SAVA RE D.D.

Transcription

1 29 th November 2013 SAVA RE D.D. Reinsurance LJSE ticker: POSR Bloomberg: POSR SV 10 Target price: 10.1 EUR Previous target price: 10.1 EUR, BUY ( ) Recommendation: BUY months stock performance in EUR 4 Nov 12 Feb 13May 13Aug 13 Nov 13 Stock data as of Market price (EUR) 8.3 Market Cap (EUR) week range (EUR) No. of Shares 17.2 Avg. daily trade vol., EUR(k) Free float 75% Average daily % of stock traded 0.018% Dividend yield 0.0% Price performance 3 months 12 months Multiples: TTM 2013F price change in % -8.8% 21.2% P/E SBI TOP index change in % 3.8% 11.3% P/B relative to SBI TOP index in % -12.1% 8.9% P/GWP Key figures (According to International Accounting Standards) Consolidated data in EURm Income statement: Balance sheet: million FY2011 FY F 2014F million FY2011 FY2012 TTM GPW Equity Inv. n.p. n.p. n.p. Growth YoY -0.3% 4.8% 56.2% 9.7% Fin.assets NPE Tech.prov ,032.8 Growth YoY 1.4% 4.7% 63.5% 9.7% Equity Claims paid Assets ,390.6 Claims ratio 57.9% 60.9% 61.4% 63.5% Inv./Prov Net income E/A 25.0% 26.4% 16.6% Growth YoY -19.6% 102.5% 78.1% -5.9% E/Prov. 42.3% 43.7% 22.4% EPS ROE 4.1% 7.2% 5.3% POSR SBI TOP Recent news and outlook revision: Second biggest Slovenian and West Balkan insurance Group. Synergy potentials. Regional growth opportunities. Improvement in profitability. ALTA Invest, investicijske storitve, d.d. Železna cesta 18 SI-1000 Ljubljana Slovenia phone: invest@alta.si Head of Research: Sašo Stanovnik saso.stanovnik@alta.si Head of Trading: Igor Taljat igor.taljat@alta.si During the last reporting period Sava Re Group completed the capital increase and purchased all of the remaining shares of Zavarovalnica Maribor. Share count increased from to Through Zavarovalnica Maribor (directly or indirectly) Group also owns own shares. This acquisition story is now successfully behind them, but now they will face always though and complex post-acquisition processes in order to maximize synergies. In July Standard & Poor's affirmed the existing BBB+ rating with stable outlook and removed the ratings from CreditWatch with negative implications. AM Best Europe, London affirmed the financial strength rating of A- and the issuer credit rating of A- of Sava Reinsurance Company, both with a stable outlook. In September Sava Re announced that in response to the liquidation of two Slovenian banks Group recorded impairment losses in a total amount of EUR 4.8m. EUR 1.8m of which is related to subordinate bonds of Factor Banka held by Sava Reinsurance Company, and EUR 2.9m to Probanka subordinated bonds held by Zavarovalnica Maribor. Valuation commentary: Group results are below our estimates. We believe 2013 GWP could be around 5% lower than we expected, while higher operating costs could be offset by lower net claims. In our 1H13 analysis we were expecting that light underwriting results will be offset by stronger net investment income (excluding accounting effects of acquisition), however, due to mentioned impairments of subordinated instruments even investment result could now be slightly below our projections. Although current trends are slightly negative for the valuation, we are for now maintaining target price of EUR 10.1 and a buy recommendation. However, we should note that Group still holds for EUR 15.8m subordinated bonds, which are likely to be impaired. Total write-off of these instruments could mean that Sava Re would end 2013 with minimal profit (excluding accounting effects of acquisition). Projecting this scenario, our target price would fall from current EUR 10.1 per share to around EUR 9.1 per share. 1/5

2 9M13 Results Results assessment still difficult due to Zavarovalnica Maribor consolidation. million 9M12 9M13 YOY 3Q12 2Q13 3Q13 QoQ YOY GPW % % 77.3% NPE % % 77.8% Claims % % 62.4% Claims Ratio* 60.9% 59.5% 66.8% 59.9% 61.0% Net Expenses % % 72.6% Expense Ratio* 32.7% 31.2% 30.1% 33.5% 29.2% Net income** % % 142.1% Margin 5.8% 5.3% 3.2% 3.2% 4.3% * For this calculation, we use our own ALTA Invest methods, which are not completely comparable to those used by Sava Reinsurance Company. ** 2013 adjusted for on-time revaluation effect GWP stood at EUR 291.8m. Net incurred loss ratio improved by 1.2 p.p. to 60.2%. For the first three quarters of 2013 Sava Re Group reported GWP in the amount of EUR 291.8m or 35% more than in However due to acquisition of Zavarovalnica Maribor the number is incomparable to the same period last year. On the unconsolidated basis the highest growth of non-life segment was achieved in Slovenian insurance company Tilia (6.8%), while the highest drop was reported for Illyria where loss of one major client led to 11.2% GWP contraction. In comparison to the same period last year, the contraction of 5.5% YoY was reported also for acquired insurer Zavarovalnica Maribor. Namely GWP of this insurer totaled EUR 144.6m for the first three quarters. In the life segment both Slovenian insurers reported drop of GWP (Zavarovalnica Maribor by 0.8%, Tilia by 6.4%), while international part reported strong growth of this segment. On the non-consolidated basis (no effect of acquisition) life GWP fell by 1.1%. Pozavarovalnica Sava (Reinsurance Company) reported GWP decrease of 10.7% YoY in 9M13 with GWP amounting to EUR 111.0m. Partially this is a consequence of lowering dependence on Zavarovalnica Maribor (now consolidated), while partially this is a consequence of ratings problem (loss of -A rating from S&P). Group s gross claims paid for the non-life totaled EUR 88.9m with Zavarovalnica Maribor contributing EUR 42.5m during five months of full consolidation. In the same period last year Group reported gross claims in the amount of EUR 44.5m. While on consolidated basis both Slovenian insurance companies reported increase of gross claims, the international part of the Group achieved 13.3% lower gross claims. In Slovenia the reason for the increase were negative trends in motor casco and payments for 2012 floods. Group s consolidated net claims totaled EUR 161.1m. Net incurred loss ratio improved from 61.4% to 60.2%. Non-consolidated in EUR 9M13 GWP 9M12 GWP YoY 9M13 Claims 9M12 Claims YoY Pozavarovalnica Sava 111,043, ,390, % 57,243,893 53,636, % Zavarovalnica Maribor (non-life) 144,614, ,069, % 81,305,473 75,389, % Zavarovalnica Tilia (non-life) 61,866,076 57,934, % 31,078,817 26,739, % Sava Montenegro 8,654,557 8,503, % 3,526,017 4,743, % Sava osiguranje, Belgrade 8,250,884 8,333, % 3,674,822 4,292, % Sava osiguruvanje, Skopje 8,656,154 8,888, % 3,071,169 3,335, % Velebit osiguranje 7,107,425 6,970, % 2,577,210 2,508, % Significant change in GWP structure, that leaned more to insurance on the expense of reinsurance. Illyria 7,676,830 8,642, % 2,559,749 2,876, % Zavarovalnica Maribor (life) 56,759,950 57,788, % 25,946,638 29,282, % Zavarovalnica Tilia (life) 7,024,304 7,507, % 4,004,298 4,568, % Velebit životno osiguranje 1,452,682 1,052, % 225, , % Illyria Life 659, , % 56,373 93, % Sava životno osiguranje 968, , % 34,171 94, % Consolidated in EUR 9M13 GWP 9M12 GWP YoY 9M13 Claims 9M12 Claims YoY Reinsurance 82,978, ,859, % 41,003,292 46,927, % Non-life insurance 167,306,897 99,143, % 88,925,204 44,480, % Life insurance 41,507,938 9,850, % 19,904,470 4,320, % Total 291,793, ,852, % 149,832,966 95,728, % 2/5

3 Combined ratio at 95.1%, improvement YoY. Adjusted net income at EUR 15.6m. Group s total expenses for first nine months 2013 amounted EUR 90.9m. Reported net expense ratio improved from 33.8% in 2012 to 33.0%. Operating expenses for non-life totaled EUR 52.5m however they were under significant influence of consolidation of Zavarovalnica Maribor (EUR 20m). Excluding this effect, net operating expenses for non-life segment actually decreased. Due to improvement of claims and expense ratio combined ratio decreased to 95.1%. Namely in the same period 2012 combined ratio was 97.9%. Although not comparable due to acquisition, underwriting result improved. Excluding revaluation affect of Zavarovalnica Maribor shares (EUR 7.9m), net investment result for the period was EUR 11.3m. In the last quarter this result was hit by EUR 4.8m write-off of subordinated bonds which were issued by two Slovenian banks which are going into liquidation. Adjusted for one-time accounting effect of Zavarovalnica Maribor acquisition, Group s net income was EUR 15.6m or 25% more than in the same period last year. Unadjusted net income for the period was EUR 23.5m. As of the end of the quarter Group s equity stood at EUR 232.9m or EUR 61.6m more than at the end of The main reason was capital increase in the amount of EUR 55m. Contribution from net income was offset by other comprehensive loss which in the first three quarters totaled EUR 7.9m. Due to the acquisition of Zavarovalnica Maribor surplus of available solvency margin contracted from EUR 19.4m at the end of 2012 to EUR 7.9m at the end of 3Q Due to capital increase book value per share decreased from EUR 18.1 at the end of 2012 to EUR As of the end of the quarter total assets stood at EUR 1,390.6m. Total financial investments amounted to EUR 931.8m. Majority is invested in government and corporate bonds. Although Sava Re is seeking diversification the Group is still heavily exposed to Slovenia (52.6%). Some impairments in the portfolio were necessary, with additional risks seen in 4Q13. Group investment portfolio by asset class 30 Sep Sep 2012 Index Share (%) Total Excl. ZM Total Total Excl. ZM Total Excl. ZM Deposits and money market instruments Government bonds Corporate bonds Shares Mutual funds Other Retained deposits Total financial investments Financial investments in Group companies and in associates Investment property Cash and cash equivalents Total investment portfolio Funds for the benefit of policyholders who bear the investment risk At the end of the September 2013, Group held subordinated bonds of Slovenian banks in total amount of EUR 15.8m (valued at mark to market in the AFS category). Increased exposure to these instruments was mainly a result of acquisition of Zavarovalnica Maribor. Due to uncertain environment and given newly adopted legislation regarding burden sharing in the process of rescuing Slovenian banks, further impairments are highly likely. Nevertheless, the management still expects that Sava Re will pay out dividends for /5

4 Top5 shareholders: SOD 25.0% Splitska Banka 9.8% EBRD 6.2% Raiffaisen Bank 4.4% Modra Zavarovalnica 4.2% Brief Company profile Sava Reinsurance Company is the leading Slovenian reinsurer with a 31% domestic market share and is the largest locally-based non-captive reinsurer in the CEE region. It also transacts primary insurance business (life and non-life) in Slovenia and the Western Balkans (Croatia, Kosovo, Macedonia, Montenegro, and Serbia). The company has a 38-year history. In 1992 it was only in reinsurance business, but then started to penetrate the insurance market in Slovenia and the Western Balkans. It was also a holder of minority share in the Slovenian second biggest insurance company Zavarovalnica Maribor (48.68%) at the end of 2012, but acquired it during 2013, through which it became the second biggest insurance group in Slovenia (17.1% market share) and SEE. It has 2,360 employees. Group sales by region (9M13) Group sales by segment (9M2013) Slovenia 29% Reinsurance 29% Life 14% * including all reinsurance premiums Abroad* 71% Non-Life 57% Disclaimer GENERAL DISCLOSURE The research department of ALTA Invest, investicijske storitve, d.d. (eng. ALTA Invest, investment services, Inc.), is, in order to avoid and deter conflict of interests, a separate organizational part of the company. It is independent in its decisions about selecting, monitoring and updating its investment recommendations of an individual issuer. According to its information policy, ALTA Invest, investicijske storitve, d.d. provides data privacy and strongly defends accessibility to the data bases and other materials of the research department, against any unauthorized personnel. 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Other information Other information about the services of ALTA Invest, investicijske storitve, d.d. and financial instruments, including general conditions for provision of services, price list and other disclosures can be found at and ALTA Invest, investicijske storitve, d.d., Železna cesta 18, SI-1000 Ljubljana. Registered at the District Court of Ljubljana, Registration Number: , ID for DDV: SI , Share capital: 2.031, EUR. 5/5