Review of risk management with special emphasis on unit-linked life insurance From 1 July to 27 October 2008 the ISA reviewed the operations of Zavarovalnica Triglav. The purpose of the review was to check how the company complies with the risk management requirements and other provisions of the Insurance Act and secondary legislation adopted on the basis thereof as well as other laws regulating the insurance industry, with special emphasis on unit-linked life insurance. The ISA produced a report on its findings after the review which Zavarovalnica Triglav received on 19 December 2008. Zavarovalnica Triglav sent its comments to the report on 9 January 2009. As at the date of issuing these financial statements Zavarovalnica Triglav had not received the ISA's final findings. On 29 April 2009, the Insurance Supervision Agency (ISA) informed Zavarovalnica Triglav of its intended order on the remedy of infringement. On 25 May 2009, Zavarovalnica Triglav sent to the ISA a statement regarding the intended ISA measure, explaining that the alleged irregularities did not exist or had already been remedied and suggested the ISA not to issue such an order. Moreover, on 31 July 2009 Zavarovalnica Triglav submitted to the ISA a report on having brought its business operations into compliance with the statement on the intended measure. On 6 March 2012, the ISA sent to Zavarovalnica Triglav a request for a performance audit in which the ISA would once again check facts and evidence in this case. As at the date of issuing the financial statements, Zavarovalnica Triglav had not received the Agency's decision.
Regularity review of the 2008 consolidated annual report of the Triglav Group From 8 July to 30 December 2009 the ISA carried out a regularity review of the consolidated annual report of the Triglav Group for 2008. On 2 November 2010 the ISA issued an order to remedy the violations listed in the said notification. Zavarovalnica Triglav is obliged to implement the additional measures stipulated in the order. Zavarovalnica Triglav carried out all the additional measures required by the order and on 16 August 2011 the ISA issued a declaratory decision on the remedy of the aforementioned violations.
Claims challenging the validity of ISA decisions On 18 February 2011 Zavarovalnica Triglav d.d. brought legal proceedings before the Supreme Court of the Republic of Slovenia challenging the ISA order of 4 February 2011, by which the defendant refused the plaintiff's challenge of the ISA order to remedy violations of 7 December 2009. In this order the ISA found that Zavarovalnica Triglav had violated Article 16 of the Insurance Act, as its share capital as at 30 June 2010 was below the minimum guarantee fund. The ISA found that Zavarovalnica Triglav's share capital in non-life insurance was EUR 10,430,555 and the share capital in life insurance was EUR 7,705,724 below the minimum guarantee fund and ordered Triglav to remedy violations by no later than 31 August 2011 and report thereon to the ISA. The Supreme Court rejected Zavarovalnica Triglav's action. The 35th General Meeting of Shareholders of Zavarovalnica Triglav passed a resolution on a share capital increase of EUR 50,000,000 (the increase in share capital was entered into the Court Register on 28 June 2011). The level of share capital was thus brought in line with the order of the ISA, which lead to the ISA's issuing of a declaratory decision on the remedy of the aforementioned violation.
Reviews of subsidiaries by local regulators Subsidiaries of Zavarovalnica Triglav were subject to several reviews by local regulatory authorities (Triglav Osiguranje Zagreb, Lovćen Osiguranje and Triglav Osiguranje, Banja Luka). These were regular reviews that did not reveal any significant deficiencies or irregularities in the operations of these companies.
8.7.2 Securities Market Agency
Legal proceedings against the Securities Market Agency – Abanka Vipa On 13 January 2011 the Securities Market Agency (hereinafter: the SMA) issued a decision prohibiting Zavarovalnica Triglav, Slovenska odškodninska družba, Mobitel and Hit from exercising their voting rights in the offeree company Abanka Vipa (hereinafter: Abanka) and prohibiting Abanka from exercising its voting rights until such time as those companies and Luka Koper either make a take-over bid for Abanka's shares or dispose of them, so that neither one individual company nor several nor all companies as a whole exceed the takeover threshold. In its decision the SMA found that after the Takeover Act entered into force on 11 June 2006, the persons acting in concert (Zavarovalnica Triglav, Slovenska odškodninska družba, Hit, Mobitel and Luka Koper) at Abanka increased their share of voting rights on 22 March 2010, when Luka Koper acquired 28 shares of Abanka. According to Article 75 of the Takeover Act, these companies were therefore required to make a takeover bid. The companies accused of acting in concert challenged the SMA's decision and Zavarovalnica Triglav initiated legal proceedings before the Supreme Court of the Republic of Slovenia challenging the SMA's aforementioned decision and requesting a stay of execution, while also proposing the issue of a temporary injunction and requesting the Court to treat the case as a priority.
Orders issued by the Securities Market Agency On similar grounds as in the case of the investment in Abanka Vipa described above, the SMA also initiated procedures to suspend voting rights in several other cases of offeree companies in which Zavarovalnica Triglav is a minor shareholder, such as Krka, Petrol, Sava Re, Aerodrom Ljubljana and Telekom. In the case of the investment in Petrol, the SMA issued a decision on 22 March 2011 prohibiting Zavarovalnica Triglav and other persons it considered to be acting in concert from exercising their voting rights arising from shares of Petrol. Zavarovalnica Triglav objected to the SMA's decision and has initiated legal proceedings before the Supreme Court of the Republic of Slovenia challenging the SMA's decision. Zavarovalnica Triglav was successful in its challenge and the SMA's decision was annulled. In the other cases listed above, the SMA has not yet issued any decision on the suspension of voting rights.
8.7.3 Tax matters
On 4 February 2011 the Special Tax Office of the Tax Administration of the Republic of Slovenia started with a tax audit in Zavarovalnica Triglav with reference to the tax on insurance services (TIS) charged in the period from 1 January to 31 December 2010. The audit revealed irregularities in the charging and payment of TIS for health insurance with medical assistance abroad and travel assistance insurance amounting to EUR 14,407.66. Zavarovalnica Triglav received the minutes of the audit on 5 May 2011 and a decision enumerating the discovered irregularities in TIS payment was issued on 22 June 2011. On the basis of this decision, Zavarovalnica Triglav paid the outstanding amount with interest by the requested due date. Because Zavarovalnica Triglav did not appeal the decision, the tax procedure in question has been concluded.
The tax procedure with reference to the audit of the regularity and lawfulness of levying taxes and contributions concluded in Zavarovalnica Triglav for 1995 and 1996 was also concluded in 2011. The key issue under scrutiny was the levied income tax amounting to EUR 799,940 referring to the expenses for the formation of equalisation provisions in 1995 and 1996. On 17 August 2011, Zavarovalnica Triglav received a judgement from the Supreme Court of the Republic of Slovenia which ruled that the review of the judgement of the Administrative Court of the Republic of Slovenia of 22 September 2009 was refused. The aforementioned tax procedure has therefore been concluded.
In 2007, the Tax Authority carried out an audit of Triglav BH Osiguranje d.d., Sarajevo for a period from 2002 to 2007. The findings of the audit determined misapplication of the Corporate Income Tax Act regarding the tax write-off for foreign capital investments and the resulting unpaid tax liability in the amount of BAM 3,478,265 (EUR 1,778,410). The outstanding amount was paid in August 2010. Triglav BH Osiguranje lodged an appeal with the court of jurisdiction. In 2011, the decision of the Ministry of Finance was repealed. Due adjustments were made in the consolidated financial statements for 2010, reducing net profit brought forward from previous years by the relevant amount.
In 2010 another inspection of all taxes was carried out for the period from 2002 to 30 September 2007. Irregularities in the corporate income tax levied amounting to BAM 3,107,263 (EUR 1,588,718) were discovered. In March 2011, the Federal Ministry of Finance reversed its decision and ordered a review by the body of first instance - the Tax Authority. In the consolidated financial statements no provisions were formed for the corporate income tax owed according to that decision.