SLOVENIA: A.M. Best Affirms Ratings of Pozavarovalnica Sava d.d.

28 October 2013 —
A.M. Best Europe - Rating Services Limited has affirmed the financial strength rating of A- (Excellent) and issuer credit rating of "a-" of Pozavarovalnica Sava d.d. (Sava Re) (Slovenia), the operating holding company of the Sava group of companies. The outlook for both ratings is stable.

The ratings of Sava Re reflect its strengthened competitive position in the Slovenian insurance market, strong risk-adjusted capitalisation and improving operating performance. A partly offsetting rating factor is Sava Re's exposure to the challenging economic conditions in Slovenia.

Following the successful acquisition of Zavarovalnica Maribor (Maribor) in June 2013, Sava Re became the second-largest insurance group in Slovenia. The purchase of Maribor, the fourth-largest composite insurer in Slovenia as at year-end 2012, will result in a significant change to Sava Re's business profile, with direct business accounting for 85% of consolidated gross written premium compared to 46% prior to the acquisition. Sava Re also benefits from a leading profile within the West Balkans markets and a well-established position in the international reinsurance markets, albeit on a small scale. Excluding the effects of the integration of Maribor, premium growth is expected to be moderate, largely due to the impact of the challenging economic conditions in Slovenia.

Sava Re's shareholders' funds were supplemented by a EUR 55 million rights issue in 2013, which was used to purchase the outstanding shares of Maribor. However, this positive rating factor was partly offset by the increase in the group's investment exposure to the Slovenian economy following completion of the acquisition. Slovenian-issued securities represented 61% of the consolidated investment portfolio as at half-year 2013. Nonetheless, Sava Re's consolidated risk-adjusted capitalisation is expected to remain supportive of its current rating level, even after consideration of A.M. Best's eurozone investment stress test.

The group has made a concerted effort in recent years to maintain underwriting discipline and achieve cost efficiencies in order to improve profitability. The benefits of these actions are materialising, as demonstrated by return on equity (ROE) of 9.6% and a combined ratio of 96.1% at half-year 2013 (half-year 2012: 6.6%, 96.1%). The consolidation of Maribor is expected to enhance Sava Re's operating results going forward. Maribor maintains a three-year average ROE and a combined ratio of 12% and 97%, respectively.

Positive rating actions could occur if Sava Re successfully demonstrates resilience to the ongoing macro-economic pressures and further integrates a comprehensive risk management function within its subsidiaries. Sustaining risk-adjusted capitalisation at a strong level over the business cycle could also support positive ratings movement.

Negative rating actions could occur if Sava Re's financial profile were to decline to a level considered unsupportive of its current rating level. Additionally, further deterioration in the economic fundamentals of Slovenia could put negative pressure on the ratings.

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SLOVENIA: A.M. Best Affirms Ratings of Pozavarovalnica Sava d.d.
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