Under its responsibility the reporting process was conducted applying the Guiding Principles and Content Elements envisaged by the International <IR> Framework.
In January, Assicurazioni Generali issued a senior bond for a total amount of € 1,250 million, underwritten for approximately 90% by foreign institutional investors. The issuance proceeds were used to refinance part of the Group's senior debt maturing in 2014, amounting to € 2,250 million, in line with the Group’s funding strategy. In May and November, senior bonds were reimbursed for € 1,500 million and € 750 million, respectively, thus reducing the senior bond for € 1 billion through internal resources.
In April, Generali placed a fixed rate 12-year subordinated bond for an overall amount of € 1 billion. The issuance, paying a 4.125% coupon, was directed to institutional investors; the demand was 7 times higher than the amount placed on the market. The issuance was used to both strengthen the regulatory capital position following the non-eligibility of the € 500 million subordinated loan issued in 2008 and reimbursed in April 2014, and to refinance the senior debt due in 2015, at a lower cost for the Group.
Assicurazioni Generali announced in early November a buyback operation on three hybrid bonds. Such operation, covered by a new issuance, aimed to efficiently refinance the Group’s debt maturing between June 2016 and February 2017, in line with the objective of reducing interest expenses over the next years in order to optimize its regulatory capital structure.
A summary table on the ratings assigned to Generali is presented below: Rating outlook
u We believe that technological development is a crucial element for providing effective and appealing insurance solutions: we are working on the digitalization processes in order to allow our clients to have access to insurance solutions via several tools, in line with new habits and needs. Our aim is to become an excellent designer of insurance solutions to be distributed through a variety of channels. For this reason, the Technical Excellence program is key to our activities.
lives Ultimately, we have an impact on the quality of people’s lives: wealth, safety, advice and service are instrumental in improving people’s quality of life for the long term.
First choice Logical and natural action that acknowledges the best offer in the market based on clear advantages and benefits.
Committee (GMC); — office heads and managers of control functions, for whom further specifics and disposals are required, according to the regulatory requirements dedicated to those roles; — other roles which directly report to the Group CEO, with a significant impact on the risk and strategic profile of the Group; — the other members of the Global Leadership Group (GLG).
— Balanced remuneration packages based on role, responsabilities, skills and abilities demonstrated; — same approach across countries/regions/business and functions.
Merit is a key element of our compensation policy. The variable remuneration of Group executives is made up of a short-and a long- term component: − the Group Short-Term Incentive (STI) is the annual cash bonus system for the Group CEO and for the members of GMC and GLG providing for an individual bonus from 0% to 200% of baseline target depending on: • Group funding capacity linked to the Group operating result and net result; • individual balanced scorecards, based on 5 to 9 goals linked to value creation, risk adjusted profitability, process effectiveness and customer and people management.
The compensation policy is approved by the General Meeting, upon the Board of Directors proposal and the Remuneration Committee recommendation, according to the regulatory and governance requirements.
The economic growth in France was weak (+0.4% annual growth at the third quarter). With regards to the financial markets, the yield of the 10y bonds (OAT) decreased from 2.56% at the end of 2013 to 0.83%. The Paris Stock Index (Cac) was stable during the year (-0.54%).
With respect to the insurance market, in November, life premiums registered an increase of 7% compared to the same period in 2013. Unit-linked policies grew (+26%) due to the positive trend of the stock index whereas traditional products experienced a slower growth (+4%), boosted by the lowering of the deposits yield. P&C segment also grew by 1.5% compared to the previous year. Specifically, household-related products sales increased by 4%, due to the numerous weatherrelated damages which occurred during 2013 and in the first month of 2014. The increase in motor premiums (+1.5%) was in line with the performance in the prior year.
3 EMEA is made up of Austria, Belgium, Greece, Guernsey, Ireland, Netherlands, Portugal, Spain, Switzerland, Tunisia, Turkey and Dubai.
In terms of premiums, the second largest market of the Group is that of Brazil; other markets, with lower premiums but significant in terms of positioning, are Colombia, Guatemala, Ecuador and Panama.
The main goal is to highlight the deep change occurring in our way of doing business, that is through a customer vision.
As a consequence, interactions with customers during the purchase greatly increased also due to digitalization, which has allowed customers to have a low-cost access to information and compare policies, for instance according to service and price.
We have to develop, launch and run the transformation programs of the operating platform to meet our strategic objectives: Operational Excellence (OpEx), Client and Distribution Excellence and Commercial Excellence. carsten schildknecht, Group chief operating officer
The non-operating result of the Group improved to € -1,464 million (€ -1,579 million at 31 December 2013). In particular: — net impairment losses increased from € -623 million at 31 December 2013 to € -813 million due to higher impairments on equity and real estate investments and also from the stake in Ingosstrakh for approximately € -249 million; — net realized gains increasing to € 874 million (€ 846 at 31 December 2013) thanks to higher realized gains on equities and bond portfolios. This item also includes the realized loss of approximately € -79 million, recorded as part of the repurchase of three hybrid bonds, aimed at optimizing the Group’s fi nancial debt management, which was completed in 2014. It is worthwhile to note that the net realized gains in 2013 included € 290 million arising from the provisions relating to the participation in Banca d’Italia.
Net fee and commission income and net income from financial service activities
Real estate investments in terms of book value amounted to € 14.872 (€ 14.935 million at 31 December 2013).
Focus on financial debt details of subordinated liabilities and senior bonds
— Operating result increasing (+ 15.2%) due to the positive performance of the investment result and the reduction of expenses.
Gross written premiums Net cash inflows 31/12/2014 31/12/2013 31/12/2013 31/12/2014 31/12/2013 31/12/2014
An improvement in net cash inflows benefiting from the aforementioned performance of premiums. A slightly increase in cash outflows.
— net operating realized gains on investments amounted to € 2,443 million (€ 2,086 million at December 31, 2013) due to higher realized gains particularly on the equity portfolios of the Group, compared to the same period last year; — net operating impairment losses on investments decreased from € -391 million at 31 December 2013 to € -310 million; The trend is largely due to the impairment of the investment in Telco, accounted for in 2013, partially offset by higher impairments on equities recorded in 2014; — other operating net financial expenses, which include interest expense relating to operating debt and investment management expenses, amounted to € -852 million (€ -801 million at December 31, 2013); — net income from financial instruments related to unit- and index-linked contracts increased from € 4,101 million at 31 December 2013 to € 3,300 million. This trend reflects the change in the value of investments related to the lower performance of the financial markets over the corresponding period of the previous year; — net income from financial instruments at fair value through profit or loss amounted to € 989 million (€ 288 million at December 31, 2013. The significant change is attributable to the performance of various derivative contracts used for various types of insurance products, to hedge the risks related to changes in interest rates.
Administration cost ratio 5.9% 5.9% 0.0 the combined ratio amounts at 93.8% decreasing of 1.9 compared to 31 December 2013, almost completely due to the improvement of the loss ratio (-1.8 pps); stable the expense ratio that is positioned at 27.1%. In detail, the loss ratio registered a further improvement in respect with the results observed at the 3rd Quarter. This trend is also confirmed without considering the lower impact of catastrophic events, which weighted 1.2 pps with respect to the 2.3 pps in the previous year. The current year loss ratio excluding natural catastrophes, decreased by 0.3%; the contribution of the prior year loss ratio was also positive, which increases to -3.8 pps, in the context of the Group prudent reservation policy net acquisition and administration costs amounted to € 5,312 million, compared to 31 December 2013 (€ 5,372 million). In detail, acquisition costs amounted to € 4,157, decreased of 1.2%, mirroring the trends registered in France, Central Eastern Countries, Switzerland and in the International Operations cluster. The incidence of acquisition costs on net earned premiums is slightly decreasing to 21.2% (-0.1 pps). Administrative costs amounted to € 1,155 million, evidencing a decrease of -0.7%, mainly because of the observed effects of Italy, Germany and Switzerland. The ratio of expenses to net earned premiums remained stable at 5.9%. The expense ratio remained stable at 27.1%.
In detail, the change in current income is primarily attributable to the decline in income from real estate investments - net of amortization - decreasing from € 283 million at 31 December 2013 to € 268 million.
(€ million) Gross written premiums Operating result 31/12/2014 31/12/2013 31/12/2014 31/12/2013 direct written premius by line of business
— net other non-operating expenses, principally including returns from real estate development activities, activities in run-off, the impairment losses of property held for own use, Company restructuring charges and the amortization of the value of the portfolios acquired directly or through the acquisition of control of insurance companies (value of business acquired or VOBA) and other net non-recurring expenses.
Net other non-operating expenses 1.6 - 2.6 118 | Generali Group - Annual Integrated Report 2014
operating return on equity operating return on equity indicates the return in terms of operating result on Group shareholders’ equity. It is calculated according to the following ratio: — total operating result adjusted to include: • interest expenses on financial debt; • income taxes based on a mid-term expected tax rate as assumed in 2015 Target (please refer to the chapter “The Generali Group’s strategy”); • minority interests; — average Group shareholders’ equity at the beginning and at the end of each period of valuation,
System 172 2 The Risk Management Policy 172 3 Risk identification 173 4 Risk measurement 173 5 Financial Risks 178 6 Credit Risk 181 7 Insurance risk 189 8 Operational risk 189 9 Risk not considered as
Change in other provisions 121 354 Other non-cash expenses and revenues arising out of financial instruments, investment properties and investments in subsidiaries, associated companies and joint ventures -1,697 -2,631
The application of IFRS 10 in Generali Group resulted in the consolidation of an investment fund previously classified as available for sale. No material impact occurred ad for this reason financial statements were not restated
The following amendments are also effective in the current period: Transition Guidance (Amendments to IFRS 10, IFRS 11 and IFRS 12) and Investment Entities (Amendments to IFRS 10, IFRS 12 and IAS 27)
Gains or losses arising from de-recognition of an intangible asset are measured as the difference between the net disposal proceeds and the carrying amount of the asset and are recognised in the income statement when the asset is de-recognised.
loss over the remaining life of the investment using the EIR. Any difference between the new amortised cost and the maturity amount is also amortised over the remaining life of the asset using the EIR. If the asset is subsequently determined to be impaired, then the amount recorded in equity is reclassified to the income statement.
As provided for by IAS 32, the item includes equity instruments of the Parent company held by the same company or by its consolidated subsidiaries 1.1.6 Reserve for currency translation differences
Classification requires the following steps: — identification of the characteristics of products (option, discretionary participation feature, etc.) and services rendered; — determination of the level of insurance risk in the contract; and
The statement was prepared in accordance with the requirements of the ISVAP (now IVASS). 7 of 13 July 2007 as subsequently amended, and explains all the variations of equity.
Long term incentive plans, aimed at strengthening the bond between the remuneration of management and expected performance in accordance with the Group strategic plan, as well as the generation of value in comparison with peers, are also treated as an equity-settled share-based payment falling under IFRS 2 scope.
In order to comply with Enhanced Supervision provisions in terms of systemic and liquidity risk, a Systemic Risk Management Plan and a Liquidity Risk Management Plan have been defined. In addition, a Recovery Plan has been developed in order to demonstrate the Group’s ability to manage and overcome extreme scenarios of systemic crisis that could undermine the economic and financial stability of the Group. Support has been given also to the definition of the Resolution Plan.
The Parent Company Top Management is in charge, at different levels, of implementing, maintaining and monitoring the risk management policies in accordance with the Board of Directors’ directives. It also ensures the definition of operative limits and their prompt review through guidelines which implementation is under the responsibility of each single Group Company. Moreover the Top Management monitors the risk exposures, and compliance, with the assigned tolerance level on ongoing basis.
The currency risk arising from the issuance of subordinated debts in British pound sterling has been mitigated with a specific hedging strategy.
The government bonds portfolio amounted to € 167,301 million at the end of the period, with the 63.4% of the portfolio represented by Italian, French and German debt instruments. The exposure to individual sovereign bonds is mainly allocated to their respective countries of operation.
(€ million) Savings and Pension Protection Unit/index linked Total 31/12/2014 31/12/2013 31/12/2014 31/12/2013 31/12/2014 31/12/2013 31/12/2014 31/12/2013
In this respect, the Group has progressively changed its strategy and its business model for the purchase of the contractual reinsurance: coordination and governance of the Parent Company has been further strengthened, entrusting to it the role of the single reinsurer of other Italian and foreign companies.
(*) The Accident/Health business premiums, managed according to the criteria of the life business, are taken into account in the life segment
The liquidity risk arises from a mismatch between liabilities and assets cash flows. The Group manages this risk by means of mitigation strategies, either embedded in the products or funds structure.
The evaluation is performed on the basis of several factors including financial and economic data, the Group’s competitive position in markets where it operates and the strategies developed and implemented by the management.
The division of investments by nature is summarized in the table below.
Financial assets at fair value through profit or loss 2,440 0.7% 2,682 0.8%
The table below shows the book value of fixed income instruments split by rating and maturity:
In particular, available for sale bonds represented 85.0% of total bonds with a rating higher or equal to
Available for sale financial assets 14,028 12,561 9,693 8,204 6,377 5,111 -909 4,202 4,969
This category included receivables arising out of the different activities of the Group, such as direct insurance and reinsurance operations.
(*) Including senior bond issued in May 2010 to fund the tax recognition of goodwill related to the extraordinary operation Alleanza Toro for a nominal amount of € 560 million (at 31.12.2014 the related book value amounted to € 383 million). This issue was classified as operating debt because the debt structure provides a perfect correlation between cash flows arising from the recognition of taxes and loan repayments in terms of interest and principal
Fair value of plan assets as at 31 December 934 1,755
Restructuring charges, termination employee benefit expenses and allocation to other provisions 491 483
Income realised in Germany is subject to the corporate income tax - which is calculated on a rate of 15% plus a solidarity surcharge of 5.50% - and the trade tax (Gewerbesteuer ). The trade tax rate varies depending on the municipality in which the company is situated. In 2014 the weighted average tax rate remained substantially unchanged at approximately 16.20%.
Actuarial gains or losses arising from defined benefit plans -529 100
If there isn’t an active market, it should be used a valuation technique which however shall maximise the observable inputs.
The table below illustrates both the carrying amount and the fair value of financial assets and liabilities recognised in the balance sheet at 31 December 201416.
The following table shows a reconciliation of financial instruments measured at fair value and classified as level 3. In particular, as mentioned above, the transfers highlighted with reference to Level 3 are attributable to
— Subordinated debts, loans and bonds and liabilities to banks and customers
In particular, mortgages and other loans are valued on the basis of future payments of principal and interest discounted at the interest rates for similar investments by incorporating the expected future losses or alternatively discounting (with risk-free rate) to the probable future cash flows considering market or entity- specific data ( ie probability of default). These assets are classified as level 2 or 3 depending on whether or not the inputs are corroborated by market data.
RMB 60 billion (appoximately € 8 million) value of assets under management
For these associates aggregated summarised financial information are provided here below: summarized financial information 5.3 Joint ventures
In any case, no incentive will be paid in the event of a significant worsening of the capital and financial situation of the Company. Any amount disbursed will be subject to claw-back if the performance considered should later be found to be non-lasting or ineffective as a result of wilful misconduct or gross negligence.
As for the stock option plans approved in 2010, reserved for financial advisors, private bankers and relationship managers (employees) of Banca Generali respectively, the fair value is between € 1.01 and € 0.65 depending on the exercise date foreseen.
The loans towards associated companies mainly refer to bonds issued by Telco S.p.a. which amount to € 298 million.
Below a description of non-recurring transactions carried out by the Group during the 2014.
In May the minorities squeeze-out of Generali Deutschland Holding AG (GDH) approved by the extraordinary general meeting of GDH last December 4th 2013 was registered with the Commercial Register in Germany. By the registration of the shareholders’ resolution all the shares held by the minority shareholders in GDH were transferred to Assicurazioni Generali. The shares of Generali Deutschland were withdrawn from the stock market. This transaction resulted in a reduction in the Group equity of € 130 million.
After the acquisition of the first tranche of shares owned by the PPF Group, 25% of GPH shares, Generali controlled 76%. On 26 July 2014 PPF Group has exercised the option to sale the remaining part of share it owned, giving full control of GPH to Generali. Considering this, financial statements as at 31.12.2014 already consider the full ownership of the company17. This has a negative impact on shareholder’s equity attributable to the Group for € -595 million.
Finally, the following table shows the fair value hierarchy of assets and liabilities at fair value held by discontinued operations at 31 December 2014.
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SIMGENIA S.p.A. Società di Intermediazione Mobiliare 086 EUR 5,200,000 G 8 40.00 Alleanza Assicurazioni S.p.A. 100.00 92.59 15.00 Banca Generali S.p.A.
Generali Investments Europe S.p.A. Società di Gestione Risparmio 086 EUR 39,500,000 G 8 28.18 Alleanza Assicurazioni S.p.A. 100.00 99.74 71.82 Generali Investments Holding S.p.A.
Thuringia Generali 2.Immoblien AG & Co. KG 094 EUR 84,343,265 G 10 100.00
Generali Deutschland Services GmbH 094 EUR 100,000 G 11 100.00 Generali Deutschland Holding AG 100.00 100.00
GID-Fonds AARGT USD 094 EUR 225,308,064 G 11 100.00 Cosmos Lebensversicherungs Aktiengesellschaft 100.00 100.00
SCI Generali Carnot 029 EUR 10,525,000 G 10 100.00 Generali Vie S.A. 100.00 98.95
SCI Parcolog Gondreville Fontenoy 2 029 EUR 3,838,000 G 10 100.00 SC Generali Logistique 100.00 98.95
SCI Parcolog Bordeaux Cestas 029 EUR 9,508,000 G 10 100.00 SC Generali Logistique 100.00 98.95
BSI Monaco SAM 091 EUR 15,000,000 G 7 100.00 BSI S.A. 100.00 100.00
Cajamar Seguros Generales, S.A. de Seguros y Reaseguros 067 EUR 9,015,200 G 2 50.00
Europ Assistance - Companhia Portuguesa de Seguros de Assistencia, S.A. 99.90 52.41
Generali Schadeverzekering Maatschappij N.V. 050 EUR 1,361,341 G 2 100.00 Generali Verzekeringsgroep N.V. 100.00 98.56
Saxon Land B.V. 050 GBP 60,566,552 G 10 20.00 Generali Italia S.p.A. 100.00 99.68 10.00 Alleanza Assicurazioni S.p.A.
Transformovaný fond Penzijní spolecnosti Ceské Pojištovny, a.s. 275 CZK 300,000,000 G 11 100.00
Generali Osiguranje d.d. 261 HRK 81,000,000 G 3 100.00 Generali PPF Holding B.V. 100.00 76.00
Generali osiguranje Montenegro AD Podgorica 290 EUR 4,399,000 G 3 100.00 Delta Generali Holding d.o.o. Podgorica 100.00 76.00
Generali Vietnam Life Insurance Limited Liability Company 062 VND 1,174,000,000 G 3 100.00 100.00 100.00
Healthichoices (Pty) Limited 078 ZAR 200 G 11 50.50 Europ Assistance Worldwide Services (Pty) Ltd 50.50 32.00
Kudough Credit Solutions (Pty) Ltd 078 ZAR 1,000 G 11 90.00 Europ Assistance Worldwide Services (Pty) Ltd 90.00 57.03
BBG Beteiligungsges. 094 EUR 25,600 a 9 100.00 Deutsche Bausparkasse Badenia 100.00 100.00 33
306 | Generali Group - Annual Integrated Report 2014 Consolidated Financial Statements - Generali Group | 307
Cabinet Berat et Fils S.A.S. 029 EUR 8,000 a 11 100.00 Cofifo S.A.S. 100.00 98.95 2,672
BSI & Venture Partners SICAV 092 EUR 31,000 a 11 100.00 BSI & Venture Partners CMGP 100.00 100.00
Europ Assistance A.S. 076 TRY 1,304,000 a 11 99.97 Europ Assistance Holding S.A. 99.97 98.95 112
With regard to the organizational structure of Assicurazioni Generali S.p.A. and of the Group, during 2014 the Company continued implementing its new organizational structure, focusing on the consolidation of the Group Head Office, in its coordination and strategic role all over the world. The adoption of the new organizational and governance model for the Group, started in 2013, was strengthened in 2014.
ples, rules, and procedures designed to guarantee an adequate administrative and accounting system. The Corporate Governance Report describes the main features of the model, as defined by the Manager in charge of preparing the corporate books, with the support of the Financial Reporting Risk function. The report issued by the statutory auditing firm pursuant to article 19, paragraph 3 of Legislative Decree 39/2010 shows no significant shortcomings in the internal control system in connection with the financial information process. That report was discussed and delved into during as ad-hoc meeting between the Board and the auditing firm.
We examined and obtained information on the organizational and procedural activities conducted pursuant to Legislative Decree 231/2001, as amended, on the administrative responsibility of organizations. The main aspects related to organizational and procedural activities conducted by the Company pursuant to Legislative Decree 231/2001 are described in the Report on Corporate Governance and Ownership Structure. The information provided by the Supervisory Board on those activities found no facts or circumstances noteworthy of comment.