Sava Re to diversify via acquisitions

Slovenia-based Sava Re will seek to acquire primary insurers in the region around its home market as a means of diversifying, as conditions in the reinsurance business remain challenging.

Sava Re already owns 10 insurance companies. It posted gross premiums written of €486.3 million ($529 million) in 2015, of which €98.2 million ($107 million) was reinsurance and €388.1 million ($422 million) was insurance.

The group may reduce premiums in the reinsurance business as the soft market pushes returns on equity towards single digits, said Aleš Mirnik, executive director of reinsurance operations.

The group may also seek acquisitions of primary insurers in the markets where Sava Re already operates.

“I am certain that as we speak now, our board is considering options of what to do next. We are a bit overcapitalised so we are in a position to be a buyer of primary insurers again,” Mirnik said.

Sava Re owns two insurers in Slovenia operating in life and non-life with combined gross premiums written of €330.5 million ($360 million) in 2015. Outside of Slovenia, Sava Re owns two insurers in Serbia, two in Kosovo, two in Croatia and one each in Montenegro and Macedonia. The companies outside Slovenia are, however, fairly small in terms of their gross premiums written.

There are opportunities to grow in the primary insurance market in these countries, Mirnik said. “At the end of the day it’s all about the price,” he noted.

An obstacle for a deal might be that the potential targets are not as well reserved as the insurers currently owned by the group, Mirnik explained.

“A lot of companies in this region are under-reserved, they are not at all prepared for Solvency II regulation,” he noted.

The advantage of owning primary insurers as a reinsurer is that it provides balance, he said. “The cycles are connected but moving at a different pace,” Mirnik said. “It gives you a bit more flexibility as you can work with economies of scale.” Costs can also be cut by centralising certain activities in finance and accounting for the insurers that are part of the group, he explained.

“In reinsurance, Sava Re is focusing on developing markets, but markets are so difficult that we are prepared to reduce the business,” Mirnik said.

He said that in the reinsurance sector, return on equity has moved into the single-digit arena, and this year’s price reductions will only show their effect in 2017, he noted. If prices go down another 10 percent, the whole industry will become unprofitable, and this is even in the absence of large losses, Mirnik said.

Sava Re’s business approach in reinsurance is fairly traditional, focusing on short-tail business, property, marine and some construction, while not being very keen on motor, aviation or liability, Mirnik said.

As part of its strategy, Sava Re is avoiding large programmes with high premium volumes, which are under the most price pressure. Instead it looks for smaller opportunities with lower premium volumes but which are off the radar of competitors, Mirnik said.

For 2015, Sava Re’s stated combined ratio was at 95.9 percent while its return on equity was at 12 percent.