Mr. Zvonko Ivanušič, Chairman of the Management Board of Sava Reinsurance Company
Security and Transparency
The Sava Re Group, which in addition to the parent Pozavarovalnica Sava (Sava Reinsurance Company) consists of ten insurers and six indirect subsidiaries in the Western Balkans, is the second largest insurance group in the region. The Group operates in Serbia through two insurance companies, Sava osiguranje and Sava životno osiguranje. According to the latest published nine-month results, the Sava Re Group recorded growth in net premiums earned. It wrote gross premiums of € 384.6 million, up 3.6 percent compared to the previous year, representing 80.7 percent of the planned premium for the full year 2015. In the first nine months of 2015, the Sava Re Group generated a net profit of € 23.0 million. The profits generated by Slovenian life business and non-life business abroad were both good and at a similar level as in the same period last year. In the third quarter, rating agency Standard & Poor's upgraded the ratings on Sava Reinsurance Company to A– with a stable outlook. The rating upgrade is crucial for realizing the Group's growth strategy in international reinsurance markets. In October last year, Sava Reinsurance Company announced the merger of its insurance companies based in the European Union. By merging the Slovenian insurers Zavarovalnica Maribor and Zavarovalnica Tilia and the Croatian companies Velebit osiguranje and Velebit životno osiguranje, which is scheduled to be completed this year, a strong insurance company will be formed that will provide the Sava Re Group with a better competitive position in both markets and allow greater cost efficiency and better adaptability to client needs. This will support the Sava Re Group's long-term strategy to consolidate its position as the second largest insurance group in the region. The Group's strategic focus will be on providing transparent, understandable and efficient services that reflect the actual needs of clients, proactive response to technological progress, optimal use of resources, especially the Group's knowledge, taking advantage of synergies by harmonizing business processes, optimal operation in the Solvency II regime, setting up an effective risk management system and developing a common organizational culture by assuming the best practices of the merged companies.
Mr. Zvonko Ivanušič, Chairman of the Management Board of Sava Reinsurance Company, speaks to PROFIT magazine.
1.Mr Ivanušič, where are you from and what is your educational background?
I was born in Bela Krajina, a region in the south east of Slovenia along the border river of Kolpa. I attended primary and secondary school in Črnomelj (Bela Krajina). I graduated from the Faculty of Economics and earned a master’s degree in economics from the University in Ljubljana.
2.What was your experience before your appointment as Chairman of the Management Board of Sava Reinsurance Company?
I started my career in banking, then worked as an analyst for the Črnomelj municipality, later I was a high school teacher for economy.
I gained experience in the private sector as a crisis manager in the Belt Črnomelj foundry. Then I became the Chairman of the Management Board of KD Group, which used to manage several mutual funds, before being appointed CEO of the insurer Zavarovalnica Slovenica. In 2000 my career path led me into politics when I was appointed Minister of Finance of the Republic of Slovenia. Since 2002 I have been part of the team of Sava Reinsurance Company. I joined Sava as advisor to the Management Board, was then appointed member of the Management Board, and have been chairing it for seven years now.
3.How well did the Sava Re Group do in 2015, what was the amount of consolidated gross premiums written last year, and are profits increasing?
Right now I cannot discuss our annual figures for 2015, but in the first three quarters, the Group wrote € 384.6 million in gross premiums, which is a 3.6 % growth year-on-year and represents 80.7 % of the planned annual 2015 premiums. In the first nine months of 2015, the Sava Re Group generated a net profit of € 23.0 million, which is still in line with the 2015 budget.
4.The Company and the Group have been increasing profits year after year and last year you posted record profits for the Group. Rating agency Standard & Poor's awarded Sava Reinsurance Company "A–" (Excellent) long-term counterparty credit and financial strength ratings with a stable outlook. Can you tell us, please, what exactly this means?
True, the Sava Re Group posted a record profit of € 30.5 million in 2014.
Sava Reinsurance Company held A– credit ratings by Standard & Poor's prior to 2012. After the sovereign downgrade of the Republic of Slovenia in that year, the rating agency lowered its ratings on Sava Reinsurance Company. After its regular annual review in July 2015, Standard & Poor's again raised its long-term credit and financial strength ratings to "A–" with a stable outlook. Based on the rationale provided by the rating agency, the upgrade reflected the Company's improved capital strength and market position on the Slovenian insurance market.
An excellent credit rating is of exceptional importance in reinsurance operations. The rating upgrade meant for us that we could again access certain reinsurance markets and select more profitable business.
5.How did you prepare for the new Solvency II Directive, which came into force on 1 January 2016, since the Group transacts reinsurance and insurance business, and will this be a complex process for you?
We successfully prepared for the S II requirements, completing implementation within the set time, so we have been fully compliant with the directive since 1 January 2016. We are introducing S II requirements into our other companies not based in the EU, thereby setting uniform standards across the Group. Otherwise, S II compliance is very complex, costly and difficult for small insurers to achieve.
6. Do you expect any changes in life business related to the enforcement of the Solvency II regime? First of all, what products to put on the market, where to invest capital and how to change the awareness of clients that buying life insurance is not an investment for profit but an investment in security?
Of course, S II requirements also need to be considered in life insurance. The impact of the directive will be in that insurance companies will focus more on the risk component and less on the savings component. Insurers who will sell more products with a greater savings component, will be under increasing capital pressure. For this reason, the Group is planning to focus on life products with a higher risk component and products with significantly lower guaranteed benefits. There will be less products with savings components and products with significant guarantees, in terms of profits or otherwise.
It is precisely S II requirements that encouraged insurers to design products that provide greater protection and security.
Those investing for profits will be punished with additional capital requirements.
7. Right now the most interesting development is your decision to merge four insurers into one company. Why did you decide to make this move? What does this mean in practice and does this change the role of Sava Reinsurance Company?
The primary reason for this decision is S II, which requires additional capital. A secondary reason is the highly competitive market. Another factor was the liberalization of the Croatian motor liability market, which triggered a drastic fall in prices at a time when SII brought about additional costs and capital requirements.
And then we cannot ignore that this will provide the second largest insurance group in the region with an optimal capital structure and improved cost efficiency. The new, combined insurer will generate more profits than the previous four together.
The integration project otherwise does not affect our reinsurance operations.
8. In your opinion, what is the current situation in the insurance market in the region, what are the major shortcomings of insurance companies, and what can they change to improve results?
The current situation in the region is rather complex, especially due to the unstable legal framework of individual countries, as well as due to dumping made possible through the weak enforcement or lack of adequate actuarial rules. In some markets there is widespread unfair competition with underwriting commissions from motor third-party liability business.
The problem with these markets is that, even though they have high potential based on their low premium to GDP ratio and low per capita premiums, they mostly have not started to grow like some other Eastern European markets, mainly because of the poor macroeconomic situation. Another problem is corruption in these areas.
Results will improve once the economy is stable, professional reserving standards are adequately enforced and the legislation is aligned with European standards.
9. Many insurers believe the future of insurance sales is in the development of new distribution channels. Do you believe this is the way to go or can risks be better managed and better results be achieved by developing an own sales network?
I believe insurance companies need their own sales networks, their own agents so they can better manage their risks. But we also need to develop new, modern distribution channels, we need to stay abreast with technological development and our future target groups. Online sales is a necessity to service the coming generations. We need to be ready for the digital sales revolution.
10. Sava Re sees all markets as potential sources of growth, is your primary goal to increase your market share in Serbia? What are your long-term goals, chief and strategic goals for the future?
In every market, our chief goal is quality, only then growth. In Serbia, our market share of about 2.3 % is much too small. Our medium-term goal is to increase this share, either through organic growth or acquisitions if suitable targets become available.
11. Employee training is essential for any insurance company. What are your activities in this respect?
We encourage training and knowledge transfer across the Group. Every investment in employee training yields multiple returns. Yet I believe we need to do more in this area.
12. Sava Re specifically focuses on client needs. What are the novelties in your product offering that you have prepared for your clients this year?
Around the world, insurance companies are generally viewed with a degree of distrust, mostly because of the infamous small print. The Sava Re Group is working hard to provide transparent, understandable and efficient services that reflect actual client needs and we intend to work even harder in this direction. We will specifically focus on the after-sales process to support our clients after a loss event happens.
We cooperate with banks in the development of tailor-made products, moving towards new sales channels and adapting products along the way.
13. Sava Re is known as the best company in terms of transparency in the region. You are also known for the promptness in settling reinsurance claims. Is your long-term ambition to be recognized for this as one of the best companies in the region?
Definitely. In all Sava Re Group companies we place transparency and quality of services before everything else.
14. You are known for bringing innovation to insurance business. What are the latest news and activities of your companies in Serbia?
Let me mention just the most important campaigns and innovations of last year:
From May to December 2015, we organized a campaign with our insured Petrol under the slogan "Fill up, insure and save!" (Natočite, osigurajte and uštedite!).
In early September 2015, the company's website became fully operational renovated and aligned with state-of-the art technology.
Towards the end of 2015, Sava osiguranje obtained a licence to transact voluntary health insurance business.
15. What are your expectations for the Serbian insurance market, how will it evolve in the next 5–10 years?
We expect that the Serbian insurance market will continue to develop faster than the markets in the neighbouring countries.
The expected economic growth in the next 2–3 years will certainly contribute to the growth in the insurance market, so for the coming years we see business stabilize and recover in a way.
We believe that the strongest growth will be in the life insurance segment, which is yet to show its true potential. As regards other classes of insurance, we hope to grow the compulsory insurance segment.
The presence of large global insurers indicates that the Serbian market holds considerable potential in Europe.
In the coming years, we will innovate and renovate our product offerings to better suit client needs and requirements.
16. What do you do in your leisure time?
Unfortunately, there is not much leisure time left; whatever there is, I like to spend it outdoors or with music.
17. How do you cope with the stress that comes with your position? If you could, what would you change in your career?
My favourite way of disarming stress is hiking in the mountains and gardening.
Looking at my career path, I don't think I would change anything. Maybe I would follow a healthier lifestyle and try and find ways of avoiding stress.
