Generali Finanz Service GmbH 094 EUR 26,000 a 11 100.00 Generali Beteiligungs- und Verwaltungs-AG 100.00 100.00
GLL Retail Europa GmbH 094 EUR 5,588,000 a 11 100.00 GLL GmbH & Co. Retail KG 100.00 52.49
Stadtteilzentrum Panzerwiese Beteiligungs GmbH 094 EUR 41,389,000 a 11 94.80 GLL GmbH & Co. Retail KG 94.80 49.76
AVW Versicherungsmakler GmbH 094 EUR 1,550,000 b 11 26.00 Generali Versicherung Aktiengesellschaft 26.00 26.00 2,232
Generali European Retail Investments GmbH & Co. KG 094 EUR 20,250 a 10 49.38
Generali Deutschland Immobilien Verwaltungs GmbH 100.00 100.00 94 50.62 Generali Real Estate S.p.A.
AM Versicherungsvermittlung GmbH 094 EUR 25,000 a 11 100.00 AachenMünchener Versicherung AG 100.00 100.00 25 ver.di Service GmbH 094 EUR 75,000 b 11 50.00 Generali Versicherung Aktiengesellschaft 50.00 50.00 21
Europ Assistance Océanie S.A.S. 225 XPF 24,000,000 a 11 99.88 Europ Assistance Holding S.A. 99.88 99.86 286
Cabinet Berat et Fils S.A.S. 029 EUR 8,000 a 11 100.00 Cofifo S.A.S. 100.00 98.93 2,672
Generali Reassurance Courtage S.A. 029 EUR 3,016,656 a 11 100.00 Generali France Assurances S.A. 100.00 98.93 2,219
Trieste Courtage S.A. 029 EUR 39,000 a 11 0.02 Generali Vie S.A. 99.98 98.91 39 99.96 Generali France Assurances S.A.
Generali Gerance S.A. 029 EUR 228,000 a 11 0.07 Generali IARD S.A. 99.73 98.66 241 99.66 Generali Vie S.A.
Foncière Hypersud S.A. (*) 029 EUR 50,000,205 b 10 48.64 Generali Vie S.A. 48.64 48.11 5,792
Europ Assistance - IHS Services S.A.S. 029 EUR 7,287,000 a 11 100.00 Europ Assistance Holding S.A. 100.00 99.99
Generali Revenus FCP 029 EUR 9,587,828 a 11 2.55 Generali IARD S.A. 100.00 98.93 97.45 Generali Vie S.A.
ABT SAS 029 EUR 125,000 c 11 25.00 Generali France Assurances S.A. 25.00 24.73 31
SCI Parcolog Isle d’Abeau Gestion 029 EUR 8,000 a 10 100.00 SC Generali Logistique 100.00 98.93 1
SCE Château La Pointe 029 EUR 34,309,128 a 10 100.00 Generali France S.A. 100.00 98.93 35,646
SCI 9 Messine (*) 029 EUR 2,420,250 c 10 50.00 Generali Vie S.A. 50.00 49.46 9,026
SCI Daumesnil (*) 029 EUR 16,753,270 c 10 50.00 Generali IARD S.A. 50.00 49.46 24,835
SK Versicherung AG (*) 008 EUR 3,633,500 b 2 20.43 Generali Holding Vienna AG 39.66 39.66 5,256 19.23 Generali Versicherung AG
Generali 3Banken Holding AG (*) 008 EUR 70,000 b 9 49.30 Generali Versicherung AG 49.30 49.30 78,122
Generali Vermögensberatung GmbH 008 EUR 35,000 a 11 100.00 Generali Versicherung AG 100.00 100.00 35
M.O.F. Immobilien AG 008 EUR 1,000,000 b 10 20.00 Generali Immobilien GmbH 20.00 20.00 8,200
Generali FinanzService GmbH 008 EUR 50,000 a 11 100.00 Generali Sales Promotion GmbH 100.00 100.00 713 3 Banken-Generali InvestmentGesellschaft m.b.H. (*) 008 EUR 2,600,000 b 8 48.57 Generali Holding Vienna AG 48.57 48.57 2,039
BONUS Vorsorgekasse AG (*) 008 EUR 3,000,000 b 11 50.00 Generali Holding Vienna AG 50.00 50.00 2,799
Car Care Consult Versicherungsmakler GmbH 008 EUR 35,000 a 11 100.00 Generali Sales Promotion GmbH 100.00 100.00 35
Generali Betriebsrestaurants GmbH 008 EUR 36,336 a 11 100.00 Generali Versicherung AG 100.00 100.00 484
Global Private Equity Holding AG 008 EUR 482,680 b 9 11.62 Generali Versicherung AG 23.02 23.02 56
Europ Assistance - Companhia Portuguesa de Seguros de Assistencia, S.A. 100.00 52.99 3,400 0.42 Groupe Vervietois d’Assureurs S.A.
MRS Egheze 009 EUR 61,500 a 10 99.87 Generali Belgium S.A. 99.87 99.86 3,301
Verzekeringskantoor Soenen N.V. 009 EUR 18,600 a 11 99.80 Generali Belgium S.A. 99.80 99.79 2,016
Groupe Vervietois d’Assureurs S.A. 009 EUR 94,240 a 11 99.95 Generali Belgium S.A. 99.95 99.94 571
Beleggingsconsortium Sloterdijk Beheer B.V. (*) 050 EUR 18,000 b 10 21.38
Sigma Real Estate B.V. (*) 050 EUR 18,000 c 9 22.34 Corelli S.à.r.l. 22.34 22.23
Nederlands Algemeen Verzekeringskantoor B.V. 050 EUR 18,151 a 11 100.00 Generali Nederland N.V. 100.00 98.56 2,518
Europ Assistance A/S 021 DKK 500,000 a 11 100.00 Europ Assistance Holding S.A. 100.00 99.99
Europ Assistance Magyarorszag Kft 077 HUF 24,000,000 a 11 26.00 Generali Biztosító Zrt. 100.00 99.99 99 74.00 Europ Assistance Holding S.A.
GP Consulting Pénzügyi Tanácsadó Kft. 077 HUF 11,000,000 a 11 100.00 Generali Biztosító Zrt. 100.00 100.00 601
S.C. San Pietro Romania S.r.l. 061 RON 15,112,570 a 11 100.00 Agricola San Giorgio S.p.A. 100.00 100.00 3,903 9.32 Agricola San Giorgio S.p.A.
Europ Assistance Yardim ve Destek Hizmetleri Ticaret Anonim Sirketi 076 TRY 1,304,000 a 11 99.99 Europ Assistance Holding S.A. 99.99 99.98 112
Europ Assistance CEI OOO 262 RUB 10,000 a 11 100.00 Europ Assistance Holding S.A. 100.00 99.99 800
Europ Assistance Argentina S.A. 006 ARS 3,285,000 a 11 28.90 Caja de Seguros S.A. 84.99 55.76 133
Future Generali India Life Insurance Company Ltd (*) 114 INR 14,520,000,000 c 3 25.50
Future Generali India Insurance Company Ltd (*) 114 INR 7,100,000,000 c 3 25.50
Shanghai Sinodrink Trading Company, Ltd 016 CNY 5,000,000 b 11 45.00
Europ Assistance Worldwide Services Pte Ltd 147 SGD 182,102 a 11 100.00 Europ Assistance Holding S.A. 100.00 99.99
EA-IHS Services Nigeria Limited 117 NGN 10,000,000 a 11 100.00 Europ Assistance - IHS Services S.A.S. 100.00 99.99
Generali Group - Consolidated Financial StatementsGenerali Group - Annual Integrated Report and Consolidated Financial Statements 2015
By 2020, one in five vehicles on the road will have a wireless network connection
pursuant to article 154-bis of Legislative Decree no. 58 of 24 February 1998 and article 81-ter of Consob Regulation no. 11971 of 14 May 1999
3. The undersigned further con� rm that: 3.1 the consolidated � nancial statements as at 31 December 2015: a) are prepared in compliance with applicable international accounting standards recognized by the European Community pursuant to Regulation (EC) No. 1606/2002 of the European Parliament and of the Council of 19 July 2002, with the provisions of Legislative Decree No. 38 of 28 February 2005, of the Italian Civil Code, of Legislative Decree No. 209 of 7 September 2005 and with applicable provisions, regulations and circular letters issued by ISVAP (now IVASS); b) correspond to the related books and accounting records; c) provide a true and fair representation of the � nancial position of the issuer and the group of companies included in the scope of consolidation; 3.2 the management report contains a reliable analysis of the business outlook and management result, the � nancial position of the issuer and group companies included in the scope of consolidation and a description of the main risks and uncertain situations to which they are exposed.
Dott. Gabriele Galateri di Genola Dott. Alberto Minali Chairman Manager in charge of preparing the Company’s fi nancial reports and Group CFO
Gruppo Generali - Relazione Annuale Integrata e Bilancio Consolidato di Gruppo 2015
Investment contracts: investment contracts that have the legal form of insurance contracts but as they substantially expose the insurer to significant insurance risk (such as the mortality risk or similar insurance risks cannot be classified as insurance contracts.
In accordance with the definitions of FRS 4 and IAS 39 39 these contracts are recognized as financial liabilities. investment contracts that have the legal form of an insurance contract but as they substantially expose the insurer to significant insurance risk
Net cash inflows: it is an indicator of cash flows generation of the life segment. It is equal to the amount of premiums collected net of benefits paid.
APE, new business annual premium equivalent: it is an indicator of volumes of life segment, annual and normalized, and it is equivalent to the sum of new annual premium policies, plus a tenth of premiums in single premium policies. (calculated net of minority interests).
NBV, value of new business: it is an indicator of new value created by the new business of life segment. is obtained by discounting at the date of new contracts the corresponding expected profits net of the cost of capital (net of the portion attributable to minority interests).
Combined Ratio (COR) = it is a technical performance indicator of property&casualty segment, calculated as the weight of the loss ratio and the acquisition and general expenses (expense ratio) on the earned premiums net of insurance.
Previous accident year loss: it is a further detail of combined ratio calculated as the ratio between: +
 previous year incurred claims + related claims management costs net of recoveries and reinsurance; and
cost taking into account all future foreseeable charges, based on reliable historical and forecast data, as well as the specific features of the company.
Mathematical provisions: is the amount that shall be set aside by the insurance company to meet its future obligations to policyholders.
Generali Group use for the management and presentation of investments a different aggregation respect to financial statements. In particular, within total investments are included also cash and cash equivalents and specific items of financial liabilities having nature similar to investments, such as derivatives liabilities and repurchase arrangements. Below are described asset classes that compose the total investments: Fixed income instruments: direct investments in government and corporate bonds, loans, term deposits other than those presented as cash and cash equivalents, and reinsurance deposits. Moreover, this asset class includes also investments funds mainly exposed to investments or risks similar to direct investments presented within this asset class.
Cash and cash equivalents: in addition to financial statements line item “cash and equivalents”, this asset class includes also short term deposits and money-market investment funds.
Other Investments: includes participations in non-consolidated Group companies, derivative investments and receivables form banks and customers, the latter mainly related to Group banking operations.
Operating result: it was obtained by reclassifying the components making up earnings before tax in each line of business on the basis of the specific characteristics of each segment, and taking account of recurring expense of the holding.
All profit and loss items were considered, with the exception of net non-operating costs, i.e., results of discontinued operations, corporate restructuring costs, amortisation of portfolios acquired directly or through acquisition of control of insurance companies or companies in the holding and other activities segment (value of business acquired or VOBA) and other net non-recurring costs. In the Life segment, the following are also considered as non-operating items: realised gains and losses on investments not considered in determining profits attributed to policyholders and net measurement losses that do not contribute to the formation of local technical reserves but exclusively in determining the deferred liability to policyholders for amounts not relating to policyholders and those on free assets. In the P&C segment, the following are considered as non-operating items: all realized and measurement gains and losses, including exchange-rate gains and losses. In the holding and other activities segment, the following are considered as non-operating items: realized gains and losses and non-recurring net measurement losses. The total operating result does not include non-operating holding costs such as interest expense on borrowings and costs arising from parent stock option plans and stock grants.
Operating return on equity: an indicator of return on capital in terms of the Group operating result adjusted as described in the previous methodological note.
Assicurazioni Generali S.p.A. P.zza Duca degli Abruzzi 2 34132 Trieste, Italy
Shareholders & Governance Tel: +39.040.671507 Fax: +39.040.671006 governance@generali.com Head: Michele Amendolagine
Annual Integrated Report and Consolidated Financial Statements 2015 prepared by Group Integrated Reporting & CFO Hub in collaboration with Group Social Responsibility
ANNEX A: METHODOLOGY ....................................................................................................... 32 A1. ADJUSTED NET ASSET VALUE ................................................................................................ 32 A2. VALUE IN-FORCE .................................................................................................................. 32 A3. NEW BUSINESS VALUE .......................................................................................................... 34
Embedded Value (EV) is an actuarially determined estimate of the value of a company from a shareholder’s perspective, excluding any value attributable to future new business.
Effective from the year-end 2013 EV valuation, Generali has decided to formally report under the Market Consistent Embedded Value (MCEV) Principles©, published by the CFO Forum in June 2008 and subsequently amended (in October 2009) to reflect the possibility to include a liquidity premium in the reference rate.
Consequently, Generali’s market consistent methodology for the year-end 2015 valuation (as set out in Annex A and Section 6 of the Supplementary Information), has been amended to include additional changes on the definition of reference rates and required capital, in order to move a step closer to the Solvency II framework.
The reference rate is, from year-end 2015 on, derived by defining, for each currency: ! the basic risk-free interest rate (adjusted for credit risk); ! the appropriate adjustment to be applied on top of the basic risk free interest rate term structure (i.e.
volatility or matching adjustment); ! the appropriate method of yield curve extrapolation (“entry point” of extrapolation, ultimate forward rate, convergence period and extrapolation method).
As the effective date of Solvency II is 1st of January 2016, Generali has decided to apply the Solvency II adjustment for only year-end 2015 figures, not restating 2015 EV earnings. Consequently Solvency II change has been applied only to the inforce business at year-end 2015 and not to new business valued on a quarterly basis during 2015.
The members of the board of directors of Assicurazioni Generali S.p.A. acknowledge their responsibility for the preparation of the Supplementary Information in accordance with the MCEV Principles. The directors confirm that the Embedded Value as at 31 December 2014 and 31 December 2015, and the Embedded Value earnings including the value added by new business in 2015, have been determined using methodology and assumptions that are compliant with the MCEV Principles as stated in Annex A. The EV disclosure should not be considered as a substitute for Generali's primary financial statements.
Generali’s “bottom-up” market consistent methodology covers 99% of life and health business of the Group in terms of technical reserves. The residual business is valued using a traditional deterministic valuation based on the financial assumptions described in Annex B1.
All the values shown in this disclosure are in Euro millions, after tax and after minorities. The approach to consolidation adopted in the Life EV produces results that are consistent with the consolidated primary financial statements.
Percentage variations of amounts from 2014 to 2015 always refer to changes on a comparable basis, obtained neutralising the impact of changes in the covered perimeter and foreign exchange rates.
EV earnings 6,375 204 Return on EV 25.2% 0.8% Normalised return on EV 10.7% 8.2%
The operating EV earnings are equal to 3,637mln (leading to a solid 10.7% normalised return on EV). Total EV earnings amount to 6.375mln (corresponding to an overall 25.2% return on EV) and are mainly boosted by positive economic variances (2,749mln) linked to the improved financial situation at year-end 2015.
The positive economic variances have impacted the Value In-Force, which in 2015 mainly benefits from the increase of reference rates (with the Euro 10-year swap par yield moving from 0.81% to 1.00%) and from the narrowing of government bond spreads (in Italy the 10-year spread over swap has dropped by 47bps).
APE confirmed a quite stable and solid trend (-0.2%, on a comparable basis), with a positive change in the business mix recording an increased weights of unit linked business and of protection business.
Value at 31/12/2015 before Solvency II adj. 30,721 18,193 12,528 10,183 2,345 Solvency II Risk Free Rate & Req. Capital -588 -588 0 -4,475 4,475
Value at 31/12/2014: this is the starting point of the movement, represented by the official value at 31/12/2014.
Expected contribution (reference rate and in excess of reference rate): this is the effect of the roll forward of beginning of year amounts. The impact on EV (+996mln) is the sum of:
Transfers from VIF and required capital to free surplus: the neutral impact on EV comes from the release, from VIF to ANAV, of the 2015 after tax result (2,318mln), as expected at the end of 2014 and inclusive of the expected return on the assets backing the required capital. The impact on required capital (-727mln) represents the expected required capital release, net of the variation of eligible items that can be used to support it, from the in-force business. The release of profit and capital from the inforce business into the free surplus, in aggregate, amounts to +3,045mln.
Operating experience variances: this is the effect of actual versus expected 2015 experience on operating items. The impact on EV (+566mln) is mainly explained by the positive surrenders and paidups experience (+190mln, mostly in Germany) and by the restructuring of Group Pension portfolio in France (+303mln).
Economic variances: this is the effect of actual versus expected 2015 experience and changes in future assumptions for economic items such as yield curves, implied volatilities, investment returns and taxes. The positive impact on EV (+2,749mln) corresponds to the sum of positive 2,784mln variances on VIF and the negative 35mln variances on ANAV. More specifically, the +2.8bln VIF variances can be split as follows: • +0.4bln: the impact of the recovery of the swap curve; • +0.5bln: the combined effect of the positive impact of the reduction of the spread versus the swap curve of the government bonds (+0.7bln) and the widening of corporate bonds spread (-0.2bln)
The improved economic environment, affecting the calculation of the risk capital and the amount of eligible items that can be used to support it, is the main driver of the decrease of the required capital (-636mln), mainly affecting Germany (-615mln) and France (-402mln).
Other non operating variances: this is the effect of local regulatory and legal changes and of other residual non operating items not included above.
Value at 31/12/2015 before Solvency II adj. is equal to the sum of Adjusted value at 31/12/2014 (25,291mln), Total EV earnings (+6,375mln) and Capital movement (-946mln), and amounts to 30,721mln.
Solvency II Risk Free Rate & Req. Capital: this negative impact on VIF (-588mln) comprises the impact on cost of capital (+462mln), due to the change in required capital definition and the adoption of Solvency II reference rate (-1,050 mln), due to the change from liquidity premium to volatility adjustment (e.g. euro area from 29 bps, ILP 75% bucket, to 12 bps, VA net of CRA). The change in required capital definition caused a required capital reduction of 4,475mln.
Generali defines the normalised EV earnings as the operating EV earnings excluding the impact of other operating variances. According to this definition, normalised EV earnings amount to 2,706mln, with a solid 10.7% return on adjusted opening EV.
PVFP before Time Value of FG&O 21,567 18,693 Time Value of FG&O -2,039 -3,302 PVFP after Time Value of FG&O 19,528 15,391 Cost of capital -257 -878 Cost of NHR -1,666 -1,544 Value in-force 17,605 12,969
Compared with 2014, the PVFP before the cost of financial guarantees and options benefits from the recovery of reference rates in the Eurozone. This improved financial situation together with the decrease in interest rates volatilities and the reduction of the average portfolio minimum guarantees (from 2,02% to 1,80%) determines a significantly decrease of time value of the financial guarantees and options.
As a consequence, the PVFP after Time Value of FG&O increases from 15,391mln to 19,528mln (+25,3% on a comparable basis).
In aggregate, the VIF increases from 12,969mln to 17,605mln (+34,0% on a comparable basis).
The following table shows the expected run-off pattern of VIF emergence across future projection years, grouping discounted distributable profits into 5 year buckets. In particular, the table reports the contribution of each time-bucket’s profits to the total VIF at year-end 2015. The calculation has been performed considering distributable profits (i.e. including the release of required capital) generated by the value in-force and calculated according to a deterministic projection based on “real-world” best estimate assumptions (see Annex B1).
IFRS equity 19,474 18,359 Goodwill, DAC, VoBA and other intangibles -5,873 -5,563 Mark to market of assets not backing 2,053 2,071 Double counting on life AFS reserves and on other investments -3,233 -3,039 Other adjustments 106 284
In line with last year disclosure, in the reconciliation table above: • the goodwill pertaining to operating life companies is reported in the Life IFRS equity, in order to better represent the contribution by segment to the consolidated Group NAV; • the mark to market for assets not considered on a fair value basis under IFRS is reported with reference only to assets not backing the technical provisions; • the unrealised gain/loss included in the IFRS shareholder’s equity which is already captured in the VIF is eliminated to avoid a double counting.
Profitability on APE 21.0% 24.0% -3.1 pts Profitability on PVNBP 2.3% 2.7% -0.4 pts changes are on a comparable basis
On a comparable basis, APE remains quite stable -0.2%, thanks to the single premiums development (+8.3%, registered in particular in Italy, in France and in Asia) that offsets the regular premiums decrease (-6.8%, mainly in Italy). Regular premiums are decreasing but still represent the predominant part of APE production (52.8%).
Saving business decreases (-9.8%) as a consequence of the slowdown experienced in Italy (-14.0%), Germany (-20.9%) and France (-4.0%), only partially mitigated by the increase in LatAm&Asia (+87.5%) and Central and Eastern Europe (+23.6%). Protection business boosted (+22.4%) by the expansion observed in all areas (in particular France +46.1%, Central and Eastern Europe +32.6%, Europe Middle East and Africa +11.9% and LatAm&Asia +56.5%). Unit linked business increases by +14.6%, thanks to the good developments in Italy (+45.7%, boosted by hybrid products), France (+41.7%) and Germany (18.5%) despite the negative developments in Central and Eastern Europe (-35.9%) and Europe Middle East and Africa (-13.3%) where the slowdown is essentially explained by Ireland (-21.5%).
The profitability decrease is softened by the positive development of unit linked business that improves both its profitability (margin on APE from 24.7% in 2014, to 27.5% in 2015) and its weight on APE (from 21.7% in 2014, to 25.0% in 2015), by the higher weight of the protection business (from 12.9% in 2014, to 16.1% in 2015), with a margin on APE equal to 53.5%, and by the lower weight of saving business (from 65.3% to 58.9%) impacted by average reduction of the interest rate in respect of 2014 despite the strongly decrease of the financial guarantees offered to policyholders (decreased, in aggregate, from 1.00% at YE14 to 0.76% at YE15).
In-force business 2,364 727 3,091 Total expected distributable profit 1,394 54 1,448 Operating and economic variances -72 1,285 1,213 Total actual distributable profit 1,322 1,339 2,661
The following table shows the expected future emergence of undiscounted distributable profits stemming from the portfolio in force at year-end 2015 (i.e. excluding future new business) and from the new business written in 2015, again estimated using “real-world” best estimate assumptions.
4 Results by geographic area 4.1 OVERVIEW OF RESULTS BY GEOGRAPHIC AREA
The table below shows the development of EV (and its components) and the return on EV in the main areas (represented for reporting purposes by Italy, France, Germany, Central and Eastern Europe, Europe Middle East and Africa, Latin America and Asia).
The following table shows the development of APE, NBV and new business profitability.
The operating experience variance included in the operating EV earnings amounts to -40mln, affected by the unfavourable deviations on mortality and morbidity (-22mln) and higher than expected expenses (-26mln), slightly compensated by the favourable deviation of surrenders (+7mln).
The changes in future operating assumptions amount to +77mln and mainly come from the revision of surrender and paid-up assumptions (+120mln), followed by other more conservative assumptions changes regarding mortality (-9mln) and expenses (-33mln).
The following table shows in detail the development of VIF from 2014 to 2015: Breakdown of value in-force as at 31 December 2015 and 2014 (€ mln)
PVFP before Time Value of FG&O 8,371 6,102 Time Value of FG&O -1,138 -708 PVFP after Time Value of FG&O 7,233 5,394 Cost of Capital -9 -153 Cost of NHR -308 -336 Value In-Force 6,917 4,905
The capital movement (-1,001mln) refers to dividends paid in 2015 by the covered business out of the consolidation perimeter (-645mln), and to capital injections and changes in covered companies’ interest in other Group companies (-357mln), leading the total EV at year-end 2015 before Solvency II adjustment of 10,361mln.
PVNBP 21,381 20,656 3.5% 1st year NB strain on PVNBP -3.6% -3.5% NBV 589 641 -8.0% o/w industrial strain on PVNBP -2.2% -2.3% Profitability on APE 25.4% 25.7% -0.3 pts o/w capital strain on PVNBP -1.5% -1.2% Profitability on PVNBP 2.8% 3.1% -0.3 pts IRR 15.6% 14.6% changes are on a comparable basis Payback period (yrs) 5.6 6.3
New Business Value 2014 641 25.7% PVFP before Time Value of FG&O 921 925 Change in perimeter -1 0.0% Time Value of FG&O -256 -200 Exchange rate fluctuation 0 0.0% PVFP after Time Value of FG&O 665 725 Products mix/volume 67 4.8% Cost of Capital -25 -34 Profitability -118 -5.1% Cost of NHR -51 -50 New Business Value 2015 589 25.4% New Business Value 589 641
The total new business strain amounts to -774mln, corresponding to the sum of the negative contribution to profit in the year of sale (-463mln) and the capital absorbed by the new production (-311mln). The higher financial profits coming from the 2015 business mix is more than offset by the slight increase of new business strain (from -3.5% in 2014 to -3.6% in 2015, in terms of ratio over the present value of future premiums) contributing to the improvement of the internal rate of return (from 14.6% in 2014 to 15.6% in 2015).
Change in perimeter -1 0 -1 Exchange rate fluctuation 0 0 0 Adjusted Value at 31/12/2014 4,322 770 3,553 New business value 62 200 -139 Expected contribution (reference rate) 73 62 11 Expected contribution (in excess of reference rate) 87 87 0 Transfers from VIF and req. cap. to free surplus 0 -372 372 Operating experience variances 290 303 -12 Operating assumption changes 80 80 0 Other operating variances 1,076 1,167 -90 Operating EV earnings 1,669 1,527 143
Other non operating variances 0 0 0 Total EV earnings 2,134 1,972 162
Value at 31/12/2015 before Solvency II adj. 6,720 2,742 3,978 Solvency II Risk Free Rate & Req. Capital -221 -221 0
Total Normalised EV earnings 2,134 593 Return on EV 49.4% 13.7%
The operating experience variance included in the operating EV earnings amounts to +290mln, largely driven by contract changes on Group pension with a reduction of guarantees (+303mln).
The changes in the future operating assumptions amount to +80mln: the more favourable assumptions on mortality and morbidity, due to revised Loss Ratio assumptions used for Protection Business projection (+264mln) and on lapses (+9mln) is offset by more conservative assumptions on future expenses (-193mln), appropriately revised to take in consideration the above mentioned variation of expenses.
Other operating variances on EV amount to +1,076mln, and include the impact (+1,128mln) of refinements of the actuarial projection models and the treatment of the economic value of Resèrve de Capitalisation to grant consistency with the Solvency II framework.
The Solvency II Risk Free Rate and Required Capital adjustment (-221mln) refers to the adoption of lower reference rate impacting negatively the VIF more than the positive impact due to lower cost of capital as a consequence of reduced required capital, leading the total EV at year-end 2015 to 6,499mln.
PVNBP 7,963 7,628 4.8% 1st year NB strain on PVNBP -4.5% -4.9% NBV 62 89 -30.1% o/w industrial strain on PVNBP -1.7% -1.9% Profitability on APE 6.5% 10.9% -4.3 pts o/w capital strain on PVNBP -2.8% -3.0% Profitability on PVNBP 0.8% 1.2% -0.4 pts IRR 4.9% 6.6% changes are on a comparable basis Payback period (yrs) 12.9 9.9
New Business Value 2014 89 10.9% PVFP before Time Value of FG&O 192 196 Change in perimeter 0 0.0% Time Value of FG&O -81 -54 Exchange rate fluctuation 0 0.0% PVFP after Time Value of FG&O 111 142 Products mix/volume 23 1.0% Cost of Capital -18 -26 Profitability -50 -5.3% Cost of NHR -31 -27 New Business Value 2015 62 6.5% New Business Value 62 89
The new business profitability declines from 10.9% in 2014 to 6.5% in 2015, mainly due to the adverse economic conditions during this year. This is partially compensated by the steering towards unit linked business (margin on APE 26,5%) and Protection business (margin on APE 13,2%) and a decrease in saving business (margin on APE -6,5%). The 2015 new business value reduces by 30.1% and amounts to 62mln.
Value at 31/12/2015 before Solvency II adj. 5,570 4,368 1,202 Solvency II Risk Free Rate & Req. Capital -132 -132 0
Total Normalised EV earnings 1,082 263 Return on EV 23.5% 5.7%
The changes in the operating assumptions amount to -68mln and mainly come from a revision of projected expenses (-111mln), assumptions on mortality (-96mln) only partially offset by modifications of assumptions on surrenders (+120mln).
PVFP before Time Value of FG&O 4,749 4,693 Time Value of FG&O -58 -474 PVFP after Time Value of FG&O 4,691 4,219 Cost of Capital -42 -317 Cost of NHR -412 -441 Value In-Force 4,237 3,461
The capital movement (-125mln) refers to dividends paid in 2015 by the covered business out of the consolidation perimeter (-158mln), and to capital injections and changes in covered companies’ interest in other Group companies (+33mln), leading the total EV at year-end 2015 before Solvency II adjustment to 5,570mln.
The Solvency II Risk Free Rate and Required Capital adjustment (-132mln) refers to the adoption of lower reference rate impacting negatively the VIF more than the positive impact due to lower cost of capital as a consequence of reduced required capital, leading the total EV at year-end 2015 to 5,439mln.
PVNBP 10,522 10,411 0.1% 1st year NB strain on PVNBP -0.8% -0.6% NBV 191 265 -28.7% o/w industrial strain on PVNBP -0.5% -0.3% Profitability on APE 23.1% 30.7% -7.7 pts o/w capital strain on PVNBP -0.3% -0.3% Profitability on PVNBP 1.8% 2.5% -0.7 pts IRR 9.7% 23.6% changes are on a comparable basis Payback period (yrs) 10.2 4.8
New Business Value 2014 265 30.7% PVFP before Time Value of FG&O 294 312 Change in perimeter 3 0.1% Time Value of FG&O -58 -14 Exchange rate fluctuation 0 0.0% PVFP after Time Value of FG&O 236 298 Products mix/volume -7 0.7% Cost of Capital -18 -12 Profitability -69 -8.4% Cost of NHR -28 -22 New Business Value 2015 191 23.1% New Business Value 191 265
APE declines (-5.0%), as a consequence of the decrease of both life business (-5.0%) and health production (-6.0%). In aggregate, regular premiums (-5.8%) maintain quite stable their weight on total APE from 65.0% in 2014 to 64.4% in 2015, associated with a reduction in saving business (-20.9%) and with a progress for unit linked business of 18.5%, whilst protection remains stable (+0.8%).
The deterioration in financial conditions lead to a decrease of the new business profitability, with the margin on APE moving from 30.7% in 2014 to 23.1% in 2015, despite the improved business mix (more unit linked business with a margin on APE of 16,7% and protection business with a margin on APE of 57,9% in respect of saving business with a margin on APE of 2,2%) and the reduction of the level of guarantees (from 1.44% in 2014 to 1.28% in 2015). Lower volumes and margins explain the decrease of NBV (-28.7% on a comparable basis), amounting to 191mln.
Movement of Embedded Value (€ mln) - Central and Eastern Europe
Change in perimeter 0 0 0 Exchange rate fluctuation 27 19 8 Adjusted Value at 31/12/2014 1,554 1,098 456 New business value 39 141 -102 Expected contribution (reference rate) 20 17 3 Expected contribution (in excess of reference rate) 19 19 0 Transfers from VIF and req. cap. to free surplus 0 -236 236 Operating experience variances 32 24 8 Operating assumption changes -4 -4 0 Other operating variances -14 -4 -10 Operating EV earnings 91 -43 134
Value at 31/12/2015 before Solvency II adj. 1,650 1,141 509 Solvency II Risk Free Rate & Req. Capital -6 -6 0
Opening adjustments on EV (+27mln) reflect the strengthening of the currencies of the region (mostly Czech Koruna) against Euro.
The operating experience variances included in the operating EV earnings amount to 32mln, as a combined effect of surrenders (+30mln), mortality and morbidity (+11mln) partially offset by higher expenses (-9mln) basically in Czech Republic.
Other operating variances amount to -14mln and include the impact of extraordinary expenses (-9mln) and minor residual variances (-4mln).
The economic variances amount to +122mln, principally coming from the impact on VIF (+86mln) of the recovery of reference rates and narrowing of corporate bond spread.
New Business Value 2014 49 32.8% PVFP before Time Value of FG&O 50 59 Change in perimeter 7 0.0% Time Value of FG&O 0 0 Exchange rate fluctuation 0 0.2% PVFP after Time Value of FG&O 49 59 Products mix/volume -4 -1.1% Cost of Capital -2 -2 Profitability -13 -8.1% Cost of NHR -9 -9 New Business Value 2015 39 23.7% New Business Value 39 49
The profitability reduces from 32.8% at YE14 to 23.7% at YE15 mainly on account of the profitability decline observed on protection business (NBM from 59.3% at YE14 to 36.3% at YE15), representing 49.2% of APE, due to fall in accident/disability line of business. The reduced volume and profitability lead the NBV to decrease by 30.2%.
The changes in the future operating assumptions amount to -40mln, with the effect of the strengthening of surrender assumptions (-65mln, mainly in Guernsey and in Netherlands) and mortality (-33mln, mainly in Spain) only partially offset by the more favourable assumptions on expenses (+45mln, mainly in Austria).
Other operating variances amount to -39mln and include the impact of extraordinary expenses and model refinements.
The Solvency II Risk Free Rate and Required Capital adjustment (-165mln) refers to the adoption of lower reference rate and lower cost of capital as a consequence of reduced required capital, leading the total EV at year-end 2015 to 5,439mln.
PVNBP 6,200 6,129 -0.7% 1st year NB strain on PVNBP -2.9% -3.1% NBV 174 177 -6.4% o/w industrial strain on PVNBP -2.1% -2.1% Profitability on APE 27.0% 25.9% +0.2 pts o/w capital strain on PVNBP -0.8% -1.0% Profitability on PVNBP 2.8% 2.9% -0.1 pts IRR 14.7% 16.1% changes are on a comparable basis Payback period (yrs) 5.3 4.9
On a comparable basis APE declines by 7.2 mainly on account of the fall observed in Ireland (-21.5%) and Guernsey (-22.0%) that directly impact the unit linked business. On the other hand, it should be noted the progressions of Switzerland (+2.6%), Netherlands (+121.7%) and UK Branch (+52.3%). Single premiums significantly decrease mainly in Ireland (-23.5%), in Austria (-34.4%) and in Spain (-3.0%), whereas regular premiums slightly increase (+1.1%) mainly thanks to the good performance in Austria (+17.7%) and Netherlands (+125.2%). In terms of main business lines, it should be noted the good progress of the protection business (+11.9%) mostly driven by the increase in Spain (+16.1%) and Austria (+26.6%) that offsets the fall in Ireland (-22.2%).
The profitability increases from 25.9% in 2014 to 27.0% in 2015, as a consequence of the higher weight of the profitable protection business (weight on APE from 13.7% to 16.8%) with increased profitability (margin on APE from 136.8% in 2014 to 146.6% in 2015). Higher margins but lower volume explain the decrease of NBV (-6.4% on a comparable basis), amounting to 174mln.
The total new business strain amounts to -178mln, corresponding to the sum of the negative contribution to profit in the year of sale (-128mln) and the capital absorbed by the new business (-50mln). The slightly better new business strain (in terms of present value of new business premiums, from -3.1% to -2.9%) is not sufficient to improve the internal rate of return (from 16.1% to 14.7%) and of the pay-back (from 4.9 years to 5.3 years) due to deteriorated financial environments.
Change in perimeter 0 0 0 Exchange rate fluctuation -27 9 -36 Adjusted Value at 31/12/2014 799 217 581 New business value 42 126 -85 Expected contribution (reference rate) 49 19 30 Expected contribution (in excess of reference rate) 12 12 0 Transfers from VIF and req. cap. to free surplus 0 -36 36 Operating experience variances 1 -1 1 Operating assumption changes 3 3 0 Other operating variances 7 5 2 Operating EV earnings 113 128 -15
Other non operating variances 2 -4 6 Total EV earnings 106 71 35
Total Normalised EV earnings 106 106 Return on EV 13.3% 13.3%
In Latin America and Asia, the EV moves from 825mln to 772mln.
The economic variances amount to -9mln, with the positive impact on ANAV (+44mln) that only partially offset the negative impact of lower interest rates on VIF (-53mln), whose details are reported below (noting that the valuation in Asia, with only the exception of China, has been conducted according to a traditional EV methodology, whereas in Latin America no VIF is calculated because of the small size of the business).
The split of VIF is reported in the following table: Breakdown of value in-force as at 31 December 2015 and 2014 (€ mln)
Total EV earnings amount to 106mln, with an overall return on EV equal to 13.3%.
The capital movement (-89mln) refers to dividend paid in 2015 by the covered business out of the consolidation perimeter (-15mln), and capital injections and changes in covered companies’ interest in other Group companies (-75mln), leading the total EV at year-end 2015 before Solvency II adjustment to 815mln.
PVNBP 1,332 652 78.6% 1st year NB strain on PVNBP -9.3% -10.1% NBV 42 19 88.6% o/w industrial strain on PVNBP -6.3% -7.3% Profitability on APE 13.5% 11.8% +1.3 pts o/w capital strain on PVNBP -3.0% -2.8% Profitability on PVNBP 3.1% 2.9% +0.3 pts IRR 12.3% 12.8% changes are on a comparable basis Payback period (yrs) 7.3 7.1
Movement of NBV (€ mln) and NBM (%) Breakdown of New Business Value (€ mln) NBV NBM 2015 2014
The following tables show the sensitivities of the EV to changes in key assumptions using the parameters indicated by the CFO Forum.
• Yield curve -0.5%: sensitivity to a downward parallel shift of 50 basis points in the underlying reference rates, accompanied by a downward shift of 50 basis points in all other dependent economic assumptions. Volatility adjustment added to swap rates until the extrapolation “entry-point” remains the same as in the central scenario1. Interest rates are not floored to zero.
• Equity Value +10%: sensitivity to a 10% market value increase at valuation date for equity investments.
• Equity Value -10%: sensitivity to a 10% market value reduction at valuation date for equity investments.
• Swaption Implied Volatilities +25%: sensitivity to a 25% increase of the swaption implied volatility across all option maturities and swap tenors, resulting in a change of the time value of financial options and guarantees.
• Reference rates without volatility adjustment (VA): sensitivity to the adoption of swap rates without any additional adjustment as reference rates.
• Reference rates with volatility adjustment (VA) +10bps: sensitivity to a 10bps increase to the volatility adjustment added on top of the underlying reference rates.
• Administrative & Investment Management expenses -10%: sensitivity to a 10% decrease of administrative and investment management expenses.
• Lapse Rate -10%: sensitivity to a 10% decrease of lapse rates (multiplicative, i.e. 90% of best estimate lapse rates).
• Lapse Rate +10%: sensitivity to a 10% increase of lapse rates (multiplicative, i.e. 110% of best estimate lapse rates).
• Mortality for annuity business -5%: sensitivity to a 5% decrease of mortality (multiplicative, i.e. 95% of best estimate mortality rates) for business subject to longevity risk, i.e. where the present value of future profits decreases when the mortality rates decrease (e.g. annuities in payment).
1 As the ultimate forward rate used in this sensitivity remains the same as in the central scenario, the shift is parallel only up to the extrapolation entry-point.
Mortality/Morbidity for Risk Business -5% 2.0% 0.3% 4.7% 2.1% 1.4% 2.0% 0.9%
The impact of the sensitivity to a 0.5% decrease in the yield curve is generally greater than the corresponding opposite variation due to the presence of financial guarantees and options, which are more likely to bite when interest rates are lower and create asymmetries in shareholders’ results.
Compared to previous year, the impacts of most economic sensitivities are showing a lower impact due to the improved financial situation, higher projected returns and lower volatilities smooth the sensitivity of results.
Reference rates without volatility adjustment -6.0% -5.5% -1.6% -3.5% 0.3% -2.1% -53.3% Reference rates with volatility adjustment +10bps 1.9% 1.5% 1.6% 1.1% -0.7% 3.4% 6.1%
The calculation of EV makes use of various assumptions with respect to economic conditions, operating conditions, and other factors, many of which are beyond Generali’s control. Although all the assumptions represent estimates that Generali regards as reasonable, future developments may vary from those assumed in the calculations and such variations could have a significant impact on future profits.
Economic assumptions have been set consistently with observable market data. Taxation assumptions are based on current tax legislation. Operating assumptions (including profit sharing mechanisms) are based on each company’s current experience and practice, where available and otherwise credible.
Generali has adopted a market consistent methodology based on a risk-neutral approach for the vast majority of its business (see Annex B for the assumptions used for minor companies). The Time Value of FG&O is modelled by means of a set of 1,000 stochastic simulations, calibrated reflecting observable market data as at the valuation date and generated centrally by an application tool provided by Moody’s Analytics UK Limited. At year-end 2015 valuation, consistently with year-end 2014, the nominal yield curves for each considered economy are generated using the Libor Market Model plus (LMM+) economic scenario generator, which allows for scenarios with negative interest rates. Real yield curves are generated with a two-factor Vasicek model. To reduce Monte-Carlo error, antithetic variables are used. Corporate credit spreads are modelled stochastically.
The reference rates are based on EIOPA curve in all countries: swap rates adjusted for CRA with the exception of Hungary and Poland, where the local swap curve is not considered by EIOPA a robust basis for producing reference rates and the government bond adjusted for CRA rates have been used.
Reference rates before volatility adjustment at 31 December 2015 - definition
According to the assumptions illustrated above, the par reference rates (unadjusted for the CRA) used in the valuation as at 31 December 2015 are shown in the following tables for the main currencies.
The Volatility adjustment (VA) and Credit Risk adjustment (CRA) used at year-end 2015 valuation has been taken from the official EIOPA publication for each relevant currency/country.
The following table summarizes the appropriate adjustment adopted at YE15 valuation on top of the risk free rate for the main currencies.
The assumptions for future taxation are based on the prevailing local tax rates as at the respective valuation dates. Where applicable, account has been taken of the specific tax treatment of income on certain asset classes backing both technical reserves and required capital, including tax credits or exemptions on dividend income, tax credits on investment returns and tax exemptions on certain qualifying participations. In Italy, allowance has also been made for loss of interest that is associated to the taxes payable in advance on reserves according to DL. 168/2004 and subsequent amendments and the “Legge di stabilità 2016” that allowed for reduction of IRES from 27.5% to 24% starting from 1th of January 2017.
The following table shows the ordinary average taxation rates at 31 December 2015 and 2014.
GBP United Kingdom Pound 0.74 0.78 CHF Switzerland Franc 1.09 1.20 CZK Czech Republic Koruny 27.02 27.72 HUF Hungary Forint 316.01 315.75 PLN Poland Zloty 4.29 4.30 CNY China Yuan Renminbi 7.05 7.51
Inflation rates have been derived from the market implied inflation rate in the scenarios’ calibration process described above. To inflate expenses, specific allowance has also been made for the additional inflation related to salaries and medical costs.
Operating assumptions such as expenses and commissions, mortality, morbidity, lapses and annuity take-up rates, have been determined by each company on the base of their best estimates as of the valuation date, referring to the current experience when available or to appropriate industry benchmarks.
Required capital represents the market value of assets that are needed to support the covered business in addition to those required to back technical reserves and other policyholder liabilities, taking into account both local regulatory solvency requirements and internal objectives.
In the year-end 2014 valuation, Generali defined the level of required capital for each business unit as the greatest between the local regulatory minimum capital requirement and the risk capital arising from the Group’s Economic Balance Sheet methodology. It was presented net of the impact of relevant eligible items that can be used to support capital requirements with no associated cost to shareholders.
Free surplus represents the market value of assets allocated to the Life perimeter that are not required to support the covered business at the valuation date and is defined as the excess of ANAV over the required capital.
Taxes are applied taking into account prevailing fiscal regimes. In case of projected tax credits, Generali allows for the consideration of existing consolidation effects at Country level and for the use of possible management actions which can be carried out at Group level to ensure their full recoverability.
Frictional costs of required capital reflect the economic costs incurred by shareholders through investing the required capital in an insurance company rather than directly. They are mainly represented by taxation and any policyholders’ interests on the investment income of assets backing the required capital plus the investment expenses incurred for the management of these assets (where these have not been already allowed for in the PVFP). Frictional costs of required capital are independent of the cost of non hedgeable risks.
Frictional costs are calculated by projecting the future levels of required capital over the lifetime of the business. Where the required capital is based on the internal risk capital, the projection is performed using appropriate risk drivers.
The cost of non hedgeable risks is an explicit, additional and separate allowance that covers non hedgeable risks not already allowed for in the PVFP and the Time Value of FG&O. As a general principle, non hedgeable risks refer to both financial and non-financial risks. Since the assumptions for non hedgeable risks used in calculating the PVFP and the Time Value of FG&O are best estimate and company specific, the cost of NHR reflects the fact that: • experience may vary from projection assumptions and hence a charge for uncertainty in the setting of the best estimate assumptions could be needed; • the single best estimate assumptions may not fully capture the asymmetry in shareholder’s results; • allowance should be made for any risks that are not included in the PVFP and the Time Value of
A3. NEW BUSINESS VALUE New business refers only to new contracts written in the year and excludes other automatic premium increases relating to prior years’ business.
NBV is determined as the present value, at the point of sale (i.e. taking account of the first year new business strain) of the projected stream of after tax industrial profits that are expected to be generated by the covered new business written in the year, net of the cost of financial guarantees and options granted to policyholders, the frictional costs of setting up and holding required capital and the cost of non hedgeable risks.
The full-year NBV is defined as the algebraic sum of the NBV of each quarter, calculated with beginning of period operating and economic assumptions. Each quarterly NBV is consolidated after consideration of end of quarter minorities, and converted to Euro using end of quarter foreign exchange rates.
B1. “REAL-WORLD” BEST ESTIMATE PROJECTIONS “Real-world” best estimate financial assumptions are used by companies performing market consistent valuations, to derive: ! the best estimate expected results and the unwinding rate (implied discount rate, see Section B2) within the analysis of movement; ! the internal rate of return and payback period of the new business.
B2. IMPLIED DISCOUNT RATES Generali’s market consistent approach provides a direct calculation of VIF and NBV, and does not require the calculation of traditional deterministic risk discount rates. However, even under this valuation framework, it is possible to derive implied discount rates (IDRs), defined as the discount rates that, when used in a traditional EV model, produce the same value as that arising from the market consistent valuation.
In contrast to a traditional EV valuation, IDRs are outputs of the valuation rather than assumptions for the EV model. Changing the assumptions used to project future profits in the best estimate scenario can have an impact on the resulting IDR, but the value (VIF/NBV) would remain unchanged.
The tables below report the IDRs for the main geographic areas, broken down into the two following components: the “risk-free” rate, which reflects the yield on local government bonds (in the local currency) based on the average duration of profits, and the risk premium, which neutralises the “real-world” best estimate assumptions and allows for the cost of financial guarantees, including dynamic policyholder behaviour, and for the cost of non hedgeable risks.
At year-end, both the risk free and the risk premium components of the IDR reports a significant reduction, which reflects the general decrease of interest rates and the reduced gap between the “real world” assumptions used for illustrative purposes and the “risk neutral” market consistent assumptions used for valuation purposes.
Breakdown of Embedded Value IDR per geographical areas as at 31 December 2015 and 2014 VIF - IDR 2015 VIF - IDR 2014
Finally, the following tables provide the sensitivity for VIF and NBV to an increase of 100bps of IDR in the “real-world” best estimate projections.
VIF and NBV Sensitivity to +100bps in IDR as at 31 December 2015
Embedded Value (EV) is an actuarially determined estimate of the value of a company, excluding any value attributable to future new business. With reference to the covered business, and to the relevant consolidation perimeter (i.e. the operating life and health companies of the Group), the EV is equal to the sum of the Adjusted Net Asset Value and the Value In-Force.
Normalised Embedded Value Earnings correspond to Operating Embedded Value Earnings, net of other operating variances.
New Business Value (NBV) is the present value, at the point of sale, of the projected stream of after tax industrial profits expected to be generated by the new business written in the year, after allowance for: ! the cost of financial guarantees and options granted to policyholders; ! the frictional costs of setting up and holding the required capital; ! the cost of non hedgeable risks.
Full year NBV is calculated as the algebraic sum of the NBV of each quarter, each of them calculated with beginning of period operating and economic assumptions.
Annual Premium Equivalent (APE) is defined as new business annualised regular premiums plus 10% of single premiums.
Internal Rate of Return (IRR) is defined as the rate that makes equal to zero the present value of new business distributable profits (therefore allowing for new business first year industrial strain and required capital absorption) calculated using “real-world” best estimate assumptions (see Annex B1).