Net profit decreased by one-third compared to the same period in 2021. This decline was expected and is mainly due to the frequency of motor claims returning to the pre-pandemic level, and high levels of inflation causing significant increases in the cost of settling claims, with higher provisions for future claims. In addition, the Group suffered large weather-related losses and other major claims. However, compared to the pre-pandemic and pre-inflation year 2019, the half-year net profit grew by 28.2%, showing the strength of the Group in this challenging financial and geopolitical environment.
The Group's combined ratio of 92.3% remained within the target range, helped by the strong performance in the reinsurance segment, which improved its results by EUR 4.3 million in the second quarter (on a non-cumulative basis), driven by increased premiums, favorable claims development and effective reinsurance protection. Financial market conditions led to a decrease in the value of the Group's assets and equity, although market conditions improved in July. The annualized return on equity was 12.1% in the period, so that the Group remains on track to deliver the target return set out in its strategic plan.
Gross premiums written up by 4.5%
In the first half of the year, the Group wrote gross premiums of EUR 433.0 million, up 4.5% year on year. The largest growth was in the non-life segment, in Slovenia at 4.9%, whereas non-Slovenian business grew by a remarkable 16.3%. The growth in gross premiums was mainly driven by motor business, where more policies were sold, and average premiums were higher. Gross premiums also strengthened in the reinsurance segment, up 5.2%, with a full 16.8% increase in the non-proportional business.
Cost-effectiveness within the planned range
The net expense ratio rose slightly to 28.5% year on year, mainly due to higher acquisition costs for life insurance business, the payment of a cost-of-living bonus, IT costs and other price increases. The net expense ratio of the reinsurance segment improved due to a change in business mix increasing low-commission segments. Moreover, the net expense ratio is especially better than the full-year target in the Slovenian non-life and life segments, reflecting higher revenue and the timing of operating expenses towards the second half of the year.
Financial market impacts on the investment portfolio
The investment portfolio totaled EUR 1,466.1 million, generating an investment return of 1.4% for the Group. The higher required yields in financial markets resulted in a reduced value of and return on the investment portfolio year on year. There were no major changes in the composition of this portfolio. Fixed-rate investments accounted for 88.8% of the portfolio, remaining at the previous year-end level. In the second quarter, the Group further increased the share of sustainable investments (ESG) in the portfolio to 13.3%, continuing its solid progress on strategic priorities in this area as well.
Digital transformation and placing the customer at the centre
The Group continued to upgrade and deploy digital customer solutions and optimise the customer experience, in particular on websites, where a multi-channel solution was introduced in two additional Group companies. The SavaNet portal, which so far includes data for Zavarovalnica Sava and Sava Pokojninska, saw several improvements based on customer requests and ideas. Sava Infond data are planned to be added in 2022. A comprehensive redesign of the Zavarovalnica Sava website is underway and will serve as a model for other Group companies. This redesign will improve customer experience, offer greater security and lower costs.
Information technology initiatives & improvements
The Group's IT teams continued implementing reinsurance core system and data warehouse solutions. In insurance operations, work continued on implementing a new core business solution, and solutions for a geographic information system (GIS) and fraud prevention. The consolidated insurance data warehouse was expanded with new data sources. As regards the IT infrastructure, the Group upgraded control and management processes to improve its operational efficiency. Cybersecurity was strengthened by introducing additional internal controls and improving the organization of process management.
In the second quarter, the Group mainly focused on preparing for the implementation of two delegated regulations that entered into force in August 2022: namely, Regulation 2021/1257, regarding the integration of sustainability factors into product approval processes, oversight and the identification of customer sustainability preferences in the distribution of insurance products, and Regulation 2021/1256, which concerns the integration of sustainability risks in the governance of insurance and reinsurance undertakings. Documents and guidance were issued to meet regulatory requirements, and relevant information was prepared for customers on sustainability factors in the insurance product offering.
With its half-year performance and development achievements, the Sava Insurance Group continues to make good progress against all its strategic priorities, to aggressively pursue its year-end goals, and it remains committed to its customers and their needs in the future. The management board expects that the annual targets will be achieved unless there are additional substantial adverse impacts from either the economic environment or catastrophic events.