4.4 Underwriting risk

Zavarovalnica Triglav assumes underwriting risks through the insurance contracts it underwrites. The risks in this category are associated with both insurance perils covered by individual insurance classes and specific work processes related to performing insurance operations. Underwriting risks arise in the process of risk underwriting, i.e. in the assumption of risk, in the development of insurance products and their pricing, as well as in loss development changes, the allocation of insurance technical provisions, changes in policyholders' behaviour and general changes in the external economic environment.

Divisions in charge of the core business are primarily responsible for active management of the underwriting risk. This type of risk is managed by clearly structured competences and powers, which include suitable delimitation of powers, underwriting limits and an authorisation system. To manage risks related to the development of insurance products, Zavarovalnica Triglav has established two product forums for life and non-life insurance, which are in charge of product development, pricing and terms and conditions. In addition, insurance risks are managed with a set of actuarial techniques applied in product pricing and insurance technical provision allocations, as well as by means of regular performance monitoring, optimisation of reinsurance schemes and regular supervision of the adequacy of insurance contract provisions.

Reinsurance is one of the basic tools used to mitigate underwriting risks. For each business year a plan of reinsurance is adopted that contains:

  • calculated retained lines by individual class of insurance,
  • a table of maximum coverage based on retained lines, and
  • procedures, bases and criteria for establishing the highest probable loss arising from individual risks underwritten.

The choice of suitable reinsurers depends to a great extent on their credit rating (see also Section 4.3.6 Financial risk and sensitivity analysis). This provides even more stable operations, which result in more stable cash flows.

4.4.1 Underwriting risk concentration

Underwriting risk concentration occurs due to the concentration of an insurance operation in a geographic area, or an industry or an insurance peril. It may also occur as a result of a correlation between individual insurance classes. In case an underwriting risk concentration arises in a business segment or industry, a single event may have a material impact on re-payment capacity.

Insurance risk concentration is managed by adequate re-insurance schemes, which are based on the tables of maximum net retained lines.

Particular attention is paid to events with a low frequency and a high impact, for example natural disasters such as earthquakes, storms, hail and floods. Over the previous four years, on average we sustained two major natural disasters annually, which triggered reinsurance policies covering natural events. Our catastrophe reinsurance programme is designed as excess of loss reinsurance with four layers with a total limit of EUR 100,000,000 over the priority of EUR 7,500,000. Moreover, we have an aggregate reinsurance cover with an annual aggregate of EUR 15,000,000 and is thus protected also against a possible increased occurrence of natural disasters in a particular year.

Past events showed that the reinsurance scheme is suitable and that we were able to discharge our obligations arising from our insurance contracts despite adverse loss event developments, whilst liquidity risk and capital adequacy risk did not increase. Experience from previous years suggests that an increased number of mass loss events represent one of the main risks to which we are exposed. Whereas a single event does threaten the Company's operations, several such events can pose a serious threat.

For the Group earthquakes are events with the biggest potential loss risk. The re-insurance scheme is designed accordingly. In the case of an earthquake with a return period of 1,000 years, the retained loss of the Group increased by 20% would account for two thirds of the maximum risk that the Group is still able to assume according to the tables of maximum net retained lines.

Natural events predominantly affect fire, technical and car insurance classes (comprehensive car insurance). Crop insurance is also subject to the occurrence of natural events. In the previous two years we began to intensely adapt our business to climate change. In the future reinsurance schemes of this kind are likely to become increasingly costly and coverage increasingly narrower. In an attempt to minimise climate change impacts, the Group started to adapt its products accordingly and exercise greater prudence in the process of underwriting insurance contracts.

The concentration of life underwriting risk is low, as the risk sum insured is below EUR 35,000 and accounts for 99.6% of the life, annuity and unit-linked portfolio. For additional accidental death insurance, the risk sum insured is lower than EUR 50,000 and represents 99.3% of the respective portfolio. Both sums insured represent the stipulated retention in line with the reinsurance agreement for most insurance policies.

4.4.2 Geographical and sectorial concentration

Triglav conducts insurance business mainly in the territory of the Republic of Slovenia and the countries of the former Yugoslavia, with limited operations in the Czech Republic. On the basis of previous experience, the Group believes that all potential risk concentrations is adequately reinsured.

The table below summarises the gross written premium in the countries in which the insurance companies of the Group operate.


Gross written premium in EUR


Share (in %)

























Czech Republic






Bosnia and Herzegovina



























In terms of business segments, the Triglav Group is most active in car insurance, as shown in 7.1 Premium income. Zavarovalnica Triglav is one of only three insurance companies that offer supplementary health insurance in Slovenia, with a 17.7% market share, and one of only two companies offering reinsurance, with a 44% market share. In both segments, Triglav is exposed to concentration risk in the existing insurance market. Regarding the reinsurance portfolio, Triglav manages the concentration risk by geographical spread of inwards reinsurance risks and with adequate retrocession of outwards reinsurance risks. As supplementary health insurance is characterised by high risk dispersion, this segment does not entail any risk concentration for the Group.

Motor liability insurance represents the bulk of the insurance portfolio. As motor liability insurance is characterised by high risk dispersion, this segment does not entail any risk concentration for the Group. A potential risk of sector concentration exists in comprehensive motor vehicle insurance. However, it is covered by a catastrophe reinsurance programme, which has proved to be adequate in recent years.

4.4.3 Low-frequency and high severity risk 

The threat of earthquakes represents the highest potential risk in this segment for the Group. Reinsurance protection against earthquakes and other natural disasters is arranged accordingly. Thus far, no earthquake of catastrophic proportions has occurred. The earthquake models available show that earthquakes with a return period of 1,000 years and an implied 20% margin of error in estimating the amount of potential claims do not represent a greater threat than the other natural disasters with which Triglav is faced almost every year.

Another potentially catastrophic loss occurrence could arise from the nuclear peril that Zavarovalnica Triglav has assumed from the Slovenian Nuclear Pool. Such a loss occurrence is characterised by an extremely low frequency, since no major loss event has been reported in 25 years and the correlation between such a potential loss event and the arising liabilities is low or null. In the worst-case scenario, a net claim arising from nuclear risk would not exceed claims arising from a single natural event (see also Section 4.4.1). The earthquake in Japan that struck in March 2011 and damaged nuclear reactors should be noted, as well as the subsequent exposure of Zavarovalnica Triglav to Japanese nuclear risks. The participation of the Japanese Nuclear Pool is the largest in the Slovene nuclear pool portfolio. The share of Zavarovalnica Triglav amounts to EUR 105,640,192 and is divided among 42 risks. In underwriting nuclear risks the rule is that if several risks (nuclear reactors) exist on a single location, the share of aggregate exposure may not exceed Zavarovalnica Triglav's own share for such risks.


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