The rating affirmations of TRIGLAV reflect its very strong balance sheet strength, strong operating performance, a neutral business profile and appropriate enterprise risk management (ERM).
TRIGLAV's very strong balance sheet strength is supported by solid consolidated risk-adjusted capitalisation, relatively conservative reserving strategy for its non-life insurance operations and the group's strong financial flexibility with access to equity and debt markets. Offsetting factors include the group's life insurance portfolio with high, albeit declining, average guarantees. Material duration mismatch in this portfolio exposes the group's capital to adverse interest rates developments, which could potentially burden the group's shareholders' funds.
On a consolidated basis, TRIGLAV consistently has generated strong underwriting and operating profits over the past five years (2012-2016), as demonstrated by an average combined ratio of 90% and an average return on equity of 12%. The strong underwriting results are driven by the group's non-life business in its domestic market in Slovenia, where its dominant competitive position enables the company to operate with low expense ratio. However, these results are offset by the weak underwriting performance of TRIGLAV's operations in the West Balkan region, which have been affected by intense competitive conditions and high costs of operating in these markets. Nonetheless, TRIGLAV continues to demonstrate modest improvement in earnings derived from these operations, as the group achieves additional scale and actively seeks alternative lower cost distribution channels.
TRIGLAV's business profile benefits from a dominant position in its domestic market, with a 36% market share in 2016. The group is also a dominant player in West Balkan, although this is offset by poor performance of these markets. Growth in premium volumes is expected to be modest in 2017. This reflects the impact of the challenging, albeit improving economic and insurance operating conditions in Slovenia and the highly competitive international reinsurance markets.
While A.M. Best considers the group's ERM as appropriate for its size and complexity, there are concerns about the group's risk culture and governance. However, these concerns are offset by TRIGLAV's very strong balance sheet strength.
The rating affirmations of TRIGLAV Re reflect its importance to the group's strategy as the licensed reinsurer of the group. In addition to business derived from the global reinsurance market, which accounted for approximately 6% of TRIGLAV's consolidated gross written premium of EUR 936 million in 2016, TRIGLAV Re provides reinsurance capacity to all group companies.
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