Sava Insurance Group Solvency and financial condition report 2018

Ljubljana, June 2019

Srečko Čebron Member of the Management Board

Jošt Dolničar Member of the Management Board

Polona Pirš Zupančič

Management board of Sava Re d.d.

SOLVENCY AND FINANCIAL CONDITION REPORT 2018

CONTENTS

General information

All figures included in this report are consistent with those reported as part of the quantitative reporting procedure for the Slovenian Insurance Supervision Agency. The figures in the tables of this report are stated in thousands of euros. The report has been reviewed and approved by the parent company's management and supervisory boards.

The Group's Solvency and financial condition report has been reviewed by the auditing firm Ernst & Young, who have issued an independent auditor's assurance report.

The Group's audited 2018 annual report is available online, at https://www.sava-re.si/en/investors/financial-information/financial-reports/.

SUMMARY

A BUSINESS AND PERFORMANCE

A.1 Business
A.2 Underwriting performance
A.3 Investment performance
A.4 Performance of other activities
A.5 Any other information

D.2	Technical provisions
	D.2.1 Value of SII technical provisions
	D.2.2 Comparison of IFRS technical provisions to
	Solvency II technical provisions
	D.2.3 Description of the level of uncertainty
D.3	Other liabilities	(SCR)
	D.3.1 Provisions other than technical provisions
	D.3.2 Insurance and intermediaries payables
	D.3.3 Reinsurance payables	APPENDIX A
	D.3.4 Other payables (trade, not insurance)
	D.3.5 Subordinated liabilities
	D.3.6 Any other liabilities, not elsewhere shown
D.4	Alternative methods for valuation	APPENDIX B
D.5	Any other information

E	CAPITAL MANAGEMENT
E	Capital management
E.1	Own funds
E.2	Solvency capital requirement and minimum
	capital requirement
	E.2.1 Group solvency capital requirement (Group
	SCR)
	E.2.2 Minimum capital requirement (MCR)
E.3	Use of the duration-based equity risk sub
	module in the calculation of the solvency

capital requirement (SCR)

E.4 Difference between the standard formula and any internal model used
E.5 Non-compliance with the minimum capital requirement (MCR) and non-compliance with the solvency capital requirement (SCR)
E.6 Any other information

Appendix A Glossary of selected terms and calculation methodologies

S.32.01.22	Undertakings in the scope of the
	Group
S.02.01.02	Balance sheet
	S.05.01.02 Premiums, claims and expenses by
	line of business
	S.05.02.01 Premiums, claims and expenses by
	country
S.23.01.22	Own funds
S.25.01.22	Solvency Capital Requirement – for
	undertakings on Standard Formula

Business and performance1

The Sava Insurance Group generated a record profit of EUR 43 million in 2018, up 38.3% year on year.
Return on equity rose to 13.1% in 2018.
The Group's operating revenues grew by 10%.
The Group successfully completed three acquisitions, which will support the Group's future growth. In addition, three further company acquisition agreements were signed. The acquisition of two ERGO companies was completed in February 2019, while the KBM Infond transaction is scheduled for completion later in 2019.
Both credit ratings were raised to "A" with a stable outlook.

In 2018, the Sava Insurance Group wrote EUR 546.3 million in gross premiums, an increase of 5.6% over 2017. Thus, the Group exceeded the lower end of the range of planned gross premiums written of EUR 520 million by 5.1%. This growth was contributed by Slovenian non-life insurance business (10.9% growth), non-Slovenian non-life insurance business (12.5% growth) and non-Slovenian life insurance business (17.8% growth). The reinsurance segment wrote 7.2% less in gross premiums than in 2018 as the result of strict underwriting discipline and selective underwriting. As anticipated, there was a drop of 2.9% in gross life insurance premiums written owing to a large number of policy maturities.

The Group's operating revenues grew by 9.8% in 2018, the result of growth in premiums of the existing Group companies as well as the operations of new Group companies that joined the Group in 2018. The acquisition of three companies was successfully completed in the first quarter of the year: the pension company NLB Nov Penziski Fond based in North Macedonia and subsequently renamed Sava Penzisko Društvo; the Serbia-based insurer Energoprojekt Garant, which was merged with the Group's Serbian non-life insurer at the year end; and the Slovenia-based assistance service provider TBS Team 24. The successful integration of these companies has already contributed to better profitability.

The year 2018 saw a relatively low incidence of large claims for our insurance and reinsurance business, as reflected in the more favourable incurred loss and combined ratios, as well as in the Group's improved profit. Profitability also benefitted from the synergies flowing from the merger of four insurers now under the single Zavarovalnica Sava brand and better performance from the Group's non-EU-based members, where markets have grown faster in recent years than mature markets, which in turn boosted growth in the Group's income and profit.

Introduction

The purpose of this report is to provide information on the solvency position of the Sava Insurance Group as at 31 December 2018, as well as on its business and performance, system of governance, risk profile and valuation methods used for assets and liabilities. The report also includes key quantitative data as appended. The Sava Insurance Group prepares such a report on an annual basis. This document has been prepared in accordance with the Slovenian Insurance Act (ZZavar-1) and other legislative acts.

Profile of the Group

The Sava Insurance Group (hereinafter: the "Group" or the "Sava Insurance Group") is one of the largest insurance groups in south-east Europe. As at 31 December 2018, the insurance part of the Group was composed of seven insurers based in Slovenia and in the countries of the Adriatic region: In addition to the (re)insurance companies, the Group is made up of seven non-insurance companies.

The Group employs over 2,400 people. We provide insurance and reinsurance coverage for all lines of business, offering:

a respectful, honest and sincere partnership,
proficiency,
integrity and transparency,
accessibility and responsiveness,
accountability.

Sava Re has been operating in international reinsurance markets for over 40 years, and in the Slovenian insurance market, through its former subsidiary Zavarovalnica Tilia, since 1998. The Group expanded to some other markets of the former Yugoslavia through the acquisition of six insurance companies between 2006 and 2009 and greenfield investments in two life insurance companies in 2008. In 2015 and 2018, the Group entered the Slovenian and Macedonian pension markets, respectively.

In 2018, the Group's consolidated gross premiums written totalled EUR 546.3 million.

The Sava Insurance Group's core strengths lie in its regional knowledge, reliability, responsiveness, flexibility and financial strength. We exceed client expectations by seeking continual improvement, building relationships in a responsible, frank and respectful manner, and playing an active role in our environment.

Our guiding principle is to build long-term relationships with our clients and partners that will allow us to achieve our common goals throughout all economic cycles.

Summary

¹ This section provides information on the performance of the Sava Insurance Group based on IFRS accounts; therefore, figures do not equal Solvency II calculations.

The expense ratio increased marginally in 2018, due in part to the drop in gross reinsurance premiums and gross Slovenian life insurance premiums, the latter due to the large number of policy maturities. Additionally, a larger volume of new life policies written pushed up acquisition costs whereas other operating expenses remained at about the same level. Higher reinsurance commission expenses also had a negative effect on the expense ratio. However, this reflects our shift towards more profitable business with higher commission rates, especially under the current soft reinsurance market conditions. Better profitability for reinsurance business written, despite higher commission rates, is reflected in a better combined ratio.

The Sava Insurance Group closed 2018 with a net profit of EUR 43 million, delivering a 13.1% return on equity. In 2018, the Group's equity grew by 7.6% to EUR 340 million as at 31 December 2018. The Group's net technical provisions stood at EUR 1,103 million as at 31 December 2018.

As we are well aware of the changes in our environment and their effect on our business, we will place special emphasis on investment opportunities in environmental and sustainability-oriented projects by investing in infrastructure funds and those projects of local companies exploring energy efficiency and renewable energy sources. In 2018, investments in infrastructure funds and projects increased, accounting for 0.5% of the total portfolio at the year end. The return on the investment portfolio of 1.7% was consistent with the 2018 plan. The Group's investment portfolio remains conservative, with a high proportion of bonds and investment-grade assets.

Following their regular annual rating reviews in 2018, the rating agencies Standard & Poor's and AM Best both raised their financial strength ratings on Sava Re to "A", which reflects the Group's strong capital position over a longer period, its improved market position and the profitability achieved as a result of its expansion through organic growth and acquisitions. Standard & Poor's also gave a favourable assessment of the completed acquisitions in the markets where the Group already has operations. This expansion further bolstered the Group's market position. We believe that the improved credit ratings will support our strategy of selective and profitable growth in international reinsurance markets.

In 2018, our development activities were focused on expanding the Group. Having finalised the acquisitions of three companies in the first quarter, we signed a deal to acquire a majority stake in KBM Infond, an asset management company, in December 2018, to complete the Group's range of financial services in line with our strategy for the Slovenian market.

Strategic focus of the Sava Insurance Group

The Sava Insurance Group defines its strategy in terms of four pillars (see figure below): insurance operations, reinsurance operations, asset management, and capital growth and use.

The key guidelines set out in the Group's strategy are:

digitalisation and technological modernisation of operations to place the client at the centre,
growth through acquisitions,
seeking opportunities in environmentally/sustainability-oriented investment projects,
closing the gap between intrinsic value and market price of shares.

Risk profile

The Group calculates its capital requirement in accordance with the Solvency II standard formula as defined in Delegated Regulation (EU) 2015/352 (hereinafter: "Solvency II standard formula" or "standard formula"). The Group's risk profile is dominated by non-life underwriting risk and is exposed to a significant level of market risk. The Group is less exposed to other categories of risk: life underwriting risk, health underwriting risk, counterparty default risk and operational risk. Apart from the above risks, which are captured by the standard formula, the Group is also exposed to liquidity risk, managed primarily by following a strategy for ensuring sufficient liquidity. Because of the complex internal and external environment in which it operates, the Group also has significant exposure to various strategic risks.

The table below shows the Group's solvency capital requirement in accordance with the Solvency II standard formula (hereinafter: "Group SCR") by risk module.

Solvency capital requirement by risk module

(EUR thousand)	31/12/2018	31/12/2017
Group SCR	216,735	205,015
Capital requirements for other financial sectors	5,532	5,300
Capital requirements for other undertakings	17,380	0
Consolidated SCR at Group level	193,823	199,716
Adjustments for TP and DT	–17,840	–218
Operational risk	16,358	15,407
Basic solvency capital requirement (BSCR)	195,304	184,526
Sum of risk components	293,212	272,615
Diversification effect	–97,907	–88,089
Market risk	60,439	51,671
Counterparty default risk	21,819	14,364
Life underwriting risk	43,695	40,210
Health underwriting risk	25,859	23,934
Non-life underwriting risk	141,399	142,437

System of governance

The Group companies have in place a system of governance that is well defined and includes:

an adequate organisation, including management bodies, key functions and committees,
an integrated risk management system,
an internal control system.

The following four key functions operate on the Group level: the actuarial function, compliance function, risk management function, and internal audit function. In addition, a risk committee and actuarial committee have been set up at the Group level.

To ensure efficient risk management, the Group has in place a three-lines-of-defence model with a clearly defined division of responsibilities and tasks:

The first line of defence constitutes all organisational units with operational responsibilities (such as (re)insurance underwriting, claims management, asset management, accounting, controlling).
The second line of defence consists of the risk management function, actuarial function, compliance function and the risk management committee.
The third line of defence is provided by the internal audit function.

In 2018, there was a change in the composition of the parent company's management board. Details are provided in section B.1.1.

31/12/2018	31/12/2017
216,735	205,015
5,532	5,300
17,380	O
193,823	199,716
-17,840	-218
16,358	15,407
195.304	184,526
293,212	272,615
-97,907	-88,089
60,439	51,671
21,819	14,364
43,695	40,210
25,859	23,934
141,399	142,437

² Commission Delegated Regulation (EU) 2015/35, dated 10 October 2014 amending Directive 2009/138/EC of the European Parliament and of the Council on the taking up and pursuit of the business of Insurance and Reinsurance (Solvency II).

Capital management

The Group manages its capital to ensure that it has available, on an ongoing basis, sufficient funds to meet its obligations and regulatory capital requirements. The composition of eligible own funds held to ensure capital adequacy must comply with regulatory requirements and ensure an optimal balance between debt and equity capital. The level of own funds must also be sufficient to achieve other goals of the Group.

When allocating own funds to business segments, the Group needs to ensure that an adequate return on equity is achieved.

The Group prepares its business and strategic plans based on its risk strategy, which determines its risk appetite. During its drafting, it makes sure that the plans are in line with the risk appetite, making adjustments if necessary. On the whole, it seeks to achieve an optimal allocation of capital.

Capital adequacy of the Group

(EUR thousand)	31/12/2018	31/12/2017
Group SCR	216,735	205,015
Eligible own funds to meet the Group SCR	471,947	451,398
Of which tier 1	471,947	451,398
Of which tier 2	0	0
Of which tier 3	0	0
Group solvency ratio	218%	220%
Minimum capital requirement (MCR) of Group	102,730	106,009
Eligible own funds to meet the Group MCR	465,004	443,045
Of which tier 1	465,004	443,045
Of which tier 2	0	0
Of which tier 3	–	–
Group MCR	453%	418%

As at 31 December 2018, all eligible own funds to cover the Group SCR were tier one funds. As evident from the above table, the Group has a strong solvency ratio and, as at 31 December 2018, complied with statutory requirements on the amount and quality of capital for covering the SCR and MCR.

The Group also tested the adequacy of eligible own funds several times during the year, demonstrating compliance throughout the year.

According to the Group's risk strategy, a solvency ratio of 140% is still considered adequate, albeit suboptimal, while the optimal level of capitalisation starts at 170%. This demonstrates that the Group is well capitalised, also by its own criteria.

Valuation for solvency purposes

In accordance with article 174 of the Slovenian Insurance Act, assets are valued at amounts for which they could be exchanged between knowledgeable and willing parties in arm's length transactions. Similarly, the Group values liabilities at amounts by which they could be transferred or settled, between knowledgeable and willing parties in arm's length transactions.

The Group uses the full consolidation method in accordance with the International Financial Reporting Standards (IFRS) for all its companies in its preparation of the IFRS consolidated financial statements, except for the associates ZTSR and G2I, which have been consolidated using the equity method. For the purposes of valuation of the Solvency II balance sheet, all Group (re)insurance undertakings and all ancillary services undertakings are consolidated in accordance with article 335 (1)(a) of Commission Delegated Regulation (EU) (2015/35) (hereinafter: "Delegated Regulation"); the Sava Pokojninska pension company is included in the consolidation in accordance with article 335 (1)(e), and Sava Penzisko Društvo and the associates ZTSR and G2I are included in accordance with article 335 (1)(f).

The table below shows adjustments to the IFRS balance sheet items that have been made for Solvency II purposes. Shows are IFRS equity and Solvency II eligible own funds.

Adjustments to IFRS equity for the SII valuation of the balance sheet

(EUR thousand)	31/12/2018	31/12/2017
IFRS equity	339,675	315,020
Difference in the valuation of assets	–135,221	–133,926
Difference in the valuation of technical provisions	301,791	299,674
Difference in the valuation of other liabilities	–19,380	–16,766
Foreseeable dividends, distributions and charges	–14,723	–12,398
Adjustment for minority interests	–195	–206
Deduction for participations in other financial undertakings	–6,943	–8,353
Basic own funds after deductions	465,004	443,045
Basic own funds in other financial sectors	6,943	8,353
Group's available own funds	471,947	451,398

31/12/2018	31/12/2017
216,735	205.015
471,947	451,398
471,947	451,398
0	O
O	O
218%	220%
102,730	106,009
465,004	443.045
465,004	443,045
0	O

453%	418%

A.1 Business
A.2 Underwriting performance
A.3 Investment performance
A.5 Any other information

A.4 Performance of other activities

A.1 Business

Name and legal form of the parent company

Sava Re d.d. Dunajska cesta 56 1000 Ljubljana Slovenia

Sava Re, the ultimate parent company of the Sava Insurance Group, transacts reinsurance business. The insurance part of the Group is composed of seven insurers based in Slovenia and the countries of the Adriatic region: the composite insurer Zavarovalnica Sava, the non-life insurers Sava Neživotno Osiguranje (Serbia), Sava Osiguruvanje (North Macedonia), Illyria and Sava Osiguranje (Montenegro), and the two life insurers Sava Životno Osiguranje (Serbia) and Illyria Life.

In addition to these (re)insurers, the Group consists of:

Sava Pokojninska: a Slovenia-based pension company wholly-owned by Sava Re;
Illyria Hospital: a wholly-owned subsidiary based in Kosovo, which owns some real property but is currently dormant;
TBS Team 24: a Slovenia-based company providing assistance services relating to motor, health and homeowners insurance; 75% owned by Sava Re;
Sava Penzisko Društvo: a pension fund manager based in North Macedonia managing secondand third-pillar pension funds; wholly owned by Sava Re;
ZTSR: a Slovenia-based associate company offering market research services;
G2I: a UK-based associate company to market on-line motor polices;
Sava Terra: a Slovenia-based subsidiary of Sava Re and Zavarovalnica Sava renting out property and managing its own and leased property.

The figure below shows the Group's composition as at 31 December 2018.

Composition of the Group as at 31 December 2018

ILLYRIA Kosovo

ILLYRIA LIFE Kosovo

TBS TEAM 24 Slovenia

SAVA POKOJNINSKA Slovenia

ZTSR Slovenia

ZAVAROVALNICA SAVA Slovenia, Croatia SAVA TERRA Slovenia 100% 70 % 30%

Associate company

Indirect subsidiary

Direct subsidiary

ILLYRIA HOSPITAL Kosovo

75%

100%

50%

SAVA RE Slovenia

SAVA OSIGURANJE Montenegro 100%

SAVA CAR Montenegro 100%

List of Group companies

The tables below provide details of all Group companies in which Sava Re holds direct equity participations.

Subsidiaries and associates as at 31 December 2018

Name	Zavarovalnica Sava	Sava Pokojninska	Sava Neživotno Osiguranje (Serbia)
Registered office	Cankarjeva 3, 2507 Maribor, Slovenia	Ulica Vita Kraigherja 5, 2103 Maribor, Slovenia	Bulevar vojvode Mišića 51, 11040 Beograd, Serbia
Business activity	composite insurer	pension company	non-life insurer
Share capital	EUR 68,417,377	EUR 6,301,109	EUR 10,570,373
Book value of equity interest	EUR 68,417,377	EUR 6,301,109	EUR 10,570,373
% equity share / voting rights held by Group members	Sava Re: 100.0%	Sava Re: 100.0%	Sava Re: 100.0%
Profit or loss for 2018	EUR 29,540,622	EUR 258,571	EUR 1,049,526
Position in the Group	subsidiary insurance company	subsidiary pension company	subsidiary insurance company

Name	Sava Životno Osiguranje (Serbia)	Illyria	Illyria Life
Registered office	Bulevar vojvode Mišića 51, 11040 Beograd, Serbia	Sheshi Nëna Terezë 33, 10000 Priština, Kosovo	Sheshi Nëna Terezë 33, 10000 Priština, Kosovo
Business activity	life insurer	non-life insurer	life insurer
Share capital	EUR 4,496,544	EUR 5,428,040	EUR 3,285,893
Book value of equity interest	EUR 4,496,544	EUR 5,428,040	EUR 3,285,893
% equity share / voting rights held by Group members	Sava Re: 100.0%	Sava Re: 100.0%	Sava Re: 100.0%
Profit or loss for 2018	–EUR 168,562	–EUR 390,799	EUR 305,169
Position in the Group	subsidiary insurance company	subsidiary insurance company	subsidiary insurance company

Sheshi Nëna Terezë 33, 10000 Priština, Kosovo

Name	Sava Osiguruvanje (North Macedonia)	Sava Osiguranje (Montenegro)	Illyria Hospital
Registered office	Zagrebska br. 28 A, 1000 Skopje, North Macedonia	PC Kruševac, Rimski trg 70, 81000 Podgorica, Montenegro
Business activity	non-life insurer	non-life insurer	currently none
Share capital	EUR 3,820,077	EUR 4,033,303	EUR 1,800,000
Book value of equity interest	EUR 3,536,245	EUR 4,033,303	EUR 1,800,000
% equity share / voting rights held by Group members	Sava Re: 92.57%	Sava Re: 100.0%	Sava Re: 100.0%
Profit or loss for 2018	EUR 391,284	EUR 1,943,280	–EUR 6
Position in the Group	subsidiary insurance company	subsidiary insurance company	subsidiary

Name	Sava penzisko društvo	TBS Team 24	ZTSR
Registered office	Majka Tereza 1, 1000 Skopje, North Macedonia	Ljubljanska ulica 42, 2000 Maribor, Slovenia	Dunajska cesta 22, 1000 Ljubljana, Slovenia
Business activity	pension fund management	organisation of assistance services and customer care	market research
Share capital	EUR 2,110,791	EUR 8,902	EUR 250,000
Book value of equity interest	EUR 2,110,791	EUR 6,677	EUR 125,000
% equity share / voting rights held by Group members	Sava Re: 100.0%	Sava Re: 75.0%	Sava Re: 50.0%
Profit or loss for 2018	EUR 1,133,199	EUR 759,757
Position in the Group	subsidiary	subsidiary	associate company

Name	G2I	Sava Terra
Registered office	Bailey House, 4-10 Barttelot Road, Horsham, West Sussex, RH12 1DQ, UK	Jarška cesta 10a, 1000 Ljubljana
Business activity	insurance	renting out property and operating own and leased property
Share capital	EUR 121,300	EUR 7,500
Book value of equity interest	EUR 21,228	EUR 2,250
% equity share / voting rights held by Group members	Sava Re: 17.5%/25.0%	Sava Re: 30.0% Zavarovalnica Sava: 70%
Profit or loss for 2018		–EUR 147,863
Position in the Group	associate company	subsidiary

Name and contact details of the parent company's external auditor

ERNST & YOUNG Revizija, Poslovno Svetovanje d. o. o. Dunajska cesta 111 1000 Ljubljana Slovenia Telephone: +386 1 583 17 00 Telefax: +386 1 583 17 10 Email: [email protected]

The financial statements of the parent company have been audited by Ernst & Young d.o.o., Dunajska 111, Ljubljana, who were tasked with the auditing of the financial statements of the Sava Insurance Group and Sava Re in 2018 for the sixth year in a row. In 2018 most of the Group's subsidiary companies were audited by the local auditing staff of the same auditing firm. Due to local auditor rotation regulations, the 2018 financial statements of four Group member were audited by another audit firm. A contract for the auditing of the financial statements was signed with Ernst & Young in 2016, covering the period 2016–2018.

Following are details of the parent company Sava Re, as its supervisory board also oversees the operations of the Sava Insurance Group.

Name and contact details of the supervisory authority responsible for the prudential control of the parent company

Insurance Supervision Agency Trg republike 3 1000 Ljubljana Email: [email protected]

Premiums by line of business

(EUR thousand)	Gross premiums written in 2018	Gross premiums written in 2017	Index
Motor vehicle liability insurance and proportional reinsurance	117,350	106,377	110.3
Fire and other damage to property insurance and proportional reinsurance	109,076	103,509	105.4
Other motor insurance and proportional reinsurance	107,093	94,151	113.7
Non-proportional property reinsurance	27,009	28,862	93.6
Income protection insurance and proportional reinsurance	46,739	45,189	103.4
Life insurance	68,551	70,100	97.8
Other lines of business	68,262	66,927	102.0
Total	544,080	515,115	105.6

The following table shows the most important markets of the Group in terms of premiums written in 2018. Listed are countries where it wrote over EUR 9.5 million in gross premiums. The Sava Insurance Group sourced most of its business from Slovenia, other countries of the Adriatic region and South Korea.

Major countries in which the Group operates4

(EUR thousand)	Gross premiums written in 2018	Gross premiums written in 2017	Index
Slovenia	395,768	366,500	108.0
Serbia	23,788	19,602	121.4
South Korea	14,219	15,569	91.3
Macedonia	13,038	12,753	102.2
Montenegro	12,832	12,459	103.0
Kosovo	11,489	10,018	114.7

Holders of qualifying shares in the parent company as at 31 December 2018

Shareholder	Number of shares	Holding	% voting rights
SDH d. d.	3,043,883	17.7%	19.6%
Zagrebačka banka d. d. – fiduciary account	2,439,852	14.2%	15.7%

Source: Central securities register KDD d.d. and own sources.

Notes:

Sava Re holds 1,721,966 own shares with no voting rights attached.

On 2 June 2016, Sava Re received a notice from Adris Grupa d.d., Vladimira Nazora 1, 52210 Rovinj, Croatia (hereinafter: Adris Grupa), advising Sava Re of a change in major holdings in Sava Re. Adris Grupa, including its subsidiaries with fiduciary accounts, held 3,278,049 POSR shares, representing 19.04% of issued and 21.15% of outstanding shares.

Major lines of business transacted and major markets of the Group3

The Group operates in the market of the Republic of Slovenia and globally. Below we present the major lines of business transacted and major countries in which it operates.

In 2018, business was dominated by the following lines: motor vehicle liability insurance and proportional reinsurance, fire and other damage to property insurance and proportional reinsurance, and other motor insurance and proportional reinsurance. These lines of business accounted for 61.3% of the total gross premiums written (2017: 59.0%).

³ This subsection presents consolidated data based on SII calculations that do not include Sava Pokojninska and Sava Penzisko Društvo; therefore, figures do not equal IFRS calculations.

In September 2018, Japan was hit by a strong typhoon. It had an effect of EUR 5 million on the net result of reinsurance operations.
In November 2018, after its regular annual rating review, the rating agency AM Best upgraded the financial strength rating of Sava Re to "A" (excellent) and its issuer credit rating to "a", both with a stable outlook.
In December 2018, Nova KBM d.d., as the seller, and Sava Re d.d., as the purchaser, signed a share purchase agreement for the sale and purchase of two business shares in KBM Infond, Družba za Upravljanje d.o.o., jointly representing 77% of the registered share capital of the company. The transaction's completion depends on the satisfaction of certain suspensive conditions, such as regulatory approval.
Along with some other investors whose qualified bank credit has been terminated, Sava Re has proposed some concrete amendments to the draft "Act on judicial relief granted to holders of qualified bank credit". They emphasised that the draft act did not eliminate the unconstitutionality nor did it fully comply with the requirements of the Constitutional Court. They reiterated that the cancellation of junior bonds was without merit and wrong. By the time this report was finalised, the law had not been passed.

Significant events after the reporting date

On 27 February 2019, Zavarovalnica Sava, after satisfying all suspensive conditions, became the sole owner of the Croatian companies ERGO Osiguranje d.d. and ERGO Životno Osiguranje d.d.
In April 2019, Sava Re issued the "Solvency and financial condition report of Sava Re d.d. 2018". The Company's solvency ratio was 293% as at 31 December 2018. Zavarovalnica Sava published its solvency and financial condition report in April 2019.
On 21 May 2019, the 35th general meeting of shareholders took place. The general meeting appointed the audit firm KPMG Slovenia, podjetje za revidiranje d.o.o., Železna cesta 8A, Ljubljana, as auditor for the financial years 2019–2021.

The Group uses the full consolidation method for all its companies in the preparation of the IFRS consolidated financial statements, except for ZTSR and G2I, which have been consolidated using the equity method. For the purposes of valuation of the Solvency II balance sheet, all Group (re)insurance undertakings and all ancillary services undertakings are consolidated in accordance with article 335 (1)(a) of the Commission Delegated Regulation; the Sava Pokojninska pension company is included in the consolidation in accordance with article 335 (1)(e), and Sava Penzisko Društvo and the associates ZTSR and G2I are included in accordance with article 335 (1)(f).

Significant events in 2018

In January 2018, Polona Pirš Zupančič began her five-year term of office as a member of the management board. After Polona Pirš Zupančič had joined the board, the Sava Re management board continued to operate as a four-member body. Mateja Treven concluded her role as management board member on 13 January 2018.
On 31 January 2018, Sava Re met all suspensive conditions, becoming the owner of a 75% stake in TBS Team 24.
In accordance with article 171(7) of the Insurance Act (ZZavar-1; Official Gazette of the Republic of Slovenia, no. 93/15), Sava Re d.d. signed an outsourcing contract with Zavarovalnica Sava d.d. and Sava Pokojninska Družba d.d., under which Zavarovalnica Sava d.d. and Sava Pokojninska Družba d.d. transferred performance of the internal audit key function to Sava Re d.d. as of 1 February 2018 for an indefinite period of time.
On 13 March 2018, Sava Re met all suspensive conditions, becoming the owner of a 100% stake in NLB Nov Penziski Fond AD Skopje.
Having satisfied all suspensive conditions in March 2018, Sava Re became the owner of 92.94% of the Serbia-based company Energoprojekt Garant. In July 2018, following its takeover bid and subsequent squeeze-out procedure, Sava Re become the sole owner of the company. At the year-end, Sava Re merged the acquired company with its Serbian non-life insurance subsidiary Sava Neživotno Osiguranje (SRB).
In April 2018, Zavarovalnica Sava signed a purchase and sale contract with ERGO Austria International AG and ERGO Versicherung Aktiengesellschaft for the acquisition of a 100% stake in the Croatia-based companies ERGO Osiguranje d.d. and ERGO Životno Osiguranje d.d.
In May 2018, Sava Re issued the "Solvency and financial condition report of Sava Re d.d. 2017". The Company's solvency ratio for 2018 was 283%. In June 2018, Sava Re published its "Sava Re Group Solvency and financial condition report 2017". The Group's solvency ratio for 2018 was 220%.
In May 2018, the Company's 34th general meeting of shareholders took place.
In June 2018, Srečko Čebron and Jošt Dolničar were re-elected to serve on the management board for another term of office.
On 8 June 2018, south-east Slovenia was hit by a hail storm, with the largest damage in and around the town of Črnomelj. Zavarovalnica Sava, the Group's subsidiary with heavy exposure in this part of Slovenia, assured its policyholders that it would deliver on its promise to cover all insured damage. Claims relating to this event had an effect of EUR 5 million on the 2018 result.
In July 2018, after its regular annual rating review, the rating agency Standard & Poor's improved Sava Re's issuer credit and financial strength ratings to "A" with a stable outlook.

In 2018, gross premiums written grew by 5.6%, with a largely unchanged breakdown by line of business compared to 2017. Non-life premiums accounted for 86.4% (2017: 86.4%) of total premiums, life premiums for 13.6% (2017: 13.6%). Gross premiums written are dominated by the lines of business: motor vehicle liability insurance and proportional reinsurance, and fire and other damage to property insurance and proportional reinsurance. These two lines of business account for 41.6% of gross premiums written (2017: 40.7%).

Below we set out the movements in gross premiums written by operating segment as analysed by the Group. In 2018, segment reporting was changed, which is why the data for 2017 herein do not agree with the data provided in the 2017 report.

The 2018 gross premiums written in the reinsurance segment were 7.2% lower as the result of strict underwriting discipline and the related selective underwriting. The change in net unearned premiums had a positive impact on net premiums earned in 2018 (decline in gross premiums and the resulting decrease in net unearned premiums), while in 2017 the impact was negative (growth in gross premiums and the resulting increase in net unearned premiums).

Gross non-life insurance premiums grew by 11.2% in 2018 as the result of the growth in gross non-life premiums at all of the Group's insurance companies. In Slovenia they rose by 10.9%, mainly due to higher premium volumes in motor and property business. Motor premium growth achieved with private and corporate customers was driven by both a higher number of policies written and growth in average premiums, as well as by a larger number of policies sold with broader coverages. Growth in property insurance was the result of the acquisition of certain new policyholders and higher premiums for existing policyholders on account of a larger number of insured items. The Slovenian non-life insurance market grew by 7.0% in the period. Gross nonlife premiums written outside Slovenia increased by 12.5% in all non-Slovenian non-life insurance companies, with the Serbian non-life insurer recording the highest growth. Energoprojekt Garant was acquired by the Serbian non-life insurer at the end of 2018, which boosted the insurer's premiums written by EUR 0.9 million. The Serbian non-life insurer recorded gross premium growth, particularly in voluntary health and motor liability insurance. The Croatian branch of Zavarovalnica Sava achieved the highest growth in gross premiums in motor liability insurance. The branch office saw total non-life premium growth of 18.7%, which compares favourably to the 10.1% growth achieved by the Croatian non-life insurance market. In terms of gross nonlife premium growth, the Croatian non-life insurer is followed by the Kosovan and Montenegrin non-life insurers. The Kosovan non-life insurer achieved the highest absolute growth in gross premiums in health insurance and accident insurance owing to the acquisition of new policyholders, and in assistance insurance as the result of a better sales network and more sales points and sales agents. The Montenegrin non-life insurer achieved the highest absolute growth in gross premiums in motor vehicle liability insurance and motor casco insurance, owing to better functioning internal and external sales networks, and hence a greater premium volume from existing policyholders as well as the acquisition of new policyholders. Premiums at the North Macedonian insurer increased through better organised sales and the related acquisition of new customers and intensified sales of non-mandatory insurance.

A.2 Underwriting performance5

5 This section presents consolidated data based on Solvency II calculations that do not include the pension companies Sava Pokojninska and Sava Penzisko Društvo, which is why figures do not equal IFRS calculations.

The Group classifies its supplementary accident insurance as part of the life insurance operating segment; in Solvency II reporting, this business is shown under the income protection insurance and proportional reinsurance item.

Premiums

Consolidated gross premiums written and net premiums earned

(EUR thousand)	2018	2017	Index
Gross premiums written	544,080	515,115	105.6
Net premiums earned	502,451	468,747	107.2

Consolidated gross premiums written by region

(EUR thousand)	2018	2017	Index
Slovenia	395,776	366,500	108.0
International	148,304	148,615	99.8
Total	544,080	515,115	105.6

Consolidated gross premiums written by material line of business

(EUR thousand)	2018	2017	Index
Motor vehicle liability insurance and proportional reinsurance	117,350	106,377	110.3
Fire and other damage to property insurance and proportional reinsurance	109,076	103,509	105.4
Other motor insurance and proportional reinsurance	107,093	94,151	113.7
Life insurance	68,551	70,100	97.8
Income protection insurance and proportional reinsurance	46,739	45,189	103.4
Non-proportional property reinsurance	27,009	28,862	93.6
Other lines of business	68,262	66,927	102.0
Total	544,080	515,115	105.6

The life operating segment also includes income from supplementary accident policies.

Gross life premiums written in Slovenia declined compared to 2017. The decrease in Zavarovalnica Sava gross premiums is primarily due to more policy maturities. The insurer sought to compensate for lost premiums by writing new policies; however, it could not fully offset premiums lost on account of maturities, deaths and surrenders. Non-Slovenian gross premiums written grew at Illyria Life and Sava Životno Osiguranje (Serbia), both generating double-digit growth rates. The highest growth (30.8%) was achieved by the Serbian insurer, which intensively developed its own sales network and in 2018 started to sell four new products. The established system for the planning and daily monitoring of activities with relevant IT support and a system for monitoring performance through target values (KPI) had a major impact on the growth in gross premiums. At the end of 2017, the same system was also established in the Kosovan insurer Illyria Life, where the positive effects of this system had already been demonstrated in 2018. Another factor benefitting growth in gross premiums written was the stabilisation of the sales network. High growth was generated also by the Croatian part of Zavarovalnica Sava, which increased premiums by 9.7% in 2018, while the Croatian life insurance market recorded growth of 6.7%. Growth was slightly lower than in previous years, as the level of gross premiums was also influenced by a large number of maturities in 2018.

Consolidated net premiums earned by material line of business

(EUR thousand)	2018	2017	Index
Motor vehicle liability insurance and proportional reinsurance	110,811	101,539	109.1
Other motor insurance and proportional reinsurance	100,813	86,672	116.3
Fire and other damage to property insurance and proportional reinsurance	95,443	91,329	104.5
Life insurance	67,670	68,976	98.1
Income protection insurance and proportional reinsurance	46,513	45,607	102.0
Other lines of business	81,202	74,624	108.8
Total	502,451	468,747	107.2

was mostly due to the increased frequency of small claims related to motor liability in the last two quarters of 2018. Gross claims of the Kosovan non-life insurer increased in health insurance and motor vehicle liability insurance due to increased premium volumes and an increase in the average amount of claims, and in motor vehicle liability insurance due to the transfer of claims for uninsured vehicles from the other technical expenses item to gross claims paid. The Montenegrin insurer recorded a slight growth in claims due to several large losses in motor insurance and in accident and voluntary health insurance. Furthermore, the North Macedonian insurer posted a decline in gross claims paid in 2018, as well as a drop in reinsurers' shares as the result of a large claim paid out in 2017 relating to other damage to property insurance, which was reinsured, but this did not affect net claims incurred.

In 2018, gross life claims paid in Slovenia grew by 19.4% as the result of a large number of policies maturing in 2018. The lion's share of 2018 maturities related to traditional life insurance (EUR 36.1 million), while maturity benefits on unit-linked life policies totalled EUR 25.2 million. Compared to the previous year, total maturity benefits relating to traditional life policies increased by EUR 14.4 million; maturity benefits on unit-linked life policies grew by EUR 2.6 million. As in Slovenia, the reason for the large increase in gross claims paid in non-Slovenian insurers is the large number of maturities in the Croatian branch of Zavarovalnica Sava. Gross claims in the Zavarovalnica Sava subsidiary grew by 117.3% (due to maturities), but this did not have any significant impact on the proportion of payments at the Group level. The increase in gross claims was minimal at the Serbian insurer, while the Kosovan insurer recorded lower gross claims paid in 2018 year on year.

Consolidated net claims incurred by material line of business

(EUR thousand)	2018	2017	Index
Life insurance	80,534	66,694	120.8
Other motor insurance and proportional reinsurance	74,557	66,047	112.9
Motor vehicle liability insurance and proportional reinsurance	63,422	50,000	126.8
Fire and other damage to property insurance and proportional reinsurance	50,966	55,518	91.8
Income protection insurance and proportional reinsurance	17,102	17,809	96.0
Other lines of business	35,281	34,277	102.9
Total	321,862	290,344	110.9

Claims

Consolidated gross claims paid and net claims incurred

(EUR thousand)	2018	2017	Index
Gross claims paid	342,557	314,432	108.9
Net claims incurred	321,862	290,344	110.9

Consolidated gross claims paid by region

(EUR thousand)	2018	2017	Index
Slovenia	255,798	232,248	110.1
International	86,758	82,184	105.6
Total	342,557	314,432	108.9

Consolidated gross claims paid and net claims incurred rose in 2018 compared to 2017. Below we set out the movements in gross claims paid and claims incurred by operating segment as analysed by the Sava Insurance Group.

Exchange differences had a positive impact on net claims incurred of the reinsurance segment in 2017, amounting to EUR 6.2 million. In 2018, net claims incurred, excluding the effect of exchange differences, fell by 4.1% year on year due to fewer major losses (2017: storms in the United States and major claims in Russia; 2018: a typhoon in Japan and floods in India). At 61.4%, the net incurred loss ratio was more favourable than in the previous year (2017: 69.0%).

Gross non-life insurance claims paid in Slovenia in 2018 were higher due to a larger volume of gross claims paid for private motor business and partly for damage to property. The year 2018 saw several weather disasters; however, claims remained below amounts that would trigger catastrophe reinsurance coverage. Still a large number of such events affected the result significantly. Gross claims incurred from weather-related events in 2018 totalled EUR 8.3 million. Of these, the insurance company has already paid EUR 6.9 million. Motor claims increased mainly as a consequence of a larger insurance portfolio and changed fleet composition. In motor liability business, however, provisions were additionally increased due to some annuity claims. In assistance insurance, the increase in net claims incurred follows the movement of net premiums earned as the result of the establishment of own assistance services previously provided by an external provider based on a reinsurance contract. Gross claims paid relating to non-Slovenian business rose by 10.4%. The growth was largely driven by claims settlements of the Serbian nonlife insurer. The greatest absolute growth in claims was recorded in health insurance, followed by fire and natural forces insurance. Growth in gross claims paid by Zavarovalnica Sava in Croatia

Consolidated acquisition costs relating to the non-life segment rose by 23.5% due to the growth in consolidated non-life premiums and the related increase in commissions for contractual agents and agencies. This is because gross written premiums from external sales channels increased compared to 2017. An increased change in deferred acquisition costs reflects portfolio growth resulting in more deferred acquisition costs. Consolidated other operating expenses were up by 7.7%. Expenses of the Slovenian non-life insurer were higher due to reclassification of other operating expenses from the "other" segment to Slovenia non-life. These costs are related to the costs TBS team 24 incurred in connection with the provision of assistance services to other Group companies. In 2018, these costs totalled EUR 4.1 million. Consolidated other operating expenses of foreign non-life insurers were up by EUR 1.4 million. The rise in other operating expenses in non-Slovenian insurers was driven mainly by the increase in the level of expenses of the Serbian non-life insurer, specifically personnel costs related to sales. Expenses of the non-life insurer in Kosovo rose due to higher costs of the insurance association, the costs of the insurance office and the payment of tax on premiums previously shown under other technical expenses. The growth in expenses of the non-life insurers in Montenegro and North Macedonia is connected with higher personnel costs and costs of services. The consolidated gross operating expenses (net of changes in deferred acquisition costs) of non-life business increased by 11.3% and gross consolidated premiums written by 11.2%, as the result of which the gross expense ratio remained at the year-on-year level. The consolidated gross expense ratio relating to the Slovenian non-life insurer rose by 0.2 percentage points. This was due to an increase of 10.9% in gross premiums written, while acquisition costs and other operating expenses grew by 11.8% due to the abovementioned reclassification of other operating expenses from the "other" segment to the Slovenian non-life insurance segment. The consolidated gross expense ratio of the non-Slovenian non-life insurers decreased by 1.2 percentage points as the result of a 12.5% increase in gross premiums written, while acquisition costs and other operating expenses grew by 9.7%.

The increase in acquisition costs in the life segment is primarily due to larger acquisition costs at Zavarovalnica Sava in Slovenia due to its new, expanded operations. For the same reason, the acquisition costs of the other life insurers also increased. Higher other operating expenses were driven by higher costs in all companies, with the maximum absolute increase recorded at Zavarovalnica Sava in Slovenia and at Sava Životno Osiguranje, Serbia. The increase at the Slovenian insurer was primarily related to the costs of services and personnel costs, while at the Serbian insurer personnel costs rose due to the expansion of the sales network, which also produced high growth in gross premiums. The consolidated gross expense ratio of the Slovenian companies increased by 1.8 percentage points year on year, the result of decreased gross premiums due to maturities, while acquisition costs increased owing to greater sales of new insurance policies. The consolidated gross expense ratio of the non-Slovenian life insurers dropped by 2.5 percentage points due to the rise in gross premiums written. In contrast, the consolidated gross expenses of the non-Slovenian companies rose due to the expansion of sales networks and business growth.

Expenses

Net operating expenses by material line of business

(EUR thousand)	2018	2017	Index
Fire and other damage to property insurance and proportional reinsurance	47,366	36,373	130.2
Motor vehicle liability insurance and proportional reinsurance	33,794	31,401	107.6
Other motor insurance and proportional reinsurance	26,740	23,071	115.9
Life insurance	17,168	16,329	105.1
Other lines of business	46,052	45,844	100.5
Total	171,120	153,018	111.8

Net operating expenses rose by 11.8% in 2018. In absolute terms, the largest increase was in expenses for fire insurance and proportional reinsurance, and fire and other damage to property insurance and proportional reinsurance (gross premiums also increased). The 2018 split of net operating expenses by line of business did not change significantly compared to 2017. Below we set out the movements in operating expenses by operating segment as analysed by the Group. The commentary covers all elements used in the calculation of net operating expenses (acquisition costs, change in deferred acquisition costs, other operating expenses).

Acquisition costs relating to the reinsurance segment were up despite lower gross premiums written. Acquisition costs accounted for 23.8% of gross premiums written in 2018, an improvement of 1.8 percentage points over 2017. The rise in commission expenses reflects the Company's shift towards more profitable business, which involves higher commission payments, in particular under soft market conditions. More profitable underwriting in combination with higher commission rates is reflected in the improved combined ratio. In 2018, deferred acquisition costs dropped in line with the decline in gross premiums written and lower unearned premiums, while in 2017 they rose as the result of growth in premiums and unearned premiums. Growth in other operating expenses was driven by higher labour costs, legal services required to acquire new licenses to expand into new markets, and the cost of marketing activities.

Composition of the consolidated gross result, excluding exchange differences

The chart does not include the gross profit of the pensions segment, comprising both Sava Pokojninska and Sava Penzisko Društvo, as the companies are not included in the Solvency II consolidation. The "other" segment comprises the result of TBS Team 24.

The Group's gross result for 2018 (excluding Sava Pokojninska and Sava Penzisko Društvo) rose by 36.3% year on year. All operating segments posted better gross results in 2018 compared to 2017. The technical performance in 2018 improved compared to 2017, when it was affected by large international losses (hurricane losses in the Caribbean and the USA, and a large loss event in Russia), whereas 2018 was impacted by fewer large losses. The investment result (excluding the effect of exchange differences) was lower largely due to impairment losses on portfolio equities (reinsurance) and lower interest income (non-life). Result for life business were better at the Slovenian insurer as well as at the non-Slovenian life insurers. The result of the "other" segment comprises the result of TBS Team 24, which was not part of the Group in 2017.

The 2018 result of the reinsurance segment was better than that recorded in 2017 because of the previously mentioned fewer large loss events and the smaller impact of foreign exchange losses.

The non-life segment also improved, largely as the result of the improved technical performance of Zavarovalnica Sava. All the non-Slovenian non-life insurers also improved their performance over 2017.

The life segment performed well in 2018, with more maturity benefits in 2018. In 2018, Zavarovalnica Sava paid out substantially more maturity claims in Slovenia and Croatia, which pushed mathematical provisions down, whereas mathematical provisions of the insurers in Kosovo and Serbia increased in line with the ageing and growth of the portfolio. The year-on-year change in technical provisions for policyholders who bear the investment risk of the Slovenian insurers is affected by claims settlements as well as movements in mutual fund unit prices. Net investment income relating to the investment portfolio of life insurance business declined by EUR 1.4 million year on year due to lower interest income and lower realised gains on the disposal of financial investments.

Composition of the consolidated gross income statement by operating segment

Composition of the consolidated gross income statement

SOLVENCY AND FINANCIAL CONDITION REPORT 2018

CONTENTS

Investment income and expenses by type

Type of income (EUR thousands) 01/01–31/12

Type of income (EUR thousands)	01/01–31/12
	2018	2017
Interest income	16,459	18,607
Change in fair value and gains on disposal of FVPL assets	214	229
Gains on disposal of other IFRS asset categories	2,252	3,122
Income from dividends and shares of other investments	1,378	1,141
Exchange gains	6,417	4,203
Diverse other income	1,316	658
Income relating to the investment portfolio	28,036	27,961
Net unrealised gains on investments of life insurance	16,867	16,849

Net unrealised gains on investments of life insurance policyholders who bear the investment risk

Type of expense (EUR thousands)		01/01–31/12
	2018	2017
Interest expenses	28	719
Change in fair value and losses on disposal of FVPL assets	637	80
Losses on disposal of other IFRS asset categories	305	585
Impairment losses on associates	151	0
Impairment losses on other investments	1,944	320
Exchange losses	6,571	10,134
Other	631	392
Expenses relating to the investment portfolio	10,267	12,229
Net unrealised losses on investments of life insurance	23,498	8,256

Net unrealised losses on investments of life insurance policyholders who bear the investment risk

In 2018, investment income totalled EUR 28.0 million and remained at the same level year on year; excluding the effect of exchange differences, investment income declined by EUR 2.1 million. The largest part of income was interest income of EUR 16.5 million in the period 1–12/2018 (accounting for 58.7% of total finance income), down EUR 2.1 million year on year.

In 2018, expenses relating to the investment portfolio dropped by EUR 2.0 million year on year, but were up EUR 1.6 million if the effect of exchange differences is excluded. The lion's share of expenses, besides foreign exchange losses, were impairments on financial investments and fair value losses on financial investments measured at fair value through profit or loss.

However, the effect of exchange differences does not fully impact profit or loss since liabilities denominated in a foreign currency move in line with investments in that currency. Exchange differences mainly relate to the assets and liabilities of Sava Re.

A.3 Investment performance

The Group analyses its investment performance by operating segment. Net investment income and investment return are monitored by class of investment as well as by type of income and expense. The following tables show income, expenses and net investment income by class of investment and type of income and expense.

Consolidated net inv. income of the investment portfolio

	2018	2017	Absolute change
Net investment income relating to financial investments	17,198	15,555	1,642
Net investment income from investments in associates	–151	0	–151
Net investment income relating to the investment property	722	176	546
Net investment income from the investment portfolio	17,768	15,732	2,036
Net investment income from the investment portfolio, excluding the effect of exchange differences	17,923	21,663	–3,740

Net investment income relating to the Group's portfolio amounted to EUR 17.8 million in 2018, and EUR 17.9 million excluding the effect of exchange differences.

Fair value reserve – movement

(EUR)	2018	2017
As at 1 January	18,332	17,459
Change in fair value	–5,901	2,804
Transfer of the negative fair value reserve to the IS due to impairment	–1,944	–320
Transfer from fair value reserve to the IS due to disposal	–578	–1,633
Net gains or losses attributable to the Group recognised in the fair value reserve and retained profit or loss relating to investments in equity-accounted associate companies	0	0
Other net profits/losses	0	0
Deferred tax	1,704	22
Total fair value reserve	11,613	18,332

The Group held no securitised assets.

Net investment income by class of asset

(EUR thousand)	Interest income/ expenses	Change in fair value and gains/losses on disposal of FVPL assets	Gains/losses on disposal of other IFRS asset categories	Income from dividends and shares – other investments	Impairment losses on investments	Foreign exchange gains/losses	Other income/ expenses	Total	Net unrealised gains/losses on investments of life policyholders	Income/expenses relating to associates and impairment losses on goodwill
Held to maturity	3,859	0	0	0	0	–28	0	3,831	341	0
Debt instruments	3,859	0	0	0	0	–28	0	3,831	341	0
At fair value through P/L	242	–423	0	29	0	–18	41	–128	–7,356	0
Designated to this category	242	–423	0	29	0	–18	41	–128	–7,356	0
Debt instruments	242	–373	0	0	0	–19	–8	–158	–3	0
Equity instruments	0	–50	0	29	0	1	–6	–26	–7,352	0
Other investments	0	0	0	0	0	0	56	56	–1	0
Available for sale	11,600	0	1,946	1,349	–1,944	–71	–70	12,811	380	–151
Debt instruments	11,600	0	1,744	0	0	–70	–70	13,203	371	0
Equity instruments	0	0	203	1,257	–1,944	0	0	–484	8	–151
Other investments	0	0	0	0	0	0	0	0	0	0
Investments in infrastructure funds	0	0	0	92	0	0	0	92	0	0
Loans and receivables	712	0	0	0	0	–37	–8	666	4	0
Debt instruments	699	0	0	0	0	49	–8	740	4	0
Other investments	13	0	0	0	0	–87	0	–74	0	0
Financial investments of reinsurers i.r.o. reinsurance contracts with cedants	18	0	0	0	0	0	0	18	0	0
Total	16,431	–423	1,946	1,378	–1,944	–154	–37	17,198	–6,631	–151

Group net investment income totalled EUR 17.2 million in 2018. The largest items of the Group's net investment income are interest income of EUR 16.4 million and impairment losses on financial investments, which reduce net investment income by EUR 1.9 million. The large share of interest income is consistent with the Group's investment portfolio composition, which is dominated by debt instruments.

The Group discloses unrealised gains and losses on investments designated as available for sale in the fair value reserve line of the balance sheet. The following table shows the movement in the fair value reserve in 2018.

Investments in and amounts due from Group companies

(EUR thousand)	31/12/2018	31/12/2017
Debt securities and loans granted to Group companies	2,532	4,610
Receivables for premiums arising from accepted reinsurance	15,107	13,394
Total	17,639	18,004

Payables to Group companies

(EUR thousand)	31/12/2018	31/12/2017
Payables for shares in reinsurance claims due to Group companies	9,801	8,249
Other payables from coinsurance and reinsurance	3,766	3,040
Total (excl. provisions)	13,567	11,289

A.5 Any other information

The Group has no other material information relating to its operations.

A.4 Performance of other activities

Lease contracts

The Group earns a small part of its income from lease contracts. It has operating lease arrangements for real property classified as investment property in the Group's balance sheet, and rental income is recognised evenly over the lease term.

In 2018, the Group generated EUR 1,146,475 in income by leasing its investment property (2017: EUR 514,115). Maintenance costs associated with investment property are either included in the rent or charged to the lessee; in 2018, a total of EUR 201,368 (2017: EUR 166,161).

Material intra-Group business

The tables below show material intra-Group transactions; these include reinsurance business between the parent and its subsidiaries and dividend payments to the parent. Payables to Group companies are mainly short-term and not overdue at the balance sheet date.

Income and expenses relating to Group companies

(EUR thousand)	2018	2017
Gross premiums written	62,319	56,999
Gross claims payments	–32,563	–30,532
Dividend income	33,558	26,137
Acquisition costs	–13,611	–12,010
Total	49,703	40,594

B.1 General information on the system of governance
B.2 Fit and proper requirements
B.3 Risk management system, including the own risk and solvency assessment
B.4 Internal control system
B.5 Internal audit function
B.6 Actuarial function
B.7 Outsourcing
B.8 Any other information

Supervision of individual Sava Insurance Group members

In order to ensure transparent and effective governance of Sava Insurance Group subsidiaries, the parent's supervision of its subsidiaries is divided into the following three parts:

governance supervision (through governing bodies),
business function supervision (through heads of business functions),
additional supervision (through key function holders).

Communication between Sava Insurance Group members

Twice yearly, Sava Re organises a Sava Insurance Group strategic conference to discuss the strategic directions to be applied in the planning of operations of Group companies, enhancements of individual business functions and the current performance of each company. Thus, strategic conferences are aimed at improving communication on strategies and policies of the Sava Insurance Group at the top management level.

The Sava Insurance Group organises professional training relating to various business areas several times a year to unify business processes, transfer knowledge, and promote corporate culture and best practices.

Planning and reporting of Sava Insurance Group subsidiaries

The planning process and content of the annual and five-year strategic planning documents of the controlling and subsidiary companies are described in detail in the Sava Insurance Group's financial control rules.

The process of reporting and related content by Sava Insurance Group subsidiaries is set out in detail in the Group's financial control rules and the Group's governance rules. The Group companies have also adopted a unified system of accounting, financial and risk management policies, and are gradually implementing the guiding principles set out in the risk management policy.

B.1 General information on the system of governance

B.1.1 Governance of the Sava Insurance Group

The management and supervisory bodies of the parent company are the Group bodies responsible for the proper management and supervision of the entire Group, and for setting up a governance framework appropriate to the structure, business and risks of the Sava Insurance Group as a whole and of its members.

The parent fully exercises its governance function by setting business strategy from the top down, taking into account both the Group as a whole as well as its individual members. In order to ensure optimal capital allocation and resilience of the Group against unforeseen events, capital allocation and capital adequacy are managed on the Group level following the top down principle. The risk strategy sets the risk appetite at both the Group and the individual company levels.

The Group has set up a systematic risk management framework, including risk management at the level of individual companies, appropriate monitoring of the risks of individual companies by the parent as well as risk management at the Group level. The latter takes into account any interaction between the risks of individual companies, in particular risk concentration and other material risks associated with the operation of the Group.

Management and supervisory bodies of Sava Insurance Group subsidiaries individually pursue the same values and corporate governance policies as the parent company, unless otherwise required by law, the local regulator or based on the proportionality principle. Therefore, the management or supervisory bodies of each Sava Insurance Group company, as part of their responsibility for the governance of their company with regard to the implementation of Group policies, ensure that all required adjustments to local legislation are made, as well as any other necessary adjustments. The companies determine which adjustments need to be made to Group policies in accordance with the procedures set out therein, ensuring compliance with applicable laws and regulations as well as with the rules of sound and prudent operation.

General meetings of shareholders of Sava Insurance Group members are generally convened at least once a year, at the latest within the time limit provided by local law. The general meeting may also be convened in other cases, as provided by local law, the Group member's articles of association, and whenever this is in the Group member's interest. As a rule, the general meeting is convened by the company's chief executive body. Local law stipulates the circumstances in which the general meeting may also be convened by other bodies of the company or the shareholders themselves.

Details on the convening of the general meeting of a Group member, shareholder rights regarding the general meeting, conditions for participating in the general meeting and the exercise of voting rights are set out in each country's local law and the Group member's articles of association and rules of procedure of the general meeting. Guidelines for preparing the general meeting of a Group subsidiary are provided in the Sava Insurance Group's control and supervision rules.

Supervisory body (supervisory board, board of directors, supervisory committee and similar)

In this section, the term supervisory board is used as a generic term for any supervisory body.

The rules applicable to a supervisory board in a two-tier system also apply to a board of directors or supervisory committee in a one-tier system, unless otherwise specified.

The supervisory board oversees the company's conduct of business during the financial year, in line with the company's business strategy and financial plan. In addition, it must comply with local law and the company's articles of association and other acts.

It meets at least five times a year, generally after the end of each quarter to review the annual and interim financial reports, while one session is devoted to the approval of planning documents. The board of directors and supervisory committee in companies with a one-tier system generally meet more frequently.

The number of supervisory board members must meet the minimum requirements stipulated by local law. This number must be proportionate to the nature, scale and complexity of the business of each company. The supervisory board is composed so as to ensure responsible oversight and decision-making in the best interest of the company.

When composing the supervisory board, each Group company seeks to take account of diversity in terms of technical knowledge, experience and skills, and the way candidates complement each other so as to form a homogenous team and ensure sound and prudent oversight of the company's affairs.

The rules of procedure of the supervisory board are set out in internal acts of individual companies.

B.1.2 Governing bodies

Apart from the general meeting, the governing bodies of individual Sava Insurance Group members include a management body (management board, managing director or CEO) and a supervisory body (supervisory board, supervisory committee or board of directors), depending on the legislation and the selection of a one- or two-tier management system.

The governing bodies carry out their duties in accordance with the legislation of each country, company internal rules and in accordance with the general guidelines established by the governance policy and other Group framework policies, the Group's governance rules and its financial control rules.

General meeting of shareholders

The general meeting of shareholders is the supreme body of a company through which its shareholders exercise their rights in company matters.

The terms of reference of the general meeting of each company are determined in line with the legislation of each country and the company's articles of association. The terms of reference of the general meeting relate to three areas:

personnel decisions (appointment and removal of members of the supervisory board, board of directors, supervisory board, granting of discharge to members of the management and supervisory bodies, vote of no confidence, appointment of the external auditor);
business decisions (adoption of the annual report unless approved by the management or supervisory bodies, appropriation of distributable profit, consenting business decisions if specifically required by the management);
fundamental decisions concerning the company (adoption and amendment of the articles of association, increase and reduction of share capital, winding up and transformation in terms of status).

The chief responsibilities of the general meeting of Sava Re are:

adoption of the annual report, unless approved by the supervisory board, or if the management and supervisory boards have left the decision on its adoption to the general meeting of shareholders;
appropriation of distributable profit, at the proposal of the management board and based on a report by the supervisory board;
appointment and removal of supervisory board members;
granting discharge to the management and supervisory board members;
adoption of amendments to the articles of association;
measures for the increase and reduction of capital;
dissolution of the company and its transformation in terms of status;
appointment of the auditor, at the proposal of the supervisory board;
other matters in accordance with the law and articles of association.

The following table shows the composition of the Sava Re supervisory board in 2018.

Composition of the supervisory board in 2018

Member	Title	Beginning of term of office	Expiry of term of office
Mateja Lovšin Herič	chair	16/07/2017	16/07/2021
Keith William Morris	deputy chair	16/07/2017	16/07/2021
Davor Ivan Gjivoje	member	07/03/2017	07/03/2021
Andrej Kren	member	16/07/2017	16/07/2021
Andrej Gorazd Kunstek	member, employee representative	11/06/2015	11/06/2019
Mateja Živec	member, employee representative	01/04/2016	11/06/2019

Supervisory board committees

In accordance with the law, the supervisory board of any Group company may appoint one or more committees or commissions, tasking them with specific areas, the analysis of specific questions, the preparation of draft resolutions of the supervisory board and the implementation of resolutions of the supervisory board, whereby such committees provide professional support. Notwithstanding the appointment of any committee, decision-making remains the responsibility of the supervisory board.

Sava Re has established the following supervisory board committees:

the audit committee,
the risk committee,
the nominations and remuneration committee,
the fit and proper committee.

The areas of responsibility and the composition of supervisory board committees are determined by a special resolution in compliance with applicable regulations, the recommendations of the Corporate Governance Code for Listed Companies and the company's internal acts.

Each committee may adopt its own rules of procedure. Unless it has adopted its own rules of procedure, the rules of procedure of the supervisory board apply together with any necessary conforming changes, for any questions regarding the quorum, decision-making and other points of procedure.

The chief tasks of the Sava Re supervisory board are to:

monitor and oversee the business conduct and operations of the Company, and, in the case of weaknesses or irregularities, propose remedial action to the management board;
give consent to the business policy and financial plan of the Sava Insurance Group and Sava Re as prepared by the management board;
give consent to the development strategy of the Sava Insurance Group and Sava Re as prepared by the management board;
give consent to the written rules of the system of governance, risk management, compliance, internal audit, actuarial function, internal controls and outsourced business as prepared by the management board;
give consent to the granting and withdrawing of authority relating to key function holders;
give consent to the solvency and financial condition report of Sava Re and the Group as prepared by the management board;
give consent to the risk strategy of Sava Re and the Group as prepared by the management board;
consider the own risk and solvency report and quarterly risk reports of Sava Re and the Group;
consider compliance function reports;
consider actuarial function reports;
give consent to the framework annual and the long-term work plan of the internal audit plan as prepared by the management board;
oversee the adequacy of the procedures used by and the effectiveness of the internal audit function and to consider internal audit function reports;
issue an opinion for the general meeting to be attached to the annual report on internal auditing;
give consent to the appointment, removal and remuneration of the head of internal audit;
review the annual and interim financial reports of the Sava Insurance Group and Sava Re;
review the annual report submitted by the management board, adopt an opinion on the auditor's report, and prepare either a qualified or confirmatory report for the general meeting;
review the proposal regarding appropriation of the distributable profit submitted by the management board, and prepare a written report for the general meeting;
appoint and remove the chair and the members of the management board;
decide on the criteria for determining the remuneration and reward system of the chair and the members of the management board;
adopt the rules of procedure of its operation;
draft general meeting resolutions within the supervisory board's terms of reference, and perform tasks directed by the general meeting;
consider the findings of the Insurance Supervision Agency and other supervisory bodies made when exercising their supervisory function over the Company.

The supervisory board annually prepares a meeting schedule for its own use and for its committees, including in particular those meetings that are obligatory due to the required publication of business results or are standard procedure with regard to past practices.

The management board of each Group company reports periodically (at least quarterly) to the company's supervisory board in a comprehensive and accurate manner on:

the implementation of business policies and other principles relating to business,
the profitability of the company, particularly return on equity,
business performance, especially on business volumes, the financial situation and solvency,
transactions that may have a significant impact on the profitability and solvency of the company, and
all material risks that have, or could have, a significant impact on the company's capital adequacy.

The chief duties of the parent's (Sava Re's) management board are to:

provide leadership to and organise the operations of the Company;
represent the Company;
ensure the legality of the Company's operations;
adopt the development strategy of the Company and the Group, which is to be presented to the supervisory board for consent;
adopt the business policy and financial plan of Sava Re and the Group, which is presented to the supervisory board for consent;
adopt internal acts of the Company and the Group;
approve and periodically review strategies and written rules on risk management, the internal control system, internal audit, actuarial function, compliance function and outsourced business, and ensure their implementation;
adopt the report on the solvency and financial condition of Sava Re and the Group and submit it to the supervisory board for consent;
grant authorisation to key function holders of the Company subject to the consent of the supervisory board;
report to the supervisory board on operations of the Company and the Group;
prepare a draft annual report, including a business report, and submit it to the supervisory board together with the auditor's report and a proposal regarding the appropriation of distributable profit for approval;
convene the general meeting of shareholders;
implement the resolutions adopted by the supervisory board.

In its meeting of 9 November 2017, the supervisory board voted unanimously in support of the proposal of Marko Jazbec, chairman of the management board, appointing a new Sava Re management board team. Srečko Čebron and Jošt Dolničar were re-elected to serve on the management board for their third consecutive terms of office, starting on 1 June 2018. Polona Pirš Zupančič was appointed as the fourth member of the management board, starting her term on 14 January 2018. Mateja Treven concluded her role as management board member on 13 January 2018.

Management body (management board, managing director, executive director)

In this section, the term management board is used as a generic term for any management body.

The rules established for the management board in a two-tier system also apply to the managing directors and executive director in a one-tier system, unless otherwise specified.

The management board provides leadership to and represents the company in its legal transactions.

Through its efforts and using its knowledge and experience, the management board pursues the long-term success of the company, ensuring optimal leadership and risk management. The management board defines the company's goals, values, mission, vision and business strategy. Business operations are optimised through an adequate composition of human resources and prudent use of financial resources. This is done in compliance with local law and the company's articles of association and other acts.

As a rule, the management boards of individual Sava Insurance Group companies consist of several members in order to ensure that decisions taken are for the benefit of the company and that board members work towards the company's goals in a prudent and responsible manner. The number of members is proportionate to the nature, scale and complexity of each company's business, while there must be clearly determined terms of reference of board members as well as an adequate delimitation of responsibilities. Where local legislation allows for a single-member management board, the company must observe the four-eye principle in decision-making.

When designing the management board, each company seeks to take account of diversity in terms of technical knowledge, experience and skills, and the way candidates complement each other so as to form a homogenous team and ensure sound and prudent conduct of the company's business.

The management board is committed to high ethical standards and considers the interests of all stakeholder groups.

The terms of reference of individual management board members and the operation of multi-member bodies are governed by internal acts of individual companies (act on the management board / rules of procedure of the management board).

B.1.4 Risk management

The risk management system is one of the key building blocks of the system of governance.

The management of the Group's parent company as well as those of each Group member must ensure that both the Group as a whole and each individual company have in place an effective risk management system. This takes into account the scope, nature and complexity of the risks to which the Group or individual companies are exposed.

The basis for an effective risk management system is an appropriate organisational structure at both the Group and individual Group company levels.

More details on risk management are provided in section B.3.

B.1.5 Key functions of the risk management system

At the Group level, the parent has established four functions defined by applicable law as key functions of the risk management system (hereinafter: key functions): the actuarial function, risk management function, compliance function and internal audit function. Key functions are integrated in the Group's system of governance and generally also perform the role of the parent company's key function in addition to their role at the Group level.

The parent company has organised these key functions as services of the risk management system that report directly to the management board and are involved in decision-making processes.

The chief tasks of a key function holder at the Sava Insurance Group level are:

coordinating the development of a uniform methodology for the relevant key function at all the Group's insurers;
ensuring the development of appropriate framework policies for the relevant key function, and professional guidelines for the adoption of area-specific operational rules for the parent company and its subsidiaries;
ensuring strict application Group-wide of uniform standards by the relevant key function;
coordinating and implementing joint tasks and projects;
providing guidance and overseeing the operations of the relevant key function at all Group companies (coordinating planning activities and reviewing reports of Group companies);
arranging professional development and the exchange of good practices among the relevant key functions in the Group.

Composition of the management board in 2018

Member	Title	Beginning of term of office	Expiry of term of office
Marko Jazbec	chair	12/05/2017	12/05/2022
Srečko Čebron	member	01/06/2018	01/06/2023
Jošt Dolničar	member	01/06/2018	01/06/2023
Polona Pirš Zupančič	member	14/01/2018	14/01/2023
Mateja Treven	member	01/06/2013	13/01/2018

Areas of responsibility of the management board members in the major part of 2018:

Marko Jazbec, chairman of the management board: coordinating the operation of the management board, finance, general affairs, human resource, organisation and legal affairs, public relations, compliance and internal audit.
Jošt Dolničar, member of the management board: managing strategic investments in direct insurance subsidiaries, modelling, IT, technology and innovation, and pension business.
Srečko Čebron, member of the management board: reinsurance operations and actuarial affairs.
Polona Pirš Zupančič, member of the management board: corporate finance and controlling, accounting, investor relations and risk management.

B.1.3 Selection of management system and the proportionality principle

The management system selected by any Sava Insurance Group member is proportionate to the nature, scale and complexity of its business operations.

Each Group company selects for itself a management system that is optimal both for the company and the Group. As a rule, Group members adopt a one-tier management system, provided this complies with local legislation and is appropriate to the nature, scale and complexity of each company's operations.

The Group parent and Zavarovalnica Sava operate on a two-tier management system.

Role of individual key functions

The key functions perform duties as stipulated by insurance law, including regulations based thereon.

The chief duties of the risk management function are:

operating the risk management system;
identifying and assessing assumed risks;
organising risks in a joint risk profile, indicating interdependencies;
periodic monitoring of the risk profile,
reporting on potential hazards.

Details on duties, terms of reference, responsibilities and powers of the risk management function holder, procedures, obligations, time limits and reporting distribution lists are set out in the risk management policy of the Group and Sava Re.

The chief duties of the actuarial function are:

coordinating and overseeing the setting of technical provisions, ensuring the appropriateness and quality of methodologies, assumptions and underlying data;
issuing an opinion on the underwriting and reserving risk policy;
issuing an opinion on the adequacy of reinsurance arrangements;
contributing to an effective risk management system, especially in risk modelling.

Details on duties, terms of reference, responsibilities and powers of the actuarial function holder, procedures, obligations, time limits and reporting distribution lists are governed by the actuarial function policy of the Group and that of each individual company.

The chief duties of the compliance function are:

ensuring the compliance of the company's operations with regulations and other commitments;
advising the management board on compliance with the laws, implementing regulations and internal regulations;
assessing the impact of potential changes in the legal environment on the company's operations;
identifying and assessing compliance risks, and assisting in their management.

Details on the duties, terms of reference, responsibilities and powers of the compliance function holder, procedures, obligations, time limits and reporting distribution lists are set out in the Group's compliance policy and that of each individual company.

With due regard for the proportionality principle, the risk management system of each Group insurer has key functions integrated into the organisational structure and decision-making processes. The key functions discharge their duties independently from each other and from other organisational units of the company. The key functions directly report to the management board. Where any key function is carried out by an independent organisational unit, the key function holder must be ensured direct access to the management board.

The key functions are integrated into the organisational structure and decision-making processes to strengthen the three-lines-of-defence framework of the Sava Insurance Group's risk management system. All four key functions cooperate closely with each other, regularly exchanging information they need for their functioning.

As a rule, key function holders must not both perform and oversee the same tasks. Processes must be organised so as to allow separate operation of individual lines of defence. Key function holders must not be members of the supervisory board or of any of its committees of any Sava Insurance Group company in order to minimise potential conflicts of interest. Key function holders must immediately report any potential conflict of interest to the management board.

If, in accordance with the proportionality principle, key functions are assigned additional activities and tasks, there must be in place appropriate internal measures and mechanisms for managing any potential conflicts of interest arising from such activities of a key function. Measures and mechanisms for avoiding situations potentially leading to conflicts of interest are detailed in the internal regulations governing the operation of individual key functions.

Notwithstanding the organisational position of any key function within a company, these must be directly integrated in the Group's framework of key functions. This establishes a direct link between the key function of a subsidiary and the Group, providing for direct flow of information between the second and third lines of defence, ensuring comprehensive and consistent compliance risk management across the Sava Insurance Group.

B.1.7 Information about the remuneration policy

The Sava Insurance Group remuneration policy lays down the framework for the planning, implementation and monitoring of remuneration systems and schemes that support the Group's longterm strategy and risk management policy.

This remuneration policy is applied by Sava Re and serves as guidance at the other Group companies. It applies to all organisational levels and all employees. It includes:

the management body,
senior and lower management,
key function holders, and
other employees.

The remuneration policy aims at building a remuneration system that is competitive and efficient as well as transparent and internally fair. The key principles of the policy incorporate the main principles of ethical and sustainable practices and operations.

The chief principles of the remuneration policy are:

clear and transparent management,
reliable and efficient risk management,
compliance with regulatory requirements and principles of sound management,
monitoring of and adapting to market trends and practices,
sustainable pay for sustainable performance,
employee motivation and retention.

Sava Insurance Group companies follow the following guidelines in the designing of remuneration systems and schemes:

designing of a balanced remuneration structure,
establishing a direct link between pay and performance,
adopting a multi-annual approach to performance evaluation and establishing a link between the variable part of remuneration and sustainable business performance,
ensuring that the incentive system remains compliant with its mechanisms, organisational processes and with the rewarded activities and behaviour.

It is recommended that Group companies design a remuneration structure encompassing:

a basic salary,
variable pay,
other benefits and incentives,
remuneration upon termination of the employment contract.

The chief duties of the internal audit function are:

providing objective and relevant assurance and advice to the management board in order to add value and improve the efficiency and effectiveness of operations;
assisting the company in achieving its goals based on systematic, methodical assessment and improvement of the effectiveness and efficiency of governance, risk management and control procedures;
reporting to the management and the supervisory boards on the purpose, terms of reference and duties of internal audit and the implementation of its plan, the conclusions of the audit reviews carried out and the proposal of recommendations for their improvement.

Details on duties, terms of reference, responsibilities and powers of the internal audit function holder, procedures, obligations, time limits and reporting distribution lists are set out in the Group's internal audit policy and that of each individual company.

Reporting by key function holders

Key function holders of each Group subsidiary report in two directions, namely:

to management or supervisory bodies of the company and also, if so provided, to the audit committee or supervisory board and, in some cases, taking into account country-specific regulatory arrangements and internal regulations of individual companies, to certain sectoral committees;
to the holder of the relevant key function at the Sava Insurance Group level.

Detailed provisions on the scope, manner, and reporting period of any key function are set out in internal regulations governing a relevant key function.

B.1.6 Committees in the governance system

The management board of the parent company may, by its decision, set up committees that cover both the Group level and the parent company. In addition, the management board of any Group subsidiary may, if necessary, establish a committee by passing a resolution. Committees have an advisory role. They consider issues from specific areas, draft management board resolutions and oversee their implementation, and perform other tasks requiring specific expertise, thus providing professional support to the management board.

Committees are an integral part of the system of governance of the Group and individual companies, dealing with issues from various areas, such as risk management, asset and liability management, actuarial affairs, internal audit and remuneration.

The terms of reference, powers and composition of committees are set out in internal regulations adopted by the management board of the company that established the committee.

Sava Re has set up two committees at the Group level:

the risk management committee and
the actuarial committee.

B.1.8 Related-party transactions

All transactions among Sava Insurance Group companies are carried out at arm's length, to a limited extent by refunding expenses incurred in rendering services. Sava Insurance Group members take turns in taking the role of service provider and service user within the Group in order to enhance its effectiveness as a whole.

As part of the annual functional analysis, risks identified and resources expended are used to determine risks assumed by individual functions implemented for the sake of subsidiary governance. Functions implemented by the parent company mainly include strategy setting, coordination, monitoring or controlling, and preparing analyses.

Governance and business functions relating to the governance and supervision of the Group and its related companies are not invoiced.

Operational transactions that are subject to assessment as related-party transactions are charged using the comparable uncontrolled price method based on internal or external comparisons and, to a very small extent, by reimbursing expenses incurred in rendering services.

The system of related party transactions is set out in detail in the transfer pricing report (general documentation) and the transfer pricing report (special documentation) prepared annually.

Material related-party transactions

Below are set out material transactions with related-parties, consisting of:

owners and related enterprises;
the management and supervisory boards, audit committee and employees not subject to the tariff section of the collective bargaining agreement;
subsidiary companies.

In 2018, large transactions included:

total remuneration of the members of the management board and the supervisory board, including its committees, and employees not subject to the tariff part of the collective agreement of EUR 5.7 million (2017: EUR 5.3 million),
loans granted to subsidiaries of EUR 2.5 million as at 31 December 2018 (2017: EUR 4.6 million),
dividend payouts of EUR 14,7 million (2017: EUR 12,4 million)

All third-party transactions are set out in detail in the Group's annual report, in section 17.1 "Related-party disclosures", and are available on the Sava Re website.

The basic salary is laid down based on the employee's role and position, taking into account professional experience, responsibilities, complexity of the job and the situation on the local labour market. The range of basic salaries for individual positions is laid down in the internal regulations of individual companies.

Variable pay depends on the company's business performance and the employee's individual performance or, in the case of managers, also the performance of the unit they head. Variable pay is intended to motivate and reward the most successful employees who significantly contribute to the achievement of sustainable performance, meet or exceed the agreed objectives, strengthen long-term relationships with clients and generate income. Individual performance-based pay depends on the attainment of predefined individual goals and other tasks in a manner consistent with expected behaviours and competencies. Business performance-based pay depends on a performance indicator or a combination of performance indicators of the company and/or the Group. Total variable pay generally ranges from 0% to 30% of the total annual remuneration.

The variable pay system and scheme for the management board is considered and approved by the supervisory board. Variable pay for the management board is based on the achievement of the goals and performance of the company as a whole or the Group of which it is a part.

The composition and level of variable pay for all position levels is laid down in each Group company's internal regulations.

The types and level of potential additional benefits and incentives are laid down in the company's internal regulations. Employees may join collective supplementary pension saving schemes.

Additional remuneration upon termination of an employment contract (other than prescribed by law and the employment contract – termination benefits) is based on the achievement of longterm goals. Provision has been made that no additional remuneration is paid out if goals have not been achieved.

As a rule, Group companies grant loans to neither their employees nor members of the management or supervisory boards; accordingly, there were no such transactions in 2018.

The Group companies run no share option schemes.

The Group companies run no additional pension schemes.

B.2.1 Fitness requirements for relevant personnel

Supervisory body and its committees

The knowledge acquired through education and experience is to be considered in assessing the fitness of members of a company's supervisory body and its committees. These three requirements are considered in fitness assessments:

qualifications,
sufficient professional experience,
general knowledge and experience.

The supervisory body is composed so as to ensure responsible oversight and decision-making in the best interest of the company or the Group. Members are selected so that their professional expertise, experience and skills are complementary to other members of the supervisory body. The supervisory body, viewed as a whole, must have sufficient expertise. Individual members of the supervisory body with distinct special expertise may, in particular based on the assignment of responsibilities for a certain area, compensate for any less profound expertise of other members of the supervisory body in those areas.

The management body

In assessing the fitness of the members of a company's management body, it is necessary to consider the knowledge acquired through education and work experience. Based on this, the fitness assessment is made with consideration of the member's assigned responsibilities, taking into account the following requirements:

qualifications,
sufficient professional experience,
expertise and experience in the following areas: market knowledge, knowledge of the business strategy and business model, knowledge of the governance system for insurance companies, understanding financial and actuarial analysis, understanding regulatory frameworks and requirements.

The management body, viewed as a whole, must have sufficient expertise. Its members must have relevant experience and knowledge of the above-mentioned areas, depending on their specific area of responsibility. Individual members of the management body with distinct special expertise may, in particular based on the assignment of responsibilities for a certain area, compensate for any less profound expertise of other members in those areas.

Key function holders of the risk management system

In assessing the fitness of the key function holders of the risk management system, it is necessary to consider the knowledge acquired through education and work experience. The assessment is then made based on assigned responsibilities for each key function. These three requirements are considered in fitness assessments:

qualifications, including additional training, obtained required licenses or specialist examinations;
sufficient professional experience relevant to a particular key function;
general knowledge and experience.

B.2 Fit and proper requirements

In accordance with the law, the Sava Insurance Group members ensure that persons who effectively run and oversee operations are properly qualified (fit) and suitable (proper) for running and overseeing operations in a professional manner.

To this end, the companies conducts fit and proper assessments of their personnel: management board members, supervisory board members, members of the supervisory board committees, key managers, key function holders of the risk management system and personnel overseeing individual outsourced activities prior to their appointment and after their appointment whenever circumstances arise that require a reassessment of whether such persons are still fit and proper.

In addition to the appropriate qualifications, experience and expertise (fitness) they must have, the relevant personnel is also required to demonstrate they enjoy good repute and demonstrate high standards of integrity (propriety) as exemplified by their actions.

The assessment of a person's suitability (propriety) comprises an assessment of their integrity and financial soundness on the basis of relevant evidence about their character, personal behaviour and business conduct, including any criminal, financial and supervision aspects, irrespective of the jurisdiction.

Relevant personnel is subject to the reporting duty regarding any new facts or circumstances, or changes to information submitted in the initial suitability assessment. The body responsible for fit and proper assessment (fit and proper committee of relevant composition) assesses whether the new facts and changed circumstances or information are of such a nature as to require a fit and proper reassessment.

The human resources function requires relevant personnel to sign personal statements at least once a year. Such statements confirm compliance with current fit and proper standards of relevant personnel and their commitment to notify the human resources function immediately of any circumstances that may affect their fit and proper status.

In 2018, the EU-based Group companies carried out full fit and proper assessment procedures for their new relevant personnel as well as an annual review based on annual statements for persons already assessed.

B.3 Risk management system, including the own risk and solvency assessment

The Sava Insurance Group management is aware that risk management is key to achieving operational and strategic objectives and to ensuring the long-term solvency of the Group. Therefore, the Group is continuously upgrading its risk management system at both the Group company and Group levels.

The Group companies' strong risk culture and awareness of the risks to which they are exposed is essential to the security and financial soundness of the companies and the Group as a whole. In order to establish good risk management practices, the Group promotes a risk management culture with appropriately defined remuneration for employees, employee training, and relevant internal information flow, at both the individual company and the Group levels.

The Sava Insurance Group has implemented a risk strategy that defines the Group's risk appetite and policies that cover the entire framework of risk management, own risk and solvency assessments, and risk management for each risk category. Based on the Group's risk strategy and policies, individual Group companies set up their own risk strategies and policies, taking into account their specificities and the local legislation. The adequacy of the risk strategy and the policy is regularly reviewed.

The risk management system both in individual Group companies and at the Group level is subject to continuous improvements. Particular attention is paid to:

clearly-expressed risk appetite in the framework of the risk strategy and on this basis also operational limits;
development of own risk assessment models and upgrading of the own risk and solvency assessment (hereinafter: ORSA);
integration of the ORSA and risk strategy in the framework of business planning and shaping of the business strategy;
integration of risk management processes into business processes;
setting up appropriate risk management standards in all Group companies, taking into consideration the scale, nature and complexity of operations and related risks.

B.2.2 Suitability requirements for relevant personnel

Personal reliability and reputation

To ensure the sound and prudent management of a company, relevant personnel must have the appropriate qualifications (fit), be of good repute and demonstrate through their actions high standards of integrity (proper). A relevant person is deemed to be proper, as long as there are no reasons to think otherwise. Circumstances that give rise to reasonable doubt as to suitability are harmful to the reputation of both the relevant person and consequently the company and the Group.

Personal reliability and good repute is assessed based on information compiled by collecting documents for carrying out the fit and proper assessment procedure.

Independence of relevant personnel

Relevant persons may experience conflicts of interest due to the nature of the business relations. Any relevant person who experiences a conflict of interest in their work must disclose such conflict of interest and continue acting in the interests of the company. Unless possible, such person must inform the company's management or the supervisory body, if a conflict of interest is experienced by a member of either the management or supervisory body.

Time input

The members of the supervisory body and its committees must – in addition to business knowledge, relevant personal integrity, business ethics and independence – confirm that they have available time resources in the period when performing the function.

B.2.3 Procedure for fit and proper assessment

The fit & proper assessment procedure is conducted by a special committee set up according to an internal framework document. During the assessment of relevant personnel, the company's human resources function assists with the performance of operational tasks, such as the obtaining, sending, processing and storing of documents, and issuing of the assessment results.

The committees conduct fit and proper assessments and issue relevant results based on compiled documents and statements. Based on assessments so obtained, they may take the necessary actions to ensure adequate qualifications of relevant personnel. The committees also conduct overall fit and proper assessments of the management and supervisory bodies as collective bodies.

The Group's and each individual company's second line of defence comprises three key functions: the actuarial function, risk management function and compliance function. In addition, the Group's large members have in place a risk management committee. The members of the risk management committee and key function holders are appointed by the management board; key function holder appointments also require the consent of the supervisory board. Each individual company ensures the independence of the key functions, which are organised as services of the risk management system and report directly to the management board. Their roles and responsibilities are defined in the policy of each key function or in the risk management policy that defines the risk management function. The responsibilities of the risk management function are summarised below; those of the other key functions constituting the risk management system are set out in sections B.4.2, B.5 and B.6 of this report.

The risk management function of each individual company is mainly responsible for setting up effective risk management processes and for the coordination of risk management processes already in place. It is involved in all stages of identification, assessment, monitoring, management and reporting of risks. It is also involved in the preparation of the risk strategy and the setting of risk tolerance limits. The risk management function of each company periodically reports to the risk management committee (if set up in the company), the management and supervisory boards, the risk committee (at Sava Re) and to the Group's risk management key function holder. It works in cooperation with the latter on an ongoing basis. Furthermore, it offers support to the management board in decision-making (including in relation to strategic decisions, such as corporate strategy, mergers and acquisitions, and major projects and investments).

Apart from the key functions, the second line of defence at Sava Re and Zavarovalnica Sava also consists of a risk management committee. The Sava Re risk management committee is also responsible for the Group level. The committee includes the key representatives of the first line of defence with regard to the company's risk profile. The holders of other key functions of the risk management system are also invited to attend meetings of the committee. The committee is primarily responsible for monitoring the risk profiles of the Group and individual companies, analysing risk reports and issuing recommendations to the management board.

The third line of defence consists of the internal audit function. For the Slovenian insurer and the pension company, it is outsourced to Sava Re, whereas the other companies have their own internal audit functions. The internal audit function operates at the individual company and Group levels completely independently of business operations and other functions. In the risk management system, the internal audit function is responsible for the independent analysis and verification of the effectiveness of risk management processes and internal controls in place.

Good practices from Sava Re's risk management model and the organisation of risk management are also transferred to other Group companies.

B.3.1 Risk management organisation

Systematic risk management includes an appropriate organisational structure and a clear delineation of responsibilities.

The efficient functioning of the risk management system is primarily the responsibility of the Sava Re management board and the management board of each individual subsidiary. To ensure efficient risk management, the Group uses a three-lines-of-defence model, which clearly segregates responsibilities and tasks among the following lines:

The first line of defence constitutes all organisational units with operational responsibilities (development, sales, marketing and insurance management, provision of insurance services, financial operations, accounting, controlling, human resources and others).
The second line of defence consists of three key functions (the risk management function, actuarial function, compliance function) and the risk management committee, if set up in the company.
The third line of defence is provided by the internal audit function.

The Group's risk management system has been set up based on the top down principle, taking into account the specificities of each individual company.

The management board of each company plays a key role and bears ultimate responsibility for the effectiveness of established risk management processes and their alignment with the Group's standards and the applicable legislation. In this regard, it has the following chief responsibilities:

designing a risk strategy and approving risk tolerance limits and operational limits,
adopting policies governing the risk management system,
responsibility for risk management processes,
monitoring of operations in terms of risk and ensuring that risks are considered in decision-making.

The supervisory board of each individual company approves the risk strategy, risk management policies and the appointment of key function holders of the risk management system. In addition, the supervisory board reviews periodic risk management reports. A risk committee has been set up within the parent company's supervisory board to provide expertise, in particular with regard to risk management in the company and the Sava Insurance Group.

The first line of defence of each individual Group company involves all company employees responsible for ensuring that operational tasks are performed in order to reduce or eliminate risks. Additionally, risk owners are responsible for individual risks listed in the risk register. Departmental executive directors, line directors and service directors are tasked with ensuring that the operational performance of the processes for which they are responsible is conducted so that risks are appropriately managed, while taking into account the frameworks laid down in the risk strategy. The first line of defence is also responsible for monitoring and measuring risks, preparing data for periodic risk reports for individual areas of risk and identifying new risks.

Risk strategy

In order to establish a solid risk management framework, in 2017, the management board – with the consent of the Sava Re supervisory board – approved the Sava Insurance Group risk strategy for 2017–2019, which, based on the Group's risk bearing capacity, defines the Group's strategy of assuming risk. Each individual Group company drafts its own risk strategy by taking into account the framework of the Sava Insurance Group's risk strategy. The Group document sets:

the risk appetite,
permissible levels of certain performance indicators and risks,
risk tolerance limits.

The basic principle of the Group is to pursue its business strategy and meet its key strategic objectives while maintaining an adequate capital level.

The key areas that risk appetite is based on are:

capital,
liquidity,
product profitability, and
reputation of each Group company and the Group.

Each individual Group company sets its own risk strategy, risk tolerance limits and operational limits based on the Group's risk appetite. Risk tolerance limits are limits set for individual risk categories included in individual companies' risk profiles determining approved deviations from planned values. These limits are set based on the results of sensitivity analyses, stress tests and scenarios, and professional judgment.

Based on the risk appetite and risk tolerance limits, individual Group companies set operational limits, such as (re)insurance underwriting limits and investment limits, in order to ensure that the activities of the first line of defence are carried out in accordance with the set risk appetite. In addition, each Group company ensures that it has in place well-defined and established escalation paths and management actions in the case of any breach of operational limits.

For periodic monitoring of compliance with the risk strategy, individual Group companies define a minimum set of risk measures for each risk category to allow for a simplified monitoring of the Group's and each Group company's current risk profile and capital position without having to carry out a complete calculation of the solvency capital requirement. These risk measures are regularly monitored at the Group and individual company levels.

B.3.2 Components of the risk management system

Risk management is integrated into all stages of business management and is composed of the following key elements:

risk strategy,
risk management processes within the first and second lines of defence, and
the ORSA process.

The components of the Sava Insurance Group risk management system are shown in the figure below.

Risk strategy
Risk management processes		ORSA process
First line of defence	Second line of defence	Second line of defence
Pricing		Analysis of risk profile
Underwriting process	Risk management function	Own assessment of solvency needs
Underwriting limits	Risk management committee	Continuous compliance
Investment policy and limits	Risk reports	Projections
Information and risk reports	Risk register	Stress tests and scenarios
	Third line of defence
Internal audit

Risk assessment

The Group has in place regular risk assessment (measurement) processes for all the risks to which individual companies or the Group are exposed. Both qualitative and quantitative methods are used to measure risk. A modelling department has been set up on the Sava Insurance Group level for the development of quantitative models for Group-wide risk assessment.

Thus, the Group measures risks:

using the Solvency II standard formula,
by calculating the overall solvency needs within the own risk and solvency assessment (ORSA),
by carrying out stress tests and scenario analyses,
through qualitative risk assessment in the risk register,
using various risk measures that enable simplified measuring and monitoring of the indicative current risk profile.

Risk management

The management board of each Group company is responsible for risk management and the use of various risk management techniques and actions. In its decisions, the management board takes into account the cost benefit aspect of actions as well as recommendations, if any, issued by the risk management committee or key functions.

Whenever the need arises to adopt a new risk control measure, the relevant company conducts an analysis of the measure in terms of economic and financial viability. Elimination or mitigation of individual risks must be more cost effective than mitigation of the potential impact should the risk materialise, taking into full account the probability of such an event and all of its implications.

In practice, a Group company already examines, in the business planning process, the impact of the business strategy on its capital position, both with regard to the regulator as well as with regard to the ORSA. If, during a financial year, decisions are taken that have a significant impact on the risk profile but have not been assessed in terms of risk during the business planning process, the company assesses the impact of such decisions on its risk profile and capital adequacy, and verifies compliance with the risk appetite. If a business decision could have a significant impact also on the Group's risk profile, such impact on the Group's risk profile and capital adequacy is also assessed. If any business decision fails to comply with the risk appetite or any risk tolerance limit is exceeded, the company is required to document such deviation and take relevant action to resolve the situation.

Risk monitoring

Risk monitoring is conducted at several levels: at the level of individual organisational units and risk owners, the risk management department, the risk management committee, and the management and supervisory boards. In addition, each Group company's risk profile is monitored at the Group level in terms of impact on the Group's risk profile. A standard set of risk measures is defined for risk monitoring and is regularly monitored by Group companies. Both risks and risk management measures are subject to monitoring and control.

Risk management processes

Risk management processes are inherently connected with and incorporated into the basic processes conducted at the individual company and Group levels. All organisational units are involved in risk management processes.

The main risk management processes are:

risk identification,
risk assessment (measuring),
risk monitoring,
determining appropriate risk control measures (risk management), and
risk reporting.

Risk management processes are incorporated into all three lines of defence. The roles of individual lines of defence are defined in the risk management policy. Risk management processes are also integrated into the decision-making system; all important and strategic business decisions are also evaluated in terms of risk.

Risk identification

In the process of risk identification, each individual Group company identifies the risks to which it is exposed. The key risks compiled in each company's risk register, constituting the company's risk profile, are reviewed on a quarterly basis and amended with consideration of new risks as required. Risk identification at the Group level is conducted in the same way.

Risk identification in individual companies is both a top-down and a bottom-up process. The topdown risk identification process is conducted by the risk management function, the risk management committee and the management board of each Group company. Such identification of new and emerging risks is based on monitoring of the legal and business environment, market developments and trends, and expert knowledge; this process is mainly used with strategic risks, such as reputational risk and legal risk.

Bottom-up risk identification takes place in individual organisational units and with risk owners (first line of defence). A Group company's risk thus identified is categorised and incorporated into the relevant monitoring, measuring and reporting processes.

Risk identification is performed on an ongoing basis, especially as part of the business planning process and any major projects and business initiatives, such as the launch of a new product, investment in a new class of assets or an acquisition.

The ORSA process is extensive and spans a large part of the year. Based on input from the business and strategic plans and the risk strategy, the Group calculates the SCR and makes Solvency II valuations for items of the balance sheet and eligible own funds for the entire term of the business and strategic plans. This is how it ensures that the business and strategic plans comply with the legislation and are aligned with the risk strategy. Based on projection, it reviews continuous compliance with the regulatory requirements related to capital and technical provisions.

Based on the results of the suitability analysis of the standard formula for the Group's risk profile, the Group then uses its own solvency model to conduct an own risk and solvency assessment for a further three-year period and makes a qualitative or quantitative assessment of the risks that are not captures by the standard formula. In the ORSA process, the Group also carries out (reverse) stress tests and scenario analyses as relevant with regard to its current and planned risk profile.

Throughout the ORSA, the management board is actively involved in the process: it confirms the set of stress tests and scenarios, reviews the ORSA, and challenges it before giving its formal approval.

Based on the conducted ORSA, the Group prepares a report that is considered at several levels: it is first discussed by the risk management committee, followed by the management board, risk committee and supervisory board. After the results are approved at all levels, they are distributed to all the heads of business units. The ORSA report is also submitted to the Insurance Supervision Agency.

The ORSA process is embedded in the decision-making process, which allows for key decisions to be adopted with consideration of the risks involved and for the business strategy to be determined with adequate awareness of the risks and associated capital requirements. The ORSA results are taken into account by the management in its decision-making, capital management and insurance product development.

The ORSA is subject to continuous improvement with regard to both risk assessment and ORSA integration into the Company's ongoing processes and business decision-making.

Risk reporting

A risk reporting scheme has been set up in the large Group companies and at the Group level. Risk owners report on each category of risk to the risk management function, including a predetermined set of significant risk measures and qualitative information. Based on this, the risk management function in cooperation with risk managers prepares a risk report covering each individual company's entire risk profile. The report is first considered by the risk management committee (if set up in the company) and then by the company's management and supervisory boards. The report is sent by the company's risk management function to the Group's risk management function.

Own Risk and Solvency Assessment (ORSA)

In addition to the mentioned risk management processes, the company also conducts ORSA as defined in its own risk and solvency assessment policy. ORSA is a process that includes identification of the differences between the Group's risk profile and the assumptions of the standard formula, the own assessment of solvency needs, capital adequacy projections, stress tests and scenarios, and the establishment of the link between the risk profile and capital management. In ORSA, all material risks are assessed, whether quantifiable or not, that may have an impact on the operations of the Group from either an economic or a regulatory perspective.

The ORSA process is conducted at the individual company and Group levels, and both are strongly interconnected. The EU-based Group companies and the Group are required to report to the regulator on their ORSA. Following is a presentation of the Group ORSA.

The ORSA is primarily conducted to understand the own risk profile and the standard formula, and to analyse the impact of the changes in the risk profile on capital adequacy over the next three years. ORSA is an integral part of the decision-making process and contributes to the Group's key decisions and business strategy being adopted with consideration of risks and associated capital requirements. Based on the Group ORSA results, we also check the compliance of the business strategy with the risk strategy. This establishes the links between the business strategy, the risks taken in the short, medium and longer term, the capital requirements arising from those risks and capital management.

The Group generally conducts the full ORSA on an annual basis. However, in the case of a major change in the risk profile or eligible own funds that has not been anticipated in the business plan, an ad hoc ORSA is conducted. The management and supervisory boards review and confirm the ORSA report (at least) on an annual basis. The Group reports (at least) annually to the regulator on the ORSA.

The chief duties of the compliance function are to:

monitor and periodically assess the adequacy and effectiveness of regular procedures and measures to address any deficiencies in compliance with regulations and other commitments;
advise and assist in the coordination of the company's operations with the obligations imposed by regulations and other commitments;
assess potential impacts of changes in the legal environment on the operations of the Company in terms of compliance with its regulations and other commitments, and report on them to the company's management, individual organisational units, and business and key functions;
identify and assesses risks to the company's compliance with regulations and other commitments, and, if necessary, propose recommendations and guidelines for the management of compliance risk;
inform the management and the supervisory boards of the company's compliance with regulations and other commitments, and the risk assessment regarding compliance with regulations and other commitments;
coordinate with top management regarding compliance matters and offer consulting services to them;
cooperate in exchanging compliance-related questions, best practices and experiences on the controlling company level with other control and supervision functions;
coordinate the preparation and adoption of policies and rules on the parent company level and between the parent company and Group subsidiaries;
participate in setting up and updating compliance programmes in certain separate areas, including internal controls for compliance of operations, taking into account the requirements and capacities of processes and resources available, according to the requirements of specific legislation or regulations, and factors of the broader business and professional environment (e.g. commitments assumed through contracts, declarations and other collective activities aimed at raising the standards of fair business in the broader environment);
draft an annual compliance monitoring plan covering the identification and assessment of the main compliance risks that the company faces, coordinate it with the compliance function holder at the Group level, and submit it to the management and supervisory bodies;
prepare periodic reports for submission to the company's management and supervisory bodies, as well as to the compliance function holder at the Group level.
draw up reports on findings related to individual compliance audits, submitting them to the company's management body,
monitors the implementation of the compliance policy, reviewing it periodically and proposing amendments if necessary.

B.4 Internal control system

B.4.1 Internal control system

The purpose of the Group's internal control system is to identify, measure, monitor and manage risks at all levels of operations and includes reporting on risks that the Group or any individual Group company is or may be exposed to in its operations. In addition, the system ensures compliance with the internal rules and meets the requirements of other laws and regulations pertaining to risk management.

It is vital that employees understand the importance of internal controls and are actively involved in the implementation of internal control procedures. Procedures for reporting to the appropriate level of management with regard to potential problems, deviations, non-compliance with the code of conduct or other policy violations or illegal actions are presented to all employees in plain language and are clearly stated in documents available to all employees.

The Group's internal control system is defined in the internal control policy aimed at setting up an effective and reliable system of internal controls. The policy sets out the basic principles, framework of and roles for the Group's system of internal controls as part of the Group's system of corporate governance.

B.4.2 Compliance function

The compliance function at the Group and individual company levels is one of the four key functions constituting the risk management system. As a rule, it is an independent organisational unit, functionally and organisationally separate from other business functions of the company and reports directly to the management board. The parent company's compliance function is organised within the "Office of the management board and compliance" department. Although the compliance function is not organised as an independent organisational unit, it is ensured that the compliance function holder has direct access to the management board at all times. The compliance function holder also has other responsibilities; therefore, relevant internal measures have been taken by the company to avoid potential conflicts of interest for the function holder when in the compliance function holder role.

The compliance function holder is authorised by the management board, and subject to consent by the individual company's supervisory board.

The compliance function, being an internal control function, is part of the second line of defence in the risk management system consisting of three lines of defence. Its main duty is to manage the risks arising from non-compliance with the law.

The chief tasks of the internal audit of individual Group companies are to:

set up a risk-based, permanent and comprehensive supervision of the company's operations aimed at verifying and assessing whether the processes of risk management, control procedures and corporate governance are appropriate and function in such a way as to ensure the achievement of the major goals of the company:
- effective and efficient operation of the company;
- business and financial efficiency, including the safeguarding of assets against loss;
- reliable, timely and transparent internal and external accounting and non-financial reporting; - compliance with laws, other regulations and internal rules;
assess whether the company's information technology supports and furthers the company's strategies and goals;
assess fraud risk and the procedures for their management in the company (while the expertise of a person whose primary task is to identify and investigate cases of fraud is not expected nor required of the internal auditor);
provide consulting services;
carry out other tasks required by law.

The internal audit department of the parent company provides guidance for a unified methodology for all the Group's internal audit departments, coordinates their work and drives the development of a unified methodology of work, supervising the quality of work of internal audit departments across the Sava Insurance Group. Internal audit in the Group follows uniform procedures as laid down by the Standards set out in the internal methodologic instructions on the operation of internal audit departments.

In accordance with the Group's corporate governance policy, the internal audit of the parent company also ensures the inclusion of subsidiary companies in the scope of operations in order to ensure the coverage of key risks at the Group level (also if internal auditing is set up in the subsidiary).

The parent company's internal audit department performs its function at the Group level in several ways:

keeping up with novelties and changes in the legislation and Standards, and ensuring that changes are incorporated into internal acts governing internal audit;
providing expert assistance for amending the methodology and other policies in the field of internal auditing;
coordinating the preparation of internal audit department annual work plans and strategies of operation in the form of joint workshops;
performing internal audits in subsidiaries based on assessed key risks of the Group;
collaborating in complex audit engagements in subsidiaries if so agreed with the subsidiary;
providing joint training to the Group's internal auditors;
organising periodic meetings of the Group's internal auditors;
implementing quality assessments of subsidiary internal audit departments.

Internal auditors of the parent company may perform independent audits in Group subsidiaries or non-standard audits on the basis of risks as assessed by the parent company at the Group level, or participate in certain more complex audit engagements in subsidiaries. The annual plan of the parent company includes proposals of audit engagements based on key Group risks to be performed by the internal audit in any subsidiary.

The internal audit annual report of the parent company provides an overview of the findings of the internal audit functions of each individual company.

B.5 Internal audit function

Internal auditing in the Group companies is carried out by independent organisational units, which report to the management board and are functionally and organisationally separate from other organisational units. Their organisational position ensures autonomy and independence of operation.

In accordance with article 171(7) of the Insurance Act (ZZavar-1; Official Gazette of the Republic of Slovenia, no. 93/15), Sava Re d.d. signed an outsourcing contract with Zavarovalnica Sava d.d. and Sava Pokojninska Družba d.d. under which the performance of the internal audit key function was transferred to Sava Re d.d. as of 1 February 2018 for an indefinite period of time.

The internal audit is part of the internal control system of the company that ensures independent, regular and comprehensive review and assessment of the adequacy of the company's governance, risk management and control procedures.

The internal audit function, being an internal control function, is part of the third line of defence of the risk management system.

Internal audit conducts internal audit reviews in accordance with the hierarchy of rules of internal auditing adopted by the Slovenian Institute of Auditors on the basis of the law governing auditing and written rules of the internal audit function. The internal audit function operates in accordance with the adopted internal audit policy, which defines the purpose, powers, responsibilities and tasks of the internal audit function.

The internal audit function holder of the company Sava Re and the Group is appointed by the Sava Re management board with the consent of the supervisory board upon the prior opinion of the audit committee, and also serves as the director of the internal audit department.

The director of the internal audit service must hold the title of Certified Internal Auditor. More detailed conditions for the performance of the function are set out in each individual company's fit and proper policy.

Internal audit performs control activities. This, however, does not relieve supervisory and management bodies of their responsibility to establish and ensure efficient and effective corporate governance, risk management and control procedures (optimum management of business risk and compliance of business operations with laws, regulatory provisions and internal rules).

The internal audit function reports to the level of management that allows internal audit to discharge its role. Internal audit reports directly (verbally and in writing) to the management board, the audit committee and the supervisory board on all matters associated with the content of internal auditing.

The internal audit function annually submits – to the management and supervisory boards, including its audit committee – its annual work plan and annual report on its activities. The annual report includes a note on the compliance with its code of ethics and a declaration on the disclosure and avoidance of conflicts of interest for the reporting year. The internal audit function must confirm to the supervisory body, at least annually, the organisational independence of the internal audit as part of its annual reporting on the activities of the internal audit.

The chief tasks of the Group's actuarial function are to:

carry out the above tasks as appropriate at the Group level, summarising and coordinating the findings of individual companies' actuarial functions;
express an opinion on the adequacy of the reinsurance arrangements of the Group as a whole;
prepare and submit, at least annually, a written report for the management and supervisory boards of the parent company; the report documents the implementation of the above tasks and their results, clearly identifying any weaknesses and providing recommendations for their elimination;
coordinate the activities of individual companies' actuarial functions in order to enable the overall functioning of the Group's actuarial function;
provide support to individual Group companies' actuarial functions;
harmonise the underwriting and reserving risk guidelines laid down in the Group's underwriting and reserving risk policy;
organise meetings of the Group's actuarial committee;
serve on the Group's risk management committee.

In accordance with the risk management policy, the actuarial function actively cooperates in setting up and implementing the risk management system as part of the second line of defence.

B.6 Actuarial function

The actuarial function is an administrative concept comprising all the persons performing actuarial tasks of the second line of defence as detailed below. Actuarial function performers are employed in the areas of the actuarial function in actuarial departments of Group companies. They also perform first-line-of-defence actuarial tasks. As the actuarial function is part of the second line of defence of the risk management system, it is organised in a way that prevents any one person from both performing (first line) and controlling (second line) the same tasks.

The company's actuarial function holder is responsible for carrying out the actuarial function. Composite insurers and the Group may appoint separate actuarial function holders for non-life, life and health insurance business. The Group's actuarial function coordinates the activities of the Sava Insurance Group's actuarial function and is responsible for the development of a uniform methodology. The parent company's actuarial function holder also performs the role of the Groups' actuarial function holder for non-life business.

The actuarial function holders of Group members serve on the Group's actuarial committee. Among other things, this committee adopts decisions in the form of proposals and recommendations for the management board of Sava Re, other key functions of the Group and the Group's risk management committee, which are implemented in line with the rules of procedures appended to the Group's actuarial function policy. The members of the actuarial committee are tasked with communicating information about relevant arrangements to relevant parts of the company.

The chief tasks of the actuarial function of each individual Group company are to:

coordinate the calculation of technical provisions and ensure their consistency with applicable regulations;
ensure the appropriateness of the methodologies, underlying models and assumptions made in the calculation of technical provisions so that they reflect key risks and are sufficiently stable;
assess the sufficiency and quality of the data used in the calculation of technical provisions and provide recommendations on how to best adapt processes in order to improve data quality;
compare best estimates of SII provisions against experience and, in the event of any deviation, suggest changes to the assumptions and valuation models used;
oversee the use of approximations in the calculation of best estimate Solvency II provisions;
examine the appropriateness of the underwriting policy and express an opinion on the adequacy of insurance premiums, taking into account all underlying risks and effects of changes in the portfolio, options and guarantees, anti-selection, inflation and legal risks;
verify the adequacy of reinsurance arrangements;
participate in the introduction and implementation of the risk-management system, in particular with respect to the development, use and monitoring of adequacy of the models underlying the calculation of capital requirements and the conduct of the ORSA;
prepare, at least annually, a written report to be submitted to the management and supervisory bodies, and the local supervisory authority; the report documents the implementation of the above tasks and their results, clearly identifying any weaknesses and providing recommendations for their elimination;

B.8 Any other information

The Sava Insurance Group has in place a transparent and appropriate risk-based governance system.

The Group's governance policy sets out the main guidelines for the governance of individual Group companies, as well as the control and supervision of Group companies, taking into account the Group's goals, mission, vision and values. The purpose of the policy is to define the foundation of the Group's system of governance, the basic management rules, rules of corporate governance and a transparent organisational structure with transparent and clear allocation and segregation of roles and responsibilities. Corporate governance is a combination of processes and frameworks used by the management and supervisory boards, including supervisory board committees, for communicating, directing, controlling and monitoring a company's operations in order to achieve the company's goals. The policy was last reviewed and amended in March 2019.

The rules of the Group governance system are subject to regular annual review. This review is the responsibility of the Group's compliance function, which in cooperation with the Group's internal audit function verifies the consistency of the governance policy with other policies within the governance system and with other internal acts, legislation and regulations. When verifying and assessing the effectiveness of the corporate governance framework, the reviewer focuses on the changes in internal and external factors affecting the Group.

The report of the internal audit department on the audit review of corporate governance carried out in December 2017 and January 2018 also supports the position that the Group has in place an adequate system of governance. Based on its review of the implementation status of recommendations issued following the 2016 corporate governance audit, the internal audit department assessed the adjustment of the corporate governance system as good because in its follow-up audit it found that the corporate governance system, to the extent reviewed, was largely compliant with the Slovenian Companies Act ZGD-1, the Insurance Act ZZavar-1, including implementing acts, and other Solvency II requirements. The system provides for clear segregation of duties in all areas of governance of the Group and its individual companies.

B.7 Outsourcing

The outsourcing of business or functions is the contracting out of work related to the business of insurance or an important or key business function or activity of any Sava Insurance Group company otherwise carried out by the company as part of its licensed activities.

In accordance with the provisions of the applicable Insurance Act, the parent company adopted an outsourcing policy that governs the outsourcing of the Group's critical or important operational functions or activities. The policy defines the framework for the outsourcing of critical or important operational functions – contracts on outsourcing in general, when they might be entered into, how they should be maintained and documented, and how to ensure compliance with the applicable outsourcing guidelines. The policy outlines the steps and responsibilities in the process of outsourcing of functions or activities, defining the standards of management and control of such a process. The policy further defines the registering of outsourced operations comprising all contracts considered as outsourced and defines how to document the whole decision-making process, collect the necessary documents and the signing of such contracts. The policy states that each outsourced operation must have an administrator, whose main responsibility is to oversee the outsourced function or activity. By signing the contract, all providers of outsourced services undertake to act in accordance with the applicable law and cooperate with the local supervisor. The company must notify the local regulator of its intention to outsource an operation before entering into the relevant contract.

Each individual Group company is fully responsible for its outsourced functions or activities since its liability to third parties is not transferable to service providers or other contractors. Before deciding on the assignment or outsourcing of any task or function, each Group company must assess and document the impact that such outsourcing of tasks or functions will have, ensuring regular conduct of this process in the future. Contracts for the outsourcing of business or functions may only be entered by Group company in compliance with statutory requirements.

In 2018, individual Group companies had no outsourcing arrangements with non-Group providers.

In 2018, the Group entered into one intra-Group outsourcing arrangement. As of 1 February 2018, the performance of the internal audit key function of Zavarovalnica Sava and Sava Pokojninska Družba was transferred to Sava Re for an indefinite period.

Information on outsourced business or functions of Group members after the reporting date

After the reporting date, two more outsourcing arrangement were agreed. As of 1 February 2019, the information technology function of Sava Pokojninska Družba has been outsourced to Zavarovalnica Sava for an indefinite period. As of 1 March 2019, Zavarovalnica Sava has outsourced activities relating to the handling of claims to occur during the permitted direct conduct of insurance business in the United Kingdom to the company WNS ASSISTANCE LIMITED, Acre House, 11/15 William Road, London, NW1 3ER, UK.

C.1 Underwriting risk

Underwriting risk arises from the Group's (re)insurance activities, i.e. the underwriting of (re)insurance contracts, and execution of insurance contracts and transactions directly related to insurance activities. It relates to the risks covered under (re)insurance contracts and associated processes, and

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In 2018, the risk profile in accordance with the standard formula changed modestly: the percentage of market risk rose slightly and there was also an increase in the percentage of counterparty default risk, while the percentage of non-life underwriting risk declined.

In the course of doing business, the Group is exposed to various types of risks, especially to nonlife underwriting risk and market risk. The chart below shows the Group's risk profile in accordance with the standard formula.

C Group risk profile

⁶ Percentages in the chart relate to the sum total of all risks (including operational risk), while percentages in the text below relate to the sum total of all risks, excluding operational risk (i.e. the sum total of the undiversified basic solvency capital requirement).

Risk exposure

Non-life underwriting risk is divided into:

Premium risk the risk that premiums written are insufficient to meet the obligations arising from (re)insurance contracts. This risk depends on many factors, such as inadequate assessment of market developments, poor assessment of claims development, use of inadequate statistics, intentionally insufficient premiums for certain lines of business expected to be offset by other lines of business, or inadequate assessment of external macroeconomic factors that may change significantly during the term of a contract. These include:
- underwriting process risk,
- product design risk, and
- risk of unexpected increase in claims.

Given the Group's portfolio composition, motor vehicle and property insurance, as well as proportional and non-proportional property reinsurance contribute the most to premium risk.

Reserve risk the risk that either technical provisions are insufficient to meet the obligations arising from (re)insurance contracts due to inadequate methods, inappropriate, incomplete and inaccurate data, inefficient procedures and controls or inadequate expert judgement, or misreporting, resulting in unreliable information about a company's financial position. These include:
- the risk of data availability and accuracy,
- the risk of adequacy of methods and assumptions used,
- the risk of a calculation error,
- the risk of complex tools used in processes yielding misleading results.

Similar to premium risk, the bulk of reserve risk arises from motor and property business for which the best estimate provisions are also structurally the most important owing to the Group's traditional focus on such business.

Catastrophe risk is the risk of an occurrence of a catastrophic event; such events are rare but their financial impact is too high to be covered merely by otherwise adequate premiums and provisions. Catastrophe risk may materialise in the case of extreme events or a large number of catastrophic events in a short period. The risk also includes an excessive geographical accumulation of risks. The Group's portfolio is geographically relatively well diversified, with risks being slightly more concentrated in Slovenia, which is further addressed by means of the retrocession programme. The capital requirement is relatively high because of the aggregation of a large number of such requirements for various smaller natural perils and regions and various man-made catastrophic events.
Lapse risk the risk of loss or adverse change in the value of insurance liabilities resulting from changes in the level or volatility of lapse rates. The Group is not materially exposed to this type of risk.

Other risks, such as economic environment risk and policyholder behaviour risk, may be relevant, but their effect is already indirectly accounted for in the above non-life underwriting risk.

C.1.1 Non-life underwriting risk

The chart below shows net non-life premiums earned by material line of business. The breakdown of the Group's net non-life premiums earned in 2018 did not change significantly.

Non-life underwriting risk is measured quantitatively, also as part of the ORSA, where premium and reserve risk is currently measured using Undertaking-Specific Parameters (hereinafter: "USP") the calculation for the Group uses weighted USP averages of individual Group companies. Also as part of the Group ORSA, we calculated capital requirements for storm and hail risks in Slovenia, which are not included in the standard formula, and adjusted the assessment for man-made fire catastrophe risk by using probable maximum loss figures within a 200-meter radius instead of sums insured.

In addition to said quantitative risk measurement, individual Group companies monitor their exposures to non-life underwriting risk quarterly, using various risk indicators. This information allows Group companies and the Group to promptly detect any changes, which in turn allows management to take action in a timely manner.

Risk concentration

The chart below shows a breakdown of net premiums earned relating to fire and other damage to property business, and to proportional and non-proportional property reinsurance business by region. It shows that the Group sources more premiums from Southern Europe, where the Group's direct insurance companies operate; Exposure to Slovenia is predominant. The diversification remains similar as in the previous year.

Net premiums earned relating to property (re)insurance

In terms of exposure in Slovenia, the highest portfolio concentration is in Styria (north-east Slovenia) and in Lower Carniola (south-east Slovenia).

Risk measurement

For the quantitative assessment of non-life underwriting risk, the Group uses the Solvency II standard formula. It does not apply Group-specific parameters. According to this formula, the Group was exposed to non-life underwriting risk in the amount of EUR 141.4 million as at 31 December 2018 (31/12/2017: EUR 142.4 million). The capital requirement for non-life underwriting risk represented 48.2% of the undiversified basic solvency capital requirement of the Group (31/12/2017: 52.2%). Premium and reserve risks, followed by catastrophe risk, represented the largest portion of the undiversified non-life underwriting risk. Lapse risk for non-life business was relatively low.

Non-life underwriting risk by risk sub-module

(EUR thousand)	31/12/2018	31/12/2017
Non-life underwriting risk	141,399	142,437
Diversification	–41,993	–45,446
Premium and reserve risk	110,051	106,905
Lapse risk	8,274	10,414
Catastrophe risk	65,067	70,564

Undiversified non-life underwriting risk by risk sub-module

31 December 2018 31 December 2017

Premium risk

The Group seeks to mitigate underwriting process risk by restricting authorisations for mass underwriting, as well as by means of additional training of underwriters and agents, by providing understandable, clear and detailed instructions, and by defining appropriate underwriting limits that are consistent with the business strategy, the risk strategy and the reinsurance programme. In addition, we make special efforts to offer products to appropriate target clients (to prevent mis-selling and/or adverse selection), to accept reinsurance from trusted cedants, and to ensure that appropriate limits are in place for exposure concentration by geographical location and homogeneous risk groups, which maintain favourable risk diversification. Another underwriting process risk is PML error (inaccurate assessment of the Probable Maximum Loss, PML). In order to mitigate this risk, the Group has in place guidelines for PML assessment, requirements that PML assessments are a team exercise, and ensures that the retrocession programme covers PML error.

The Group seeks to mitigate product design risk before launching a product by making in-depth market analyses, keeping informed (media, competitors, clients), monitoring applicable regulations and associated requirements, and monitoring historical claim trends (for the entire market) and forecasts. In accepted reinsurance underwriting, it is important to know the market and to verify how reliable partners are. The reinsurer may also use special clauses in accepted reinsurance contracts to limit performance volatility, e.g. a sliding scale commission and profit commission, and loss ratio limitations.

The Group mitigates claims risk through in-depth assessments of underwriting process risk, by restricting the authorisations in the underwriting process, and by developing IT support that allows an accurate overview of claims accumulation. For accepted reinsurance, this risk, too, can be managed by means of special clauses in proportional reinsurance contracts, which limit the reinsurer's share of unexpected claims, and by not accepting unlimited layers under non-proportional contracts. Also central to reducing this risk is the annual testing of the appropriateness of reinsurance protection using a variety of stress tests and scenarios, and setting appropriate retentions.

Risk management

The Group manages underwriting risk through:

established underwriting processes, comprising procedures and an authorisation system for the underwriting of (re)insurance contracts with higher sums insured, and a process for the underwriting of (re)insurance contracts in accordance with internal underwriting guidelines for facultative underwriting for high exposures;
underwriting limits;
geographical diversification;
an appropriate actuarial pricing policy applied in product design and controlling; and
an appropriate reinsurance (retrocession) programme.

The Group does not use special purpose vehicles (SPV) or hedging techniques to mitigate its underwriting risk.

In addition to the above, the Group analyses the impact of various stress tests on the level of risk. In the calculation as at 31 December 2018, we tested the impact of a 10% increase in the volume measure for the premium risk of non-life and NSLT health insurance on the level of premium and reserving risk and the overall SCR. A 10% increase in the premium volume measure would result in a 6.4% increase in the premium and reserving risk of non-life insurance (31/12/2017: 6.3%) and a 7.6% increase in the premium and reserving risk of NSLT health insurance (31/12/2017: 7.6%). The increase in the Group's overall SCR is below the materiality threshold7 and hence does not materially affect the Group's solvency.

We also analysed the impact of a 10% increase in the volume measure for the reserving risk of non-life and NSLT health insurance on the level of premium and reserving risk and the overall SCR. A 10% increase in the provision volume measure would result in a 3.6% increase in the premium and reserving risk of non-life insurance (31/12/2017: 3.7%) and a 2.4% increase in the premium and reserving risk of NSLT health insurance (31/12/2017: 2.4%). The increase in the overall SCR is below the materiality threshold; thus the stress test does not affect the Group's solvency.

The sections below explain risk management in greater detail by each non-life underwriting risk.

⁷ The materiality threshold is a Group-internal measure linked to the level of the Group's eligible own funds and solvency capital requirement. As at 31 December 2018, it was set at EUR 10 million at the Group level.

Lapse risk

It is estimated that lapse risk is less important for the Group, as the vast majority of non-life insurance policies is written for one year and cannot be terminated early without the insurer's consent (except in case of premium default or if the subject-matter of the insurance policy is no longer owned by the policyholder or has been destroyed due to a loss event). The majority of accepted reinsurance contracts is also written for a period of one year. The risk associated with these contracts is also mitigated by nurturing good business relations with cedants and by closely analysing the market situation.

Catastrophe risk

The Group manages catastrophe risk by means of a well-designed underwriting process, by controlling risk concentration for products covering larger complexes against natural disasters and fire, by geographical diversification, and by adequate retrocession protection against natural and man-made catastrophes.

To protect against natural catastrophes, the Group has in place a catastrophe excess-of-loss coverage to protect its retention, separately for intra- and extra-Group accepted reinsurance. Before the non-proportional protection is triggered, the Slovenian portfolio is protected by proportional covers: a surplus cover providing protection at the level of individual risks (including PML error), and an earthquake quota share cover. This means that if a major event occurs, the Group will suffer a loss equal, at most, to the amount of the priority of the catastrophe excessof-loss cover plus reinstatement premium. If the Group makes additional use of the coverage, it is subject to provisions concerning reinstatements, meaning that it would purchase protection for the remaining period of cover. This is a common instrument available in the international reinsurance market at a price that is usually lower than the original cover due to the shorter coverage period. The portfolio is further protected against the risk of a larger frequency of natural catastrophes in Slovenia by an aggregate cover; therefore, if several events exceed the Group's priority in a year, the Group will suffer a loss lower than the sum of the priorities. The extra-Group portfolio is additionally insured through a sublimit in case of a higher catastrophe frequency. It ensures that the Group remains solvent even if several catastrophic events occur in one single year.

The Group periodically analyses scenarios and their impact on its operations and solvency position. We selected scenarios based on the own risk profile, striving to identify events with a potentially maximum impact on the operations and capital adequacy, and taking into account their probability of occurrence. In the 2019 ORSA we decided to test the impact of an earthquake in Slovenia with a return period of one thousand years in a single year along with the default of the lead retrocessionaire. While this scenario would significantly reduce the solvency ratio, the Group's capitalisation would remain within the range of optimal capitalisation as defined in the risk strategy thanks to reinsurance coverage for such events. We are aware that such an event would have a number of other direct effects on the business, which is why the Group also manages such risks through the design of business continuity plans, which include modes and measures for operating in emergency situations.

Reserve risk

The Group manages reserve risk by means of robust processes and effective controls as regards the calculation of technical provisions both in accordance with IFRS and Solvency II regulations. In addition, it conducts annual backtesting of the appropriateness of technical provisions, analysing any major reasons for their insufficiency. All experience so gained is then used in the calculation of future technical provisions.

By documenting and understanding such a process, the Group can identify and describe potential risks, such as the:

risk of data availability and accuracy,
risk of adequacy of methods and assumptions used,
risk of a calculation error,
risk associated with supporting IT systems and tools.

Controls are put in place for the mitigation of each identified risk. These controls ensure data quality and mitigate the risks associated with the calculation of technical provisions. The design and operational effectiveness of controls are reviewed at least annually and whenever a significant change occurs in the process or methods and models used to calculate technical provisions.

Such controls include:

reconciliation of technical provision items with accounting records,
peer review of actuarial methods and assumptions,
changes to management controls relating to the IT tools used in the process,
actuarial review and approval of the level of technical provisions.

The process by which technical provisions are calculated is subject to periodic approval. Where substantial changes have been made to the process, the methodology or models used in the calculation of technical provisions, a validation is carried out in accordance with the reporting schedule.

Key exposures are related to lapse risk, mortality risk and life expense risk. Other risks are smaller and hence not discussed in detail.

Lapse risk is the risk of an increase or decrease in lapse rates (rate of early termination of contracts) due to surrenders, conversions to paid-up status, or premium default. Risk levels depend on the use of adequate statistics, identification of terminations for various reasons in an underwriting year, and economic situation, which, to a certain extent, affect the behaviour of policyholders. Risk levels also depend on competitive insurance products available in the market, and advice provided by insurance intermediaries and financial advisers.

Mortality risk is the risk that the actual mortality of insured persons will turn out to be greater than projected in mortality tables used during premium pricing. Risk levels depend on the use of adequate statistics and identification of insured persons with an increased mortality risk due to health reasons or a risky lifestyle.

Life-expense risk is the risk that the actual expenses incurred in servicing life insurance contracts turn out to be greater than projected in pricing. Risk levels depend on the use of appropriate statistics, and an increase in the actual expenses incurred in servicing life insurance contracts.

Risk measurement

The Group makes quantitative assessments of life underwriting risk using the Solvency II standard formula. According to this formula, the Group was exposed to life underwriting risk in the amount of EUR 43.7 million as at 31 December 2018 (31/12/2017: EUR 40.2 million). The capital requirement for life underwriting risk represented 14.9% (31/12/2017: 14.7%) of the Group's undiversified basic solvency capital requirement.

Lapse risk, specifically mass lapse risk, represented the largest part of the undiversified life underwriting risk. Mortality risk and expense risk are also significant, while other risks are rather small. A comparison of risks is provided in the below breakdown of undiversified risk by risk sub-module.

As we believe that our own risk profile for life business does not deviate significantly from the underlying assumptions in the standard formula, we apply the same treatment to life underwriting risks in the ORSA as in the standard formula.

C.1.2 Life underwriting risk

The main life underwriting risks are:

biometric risks, which are divided into:
mortality risk,
longevity risk
disability-morbidity risk,
life expense risk,
revision risk,
lapse risk, being the risk of early termination of life insurance contracts, includes terminations due to surrenders, conversion to paid-up status, and premium default,
life catastrophe risk.

Risk exposure

The Group is moderately exposed to life underwriting risk. The life insurance portfolio includes traditional life insurance products and life insurance products where the investment risk is borne by policyholders. The Group's main exposure is to the European Union. The breakdown of the Group's net life premiums earned in 2018 did not change significantly.

Net premiums earned by material line of business

Index-linked or unit-linked insurance

Other life insurance

Risk concentration

There is no significant concentration of life underwriting risk at the Group level, as the portfolio is well-diversified in terms of the age of the insured persons, the remaining period of insurance, exposures (of sums insured and sums at risk), and premium payment schedule. The portfolio is also diversified in terms of the percentage of policies lapsed in a period, expenses and mortality, and morbidity rates by product.

Risk management

The Group manages lapse risk mainly by means of quarterly monitoring of the number and percentage of policies lapsed, by restricting surrenders if an approval by the insurer is required, and by the systematic prevention of insurance rearrangements by intermediaries.

The procedures used to manage mortality risk are: consistent application of underwriting protocols, which specify in detail the deviation from normal mortality risk, regular monitoring of exposures and adequacy of mortality tables used, and appropriate reinsurance protection. To assess and assume life insurance risks, the Group uses a single web-based tool.

Life-expense risk is managed by the Group by periodic monitoring of the expenses incurred in servicing life insurance contracts, monitoring the macroeconomic situation (e.g. inflation), and appropriately planning the servicing of expenses for the coming years.

Life underwriting risks are also managed by periodically monitoring the life portfolio composition, exposures, premium payment patterns, lapse rates and expenses incurred, as well as by analysing the appropriateness of the modelling of the expected mortality and morbidity, and lapse rates. The information so obtained allows for timely action in the case of adverse developments in these indicators.

Life underwriting risk by risk sub-module

(EUR thousand)	31/12/2018	31/12/2017
Life underwriting risk	43,695	40,210
Diversification	–12,072	–12,383
Mortality risk	5,270	6,362
Longevity risk	526	828
Disability-morbidity risk	2,135	1,722
Expense risk	7,466	7,033
Revision risk	565	503
Lapse risk	37,737	34,261
Catastrophe risk	2,070	1,884

Undiversified life underwriting risk by risk sub-module

Health underwriting risk by risk sub-module

(EUR thousand)	31/12/2018	31/12/2017
Health underwriting risk	25,859	23,934
Diversification	–3,783	–3,379
SLT health underwriting risk	1,615	791
NSLT health underwriting risk	23,450	21,956
Catastrophe risk	4,577	4,565

Undiversified health underwriting risk by risk sub-module

C.1.3 Health underwriting risk

Health underwriting risk includes:

health underwriting risks pursued on a similar technical basis as non-life insurance (hereinafter: NSLT health business);
health underwriting risks pursued on a similar technical basis as life insurance (hereinafter: SLT health business).

The Group is exposed to both types of health underwriting risk. The majority of the exposure relates to accident insurance, which is classified as NSLT health insurance, while the exposure to SLT health insurance is small.

NSLT health underwriting risks are by their nature very similar to non-life underwriting risks, which are discussed in greater detail in section C.1.1 of this report, and are as such managed by the Group using similar techniques, i.e. by means of a well-designed underwriting process, the control of risk concentration for accident and health insurance products, and an adequate reinsurance protection.

SLT health underwriting risks are by their nature very similar to life underwriting risks, and are therefore managed by the Group using similar techniques. Life underwriting risks are discussed in greater detail in section C.1.2.

For the quantitative assessment of health underwriting risk, the Group uses the Solvency II standard formula. According to this formula, the exposure to life underwriting risk totalled EUR 25.9 million as at 31 December 2018 (31/12/2017: EUR 23.9 million) or 8.8% (31/12/2017: 8.8%) of the Group's undiversified basic solvency capital requirement. The level of risk in accordance with the standard formula is roughly the same as at 31 December 2017; there was only an increase in SLT health underwriting risk.

The majority of this requirement was associated with NSLT health underwriting risk, notably premium and reserve risk. Like non-life underwriting risk, this risk, too, is not optimally evaluated by the standard formula, which is why we used USP in the ORSA.

31/2/2018	31/12/2017
25,859	23,934
-3,783	-3,379
1,615	791
23,450	21,956
4,577	4,565

C.2.1 Risk exposure

As at the date of this report, the Group had the following composition of assets that affect its exposure to market risk.

Composition of investments included in the calculation of market risk (Solvency II valuation)8

31/12/2018	Structure as at 31/12/2018	31/12/2017	Structure as at 31/12/2017

978,652	80.4%	1,023,284	83.9%
583,208	47.9%	602,511	49.4%
395,444	32.5%	420,773	34.5%
0	0.0%	0	0.0%
39,924	3.3%	34,009	2.8%
27,864	2.3%	36,071	3.0%
44,024	3.6%	25,835	2.1%
28,365	2.3%	8,353	0.7%
13,346	1.1%	13,237	1.1%
2,313	0.2%	4,245	0.3%
64,906	5.3%	58,183	4.8%
43,430	3.6%	42,187	3.5%
21,477	1.8%	15,996	1.3%
6,275	0.5%	5,832	0.5%
55,518	4.6%	35,736	2.9%
1,217,164	100.0%	1,218,952	100.0%

The value of assets included in the calculation of market risks was EUR 1,217.2 million as at 31 December 2018 (31/12/2017: EUR 1,219.0 million). Their composition shows that the bulk of the Group's financial investments consists of fixed-income financial instruments.

In addition to these investments, investments of policyholders who bear the investment risk of EUR 133.3 million (31/12/2017: EUR 144.7 million) and the related obligations under these contracts were also included in the calculation. These have a significant impact on the level of capital requirements.

The predominance of fixed-income financial instruments reflects the Group's policy that defines asset and liability matching as one of the main objectives of investment management.

The Group's investment portfolio shows a relatively high exposure to interest rate and credit risk.

C.2 Market risk

Market risk is the risk of loss or adverse change in the financial situation resulting, directly or indirectly, from fluctuations in the level and in the volatility of market prices of assets, liabilities and financial instruments.

To systematically address material market risks, the Group adopted an asset and liability management policy and an investment risk management policy. Market risks are monitored at the individual Group company and Group levels.

Market risks include the following:

Interest rate risk is the risk of a change in market interest rates adversely affecting the value of interest-rate-sensitive assets and liabilities. Interest-rate-sensitive investments include bonds, deposits and loans. When calculating capital requirements for interest rate risk, the amount of interest-rate-sensitive assets is considered on the assets side, while the best estimate technical provisions, subordinated debt and employee provisions are considered on the liabilities side.
Equity risk is the risk of a fall in the level of equity prices resulting in a fall in the value of equities. The exposure to this risk arises from equity investments and investments in equity and mixed mutual funds. On the liabilities side, the exposure arises from life insurance obligations where policyholders bear the investment risk.
Property risk is the risk of a fall in the value of property due to changes in the level and volatility of property prices.
Currency risk is the risk of a drop in the value of assets or increase in the level of liabilities due to changes in the level of currency exchange rates.
Spread risk is the risk of the sensitivity of the values of assets and financial instruments to changes in the level or in the volatility of credit spreads over the risk-free interest rate term structure.
Market concentration risk is the risk of a suboptimal diversification of the asset portfolio or of an increased exposure to the default of a single counterparty or group of counterparties.

⁸ Overview of the basic investment portfolio (does not consider the look-through approach).

Interest rate risk accounted for 7% of the total undiversified capital requirement for market risks. Interest-rate-sensitive investments include bonds, deposits and loans. On the liabilities side, interest-rate-sensitive liabilities mainly include technical provisions of longer maturities, especially those supporting life insurance obligations. Compared to 31 December 2017, interest rate risk increased due to effects associated with the standard formula methodology.
Equity risk accounts for 15% of the total undiversified market risk and remained largely unchanged year on year. Capital requirements arise partly from portfolio investments and partly from the mutual-fund investments that the Group holds to match the liabilities under life insurance contracts in which policyholders bear the investment risk. The Group matches the assets and liabilities of such policies with the amount of technical provisions pursuant to IFRSs. Due to the Solvency II valuation of obligations arising from such insurance contracts, the shock has a different impact on the amount of assets and liabilities, reflected in the calculation of equity risk as a mismatch of assets and liabilities, which can in turn lead to an additional capital requirement. The changed treatment of the fair value reserve relating to life policies resulted in a higher capital requirement, while the look-through approach works in the opposite direction.

31 December 2018 31 December 2017

C.2.2 Measurement and concentration of market risks

The Group conducts the quantitative assessment of market risk using the Solvency II standard formula as well as its own risk assessment. The look-through approach was used in the calculation of market risk as at 31 December 2018.

The solvency capital requirement for market risk that the Group calculated using the standard formula amounted to EUR 60.4 million as at 31 December 2018 (31/12/2017: EUR 51.7 million) or 20.6% of the total undiversified basic solvency capital requirement (31/12/2017: 19.0%). The rise in the solvency capital requirement for market risk in 2018 is largely the result of spread risk and larger interest rate risk.

The split of market risk did not change significantly in 2018. Market risks were dominated by spread risk and property risk.

Market risks by risk sub-module

(EUR thousand)	31/12/2018	31/12/2017
Market risk	60,439	51,671
Diversification	–20,635	–18,290
Interest rate risk	5,728	1,817
Equity risk	12,616	11,113
Property risk	16,227	14,546
Spread risk	33,063	26,417
Currency risk	13,440	13,782
Market concentration risk	0	2,286

C.2.3 Risk management

The framework for market risk management is set out in the Sava Insurance Group's asset and liability management policy and investment risk management policy. Specifically, the two policies define the following:

the basic investment guidelines,
measures to be used in the monitoring of investment performance,
measures to be used in the monitoring of investment risks,
persons responsible in the investment process.

The Group's framework for market risk management has been appropriately transferred to and is being used by each Group company.

In the management and monitoring of market risks, the Group takes account of the following:

its risk appetite as set out in the risk strategy,
operational limits for financial investments,
performance and risk measures relating to investments and liabilities.

The Group manages the risks arising from the financial investments portfolio by regularly monitoring and analysing issuers' financial data, by monitoring the market prices of financial instruments, and by regularly analysing asset and liability management.

The Group companies address any asset and liability mismatch by means of adjustments and hedging, and – if practicable and cost efficient – by adjusting assets to liability cash flows. Group companies do not use derivative financial instruments for asset and liability matching.

The Group manages equity risk through the diversification of this investment portfolio segment to various capital markets and a limit system that limits the exposure to equities.

Currency mismatches are managed at the individual Group company level through currency overlay and based on IFRS liabilities. The monitoring and management of currency risk is presented in greater detail in the Group's annual report, in the "Currency risk" section (section 17.6.3.2.4).

To avoid concentration of investments by investment type, issuer, industry, and other similar concentrations, Group companies ensure that their investment portfolios are diversified within the possibilities of their respective capital markets and legal frameworks, in accordance with local insurance regulations and their own internal rules. To avoid risk concentration at the Group level, additional Group-level limits are set by issuer, industry and credit rating. The Group thus prevents large concentrations within the investment portfolio, and limits the risk. The Group's portfolio, broken down by these parameters and by rating, is shown in its annual report, in section 17.6.3.4.

• Property risk. The allocation to investment property within the investment portfolios of Group companies is limited by the limits system and is therefore relatively small also at the Group level. The risk mainly relates to property held for own use. Due to the high capital charge for property risk used in the standard formula, this risk represented 20% of total undiversified market risk, despite the small exposure.
Currency risk represented 17% of the undiversified market risk. Both assets and liabilities are exposed to this risk. The Group's exposure to currency risk arises mainly from the reinsurance business of Sava Re, from Group companies established outside the euro area and the lookthrough approach. Notwithstanding the high degree of currency matching between IFRS assets and liabilities, there is a minor currency mismatch under Solvency II due to differences in the valuation of technical provisions under IFRS and Solvency II, and capital of Group companies not denominated in euros. As at 31 December 2017, the decreased share compared to market risk is mainly the result of the application of the look-through approach.
Spread risk is the largest market risk, accounting for 41% of the total undiversified capital requirement for market risk. This is due to the Group's relatively large exposure to corporate bonds and deposits. Compared to 31 December 2017, this risk rose modestly as the result of the changed treatment of the fair value reserve relating to life policies and the slightly extended maturity of investments at the Group's insurers.

When assessing the risks associated with the investment portfolio, the Group also regularly monitors other risk and performance measures relating to the investment portfolio:

income volatility,
net investment income and return on investment.

In managing assets and liabilities, the Group and each EU-based Group company calculate the following on a quarterly basis:

risk measures: modified duration, convexity and key rate duration,
estimated future cash flows,
the currency composition of assets and liabilities.

In addition to the standard formula, the Group uses its own risk assessment model (within ORSA) to monitor and assess market risk. Depending on the possibilities of each Group company, the following risks are assessed in the internal model: equity risk, interest rate risk and credit risk. Apart from counterparty default risk, credit risk comprises market concentration risk and spread risk. In accordance with article 180 of the Delegated Regulation, the standard formula assigns a risk factor stress of 0% to certain government bonds, which – given past market behaviour – actually bear a certain level of risk. Accordingly, this is assessed within the internal model, together with other debt securities.

The Group's highest single issuer concentration (as well as the highest regional concentration) arises from the Republic of Slovenia. Aware of these concentrations, the Group actively manages them by reducing the maximum exposure limit set in the internal limit system.

Prudent person principle

The Group makes investment decisions that take into account all investment-related risks, not only risks considered in capital requirements. In the optimisation process, strategic asset allocation is defined based on risk appetite and restrictions imposed by local legislation.

Persons responsible for undertaking investment decisions assume and manage investment risk in line with the guidelines set out in the investment risk management policy, which is designed in accordance with the prudent person principle.

All assets are invested in such a way as to ensure the security, quality, liquidity and profitability of the portfolio as a whole. In addition, these assets are localised to ensure their availability.

Assets held to cover technical provisions are invested in a manner appropriate to the nature and duration of the reinsurance liabilities. These assets are invested in the best interest of all policyholders and beneficiaries.

Each Group company has in place a limit system based on applicable legislation and its risk appetite.

Group companies have in place set exposure limits for specific investment classes and commercial issuers. Exposure to individual commercial and government issuers is monitored at both individual Group company and Group levels. In case of a conflict of interest, each Group company ensures that the investment is made in the best interest of policyholders and beneficiaries.

In addition, the Group carried out three stress tests, applying various parameters that affect the level of the solvency capital requirement for market risk and the level of the company's eligible own funds, and consequently the solvency position.

The first sensitivity test was an increase and decrease in interest rates. We carried out a stress test of interest rate sensitivity by raising and lowering the base curve of the risk-free interest rate for all maturities by 100 basis points. Then, we made a new calculation of eligible own funds and the solvency capital requirement for all interest-rate-sensitive assets and liabilities. An increase in interest rates of 100 basis points would results in a decrease of the Group's eligible own funds and SCR, both by amounts below the Group's materiality threshold9 . The impact of the stress test on the solvency ratio is relatively small and comparable with the calculation of the stress test impact as at 31 December 2017. The stress test envisaging a fall in interest rates of 100 basis points resulted in lower eligible own funds of the Group (still below the Group's materiality threshold) but an increase in the Group's SCR, also below the materiality threshold. The absolute impact on the solvency ratio is relatively small and comparable with the calculation of the impact as at 31 December 2017.

The second is a stress test of a fall in stock prices, specifically a 20% fall in the prices of equity securities as at the reporting date (listed and unlisted equities; equity, bond, money market and mixed mutual funds). We calculated the impact of the stress test on the Group's eligible own funds (we also evaluated the impact of this change on the best estimate provisions, which depend on the amount of investments), but we did not calculate the impact on the SCR. The stress test revealed a decrease in eligible own funds, with the decrease remaining below the materiality threshold, resulting in a very modest impact on the Group's solvency ratio.

The impact of a change in property prices on the Group's solvency position was analysed through a stress test assuming a 25% fall in property prices. The calculation was made using the amount of property as at the reporting date. The stress test mainly resulted in a decline in eligible own funds – a decline slightly above the materiality threshold. In addition, there is a drop in the capital requirements of the property risk and currency risk submodules. Because eligible own funds decline together with the capital requirement, the impact of the stress test on the solvency ratio is minor and similar to that at 31 December 2017.

In addition to sensitivity and stress tests, the Group considered a number of scenarios and their impacts on its operations and solvency position. We selected scenarios based on the own risk profile, striving to identify events with a potentially maximum impact on the operations and capital adequacy, and taking into account their probability of occurrence. We decided to test a financial crisis scenario and analysed a strong deterioration in economic conditions, assuming a change in interest rates, credit risk spreads, and exchange rates. Such a scenario would have an impact on the Group's eligible own funds that would exceed the Group's materiality threshold. This decline in the value of investments would also result in lower capital requirements for market risk and, consequently, a lower Group SCR, which would somewhat alleviate the impact on the solvency position. Despite these impacts, the Group would remain solvent even in such an extreme scenario.

⁹ The materiality threshold is an internal measure associated with the level of eligible own funds and solvency capital requirement. The Group's materiality threshold is EUR 10 million (calculation as at 31 December 2018).

C.3.2 Risk measurement and concentration

The Group makes quantitative assessments of credit risk using the Solvency II standard formula. As mentioned, spread and market concentration risks are assessed within the market risk module, while counterparty default risk is assessed in a separate module. This section shows the results for counterparty default risk, while market risk is discussed in section C.2.

The Group's solvency capital requirement in accordance with the Solvency II standard formula for counterparty default risk amounted to EUR 21.8 million as at 31 December 2018 (31/12/2017: EUR 14.4 million) or 7.4% (31/12/2017: 5.3%) of the Group's total undiversified basic solvency capital requirement. The increase in this risk is mostly the result of the larger solvency capital requirement relating to cash and cash equivalents.

The chart below shows the composition of the counterparty default risk module in accordance with the standard formula.

Counterparty default risk by risk sub-module

(EUR thousand)	31/12/2018	31/12/2017
Counterparty default risk	21,819	14,364
Diversification	–1,130	–917
Counterparty default risk – type 1	16,995	9,645
Counterparty default risk – type 2	5,955	5,636

C.3 Credit risk

Credit risk is the risk of loss or adverse change in the Group's financial position resulting from fluctuations in the credit standing of issuers, counterparties and any debtors to which the Group is exposed.

C.3.1 Credit risk

Credit risk is composed of:

counterparty default risk,
spread risk, and
market concentration risk.

Spread and market concentration risks are discussed and presented within the market risk section in accordance with the risk classification and measurement of the standard formula. Below, we provide details regarding counterparty default risk.

Counterparty default risk relates to losses due to unexpected default or deterioration in the credit standing of counterparties and debtors over the coming 12 months. Counterparty default risk covers risk-mitigating contracts, such as reinsurance arrangements and receivables from intermediaries, as well as any other credit exposures not covered in the spread risk sub-module of the standard formula (cash and cash equivalents and deposits of up to 3 months). Receivables-related credit risk arises from delays in the payment of receivables arising from the Group's primary insurance and accepted reinsurance business, and in the payment of recourse receivables. To avoid such delays, the Group closely monitors policyholders and cedants, and actively collects overdue receivables. Therefore, the Group's exposure to counterparty default risk is low.

31/12/2018	31/12/2017
21.819	14,364
-1,130	-917
16,995	9,645
5,955	5,636

C.3.3 Risk management

To avoid late payments, Group companies closely monitor policyholders, and actively collect overdue unpaid receivables.

Group companies manage the risk associated with reinsurance and co-insurance contract assets by limiting the exposure to any one reinsurer and co-insurer and by entering into contracts with highly-rated partners. Group companies mainly arrange reinsurance directly with the controlling company. Exceptionally, if so required by local regulations, they buy reinsurance from providers of assistance services and local reinsurers. In such cases, local reinsurers transfer the risk to Sava Re, so that the actual exposure to counterparty default risk arising from assets under reinsurance contracts is low.

The Group manages credit risk relating to cash equivalents by means of diversification by banks, whereby individual Group companies set up maximum exposure limits for this type of investment.

The Group monitors and reports on credit risk exposure on a quarterly basis, which ensures timely actions, where needed. Partner credit ratings are also monitored, with a focus on any indications of their possible downgrading. To this end, the Group also has a process in place for checking external ratings.

A credit rating subcommittee has been set up as part of the Group's risk management committee. It is responsible for the assessment of reinsurers, and for reviewing the assessment of the appropriateness of external credit ratings for the purpose of capital requirement calculations under the standard formula.

Type 1 exposure includes exposures related to reinsurance and co-insurance contracts, cash and cash equivalents, and deposits to cedants. Type 2 exposure includes all receivables not included under type 1 exposure other than: pending premium receivables, pending commission receivables, tax assets and deferred tax assets.

In addition to the calculation of the solvency capital requirement in accordance with the standard formula, the Group develops its own model (in ORSA) to assess credit risk relating to financial investments. This model takes account of spread, migration and default risks for all investments in debt instruments. Closely interrelated, these risks are addressed within a single model in the ORSA. As regards counterparty default risk related to reinsurers and co-insurers, we believe that the standard formula appropriately evaluates the risk and, therefore, made no own calculations for this part. The own credit risk calculation also takes account of the diversification effect.

The Group has no significant concentration with counterparty default risk.

C.4.3 Risk management

In order to effectively manage liquidity risk, the Group has adopted a liquidity risk management policy, which sets out the risk management processes, liquidity risk measures, and procedures involved in the event of emergency liquidity needs. Furthermore, it defines liquidity risk as a key risk in its risk strategy. Due to the nature of liquidity risk, the Group does not manage such risk by holding additional capital, but through an appropriate strategy for ensuring sufficient liquidity.

The estimated liquidity requirement of an individual Group company is composed of the estimated normal current liquidity requirement (arising from operations and investment maturity) and a liquidity buffer (estimated based on stress scenarios).

Group companies conduct assessments of normal current liquidity requirements within a period of up to one year based on projected three-month and weekly cash flows, which take account of the planned investment maturity dynamics and of other inflows and outflows from operations by using historical data from previous monthly and weekly liquidity plans and expectations regarding future performance.

Liquidity requirements are met by allocating funds to money market instruments in the percentage consistent with the estimated normal current liquidity requirement. Both the Group's EU-based insurers provide the required assets for covering the assessed liquidity buffer by investing at least 15% of their portfolio in highly liquid assets. Other Group companies use cash in bank accounts and short-term deposits as short-term assets for ensuring liquidity. As at 31 December 2018, the two EU-based Group companies held a level of L1A assets significantly exceeding the 15% set in the risk strategy: Zavarovalnica Sava 38% and Sava Re 25%.

Each Group company also regularly monitors its receivables ageing analysis, assessing any impact on its current liquidity position.

C.4 Liquidity risk

Liquidity risk is the risk that the Group will not have sufficient liquid assets to meet its obligations as they fall due, and will have to sell its less liquid assets at a discount or raise new loans. Liquidity risk should be understood as risk arising from short-term cash flows rather than risk arising from long-term mismatch of assets and liabilities.

C.4.1 Risk exposure

The Group has substantial monetary obligations (mainly to policyholders), and must therefore adequately manage its cash flows, ensuring an appropriate level of liquidity. Group companies carefully plan and monitor realised cash flows (cash inflows and outflows). Furthermore, they regularly monitor the receivables aging analysis, considering the impact of receivables settlement on their current liquidity position.

C.4.2 Risk measurement and concentration

Liquidity risk is difficult to quantify and hence is not covered by the Solvency II standard formula. Therefore, the Group focuses on the periodic monitoring and managing of this risk.

In accordance with their capabilities, Group companies determine their exposures to liquidity risk by implementing, analysing and monitoring these risk measures:

cash in bank accounts,
the percentage of highly-liquid assets10 and the haircut amount in relation of the total amount of financial investments, in accordance with the ECB methodology (or comparable ratio, if established outside the European Union),
liquidity buffer,
the difference between the projected cash outflows and inflows for the next quarter, and the percentage of the liquidity buffer represented by this difference,
any other legally required measures.

The Group is not exposed to a concentration of liquidity risk, but may, due to the nature of the business, in certain cases still face certain emergency liquidity needs.

C.5 Operational risk

Operational risk is the risk of loss arising from inadequate or failed internal processes, personnel or systems, or from external events.

C.5.1 Risk exposure

Operational risks are not among the Group's most significant risks. Nevertheless, some are relatively important, in particular:

risk associated with the computer and communication system,
risk associated with supervision and reporting,
risk of loss of key, expert and high-potential employees,
risk of incorrect data input and inadequate documentation,
risk of damage to physical assets due to natural disaster or fire,
compliance risk relating to laws and regulations,
risk of theft and fraud.

C.5.2 Risk measurement and concentration

The Group calculates its capital requirements for operational risks using the Solvency II standard formula at least once annually. The calculation of operational risk, however, is only of limited practical value as the standard formula is not based on the actual exposure of the Group to operational risk, but on an approximation calculated mainly based on consolidated premiums, provisions and expenses of the Group.

As at 31 December 2018, the solvency capital requirement for market risk pursuant to the standard formula amounted to EUR 16.4 million (31/12/2017: EUR 15.4 million) and did not change significantly compared to 31 December 2017.

Due to the limited application of the standard formula, the Group assesses operational risks qualitatively in the risk register, assessing their frequency and potential financial impact, while the EU-based insurers additionally use scenario analysis. Through regular risk assessments, the Group companies obtain insight into the actual level of their exposure to such risks. In addition to risk registers of individual Group companies, there is also one at the Group level, containing the risks arising at the Group level or those which, at the Group level, do not equal the sum total of risks of individual Group companies. Risks are assessed in the same way as at the individual Group company level.

The Group is not exposed to any significant concentrations of operational risk.

Expected profits included in future premiums

Expected profits included in future premiums (hereinafter: EPIFP) that the Group, in accordance with article 260(2) of the Delegated Regulation, calculated as the difference between technical provisions without a risk margin calculated in accordance with Solvency II and a calculation of the technical provisions without a risk margin under the assumption that the premiums relating to existing insurance and reinsurance contracts that are expected to be received in the future are not received for any reason other than the insured event having occurred, regardless of the legal or contractual rights of the policyholder to discontinue the policy. In the latter calculation, a 100% rate of cancellations is assumed, and all policies are treated as paid-up.

EPIFP is calculated separately for each homogeneous risk group, which means that loss-making policies may only be offset against profit-making policies within a homogeneous risk group.

The table below shows EPIFP for the Group's non-life and life business. Compared to the calculation as at 31 December 2017, EPIFP slightly increased.

EPIFP – life and non-life business

(EUR thousand)	31/12/2018	31/12/2017
Non-life business	18,512	19,645
Life business	52,420	42,386
Total	70,931	62,032

C.6 Other material risks

C.6.1 Strategic risks

Other material risks of the Group consist primarily of strategic risks. These include the risk of an unexpected decrease in the Group's value due to the adverse effects of management decisions, changes in the business and legal environment or market developments. Such events could have an adverse effect on the Group's income or capital adequacy.

Risk exposure

The Group is exposed to a variety of internal and external strategic risks. In 2018, the Group was exposed to the following key strategic risks:

risk of an inadequate development strategy,
risks associated with strategic investments,
political risk,
project risk,
risk of market and economic conditions,
reputation risk and
regulatory risk.

Risk measurement

Strategic risks are by nature very diverse, difficult to quantify and heavily dependent on various (including external) factors. They are also not included in the calculation of capital requirement in accordance with the Solvency II standard formula.

Therefore, we assess strategic risks qualitatively in the risk register, their likelihood and potential financial severity. In addition, the Group seeks to evaluate key strategic risks using a qualitative analysis of various scenarios (also as part of the ORSA). The two types of analyses combined provide the Group with a picture of the extent and changes in the exposure to this type of risk.

Risk concentration

In 2018, the Group was not materially exposed to strategic risk.

C.5.3 Risk management

Group companies have established processes for identifying, measuring, monitoring, managing and reporting on such risks for the effective management of operational risk. Such processes for operational risk management are also in place at the Group level. Accountability and operational risk management processes are set out in greater detail in the operational risk policy and the risk management rules of the Group.

The internal control system plays a key role in operational risk management, ensuring appropriate control activities and appropriate internal controls integrated into business processes and activities of the company put in place to mitigate and monitor risk. An adequate implementation of internal controls is the responsibility of individual organisational units in which internal controls are to be carried out.

The chief measures of operational risk management at the individual company and Group levels include:

maintaining an effective business processes management system and system of internal controls;
awareness-raising and training of all employees on their role in the implementation of the internal control system and management of operational risks;
a positive climate, good business culture and continuous employee training;
implementing security policies regarding information security;
having in place a business continuity plan for all critical processes (in order to minimise the risk of unpreparedness for incidents and external events and any resulting business interruption);
having in place IT-supported processes and controls in the key areas of business of every Group company;
awareness-raising and training of all employees.

In addition, the Group also manages such risks through independent oversight by the internal audit department.

All major internal controls related to operational risk are included in the risk registers of individual Group companies and the Group.

The Group and individual Group companies periodically report on assessed operational risks in risk reports, which are submitted to the risk management committee (if set up in the company), the company's management board, the risk committee (if set up in the company) and to the supervisory board. The risk management function and the risk management committee may issue recommendations to the management board for further steps and improvements to operational risk management processes.

C.6.2 Investment contract risks

The Group's investment contracts include a group of life cycle funds called MOJI Skladi Življenjskega Cikla (MY Life-cycle Funds), relating to supplementary pension business of the company Sava Pokojninska in the accumulation phase. The company started managing the MY Life-cycle Funds group of long-term life-cycle funds on 1 January 2016. They comprise three funds: MOJ Dinamični Sklad (MDS, MY Dynamic Fund), MOJ Uravnoteženi Sklad (MUS, MY Balanced Fund), and MOJ Zajamčeni Sklad (MZS, MY Guaranteed Fund). As at 31 December 2018, investment contracts assets totalled EUR 135.6 million (31/12/2017: EUR 129.6 million).

For the purpose of calculating capital adequacy, the company Sava Pokojninska is consolidated in accordance with the rules applicable to other financial sectors, and is not considered in the modules of the Solvency II standard formula. The risks associated with the company are therefore not discussed as part of underwriting or market risks. The capital requirements for Sava Pokojninska were calculated in accordance with sectoral regulations and amounted to EUR 5.5 million as at 31 December 2018 (31/12/2017: EUR 5.3 million).

Based on its investment contract assets and liabilities, the Group is additionally exposed to the risk of not achieving the guaranteed return on the MZS fund. Policyholders (members) within the supplementary pension insurance business therefore bear the entire investment risk arising out of the two funds, MDS and MUS, and the investment risk above the guaranteed return of the MZS fund. The guaranteed return on MGF is 60% of the average annual interest rate on government securities with a maturity of over one year.

The risk of failing to realise guaranteed returns is managed primarily through an appropriate management of policyholders' assets and liabilities, an appropriate investment strategy, an adequate capital level and provisioning. The Group tests its risk exposure arising out of guaranteed return through stress tests and scenarios as part of its own risk and solvency assessment. We assess that the risk of having to contribute funds in order to deliver the guaranteed return is small and did not change compared to 2017. Sava Penzisko Društvo only manages assets; funds do not have any guaranteed return. Therefore, the company is not exposed to the risk arising from investment contracts in case of failure to realise guaranteed return.

C.7 Any other information

The Group has no other material information relating to its risk profile.

Risk management

Group companies mitigate individual strategic risks mainly through preventive measures.

In addition to the competent organisational units in Group companies, strategic risks are identified and managed by management bodies, risk management committees, risk management functions and the key functions of the risk management system. Strategic risks are additionally identified by the Group's risk management committee.

Strategic risks are also managed by continually monitoring the realisation of short- and long-term goals of Group companies, and by monitoring regulatory changes in the pipeline and market developments.

The Group is aware that its reputation is important for realising its business goals and achieving strategic plans in the long term. The risk strategy therefore identifies reputation risk as a key risk. Each Group company must seek to minimise the likelihood of actions that could have a material impact on the reputation of the company or the Group. In addition, Group companies have taken steps aimed at mitigating reputation risk, such as setting up fit and proper procedures applicable to key employees, ensuring systematic operations of their respective compliance functions, having in place business continuity plans, developing stress tests and scenarios, and planning actions and response in case risks materialise. Risks related to reputation are also managed through seeking to improve services, timely and accurate reporting to supervisory bodies, and well-planned public communication. A crucial factor in ensuring good reputation and successful performance is the quality of services; therefore, each and every employee is responsible for improving the quality of services and customer satisfaction.

The Group manages and mitigates regulatory risk by continually monitoring the anticipated legislative changes in all countries where Group companies are established, and by assessing their potential impact on the operations of the Group in the short and long term. All Group companies have established compliance functions to monitor and assess the adequacy and effectiveness of periodic procedures and measures taken to remedy any deficiencies in compliance with the law and other commitments. Currently, there are two projects underway associated with compliance: the implementation of the General Data Protection Regulation and the implementation of accounting standards IFRS 9 and 17.

D.1 Assets

D.2 Technical provisions
D.3 Other liabilities
D.4 Alternative methods for valuation
D.5 Any other information

The fundamentals, methods and main assumptions used at the level of the Group in the valuation of the Group's assets, technical provisions and other liabilities for solvency purposes, are no different from those used by any of the Group companies in its own valuation of assets, technical provisions and other liabilities for Solvency II purposes.

The Group holds no material off-balance sheet liabilities that it would be required to account for as contingent liabilities in the SII balance sheet.

In accordance with article 267 of the Delegated Regulation, the Group set up a control procedure to ensure that the estimates used in the valuation of assets and liabilities are reliable and appropriate to ensure compliance with article 174(2) of ZZavar-1, and a periodic review procedure to verify that market values and input data are reliable.

Where alternative valuation models are used (in accordance with article 263 of the Delegated Regulation), the following must be ensured:

independent external audit of the valuation,
periodic validation of information, data and assumptions underlying the valuation approach, results, and the appropriateness of the valuation approach.

The following table shows the Group's balance sheet as at 31 December 2018 and 31 December 2017. This includes the values of assets and liabilities under the IFRSs (before and after adjustments for the Sava Pokojninska pension company and Sava Penzisko Društvo) as well as assets and liabilities in accordance with the valuation principles set out in articles 174–190 of ZZavar-1, taking into account the revaluations and reclassifications of asset and liability items.

The basis for the balance sheet under Solvency II, where assets and liabilities are valued in accordance with the valuation principles set out in articles 174–190 of the ZZavar-1, is the consolidated balance sheet as prepared for Group reporting under the International Financial Reporting Standards as adopted by the EU Commission (hereinafter: IFRS balance sheet).

The Group uses the full consolidation method for all its companies in the preparation of the IFRS consolidated financial statements, except for ZTSR and G2I, which have been consolidated using the equity method. For the purposes of valuation of the Solvency II balance sheet, all Group (re) insurance undertakings and all ancillary service undertakings are consolidated in accordance with article 335(1)(a) of the Delegated Regulation; the Sava Pokojninska pension company is included in the consolidation in accordance with article 335(1)(e), and Sava Penzisko Društvo and the associates ZTSR and G2I are included in accordance with article 335(1)(f).

For the purposes of determining the Group's solvency position, assets are stated – in accordance with article 174 of the Slovenian Insurance Act (ZZavar-1) – at amounts for which they could be exchanged between knowledgeable and willing parties in an arm's length transaction.

Liabilities are valued at amounts for which they could be transferred or settled between knowledgeable and willing parties in an arm's length transaction. The value of liabilities is not adjusted with respect to the Group's creditworthiness.

Assets are valued in accordance with IFRSs as adopted by the European Commission. If the IFRSs allow for several valuation methods, a method has to be chosen that is consistent with Solvency II principles as set out in the Delegated Regulation and other Solvency II implementing regulations. For most other cases of assets and liabilities (apart from technical provisions; "TP"), the IFRSs provide for valuation consistent with Solvency II principles.

The reclassification and revaluation of SII balance sheet items is based on the IFRS balance sheet. This section describes the implementation of such reclassifications and revaluations for items where the SII value differs from the IFRS value. For all other items, IFRSs are deemed to ensure a valuation consistent with Solvency II principles.

D Valuation for solvency purposes

CONTENTS

(EUR thousand)	IFRS value	Adjustment in accord ance with article 335 of the Dele gated Regu lation	Post-ad justment IFRS value	Revalua tion	Reclassifi cation	SII value
Liabilities
22. Gross technical provisions – non-life	649,162	0	649,162	–194,823	–80,907	373,432
23. Gross technical provisions – life (excl. health, and index-linked and unit linked)	263,184	0	263,184	77,923	0	341,107
24. Gross technical provisions – index linked and unit-linked	210,033	0		210,033 –103,984	0	106,048
25. Provisions other than technical provisions	7,730	–140	7,590	0	0	7,590
26. Deferred tax liabilities	3,529	–27	3,503	44,703	0	48,206
27. Financial liabilities other than debts owed to credit institutions	135,711	–135,442	269	0	0	269
28. Insurance and intermediaries payables	48,132	0	48,132	428	–14,122	34,438
29. Reinsurance and coinsurance payables	6,176	0	6,176	0	–3,374	2,802
30. Other payables (trade, not insurance)	10,455	–449	10,006	0	0	10,006
31. Subordinated liabilities	0	0	0	0	0	0
32. Other liabilities	23,515	–258	23,257	–8,255	0	15,002
Total liabilities	1,357,626	–136,315		1,221,311 –184,007	–98,403	938,901
Excess of assets over liabilities	373,260	–8,646	364,614	148,597	0	513,211

IFRS and SII balance sheets as at 31 December 2018

	(EUR thousand)	IFRS value	Adjustment in accord ance with article 335 of the Dele gated Regu lation	Post-ad justment IFRS value	Revalua tion	Reclassifi cation	SII value
Assets
1.	Goodwill	29,006	–13,240	15,766	–15,766	0	0
2.	Deferred acquisition costs	23,982	0	23,982	–23,982	0	0
3.	Intangible assets	3,892	–149	3,743	–3,743	0	0
4.	Deferred tax assets	1,950	0	1,950	6,366	0	8,317
5.	Property, plant and equipment held for own use	42,635	–101	42,534	896	0	43,430
6.	Property, plant and equipment other than for own use	20,902	0	20,902	575	0	21,477
7.	Investments in subsidiaries and associates	463	28,384	28,847	–481	0	28,365
8.	Equities	15,676	–17	15,659	0	0	15,659
9.	Bonds	919,678	–16,395	903,283	4,086	71,283	978,652
	10. Investment funds	37,612	–976	36,636	0	3,288	39,924
	11. Deposits other than cash equivalents	25,646	–5,439	20,207	0	7,657	27,864
	12. Investments for the benefit of life insurance policyholders who bear the investment risk	204,819	0	204,819	585	–72,133	133,270
	13. Loans and mortgages	1,116	0	1,116	0	0	1,116
	14. Reinsurance recoverables	27,293	0	27,293	–3,661	–2,969	20,663
	15. Deposits to cedants	6,275	0	6,275	0	0	6,275
	16. Insurance and intermediaries receivables	129,352	–11	129,340	0	–95,029	34,311
	17. Reinsurance and coinsurance receivables	5,836	0	5,836	0	–405	5,431
	18. Other receivables	5,363	–2	5,360	0	0	5,360
	19. Own shares	24,939	0	24,939	1,407	0	26,346
	20. Cash and cash equivalents	66,752	–1,140	65,613	0	–10,095	55,518
	21. Other assets	137,701	–135,875	1,826	–1,693	0	133
	Total assets	1,730,886		–144,961 1,585,925	–35,411	–98,403	1,452,111

(EUR thousand)	IFRS value	Adjustment in accord ance with article 335 of the Dele gated Regu lation	Post-ad justment IFRS value	Revalua tion	Reclassifi cation	SII value
Liabilities
22. Gross technical provisions – non-life	642,786	0		642,786 –206,336	–80,337	356,113
23. Gross technical provisions – life (excl. health, and index-linked and unit linked)	288,612	–6,556	282,057	94,252	0	376,308
24. Gross technical provisions – index linked and unit-linked	226,528	0	226,528	–107,253	0	119,275
25. Provisions other than technical provisions	7,601	–43	7,558	0	0	7,558
26. Deferred tax liabilities	5,781	0	5,781	45,567	0	51,349
27. Financial liabilities other than debts owed to credit institutions	245	0	245	0	0	245
28. Insurance and intermediaries payables	54,711	0	54,711	0	–13,678	41,033
29. Reinsurance and coinsurance payables	5,160	0	5,160	0	–3,779	1,381
30. Other payables (trade, not insurance)	7,168	–381	6,787	0	0	6,787
31. Subordinated liabilities	0	0	0	0	0	0
32. Other liabilities	153,638	–129,529	24,108	–10,407	–938	12,764
Total liabilities	1,392,231		–136,509 1,255,722	–184,176	–98,732	972,814
Excess of assets over liabilities	341,056	–1,097	339,959	151,251	0	491,209

IFRS and SII balance sheets as at 31 December 2017

	(EUR thousand)	IFRS value	Adjustment in accord ance with article 335 of the Dele gated Regu lation	Post-ad justment IFRS value	Revalua tion	Reclassifi cation	SII value
Assets
1.	Goodwill	14,549	–1,530	13,019	–13,019	0	0
2.	Deferred acquisition costs	22,391	0	22,391	–22,391	0	0
3.	Intangible assets	4,281	–54	4,227	–4,227	0	0
4.	Deferred tax assets	2,108	0	2,108	7,451	0	9,559
5.	Property, plant and equipment held for own use	45,273	–80	45,193	–3,006	0	42,187
6.	Property, plant and equipment other than for own use	15,529	0	15,529	467	0	15,996
7.	Investments in subsidiaries and associates	0	8,849	8,849	–495	0	8,353
8.	Equities	17,525	–43	17,482	0	0	17,482
9.	Bonds	960,713	–12,015	948,698	7,723		66,863 1,023,284
	10. Investment funds	31,858	–873	30,985	–23	3,047	34,009
	11. Deposits other than cash equivalents	21,605	–10	21,595	945	13,531	36,071
	12. Investments for the benefit of life insurance policyholders who bear the investment risk	227,228	0	227,228	950	–83,441	144,737
	13. Loans and mortgages	592	0	592	0	0	592
	14. Reinsurance recoverables	30,787	0	30,787	–7,611	–3,290	19,887
	15. Deposits to cedants	5,832	0	5,832	0	0	5,832
	16. Insurance and intermediaries receivables	124,325	0	124,325	0	–92,633	31,691
	17. Reinsurance and coinsurance receivables	6,198	0	6,198	0	–523	5,675
	18. Other receivables	7,933	–2	7,932	0	–2,286	5,646
	19. Own shares	24,939	0	24,939	2,268	0	27,207
	20. Cash and cash equivalents	37,956	–2,220	35,736	0	0	35,736
	21. Other assets	131,666	–129,629	2,037	–1,958	0	78
	Total assets	1,733,287		–137,606 1,595,681	–32,926		–98,732 1,464,023

Deferred tax assets are the amounts of income taxes recoverable in future periods depending on:

deductible temporary differences,
the carryforward of unused tax losses to future periods, and
the transfer of credits utilised to future periods.

As a general rule, the recognition of deferred tax liabilities is mandatory, while deferred tax assets only need to be recognised to the extent that it is probable that taxable profit will be available against which the deductible temporary differences can be utilised.

In the SII balance sheet, deferred tax assets and liabilities are accounted for on all revaluations apart from:

the revaluation of the participations in related companies item if considered strategic investments based on which revaluation differences cases are treated as permanent and therefore there is no basis for accounting for deferred taxes under this item;
the revaluation of the listed own shares item because it does not constitute a taxable temporary difference;
reclassifications among balance sheet items.

Comparison of deferred tax assets and deferred tax liabilities

31/12/2018 (EUR thousand)	IFRS value	Revaluation	SII value
Deferred tax assets	1,950	6,466	8,317
Deferred tax liabilities	3,503	44,703	48,206
Net deferred tax liabilities			39,889

Comparison of deferred tax assets and deferred tax liabilities

31/12/2017 (EUR thousand)	IFRS value	Revaluation	SII value
Deferred tax assets	2,108	7,451	9,559
Deferred tax liabilities	5,781	45,567	51,349
Net deferred tax liabilities			41,790

In 2018, net deferred tax liabilities fell by nearly EUR 2 million. The main impact mostly arises from the revaluation of technical provisions. Deferred tax assets and deferred tax liabilities were accounted for using the applicable tax rate of 19% (unchanged from 2016).

D.1 Assets

Following are individual categories of assets, along with the valuation methods for material categories.

D.1.1 Goodwill

Goodwill is stated at nil in the Group's SII balance sheet.

D.1.2 Deferred acquisition costs

Deferred acquisition costs are stated at nil in the Group's SII balance sheet.

D.1.3 Intangible assets

The Group has not identified any intangible assets that may be sold separately and for which it cannot prove that there is a market value for identical or similar assets. The value of intangible assets in the SII balance sheet is stated at nil.

D.1.4 Deferred tax assets and liabilities

Deferred tax assets and deferred tax liabilities are accounted for in accordance with IAS 12 "Income Taxes".

Deferred tax assets and liabilities are defined based on identified temporary differences. These are differences between the tax value and the carrying amount of assets or liabilities. Temporary differences may be taxable temporary differences, either amounts to be added to the taxable profit in future periods, or amounts to be deducted from the taxable profit in future periods. Deferred taxes are thus recognised as either deferred tax assets or liabilities as a result of accounting for current and future tax implications.

Deferred tax liabilities are income taxes payable in future periods depending on taxable temporary differences. In periods of recognition, they increase income tax expenses and decrease net profit.

Equities

Equities and mutual funds are valued in accordance with international accounting standards, specifically IAS 39, which provides for shares and mutual funds to be classified as either available-for-sale (AFS) financial assets or financial assets designated at fair value through profit or loss (FVTPL).

Equities – listed

The item includes equity securities listed on a stock exchange. All equities are classified as either available-for-sale financial assets or as carried at fair value through profit or loss, in accordance with IAS 39. This means that the value for IFRS reporting is calculated based on the last available exchange-quoted price. The value in the IFRS balance sheet is the fair value (market value) of marketable equity securities.

The revaluation methodology pursuant to the requirements of Solvency II is consistent with the methodology used for the IFRS balance sheet valuation, as marketable equities are already stated at their market value, rendering a restatement for the purposes of the SII balance sheet redundant.

Equities – unlisted

Unlisted equities are initially recognised at cost. As at the balance sheet date, their value is determined using a model. This is designed to determine whether the cost still represents their fair value. If the model shows that the cost is too high, an impairment loss is recognised in the amount of the difference between the model value and its cost.

Since unlisted equities represent an immaterial part of the Sava Insurance Group's investment portfolio, they are not stated at fair value in the SII balance sheet but rather at the IFRS balance sheet amount.

Bonds

For the purposes of the IFRS balance sheet valuation, bonds are measured in accordance with International Accounting Standard 39. They are measured based on the IAS category into which they are classified.

Market value is also calculated for held-to-maturity bonds.

The Group obtains market prices from the Bloomberg system, from the local stock exchange, and other markets on which any bond is listed.

The bond item also includes non-cash-equivalent subordinated deposits from the deposits item.

D.1.5 Property, plant and equipment held for own use

Every three years, the Group obtains fair value valuations of its main properties held for own use from independent external property appraisers. Equipment for the direct transacting of the reinsurance business represents an immaterial amount and is stated at the same level in both the SII and IFRS balance sheets.

In assessing fair value and fair value less costs to sell, certified property appraisers take into account the International Valuation Standards and the International Accounting Standards. The appraisal includes verifying the adequacy of all the methods used for appraising property rights. Depending on the purpose of the valuation and the quantity of available data, a market value appraisal will make use of the market approach and the income approach.

D.1.6 Investments

Property, plant and equipment other than for own use

The methodology is consistent with the methodology used for property, plant and equipment held for own use, which is described in detail in section D.1.5 "Property, plant and equipment held for own use".

Investments in subsidiaries and associates

In accordance with article 335(1)(e) of the Delegated Regulation, data of the EU-based pension companies (Sava Pokojninska) was not fully consolidated. In the adjusted IFRS balance sheet, it thus remained among investments in subsidiaries, stated at the carrying amount, while in the SII balance sheet it is stated in the amount equal to the proportional share of the pension company's own funds, i.e. the amount of available capital calculated under sectoral regulations applicable for pension companies in the Republic of Slovenia.

In accordance with article 335(1)(f) of the Delegated Regulation, no full consolidation was carried out for data of the non-EU-based pension companies (Sava Penzisko Društvo). Accordingly, this data remained in the investments in subsidiaries and associates item of the adjusted IFRS balance sheet, stated at the carrying amount. In the SII balance sheet they are valued using the IFRS equity method, in accordance with article 13(5) of the Delegated Regulation.

In accordance with article 335(1)(f), the Group values shares in associate companies in the SII balance sheet using the IFRS equity method in compliance with article 13(5) of the Delegated Regulation. The value of goodwill and other intangible assets that would be valued at nil in accordance with the asset valuation methodology is deducted from the value of the company obtained.

D.1.7 Loans and mortgages

Loans and mortgages are initially recognised at their contract value.

As at the reporting date, they are stated at amortised cost in accordance with the amortisation plan, taking into account the actual interest and principal payments. If payments are not made in accordance with the amortisation plan, amounts must be impaired. The SII balance sheet and the IFRS balance sheet valuations are the same.

D.1.8 Reinsurance recoverables

In the text below the term SII provisions is used for technical provisions calculated in line with the SII regulations, while the term IFRS provisions is used for technical provisions calculated in line with the International Financial Reporting Standards. The main principles used in calculating IFRS provisions are described in the notes to the Group's financial statements in the annual report section 17.4.24 "Technical provisions".

The amount of reinsurance recoverables is measured by the actuarial departments of Sava Insurance Group companies. The methodology takes into account the guidelines set out in the underwriting and reserving risk policy.

The Group reclassifies items from retroceded premium provisions (reinsurance ceded) for accrued, undue receivables for commission from ceded reinsurance and coinsurance business, and for undue ceded reinsurance and coinsurance premium payables.

As ceded coinsurance and reinsurance business generates relatively small premium volumes, reinsurance recoverables cannot be calculated using the same actuarial methods as for calculating gross provisions. Simplifications are applied, whereby the share of the retrocession business is calculated using retrocession data for each homogeneous group and each cohort. Retroceded best estimate provisions (before costs, reclassifications and discounting) are calculated – using the share thus obtained – from the gross best estimate provisions (before taking into account the costs, future cash flows from premiums and provisions, and without taking into account the time value of money). The currency structure and the time value of money are taken into account in the same way as for gross best estimate provisions. In designing cash flows, historical data on paid claims are used to check for a possible time delay in retrocession payments as opposed to gross disbursements. Adjustments for a counterparty's anticipated default are made on the basis of the amount of reinsurance recoverables (for the IFRS balance sheet valuation) being divided according to the credit ratings of counterparties and the probability of default associated with these ratings.

Structured financial products

In 2018, the Group held no structured financial products.

Investment funds

The IFRS value is calculated based on the most recent published net asset value per share (hereinafter: NAVPS). The IFRS value is the fair value (market value) of investment funds. Notwithstanding their classification, the carrying amount of these funds equals their market value and is calculated using the formula: NAVPS as at the valuation day * number of lots. NAVPS amounts are obtained from asset managers.

The methodology of revaluation for the purposes of SII is consistent with the methodology used for the valuation of the IFRS balance sheet. This is because in the latter, investment funds are carried at market value and therefore no revaluation is required for the preparation of the SII balance sheet.

Deposits other than cash equivalents

These deposits are measured at amortised cost or acquisition cost plus accrued interest. In accordance with the IAS 39, they are classified in the Group's IFRS balance sheet as loans and receivables.

Solvency II valuation equals statutory valuation. Deposits other than cash equivalents are not subject to revaluation; it is assumed that their carrying amount is a reasonable approximation of their market value.

In the SII balance sheet, subordinated deposits are reclassified from the deposits item to the corporate bonds item because the Group considers that the risk involved in subordinated deposits is at about the same level as the risk of subordinated corporate bonds.

Deposits with an original maturity of up to three months are reclassified in the SII balance sheet from the cash and cash equivalents item to the deposits other than cash equivalents item.

Investments for the benefit of life-insurance policyholders who bear the investment risk

Assets of unit-linked business without financial guarantees are shown in the SII balance sheet under the assets held for index-linked and unit-linked funds item. The change in the value between the IFRS and SII balance sheets is the result of the reclassification of assets relating to insurance contracts where policyholders bear the investment risk, while the insurer guarantees an defined level of return (guaranteed NAVPS). Assets are reclassified to other financial investments covering life insurance obligations (ZS varnost, ZS Zajamčeni, ZM Garant and ZM Zajamčeni). Thus, the SII balance sheet financial investments item covering obligations to policyholders who bear the investment risk includes investments in mutual funds and structured products of the investment registers KSNT 1 (Prizma) and KSNT 2a (ZM Prizma Hibrid).

D.1.12 Other receivables

Other receivables include short-term receivables from the government and other institutions, short-term trade receivables, short-term receivables due from employees, short-term receivables due from leasing out premises and equipment, and other short-term receivables.

Measurement is the same as for the IFRS balance sheet, as the carrying amount constitutes a sufficient approximation of fair value.

D.1.13 Own shares

In the IFRS balance sheet, own shares are stated as a contra account in equity. The Group recognises own shares in the amount of their purchase price on a regulated or non-regulated market. Consistent with the provisions of article 36 of IAS 32 "Financial Instruments – Presentation", they are not revalued to fair value even if they be listed on a regulated securities market.

The SII balance sheet presents own shares under assets. Since the parent company's own shares are listed on a regulated market, they are restated at their stock exchange price for the purposes of the SII balance sheet as at the balance sheet date.

D.1.14 Cash and cash equivalents

Measurement is the same as for the IFRS balance sheet. Deposits with an original maturity of up to three months are treated in the market value balance sheet in the same way as deposits with longer maturities, and they are therefore reclassified under deposits other than cash equivalents.

D.1.15 Other assets

Other assets include short-term deferred costs and short-term accrued income. Short-term deferred costs comprise prepaid costs of insurance, licenses, rent and similar. In the SII balance sheet other assets are recognised at same amounts as in the IFRS balance sheet, except for prepaid costs, which are stated at nil.

D.1.9 Deposits to cedants

Under reinsurance contracts, cedants may retain a part of the reinsurance premiums as a guarantee for the payment of future claims, such retained premiums being generally released after one year. These deposits bear contractually-agreed interest. Deposits to cedants are stated at cost, less any adjustments.

As these investments are short-term, their carrying amount is considered a sufficiently good approximation of their market value. The market value of such deposits is therefore not calculated in the model, and in calculating the solvency capital requirement (SCR) the market value is taken to be the IFRS balance sheet value.

D.1.10 Insurance and intermediaries receivables

The SII balance sheet valuation of receivables does not differ from the IFRS balance sheet valuation.

The Group is excluding the following items from insurance and intermediaries receivables in the SII balance sheet:

undue insurance receivables, and
undue receivables for premiums arising out of accepted reinsurance and coinsurance.

The Group factors this item in as future cash flows when calculating gross best estimate premium provisions. Since the entire change in premium provisions is disclosed as a reclassification, notpast-due receivables are eliminated in the same way when compiling the SII balance sheet.

D.1.11 Reinsurance receivables

The SII balance sheet valuation of receivables does not differ from the IFRS balance sheet valuation.

The following receivables undue as at the SII balance sheet reporting date are eliminated from reinsurance receivables:

undue receivables for commission from the reinsurer's retroceded business, and
undue receivables for commission from the insurers' ceded reinsurance and coinsurance business.

The Group takes these items into account as future cash flows when calculating future cash flows for the reinsurers' share of the best estimate premium provision.

Changes in receivables and premium provisions are recognised as reclassifications.

Best estimate claims provisions relating to direct insurance

Claims provisions relate to loss events that have already occurred while the claims are yet to be resolved, whether claims have been reported or not. The best estimate is calculated taking into account the weighted average of all possible scenarios and the time value of cash flows, which means that all cash flows are discounted using risk-free interest rate term structures. The calculation also includes all expenses relating to the period from the date of the loss event to the date when it is accounted for, including any anticipated future recourse receivables from those claims.

Provisions for claims incurred but not yet paid are established based on historic data from previous years and are calculated together for reported claims and claims that have not yet been reported.

Each individual Group insurer calculates best estimate gross claims provisions for each homogeneous risk group using at least two of the following methods:

the chain-ladder method which, based on historical trends of settled and reported claims, estimates the further development of claim payments for incurred claims;
the naive method under which for each insurance segment, a final ultimate loss ratio is estimated, regardless how fast claims are reported or paid;
the Bornhuetter-Ferguson method is a combination of the naive method and the chain-ladder method, under which for each insurance segment, a certain loss ratio is set depending on when the claim was reported and/or paid;
the Fisher-Lange method (incremental average loss method) under which the average claims and number of claims are estimated based on historical data for each individual development year;
the method of average IBNR claims under which historical data is used to determine the amount of the incurred but not reported claims provisions as the product of the estimated number of IBNR claims and the average number of IBNR claims, while reported but not settled (RBNS) claims provisions are added to the final value of the best estimate claims provisions on the valuation date.

D.2 Technical provisions

The Group reclassifies the items of the gross premium provision for not-past-due premium receivables relating to direct insurance, accepted reinsurance and coinsurance and for not-pastdue commission payables relating to accepted reinsurance and coinsurance business. Specificities of individual companies are taken into consideration.

The valuation of gross technical provisions, including the reinsurers' share thereof, is conducted by the actuarial departments of Sava Insurance Group companies. The valuation of the reinsurers' share of the SII provisions (best estimate provisions for accepted business) is described under valuation of assets, in section D.1.8. "Reinsurance recoverables". The methodology follows the guidelines set out in the Group's underwriting and reserving risk policy and complies with applicable actuarial methods.

In the calculation of Solvency II provisions, the Group does not apply the matching adjustment referred to in article 182 of ZZavar-1 (or article 77(b) of Directive 2009/138/EC), the volatility adjustment referred to in article 184 of ZZavar-1 (or article 77d of Directive 2009/138/EC), the transitional adjustment of the risk-free interest rate term structure referred to in article 639 (or article 308(c) of Directive 2009/138/EC), nor the transitional deduction referred to in article 640 of ZZavar-1 (or article 308(d) of Directive 2009/138/EC).

The Group establishes the following categories of Solvency II provisions:

best estimate claims provisions relating to direct insurance business,
best estimate premium provisions relating to direct insurance business,
best estimate provisions for reported annuities arising out of direct non-life insurance business (provisions for non-life annuities),
best estimate provisions for life insurance business,
best estimate provision for accepted reinsurance business,
the risk margin.

SII provisions are equal to the sum of a best estimate and a risk margin. The above-mentioned categories of provisions are described in more detail below.

Best estimate premium provisions relating to direct insurance

The premium provision refers to loss events that will occur after the valuation date, i.e. during the remaining period of validity of the insurance coverage. It is calculated for those contracts that are active at the date of the calculation and is made up of all estimated future cash flows within the boundaries of insurance contracts (hereinafter: contract boundaries). The best estimate is calculated taking into account the weighted average of all possible scenarios and the time value of cash flows, which means that all cash flows are discounted based on relevant risk-free interest rate term structures.

The Group's largest direct EU-based insurer takes into account the following cash flows in calculating the premium provision, broken down by individual year and subsequently discounted using the risk-free interest rate term structure:

all claims that will occur in the future,
all loss adjustment expenses relating to the handling of claims referred to in the preceding indent,
all future recourse receivables based on the claims referred to in indent one,
all future expenses associated with the servicing of in-force contracts,
all future premium inflows from not-past-due receivables,
commissions and fire brigade charges arising from the premiums referred to in the preceding indent,
the estimated value of future premium refunds due to contract lapses,
future written premiums of multi-year contracts with annual statements of accounts and permanent contracts for periods covered for which premiums have not been invoiced,
future written premiums for multi-year contracts accounted for annually and permanent contracts with annual premium accounting within contract boundaries,
the expenses associated with the premiums referred to in the preceding two indents,
the amount of future expected bonuses and rebates dependent on the level of the loss ratio of certain contracts.

The smaller direct companies (not EU-based) calculate the premium provision relating to future claims and expenses using a simplified method from the IFRS unearned premiums and the expected loss and expense ratios.

The most important assumptions in calculating the best estimate claims provisions (short: BE CP) are:

the expected ultimate loss ratio: the expected final proportion of all settled claims in a given period as a percentage of the premiums earned in that period;
loss development factors: for long-tail classes, the amount of the IBNR provision heavily depends on the choice of loss development factors, especially the choice of the tail representing the factors for the years for which the companies at the time have no actual loss experience. Development factors are selected based on historical development factors, adjusted for expected future changes, while the tail development factor is determined using a logarithmic regression, where a curve is selected that best fits the chosen development factors for the fully developed accident years. This factor is appropriately adjusted based on actuarial judgement;
expected proportion of loss adjustment expenses in future claim payments: the proportion of loss adjustment expenses in future claims is set based on historical data and, if necessary, adjusted taking into account future expectations and trends in the levels of loss adjustment expenses;
an expected proportion of recourse receivables as a percent of future claim payments: the proportion of recourse receivables in future claim payments is determined based on historical data on paid recourses and, if necessary, adjusted based on expectations for the future and trends;
discounting: to calculate best estimate claims provisions, all cash flows are discounted using the relevant risk-free interest rate term structures;
annuities: the reported motor and general liability claims may include claims that are scheduled to be paid out in the form of life annuities, annuities until age 26 or until graduation; the companies calculated the related provisions separately using life techniques, which is why the best estimate claims provisions for non-life lines of business are calculated without these provisions and the related data.

For the most recent accident year (2018), the total average expected ultimate loss ratio is slightly below the level as at 31 December 2017 for the 2017 event year, which resulted in some significant changes in individual lines of business. In fire and other damage to property, and other motor insurance the expected ultimate loss ratio dropped somewhat as the result of a smaller volume of natural catastrophe claims and an absence of major claims; the ratio increased in motor liability insurance and loss of profits owing to findings in the run-off analysis, while in general liability insurance and assistance business it reflected the change in the portfolio composition (freedom of services business, own assistance network).

Best estimate provisions for non-life annuities of direct insurance

Best estimate provisions for annuities stemming from non-life insurance are calculated separately from the best estimate claims provisions relating to non-life insurance business due to the specific mode of benefit payments. It is separately determined for:

reported annuities arising out of non-life insurance business (both accumulation and distribution phase): these best estimate annuities are reported under the line of business life annuities stemming from non-life insurance contracts and relate to obligations other than health insurance obligations;
non-life annuities not yet reported: best estimate provisions for this type of annuity are reported in non-life lines of business as part of best estimate claims provisions.

The assumptions used in the calculation of best estimate provisions for reported non-life annuities (whether in the distribution phase or not) are:

expected proportion of loss adjustment expenses as a percentage of future claim payments,
expected inflation,
mortality based on relevant mortality tables.

The assumptions used in the calculation of best estimate provisions for non-life annuities not yet reported are:

the expected number of such annuities,
the average amount of the present value of all future annuity obligations at the time of the annuity's inception.

The proportion of loss adjustment expenses as a percentage of future annuity payments is determined on the basis of data of the previous accounting year, while the future expected inflation is determined based on the current macroeconomic situation and outlook.

The critical assumptions for calculating best estimate premium provision are defined as follows:

the expected loss ratios: when setting the expected loss ratios, we take into account the ultimate loss ratios by accident year derived from the calculation of the claims provision, the change in the average premium over the previous year and expected future claim trends;
expected proportion of loss adjustment expenses in future claim payments: the proportion of loss adjustment expenses in future claim payments is set based on historical data and, if necessary, adjusted taking into account future expectations and trends in the levels of loss adjustment expenses;
the expected proportion of commissions as a percentage of future premium cash flows: the proportion of commissions in paid premiums is determined based on historical data and, if necessary, adjusted based on future expectations and potential changes in premium rates;
the expected proportion of other expenses as a percentage of future premium cash flows: the proportion of other expenses as a percentage of premiums written is determined based on historical data and, if necessary, adjusted based on future expectations and trends in the level of expenses;
an expected proportion of recourse receivables as a percent of future claim payments: this proportion is determined based on historical data on recourse payments;
expected claims development by year: this claims development is determined based on historical patterns of claim payments;
expected development of recourse receivables by year: this development of recourse receivables is determined based on historical data of recourse payments;
expected lapse rate: the expected lapsed or refunded premiums due to early termination of contracts are determined based on the data of the previous year, which, if necessary, is adjusted in accordance with future expectations.

The total expected ultimate loss ratio used in the calculation of the best estimate premium provision as at 31 December 2018 is slightly higher than the one used in the calculation of the best estimate premium provision as at 31 December 2017, which is chiefly the result of a slightly higher selected expected ultimate loss ratio for motor lines of business.

Best estimate claims provisions for life business are calculated using the method of average claims, making separate estimates for the provision for incurred reported claims and for the provision for incurred but not reported claims (IBNR). Best estimate provisions for incurred reported claims are equal to case provisions. Best estimate provisions for incurred but not reported claims are calculated as the product of the ultimate number of IBNR claims (estimate from the triangle of reported claims) and the average level of IBNR claims. For this purpose, only claims arising from death risk or critical illness are considered. The average level of IBNR claims is calculated as the average sum at risk for each homogeneous group of policies. The present value of the cash flows is calculated using the risk-free interest rate.

Last year, all assumptions used were re-evaluated and certain minor changes were made. In some segments, expenses as a percentage of insurance rose as the result of smaller portfolios and there were minor changes in expected lapse ratios. There have been no significant changes in assumptions compared to the previous year. Compared to the previous year, in 2018 fair value gains relating to available-for-sale investments were excluded from the calculation of future discretionary benefits in life long-term business funds. Future discretionary benefits in the modelling of investment income were calculated using the book return on investments instead of the risk-free interest rate.

Best estimate provisions for accepted reinsurance

Calculations are made on the level of lines of business in accordance with annex 1 to the Delegated Regulation, separately for intra-Group and extra-Group business (for Group-level balances, after the elimination of intra-Group transactions, only the latter is considered). Due to the negligible volume and the nature of the obligations relating to accepted extra-Group life reinsurance business, the methodology for the valuation of these obligations is the same as for non-life and health-not-similar-to-life techniques (hereinafter: NSLT health insurance); therefore, the obligations arising out of accepted life reinsurance are classified as NSLT health insurance. The Group is planning a separate treatment of accepted life reinsurance business.

Best estimate provisions consist of best estimate premium provisions and best estimate claims provisions. The calculation is based on the classification of business by underwriting year.

The calculation of best estimate provisions comprises the following steps:

a calculation of the "technical" gross provision, which consists of the best estimate provision for loss events (both incurred and future) relating to business written prior to taking into account the time value of money;
the breakdown of the "technical" gross provision into the "technical" premium provision (for future claims) and the "technical" claims provision (for incurred, but not yet settled claims);
taking into account future expenses relating to in-force contracts;
taking into account future cash flows from premiums and commissions, including not-past-due unpaid premiums and commissions;
the preparation of cash flows, taking into account the currency structure of cash flows and discounting.

Best estimate provisions for direct life insurance

Best estimate provisions for life insurance business are made at the insurance contract level using unified assumptions for individual homogeneous groups of life insurance policies. These are roughly divided into traditional life (endowment, term life, whole life, life annuities), unit-linked life (guaranteed or not, term life or whole life) and similar-to-life-technique health insurance. The calculation is made based on best estimates of future contractual cash flows, including best estimates of all contractual cash flows and of related cash flows such as claims handling costs, administrative expenses and financial income from invested assets covering the obligations arising from insurance contracts. Best estimate claims provisions for life insurance business are calculated separately.

The expected contractual cash flows include:

income from premiums,
claim/benefit payments (death, critical illness, maturity, surrender),
expenses (agent commissions, other policy acquisition costs, loss adjustment expenses, administrative expenses),
income from investments (investment management charges).

For individual contracts, the following needs to be considered:

annual premiums, payment frequency, death benefits, critical illness and maturity benefits;
product technical bases: technical interest rate, mortality and morbidity tables, expenses,
assumptions: the proportion of unrealised mortality and morbidity, lapse rate, future profitability, realised expenses, future inflation.

For cash flows estimated until the policy expiry, their present value as at the reporting date is calculated using the risk-free interest rate. In respect of the majority of life policies, a separate estimate of the present value of embedded options and guarantees is made, using stochastic economic scenarios. The future dynamic behaviour of policyholders has not been modelled, while future management actions have only been modelled for the calculation of the present value of options and guarantees where it is anticipated that amounts in the fair value reserve will be realised in the event of scenarios if certain investment income – before realising fair value gains – does not meet the required level based on guaranteed interest rates in traditional life policies.

Best estimate provisions for guaranteed payouts upon childbirth are calculated based on the anticipated number and level of payments for written policies. These provisions are calculated based on estimated future payments calculated using the triangle method, taking into account the number of births by policy year and development year or based on analytical formulas. The present value of the cash flows is calculated using the risk-free interest rate.

Risk margin

The risk margin, along with best estimate provisions, ensures that the value of the technical provisions is equal to the amount that another insurer would require to take on the liabilities towards policyholders, insured persons and other beneficiaries under the insurance contracts. The risk margin is calculated by determining the cost to insure the amount of eligible own funds equal to the solvency capital requirement necessary to support the insurance obligations during their validity or until their expiry. The rate used in determining the cost to ensure the above-mentioned amount of eligible own funds, being a spread above the relevant risk-free interest rate that an insurer would take into account to ensure such eligible own funds, is set at 6%.

In accordance with article 340 of the Delegated Regulation, the risk margin is set as the sum of the risk margins of individual Group (re)insurance companies.

Each Group company takes into account all non-hedgeable risks in the calculation of the mentioned solvency capital requirement. These risks include:

non-life underwriting risk,
life underwriting risk,
health underwriting risks,
counterparty default risk relating only to (re)insurance receivables,
market risk, if it cannot be avoided through the asset selection, except interest rate risk,
operational risk.

In accordance with article 58 of the Delegated Regulation, the simplified calculation method is used by Group companies in projecting the solvency capital requirement, specifically level 2 of the hierarchy referred to in article 61 of the "Decision on detailed instructions for the evaluation of technical provisions" is taken into account: The total solvency capital requirement for each future year is calculated based on the ratio of the best estimate in that future year to the best estimate technical provisions as at the valuation date. Should this method prove to be inadequate for any company, level 3 of the hierarchy referred to in article 61 of the "Decision on detailed instructions for the evaluation of technical provisions" should be applied.

For composite insurance companies, the risk margin is calculated separately for life and non-life insurance, and is allocated to individual lines of business so as to adequately reflect the contributions of the lines of business to the solvency capital requirement (in accordance with article 37(3) of the Delegated Regulation). In the calculation of the solvency capital requirement for each line of business of a company we assume that policies are written only in the segments for which the capital requirement is calculated; also, only in the following risk modules is the capital requirement calculated for each segment:

life underwriting risk,
health underwriting risks,
non-life underwriting risk,
operational risk.

"Technical" gross provisions are calculated using the chain-ladder method applied to cumulative paid claims triangles, taking into account the Bornhuetter-Ferguson (hereinafter: BF) modification. In the chain-ladder method, the development factors are selected based on the data from the years reflecting the nature of the portfolio for which the provision is calculated. If, due to extraordinary events, individual factors deviate excessively from the average, they are excluded from the calculation of development factors. The development tail is calculated using an approximation together with one distribution function: Exponential, Weibull, Power, Inverse Power; the R-squared criterion is applied in the selection of the distribution function. The BF prior loss ratio is selected based on the judgement of the actuary and the reinsurance underwriting department. If claims triangles are too dispersed, ultimate losses are assessed based on loss ratios. The expected incurred loss ratio for an underwriting year is set as the selected average of a pre-assessed naive loss ratio set by expert judgment, multi-year averages, information from the reinsurance underwriting department, and the IFRS incurred loss ratio (excluding provisions at the portfolio level). For less recent years for which the development is known, greater weight is assigned to the realised ratio, while for more recent years, the naive loss ratio is assigned greater weight. For payment development or cash flow, the pattern is applied that is obtained from the triangle development. The joint view summarises the results of all methods, based on which best estimate ultimate losses are selected, which is then used to calculate technical gross provisions.

Future loss adjustment and administrative expenses relating to contracts written are taken into account through expense ratios.

The basis for the split of cash inflows by currency is the currency composition for the IFRS valuation of the balance sheet. Future cash flows broken down by currency are discounted using the relevant risk-free interest rate term structures.

The most important assumptions underlying the calculation are the selection of an appropriate method for each line of business, which did not change in most lines of business in 2018, and the applied ultimate ratios, especially for the last underwriting year, which is subject to the greatest uncertainty due to unknown losses and unexpired coverage. For extra-Group accepted reinsurance business of the most recent underwriting year, the ratio of expected ultimate claims and commissions as a percentage of expected ultimate premiums is slightly higher year on year, largely due to the larger claims volume in proportional fire and other damage to property reinsurance business, and non-proportional property reinsurance.

The movement in the reinsurance best estimate claims provision depends on large loss events that are subject to reinsurance, and the timing of the settlement of reinsurance claims. In 2018, we set up reporting on the reinsurance of reported annuities arising out of non-life lines of business as part of life lines of business. Annuities associated with large loss events were reinsured under excess of loss covers; therefore, a part of the reinsurance claims provision for non-proportional casualty reinsurance was reallocated to life lines of business in 2018. In non-proportional property reinsurance the reinsurance best estimate claims provision increased due to a major loss event (Typhoon Jebi) covered under an excess of loss cover.

Best estimate premium provision (BE PP)

(EUR thousand)	Gross BE PP		Reinsurance recoverables from BE PP
Line of business	31/12/2018	31/12/2017	31/12/2018	31/12/2017
Medical expense insurance and proportional reinsurance	389	67	209	149
Income protection insurance and proportional reinsurance	–10,855	–10,993	0	2
Workers' compensation insurance and proportional reinsurance	0	0	0	0
Motor vehicle liability insurance and proportional reinsurance	29,519	26,826	–49	–32
Other motor insurance and proportional reinsurance	30,793	26,948	280	248
Marine, aviation and transport insurance and proportional reinsurance	–147	976	–22	–54
Fire and other damage to property insurance and proportional reinsurance	4,073	5,027	19	–465
General liability insurance and proportional reinsurance	–516	–1,462	–122	–246
Credit and suretyship insurance and proportional reinsurance	4,211	4,187	0	0
Legal expenses insurance and proportional reinsurance	–106	–237	–95	–225
Assistance insurance and proportional reinsurance	4,034	3,623	–17	3,145
Miscellaneous financial loss	194	36	–22	–51
Non-proportional health reinsurance	–151	–202	–1	–1
Non-proportional casualty reinsurance	–729	–880	76	–176
Non-proportional marine, aviation and transport reinsurance	–2,321	–2,245	–46	–18
Non-proportional property reinsurance	–9,876	–12,882	–505	–618
Total	48,512	36,837	–295	1,659

D.2.1 Value of SII technical provisions

The following tables set out the values of gross best estimate provisions, the reinsurers' share of best estimate provisions, and the risk margin as at 31 December 2018 and 31 December 2017 by line of business. There are separate tables for the best estimates of the claims provision, the premium provision, the provision for life lines of business and the risk margin.

Best estimate claims provision (BE CP)

(EUR thousand)	Gross BE CP		Reinsurers' share of BE CP
Line of business	31/12/2018	31/12/2017	31/12/2018	31/12/2017
Medical expense insurance and proportional reinsurance	1,092	1,190	389	416
Income protection insurance and proportional reinsurance	21,247	18,973	50	307
Workers' compensation insurance and proportional reinsurance	0	0	0	0
Motor vehicle liability insurance and proportional reinsurance	88,810	84,487	626	895
Other motor insurance and proportional reinsurance	20,096	17,875	174	133
Marine, aviation and transport insurance and proportional reinsurance	7,327	6,285	182	291
Fire and other damage to property insurance and proportional reinsurance	58,173	61,110	4,746	4,409
General liability insurance and proportional reinsurance	26,607	25,736	1,040	1,466
Credit and suretyship insurance and proportional reinsurance	875	936	0	0
Legal expenses insurance and proportional reinsurance	6	4	0	0
Assistance insurance and proportional reinsurance	1,200	1,467	154	806
Miscellaneous financial loss	478	1,014	50	240
Non-proportional health reinsurance	482	1,410	2	3
Non-proportional casualty reinsurance	11,336	11,381	7,095	8,258
Non-proportional marine, aviation and transport reinsurance	7,957	6,586	284	64
Non-proportional property reinsurance	36,113	40,222	2,332	940
Total	281,798	278,677	17,124	18,228

Movements are largely in line with portfolio volume, loss events and claims settlements. Thus, the largest increase in the gross best estimate claims provision was in motor business reflecting portfolio growth, albeit with slightly deteriorated expected loss ratios. By contrast, there was a drop in the property line of business driven by the settlement of claims relating to prior-year losses. The decline in non-proportional property reinsurance business is due to a more appropriate allocation of the best estimate provision for accepted reinsurance between the premium and claims provisions (the sum of the premium and claims provision for this line of business is only slightly lower year on year).

Risk margin

(EUR thousand) Risk margin
Line of business	31/12/2018	31/12/2017
Medical expense insurance and proportional reinsurance	177	221
Income protection insurance and proportional reinsurance	8,008	7,641
Workers' compensation insurance and proportional reinsurance	0	0
Motor vehicle liability insurance and proportional reinsurance	6,804	6,643
Other motor insurance and proportional reinsurance	4,483	4,017
Marine, aviation and transport insurance and proportional reinsurance	1,105	1,008
Fire and other damage to property insurance and proportional reinsurance	6,642	6,231
General liability insurance and proportional reinsurance	3,081	2,888
Credit and suretyship insurance and proportional reinsurance	1,249	1,172
Legal expenses insurance and proportional reinsurance	12	18
Assistance insurance and proportional reinsurance	688	510
Miscellaneous financial loss	226	291
Non-proportional health reinsurance	59	119
Non-proportional casualty reinsurance	950	736
Non-proportional marine, aviation and transport reinsurance	1,610	1,439
Non-proportional property reinsurance	8,029	7,665
Total non-life	43,123	40,599
Health insurance	813	399
Insurance with profit participation	7,571	7,564
Index-linked and unit-linked insurance	7,941	7,377
Other life insurance	7,704	6,781
Annuities stemming from non-life insurance contracts and relating to health insurance obligations	0	0
Annuities stemming from non-life insurance contracts and relating to insurance obligations other than health insurance obligations	135	139
Life reinsurance	99	0
Total life	24,264	22,260

(EUR thousand)	Risk margin
Line of business	31/12/2018	31/12/2017
Medical expense insurance and proportional reinsurance	177	221
Income protection insurance and proportional reinsurance	8,008	7,641
Workers' compensation insurance and proportional reinsurance	0	0
Motor vehicle liability insurance and proportional reinsurance	6,804	6,643
Other motor insurance and proportional reinsurance	4,483	4,017
Marine, aviation and transport insurance and proportional reinsurance	1,105	1,008
Fire and other damage to property insurance and proportional reinsurance	6,642	6,231
General liability insurance and proportional reinsurance	3,081	2,888
Credit and suretyship insurance and proportional reinsurance	1,249	1,172
Legal expenses insurance and proportional reinsurance	12	18
Assistance insurance and proportional reinsurance	688	510
Miscellaneous financial loss	226	291
Non-proportional health reinsurance	59	119
Non-proportional casualty reinsurance	950	736
Non-proportional marine, aviation and transport reinsurance	1,610	1,439
Non-proportional property reinsurance	8,029	7,665
Total non-life	43,123	40,599
Health insurance	813	399
Insurance with profit participation	7,571	7,564
Index-linked and unit-linked insurance	7,941	7,377
Other life insurance	7,704	6,781
Annuities stemming from non-life insurance contracts and relating to health insurance obligations	0	0
Annuities stemming from non-life insurance contracts and relating to insurance obligations other than health insurance obligations	135	139
Life reinsurance	99	0
Total life	24,264	22,260
Total	67,386	62,859

The risk margin increased compared to 31 December 2017, largely as the result of increased capital requirements, which form the basis of the calculation using the cost of capital method.

The increase in the best estimate premium provision for motor and assistance insurance stems from direct business portfolio growth and partly from the slightly higher expected loss ratio. The decrease in property insurance is due to a more favourable expected loss ratio for direct business and proportional accepted reinsurance as the result of a smaller number of large losses in the recent period. The rise in non-proportional property reinsurance is due to the above-mentioned more appropriate allocation of the best estimate provision for accepted reinsurance between premium and claims provisions.

The movements in the gross and net best estimate premium provisions only differ in assistance insurance, where services are no longer covered under reinsurance contracts after the introduction of an own assistance network.

Best estimate provisions for life lines of business

(EUR thousand)	Gross BE
Line of business	31/12/2018	31/12/2017
Health insurance	–3,372	–1,824
Insurance with profit participation	260,256	294,784
Index-linked and unit-linked insurance	98,108	111,898
Other life insurance	42,714	49,651
Annuities stemming from non-life insurance contracts and relating to health insurance obligations	0	0
Annuities stemming from non-life insurance contracts and relating to insurance obligations other than health insurance obligations	25,186	18,815
Total	422,892	473,324

Changes in best estimate technical provisions are driven by movements in the portfolio. The best estimate provision decreased in insurance with profit participation, unit-linked business and some parts of other insurance due to maturities. For health insurance and part of other life business the best estimate provision declined as the result of writing new profitable business. Provisions relating to annuities stemming from non-life insurance contracts rose as the result of the recognition of new loss events.

D.2.3 Description of the level of uncertainty

The level of uncertainty associated with SII provisions has been tested by observing the sensitivity of the provision to key parameters of the calculation. An analysis has been conducted on the portfolios of the EU-based companies, separately for best estimate premium and claims provisions for direct business and for best estimate provisions for accepted reinsurance and best estimate provisions for life insurance. The following tables sets out the tested scenarios and their impact on the level of tested provisions.

Sensitivity testing of direct insurance premium provisions

Scenario	Stress impact (%)
	31/12/2018 31/12/2017
Increase in expected loss ratios of 5%	9.9%	10.7%
Increase in expenses (other than commissions) of 5%	2.4%	2.8%
Reduction of proportion of recourse receivables of 5%	0.4%	0.4%

Sensitivity testing of direct insurance claims provisions

Scenario	Stress impact (%)
	31/12/2018 31/12/2017
Increase in ultimate loss ratios for the most recent accident year of 5%	6.1%	5.6%
Increase in loss adjustment expenses of 10%	0.6%	0.6%
Reduction in proportion of recourse receivables of 5%	0.2%	0.2%

Sensitivity testing of the provision for accepted reinsurance

Scenario	Stress impact (%)
	31/12/2018 31/12/2017
Increase in expected loss ratios of 5%	7.3%	7.0%
Decline in not-past-due items (premiums less commissions) of 10%	4.4%	4.4%
Increase in expenses (other than commissions) of 50%	0.5%	0.5%

Sensitivity testing of the provision for life insurance

Scenario	Stress impact (%)
	31/12/2018 31/12/2017
Increase in expected mortality rates of 15%	1.0%	1.1%
Increase in expenses (other than commissions) of 10% and inflation rate of 1%	1.5%	1.3%
Increase in lapse rate of 50%	1.8%	1.5%

It should be noted that the calculation based on own (undertaking-specific) parameters for reserving risk yields lower results for most non-life lines of business than when using the parameters of the standard formula, which leads us to conclude that the volatility of the expected outgo and income used in the calculation of best estimate provisions is low.

Based on analyses, we estimate that the level of uncertainty in the calculation of provisions is low.

D.2.2 Comparison of IFRS technical provisions to Solvency II technical provisions

The main differences between the valuation of Solvency II and IFRS technical provisions are:

Solvency II provisions are based on the cash-flow principle and include expected future profits of the in-force portfolio, while the IFRS provisions are based on the principle of earned income less expenses. For this reason, it is not meaningful to compare the value of unearned premiums to best estimate premium provisions, as unearned premiums represent the amount of premiums not yet earned (the company's future income), while the premium provision takes into account all future cash flows expected of the in-force portfolio. Thus, as at 31 December 2018, the expected future profits from the active portfolio accounted for 7% (31/12/2017: 8%) of the difference between IFRS and SII provisions of non-life lines of business. Receivables and payables relating to not-past-due premiums and reinsurance commissions are eliminated from the calculation of best estimate premium provisions and are reclassified from the balance sheet items of the IFRS balance sheet. This reclassification represents 29% (31/12/2017: 32%) of the difference between IFRS and SII provisions of non-life lines of business.
Furthermore, a comparison of the values of the provisions under the two standards (IFRS and SII) is not immediately meaningful, although in terms of their purpose, the provisions under both standards are intended to cover claims incurred but not yet paid. A major substantive difference between the IFRS and Solvency II value of the claims provision is that the Solvency II provisions must be sufficient to meet obligations only in the weighted average of all possible scenarios, while IFRS provisions must be sufficient in practically all cases, which is why the assumptions for IFRS provisions are more prudent. When comparing the most material assumption about the expected ultimate loss ratio for non-life lines of business for the most recent year (where the uncertainty is largest), it stood at 72% for IFRS claims provisions (31/12/2017: 72%) and 60% for SII best estimate claims provisions (31/12/2017: 60%).
SII provisions for non-life insurance take into account the time value of money, while the corresponding IFRS provisions are generally not discounted. However, as interest rates are currently very low, this has no material effect on the difference between IFRS and SII provisions for this business.
Interest rates used for discounting and inflation assumptions also differ in reported non-life annuities (classified as life lines of business under SII); for SII provisions, the euro risk-free interest rate term structure is used, which for maturities of up to 24 years is lower than 1.5%, which is used in calculating IFRS provisions for these annuities.
SII provisions for life lines of business are based on expected cash flows and take into account both expected losses and profits from life business. The IFRS provision for life lines of business takes into account the expected present value of future cash flows via the LAT test, but only if it exceeds the current mathematical provision established. The test additionally includes profitable supplementary insurance business that lowers the estimated provision in the test. By contrast, SII provisions do not include cash flows from supplementary insurance because these are included in non-life lines of business. Consequently, SII provisions for insurance with profit participation are larger than IFRS provisions. This is additionally affected by the difference between the risk-free interest rate term structure and guaranteed interest rates. The SII value of provisions is lower than the IFRS value for risk and unit-linked life business due to the inclusion of expected future profits from mortality, morbidity and expenses. IFRS and SII provisions are similar across the entire portfolio of life lines of business.

D.3.2 Insurance and intermediaries payables

Insurance and intermediaries payables comprise payables relating to insurance claims and commissions from own insurance business and payables relating to claims and commissions for accepted (inward) reinsurance and coinsurance business. In the IFRS balance sheet, these are recognised on the accrual basis. SII valuation of insurance payables does not differ from the valuation in the IFRS balance sheet.

From this item, the Group eliminates not-past-due commission payables relating to accepted reinsurance and coinsurance business as at the SII balance sheet date of EUR 14.1 million (31/12/2017: EUR 13.7 million).

The Group takes this item into account as future cash flows when calculating best estimate premium provisions. Since the change in the premium provision in this part is disclosed as a reclassification, the exclusion of not-past-due payables is disclosed in the same manner in the Solvency II balance sheet.

D.3.3 Reinsurance payables

Reinsurance payables include premium payables relating to ceded reinsurance business of insurance companies and premium payables relating to retroceded reinsurance business of the reinsurer. In the IFRS balance sheet, these are recognised on the accrual basis by reference to (re) insurance accounts. Solvency II valuation of reinsurance payables does not differ from the valuation in the IFRS balance sheet.

The Group eliminates the following not-past-due reinsurance payables from the reinsurance payables as at the IFRS balance sheet date:

not-past-due premium payables relating to ceded business of insurance companies and
not-past-due premium payables relating to retroceded business of the reinsurance company.

These items in the total amount of EUR 3.4 million (31/12/2017: EUR 3.8 million) are taken into account as future cash flows when calculating future cash flows for the reinsurers' share of best estimate premium provisions. Since the change in the premium provision in this part is disclosed as a reclassification, the exclusion of not-past-due payables is disclosed in the same manner in the Solvency II balance sheet.

D.3 Other liabilities

Comparison of IFRS and SII values of other liabilities

(EUR thousand)	31/12/2018		31/12/2017
	IFRS value	SII value	IFRS value	SII value
Provisions other than technical provisions	7,590	7,590	7,601	7,558
Financial liabilities other than debts owed to credit institutions	269	269	245	245
Insurance and intermediaries payables	48,132	34,438	54,711	41,033
Reinsurance and coinsurance payables	6,176	2,802	5,160	1,381
Other payables (trade, not insurance)	10,006	10,006	7,168	6,787
Subordinated liabilities	0	0	0	0
Any other liabilities, not elsewhere shown	23,257	15,002	153,638	12,764

The Group has concluded some agreements on the operating lease of its business premises. No expenses in any material amount have been recognised in this regard.

Below we provide notes to the valuation of individual components of other liabilities.

D.3.1 Provisions other than technical provisions

Other provisions comprise the net present value of employee benefits including severance pay upon retirement and jubilee benefits. They are calculated in accordance with IAS 19, using the ratio of the period of service in the company.

The value of other provisions under the SII methodology is the same as in the IFRS balance sheet. The Group makes no reclassifications in the scope of these liabilities.

D.4 Alternative methods for valuation

The Group uses alternative valuation methods for obtaining the fair value of financial investments for which the Group has no available public market price. Alternative methods represent valuation at IFRS balance sheet values, valuation according to the model for EU-based pension companies (discussed in detail in section D.1.6 "Investments"), and the valuation of real property obtained from independent external property appraisers.

In 2018, the Group held the following financial investments in its portfolio, which were valued at IFRS balance sheet values:

non-liquid debt instruments,
unlisted equities,
deposits other than cash equivalents (including deposits to cedants).

The Group periodically (generally every three years) obtains fair value valuations of its properties for own use from independent external property appraisers and of its investment properties. In the Group estimates that these fair value appraisals are most representative of the amount for which the appraised properties could be exchanged between knowledgeable parties in arm's length transactions.

In 2018, the Group valued EUR 157 million of investments (31/12/2017: EUR 180 million) using alternative valuation methods. The smaller volume of investments measured using alternative valuation methods is the result of the change in the treatment of cash equivalents (demand deposits), which we consider valued at the quoted (market) price. A direct year-on-year comparison is therefore difficult.

In 2018, almost 55% of alternatively valued investments are shown at IFRS balance sheet values, 41% at values obtained from independent appraisers, while the remaining 4% stem from the model used for EU-based pension companies.

D.5 Any other information

The Group has no other material information relating to its valuation.

D.3.4 Other payables (trade, not insurance)

Other payables comprise short-term payables to employees for accrued salaries and reimbursement of expenses, tax liabilities, trade payables for operating expenses, and other payables. In the IFRS balance sheet, these are recognised on the accrual basis based on authentic documents.

These items are not revalued in the Solvency II balance sheet, nor are these items subject to reclassification based on the Solvency II requirements.

D.3.5 Subordinated liabilities

The parent company held no subordinated liabilities as at 31 December 2018.

D.3.6 Any other liabilities, not elsewhere shown

Other liabilities primarily include accrued expenses, deferred premium income, and deferred reinsurance and coinsurance commissions.

In this item, deferred commissions relating to accepted coinsurance and reinsurance are valued at nil, as is deferred technical income arising from the non-life insurance segment. The valuation of other liabilities in the SII balance sheet does not differ from the IFRS valuation.

E.2 Solvency capital requirement and minimum capital requirement

E.3 Use of the duration-based equity risk sub-module in the calculation of the solvency capital requirement (SCR)

- E.1 Own funds

E.4 Difference between the standard formula and any internal model used

E.5 Non-compliance with the minimum capital requirement (MCR) and non compliance with the solvency capital

As provided by the risk strategy, all Group subsidiaries must have, on an ongoing basis, a sufficient amount of capital available to meet solvency requirements. In addition, Group subsidiaries subject to the Solvency II regime must have enough capital to absorb small to medium fluctuations in own funds and the solvency capital requirement due to the standard formula methodology and potential small and medium stresses and scenarios materialising.

Every year, Group companies and the Group prepare a financial plan for the next three-year period. The financial plan of the Group and each company must be in line with the risk strategy, meaning that they must ensure the Group's and each company's capital adequacy at an acceptable level.

The first phase of the annual verification of the potential for capital optimisation and additional allocation of capital (dividends, own shares, acquisitions and similar) includes a review of the results of the last calculation of the level and composition of eligible own funds and the SCR. A financial plan for the following three-year period and a capital management plan are prepared based on this, including measures required to achieve the target capital allocation.

Three-year projections of financial parameters are the basis for calculating eligible own funds, the SCR and consequently the Group's solvency ratio. Calculations verify alignment with the risk appetite, whereupon adjustments to the financial plan are made, if necessary. The planned use of capital duly includes capital consumption items, such as regular dividends, own shares and projects that require additional capital.

In allocating capital to business segments, adequate return on equity is a prerequisite. For the capital allocated to cover risks, we seek to maximise the ratio of return generated by a particular operating segment tying up capital to allocated capital (optimum ratio of return to risk).

Capital management is defined in the capital management policy of the Sava Insurance Group and Sava Re, d.d. The policy lays down objectives and key activities related to capital management. Capital management is inseparable from the risk strategy, which defines the risk appetite.

The Group's capital management objectives are:

solvency, in the range of the optimal long-term capitalisation as defined in its risk strategy;
adequate degree of financing flexibility;
ability to achieve adequate profitability for operating segments that tie up capital;
ability to achieve an adequate return on equity or adequate dividend yields for shareholders.

The Group manages its capital to ensure that each Group company has available, on an ongoing basis, sufficient funds to meet its obligations and regulatory capital requirements. The composition of own funds held to ensure capital adequacy must comply with regulatory requirements and ensure an optimal balance between debt and equity capital. The amount of own funds of each Group company and the Group must be sufficient, at all times, to meet the statutory solvency capital requirement, as well as to satisfy the requirements of its target credit rating and other objectives of any Group member or the Group.

An important input element of capital management and business planning is the Group's risk strategy, including the risk appetite set out therein. For the purposes of determining a capital management framework, the Group risk strategy defines levels of capital adequacy as listed in section E.2. The level of capital adequacy for each Group company is determined based on the Group's capital adequacy.

The Group's risk strategy provides that capital adequacy must satisfy regulatory and rating agency requirements, and the parent company must have sufficient excess capital to meet potential capital requirements of subsidiaries if a major stress scenario were to materialise in any of them. To this end, an excess of eligible own funds is determined over the statutory requirement.

E Capital management

(EUR thousand)	31/12/2018	31/12/2017
Ordinary share capital (gross of own shares)	71,856	71,856
Non-available called but not paid in ordinary share capital at Group level	0	0
Share premium account related to ordinary share capital	43,036	43,036
Initial funds, members' contributions or the equivalent basic own-fund item for mutual and mutual-type undertakings	0	0
Subordinated mutual member accounts	0	0
Non-available subordinated mutual member accounts at Group level	0	0
Surplus funds	0	0
Non-available surplus funds at Group level	0	0
Preference shares	0	0
Non-available preference shares at Group level	0	0
Share premium account related to preference shares	0	0
Non-available share premium account related to preference shares at Group level	0	0
Reconciliation reserve (= (1) - (2) - (3) - (4) - (5) - (6))	356,700	336,393
(1) Excess of assets over liabilities	513,211	491,209
(2) Own shares (held directly and indirectly)	26,346	27,207
(3) Adjustment for restricted own-fund items in respect of matching adjustment portfolios and ring-fenced funds	0	0
(4) Foreseeable dividends, distributions and charges	14,723	12,398
(5) Other basic own funds items	115,442	115,211
(6) Other non-available own funds	0	0
Subordinated liabilities	0	0
Non-available subordinated liabilities at Group level	0	0
Amount equal to the value of net deferred tax assets	0	0
Amount equal to the value of net deferred tax assets not available at Group level	0	0
Minority interests (if not reported as part of a specific own funds item)	550	318
Unavailable minority interests at Group level	–195	–206
Deductions for participations in other financial undertakings, including non-regulated undertakings carrying out financial activities	–6,943	–8,353
Basic own funds after deductions	465,004	443,045
Basic own funds in other financial sectors	6,943	8,353
Group's available own funds	471,947	451,398

E.1 Own funds

As at 31 December 2018, the Group reported an excess of assets over liabilities of EUR 513,211 thousand (31/12/2017: EUR 491,209 thousand). Basic own funds are calculated as the excess of assets over liabilities, less the amount of own shares plus subordinated liabilities that are part of basic own funds. The Group would also have to decrease basic own funds by the total value of participations in other financial and credit institutions (excluding the insurer) exceeding 10% of the Group's own-fund items (paid-up share capital plus capital reserves). As at 31 December 2018, the Group did not have any such participations in other financial and credit institutions, the same as at 31 December 2017.

Basic own funds are also reduced by:

the foreseeable dividends in the amount of EUR 14,723 thousand (31/12/2017: EUR 12,398 thousand). Their amount is determined based on the proposed resolution of the parent company's management and supervisory boards for the general meeting;
EUR 195 thousand of minority interests not available at the Group level (31/12/2017: EUR 206 thousand);
deductions for participations in other financial undertakings, including non-regulated undertakings carrying out financial activities of EUR 6,943 thousand (31/12/2017: EUR 8,353 thousand), i.e. an amount equal to the amount of own funds of Sava Pokojninska;
other items in accordance with the provisions of ZZavar-1.

Basic own funds after deductions are obtained in this way. The Group's available own funds are basic own funds after deductions plus the own funds of other financial entities (Sava Pokojninska), which under ZZavar-1 are not subject to capital requirements under Solvency II.

As at 31 December 2018, the Group had no adjustments for other items in accordance with ZZavar-1, the same as at 31 December 2017.

Ancillary own funds are items that do not constitute basic own funds and that a company may call up to absorb its losses. They include unpaid share capital or uncalled initial funds, letters of credit and guarantees, and any other legal commitments undertaken by the Group. As at 31 December 2018, the Group held no ancillary own funds, the same as at 31 December 2017.

The Group held no subordinated liabilities as part of its basic own funds as at neither 31 December 2017 nor 31 December 2018.

The table below shows the composition of the Group's own funds.

The Group includes the following into its tier 1 own funds:

paid-up ordinary shares;
paid-up capital reserves;
the reconciliation reserve set as the excess of assets over liabilities, less paid-up ordinary shares and capital reserves, and less the value of own shares and foreseeable dividends.

Tier 2 funds include own fund items that mostly exhibit the features referred to in article 196(1) (2) of ZZavar-1; in the event of the Group's winding-up, such items become available to the holder only after all of the Group's other obligations are met and paid. Considered are features, such as permanence, confirmed absence of redemption incentives and encumbrances.

Tier 3 capital are own fund items classified as neither tier 1 nor tier 2. They include letters of credit and guarantees that are held in trust for the benefit of insurance creditors by an independent trustee and are provided to the Group by credit institutions. Tier 3 also includes own funds from net deferred tax assets.

Not all own funds are eligible for meeting capital requirements. The table below sets out the legal restrictions regarding how the Group solvency capital requirement (Group SCR) and the Group minimal capital requirement (Group MCR) are to be met.

Statutory restrictions regarding own funds designated to meet the Group SCR and the Group MCR

	Tier 1	Tier 2	Tier 3
Group SCR	min. 50%	35% to 50%	max. 15%
Group MCR	min. 80%	max. 20%	not eligible

Eligible own funds designated to meet the Group SCR are obtained from available own funds by additionally factoring in statutory restrictions. Eligible own funds to meet the Group MCR are obtained from basic own funds after making deductions subject to statutory restrictions.

The table below shows adjustments of IFRS equity for the SII valuation of the balance sheet.

Adjustments to IFRS equity for the SII valuation of the balance sheet

(EUR thousand)	31/12/2018	31/12/2017
IFRS equity	339,675	315,020
Difference in the valuation of assets	–135,221	–133,926
Difference in the valuation of technical provisions	301,791	299,674
Difference in the valuation of other liabilities	–19,380	–16,766
Foreseeable dividends, distributions and charges	–14,723	–12,398
Adjustment for minority interests	–195	–206
Deduction for participations in other financial undertakings	–6,943	–8,353
Basic own funds after deductions	465,004	443,045
Basic own funds in other financial sectors	6,943	8,353
Group's available own funds	471,947	451,398
Of which tier 1	471,947	451,398
Of which tier 2	0	0
Of which tier 3	0	0

As is evident from the table above with figures as at 31 December 2018, the majority of differences originate from differences in the valuation of technical provisions in accordance with the requirements of the Solvency II legislation in (re)insurance undertakings in and outside the European Union, the same as at 31 December 2017. A detailed description of the used methodology is provided in section D.2 of this document. In 2018, own funds saw minor growth, largely reflecting the Group's good result in 2018.

The Solvency II legislation classifies own funds into three capital tiers based on both permanence and loss absorbency.

Tier 1 funds include own funds that mostly meet the conditions laid down in article 196(1)(1) and 196(1)(2) of ZZavar-1; such items are available to absorb losses at all times (permanent availability) and in the event of the Group's winding-up they become available to the holder only after all of the Group's other obligations are met. Considered are features, such as permanence, confirmed absence of redemption incentives and encumbrances.

E.2 Solvency capital requirement and minimum capital requirement

E.2.1 Group solvency capital requirement (Group SCR)

The Group calculates its solvency capital requirement (SCR) and its minimum capital requirement (MCR) in accordance with the Solvency II standard formula. Solvency is calculated using the accounting consolidation method (first method in accordance with article 377 of ZZavar-1).

The SCR, as calculated based on consolidated figures of insurance undertakings in the Group (SCRkons) (hereinafter: "consolidated SCR at Group level"), is calculated as the BSCR plus adjustments for the loss-absorbing capacity of best estimate provisions and deferred taxes (Adj) plus the capital requirement for operational risk (SCROp). In accordance with article 336 of the Delegated Regulation, the Group solvency capital requirement (SCRGroup) is calculated as the sum of the consolidated SCR at the Group level plus the capital requirement for other financial sectors, calculated in accordance with relevant sectoral regulations (SCROFS) and capital requirements of other Group undertakings..

The solvency ratio is the ratio between Group eligible own funds and the Group SCR.

The table below shows individual risk modules along with other Group SCR components, Group own funds and the solvency ratio.

Group solvency capital requirement (Group SCR)

(EUR thousand)	31/12/2018	31/12/2017
Solvency capital requirement at Group level	216,735	205,015
Capital requirements of other financial sectors	5,532	5,300
Capital requirements of other undertakings	17,380	0
Consolidated SCR at Group level	193,823	199,716
Adjustments for TP and DT	–17,840	–218
Operational risk	16,358	15,407
Basic solvency capital requirement	195,304	184,526
Sum of risk components	293,212	272,615
Diversification effect	–97,907	–88,089
Market risk	60,439	51,671
Counterparty default risk	21,819	14,364
Life underwriting risk	43,695	40,210
Health underwriting risk	25,859	23,934
Non-life underwriting risk	141,399	142,437
Eligible own funds (excluding other financial sectors)	465,004	443,045
Eligible own funds in other financial sectors	6,943	8,353
Eligible own funds to meet the Group SCR	471,947	451,398

(EUR thousand)	31/12/2018	31/12/2017
Solvency capital requirement at Group level	216,735	205,015
Capital requirements of other financial sectors	5,532	5,300
Capital requirements of other undertakings	17,380	0
Consolidated SCR at Group level	193,823	199,716
Adjustments for TP and DT	–17,840	–218
Operational risk	16,358	15,407
Basic solvency capital requirement	195,304	184,526
Sum of risk components	293,212	272,615
Diversification effect	–97,907	–88,089
Market risk	60,439	51,671
Counterparty default risk	21,819	14,364
Life underwriting risk	43,695	40,210
Health underwriting risk	25,859	23,934
Non-life underwriting risk	141,399	142,437
Eligible own funds (excluding other financial sectors)	465,004	443,045
Eligible own funds in other financial sectors	6,943	8,353
Eligible own funds to meet the Group SCR	471,947	451,398
Solvency ratio	218%	220%

The two tables below show the amounts of the Group's eligible own funds designated to meet the Group SCR and the Group MCR as at 31 December 2018 and compared to figures as at 31 December 2017. They are classified into the statutory tiers described above.

11 In the remainder of this document, the term Group eligible own funds refers to eligible own funds designated to meet the Group SCR, unless stated otherwise.

Eligible own funds to meet the Group SCR

(EUR thousand)	Total	Tier 1	Tier 2	Tier 3
As at 31/12/2018	471,947	471,947	0	0
As at 31/12/2017	451,398	451,398	0	0

Eligible own funds to meet the Group MCR

(EUR thousand)	Total	Tier 1	Tier 2	Tier 3
As at 31/12/2018	465,004	465,004	0	–
As at 31/12/2017	443,045	443,045	0	–

As at 31 December 2018, all the Group's eligible own funds designated to meet the Group SCR and the Group MCR are tier 1 funds. The Group held no tier 2 or tier 3 eligible own fund items as at the reporting date11.

As provided for by article 330(1) of the Delegated Regulation, the parent company has assessed the availability of eligible own funds of associated undertakings at the Group level. No legal or regulatory requirements were found to apply to own fund items such as would restrict the ability of those items to absorb all types of losses Group-wide or restrict the transferability of assets to other Group companies, nor has a time limit been established for the availability of own funds to meet the Group SCR. The Group's subsidiaries and associates held no own fund items referred to in article 330(3) of the Delegated Regulation.

The only item of non-available own funds is thus minority interests in subsidiaries (insurance undertakings) exceeding the subsidiary's contribution to the SCR calculated based on consolidated data of insurance undertakings in the Group, in the amount of EUR 195 thousand as at 31 December 2018 (31/12/2017: EUR 206 thousand).

The Group has a long-term strategy embedded in its capital management policy of pursuing solvency within the range of optimal capitalisation as per its risk strategy, in which a major criteria of risk appetite is the level of the solvency ratio. In addition, with a view to maintaining credit ratings at the target level, the Group maintains eligible own funds at least at the level required for an "A"-range credit rating. It must also have available a sufficient level of eligible own funds to meet potential capital requirements of its subsidiaries if a major stress scenario were to materialise in any of them. To this end, an excess of eligible own funds is determined over the statutory requirement.

In line with the risk strategy, the Group's acceptable solvency ratio limit is therefore 140%, while its optimum capitalisation is in the 170–200% range.

Based on this, the Group's capital position as at 31 December 2018 is good, also by internal criteria. In December 2018, the Sava Re supervisory board approved the business plan of Sava Re and the Sava Insurance Group, including financial projections, and the calculation of eligible own funds, the SCR and the solvency ratio for the 2019–2021 period. The Group seeks to maintain its solvency ratio within the range of optimal capitalisation as defined in the risk strategy throughout the 2019–2021 period.

As evident from the chart below, the solvency ratio is aligned with the Group's risk strategy, its level above the ceiling of optimum capitalisation (in the appropriate capitalisation range).

Thus, as at 31 December 2018, the largest share of the Group SCR arose from risks associated with non-life business, the same as at 31 December 2017. The second largest group of risks faced by the Group is market risks, which grew in 2018.

The main methodological change in 2018 was the inclusion of the adjustment for the absorption capacity of deferred taxes, reducing the SCR by EUR 16.7 million12. Other methodological changes do not exceed the Group's materiality threshold.

The Group does not use the simplifications referred to in articles 88–112 of the Delegated Regulation, nor does it use undertaking-specific parameters in the calculation of the Group SCR.

The chart below shows the individual risk modules of the standard formula, the Group SCR and Group eligible own funds as at 31 December 2018.

12 In the table shown as part of the adjustment for TP and DT.

Solvency capital requirement by module

As illustrated by the chart above, Group eligible own funds markedly exceed the Group SCR, as reflected in the Group's high solvency ratio of 218% as at 31 December 2018 (31/12/2017: 220%).

E.3 Use of the duration-based equity risk submodule in the calculation of the solvency capital requirement (SCR)

The Group does not use the duration-based equity risk sub-module in the calculation of the SCR.

E.4 Difference between the standard formula and any internal model used

There are no differences between the standard formula and any internal model, because Group companies and the Group do not use an internal model for the calculation of the SCR.

E.5 Non-compliance with the minimum capital requirement (MCR) and non-compliance with the solvency capital requirement (SCR)

The Group experienced no non-compliance with either the minimum solvency requirement or the solvency capital requirement.

E.6 Any other information

The Group has no other material information relating to capital management.

E.2.2 Minimum capital requirement (MCR)

The Sava Insurance Group calculates the Group MCR as the sum of the parent company's MCR and the MCRs of subsidiaries, which are insurance companies; local capital requirements are factored in for insurance companies based outside the EU.

Input data for calculating the Group MCR

(EUR thousand)	31/12/2018	31/12/2017
Sava Re	40,639	40,018
Zavarovalnica Sava	43,309	47,187
Sava Neživotno Osiguranje (Serbia)	3,194	3,195
Sava Životno Osiguranje (Serbia)	3,194	3,195
Sava Osiguruvanje (North Macedonia)	2,995	3,014
Sava Osiguranje (Montenegro)	3,000	3,000
Illyria	3,200	3,200
Illyria Life	3,200	3,200
Group MCR	102,730	106,009

The Group's eligible own funds designated to meet the MCR of EUR 465,004 thousand (31/12/2017: EUR 443,045) substantially exceed the Group's MCR of EUR 102,730 thousand (31/12/2017: EUR 106,009 thousand).

Glossary of selected terms and calculation methodologies

English term	Slovenian term	Meaning	English term	Slovenian term	Meaning
Adjustment for loss absorbing capacity of technical provisions and deferred taxes – TP and DT adjustment	Prilagoditev zaradi absorbcijske zmožnosti zavarovalno-tehničnih rezervacij in odloženih davkov – TP in DT	The composition of the capital requirement under the standard formula also includes an adjustment for the loss absorbing capacity of technical provisions and deferred taxes. The adjustment reflects a potential compensation for unexpected losses by reducing technical provisions or	Key rate duration	Ključna stopnja trajanja	Key rate duration is an extension of modified duration, but measures the sensitivity of the shifts along the interest rate curve at specific (key) maturity points. The sum of all KRDs along all key maturity points approximates modified duration.
		deferred taxes or a combination of the two. The adjustment includes the effect of reduced risk due to future discretionary benefits on (re)insurance contracts, since (re)insurance companies may take into account that the reduction in such benefits may be used to cover potential unexpected losses.	Market value	Tržna vrednost	The amount for which an asset could be exchanged, or a liability settled, between knowledgeable and willing parties in an arm's length transaction. The amounts are based on prices in active and liquid markets that a company has access to and are commonly used.
Basic solvency capital requirement – BSCR	Osnovni zahtevani solventnostni kapital – BSCR	The basic solvency capital requirement within the framework of the standard formula is an amount based on the statutory calculation of the following risks: non-life underwriting risk, life underwriting risk, health underwriting risk, market risk and counterparty default risk.	Minimum capital requirement – MCR	Zahtevani minimalni kapital – MCR	The minimum capital requirement is equal to the amount of own funds below which policyholders, insured persons and other beneficiaries of insurance contracts would be exposed to an unacceptable level of risk if the insurer were allowed to continue operating.
Bloomberg valuation	Cena BVAL	Price obtained from the Bloomberg information system.	Modified duration	Modificirano trajanje	Modified duration measures the portfolio's sensitivity
Business continuity procedures	Načrt neprekinjenega delovanja	Document that includes procedures for ensuring the continuous operation of key business processes and systems. The contingency plan is an integral part of			to parallel shifts in the interest rate curve. A change in interest rates of +/- 1% has an impact of approximately -/+ MD% on the portfolio.
		the business continuity plan and sets out technical and organisational measures to restore operations and mitigate the consequences of severe business disruptions.	Operational limits	Operativni limiti	Operational limits for particular areas are determined on the basis of expressed risk tolerance limits. Underwriting limits or investment limits used by first-line-of-defence
Capital asset pricing model	CAPM	Model describing the relationship between risk and expected return on assets.			staff in the day-to-day risk management process to keep the Company within its set risk appetite range.
Composite bloomberg bond trader	Cena CBBT	Closing price published by the Bloomberg system based on binding bids.	Over the counter	Trg OTC	A transaction in the OTC market is one between two parties in securities or other financial instruments outside a regulated market.
European insurance and occupational pensions authority	EIOPA	European Insurance and Occupational Pensions Authority	Own funds	Primerni lastni viri sredstev	Own funds eligible to cover the solvency capital requirement.
IFRS	MSRP	International Financial Reporting Standards. EU-wide uniform set of rules governing the accounting of business transactions.	Own risk and solvency assessment – ORSA	Lastna ocena tveganj in solventnosti – ORSA	Own assessment of the risks associated with the Company's business and strategic plans and assessment of the adequacy of own funds to cover risks.

Appendix A – Glossary of selected terms and calculation methodologies

English term	Slovenian term	Meaning
Present value	Sedanja vrednost	The value of future cash flows recalculated to present-day values. This is done by discounting.
Probable maximum loss – PML	Največja verjetna škoda – PML	This is the maximum loss for a risk an insurer assesses could occur in one loss event. Normally, it is expressed as a percentage of the sum insured; in extreme cases, it equals the sum insured (PML is 100% of the sum insured).
Risk appetite	Pripravljenost za prevzem tveganj	Risk level that a company is willing to take in order to meet its strategic goals. At Sava Re defined based on the acceptable solvency ratio, the liquidity ratio of the assets,
Risk management system	Sistem upravljanja tveganj	profitability of insurance products and reputation risk. The risk management system is a set of measures taken by
		an insurer to manage (i.e. to identify, monitor, measure, manage, report) material risks arising from both the operations of a company and the external environment in order to enhance the implementation of strategic objectives and minimise any loss of own funds.
Risk profile	Profil tveganj	All of the risks that the Company is exposed to and the quantification of these exposures for all risk categories.
Risk Register	Register tveganj	List of all identified risks maintained and periodically updated by the Company.
Risk tolerance limits	Meje dovoljenega tveganja	Limits for risk categories included in the Company's risk profile and for risk measures monitored as part of day-to day risk management. Set annually and aligned with the risk appetite as stated in the Company's risk strategy and
		based on sensitivity analyses, stress tests and scenarios, or professional judgment.
Scenario test	Scenarijski test	Scenario-based tests seek to determine the impact of multiple changes in parameters, such as concurrent changes in different risks types affecting the insurance business, the value of financial assets and a change in interest rates.

requirement. It represents a company's capital adequacy in accordance with the Solvency II principles. A solvency ratio in excess of 100% indicates that the company has more than sufficient resources to meet the solvency capital requirement.

S.32.01.22 Undertakings in the scope of the Group

		Quantitative reporting templates
		the Group
	S.02.01.02	Balance sheet
	S.05.01.02	Premiums, claims and
	S.05.02.01	Premiums, claims and expenses by country
	S.23.01.22	Own funds
		Formula

S.05.01.02 Premiums, claims and expenses by line of business

S.05.02.01 Premiums, claims and expenses by country

S.25.01.22 Solvency Capital Requirement – for undertakings on Standard Formula

All amounts in the quantitative reporting templates are in thousands of euros.

S.32.01.22 Undertakings in the scope of the Group

									Criteria of influence					Inclusion in the scope of group supervision		Group solvency calculation
Country	Identification code of the undertaking	Type of code of the ID of the undertaking	Legal name of the undertaking	Type of undertaking	Legal form		Category (mutual/non mutual)	Supervisory authority	% capital share	consolidated accounts establishment of % used for the	% voting rights	Other criteria	Level of influence	used for group solvency Proportional share calculation	Yes/No	Date of decision if art. 214 is applied	Method used and under method 1, treatment of the undertaking
C0010	C0020	C0030	C0040	C0050	C0060	C0070	C0080			C0180 C0190 C0200 C0210		C0220	C0230	C0240	C0250	C0260
SI	SC/5946948000	Special code	TBS TEAM 24 d.o.o.	ancillary services undertaking as defined under Article 1(53) of Delegated regulation (EU) 2015/35	private limited liability company	non mutual		75.0%	100.0% 75.0%			dominant	100.0%	included in supervision		Method 1: full consolidation
MK	SC/5989434	Special code	SAVA PENZISKO DRUSTVO AD Skopje	institution for occupational retirement provision	public limited company	non mutual	Agency for Supervision of Fully Funded Pension Insurance – MAPAS		100.0% 100.0% 100.0%			dominant	100.0%	included in supervision		Method 1: adjusted equity method
SI	SC/8281262000	Special code	ZTSR, raziskovanje trga, d.o.o., Ljubljana	other	private limited liability company	non mutual		50.0%	50.0%	50.0%		significant 50.0%		included in supervision		Method 1: adjusted equity method
SI	SC/6383785	Special code	Sava Terra	ancillary services undertaking as defined under Article 1(53) of Delegated regulation (EU) 2015/35	private limited liability company	non mutual			100.0% 100.0% 100.0%			dominant	100.0%	included in supervision		Method 1: full consolidation
UK	SC/10735938	Special code	G2I Ltd	ancillary services undertaking as defined under Article 1(53) of Delegated regulation (EU) 2015/35	private limited liability company	non mutual	Financial conduct authority	17.5%	17.5%	25.0%		significant 17.5%		included in supervision		Method 1: adjusted equity method
XK	SC/70152892	Special code	Illyria s.h.a., Pristina	non-life insurance company	public limited company	non mutual	Kosovo Central Bank		100.0% 100.0% 100.0%			dominant	100.0%	included in supervision		Method 1: full consolidation
MK	SC/4778529	Special code	Sava osiguruvanje a.d., Skopje	non-life insurance company	public limited company	non mutual	North Macedonian Insurance Supervision Agency	92.6%	100.0% 92.6%			dominant	100.0%	included in supervision		Method 1: full consolidation
ME	SC/02303388	Special code	Sava osiguranje a.d., Podgorica	non-life insurance company	public limited company	non mutual	Montenegro Insurance Supervision Agency		100.0% 100.0% 100.0%			dominant	100.0%	included in supervision		Method 1: full consolidation
XK	SC/70520893	Special code	Illyria Life s.h.a., Pristina	life insurance company	public limited company	non mutual	Kosovo Central Bank		100.0% 100.0% 100.0%			dominant	100.0%	included in supervision		Method 1: full consolidation
RS	SC/20482443	Special code	Sava životno osiguranje a.d., Beograd	life insurance company	public limited company	non mutual	Serbian National Bank		100.0% 100.0% 100.0%			dominant	100.0%	included in supervision		Method 1: full consolidation
RS	SC/17407813	Special code	SAVA NEŽIVOTNO OSIGURANJE A.D.O. BEOGRAD	non-life insurance company	public limited company	non mutual	Serbian National Bank		100.0% 100.0% 100.0%			dominant	100.0%	included in supervision		Method 1: full consolidation

								Criteria of influence							Inclusion in the Group solvency scope of group calculation supervision
Country	Identification code of the undertaking	Type of code of the ID of the undertaking	Legal name of the undertaking	Type of undertaking	Legal form	Category (mutual/non mutual)	Supervisory authority	% capital share	consolidated accounts establishment of % used for the	% voting rights	Other criteria	Level of influence	used for group solvency Proportional share calculation	Yes/No	Date of decision if art. 214 is applied	Method used and under method 1, treatment of the undertaking
C0010	C0020	C0030	C0040	C0050	C0060	C0070	C0080			C0180 C0190 C0200 C0210		C0220	C0230	C0240	C0250	C0260
SI	LEI/48510000 OGX4W2DFYV52	LEI	ZAVAROVALNICA SAVA, zavarovalna družba, d.d.	composite insurance company	public limited company	non mutual	Slovenian Insurance Supervision Agency		100.0% 100.0% 100.0%			dominant	100.0%	included in supervision		Method 1: full consolidation
SI	LEI/213800K2 LJ7JKL6CU689	LEI	Sava pokojninska družba, d.d.	institution for occupational retirement provision	public limited company	non mutual	Slovenian Insurance Supervision Agency		100.0% 100.0% 100.0%			dominant	100.0%	included in supervision		Method 1: sector regulations
XK	SC/70587513	Special code	" Illyria Hospital " SH.P.K.	ancillary services undertaking as defined under Article 1(53) of Delegated regulation (EU) 2015/35	private limited liability company	non mutual			100.0% 100.0% 100.0%			dominant	100.0%	included in supervision		Method 1: full consolidation
ME	SC/02806380	Special code	Sava Car d.o.o., Podgorica	ancillary services undertaking as defined under Article 1(53) of Delegated regulation (EU) 2015/35	private limited liability company	non mutual	Ministry of Internal Affairs		100.0% 100.0% 100.0%			dominant	100.0%	included in supervision		Method 1: full consolidation
SI	SC/2238799000	Special code	ZS Svetovanje, storitve zavarovalnega zastopanja, d.o.o.	ancillary services undertaking as defined under Article 1(53) of Delegated regulation (EU) 2015/35	private limited liability company	non mutual	Slovenian Insurance Supervision Agency		100.0% 100.0% 100.0%			dominant	100.0%	included in supervision		Method 1: full consolidation
SI	SC/6149065000	Special code	ORNATUS KLICNI CENTER, podjetje za posredovanje telefonskih klicev, d.o.o.	ancillary services undertaking as defined under Article 1(53) of Delegated regulation (EU) 2015/35	private limited liability company	non mutual	Slovenian Insurance Supervision Agency		100.0% 100.0% 100.0%			dominant	100.0%	included in supervision		Method 1: full consolidation
ME	SC/1550411	Special code	DRUŠTVO ZA ZASTUPANJE U OSIGURANJU "SAVA AGENT" D.O.O. - Podgorica	ancillary services undertaking as defined under Article 1(53) of Delegated regulation (EU) 2015/35	private limited liability company	non mutual	Montenegro Insurance Supervision Agency		100.0% 100.0% 100.0%			dominant	100.0%	included in supervision		Method 1: full consolidation
MK	SC/7005350	Special code	Sava Station dooel Skopje	ancillary services undertaking as defined under Article 1(53) of Delegated regulation (EU) 2015/35	private limited liability company	non mutual	North Macedonian Ministry of Internal Affairs	92.6%	100.0% 92.6%			dominant	100.0%	included in supervision		Method 1: full consolidation
SI	LEI/549300P6 F1BDSFSW5T72	LEI	Pozavarovalnica Sava d.d., Ljubljana	reinsurance company	public limited company	non mutual	Slovenian Insurance Supervision Agency					dominant	100.0%	included in supervision		Method 1: full consolidation

Assets		C0010
Loans and mortgages	R0230	1,116
Loans on policies	R0240	49
Loans and mortgages to individuals	R0250	13
Other loans and mortgages	R0260	1,054
Reinsurance recoverables from:	R0270	20,663
Non-life and health similar to non-life	R0280	16,829
Non-life excluding health	R0290	16,180
Health similar to non-life	R0300	649
Life and health similar to life, excluding health and index-linked and unit-linked	R0310	3,834
Health similar to life	R0320	0
Life excluding health and index-linked and unit-linked	R0330	3,834
Life index-linked and unit-linked	R0340	0
Deposits to cedants	R0350	6,275
Insurance and intermediaries receivables	R0360	34,311
Reinsurance receivables	R0370	5,431
Receivables (trade, not insurance)	R0380	5,360
Own shares (held directly)	R0390	26,346
Amounts due in respect of own fund items or initial fund called up but not yet paid in	R0400	0
Cash and cash equivalents	R0410	55,518
Any other assets, not elsewhere shown	R0420	133

		Solvency II value
Assets		C0010
Loans and mortgages	R0230	1,116
Loans on policies	R0240	49
Loans and mortgages to individuals	R0250	13
Other loans and mortgages	R0260	1,054
Reinsurance recoverables from:	R0270	20,663
Non-life and health similar to non-life	R0280	16,829
Non-life excluding health	R0290	16,180
Health similar to non-life	R0300	649
Life and health similar to life, excluding health and index-linked and unit-linked	R0310	3,834
Health similar to life	R0320	0
Life excluding health and index-linked and unit-linked	R0330	3,834
Life index-linked and unit-linked	R0340	0
Deposits to cedants	R0350	6,275
Insurance and intermediaries receivables	R0360	34,311
Reinsurance receivables	R0370	5,431
Receivables (trade, not insurance)	R0380	5,360
Own shares (held directly)	R0390	26,346
Amounts due in respect of own fund items or initial fund called up but not yet paid in	R0400	0
Cash and cash equivalents	R0410	55,518
Any other assets, not elsewhere shown	R0420	133
Total assets	R0500	1,452,111

S.02.01.02 Balance sheet

		Solvency II value
Assets		C0010
Goodwill	R0010
Deferred acquisition costs	R0020
Intangible assets	R0030	0
Deferred tax assets	R0040	8,317
Pension benefit surplus	R0050	0
Property, plant & equipment held for own use	R0060	43,430
Investments (other than assets held for index-linked and unit-linked contracts)	R0070	1,111,941
Property (other than for own use)	R0080	21,477
Holdings in related undertakings, including participations	R0090	28,365
Equities	R0100	15,659
Equities – listed	R0110	13,346
Equities – unlisted	R0120	2,313
Bonds	R0130	978,652
Government Bonds	R0140	583,208
Corporate Bonds	R0150	395,444
Structured notes	R0160	0
Collateralised securities	R0170	0
Collective Investments Undertakings	R0180	39,924
Derivatives	R0190	0
Deposits other than cash equivalents	R0200	27,864
Other investments	R0210	0
Assets held for index-linked and unit-linked contracts	R0220	133,270

Liabilities
Best Estimate	R0710
Risk margin	R0720
Other technical provisions	R0730
Contingent liabilities	R0740
Provisions other than technical provisions	R0750
Pension benefit obligations	R0760
Deposits from reinsurers	R0770
Deferred tax liabilities	R0780
Derivatives	R0790
Debts owed to credit institutions	R0800
Financial liabilities other than debts owed to credit institutions	R0810
Insurance & intermediaries payables	R0820
Reinsurance payables	R0830
Payables (trade, not insurance)	R0840
Subordinated liabilities	R0850
Subordinated liabilities not in Basic Own Funds	R0860
Subordinated liabilities in Basic Own Funds	R0870
Any other liabilities, not elsewhere shown	R0880
Total liabilities	R0900

		Solvency II value
Liabilities		C0010
Best Estimate	R0710	98,108
Risk margin	R0720	7,941
Other technical provisions	R0730
Contingent liabilities	R0740	0
Provisions other than technical provisions	R0750	7,590
Pension benefit obligations	R0760	0
Deposits from reinsurers	R0770	0
Deferred tax liabilities	R0780	48,206
Derivatives	R0790	0
Debts owed to credit institutions	R0800	0
Financial liabilities other than debts owed to credit institutions	R0810	269
Insurance & intermediaries payables	R0820	34,438
Reinsurance payables	R0830	2,802
Payables (trade, not insurance)	R0840	10,006
Subordinated liabilities	R0850	0
Subordinated liabilities not in Basic Own Funds	R0860	0
Subordinated liabilities in Basic Own Funds	R0870	0
Any other liabilities, not elsewhere shown	R0880	15,002
Total liabilities	R0900	938,901
Excess of assets over liabilities	R1000	513,211

		Solvency II value
Liabilities		C0010
Technical provisions – non-life	R0510	373,432
Technical provisions – non-life (excluding health)	R0520	352,984
Technical provisions calculated as a whole	R0530	0
Best Estimate	R0540	318,106
Risk margin	R0550	34,879
Technical provisions – health (similar to non-life)	R0560	20,448
Technical provisions calculated as a whole	R0570	0
Best Estimate	R0580	12,204
Risk margin	R0590	8,244
Technical provisions – life (excluding index-linked and unit-linked)	R0600	341,107
Technical provisions – health (similar to life)	R0610	–2,558
Technical provisions calculated as a whole	R0620	0
Best Estimate	R0630	–3,372
Risk margin	R0640	813
Technical provisions – life (excluding health and index-linked and unit-linked)	R0650	343,665
Technical provisions calculated as a whole	R0660	0
Best Estimate	R0670	328,156
Risk margin	R0680	15,510
Technical provisions – index-linked and unit-linked	R0690	106,048
Technical provisions calculated as a whole	R0700	0

S.05.01.02 Premiums, claims and expenses by line of business

		Line of Business for: non-life insurance and reinsurance obligations (direct business and accepted proportional reinsurance)
		Medical expense insurance	Income protection insurance	Workers' compensation insurance	Motor vehicle liability insurance	Other motor insurance	Marine, aviation and transport insurance	Fire and other damage to property insurance	General liability insurance	Credit and suretyship insurance
		C0010	C0020	C0030	C0040	C0050	C0060	C0070	C0080	C0090
Premiums written
Gross – Direct Business	R0110	6,982	45,424	0	117,113	105,464	3,501	66,401	18,673	3,208
Gross – Proportional reinsurance accepted	R0120	107	1,315	0	237	1,629	5,959	42,675	2,688	341
Gross – Non-proportional reinsurance accepted	R0130
Reinsurers' share	R0140	732	–11	0	903	1,474	254	13,242	877	2
Net	R0200	6,357	46,750	0	116,448	105,618	9,205	95,834	20,485	3,547
Premiums earned
Gross – Direct Business	R0210	7,460	45,140	0	111,521	99,583	3,459	64,226	18,361	4,013
Gross – Proportional reinsurance accepted	R0220	112	1,351	0	273	2,645	5,929	43,914	2,833	204
Gross – Non-proportional reinsurance accepted	R0230
Reinsurers' share	R0240	692	–22	0	983	1,416	408	12,698	902	1
Net	R0300	6,880	46,513	0	110,811	100,813	8,980	95,443	20,292	4,216
Claims incurred
Gross – Direct Business	R0310	4,635	16,912	0	62,887	73,665	1,086	28,882	2,851	2,397
Gross – Proportional reinsurance accepted	R0320	–108	386	0	–801	1,858	5,245	27,021	802	136
Gross – Non-proportional reinsurance accepted	R0330
Reinsurers' share	R0340	267	197	0	–1,336	966	443	4,937	3,128	0
Net	R0400	4,260	17,102	0	63,422	74,557	5,888	50,966	524	2,533
Changes in other technical provisions
Gross – Direct Business	R0410	42	–125	0	341	1,307	–62	1,022	–62	–372
Gross – Proportional reinsurance accepted	R0420	–1	0	0	0	18	240	0	0	12
Gross – Non-proportional reinsurance accepted	R0430
Reinsurers' share	R0440	0	2	0	11	–4	–3	43	–1	–62
Net	R0500	41	–127	0	331	1,329	180	979	–61	–298
Expenses incurred	R0550	2,446	14,560	0	33,794	26,740	3,687	47,366	8,643	933
Other expenses	R1200
Total expenses	R1300

			Line of Business for: non-life insurance and reinsurance obligations (direct business and accepted proportional reinsurance)		Line of Business for: accepted non-proportional reinsurance
		Legal expenses insurance	Assistance	Miscellaneous financial loss	Health	Casualty	Marine, aviation, transport	Property	Total
		C0100	C0110	C0120	C0130	C0140	C0150	C0160	C0200
Premiums written
Gross – Direct Business	R0110	755	15,949	2,741					386,212
Gross – Proportional reinsurance accepted	R0120	0	0	–573					54,378
Gross – Non-proportional reinsurance accepted	R0130				314	1,734	5,883	27,009	34,939
Reinsurers' share	R0140	629	66	719	0	946	598	6,038	26,469
Net	R0200	127	15,883	1,449	314	788	5,285	20,971	449,060
Premiums earned
Gross – Direct Business	R0210	774	14,938	2,594					372,068
Gross – Proportional reinsurance accepted	R0220	2	0	–240					57,023
Gross – Non-proportional reinsurance accepted					277	1,776	5,546	27,456	35,056
Reinsurers' share	R0240	601	3,428	712	0	1,076	569	5,903	29,367
Net	R0300	175	11,510	1,641	277	701	4,977	21,553	434,781
Claims incurred
Gross – Direct Business	R0310	–8	8,684	1,019					203,010
Gross – Proportional reinsurance accepted	R0320	–1	0	–89					34,449
Gross – Non-proportional reinsurance accepted					234	1,136	7,343	11,528	20,240
Reinsurers' share	R0340	0	2,795	–159	0	2,852	125	2,157	16,370
Net	R0400	–9	5,889	1,089	234	–1,716	7,218	9,370	241,328
Changes in other technical provisions
Gross – Direct Business	R0410	–1	–1	28					2,117
Gross – Proportional reinsurance accepted	R0420	0	0	0					269
Gross – Non-proportional reinsurance accepted	R0430				0	0	0	0	0
Reinsurers' share	R0440	0	0	16	0	0	0	0	2
Net	R0500	–1	–1	12	0	0	0	0	2,384
Expenses incurred	R0550	263	6,746	1,239	100	539	976	5,920	153,952
Other expenses	R1200								0
Total expenses	R1300								153,952

				Line of Business for: life insurance obligations		Life reinsurance obligations
		Health insurance	Insurance with profit participation	Index-linked and unit-linked insurance	Other life insurance	Annuities stemming from non-life insurance contracts and relating to health insurance obligations	Annuities stemming from non-life insurance contracts and relating to insurance obligations other than health insurance obligations	Health reinsurance	Life reinsurance	Total
		C0210	C0220	C0230	C0240	C0250	C0260	C0270	C0280	C0300
Premiums written
Gross	R1410	826	19,049	25,440	23,237	0	0	0	0	68,551
Reinsurers' share	R1420	4	9	103	357	0	0	0	0	474
Net	R1500	821	19,040	25,337	22,879	0	0	0	0	68,077
Premiums earned
Gross	R1510	819	19,027	25,440	23,232	0	0	0	0	68,517
Reinsurers' share	R1520	2	10	103	733	0	0	0	0	848
Net	R1600	817	19,016	25,337	22,499	0	0	0	0	67,670
Claims incurred
Gross	R1610	253	41,051	21,990	16,270	0	6,479	0	0	86,043
Reinsurers' share	R1620	0	0	28	199	0	5,282	0	0	5,510
Net	R1700	253	41,051	21,961	16,071	0	1,197	0	0	80,534
Changes in other technical provisions
Gross	R1710	93	19,919	10,630	2,734	0	0	0	0	33,377
Reinsurers' share	R1720	0	0	0	0	0	0	0	0	0
Net	R1800	93	19,919	10,630	2,734	0	0	0	0	33,377
Expenses incurred	R1900	124	3,601	5,007	8,600	0	46	0	0	17,378
Other expenses	R2600									0
Total expenses	R2600									17,378

S.05.02.01 Premiums, claims and expenses by country

		Home Country		Top 5 countries (by amount of gross premiums written) – non-life obligations
		C0010	C0020	C0030	C0040	C0050	C0060	C0070
	R0010		China	South Korea	Macedonia	Montenegro	Serbia
		C0080	C0090	C0100	C0110	C0120	C0130	C0140
Premiums written
Gross – Direct Business	R0110	330,615	0	0	13,038	12,804	19,402	375,859
Gross – Proportional reinsurance accepted	R0120	523	5,773	12,537	0	12	845	19,690
Gross – Non-proportional reinsurance accepted	R0130	114	2,559	1,682	0	15	476	4,847
Reinsurers' share	R0140	78,402	0	0	1,559	1,598	2,219	83,777
Net	R0200	252,850	8,332	14,219	11,479	11,234	18,504	316,618
Premiums earned
Gross – Direct Business	R0210	317,439	0	0	12,654	12,358	19,146	361,598
Gross – Proportional reinsurance accepted	R0220	542	6,678	13,977	0	19	870	22,086
Gross – Non-proportional reinsurance accepted	R0230	142	2,637	1,636	1	15	460	4,892
Reinsurers' share	R0240	79,434	0	0	1,499	1,810	2,002	84,745
Net	R0300	238,689	9,315	15,613	11,157	10,582	18,475	303,831
Claims incurred
Gross – Direct Business	R0310	178,014	0	0	5,278	4,612	7,415	195,320
Gross – Proportional reinsurance accepted	R0320	–1,046	4,728	9,268	–4	–3	327	13,270
Gross – Non-proportional reinsurance accepted	R0330	–562	841	3,283	0	0	333	3,894
Reinsurers' share	R0340	33,762	0	0	117	406	866	35,151
Net	R0400	142,644	5,569	12,551	5,158	4,204	7,209	177,334
Changes in other technical provisions
Gross – Direct Business	R0410	2,303	0	0	–40	32	153	2,448
Gross – Proportional reinsurance accepted	R0420	0	14	31	0	0	0	46
Gross – Non-proportional reinsurance accepted	R0430	0	0	0	0	0	0	0
Reinsurers' share	R0440	2	0	0	0	0	0	2
Net	R0500	2,301	14	31	–40	32	153	2,492
Expenses incurred	R0550	78,562	2,936	5,721	5,190	5,644	9,958	108,010
Other expenses	R1200							0
Total expenses	R1300							108,010

		Home Country		Top 5 countries (by amount of gross premiums written) – life obligations	Total Top 5 and home country
		C0150	C0160	C0170	C0180	C0190	C0200	C0210
	R1400
		C0220	C0230	C0240	C0250	C0260	C0270	C0280
Premiums written
Gross	R1410	64,516						64,516
Reinsurers' share	R1420	470						470
Net	R1500	64,046						64,046
Premiums earned
Gross	R1510	64,483						64,483
Reinsurers' share	R1520	483						483
Net	R1600	63,999						63,999
Claims incurred
Gross	R1610	85,355						85,355
Reinsurers' share	R1620	5,385						5,385
Net	R1700	79,971						79,971
Changes in other technical provisions
Gross	R1710	35,156						35,156
Reinsurers' share	R1720	0						0
Net	R1800	35,156						35,156
Expenses incurred	R1900	15,075						15,075
Other expenses	R2500							0
Total expenses	R2600							15,075

			unrestricted
		C0010	C0020	C0030	C0040	C0050
Own funds from the financial statements that should not be represented by the reconciliation reserve and do not meet the criteria to be classified as Solvency II own funds
Own funds from the financial statements that should not be represented by the reconciliation reserve and do not meet the criteria to be classified as Solvency II own funds	R0220	0
Deductions
Deductions for participations in other financial undertakings, including non-regulated undertakings carrying out financial activities	R0230	6,943	6,943	0	0
whereof deducted according to art 228 of the Directive 2009/138/EC	R0240	0	0	0	0
Deductions for participations where there is non availability of information (Article 229)	R0250	0	0	0	0	0
Deduction for participations included by using D&A when a combination of methods is used	R0260	0	0	0	0	0
Total of non-available own fund items	R0270	195	195	0	0	0
Total deductions	R0280	7,138	7,138	0	0	0
Total basic own funds after deductions	R0290		465,004 465,004	0	0	0
Ancillary own funds
Unpaid and uncalled ordinary share capital callable on demand	R0300	0			0
Unpaid and uncalled initial funds, members' contributions or the equivalent basic own fund item for mutual and mutual-type undertakings, callable on demand	R0310	0			0	0
Unpaid and uncalled preference shares callable on demand	R0320	0			0	0
A legally binding commitment to subscribe and pay for subordinated liabilities on demand	R0330	0			0	0
Letters of credit and guarantees under Article 96(2) of the Directive 2009/138/EC	R0340	0			0
Letters of credit and guarantees other than under Article 96(2) of the Directive 2009/138/EC	R0350	0			0	0
Supplementary members calls under first subparagraph of

S.23.01.22 Own funds

		Total	Tier 1 – unrestricted	Tier 1 – restricted	Tier 2	Tier 3
		C0010	C0020	C0030	C0040	C0050
Basic own funds before deduction for participations in other financial sector
Ordinary share capital (gross of own shares)	R0010	71,856	71,856		0
Non-available called but not paid in ordinary share capital at group level	R0020	0	0		0
Share premium account related to ordinary share capital	R0030	43,036	43,036		0
Initial funds, members' contributions or the equivalent basic own-fund item for mutual and mutual-type undertakings	R0040	0	0		0
Subordinated mutual member accounts	R0050	0		0	0	0
Non-available subordinated mutual member accounts at group level	R0060	0		0	0	0
Surplus funds	R0070	0	0
Non-available surplus funds at group level	R0080	0	0
Preference shares	R0090	0		0	0	0
Non-available preference shares at group level	R0100	0		0	0	0
Share premium account related to preference shares	R0110	0		0	0	0
Non-available share premium account related to preference shares at group level	R0120	0		0	0	0
Reconciliation reserve	R0130	356,700	356,700
Subordinated liabilities	R0140	0		0	0	0
Non-available subordinated liabilities at group level	R0150	0		0	0	0
An amount equal to the value of net deferred tax assets	R0160	0				0
The amount equal to the value of net deferred tax assets not available at the group level	R0170	0				0
Other items approved by supervisory authority as basic own funds not specified above	R0180	0	0	0	0	0
Non-available own funds related to other own funds items approved by supervisory authority	R0190	0	0	0	0	0
Minority interests (if not reported as part of a specific own fund item)	R0200	550	550	0	0	0
Non-available minority interests at group level	R0210	195	195	0	0	0

Group SCR	R0680	216,735
Ratio of Eligible own funds to group SCR including other financial sectors and the undertakings included via D&A		R0690 217.7532%

Reconciliation reserve
Excess of assets over liabilities	R0700	513,211
Own shares (held directly and indirectly)	R0710	26,346
Foreseeable dividends, distributions and charges	R0720	14,723
Other basic own fund items	R0730	115,442
Adjustment for restricted own fund items in respect of matching adjustment portfolios and ring-fenced funds	R0740	0
Other non-available own funds	R0750	0
Reconciliation reserve before deduction for participations in other financial sector		R0760 356,700
Expected profits
Expected profits included in future premiums (EPIFP) – Life business	R0770	52,420
Expected profits included in future premiums (EPIFP) – Non- life business	R0780	18,512
Total Expected profits included in future premiums (EPIFP)	R0790	70,931

		Total	Tier 1 – unrestricted	Tier 1 – restricted	Tier 2	Tier 3
		C0010	C0020	C0030	C0040	C0050
Supplementary members calls – other than under first subparagraph of Article 96(3) of the Directive 2009/138/ EC	R0370	0			0	0
Non available ancillary own funds at group level	R0380	0			0	0
Other ancillary own funds	R0390	0			0	0
Total ancillary own funds	R0400	0			0	0
Own funds of other financial sectors
Credit Institutions, investment firms, financial institutions, alternative investment fund manager, financial institutions	R0410	0	0	0	0
Institutions for occupational retirement provision	R0420	6,943	6,943	0	0	0
Non-regulated entities carrying out financial activities	R0430	0	0	0	0
Total own funds of other financial sectors	R0440	6,943	6,943	0	0	0
Own funds when using the D&A, exclusively or in combination of method 1
Own funds aggregated when using the D&A and combination of method	R0450	0	0	0	0	0
Own funds aggregated when using the D&A and a combination of method net of IGT	R0460	0	0	0	0	0

Total available own funds to meet the consolidated group SCR (excluding own funds from other financial sector and from the undertakings included via D&A)	R0520		465,004 465,004	0	0	0
Total available own funds to meet the minimum consolidated group SCR	R0530		465,004 465,004	0	0
Total eligible own funds to meet the consolidated group SCR (excluding own funds from other financial sector and from the undertakings included via D&A)	R0560		465,004 465,004	0	0	0
Total eligible own funds to meet the minimum consolidated group SCR	R0570		465,004 465,004	0	0
Minimum consolidated Group SCR	R0610	102,730
Ratio of Eligible own funds to Minimum Consolidated Group SCR		R0650 452.6456%
Total eligible own funds to meet the group SCR (including own funds from other financial sector and from the undertakings included via D&A)	R0660	471,947	471,947	0	0	0

Calculation of Solvency Capital Requirement		C0100
Operational risk	R0130	16,358
Loss-absorbing capacity of technical provisions	R0140	–1,176
Loss-absorbing capacity of deferred taxes	R0150	–16,664
Capital requirement for business operated in accordance with Art. 4 of Directive 2003/41/EC	R0160	0
Solvency capital requirement excluding capital add-on	R0200	193,823
Capital add-on already set	R0210	0
Solvency capital requirement	R0220	216,735
Other information on SCR
Capital requirement for duration-based equity risk sub-module	R0400	0
Total amount of Notional Solvency Capital Requirements for remaining part	R0410	0
Total amount of Notional Solvency Capital Requirements for ring-fenced funds	R0420	0
Total amount of Notional Solvency Capital Requirements for matching adjustment portfolios	R0430	0
Diversification effects due to RFF nSCR aggregation for Article 304	R0440	0
Minimum consolidated group solvency capital requirement	R0470	102,730
Information on other entities
Capital requirement for other financial sectors (Non-insurance capital requirements)	R0500	5,532
Capital requirement for other financial sectors (Non-insurance capital requirements) – Credit institutions, investment firms and financial institutions, alternative investment funds managers, UCITS management companies	R0510	0
Capital requirement for other financial sectors (Non-insurance capital requirements) – Institutions for occupational retirement provisions	R0520	5,532
Capital requirement for other financial sectors (Non-insurance capital requirements) – Capital requirement for non- regulated entities carrying out financial activities	R0530	0
Capital requirement for non-controlled participation requirements	R0540	0
Capital requirement for residual undertakings	R0550	17,380
Overall SCR
SCR for undertakings included via D and A	R0560	0
Solvency capital requirement	R0570	216,735

		Gross solvency capital requirement	USP	Simplifications
		C0110	C0090	C0120
Market risk	R0010	60,439
Counterparty default risk	R0020	21,819
Life underwriting risk	R0030	43,695	none
Health underwriting risk	R0040	25,859	none
Non-life underwriting risk	R0050	141,399	none
Diversification	R0060	–97,907
Intangible asset risk	R0070	0
Basic Solvency Capital Requirement	R0100	195,304

S.25.01.22 Solvency Capital Requirement – for undertakings on Standard Formula

AI Terminal

Pozavarovalnica Sava

1987_rns_2019-06-04_13296868-c7ea-4ca9-bbe7-c5a32cd758a6.pdf

Srečko Čebron Member of the Management Board

Management board of Sava Re d.d.

General information

SUMMARY

A BUSINESS AND PERFORMANCE

B SYSTEM OF GOVERNANCE

B.4 Internal control system

C GROUP RISK PROFILE

D VALUATION FORSOLVENCY PURPOSES

Contents

CONTENTS

Business and performance1

Introduction

Profile of the Group

Summary

Strategic focus of the Sava Insurance Group

The key guidelines set out in the Group's strategy are:

CONTENTS

Risk profile

Solvency capital requirement by risk module

System of governance

Capital management

Capital adequacy of the Group

Valuation for solvency purposes

Adjustments to IFRS equity for the SII valuation of the balance sheet

A.1 Business

Name and legal form of the parent company

List of Group companies

Subsidiaries and associates as at 31 December 2018

Name and contact details of the parent company's external auditor

Name and contact details of the supervisory authority responsible for the prudential control of the parent company

CONTENTS

Premiums by line of business

Major countries in which the Group operates4

Holders of qualifying shares in the parent company as at 31 December 2018

Major lines of business transacted and major markets of the Group3

Significant events after the reporting date

Significant events in 2018

A.2 Underwriting performance5

Premiums

Consolidated gross premiums written and net premiums earned

Consolidated gross premiums written by region

Consolidated gross premiums written by material line of business

Consolidated net premiums earned by material line of business

CONTENTS

Consolidated net claims incurred by material line of business

Claims

Consolidated gross claims paid and net claims incurred

Consolidated gross claims paid by region

Expenses

Composition of the consolidated gross income statement

Investment income and expenses by type

Type of income (EUR thousands) 01/01–31/12

A.3 Investment performance

Consolidated net inv. income of the investment portfolio

Fair value reserve – movement

Net investment income by class of asset

CONTENTS

Investments in and amounts due from Group companies

Payables to Group companies

A.5 Any other information

A.4 Performance of other activities

Lease contracts

Material intra-Group business

Income and expenses relating to Group companies

Supervision of individual Sava Insurance Group members

Communication between Sava Insurance Group members

Planning and reporting of Sava Insurance Group subsidiaries

B.1 General information on the system of governance

B.1.1 Governance of the Sava Insurance Group

Supervisory body (supervisory board, board of directors, supervisory committee and similar)

B.1.2 Governing bodies

General meeting of shareholders

Composition of the supervisory board in 2018

Supervisory board committees

Management body (management board, managing director, executive director)

B.1.4 Risk management