President of the Management Board on the business year of 2016

Dear policyholders and business partners, honourable shareholders, distinguished co-workers,
 
the year 2016 has been an extremely dynamic one for the insurance company Adriatic Slovenica (AS). We have made some major strides towards ensuring long-term stability and future development. 
 
Even traditional industries such as insurance cannot escape global trends. Digitalization is the new reality that has permeated every pore of our lives and is also increasingly affecting our business. Another significant trend that has a direct impact on our operation is demographics. The structure of the population is changing, people are growing older and life expectancy is increasing, which means that insurers are faced with new challenges.
 
In view of the demographic changes, our focus in the past year has been on developing life insurance. In the field of health insurance, we have launched a new service – we have established the Centre Health AS which links and upgrade existing health insurance with assistance services. This allows us to offer our policyholders a range of clear and efficient solution as well as the very welcome assistance in navigating through the public health system. In the past year, we found the appropriate specialist or the shortest waiting time for our policyholders on 4,187 occasions, securing them an average waiting time of 10 days for an appointment with a specialist. The second milestone has been the establishment of the first own outpatient clinic in Ljubljana Health AS which has given us a substantial comparative edge and represents a springboard for the establishment of an own network of outpatient clinics in Slovenia with a view to providing high quality health services. We have launched the new Pension Saving AS aimed at everyone looking for greater financial security upon retirement. This insurance product provides a saving plan under favourable tax conditions as well as a high level of long-term security of investment thanks to the life-cycle investment policy.
 
We continue to maintain a surplus capital adequacy even under the methodology of Solvency II. It has been further enhanced through the issue of a subordinated bond in accordance with the Solvency II Regulation placed on the international capital market. The raised funds have been used for enhancing our capital adequacy and for the purchase of the company KD Skladi. Thanks to this purchase, we can now truly provide our clients with a comprehensive range of products and services. The existing insurance cover has been complemented with numerous saving solutions and asset management services provided by the most successful asset managers in Slovenia in recent years.
 
In 2016, we have managed to maintain a high level of financial stability of our operations as well as the "BBB-" financial strength rating of the insurance company which has been reaffirmed by the international rating agency Fitch Ratings.
 
At the end of 2015, we entered the Croatian non-life insurance market through our branch, having previously already sold life insurance on the Croatian market. In the beginning of 2016, we launched a communication campaign promoting our most significant novelty in this market – i.e. the online sale of motor vehicle insurance. We are planning to expand online sale to other non-life insurance products.
 
In 2016, we posted a total of EUR 303.5 million of gross insurance premium including inflows into pension funds; our market share of 15.1 % puts us in third place on the Slovene insurance market. In spite of the increasingly harsh business environment marked by ever tougher competition and the falling profitability of financial instruments, we recorded positive growth in all three business segments in the past year. The highest growth rate was achieved in life and pension insurance (6.6% including inflows into pension funds). A growth rate of 2 % was recorded in non-life insurance and in health insurance, supplementary health insurance accounted for the bulk of the growth. On the other hand, we also recorded an increase in gross claims paid which went up by 2.5 percent compared to 2015 (EUR 218.7 million in total). In the non-life insurance segment, claims arising from motor vehicle insurance have shown the greatest increase; claims related to damage caused by summer hailstorms to vehicles and property have also gone up, as have international claims and claims related to trucks. Due to the age of the life insurance portfolio, an increase in the number of maturities was recorded in 2016, particularly in unit-linked life insurance. For the second successive year, we recorded a high increase in claims arising from complementary health insurance. In the past year, this increase has been primarily the result of the higher number of provided health services, the expansion of certain health programmes and the shortening of waiting times. Predictions show that surcharges for health services will continue to rise, so the increase of the premium taking effect as of 1 March 2017 is inevitable. In general, significant changes are to be expected in the field of health insurance, brought on by the new draft Health Care and Health Insurance Act. We have adjusted our development strategy accordingly and are prepared for the coming changes, our ambition being a system that will guarantee financial sustainability, efficiency and intergenerational solidarity.
 
We ended 2016 with a net profit of EUR 11.9 million. Our operation was safe, efficient and profitable, allowing us to achieve a 12.1 percent return on equity. We placed an even stronger emphasis on the accessibility of our services and customer satisfaction. We have successfully launched the modern, safe and fast online portal MOJ AS, allowing clients to review their policies, check their payments, modify payment methods, file claims and monitor claim handling by themselves anywhere and anytime. We have upgraded assistance services for motor vehicle insurance policyholders and have developed an even friendlier roadside assistance service in cooperation with partner garages and repairers.
 
Trust is one of the key values in our new reality but it can in no way be taken for granted. We need to reaffirm it with every customer through credible, clear and simple messages and services. That is why I am very pleased that our customers have recognized our efforts once again. In the opinion survey Zavarovalniški monitor 2016, the public has ranked us in second place in terms of visibility, likeability and variety of choice, while the professional public recognizes us as a financial institution with an above-average reputation. In-house surveys on the satisfaction of our policyholders also prove that we are doing well.
 
The full circle of safety that brings together our insurance products and services is therefore truly dynamic and very much alive. We are constantly on the lookout for innovative solutions while our industry is faced with new and increasingly demanding regulations. How swiftly we respond is up to us. I therefore optimistically view the Organisational Energy Prize awarded to our more than thousand-strong team last year as an assurance that we can master the new reality.
 
Sincerely,
 
Gabrijel Škof,
President of the Management Board