Triglav: Looking for Strategic Partner

In early December 2010, Triglav Group, the largest insurance provider in South-Eastern Europe, announced plans to find a strategic partner for Triglav INT (Triglav International), the recently formed entity that unites the group’s subsidiaries outside Slovenia. The Insurer talked to Igor Stebernak, member of Triglav’s management board, about the group’s expansion joys and troubles, and the financial standing of its international subsidiaries.

-                     Mr. Stebernak, why has Triglav opted for such a major overhaul of its corporate structure?

-                     We have decided to establish Triglav INT to have a more clear split of costs related to group management. Besides, the new structure gives us an opportunity to invite a strategic partner. Our strategy for 2010-2013, which was approved in spring 2010, is based on the assumption that we will have enough equity to perform all key projects. We identified three options of obtaining the equity. Finding a strategic partner for Triglav INT would be one of them. The other two are an additional share issue or divestment of our interest in Abanka, which is our biggest equity investment. Currently, Triglav Group holds around one third of Abanka shares <as of mid-January 2011, according to Abanka, Triglav owned 25.6% of the shares with a total value of approximately EUR86.6 million– The Insurer>.

-                     What type of a strategic investor would Triglav be willing to attract?

-                     As we are not even close to any decision regarding a strategic partnership, it’s rather difficult to describe an ideal ‘candidate’. It could be an international financial institution, like EBRD or IFC. We also don’t exclude partnership with a major insurance or reinsurance player; which could bring additional know-hows and expertise to our international unit.

-                     So far, Triglav hasn’t made a decision, which of the options to pursue. Do you have any timeframe for this?

-                     Triglav INT was established in December 2010. Now, we are going to apply for approvals to regulatory bodies of all markets the international unit operates in. Basically, we’ll have to undergo an approval process similar to that when you make a new acquisition: we’ll apply to competition, financial market and insurance regulators. Our estimation is that it may take up to one year before the shares are transferred from Triglav to Triglav INT. All this time, our group will remain the only owner of the international unit. Once all shares have been properly transferred, we’ll be able to make our choice and possibly start talking to potential investors.

-                     Could you comment on the recent performance of Triglav INT companies?

-                     Our strategic goal is that by end-2013 all our international subsidiaries are profitable, which for the moment is not the case. All our subsidiaries outside Slovenia are fulfilling all local regulatory requirements but in some cases insurance technical provisions are not yet calculated according to internal Triglav standards. Once the level of insurance provisions for each individual subsidiary is increased to the standards of Triglav, loss appears in the local profit and loss account and in soma cases the increase of the subsidiary’s capital is necessary. Adopting Triglav standards for insurance technical provisions in subsidiaries does not impact consolidated results of the group.

As for the premium dynamics, in the first nine months of the year, we recorded premium and market share increases in Croatia and Serbia. In Bosnia and Herzegovina, we retained the market share, while the premium figure rose. In Macedonia, Triglav’s subsidiary Vardar Osiguranje remained the market leader, despite insignificant decreases in the market share and premium. Our premium figure for Montenegro decreased 5%, but so did the total market figure. So I would say, Triglav’s international nine-month dynamics is all in all quite positive. The only notable exception to the trend is the performance of our Czech company, but in the Czech Republic we are a niche player.

-                     What about Triglav’s regional claims dynamics?

-                     Over the last several years, claims dynamics in our operating markets, including Slovenia, has been affected by natural catastrophes ,but thanks to reinsurance protection, the net impact of the nat cats is rather insignificant. In the last year we saw some positive changes in claims dynamics in our subsidiaries in Croatia, Montenegro and Macedonia and some deterioration in Serbia, Bosnia and Herzegovina and especially in the Czech Republic. Again, higher claims were not a general trend for all our international subsidiaries.

-                     In April 2010, Triglav closed its Slovak branch office and announced a temporary halt to international expansion. How would you comment the move?

-                     Indeed, in 2010, Triglave made a decision to close the Slovak branch office, but we continue to be present in the market on the freedom of services basis. The group has decided for the moment to concentrate on improving management of the existing subsidiaries, but we’ll keep entering other markets of the region. For example, in April 2010, Triglav acquired 9.9% of Albania-based Albsig. We have performed due diligence of the company and are planning to increase our stake in it to majority. I think this may happen already in the first quarter of 2011.

Extra info:

Triglav Group plans to write a total insurance premium of EUR1.06 billion in 2011, including a non-life premium of EUR755 million, a life premium of EUR222 million, and a health premium of EUR81 million. By 2013, as stipulated by the group’s strategy for 2010-2013, the total figure is to increase to EUR1.12 billion, the non-life result – to EUR778 million, the life premium is expected to drop to EUR221 million, the health figure – to grow to EUR94 million.

Triglav sets its 2013 RoE target at 10% and its net combined ratio target at 98.7%.

The Slovenian group lists the following facts that are likely to influence its regional operations in the strategic period:

-         economic stagnation on all key markets with frequent turbulences,

-         the resulting changes in customer behavior (stagnation of the local purchasing power, attempts to lower debt burdens on the individual, corporate and national levels)