Adress by the President of the Management Board[1]

A high financial stability achieved.

Andrej Slapar, President of the Management Board of Zavarovalnica Triglav, commented on the Triglav Group’s plans:

The insurance business of the Triglav Group is almost entirely concentrated on the markets of South-East Europe, from Slovenia to Macedonia. In recent years, you have characterised these market as challenging, warned of negative trends and yet your business results were good. How do you explain your resilience?

The Triglav Group clearly decided for financial stability, based on profitability and safety of operations, and focused on the core insurance business. Our strategic objectives were formulated in a way that by achieving them we are able to defy different negative movements.

The playing field in 2014 did not improve, which is why we are very pleased to have not only achieved the set strategic objectives but even performed better than planned in some areas.

Good results in the core business of non-life insurance in 2014 are shown by a 96.3% combined ratio. Compared to one year earlier our net profit went up by 23% to EUR 85.7 million and we achieved a 13.4% return on equity.

Extraordinary capital market conditions were crucial for our very good business results. It was mainly thanks to these conditions that in 2014 we earned high returns on financial investments, also partly due to considerably lower permanent impairments compared to 2013.

Extraordinarily favourable conditions on the capital markets are unlikely to continue in the future, however established credit rating agencies assigned the Triglav Group credit ratings which confirm its stable and positive outlook. On what basis?

Excellent credit ratings were assigned on the basis of continued good business results, which among several factors, mainly show that the capitalisation of the Triglav Group is solid and risk-adjusted and that its competitive position in the Slovene market is dominant. As confirmed by »A–« credit ratings assigned by both Standard & Poor’s and A.M. Best, the Group again achieved one of its major strategic objectives. A stable medium-term outlook was assigned by S&P, whilst A.M. Best upgraded the Group's medium-term outlook from "stable" to "positive".

Another proof of our high financial stability is increases in total equity capital and insurance technical provisions, which are at the same time the foundation and guarantee for balanced operations and long-term safety of policyholders. As at the reporting date, total equity capital of the Triglav Group totalled EUR 688.1 million and was 17% higher compared to one year earlier, whilst insurance technical provisions equalled EUR 2,333.7 million and were 3% higher.

How did economic conditions reflect on premium and market developments?

The Slovene economy showed first signs of recovery and a moderate economic growth was recorded in most countries of South-East Europe. Croatia and Serbia were exceptions, as no signs of recovery were detected there. Despite weak positive impulses the situation in insurance markets did not improve, as the several-year-long economic and financial crisis affected consumer purchasing behaviour and curtailed economic activity. The quality and rate of household and company insurance coverage dropped even in the relatively well-developed insurance market of Slovenia, where the Group booked 82.6% of total consolidated written premium. Zavarovalnica Triglav booked a 2% lower premium, Triglav, Zdravstvena zavarovalnica earned a 3% higher premium and the share of the Group in the domestic market slightly increased. In 2014, the Triglav Group as a whole booked 1% less in consolidated written premium compared to 2013. Premium growth was recorded in the markets of Serbia, Macedonia and the entire Bosnia and Herzegovina, but certain premium decreases were recorded in Croatia, Montenegro and the Czech Republic.

According to the Strategy, the Triglav Group will develop as a leading insurance/financial group in Slovenia and South-East Europe. How did the results you achieved help towards this goal and what role does the Triglav Group play in individual insurance markets in the region?

In 2014, the Triglav Group was consolidating its leading role in the Adria region and has remained one of leading insurers in South-East Europe. Further growth in target insurance markets certainly remains one of our major strategic objectives.

The fact that in 2014 we improved our position as the leading insurance/financial group in Slovenia is a good development in our view. Slovenia, our domestic insurance market, is small on a global scale but it is rather well developed. However, the insurance markets in the rest of the Balkans, from Croatia to Macedonia, are still developing and have growth potential.

We remain the market leader in Slovenia, Montenegro and Macedonia. In Slovenia, our market share increased by 0.3 percentage point and reached 36.1%, in Montenegro it was 38.2% and in Macedonia 15%. As a market follower we most improved our market share in Serbia, where it grew by as much as 0.7 percentage point to 3.7%, and was the same as in Croatia. The Group holds a 7.6% share of the entire insurance market of Bosnia and Herzegovina. Our Czech subsidiary, from which we started divesting, held 0.9% of the non-life insurance market and fell by one rank compared to one year earlier.

We want to increase the volume of operations in all target markets, primarily where we are not market leaders. The fact is that emerging markets outside Slovenia have different characteristics and require an adapted development approach. With this in mind we are boosting Triglav INT as a holding company, the owner of all subsidiaries outside Slovenia and a corporate governance vehicle.

The year 2014 will be remembered as a year of natural disasters that affected most of the Balkans. Slovenia had to face glaze and deluges, countries in its neighbourhood suffered devastating storms with floods. How did these events affect the loss ratio of the Triglav Group – its value and movements?

Gross claims paid by the Triglav Group dropped by 2% to EUR 615.7 million compared to 2013, predominantly as a result of a claims decrease in non-life insurance. Mass loss events affected most of the Group’s insurance companies and resulted in EUR 35.7 million of claims paid. It should be noted here that the reinsurance policy of the Triglav Group is conservative and offers adequate reinsurance coverage for such claims.

Recently, Slovenia has on average suffered three mass loss events a year and in 2014 there were five mass loss events which caused EUR 27.3 million of claims in total. The highest amount of claims, EUR 12.7 million, was incurred at the beginning of 2014 due to a snow-and-glaze storm. The three autumn floods resulted in claims totalling EUR 11.9 million. Bosnia and Herzegovina and Serbia were affected by devastating floods in May, which boosted claims to EUR 4.5 million. Claims were incurred in Macedonia, Croatia and Montenegro owing to stormy winds, hails and a storm.

As the rate of insurance coverage in general on the markets outside Slovenia was low, the mentioned loss events did not have a significant impact on the operations of the Group. Nevertheless, according to our estimates these events will have a greater impact on the purchasing power of the population due to the loss of income and investments needed for reconstruction.

The share of Zavarovalnica Triglav is listed on the Ljubljana Stock Exchange Prime Market and it accounts for about 11% of the Blue-Chip SBI TOP Index. Did the positive trend in share liquidity continue?

Yes, a growing price and increased liquidity of the ZVTG share continued. The closing price of the share increased by more than 24% and was EUR 23.60 as at the reporting date, when the Company had over 28,500 shareholders, mainly domestic natural persons. A slight increase was again recorded in international investors, who at the end of 2014 owned 17.6% of total shares.

There is less than a year’s time before Solvency II Directive takes effect in January 2016. How are you prepared for that?

By the end of 2015, our risk management will be fully compliant with the regulatory requirements of Solvency II – in terms of the governance system, reporting to the Insurance Supervision Agency and external stakeholders, the implementation of own forward-looking risk and solvency assessment.

In view of the entry into force of this directive and our preparations so far we do not expect any additional changes. Bearing in mind the introduction of Solvency II the optimisation of Zavarovalnica Triglav’s operations started some time ago, including both assets and liabilities. The achieved business results and implementation of strategic guidelines confirm that the Triglav Group maintains its solid capital base and financial stability, also reflected by the above-mentioned credit ratings and stress test results.

You again underline the focus on insurance business and prioritise the development of health and pension insurance. What are the plans of the Triglav Group for 2015?

Our focus will stay on the core insurance business which together with asset management is the pillar of the Triglav Group’s business. Maximisation of profitability, financial stability and safety of operations remains our primary goal. We will strive to consolidate our current leading position in the Slovene insurance market. Special attention to health and pension insurance products was underpinned by the acquisition of a new subsidiary Skupna pokojninska družba, which represents an important step in this direction. The Triglav Group will seek new opportunities and work to achieve future growth and development in target markets of South-East Europe.

Zavarovalnica Triglav as the parent company will prudently continue with subsidiary ownership consolidation within the Group. We have plans to further optimise the asset management of the Group and to further divest from subsidiaries whose business is not in line with the Group's Strategy. To sum up, in all areas we will follow the strategy adopted for the period to 2017.

What economic conditions and performance do you expect?

The conditions on the insurance markets covered by Triglav are estimated to remain challenging in 2015, without exceptional investment returns in capital markets, at least not in the short run. Adequate levels of investment security and liquidity remain at the forefront of the Triglav Group’s investment policy, followed by the criterion of profitability.

In 2015, a net profit of the Triglav Group is budgeted at EUR 71.7 million, the combined ratio at 96.3% and the volume of written premium approximately the same as in 2014. Continued aggressive marketing approach and sales activities will even more focus on clients as well as on developing and increasing the efficiency of the sales network. The main objectives of the Triglav Group's insurance companies remain continuous improvement of the portfolio structure and premium growth.

In its long-term guidelines the Triglav Group views corporate social responsibility as its fundamental value. How do you understand that and how do you put it in practice?

Corporate social responsibility is one of the cornerstones of our development in the long run and, therefore, we will continue to make our insurance products and services more accessible and to cooperate with stakeholders in the social environment. Our leading role in the region is connected with our responsible actions and participation in local communities. This involves a broad range of activities, such as operational compliance in all markets, improving insurance literacy, web presence and integrated business impact management. The plan is to introduce a Code of Conduct of the Triglav Group and a conflict of interest compliance plan as well as to increase the share of investigated cases of suspected fraud.

We are pleased with the results achieved by "Everything Will Be Alright – Institute of Zavarovalnica Triglav for corporate social responsibility" in its first year. Supported by our employees and business partners, the institute helped deal with the consequences of the glaze catastrophe in Slovenia and reached out a helping hand to victims in all the countries with Triglav subsidiaries. One of the prominent results was the support of young talents, which we plan to expand among our stakeholders in view of the economic situation and difficult position of the young. We believe this is an investment in the future which will bear fruit for everybody.

[1] GRI G4-1

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