 62% of the shares in the company. For FY 24, management initially projected a total business volume of more than EUR 1.6 bn, a profit before taxes of EUR 100-120 mn, and a combined ratio (non-life & health) of around 95%. However, following a strong performance in H1 24, the company raised its PBT guidance to EUR 130-150 mn. In addition, the company will also unveil its new strategy for the period 2025-2028 with updated KPIs and targets in November 2024.
Investment case
Growth potential from rising insurance penetration and density in the SEE region
The growth story behind the SEE operations lies in an expected increase in insurance density (annual insurance premiums per capita) and penetration (annual insurance premiums as a % of GDP) approaching Western European levels. While insurance penetration in Western European countries reaches around 6-8% of GDP, the share in the main SEE economies ranges between 1% and 5% according to the Allianz Global Insurance Report. The catch-up process in the SEE region (or Adriatic; used interchangeably) should therefore over-proportionately benefit the insurance industry and the Triglav Group in particular.
In the non-life segment we expect that motor and property insurance will continue to play a central role. The recent inflation-adjusted increases in insurance premiums and efforts to control costs have improved profitability. However, given the historically higher inflation in the region, cost pressures could persist in the short to mid-term. While price momentum could slow, we anticipate segment's growth of between 4.0% and 4.5%, driven by the acquisition of new policyholders. The potential for the life insurance segment lies in the development of the insurance market as a whole. In addition, as government-backed pensions in the region are becoming increasingly constrained by the rising cost of living, reducing their ability to provide sufficient payouts. We believe that this could likely to lead to an increase in demand for life and private pension insurance products as people look for alternative ways to secure their financial future. Furthermore, the current higher interest rate environment makes savings and annuity products more appealing, which would support further growth and profitability in this segment, especially as long-term retirement planning becomes increasingly important. In health insurance, the ageing population and rising demand for healthcare services, particularly in markets such as Slovenia, Croatia and Serbia, will be the main growth drivers. Rising costs in the public healthcare system, combined with long waiting times, are making private insurance even more attractive.
Triglav Group is the market leader in the SEE region, but lacks scale in HR and RS
In FY 23, the Triglav Group generated around 63% of its total gross written premiums (GWP), including the unit-linked portion of life insurance, in the domestic market, making it a key player in the relatively attractive Slovenian insurance market, which has a significantly higher insurance density compared to other SEE markets. With a market share of c. 40% in 2023, it ranks #1 ahead of second-placed Zavarovalnica Sava (21%). In our view, there is mild competition with a relatively high market concentration, as the four largest providers (Generali and Vzajemna in addition to Sava and Triglav) held a market share of roughly 89% last year. As a positive factor for the development of the Slovenian insurance market, we highlight the country's relatively robust macroeconomic conditions and emphasise the high GDP/capita (9% lower than the Eurozone average, but higher than any other SEE country) and the low unemployment rate of <5%. In the entire Adriatic region (Slovenia, Croatia, Serbia, Montenegro, Bosnia&Herzegovina and North Macedonia), the Triglav Group achieved a GWP of almost EUR 1.7 bn in FY 23, which makes it the number 1 player with a market share of c. 22%. Moreover, the company is the market leader in Montenegro with a 35% market share, #2 in North Macedonia with a 13% market share and #4 in Bosnia&Herzegovina with a 9% market share. However, the company lacks scale in two key markets. In Serbia, it ranks #5 with a market share of 7% and #8 in Croatia with a 5% market share. Although the company does not have an exclusive agreement for the distribution of bankassurance products within the banking network, it co-operates with major banks in the region.
Interest rates have likely peaked, so future investment returns may moderate
With its conservative investment approach focused on fixed-income securities, the Triglav Group remains well-positioned to navigate the current interest rate environment. As of H1 24, 83% of its EUR 3.6 bn insurance investment portfolio was in highly rated government bonds, primarily from developed markets. This strategy helps Triglav maintain strong credit quality, liquidity, and stability. In H1 24, the Group’s investment return was 3.0%, supported by higher yields and favorable market conditions. The non-life insurance portfolio, with a shorter duration of around three years, allows the Group to reinvest 20%-30% of assets annually in higher-yielding securities. The longer-duration life insurance portfolio reinvests more slowly (c.10% p.a.). However, as interest rates have likely peaked, future investment returns may moderate.
Triglav’s asset management (AM) segment also showed strong growth, with assets under management (AUM) rising to EUR 5.3 bn by H1 24. AM income increased 19% yoy, driven by market gains and rising net inflows. Triglav Skladi, the Group’s mutual fund manager, saw AUM grow by 22%, benefiting from demand for safe investments like money market funds. Despite competition from bank products and neo-brokers, Triglav’s brand and distribution network continue to support client inflows.
Attractive dividend returns are supported by strong capitalisation levels
The Triglav Group pursues an attractive and sustainable dividend policy. At least 50% of the consolidated net profit is allocated to dividend payments. The Triglav Group aims to maintain a dividend that is no lower than that of the previous year. We think that the current capitalisation level with an SII ratio between 200% and 250% supports the company's dividend policy with an attractive dividend yield of over 6% in the future. Comparing recent historical dividend yields, Triglav's capital returns of around 6-7% p.a. are at the upper end of the range of its peers (on average between 5% and 7% p.a.). The company does not have an existing share buyback programme and, given the low free float, we do not think it makes much sense to use it as a means of returning capital to investors.
For FY 25e, economists project interest rates to be cut by around 100 bps from current levels, which could lead to a slight decline in the SII ratio of around 15-20%p. However, the company issued Tier II subordinated bonds shortly after H1 24, which is believed to have increased the solvency ratio by c. 20%p. We therefore believe that the Triglav Group is well positioned to manage a gradual decline in interest rates in 2025 and beyond. In addition, the ongoing Solvency II review is entering a crucial phase, with the aim of implementing the changes by June 2025. This could very well compensate for the assumed decline in interest rates, as SII ratios in the insurance industry are expected to improve due to the potential capital release from a lower risk margin and other adjustments.
Guidance and strategy
For FY 24, management initially projected a total business volume of more than EUR 1.6 bn, a profit before taxes (PBT) of EUR 100-120 mn, and a combined ratio (non-life & health) of around 95%.
However, following a strong performance in H1 24, the company raised its PBT guidance to EUR 130-150 mn.
In addition, the company will also unveil its new strategy for the period 2025-2028 with updated KPIs and targets in November 2024.
SWOT analysis
Strengths/Opportunities
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Leading market share position in the SEE region
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Greatly improved margins in P&C segment
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Strong capital position with sufficient capital buffer
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Attractive dividend policy
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Debt-light balance sheet
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Potential for organic growth due to low penetration rates in most of the SEE markets
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Increasing need for health protection and long-term savings coverage in the region
Weaknesses/Threats
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Relatively high penetration rate in the domestic market limits organic growth
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Life savings products compete with bank products
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Health segment lacks scale
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Low share liquidity
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Potential pressure on margins in asset management
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High inflation rates in the region are eroding reserve positions
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Increasing loss frequency and magnitude linked to NatCat events
Company profile
Zavarovalnica Triglav d.d., named after the highest mountain in Slovenia and founded over 120 years ago, is the largest and oldest insurance company in Slovenia. It acts as the controlling company of the Triglav Group, which comprised 54 companies as at June 30, 2024, including 31 subsidiaries, 12 associates, and 10 joint ventures. Headquartered in Ljubljana, Slovenia, the company operates across various insurance segments, including non-life, life and health insurance, as well as asset management. The rating agencies S&P Global Ratings and AM Best have given the Group an “A rating with a stable outlook."
With a dominant almost 40% market share, Triglav is the leading insurance provider in Slovenia. It has expanded its presence throughout the Balkans and operates subsidiaries in Croatia, Bosnia&Herzegovina, Serbia, Montenegro and North Macedonia. In Montenegro, Triglav is the market leader with a share of 35%, while in North Macedonia it holds the third-largest position with a market share of around 13%.
Its business activities are split into four main segments:
- non-life insurance and reinsurance (69% of business volume in FY 23)
- life insurance (16% of business volume in FY 23)
- health insurance (12% of business volume in FY 23*)
- asset management and other (3% of business volume in FY 23)
*due to the termination of supplemental health insurance in Slovenia, the size of the health insurance segment has shrunk in 2024
The Group is also active on the wider international market through its branch office in Greece and partnerships with foreign insurance brokers and agencies as well as acts as a provider of direct reinsurance. The Slovenian domestic market is of course the most important. Although other SEE insurance markets are still relatively underdeveloped, they have great potential for growth. They are still dominated by motor insurance, but recently there has been solid growth in other insurance classes, particularly health and property insurance. The company also plays an important role in the asset management industry through its subsidiary Triglav Skladi, which is the Group’s most important asset management company with assets under management of around EUR 2.1 bn (including policyholders' unit-linked assets) as of H1 24. In addition, the company also has a subsidiary in North Macedonia, Triglav Penzisko društvo, with assets under management of approximately EUR 161 mn. The Group has a dominant market position in the Adria region (Slovenia, Croatia, Serbia, Montenegro, Bosnia&Herzegovina and North Macedonia). According to the company, it had a total market share of 21.8% in 2023. As at H1 24, the Triglav Group had 5,113 FTEs (FY 23: 5,190).
There are 22.7 mn shares outstanding. The largest shareholder is ZPIZ (Pension and Disability Insurance Institute of Slovenia) with a stake of 34%, followed by Slovenian Sovereign Holding (SDH) with 28%, which also manages the stake on behalf of ZPIZ (implying that the Slovenian state controls a total of 62%). A Croatian pension fund holds almost 7% stake in a fiduciary account through its custodian bank. The free float accounts for around 31% and is spread among 8,277 shareholders from 30 countries, including institutional investors and fiduciary accounts, mostly from Europe and the USA, which hold 16%. Domestic Slovenian institutional investors hold 8%.
Organisation
As of June 30, 2024, the Triglav Group comprised 54 companies: the parent company, 31 subsidiaries, 12 associated companies and 10 joint ventures. On October 1, 2024, the merger of Triglav, Zdravstvena zavarovalnica (the Group’s health insurance provider) with the parent company was completed.
Management board
Mr Andrej Slapar, President of the Management board since May 22, 2013, oversees the Management board, internal audit, and corporate communications. He manages corporate accounts, non-life insurance, Triglav Group subsidiary management (excluding non-Slovenian subsidiaries), legal affairs, human resources, and arbitration and nuclear pool. He is also responsible for the strategy development and implementation for Zavarovalnica Triglav and the Triglav Group, and represents Zavarovalnica Triglav in the Slovenian Insurance Association Council.
Mr Uroš Ivanc, a Member of the Management Board since July 14, 2014, is Triglav Group's current CFO. He is responsible for the investment, outward reinsurance, and actuarial departments (non-life and life insurance), as well as overseeing accounting, finance and controlling, and the management of foreign subsidiaries. His role also includes handling mergers and acquisitions, investor relations, credit rating agencies and ESG activities. Mr Ivanc became a CFA charterholder in 2004 and was a founding member and the first president of CFA Society Slovenia.
Mr Tadej Čoroli, a Member of the Management Board since July 29, 2014, oversees the insurance sales division, non-life insurance claims division, and the digital operations and client experience division. Having joined Triglav Group in 2001, he has held various managerial roles over the years. Mr Čoroli holds an LL.M. from the University of Ljubljana and is deeply interested in the digital revolution and technological singularity.
Ms Marica Makoter, a member of the Management board and employee representative since December 21, 2011, advocates for employee interests in line with the Worker participation in management act. She oversees the strategic sourcing department, compliance office, marketing department, and the change management and project portfolio department. Additionally, she is responsible for the back office division.
Mr Blaž Jakič, a Member of the Management board since March 2, 2023, is responsible for the life insurance and health insurance divisions, IT division, digital platform and business intelligence division, and the risk management department. He also oversees bancassurance and anti-money laundering efforts. Mr Jakič holds an MSc in Accounting & Finance from The London School of Economics and Political Science (LSE) and has been with Triglav Group since 2010.
SEE insurance market
Financials
The operating model of Triglav Group can be divided into four segments according to business lines:
- non-life insurance and reinsurance
- life insurance
- health insurance
- asset management and other services
From 2023, the transition from IFRS 4 to IFRS 17 significantly impacted how insurance companies account for revenue. Under IFRS 4, gross written premiums (GWP) were recognised as revenue when due, which increased revenue in the initial year. IFRS 17 changed this by introducing the concept of insurance revenue, which aligns with the provision of insurance services over the coverage period, providing a more accurate and consistent presentation of the insurer’s financial performance. This change mainly affected unit-linked products in the life insurance segment, where investment returns are often a key feature. IFRS 17 separates the investment and protection elements, allowing for clearer assessment of the profitability of the insurance component. For better comparability, we present both the business volume on a historical basis (GWP + other income) and the insurance revenue.
Non-life insurance
The non-life segment comprises the non-life insurance business of insurance and reinsurance companies as well as non-insurance companies that support this business (Triglav, Upravljanje nepremičnin, Triglav Avtoservis, Sarajevostan, Lovćen Auto and others). This segment accounted for 89% of total insurance revenue and 79% of total business volume in H1 24. The split between exposure in terms of premiums in domestic and foreign markets of this segment was approximately 62/38 in FY 23.
Extreme NatCat events weighed on FY 23...
In FY 23, Triglav Group’s non-life insurance segment saw strong growth, with total revenue up 14% yoy to EUR 1,070 mn, driven by inflation-linked premium hikes and expanded coverage. Double-digit growth was recorded in Slovenian and international markets, while the Adria region saw mid-single-digit growth. Serbia and Bosnia's growth stemmed from new motor insurance policyholders, while premiums fell in Croatia due to deliberate reduction of exposure in animal, crop and marine insurance and in North Macedonia due to ending cooperation with certain brokers. Total insurance expenses rose 34% yoy to EUR 1,029 mn, driven by NatCat claims and inflation, especially in Slovenia and Serbia. Triglav Re's gross claims surged 92%, and acquisition, admin and non-attributable costs rose 14% yoy. The net reinsurance result improved to EUR 30 mn (FY 22: EUR -105 mn), thanks to higher recoveries from NatCat claims.
...but H1 24 was marked by improved margins thanks to underwriting measures
A similar trend continued in H1 24. Driven by inflation-indexation in motor, property and liability insurance, premiums grew by 7% on the Slovenian market, 16% on the international market and 4% in the Adria region, with the strongest growth recorded in North Macedonia, Serbia and Montenegro. Insurance revenue grew by 12% yoy to EUR 540 mn and benefited from further premium rate increases and expanded coverage. Total insurance service expenses decreased by 5% to EUR 388 mn on the back of 9% better claims development, which amounted to EUR 266 mn in H1 24. The decrease in incurred claims was driven by a positive change in claims experience and future cash flows due to a decrease in estimated claims paid. Moreover, acquisition, administrative and non-attributable costs rose by 4% yoy, reaching EUR 143 mn. Following last year's significant NatCat events, reinsurance terms worsened with higher pricing and retention limits for primary insurers. As there were only a few major loss events, Triglav's net reinsurance result was negative, at EUR -79 mn (H1 23: EUR -31 mn), as no large claims were recovered from reinsurers. Nonetheless, the COR improved significantly, from 95.8% in H1 23 to 90.3% in H1 24.
Our view on future developments
As the measures taken by central banks are having a dampening effect on the overall high inflation rates in the most important markets, we expect the pressure on the cost of materials and services to ease, though it is likely to persist due to ongoing regional inflationary pressures. Recent quarters have seen contracts repriced to reflect higher insured property values and inflation in claims expenses, a necessary industry adjustment. Major insurance players have raised prices in response to market conditions, so we do not expect significant shifts in market share. We anticipate stronger growth in Serbia, Bosnia&Herzegovina, Montenegro and North Macedonia, where insurance penetration remains relatively low, presenting opportunities for the acquisition of new policyholders. On the other hand, strong competition in Croatia is likely to maintain pressure on growth in this market.
Overall, we expect the COR at Group level would normalise to around 93% during the projected period due to various underwriting measures taken. We expect a slight improvement in the claims ratio due to a more disciplined underwriting approach and see a small potential in the expense ratio resulting from possible savings through the digitalisation of claims management.
Recent NatCat dynamics in detail...
In FY 23, Triglav Group’s results were significantly impacted by major NatCat events, with an estimated total value of EUR 212 mn (FY 22: EUR 32 mn). Summer hailstorms in Slovenia alone caused EUR 86 mn in claims, while August storms and floods added EUR 77 mn. Other countries, including Croatia (EUR 14 mn) and Serbia (EUR 8 mn), were also affected by severe weather. Additionally, the Group faced EUR 27 mn in reinsurance claims from events such as the Turkey earthquake, floods in Greece and Italy, typhoons in China and hurricane Otis in Mexico. NatCat claims development improved in H1 24, with only two major events totaling an estimated EUR 10 mn: a hailstorm in Slovenia in June (EUR 5 mn) and June floods in southern Germany (EUR 5 mn in reinsurance claims). The net effect (post-reinsurance) of these events totaled EUR 9 mn.
Common NatCat events in the region include hailstorms, strong winds, floods, frost, and earthquakes. Based on trends from the last five years, we expect NatCat claims to amount between EUR 30 mn and EUR 60 mn in the near term. Triglav’s reinsurance portfolio is well-diversified globally, excluding the USA and Canada. In the past 18 months reinsurance coverage has become more costly due to updated terms and conditions, as primary insurers are now retaining larger losses before passing them on to reinsurers. However, reinsurance conditions are therefore likely to have peaked and we expect them to soften in the mid-term.
Life insurance
The Life insurance segment accounted for around 16% of total business volume in FY 23 and c. 13% in H1 24. In terms of insurance revenue, this segment accounted for 6% and 8% or EUR 85 mn and EUR 45 mn in FY 23 and H1 24, respectively. From 2024, the Triglav Group reports pension products in the Asset management segment and no longer in the Life insurance segment. Within this segment, the company offers life insurance products (traditional life, annuity, pension annuity and voluntary pension insurance) and unit-linked insurance products, with the latter according to our own estimate representing approximately between 55% and 65% of total Life premiums.
Strong single-digit growth on the back of higher yields in FY 23 and H1 24
In FY 23, this segment recorded a total business volume of EUR 290 mn, which corresponds to an increase of 8% yoy. Gross premiums written rose by 5%, with growth being achieved across all markets except for Bosnia&Herzegovina. Unit-linked life insurance premiums increased by 10%, driven by higher payments and asset transfers at the parent company. Insurance revenue increased by 9% yoy and contributed significantly to the segment's overall growth. Unconsolidated gross claims paid increased by 11%, with traditional life insurance claims growing by 13% and unit-linked claims by 7%, mainly due to policy surrenders and advances.
In H1 24, the Life segment’s business volume reached EUR 124 mn, a 7% yoy rise, with gross written premium also up 7%. Unit-linked life insurance saw 12% growth, driven by higher premium payments at the parent company and the Macedonian life insurer. Insurance revenue grew by 9% yoy in H1 24. The insurance service result surged by 46% to EUR 15 mn, driven by higher insurance revenue and a 16% reduction in claims incurred, primarily due to the parent company's reduced claims provisions.
Smaller volume, but solid profitability
While the volume of Triglav Group's Life insurance segment is considerably smaller in terms of volume than the non-life segment, it is characterised by comparable, solid profitability. The new business margin (NBV) of this segment reached an impressive 14.6% in FY 23, and even though it slightly dipped to 14.1% in H1 24, it still presents an attractive profile. The Group's underwriting strategy for life insurance contracts is geared towards achieving profitability that surpasses the cost of capital.
Our view on future developments
As government-backed pensions in the region are becoming increasingly constrained by the rising cost of living, their ability to provide sufficient payouts has diminished. We believe this could likely lead to an increase in demand for life and private pension insurance products, as people look for alternative ways to secure their financial future. Additionally, the current higher interest rate environment has made savings and annuity products more appealing, offering more attractive yields and boosting demand for these financial instruments as part of long-term retirement planning. In addition to the Slovenian domestic market, Croatia, North Macedonia and Serbia are of great importance for the Triglav Group's Life segment. While the ECB and other central banks have already begun their interest rate cutting cycles, the overall profitability of life insurance is expected to remain attractive, at least in the mid-term, as interest rates are expected to stay above the average of those that we have seen through the last decade.
Health insurance
The Health segment comprises the health insurance business of the Group's insurance companies that sell these insurance products, as well as the non-insurance company that supports this business (Triglav zdravje asistenca). In H1 24, this segment accounted for only 3% (EUR 19 mn) of total insurance revenue.
Regulatory decision changed the supplementary insurance landscape in FY 23...
In FY 23, Triglav Group’s health insurance segment faced significant challenges, primarily due to the reform of Slovenia's healthcare system, which involved the termination of supplemental health insurance. The Slovenian government issued a decree in April 2023 that capped the premiums for supplemental health insurance, prohibiting insurers from adjusting premiums to match rising claims and expenses. Despite these constraints, insurers were required to continue offering supplemental insurance, which severely impacted Triglav Group's health business financial performance. As a result, the health insurance segment posted a negative PBT of EUR –29.8 mn, with an insurance operating result of EUR –26.8 mn. A notable factor behind these losses was the 17% increase in claims incurred, driven by higher expenses for healthcare services. This was reflected in the combined ratio, which increased by 12.8 percentage points to 112.9%, indicating poor underwriting performance. The total business volume of the health insurance segment amounted to EUR 207 mn (+1% yoy), but the premiums for supplemental health insurance decreased by 1% due to the regulatory limitations and fewer new policies sold. However, complementary health insurance products saw a notable 38% yoy increase.
...while FY 24 brought increased focus on traditional health insurance products...
By H1 24, the health insurance landscape had transformed following the termination of supplemental health insurance in Slovenia. Triglav Group adapted to these changes by focusing on its complementary health insurance products, which experienced strong growth. The unconsolidated complementary health insurance premiums surged by 31% to EUR 23 mn in H1 24, driven by strong growth in Croatia, N. Macedonia, Serbia and Slovenia. However, the total business volume of the Health segment dropped sharply to EUR 24 mn (H1 23: EUR 115 mn), reflecting the loss of supplemental health insurance, which had constituted 85% of the previous year’s premiums. Despite this, the financial results improved significantly, with the Health segment reporting a positive PBT of EUR 1 mn, compared to a loss of EUR –33 mn in H1 23. The combined ratio improved substantially, by declining by 29.5%p yoy to 99.6%.
...with streamlined operations...
In order to streamline operations in response to the changes in the health insurance market, the merger of Triglav, Zdravstvena zavarovalnica (the Group’s health insurance provider) with Zavarovalnica Triglav, the Group's parent company, was completed on October 1, 2024. This consolidation is expected to simplify and optimise the Group’s operations in the Health segment within Slovenia.
...and a partial reimbursement for losses incurred in H2 23
In early July 2024, Triglav Group accepted compensation from the Slovenian government in accordance with a decree regulating the maximum price of supplemental health insurance premiums. The company had filed a claim seeking reimbursement for the losses incurred during the period from June to December 2023, when supplemental health insurance premiums were capped but claims and costs continued to rise. The Ministry of Health agreed to compensate the Group EUR 11 mn for the difference between claims paid and income received during this period. Management deemed the compensation to be in the best interest of its stakeholders and accepted the offer. This compensation helps mitigate some of the losses experienced in 2023, though it does not fully offset the financial strain caused by the government’s price cap. This one-off reimbursement is booked in "Other income and expenses."
Future segment development
The Triglav Group's health insurance business is expected to grow in the coming years due to several key factors. The ageing population and the rising burden on the public healthcare sector across SEE countries are increasing the demand for healthcare services, particularly in markets like Slovenia, Croatia and Serbia, where health insurance products are sold not only to corporate but also to retail clients. In fact, according to the management, the number of claims in the Health segment has overtaken the number of claims in motor casco insurance in Serbia for example. As healthcare costs continue to rise, private insurance solutions are becoming more attractive, especially when coupled with the long waiting times in public healthcare systems. Policyholders increasingly want faster access to specialists, a need that Triglav can address with its health insurance products. Additionally, the inclusion of dental services and comprehensive rehabilitation, including private physiotherapy, is a significant differentiator that offers customers holistic coverage that goes beyond traditional health insurance.
Following the termination of loss-making supplementary health insurance, Triglav has focused its efforts on more traditional health insurance products. The future growth is expected to be driven by the acquisition of new policyholders and increased demand for higher-quality health coverage options. Overall, we estimate that the health insurance segment would only make a marginal contribution to the Triglav Group's total COR over the projected period due to its very small size.
Investments in private hospitals
The Triglav Group and Sava Re each hold a 50% stake in Diagnostični center Bled, a modern private hospital in Slovenia. While ownership stakes in private hospitals are commonplace in Western economies, the markets in Slovenia and the broader SEE region still offer considerable scope for growth in this respect. Expanding investments in private hospitals could be a strategic move for Triglav, ensuring not only timely medical treatment but also an assurance for service quality. This would give private health insurance customers better access to medical specialists, which is in line with Triglav's commitment to quality healthcare.
Asset management and other services
The Triglav Group's asset management (AM) activities comprise the management of the parent company’s own insurance portfolios (assets backing liabilities and guarantee funds), the management of client savings within the Group’s life and pension insurance companies, AM by Trigal and the management of clients’ assets in mutual funds and discretionary mandate assets by Triglav Skladi. As at H1 24, the Group had assets under management (AUM) of EUR 5.3 bn, of which EUR 3.6 bn was in own funds and unit-linked linked insurance assets and EUR 1.6 bn in mutual funds and discretionary mandate assets.
Lower business volume in FY 23 due to a high base effect...
The total business volume of the non-insurance operations, including AM, totalled EUR 46 mn, which corresponds to a decrease of 8% yoy. This decline was mainly due to realised one-off real estate gains in 2022. However, AM income increased by 6% yoy to EUR 32.7 mn, with management fees from Triglav Skladi increasing by 5% and fees from Triglav Penzisko društvo (the company's subsidiary in North Macedonia) increasing by an impressive 65%. Operating expenses for non-insurance companies increased by 12%, driven by higher labour, service and energy costs. Overall, AUM totalled EUR 4.9 bn at the YE, an increase of 11% yoy.
...but strong growth was recorded in H1 24
In H1 24, total AUM rose to EUR 5.3 bn, an increase of 10% since YE 23, driven by both capital market gains and net inflows. The segment's business volume reached EUR 54 mn, up 4% yoy, with income from AM surging by 19%. Triglav Skladi, the main AM company, grew its AUM to EUR 2.1 bn, up 22% compared to YE 23. Discretionary mandate assets also saw a rise, with AUM increasing to EUR 2.9 bn. Income from fees increased in all AM companies, with the highest growth recorded at the North Macedonian subsidiary (+43% yoy) and the Slovenian subsidiary Triglav Skladi (+20% yoy).
Asset management landscape in Slovenia
The asset management market in Slovenia saw significant activity in both mutual funds and discretionary mandates. In FY 23, the total net asset value of mutual funds managed by five companies reached EUR 4.8 bn, a 21% increase from FY 22. Triglav Skladi, which has a market share of 31.2%, managed EUR 1.7 bn in mutual funds. Discretionary mandate assets recorded significant growth, with AUM increasing by 35% to EUR 208 mn. By June 2024, the Slovenian mutual fund market had grown further to EUR 5.7 bn, with Triglav's discretionary mandate assets growing by 37% to EUR 286 mn.
Application of ESG aspects
The Triglav Group has also incorporated environmental, social and governance (ESG) principles into its asset management strategy. By YE 23, Triglav Skladi had transformed 12 mutual funds to focus on sustainability, resulting in ESG-aligned AUM of EUR 1.1 bn. This makes the Group the leading sustainable asset manager in Slovenia, reflecting its commitment to supporting the transition to a climate-neutral economy. Fixed-income investments totalled EUR 1.8 bn in H1 24, of which EUR 187 mn (11%) was invested in sustainable assets.
Outlook for AM
We expect the Group's main customers, who are loyal to either the Triglav brand or the well-established distribution channels, will continue to provide steady fund inflows. However, competition from bank savings products and emerging neo-brokers is expected to intensify. In this environment, management sees particular opportunities in money market funds, where it can capitalise on demand for safe and liquid investments. Management remains optimistic, and we share its view that fund flows will be the primary driver of future growth in the asset management segment, especially as competition has driven down fees in recent years.
Investment portfolio
The Triglav Group manages its investment portfolio with a conservative approach to ensure sufficient yield, safety, and liquidity, while striving to maintain a high credit rating for the entire portfolio. As at H1 24, the value of the portfolio totalled EUR 3.6 bn, up from EUR 3.4 bn in FY 23. Unit-linked assets made up EUR 636 mn (18% of the total) and were mainly invested in policyholder-selected mutual funds, most of which are managed by Triglav Skladi. Financial investment from financial contracts, which include individual and group supplemental voluntary pension insurance contracts, amounted to EUR 707 mn (20% of the total).
Within the core portfolio, 83% was invested in fixed income securities in H1 24, mainly in highly rated bonds from developed markets. The value of the portfolio, including equities, was largely influenced by financial market conditions.
The rate of return on investment (excl. unit-linked assets) was 1.8% in FY 23 and rose to 3.0% in H1 24, supported in part by approximately EUR 6 mn gains from investments in associates. In FY 23, the total return on investment was just under EUR 38 mn, of which EUR 35 mn came from interest income. In H1 24, the total return stood at EUR 25 mn, with nearly EUR 22 mn coming from interest income.
Parts of Triglav's portfolios still need to be reinvested in higher-yielding fixed-income investments. The non-life insurance investment portfolio, with its shorter duration of around three years, allows for the annual reinvestment of around 20-30% of assets (without early exit from the investments), potentially capturing better yields. In contrast, the life insurance portfolio, with a much longer duration of c. nine years, offers less reinvestment flexibility, as only around 10% of assets can be reinvested p.a. Furthermore, according to economists' forecasts interest rates have likely peaked and are expected to decrease by around 100 bps by YE 25. As a result, reinvestment potential is available but would likely be limited to a few quarters.
Dividends and capital management
Attractive dividend policy...
The company follows an attractive and sustainable dividend policy, taking into account mid-term capital adequacy when determining dividend payouts. At least 50% of the consolidated net profit is allocated to dividend payments. Triglav Group aims to maintain a dividend payout that is not lower than the dividend distributed in the prior year. Except for 2020, when the dividend distribution from the 2019 net profit was suspended following the recommendation of the Slovenian Insurance Supervision Agency, dividends were distributed regularly, usually with payment carried out in June. The company does not have an existing share buyback programme and, given the actual free float, we do not believe it makes much sense to use this instrument as a means of returning capital to investors. The dividend policy is also linked to a sound capitalisation level (Solvency II ratio) and, as we explain later, the company is in a comfortable capitalisation position. While industry peers offer higher payouts, averaging around 60%, the company invests a portion of its profits in future organic growth and could potentially also use some of this for acquisitions of smaller targets in the region, particularly in Bosnia&Herzegovina, Croatia and Serbia. In the long term, however, we believe that payouts are likely to move closer to the industry average.
We have taken a closer look at the company's competitors, from Western European multiline insurers such as Allianz, AXA and Generali to CEE specialists like PZU, Sava Re, UNIQA and VIG. When analysing recent historical dividend yields, Triglav's capital returns of around 7% p.a. are at the upper end of the range of its peers (between 5% and 7% p.a. on average). Please note that we computed the dividend yield as DPS/share price EoY.
...is supported by sound capitalisation levels
In recent years, Triglav Group has maintained a solid level of capitalisation, with a reported Solvency II (SII) ratio of between 200% and 240%. The SII ratio was slightly less than 200% at H1 24, which is almost within the targeted capitalisation level according to internal rules and slightly below the average of 229% of Western European and CEE peers. Despite rising NatCat risks, we think that the current level of capitalisation supports Triglav's dividend policy with an attractive dividend yield of over 6%.
The issue of subordinated bonds post the H1 24 date is believed to have increased the solvency ratio by c. 20%p. In addition, the ongoing review of Solvency II, which began in February 2019, is entering a decisive phase with negotiations between the European Commission, Council and Parliament aiming to implement changes by June 2025. Insurance companies' SII ratios are expected to improve due to potential capital release from a lower risk margin and other adjustments. The expected adjustments include technical provisions, the Solvency Capital Requirement (SCR) and the Own Risk and Solvency Assessment (ORSA) with the aim of encouraging improved asset-liability management and potentially freeing up capital and technical provisions to stimulate European economic growth.
Low level of debt reflects the balance sheet quality
The company uses debt as part of its regular capital management to maintain optimal capital structure and cost efficiency.
As of H1 24, Zavarovalnica Triglav had one issued callable subordinated bond (ISIN: XS1980276858) included in its capital adequacy. The EUR 50 mn bond, issued in 2019, has a fixed 4.375% coupon until the first call date on 22 October 2029 and matures on 22 October 2049. It is rated BBB+ by S&P.
After H1 24, the company issued a 20.5-year subordinated bond (Tier II under Solvency II) with an issue size of EUR 100 mn (ISIN: XS2848005166). The bond, callable after 10.5 years, has a fixed 6.70% annual coupon until the first reset date, after which the rate becomes variable, with quarterly payments. The bond matures in January 2045.
In addition to these bonds, the company had around EUR 13 mn in lease and other financial liabilities as of H1 24. The debt-to-equity ratio is estimated to reach around 17%, and the debt ratio is expected to be approximately at 4% by YE 24.
Industry's relative valuation
ESG scoring
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Rok STIBRIC
Austria Rok joined RBI’s Institutional Equity Research team in 2022 and is responsible for the coverage of companies in insurance and technology sectors. He has previously worked as a M&A Associate and participated in several landmark M&A cross-border transactions and potential IPOs in the Central and Eastern Europe (CEE) region in the following sectors: construction materials, consumer goods, healthcare, information and communication technology, oil&gas, renewables. Rok has a master’s degree in business administration from University of Ljubljana and is a CFA charterholder.
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