4.2 Capital management and capital adequacy management

The amount of available capital for meeting capital adequacy requirements is measured in compliance with the legislation in force at the level of individual subsidiaries as well as at the Group level. In parallel, capital adequacy is monitored by applying the Standard & Poor's model in accordance with the Directive 2010/138/EC of the European Parliament and of the Council (Solvency II). Decisions concerning capital management are supported by the results of all capital models.

While capital requirements imposed by regulators constitute a binding constraint, meeting rating agencies' capital requirements represents one of our strategic business objectives. Typically, the rating agencies' requirements are stricter.

4.2.1 Group Capital Adequacy

Each Group member is required to measure the amount of the available solvency margin against the relevant local or sectoral capital requirement on a regular basis. The amount of required capital and, above all, the fluctuation in the level of the capital available to insurance companies of the Triglav Group, are subject to various factors, mostly the structure and nature of services, the volume of premium, assets and liabilities, as well as the impact of interest rates and capital markets parameters on changes in the said items. The Group members regularly monitor their capital adequacy in line with the applicable legislation, whereby they are required to maintain a surplus of the available solvency margin over the capital requirement in order to maintain their core business and ensure coverage of potential losses. Capital surplus offers high coverage of losses due to unexpected adverse events, with regard to the previous and current developments in the environment of the Group and future expectations. In addition to measuring current capital adequacy levels, the Group members monitor their planned capital adequacy levels, which enables them to monitor the effects of the extended and narrow environment on capital adequacy. Furthermore, this enables optimal distribution of capital both at the level of the Group and in its individual members.

Regulators impose minimum capital requirements on the level of the Group as well as on the level of individual Group members. The main objective is to maintain a suitable capital level in the Group and in all its members.

Furthermore, the capital adequacy ratios of insurance technical provisions are continually monitored for the purpose of assessing the solvency needs of individual Group members.

As at 31 December 2011, in Zavarovalnica Triglav the minimum required capital to available capital ratio in non-life insurance was 189% (vs. 178% as at 31 December 2010), whereas in life insurance the ratio was 161% (vs. 166% as at 31 December 2010). Throughout 2011, as in previous years, Zavarovalnica Triglav maintained the required capital adequacy.

Minimum required capital to available capital ratio

4.2.2 Capital adequacy of the Triglav Group as a financial conglomerate

Within the scope of the directive on the supplementary supervision of credit institutions, insurance undertakings and investment firms in a financial conglomerate and related Slovene law, the Triglav Group, Abanka Vipa and its subsidiaries form a financial conglomerate. The law requires that a financial conglomerate regularly monitors its capital adequacy by calculating consolidated available capital, taking into account sectoral regulatory solvency requirements for all three financial sectors represented in the conglomerate (insurance, banking, asset management).

4.2.3 Rating agency capital adequacy

Under Standard & Poor's (hereinafter: S&P) capital adequacy model, measuring capital adequacy remains the essential component of the credit rating process.

As at 31 December 2011, Zavarovalnica Triglav was rated "A – stable outlook" (FSR, ICR), which reaffirms its high level of capital adequacy. Despite lowering the sovereign rating on the Republic of Slovenia, S&P not only maintained its »A« credit rating on Zavarovalnica Triglav, but also took the Company off credit watch, which was initially issued due to a potential short-term downgrading of its credit rating. The rating agency maintained the negative medium-term outlook assigned to Zavarovalnica Triglav's credit rating.


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