Please note that the report itself was translated into English solely for the convenience of international readers.
The Annual Integrated Report provides a concise and integrated view of the Group’s financial and non-financial performance
The Management Report and Parent Company Financial Statements provides a disclosure on the performance of Assicurazioni Generali in accordance with the provisions of regulations in force
The report complies with prevailing regulations and the principles of the International <IR> Framework issued by the International Integrated Reporting Council (IIRC).
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With the outbreak of World War II, the Group lost contact with its subsidiaries located in ‘enemy’ countries: one of the most complex periods of its bicentenary history began.
Recent years have driven a new phase of change, with a new top management and a corporate reorganization which saw the birth of Generali Italia in the wake of a significant restructuring process, the completion of the acquisitions of the minority interests of Generali Deutschland Holding and Generali PPF Holding, and the disposal of non-core activities. Generali presented its strategic plan at the Investor Day in May 2015, which aims to set out a new business model and achieve new, challenging targets.
IVASS - the Italian Insurance Supervisory Authority - approved the use, starting from 1 January 2016, of a partial internal model to calculate the consolidated Solvency Capital Requirement at Group level as well as the Solvency Capital Requirement for the main Italian and German insurance companies, for the French property&casualty companies and for the Czech company Ceska Pojistovna a.s..
A subordinated bond was issued for an overall amount of € 850 million, targeting institutional investors. The issuance was intended to refinance the subordinated debt with the first call date in 2017, which amounts to € 869 million. The subordinated bond issue received ratings BBB by Fitch, Baa3 by Moody’s and bbb+ by AM Best.
Generali Finance B.V. exercised the early redemption option on the perpetual subordinated notes on 8 February 2017. This debt has already been refinanced through the subordinated bond, concluded on 8 June 2016, for an overall amount of € 850 million, targeting institutional investors.
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Board of Directors Approval of intermediate financial reporting as at 30 September 2017
Board of Directors Approval of the half-year financial reportas at 30 June 2017
The premiums we receive from our clients to enter into insurance contracts are responsibly invested in high quality assets.
E X T E R N A L C O N T E X T
People We deeply care about our clients’ and our people’s future and lives.
Our mission is to be the first choice by delivering relevant and accessible insurance solutions
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Deliver on the promise We tie a long-term contract of mutual trust with our people, clients and stakeholders; all of our work is about improving the lives of our clients. We commit with discipline and integrity to bringing this promise to life and making an impact within a long lasting relationship.
At least € 1 bln cash proceeds from disposals net reduction in nominal OpEx cost base in mature markets by 2018 further improvement in outperformance vs peers
We aim to maintain a diversified global presence by focusing on markets in which we can achieve a significant position and excellent performance. We will therefore dispose of the companies that do not meet specific profitability and future growth requirements in order to invest in those activities that generate higher returns.
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Launched in 2015, the Net Promoter Score Listen and Act program is currently active in 26 business units and covers roughly 90% of our client base. As part of this program, we sent more than three million surveys to clients all over the world, obtaining a high global response rate, a sign of our clients’ desire to have their voices heard and their interest in the future of Generali. We called more than 108 thousand dissatisfied clients to understand their reasons and we organized interdepartmental work groups to implement several actions in response to the feedback received Feedback provides us with pointers on what clients like and areas in which we could improve; to date, 256 quick wins have been implemented, and we have made 175 structural improvements, such as automatic updates on the status of dossiers via SMS, app and portals.
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We aim to become the top choice for consumers, committing ourselves to: - strengthening our brand - increasing its visibility through not only event sponsorship and media support, but also search engine optimization for insurance coverage estimates - helping our agents to build value-added relationships with current and potential clients and adopting an even more advisory-oriented approach to sales.
There will be 4 main initiatives to achieve these objectives: In France, we aimed at increasing our visibility in the sports field by adopting a non-commercial approach and building relationships with national sports federations based on a shared commitment to sustainability. In 2010 we launched La Charte du Sport Responsible that covers several aspects such as social inclusion, equal opportunities, health protection, risk prevention and the safeguarding of the environment. Its goal is to promote and spread six core principles for sporting activity that respects others and the environment, the Charter is flanked by a website that offers visibility to our brand e allows associations to share and promote their practices.
The objective is also to design a management school that offers a consistent management training program for all new Group managers.
Shift mindset towards Customer Centricity * The data refer to the Group companies equal to 64,447 employees or 87.4% of the total.
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We have always focused on developing and strengthening the technical and other skills of all of our people.
– implementation of D&I Colourful Program, a programme aimed at identifying local projects in order to create awareness and to promote a culture of diversity and inclusion
– creation of an international network of colleagues to facilitate an aligned and consistent approach to diversity and promote a concrete plan of initiatives throughout the Group
Board of Statutory Auditors It consists of three permanent and two substitute auditors, all responsible for ensuring compliance with the applicable laws and regulations and the Articles of Association as well as management control.
Appointments and Remuneration Committee It has consultative, recommendatory and preparatory functions in favour of the Board with respect to remuneration and appointments.
Independent Auditors Enrolled in the dedicated registry and appointed by the Shareholders’ Meeting, it is an auditing body external to the Company.
Number of meetings of the Board and Committees Average percentage attendance at the meetings of the Board and Committees
Re gu la tio n fra m ew or k an d re gu la to ry re qu ire m en ts
Fairness and consistency with respect to the responsibilities assigned and the abilities demonstrated
La rg e ca p co m pa ni es 1/1/2016 - 28/4/2016
Focus on the Group Management Committee (GMC) as at 15 February 2017 www.generali.com/governance/remuneration for further information and the Remuneration Report
Today, customers are demonstrating greater attention to service quality: they no longer rely only on an agent to acquire an insurance product; rather, they have a more independent approach to the decision-making process, which includes visiting the websites of insurance companies, reading customer reviews on social media and checking comparison websites.
We aim to become the top choice of clients and distributors. We offer insurance solutions and services that are simple, tailored and even more innovative to meet their needs, also digital ones, and to improve their customer experience. We are analyzing and implementing a real digital transformation in our business units in order to make our global distribution networks more efficient. We are supporting them so that the interaction with clients can be increasingly based on an advisory approach. It means to interpret the clients’ needs and offer the best solutions for them.
on the development of standard qualitative and quantitative capital requirements based on risk for insurance groups operating globally
– European directive on insurance distribution and regulations on investment product disclosure and transparency guaranteeing an increasingly high level of consumer protection
– European regulation on personal data protection for improved protection of citizens – European directive on non-financial information – IFRS 9 (on financial instruments) and IFRS 17 (on insurance contracts).
We run our business in compliance with the law, internal regulations and codes and professional ethics, and we closely monitor the evolution of the regulatory environment, dialoguing with legislators and institutions. We have implemented the organizational requirements laid out by Solvency II and received approval for the partial internal model for the determination of the Group solvency capital requirement from the Supervisory Authority. We are engaged in the various tests carried out by the International Association of Insurance Supervisors (IAIS) to determine the final architecture and calibrations of the supervisory requirement. We have strengthened an international and multifunctional initiative aimed at internally sharing knowledge, experience and best practices in the field of product development and distribution strategies so as to be ready to meet the necessary regulatory requirements. We have contributed to the European debate on personal data protection and we continue to monitor the definition of detailed measures to identify aspects pertaining to our business to be implemented. We also monitor developments in the new disclosures on non-financial information to ensure its implementation. Lastly, we monitor developments in international accounting standards through work groups skilled in investments and insurance contracts.
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• Gross written premiums exceeding € 70 billion (-3.9%), reflecting selective subscription in the life business and good development in the P&C business. Significant improvement in the new business value
• Record operating result in excess of € 4.8 billion, up (+0.9%) due to the technical performance of the life and P&C segments, with an excellent CoR improving to 92.5%
• Operating RoE at 13.5% again confirming the achievement of the Group’s strategic target (>13%)
Life premiums came to € 49,730 million (-6.3%), reflecting the increasingly disciplined approach to the offer, aiming to optimize the return on invested capital, and the current performance of the financial markets. With reference to the lines of business, there was a contraction of 10.9% in unit-linked products, of 5.7% in savings products and of 2.8% in protection. Net cash inflows is confirmed at excellent levels, exceeding € 12 billion (-18.5%), above the average of the last 5 years.
With reference to the lines of business, there was an improvement in pure risk business with a good level of growth (+12.4%), while unit-linked business declined (-11.3%). The savings business also decreased (-9.7%) due to the unfavourable financial situation and the Group’s actions planned to reduce guaranteed business. In line with strategic policies, the new business value (NBV) improved significantly (+14.6%), standing at € 1,256 million (€ 1,097 million at 31 December 2015).
New business margin (margin on APEs) rose significantly by 4.9 pps to 25.9% (21.0% 31 December 2015), primarily due to the refocusing of sales towards the pure risk business and the effective recalibration of guarantees, although the economic environment is worse than last year.
The operating result of the Holding and other businesses segment3 declined to € -91 million. This performance mainly reflects the decreased contribution of other businesses, particularly the reduction in performance fees in the financial segment, influenced by the related market performance, and lower net realized gains in the real estate sector.
The operating return on equity, the Group’s main economic profitability target, came to 13.5% (14% at 31 December 2015), confirming the achievement of the strategic objective for the third consecutive year (>13%).
The non-operating result of the Group came to € -1,529 million (€ -1,318 million at 31 December 2015). More specifically: • the net impairment losses rose to € -543 million
Thanks to improvements in the operating results not-ed above, the result for the period attributable to the Group stood at € 2,081 million, showing an increase of 2.5% over the € 2,030 million recorded at 31 December 2015.
Net fee and commission income and net income from financial service activities 384 494 -22.3%
The shareholders’ equity attributable to the Group amounted to € 24,545 million, +4.2% compared to € 23,565 million as at 31 December 2015. The change is mainly due to: • the result of the period attributable to the Group, which amounted to € 2,081 million as at 31 December 2016; • the dividend distribution of € 1,123 million, carried out in 2016; • other gains or losses recognized through shareholders ’ equity in the current year amounted to € 11 million. In particular, this performance is attributable primarily to the increase in gains or losses reserves attributable to available for sale financial assets for € 252 million which more than compensates actuarial losses deriving from the re-measurement of the financial liabilities for defined benefit plans for € -243 million attributable to the reduction in the applicable rates used to discount those liabilities.
Shareholders' equity attributable to the Group at the end of the previous period 23,565 23,204
At 31 December 2016, total investments amounted to € 474,069 million, up by 4.7% over the previous year. Group investments amounted to € 395,752 million (+4.8%) and unit/index linked investments amounted to € 78,317 million (+4.5%).
Please refer to the methodological notes attached to this report for details on the calculation of this indicator.
In accordance with the IAS / IFRS managerial model used by the Generali Group, consolidated liabilities were split into two categories: • liabilities linked to operating activities, defined as all the consolidated financial liabilities related to specific balance sheet items from the consolidated financial statements. This category also includes liabilities stated by the insurance companies against investment contracts and liabilities to banks and customers of banks belonging to the Group; • liabilities linked to financing activities, including the other consolidated financial liabilities, including subordinated liabilities, bonds issued and other loans obtained. This category includes liabilities incurred in connection with a purchase of controlling interests.
The weighted average cost of liabilities linked to financing activities at 31 December 2016 amounted to 5.67%, similar to the 5.65% at 31 December 2015 and the 5.68% at 30 September 2016. The weighted average cost reflects the annualized average cost of the debt considering the outstanding liabilities at the reporting date and the related currency and interest rate hedging.
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This category also includes unlisted subordinated liabilities issued by Assicurazioni Generali S.p.A. and other subsidiaries. Liabilities issued by Assicurazioni Generali S.p.A. in the form of private placements amounted to a nominal amount of € 1,000 million corresponding to an amortized cost of € 998 million. The remaining subordinated liabilities relate to shares issued by subsidiaries in Austria with an amortized cost of about € 29 million.
The counterparties are major financial institutions of high international standing. This will only impact the Group’s financial liabilities if the facility is drawn down, and will allow Generali to improve financial flexibility to manage future cash requirements in a volatile environment.
Liquidity decreased to € 11,099 million, in particular due to its reinvestment, in order to limit the dilution of yelds, which are currently negative for bank deposits.
Share performance 31-Dec-15 31-Jan-16 28-Feb-15 31-Mar-16 30-Apr-16 31-May-16 30-Jun-16 31-Jul-16 31-Aug-16 30-Sep-16 31-Oct16 30-Nov-16 31-Dec-16
Total shareholders' return (%)* -11.60 2.95 * (total dividend + var. share price during the reference period) / share price at the beginning of the year.
Unlike the trend observed in 2015, the Italian life insurance market declined considerably in 2016, with a business mix that was more oriented, despite low rates of return, * The indicated market shares and positions, based on written premiums, refer to the most recent official data.
In Germany, Generali Deutschland is the second insurance group in terms of total premium income. Its market share is 5.6% in the P&C segment and 10.2% in the life segment (also including the healthcare business), and is particularly well positioned in the unit-linked and protection business lines, in hybrid products, corporate pension plans and in the direct channel.
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Generali France found a new way to help SMEs be more aware of their risk exposure and to help them manage and expand their business: Generali Performance Globale (GPG), a new holistic approach to risk management. GPG is an innovative strategy of risk management, with a focus not only on traditional and insurable risks, but with a wider perspective on business. After a preliminary assessment phase of in-depth data-collection from the company and analysis, we determine a company’s strengths and weaknesses and make a cross-business risk-management plan with an eye toward sustainable development issues. By 2016, ten years after its birth, GPG’s influence has extended to larger organizations and franchise networks, leaving a mark on the history of risk management for any kind of business, thanks to its innovative and responsible approach.
The improved Net Cor can be ascribed entirely to the limitation of the expense ratio (-1.3 pps, linked to cost reduction policies), offsetting the pressure that can be observed in the net loss ratio, which reflects the deterioration in non-motor segments.
Spain Generali España is one of the main insurance groups in Spain, ranked eighth in terms of total premiums, with a market share of 3.7% in the life segment and 4.3% in the P&C segment. The Group offers a wide range of life and P&C policies dedicated to private individuals and companies, using a multi-channel distribution strategy including bank offices and a network of agents and brokers which is among the most extensive in Spain. In 2016, the bancassurance agreement with Cajamar was renewed and reinforced, thereby giving Generali España exposure to the main life distribution channel, which is also expanding in the P&C segment. With reference to the insurance market, in 2016 the P&C segment grew for the second consecutive year since 2008, also supported by signs of recovery in the motor sector and in multi-risk and healthcare products. There was also a significant recovery in the life market, benefitting in part from the recovery of the bancassurance channel, which pushes the distribution of savings products.
Switzerland Generali has been operating in Switzerland since 1987, consolidating its presence over time by the acquisition and merger of many insurance companies. Generali Switzerland is the 8th largest insurance group in terms of life and P&C premium income, with a life market share of 3.7%, and a P&C share of 4.9%. In accordance with the Group strategy, Generali Switzerland focuses on the retail business and provides high quality and innovative services through various distribution channels.
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In Spain the need to optimize the underwriting process, finds its solution in an underwriting platform that is conceived and managed to maximize industrialization, task-prioritization, and business specialization. Our main goal is to improve on the main challenge areas of our previous system, while maintaining and even improving its strengths such as system flexibility and technical control. The implementation of a state-of-the-art underwriting platform has had a huge impact, internally allowing us to gain high efficiency in analysis and network management, and externally to improve the satisfaction of intermediaries and to reduce the administrative burden. Although the solution is almost fully scaled up, additional synergies with respect to economies of scale and emerging technologies could still be generated.
The Group has carried on business in Asia since the 1980s. It is currently present in China, Indonesia, the Philippines, Hong Kong, Japan, Thailand, Vietnam, India and Malaysia. The companies present in these last two countries, as well as China P&C, are not consolidated line-by-line as, at the moment, the relative shareholdings do not reach 50%. Hong Kong is also home to the regional office, which coordinates the entire area’s activities. The life business comes from China, Indonesia, Hong Kong, the Philippines, Thailand, Vietnam and India, and is concentrated primarily in the saving&pension segment, as well as Protection and, to a lesser extent, unit-linked. In the P&C segment we operate in China, India, Malaysia, Hong Kong, Thailand and Japan, with a premium volume which is in any event limited with respect to total income in the Region (directly and not directly consolidated). The main distribution channels are banks and agencies, in rapid development especially in China. The direct channel is still in the initial phases of development in China and Thailand. The main contributor in terms of sales and profit in the Region is the Chinese life company, Generali China Life, a joint venture with the local partner CNPC, which today has become one of the top foreign insurance groups on the market.
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The Generali brand was not recognizable in the Hong Kong life insurance market back in 2014. That year, Generali Asia made a strategic decision to launch a High Net Worth (HNW) project and developed a high benefit term life product called “Sigillo” to tap into Hong Kong’s fast growing HNW-individual market. After the launch of this project we were able to offer competitive policies to the high-end customer base. The structure of Sigillo maximises the value for both insurers and insurees. Our share in life single premium sales in the Hong Kong brokerage market jumped from virtually 0% to 10% in two years. It was such a success that Generali HK immediately shared its knowledge and experience with the company’s China and Southeast Asia teams so that they, too, could grow their HNW business strategy.
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The evolution in volumes is mainly associated with Argentina (more than 60% of the entire Region), operating in the protection segment, driven by the continuation of high inflation.
• Excellent net cash inflows, at more than € 12 billion (-18.5%)
• New business value (NBV) at € 1,256 million (+14.6%), in line with the target of creating longterm value
Gross written premiums in the life segment, including premiums related to investment contracts, amounted to € 49,730 million, a 6.3% decrease over the previous year, reflecting the increasingly disciplined approach taken to the offer.
With regard to the lines of business, the planned decline in savings products continues (-5.7%), reflecting the ac-
Net cash inflows is confirmed at excellent levels, reaching € 12,049 million, above the average of the last 5 years. The drop (-18.5%) recorded was due to the comparison with 2015 in which premium income reached the record level of nearly € 15 billion. This performance in particular reflects the drop seen in Germany, France and Italy due to more highly selective subscription policies for savings products, which are also involved in a significant revision of the offer, to adjust it to the current low-interest rate environment. In addition, there was an increase in amounts paid out in Germany linked to a particular portfolio that had reached its natural maturity. On the other hand, excellent performance continues in Asia, where net premium income grew by 40%.
New business in terms of annual premium equivalents (APE) stood at € 4,847 million, down 6.6% with respect to the previous year. This performance is mainly attributable to the decline in single premium policies (-13.4%) observed in all of the main markets except Asia, where instead there was growth of 47.8%. Annual premiums are basically stable (-0.5%); the decline in Italy, Germany, CEE and EMEA countries was offset by growth in France and Asia. With reference to the lines of business, there was an improvement in the risk business with a good level of growth (+12.4%), primarily thanks to business in France (+21.7%) and Asia (+72.0%). On the other hand, unit linked business declined (-11.3%) in the main areas: -18.8% in Italy, factoring in the significant increase in “multi-line” products in the previous year, as well as in France and Germany. The savings business also decreased (-9.7%) due to the unfavourable financial situation and the Group’s actions with a view to prudent management of the guarantees offered.
Insurance and other operating expenses ■ ■ Technical marginNet investment result
6 Please refer to the Glossary in the Appendix to Management Report section for more details on the way the indicator was calculated.
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The technical margin7, equal to € 6,027 million, is strongly up due primarily to the positive development of risk business profitability.
Net income from financial instruments at fair value through profit or loss 1,661 2,725 -39.0%
Net other income from financial instruments at fair value through profit or loss
Policyholders' interests on operating income from own investments -10,921 -12,880 -15.2%
More specifically: • current income from investments – which also include the current income from investments at fair value through profit or loss – was up slightly at € 11,305 million (€ 11,248 million at 31 December 2015), while the related profitability, calculated on the basis of the book value of the investments, was down to 3.2%. In more detail, the current income from fixed income instruments fell from € 9,877 million at 31 December 2015 to € 9,801 million. The current income in the equity line was up, from € 416 million at 31 December 2015 to € 520 million. Finally, current income from investment properties was also slightly up, at € 543 million (€ 526 million in 2015); • net operating realized gains on investments stood at € 1,673 million (€ 2,365 million as at 31 December 2015) against lower realized gains on all asset classes. In fact, the Group pursued the policy of sustaining future returns on its investments with a view to creating long-term value; • net operating impairment losses on investments increased from € -334 million at 31 December 2015 to € -706 million; this performance mainly reflects higher impairments on equity instruments due to market trends; • other operating net financial expense, which includes interest expense related to operating debt and investment management expenses, amounted to € -927 million (€ -863 million at 31 December 2015); • net income from financial assets and liabilities related to unit-linked and index-linked contracts fell from € 2,276 million at 31 December 2015 to € 1,728 million. This trend was affected by the change in value of the investments against the performance of certain financial markets with respect to the corresponding period of the previous year; • net income from other financial instruments at fair value through profit or loss amounted to € -66 million (€ 448 million at 31 December 2015). The significant change was due to the performance of certain financial markets during the year.
The policyholders’ interests on operating income from own investments went from € -12,880 million at 31 December 2015 to € -10,921 million, down from the corresponding period of the previous year, due to the volatility of the income from financial instruments at fair value through profit or loss.
Acquisition and administration costs related to insurance business -4,888 -5,047 -3.1%
The acquisition and administration costs related to insurance business and the other operating expenses have increased from € -5,204 million at 31 December 2015 to € -4,985 million.
More specifically, acquisition and administration costs related to insurance business stood at € -4,888 million, down by 3.1% compared to 31 December 2015. The costs of acquisition contributed to that change, which amounted to € -3,884 million, down by -4%, reflecting the general decline in the various countries in which the Group carries on business. Administration costs are essentially stable, amounting to € -1,004 million.
The ratio of the acquisition and administration costs to volume stood at 10.0% (9.6% at 31 December 2015).
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of which change in the provisions for unit and index-linked policies -3,404 -5,564 -38.8%
Acquisition and administration costs related to insurance business(*) -4,817 -4,953 -2.8%
Interest expense on liabilities linked to operating activities -175 -214 -18.4%
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At 31 December 2016, total investments in the life segment showed a 5% increase over 31 December 2015, amounting to € 427,258 million. Group investments amounted to € 348,942 million (+5.1%), while the investments related to the unit/index linked investments amounted to € 78,317 million (+4.5%).
With reference to the breakdown of the bond investment portfolio, exposure to government bonds was slightly up, standing at € 156,639 million (€ 149,400 million at 31 December 2015), amounting to 54.6% of the portfolio
Lastly, the average duration of the bond portfolio is 8.4 years (8.0 years at 31 December 2015), in line with the Group’s ALM strategy.
The net current return from investments in the life segment recorded a modest decline, falling from 3.4% at 31 December 2015 to 3.2% even though the relative income increased to € 11,186 million (€ 11,112 million at 31 December 2015).
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Finally, deferred policyholders’ liabilities stood at € 23,882 million (€ 22,642 million at 31 December 2015), reflecting the change in the value of the investments, particularly in bonds.
• Excellent Group Net Cor is further improving (-0.7 p.p.), thanks to the positive trend of the loss ratio
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■ Other operating items Investment result ■ ■ Technical result 31/12/2016 31/12/2015
(€ million) 31/12/2016 31/12/2015 Change current year loss ratio excluding natural catastrophes 69.3% 68.9% 0.4 natural catastrophes impact 1.5% 1.6% -0.1 prior year loss ratio -5.7% -4.6% -1.1
Acquisition and administration costs related to the insurance business stood at € 5,388 million, a slight decline (-0.3%) compared to 31 December 2015 (€ 5,404 million). In detail, administration costs of € 1,142 million dropped by 2.8%, thanks to the reductions seen in Germany and France. The ratio of costs to net earned premiums was down slightly at 5.8%.
The financial result in the P&C segment amounted to € 945 million, down compared to 31 December 2015 (-6.9%). In particular the current income from investments amounted to € 1,229 million (€ 1,314 million at 31 December 2015); this decrease is mainly attributable to the continuing context of low interest rates. However, the actions by the Group meant that it could achieve a current return of 3.0% (3.2% at 31 December 2015).
Current income from investment properties - net of depreciation - was also down, amounting to € 220 million (€ 256 million at 31 December 2015).
Income from investments in equity instruments was stable, in line with the previous year, falling from € 96 million at 31 December 2015 to € 86 million.
Other operating net financial expenses, which includes interest expense related to operating debt and investment management expenses amounted to € -284 million (€ -298 million at 31 December 2015) against lower investment property management costs.
The non-operating result of the property&casualty segment worsened to € -251 million (€ -67 million at 31 December 2015).
Acquisition and administration costs related to insurance business -5,388 -5,404 -0.3%
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(€ million) Gross written premiums Operating result 31/12/2016 31/12/2015 31/12/2016 31/12/2015
(€ million) Combined ratio* Loss ratio Expense ratio 31/12/2016 31/12/2015 31/12/2016 31/12/2015 31/12/2016 31/12/2015
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Total investments in the property&casualty segment fell from € 39.624 million at 31 December 2015 to € 39,440 million (-0.5%).
The net current return of total investments in the property &casualty segment fell slightly to 3% (3.2% at 31 December 2015), with related incomes amounting at € 1,195 million (€ 1,267 million at 31 December 2015).
The harvesting rate decreased to 0.5% (1.4% at 31 December 2015).
The operating result of the aforementioned business sectors are summarized in the table below: Operating result of the holding and other businesses segment
The operating result of the financial segment registered a decrease, and amounted to € 370 million (€ 434 million at 31 December 2015). The decline (-14.7%) reflects the result of Banca Generali, which declined from € 252 million to € 190 million at 31 December 2016.
At 31 December 2016, the third party assets managed by the Group banks and the asset management companies amounted to € 54,877 million (€ 44,323 million at 31 December 2015), up by 23.8%.
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When addressing the Group’s risk profile it is important to consider that the insurance sector, consisting of long-term institutional investors, is mostly vulnerable to financial markets and the economic environment. Generali has proven to be resilient to the prolonged low interest rate environment and lower growth in the Eurozone. Nevertheless, prolonged low interest rate environment as well as financial instability represent the key challenges for the sector.
For more details on the regulatory environment please see Risks and Opportunities of the external context at page 34 of this Document.
From January 1, 2016 the Group and all of its European insurance subsidiaries have to comply with Solvency II regulation, which requires capital to be held for all quantifiable risks.
Solvency II allows the use of internal models, subject to Supervisory Authority approval, to calculate capital requirements to better reflect the risk profile. The Group applied for the use of its own Partial Internal Model1 (PIM) to calculate the Solvency Capital Requirement (SCR) under Solvency II. In March 2016, the Supervisory Authority authorization was granted for the use of the PIM to determine the SCR at Group level and for the main business units, covering Italian, German and French entities2 as well as the Czech company Ceska Pojistovna as. The PIM has become the cornerstone of the Group risk assessment framework and its use is embedded in all risk and capital management related processes. For the purpose of better capturing the Group’s risk profile, the PIM scope is planned to be extended to other European insurance entities.
The Regulatory Solvency Ratio, estimated on the basis of preliminary data, amounts to 177.2%3 as at 31 December 2016. For the purpose of the Regulatory Solvency Ratio calculation, the Group companies within the PIM scope use the PIM, while other insurance entities adopt the EIOPA Standard Formula to calculate the SCR. Other financial regulated entities contribute to the Group Solvency Ratio on the basis of local sectorial regulatory requirements (e.g. mostly banks and pension funds).
The final Regulatory Solvency Ratio and the impact of the long term guarantees used will be disclosed according to the deadlines for the publishing of the Solvency and Financial Condition Report.
For the following part of this Report we refer to Economic Solvency Ratio view.
For risks not included in SCR calculation, other assessment techniques deemed more appropriate for monitoring and management purposes are used. In particular, for liquidity risk, the Group has in place procedures and limits that confirm the Group’s low risk profile and a sound liquidity position.
Generali Group also relies on a sound risk management system including governance and structured risk management processes. A set of risk policies rule the risk management system and all risk related-processes. Within the risk management system, the Own Risk and Solvency Assessment (ORSA) represents the main risk reporting tool, with the purpose of supporting risk strategy update.
In defining the level of risk it is willing to take, the Group defines its own risk strategy within the Group Risk Appetite Framework (RAF) while complementing the overall business strategy. The Group RAF defines the level of risk the Group is willing to take and ensures risk embedding into key business processes, to grant all risks are properly managed.
Generali Group prepared these Plans, although it is not included in the list of Global Systemically Important Insurers (GSIIs), issued by FSB.
Risk governance is a part of the broader Group internal control and risk management system.
To ensure a consistent framework through the Group, the Parent Company sets Group Directives on Internal Control and Risk Management System, complemented by Group Risk Policies, which have to be applied by all Group companies.
BoD and Senior Management in ensuring the effectiveness of the risk management system and provides advice and support to the main business decision-making processes; – The Compliance Function grants the internal control system’s adequateness to manage compliance risks, thus contributing to maintain Group’s integrity and reputation; – The Actuarial Function coordinates the technical provisions calculation and grants their adequacy of underlying methodologies, models and assumptions, verifies the quality of the related data and expresses an opinion on the overall Underwriting Policy; – The Audit Function verifies business processes and the adequacy and effectiveness of controls in place.
Group Control Functions collaborate according to a pre-defined coordination model, in order to share information and create synergies. A strong Parent Company coordination and direction for Control Functions is granted by the so called solid reporting lines model established between the head of the Group Control Function and heads of the respective Functions within the operating entities.
The Group Risk Management Policy covers all Solvency II risk categories and, in order to adequately deal with each specific risk category and the underlying business processes, is complemented by the following risk policies: - Group Investment Governance Policy; - Group P&C and Reserving Policy; - Group Life and Reserving Policy; - Group Operational Risk Management Policy; - Group Liquidity Risk Management Policy; - Other risk-related policies, such as Group Capital Management Policy.
The categorization of identified risks is consistent with Italian regulation (IVASS Reg. n.20/2008) and reflects the risk categories foreseen by Solvency II.
Risks not included in the capital requirement calculation, such as liquidity risk and other risks are evaluated based on quantitative and qualitative techniques, models and additional stress testing or scenario analysis.
The Group RAF defines the level of risk the Group is willing to accept in conducting business and thus provides the overall framework for embedding risk management into business processes.
The purpose of the RAF is to set the desired level of risk on the basis of the Group strategy. The RAF statement is complemented by qualitative assertions (risk preferences ) supporting the decision-making processes as well as by risk tolerances providing quantitative boundaries, lim1. Risk identification 2. Risk measurement 3. Risk management and control 4. Risk reporting
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Tolerance levels are set on the basis of capital and liquidity metrics. Should an indicator approach or breach the defined tolerance levels, escalation mechanisms are activated.
Under Solvency II, the Own Risk and Solvency Assessment (ORSA) is the main risk reporting process and is coordinated by the Risk Management Function. Its purpose is to provide the assessment of risks and of the overall solvency needs on a current and forward-looking basis. The ORSA process ensures an ongoing assessment of the Solvency Position based on the Strategic Plan and the Group Capital Management Plan, followed by a regular communication of ORSA results to the Supervisory Authority after BoD approval.
Risk and capital management are closely integrated processes aimed at managing the Group’s Regulatory Solvency Position and risk profile. The Regulatory Solven-
Solvency II rules, as a sum of best estimate of liabilities and risk margin8; • Intangible assets (i.e. Goodwill) are eliminated; cy Position is defined as the ratio between Eligible Own Funds (EOF) and SCR.
• Net deferred taxes on the above evaluations are applied; • Subordinated debt (with specific features in terms of availability, sufficient duration and absence of incentives to redeem or encumbrances) is included and the amount of foreseeable dividend is afterwards deducted; • Finally, eligibility and transferability filters so as the impact of other regulated financial entities are considered.
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Own Funds (OF) are then classified into tiers, representing different levels of quality with respect to loss-absorbing capacity9 criteria.
In addition to the preliminary Solvency Ratio data reported above, the Group calculates the Economic Solvency Ratio (ESR). For the ESR calculation the Internal Model framework is applied to all Group insurance companies13. Within this Report, the risk profile section is based on the Economic Solvency Ratio as hereby reported.
The amounts of Tier 2 and Tier 3 items eligible to cover the MCR are subject to stricter quantitative limits. The eligible amount of Tier 1 items shall be at least 80 % of the MCR; the same limitation on subordinated liabilities and preference shares is set. The eligible amounts of Tier 2 items shall not exceed 20 % of the MCR. No Tier 3 items are allowed to cover the Minimum Capital Requirements.
Tier 1 includes also available capital of sectoral entities and the unrealised gains and losses on French Institutions for Occupational Retirement Provision (IORP) business as agreed with the Group Supervisory Authority.
When determining the ESR, only a residual set of entities calculate the SCR based on the Standard Formula.
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Generali deems the PIM to be the most appropriate way of assessing the Group SCR. It represents the best way of capturing the risk profile of the entire Group and of the companies in scope in terms of granularity, calibration and correlation of the various risk factors.
The Group PIM is structured around a specific Risk Map, which contains all quantifiable risks that Generali has identified as relevant to its business, allowing for the calculation of the SCR at single risk level and at higher aggregation levels.
In implementing the model, the Group has adopted the so called Monte-Carlo approach with “proxy functions” to determine the full probability distribution (PDF) of the change in the Basic Own Funds over a 1-year horizon.
Governance and processes regarding the Internal Model are defined in the Internal Model Governance Policy to ensure: • Models and components are appropriate for their purpose; • Procedures are in place to design, implement, use and validate new models and model changes; • The appropriateness of models on an ongoing basis is confirmed.
been also defined with the aim to specify roles and responsibilities in the implementation of major and minor changes.
The Group CRO defines the processes and controls to ensure the ongoing appropriateness of the design and operations of the Group PIM, so that it continues to appropriately reflect the Group risk profile. The Group CRO is also responsible for defining the methodology of each model component, on the basis of the Group Internal Model Committee’s proposals, as well as for the results production.
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The Group’s life portfolio has a prevailing component of traditional savings business. The life portfolio also includes pure risk covers, with related mortality risk, and some annuity portfolios, with the presence of longevity risk.
The life and health underwriting risks are: • Mortality risk, defined as the risk of loss, or of adverse change in the value of insurance liabilities, resulting from changes in mortality rates, where an increase in mortality rates leads to an increase in the value of insurance liabilities. Mortality risk also includes mortality catastrophe risk, resulting from the significant uncertainty of pricing and provisioning assumptions related to extreme or irregular events; • Longevity risk that, similarly to mortality, is defined as the risk resulting from changes in mortality rates, where a decrease leads to an increase in the value of insurance liabilities; • Disability and morbidity risks derive from changes in the disability, sickness, morbidity and recovery rates; • Lapse risk is linked to the loss or adverse change in liabilities due to a change in the expected exercise rates of policyholder options. The relevant options are all legal or contractual policyholder rights to fully or partly terminate, surrender, decrease, restrict or suspend insurance cover or permit the insurance policy to lapse. This also includes the catastrophic event on lapse; • Expense risk results from changes in the expenses incurred in servicing insurance or reinsurance contracts; • Health risk results from changes in health claims and also includes health catastrophe risk.
The Economic SCR for life underwriting risk before diversification amounts to € 2,204.6 million. The total is mainly given by expense risk, followed by longevity and mortality risks. In terms of contribution to the risk profile, it is to be noted that life underwriting risks are well diversified with other categories.
Product pricing consists of setting product features and assumptions regarding expenses, biometric and policyholders ’ behaviour assumptions so as to allow the Group to withstand any adverse development in the realization of these assumptions.
Lapse risk, related to voluntary withdrawal from the contract, and expense risk, related to the uncertainty around the expenses that the Group expects to incur in the future, are evaluated in a prudential manner in the pricing of new products. This evaluation is taken into account in the construction and profit testing of a new tariff, considering the underlying assumptions derived from the Group’s experience.
For insurance portfolios with a biometric risk component, comprehensive reviews of the mortality experience are compared with expected mortality of the portfolio, determined according to the most up-to-date mortality tables available in each market. To this end, mortality by sex, age, policy year, sum assured and other underwriting criteria are taken into consideration to ensure mortality assumptions remain adequate and avoid the risk of misestimating for the next underwriting years.
As part of the underwriting process, the Group Parent Company issues underwriting guidelines and determines operating limits to be followed by Group companies. This aims to ensure a consistent use of capital and risk exposure and their maintenance between the pre-set limits.
Regular risk exposure monitoring and adherence to the operative limits, reporting and escalation processes are also in place, allowing for potential remediation actions to be swiftly undertaken.
Reinsurance represents the main risk mitigating technique. The Parent Company acts as core reinsurer for the Group companies and cedes part of the business to external reinsurers. The Group reinsurance program also grants the coverage of geographical concentration in relation to catastrophe risk.
Non-life underwriting risks derive from the Group’s insurance business in the P&C segment. The Group operates in the retail, middle market and corporate & commercial segments and has a client centric philosophy based on a multichannel distribution model. Generali coordinates a variety of distribution channels (e.g. tied agents, professional intermediaries, direct channels), with the objective of improving the service provided to its customers and also to diversify the risks. The Group favors longstanding relationships with clients to reduce the risk of moral hazard and adverse selection.
Non-life underwriting risks arise in relation to the perils covered and the processes used in the conduct of the business model described above. They include the risk of underestimating the frequency and/or severity of the claims in defining pricing and reserves (respectively pricing risk and reserving risk), the risk of losses arising from extreme or exceptional events (catastrophe risk) and the risk of policyholder lapses from P&C insurance contracts: • The pricing and the catastrophe risks derive from the possibility that premiums are not sufficient to cover future claims, contract expenses and extremely volatile events; • The reserving risk relates to the uncertainty of the claims reserves’ run-off around its expected value, in a one-year time horizon; • The lapse risk arises from the uncertainty of the underwriting profits recognised in the premium provisions.
Non-life underwriting risks are assessed by means of the Group PIM. For the majority of risks assessed through the PIM, the assessments are based on in-house developed models and external models that are primarily used to assess the catastrophic events, for which broad market experience is considered beneficial.
The Economic SCR for non-life underwriting risk before diversification amounts to € 3,763.5 million. The total is mainly given by reserve and pricing risks, followed by
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Based on the Group RAF, P&C risk selection starts with an overall proposal in terms of underwriting strategy and corresponding business selection criteria. During the strategic planning process, targets are established and translated into underwriting limits to ensure business is underwritten according to the plan. Underwriting limits define the maximum size of risks and classes of business that Group companies shall be allowed to write without seeking any additional or prior approval. The limits may be set based on value, risk type, product exposure or class of occupancy. The purpose of these limits is to attain a coherent and profitable book of business founded on the expertise of each company.
The P&C Group Reinsurance Strategy is developed consistently with the risk appetite and the risk preferences defined in the RAF. The reinsurance market cycle is also taken into account.
The same level of return period protection and risk capital savings are guaranteed for other non-catastrophe protections, i.e. related to single extreme risks in property, transportation and liability lines of business.
Due to the increasing weight of European windstorm exposures in the protected portfolio in the past years, part of these exposures have been carved out from the main reinsurance protection and placed in the Insurance Linked Securities (ILS) market, offering more competitive terms, whilst keeping the dominant Italian exposure in the traditional reinsurance market with a consequent optimization of the overall pricing.
Nonetheless, the Group manages its investments in a prudent way according to the so-called “Prudent Person Principle”14, and strives to optimize the return of its assets while minimizing the negative impact of short term market fluctuations on its solvency.
To ensure a comprehensive management of the impact of financial and credit risks on assets and liabilities, the Group Strategic Asset Allocation (SAA) process needs to be liability-driven and strongly interdependent with insurance -specific targets and constraints. For this reason the Group has integrated the Strategic Asset Allocation (SAA) and the Asset Liability Management (ALM) within the same process.
ALM&SAA activities aim at ensuring the Group holds sufficient and adequate assets in order to reach defined targets and meet liability obligations. For this purpose, analyses of the asset-liability relationship under a range of market scenarios and expected/stressed investment conditions are undertaken.
Close interaction between the Investment, Finance, Actuarial, Treasury and Risk Management Functions is pursued in order to ensure that the ALM&SAA process remains consistent with the RAF, the strategic planning and the capital allocation processes.
Regarding specific asset classes such as (i) private equity, (ii) alternative fixed income, (iii) hedge funds, (iv) derivatives and structured products, the Group has centralized their management and monitoring. In particular: • These kind of investments are subject to accurate due diligence in order to assess their quality, the level of risk related to the investment and its consistency with the approved liability-driven SAA; • The extent and thoroughness of the analysis may vary according to criteria such as the investment structure under evaluation, the volume of investments and the regulatory framework.
The “Prudent Person Principle” set out in Article 132 of Directive 2009/138/EC requires the company to only invest in assets and instruments whose risk can be identified, measured, monitored, control and reported as well as taken into account in the company overall solvency needs. The adoption of this principle is ruled in the Group Investment Governance Policy (GIGP).
Within the life business, the Group assumes a considerable financial risk when it guarantees policyholders with a minimum return on the accumulated capital over a long period. If during the contractual period the return generated by the financial investment is below the guaranteed return for a prolonged period, the Group shall compensate itself the contractual guarantees. In addition, independently on their realization, the Group has to ensure that the value of the financial investments backing the insurance contracts do not fall below the value of its obligations.
Credit risks are measured by means of the Group PIM. In particular: • Credit spread risk models the possible movement of the credit spread levels for bond exposures of different rating, industrial sector and geography based on the historical analysis of a set of representative bond indices. Spread-sensitive assets held by the Group are associated with specific indices based on the characteristics of their issuer and currency; • Default risk models the impact of default of bond issuers or counterparties to derivative, reinsurance and other transactions on the value of the Group’s assets.
The Group PIM’s credit risk model evaluates spread risk and default risk also for sovereign bond exposures. This approach is more prudent than the Standard Formula, set by EIOPA. Under the EIOPA Standard Formula bonds issued by EU Central Governments and denominated in domestic currency are not subject to credit risk.
The credit risk assessment is based on the credit rating assigned to counterparties and financial instruments. To limit the reliance on external rating assessments provided by rating agencies, an internal credit rating assignment framework has been set within the Group Risk Management Policy.
Operational risk is the risk of loss arising from inadequate or failed internal processes, personnel or systems, or from external events. Losses from events such as fraud, litigation, damages to Generali premises, cyber-attack and failure to comply with regulations are therefore covered in the definition. It also includes financial reporting risk but excludes strategic and reputational risks.
Although ultimate responsibility for managing the risk sits in the first line, the so-called risk owners, the Risk Management Function with its methodologies and processes
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The target is achieved by adopting methodologies and tools in line with industry best practices and by establishing a strong dialogue with the first line of defence.
Furthermore, since 2015, the Group has been exchanging operational risk data in an anonymized fashion through the “Operational Risk data eXchange Association (ORX)”, a global association of operational risk practitioners with whom the main industry players also participate. The aim is to use the data to improve internal controls and to anticipate emerging trends. In addition, since losses are collected by the first line, the process contributes to creating awareness among the risk owners upon the risks that are actually hitting the Group. In this sense, a primary role is played by Group-wide forward-looking assessments that aim to estimate the evolution of the operational risk exposure in a given time horizon, supporting in the anticipation of potential threats, in the efficient allocation of resources and related mitigation initiatives.
Based on the last assessments, the most relevant scenarios at Group level are related to cyber and compliance.
The risks related to non-compliance are addressed by a dedicated and independent Group Compliance Function that provides guidance to the local teams and monitors the execution of the Group Compliance Program.
Another benefit from this cooperation is constituted by a series of risk-mitigating measures triggered across the Group as results of the controls testing, the assessments, and the collection of operational risk events.
Liquidity risk is defined as the uncertainty, emanating from business operations, investment or financing activities, over the ability of the Group and Group companies to meet payment obligations in a full and timely manner, in a current or stressed environment. This could include meeting commitments only through accessing credit markets at unfavorable conditions or through the sale of financial assets, incurring in additional costs due to the illiquidity of (or difficulties in liquidating) the assets.
on a regular basis. All such metrics are forward-looking, i.e. they are calculated at a future date based on projections of cash flows, assets and liabilities and an estimation of the level of liquidity of the asset portfolio. The ratios measure the ability of each company to ensure the fulfilment of its regulatory capital requirements as well as its cash obligations towards customers and other stakeholders.
Generali has defined a set of metrics to measure liquidity risk at Group level, based on the liquidity indicators calculated at company level. The Group manages expected cash inflows and outflows so as to maintain a sufficient available cash level to meet the short and medium term needs and by investing in instruments that can be quickly and easily converted into cash with minimum capital losses. The Group considers the prospective liquidity situation in plausible market conditions as well as under stressed scenarios.
The Group has established clear governance for liquidity risk measurement, management, mitigation and reporting consistent with Group regulations, including the setting of specific limits and the escalation process in case of limit breaches or other liquidity issues.
The principles for liquidity risk management designed in the Group RAF are fully embedded in the Strategic Planning as well as in business processes including investments and product development.
Although not included in the calculation of SCR, the following risks are also taken into account: • Reputational risk referring to potential losses arising from deterioration or a negative perception of the company or among its customers, counterparties and Supervisory Authority. Reputational risk management is mostly embedded into following processes: Communication and media monitoring activities, Corporate and Social Responsibility (CSR), Compliance, Marketing and Distribution management.
• Emerging risks arising from new trends or risks difficult to perceive and quantify, although typically systemic. These usually include changes to the internal or external environment, social trends, regulatory developments, technological achievements, etc. For the assessment of these risks, Group Risk Manage-
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Consolidated Financial Statements ment engages with a dedicated network, including specialists from Business Functions (e.g. Insurance, Investment, Actuarial, Corporate Social Responsibility, etc.) and results of local emerging risk identification processes. To strengthen its understanding and awareness of emerging risks, the Group is also part of the Emerging Risk Initiative. Within this working group emerging risks common to the insurance industry are discussed and specific studies are conducted.
• Contagion risk is inherent in the Group structure. It refers to potential negative implications that events occurring within one Group company may negatively affect other Group companies (or the Group itself).
To test the Group’s Solvency Position resilience to adverse market conditions or shocks, sensitivity analysis taking into account unexpected, potentially severe, but plausible events is undertaken. The purpose of such analysis is to create awareness and prepare to take appropriate management actions should such events materialize.
In the life segment, the Group will continue to deal with a range of dynamic restrictions deriving from the market environment, such as the Solvency 2 directive, the IMD2 rules more restrictively governing transparency in the distribution of insurance products, and in general, financial markets characterized by continuing low interest rates. It will further strengthen its focus on the Techex program initiatives, both at Group level and in the business units, aiming to strengthen the combined portfolio value by taking a simplification and innovation approach for the range of product solutions. Income trends will continue to reflect careful underwriting policies, in line with the common Group goals, driven by the risk appetite framework and the focus on the value of the products. Initiatives dedicated to portfolio enhancement will continue with renewed emphasis: • in terms of in-force business through dedicated actions for improving the degree of persistency of valuable portfolios, particularly thanks to the reinforcement of active liability management actions; • in the creation of new business thanks to the selective development of certain business lines, such as protection and unit-linked products (particularly based on volatility-controlled unit-linked funds), as an alternative to investments in traditional type funds, which are still sustainable only if they are capital-light.
In property&casualty, total premium income is expected to grow in the Generali Group’s main geographical areas, in line with the relative GDP developments, although this growth will take place within an environment of strong competitive pressure. Competition is also expected to accelerate in terms of distribution; digital transformation will create more space for non-traditional or non-exclusive distribution networks (such as aggregators), with possible impacts on portfolio volatility and, from the business perspective, a decline in volumes and profits.
To deal with this situation, the Group is intensifying its implementation of a series of initiatives launched previously in order to offset the effects on profitability (especially in the Motor segment, particularly fleets, but not only) with anti-cyclical measures, a disciplined approach to setting rates and risk selection, improving customer profiling, promoting long-term relationships and developing products with a modular system to take up non-motor cross-selling opportunities.
New investments in the real estate sector will be primarily oriented towards the European market and, only as opportunities arise, other geographical areas in order to improve the overall diversification of the portfolio. In addition, attention is focused on the efficiency of existing portfolio management to boost overall returns.
The Generali Group presented its consolidated financial statements and notes in this report, in accordance with ISVAP Regulation No. 7 of 13 July 2007 as amended, and the information required under CONSOB Communication No. 6064293 of 28 July 2006. As allowed by the aforementioned Regulations, the Generali Group believed it appropriate to supplement its consolidated financial statements with detailed items and provide further details in the notes, also to meet the international accounting standards (IAS/IFRS) requirements.
A description of the alternative performance indicators presented in this report can be found in the Methodological note on alternative performance indicators.
In line with the concept of Integrated Reporting (see below ), the Group has revised the structure and content of the Risk Report and its position within the Annual Integrated Report.
Generali maintains Stakeholder relationships in order to understand and meet their needs, especially their information and dialogue requirements.
The operating result was drawn up by reclassifying items of earnings before taxes for each segment on the basis of the management characteristics of each segment and taking into consideration the recurring holding expenses. Specifically, the operating result represents earnings before taxes, gross of interest expense on liabilities linked to financing activities, specific net income from investments and non-recurring income and expenses.
In the life segment, all profit and loss accounts are considered as operating items, except for the following which are represented in the non-operating result: • net realized gains and net impairment losses on investments that do not affect the formation of the local technical reserves, but only the calculation of the deferred liabilities towards policyholders for the amount not attributable to the policyholders, and on those of the free assets; • net other non-operating expenses that mainly include the results of the run-off activities, company restructuring charges, depreciation of the value of the portfolios acquired directly or through acquisition of control of insurance companies (value of business acquired or VOBA) and other net non-recurring expenses. In particular, with respect to the calculation method of the policyholders’ profit sharing based on the net result of the period,
Furthermore, where a new fiscal law materially affects the operating result of the countries where the policyholders’ profit sharing is based on the net result of the period, the estimated non-recurring effect on the income taxes attributable to the policyholders has been accounted for in the operating result.
The holding and other businesses segment includes the activities in the banking and asset management sectors, the costs incurred for the direction, coordination and financing activities, as well as all the other operations that the Group considers to be ancillary to the core insurance business.
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In addition, non-operating holding expenses include: • interest expenses on financial debt1, • restructuring charges and other non-recurring expenses incurred in the management and coordination activities,
In accordance with the approach described above, the Generali Group also provided the operating result in the main countries where it operates for the life and property &casualty segments and the consolidated figures.
In order to provide a management view of the operating result by geographical area, the review of the key performance indicators by business segment and geographical area allows measurement of the result of each geographical area from a country viewpoint instead of as a contribution to the Group’s results.
Net operating income from financial instruments at fair value through profit or loss 1.3 - 1.4 - 1.5 - 2.3
Net non-operating income from investments 1.3 - 1.4 - 1.5 - 2.3
The following reclassifications were made in the calculation of the operating result with respect to the corresponding items of the income statement: • the investment management and investment property management expenses in the operating result were reclassified from acquisition and administration costs to net operating income from other financial instruments, more specifically into other expenses from financial instruments and land and buildings (investment properties); • income and expenses related to real estate development activities in the operating result were classified as other non-operating income and expenses, in accordance with the management model adopted that provides for sale at completion; • gains and losses on foreign currencies in the operating result were reclassified in the life and financial segment from net operating income to net operating income from financial instruments at fair value through profit or loss. In the property&casualty segment, gains and losses on foreign currencies in the operating result were reclassified from net operating income to net non-operating income from financial instruments at fair value through profit or loss. The classification for each segment is consistent with the related classification of the derivative transaction drawn up in order to hedge the Group’s equity exposure to the changes in the main currencies of operations. The net operating and non-operating income from other financial instruments are therefore not subject to financial market volatility; • in net operating income from financial instruments, interest expenses on deposits and current accounts under reinsurance business are not included among interest expenses related to liabilities linked to operating activities but are deducted from the related interest income. Moreover, the interest expenses related to the abovementioned real estate development activities are not included in interest expenses related to liabilities linked to operating activities, but are classified under other non-operating income and expenses in accordance with the management model adopted that provides for sale at completion; • the net other operating expenses in the operating result were adjusted for operating taxes and for non-recurring taxes that significantly affect the operating income of the countries where policyholders’ stakes are determined by taking the taxes for the period into account. These adjustments were included in the calculation of operating income and are excluded from the income taxes item.
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Return on Investments The indicators for the return on investments are presented, obtained as the relationship: • for the net current return between interest and other income, including income from financial instruments at fair value through profit and loss (excluding income from financial instruments related to linked contracts) net of depreciation on real estate investments and the average investments (calculated on book value); • for the harvesting rate between net realized gains, net impairment losses and realized and unrealized gains and losses from financial instruments at fair value through profit and loss (excluding those from financial instruments related to linked contracts) and the average investments (calculated on book value).
The profit and loss return is equal to the current return plus the harvesting rate net of investment management expenses.
These profitability indicators were presented for the life and property&casualty segments for the consolidated figures.
Consolidated investments With regard to the presentation of consolidated investments, the following variations, with respect to the corresponding balance sheet items have been implemented, in order to provide the figures consistently with those used to calculate the relative profitability: • Investment Fund Units were split by nature between equity, bond and investment property portfolios; • derivatives are presented on a net basis, and therefore also including derivative liabilities. Moreover, hedging derivatives are classified in the respective asset class hedged; • reverse REPOs were reclassified, in accordance with their nature of short-term liquidity commitments, from ‘Other fixed income instruments’ to ‘Cash and cash equivalents’; and
• REPOs classified as liabilities are presented in “Cash and cash equivalents”.
In particular, the Risk Report has been prepared as to provide a disclosure aligned with the Solvency II regulatory framework and related disclosure.
Balance sheet Income statement Statement of comprehensive income Statement of changes in equity Statement of cash flow (indirect method)
Notes to the consolidated financial statement Basis of presentation and accounting principles
Profit and loss account Segment reporting Information on consolidation area and group companies 1 Consolidation area 2 Disclosures on interests in other entities 3 Investments in subsidiaries, associated companies and joint ventures 4 Goodwill 5 Non-current assets or disposal group classified as held for sale 6 Related parties disclosure
Insurance and investment contracts 13 Insurance provisions 14 Amounts ceded to reinsurers from insurance provisions 15 Deferred acquisition costs Details On Insurance And Investment Contracts
Notes to the income statement 26 Net earned premiums 27 Fee and commissions income and income from financial service activities
Fair Value measurement 40 Fair value hierarchy 41 Transfers of financial instruments measured at fair value between Level 1 and Level 2 42 Additional information on level 3 43 Information on fair value hierarchy of assets and liabilities not measured at fair value Additional information 44 Information on employees 45 Provisions for defined benefit plans 46 Share-based compensation plans 47 Contingent liabilities, commitments, guarantees, pledged assets and collaterals 48 Agreements resulting from leasing operations 49 Significant non-recurring events and transaction 50 Other Information 51 Audit and other service fees for the fiscal year
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Equity and liabilities References: (€ million) 31/12/2016 31/12/2015 16 1 SHAREHOLDERS' EQUITY 25,668 24,708 1.1 Shareholders' equity attributable to the Group 24,545 23,565 1.1.4 Revenue reserves and other reserves 8,604 7,688 1.1.6 Reserve for currency translation differences 42 74 1.1.7 Reserve for unrealized gains and losses on available for sale financial assets 6,319 6,067 1.1.8 Reserve for other unrealized gains and losses through equity -1,153 -944 1.1.9 Result of the period 2,081 2,030 1.2 Shareholders' equity attributable to minority interests 1,123 1,143 1.2.1 Share capital and reserves 879 748 1.2.2 Reserve for unrealized gains and losses through equity 86 166 1.2.3 Result of the period 158 229 of which insurance provisions for policies where the investment risk is borne by the policyholders and related to pension funds 60,799 57,793 17 4.1 Financial liabilities at fair value through profit or loss 19,484 20,082 of which financial liabilities where the investment risk is borne by the policyholders and related to pension funds 17,404 16,793 of which subordinated liabilities 9,126 9,643 5.1 Payables arising out of direct insurance operations 3,465 3,464 5.2 Payables arising out of reinsurance operations 579 511 25 6 OTHER LIABILITIES 11,269 10,614 6.1 Liabilities directly associated with non-current assets and disposal groups classified as held for sale 6.4 Other liabilities 6,307 6,259 TOTAL SHAREHOLDERS' EQUITY AND LIABILITIES 521,184 500,549
EARNINGS AFTER TAXES 2,239 2,295 4 RESULT OF DISCONTINUED OPERATIONS 0 -35 CONSOLIDATED RESULT OF THE PERIOD 2,239 2,259
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Statement of comprehensive income (€ million) 31/12/2016 31/12/2015 1 CONSOLIDATED RESULT OF THE PERIOD 2,239 2,259
Items that may be reclassified to profit and loss in future periods 2.1 Foreign currency translation differences -60 328 2.2 Net unrealized gains and losses on investments available for sale 195 -398 2.3 Net unrealized gains and losses on cash flows hedging derivatives 26 41 2.4 Net unrealized gains and losses on hedge of a net investment in foreign operations -9 -49 2.5 Share of other comprehensive income of associates 6 9 2.8 Result of discontinued operations 17 -576
Items that may not be reclassified to profit and loss in future periods 2.5 Share of other comprehensive income of associates 0 0 2.8 Result of discontinued operations 0 437 2.6 Reserve for revaluation model on intangible assets 2.7 Reserve for revaluation model on tangible assets 2.9 Actuarial gains or losses arising from defined benefit plans -244 162 attributable to the Group 2,092 1,912 attributable to minority interests 78 302
Revenue reserves and other reserves 7,571 0 1,055 0 -934 -4 7,688
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Changes in amounts Allocation Transfer to profit and loss account Other transfer Change in owhership interest Amounts at 31/12/2016
Change in the provisions for outstanding claims and other insurance provisions for non-life segment 109 404
Change in the mathematical provisions and other insurance provisions for life segment 16,094 20,475
Change in receivables and payables from operating activities 456 -203 Change in receivables and payables arising out of direct insurance and reinsurance operations -633 774
(**) Cash and cash equivalents at the end of the period include cash and cash equivalents ( € 7,533 million), liabilities to banks payables on demand (€ -38 million), bank overdrafts (€ -52 million).
The Generali Group’s consolidated financial statements at 31 December 2016 were drawn up in accordance with the IAS/IFRS issued by the IASB and endorsed by the European Union, in accordance with the Regulation (EC) No. 1606 of 19 July 2002 and the Legislative Decree No. 58/1998, as subsequently amended.
This yearly report is drawn up in Euro (the functional currency used by the entity that prepared the financial statements ) and the amounts are shown in millions, unless otherwise stated, the rounded amounts may not add to the rounded total in all cases.
The balance sheet items of the financial statements denominated in foreign currencies are translated into Euro based on the exchange rates at the end of the year.
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Generally, there is a presumption that a majority of voting rights result in control. To support this presumption and when the Group has less than a majority of the voting or similar rights of an investee, the Group considers all relevant facts and circumstances in assessing whether it has power over an investee, including: • The contractual arrangement with the other vote holders of the investee; • Rights arising from other contractual arrangements; • The Group’s voting rights and potential voting rights.
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In preparing the consolidated financial statements: • the financial statements of the Parent Company and its subsidiaries are consolidated line by line through specific “reporting package”, which contribute to the consistent application of the Group’s accounting policies. For consolidation purposes, if the financial year -end date of a company differs from that of the Parent Company, the former prepares interim financial statements at December 31st of each financial year; • All intra-group assets and liabilities, equity, income, expenses and cash flows relating to transactions between members of the Group are eliminated in full on consolidation process (intra-group losses are eliminated, except to the extent that the underlying asset is impaired); • the carrying amount of the Parent Company’s investment in each subsidiary and the Parent Company’s portion of equity of each subsidiary are eliminated at the date of acquisition; • Profit or loss and each component of other comprehensive income (OCI) are attributed to the equity holders of the Parent of the Group and to the non-controlling interests, even if this results in the non-controlling interests having a deficit balance. The non-controlling interests, together with their share of profit are shown as separate items.
A change in the ownership interest of a subsidiary, without a change of control, is accounted for as an equity transaction. Consequently, no additional goodwill or badwill is recognized.
Business combinations are acquisitions of assets and liabilities that constitutes a business and are accounted for applying the so-called acquisition method The acquisition cost is measured as the sum of the consideration transferred measured at its acquisition date fair value, including contingent consideration, liabilities assumed towards the previous owners, and the amount of any non-controlling interests. For each business combination, the Group elects whether to measure the non-controlling interests in the acquiree at fair value or at the proportionate share of the acquiree’s identifiable net assets. Acquisition-related costs are expensed as incurred and included in administrative expenses.
The investments in associates and joint ventures are consolidated trough the equity method.
An associate is an entity over which the investor has significant influence. Significant influence is the power to participate in the financial and operating policy decisions of the investee but is not control or joint control over those policies. If an investor holds, directly or indirectly through subsidiaries, 20% or more of the voting power of the investee, it is presumed that the investor has significant influence.
In general, joint arrangements are contractual agreements whereby the Group undertakes with other parties an economic activity that is subject to joint control. Investments in joint arrangements are classified as either joint operations or joint ventures depending on the contractual rights and obligations each investor has rather than the legal structure of the joint arrangement. A joint venture is a type of joint arrangement whereby the parties that have joint control of the arrangement have rights to the net assets of the joint venture. Joint control exists when it is contractually agreed to share control of an economic activity, which exists only when decisions about the relevant activities require the unanimous consent of the parties sharing control.
Monetary assets and liabilities denominated in foreign currencies are translated at the functional currency spot rates of exchange at the reporting date.
New accounting principles, changes in the accounting rules that shall be applied from 1 January 2016
IFRS 9 replaces IAS 39 “Financial Instruments: Classification and Measurement” and includes a principle-based model for the classification and measurement of financial instruments, an impairment model based on expected losses and an hedge accounting approach more in line with risk management strategies.
Considering to the contractual characteristics, a financial instrument is eligible for measurement at amortized cost if it consists in a basic lending agreement. The entity shall make its own assessment on the single financial instrument to assess if the nature of the contractual cash flows characteristics exclusively consists in payments of principal and interest (SPPI,). If a modification of the time value of the interest results in cash flows that are significantly different than those of a basic lending agreement then the instrument must be classified and measured at fair value through profit or loss.
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In particular there is a significant simplification of the effectiveness test. There are no more predetermined thresholds of coverage to achieve effective hedge (ie 80125 % in the current IAS 39),but it is sufficient that: • there is an economic relationship between the hedging instrument and the hedged item; and • credit risk should not be the key component of the hedged risk (ie the change in fair value of the hedging relationship must not be dominated by the component of credit risk).
The standard will be effective, in the case of endorsement, from annual periods beginning on or after 1 January 2018. A transitional provision allows continuing to apply IAS 39 for all hedging transactions until completion of the macrohedging project. The principle has been endorsed by the European Union by the EU Regulation 2016/1905
IFRS 4 – Applying IFRS 9 Financial Instruments with IFRS 4 Insurance Contracts (Amendment to IFRS 4)
On 12 September 2016 the IASB published the amendment “Applying IFRS 9 Financial Instruments with IFRS 4 Insurance Contracts” that introduces modifications that aim to address the concerns of the insurance industry arising from the misalignment of the IFRS 9 effective date and the expected effective date of the upcoming insurance contracts standard.
Both standards, IFRS 9 (with effective date 1 January 2018) and IFRS 17 (with subsequent effective date) are relevant for insurance entities. The amendment. aims to address the concerns of some interested parties, in particular insurers, about the different effective dates of IFRS 9 Financial Instruments and the forthcoming new insurance contracts Standard.
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The amendment provides for the introduction of two options within IFRS 4: 1. the Overlay approach, that allows the companies that issue insurance contracts to remove from profit or loss the incremental volatility caused by changes in the measurement of financial assets upon application of IFRS 9. An entity that applies this approach shall reclassify in the other comprehensive income the difference between: a) the amount reported in profit or loss of the financial assets linked to insurance liabilities in the scope of IFRS 4; and b) the amount that would have been reported in profit or loss by applying IAS 39 “Financial Instruments: Recognition and Measurement”; 2. the Deferral approach, a temporary exemption from applying IFRS 9 that would be available to companies whose predominant activity is the issuance of insurance contracts. Such a deferral would be available until the date on which the new insurance contracts standard comes into force (but not later than 1 January 2021).
The Group considers the Deferral approach as most appropriate to solve the problems resulting from the application of IFRS 9 before the new accounting standard on insurance liabilities. The overlay approach implementation would create incremental costs compared to those of the first implementation of IFRS 9. In particular, the Group has identified as critical the concurrent application of IAS 39 and IFRS 9.
The Group has undertaken a project to assess the accounting, operating and organizational impacts arising from the forthcoming application of IFRS 9 and to define the requirements of the standard in terms of methodology, process, systems and governance. The project aims also to set up an implementation roadmap, considering the interdependency with IFRS 17, the future standard on insurance contracts. The Group expects material impacts regarding classification and measurement of financial instruments resulting in a larger part of financial investments measured at fair value through profit or loss. Concerning the impairment model, the Group expects that the new Expected Credit Losses model could lead to less significant impacts in the Group financial statements.
On the basis of this assessment, the Group started the implementation phase of the standard, in order to ensure the proper and homogeneous application of the new accounting standard. The implementation of the principle takes into account the option to defer the application of the standard to 1 January 2021, which the Group considers appropriate. The Group will apply the temporary exception (in case of approval by the EU), sharing the concerns about accounting mismatch and the temporary volatility in the income statement arising from the application of IFRS 9 before the entry into force of IFRS 17. Therefore, the implementation of the standard aims to ensure compliance with the disclosure requirements resulting from the application of the deferral.
The deferral of the standard is applicable from entities whose activities are predominantly insurance, that is if the percentage of the carrying amount of liabilities linked to insurance on the total carrying amount of entity’s liabilities is higher than 90%, or between 80% and 90%, and non-insurance activities of the company are not significant (predominance ratio). The Group has calculated a predominance ratio higher than 90%.
On 20 June 2013 the IASB published the exposure draft “Insurance Contracts”. The E.D. proposes a new measurement model for insurance contracts that will replace the current IFRS 4 - Insurance Contracts. The valuation method is structured on a Building Block Approach based on the expected value of future cash flows, weighted by the probability of occurrence, on a risk adjustment and on a margin for the services provided within the contract (“contractual service margin”). A simplified approach (“Premium Allocation Approach”) is permitted if the coverage period of the contract is less than one year, or if the model used for assessment provides a reasonable approximation compared to the building block approach. Between 2014 and 2016 it took place a re-deliberation process of the E.D., as a result of consultation with the industry and the interested stakeholders, that highlighted some areas of operational complexity of the standard. The IASB re-deliberations left unchanged the basics of the model described above, but introduced changes supporting the operational application of the standard, which regarded, in particular, the participating contracts, for which a building block approach variant has been introduced, the level of aggregation for the measurement of insurance contracts and the transitional measures. The publication of the standard is expected in May 2017. The expected effective date is 1 January 2021.
On 28 May 2014 the IASB published IFRS 15 “Revenue from contracts with customers” which concerns the recognition of revenues. The standard replaces IAS 11 “Constructions Contracts” and IAS 18 “Revenue”, and incudes new requirements concerning the measurement and timing of revenue recognition. In particular IFRS 15 defines the following phases: Step 1: Identifying the contract Step 2: Identifying performance obligations Step 3: Determining the transaction price Step 4: Allocating the transaction price to performance obligations Step 5 Recognise revenue when (or as) the entity satisfies a performance obligation.
No material impacts are expected for the Group resulting from the application of the new standard requirements, compared to current requirements of IAS 17.
Amendments resulting from Annual Improvements 2010-2012 Cycle 1 July 20142 December 2013
IAS 28 Amendments regarding the sale and the contribution of assets between an investor and its associate or joint venture 1 January 2016 September 2014
Amendments resulting from 2014 Annual Improvements 2012-2014 Cycle 1 January 2016 September 2014
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The purpose of the impairment test on goodwill is to identify the existence of any impairment losses on the carrying amount recognised as intangible asset. In this context, cash-generating units to which the goodwill is allocated are identified and tested for impairment. Cash-generating units (CGU) units usually represent the consolidated units within the same primary segment in each country. Any impairment is equal to the difference, if negative, between the carrying amount and the recoverable amount, which is the higher between the fair value of the cash-generating unit and its value in use, i.e. the present value of the future cash flows expected to be derived from the cash-generating units. The fair value of the CGU is determined on the basis of current market quotation or usually adopted valuation techniques (mainly DDM or alternatively embedded value or appraisal value). The Dividend Discount Model is a variant of the Cash flow method. In particular the Dividend Discount Model, in the excess capital methodology, states that the economic value of an entity is equal to the discounted dividends flow calculated considering the minimum capital requirements. Such models are based on projections on budgets/forecasts approved by management or conservative or prudential assumptions covering a maximum period of five years. Cash flow projections for a period longer than five years are extrapolated using estimated among others growth rates. The discount rates reflect the free risk rate, adjusted to take into account specific risks.
For further details see paragraph “Information on consolidation perimeter and Group companies” in the Notes.
Intangible assets with finite useful life are measured at acquisition or production cost less any accumulated amortisation and impairment losses. The amortisation is based on the useful life and begins when the asset is available for use. Specifically, the purchased software expenses are capitalised on the basis of the cost for purchase and usage. The costs related to their development and maintenance are charged to the profit and loss account of the period in which they are incurred.
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The VOBA is the present value of the pre-tax future profit arising from the contracts in force at the purchase date, taking into account the probability of renewals of the one year contracts in the non-life segment. The related deferred taxes are accounted for as liabilities in the consolidated balance sheet.
The Generali Group applies this accounting treatment to the insurance liabilities assumed in the acquisition of life and non-life insurance portfolios.
Land and buildings (self-used) are measured at cost less any accumulated depreciation and impairment losses. Land and agricultural properties are not depreciated but periodically tested for impairment losses. Costs, which determine an increase in value, in the functionality or in the expected useful life of the asset, are directly charged to the assets to which they refer and depreciated in accordance with the residual value over the assets’ useful economic life. Cost of the day-to-day servicing are charged to the profit and loss account.
Property, plant, equipment, furniture and property inventories are classified in this item as property inventory. They are initially measured at cost and subsequently recognised net of any accumulated depreciation and impairment losses. They are systematically depreciated on the basis of economic/technical rates determined in accordance with their residual value over their useful economic life.
In particular the inventories are measured at the lower of cost (including cost of purchase, cost of conversion and cost incurred the inventories to their present location and condition) and net realizable value, i.e. the estimated selling price in the ordinary course of business less the estimated cost of completion and costs to sell.
An item of property, plant and equipment and any significant part initially recognised is de-recognised upon disposal or when no future economic benefits are expected from its use or disposal. Any gain or loss arising on de-recognition of the asset (calculated as the difference between the net disposal proceeds and the carrying amount of the asset) is included in the income statement when the asset is de-recognised.
In accordance with IAS 40, this item includes land and buildings held to earn rentals or for capital appreciation or both. Land and buildings for own activities and property inventories are instead classified as tangible assets.
Furthermore, assets for which the sale is expected to be completed within one year are classified as non-current assets or disposal groups classified as held for sale.
Financial Instruments included in scope of IAS 39 are classified as follows: • Held to maturity • Loans and receivables • Available for sale financial assets • Financial assets at fair value through profit or loss
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The Group evaluates its financial assets held for trading, other than derivatives, to determine whether the intention to sell them in the near term is still appropriate. When, in rare circumstances, the Group is unable to trade these financial assets due to inactive markets and management’s intention to sell them in the foreseeable future significantly changes, the Group may elect to reclassify them. The reclassification to loans and receivables, Available for sale or held to maturity depends on the nature of the asset. This evaluation does not affect any financial assets designated at fair value through profit or loss using the fair value option at designation, as these instruments cannot be reclassified after initial recognition.
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This item includes all other receivables, which do not have an insurance or tax nature. They are accounted for at fair value at recognition and subsequently at their presumed recoverable amounts
Concerning deferred acquisition costs, according to requirements of IFRS 4, the Group continued to apply accounting policies prior to the transition to international accounting principles. In this item acquisition costs paid before the subscription of multi-year contracts to amortize within the duration of the contracts are included.
Deferred tax assets are measured at the tax rates that are expected to be applied in the year when the asset is realized, based on information available at the reporting date 159 We, Generali Our performace OutlookRisk Report Appendices to the Management Report
Deferred tax assets are not recognized in the following cases provided in paragraph 24 of IAS 12: • when the deferred tax asset relating to the deductible temporary difference arises from the initial recognition of an asset or liability in a transaction that is not a business combination and, at the time of the transaction, affects neither the accounting profit nor taxable profit or loss
The item mainly includes accrued income and prepayments, specifically accrued interest from bonds. It also comprises deferred commissions for investment management services related to investment contracts.
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The item includes gains or losses arising from changes in the fair value of available for sale financial assets, as previously described in the corresponding item of financial investments.
This item comprises amounts, gross of ceded reinsurance, of liabilities related to insurance contracts and investment contracts with discretionary participation features
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
Investment contracts without DPF and that do not have a significant investment risk, mainly include unit/ index-linked policies and pure capitalization contracts. These products are accounted for in accordance with IAS 39 as follows: • the products are recognised as financial liabilities at fair value or at amortised cost. In detail, linked products classified as investment contracts are fair valued through profit or loss, while pure capitalization policies are generally valued at amortised cost; • fee and commission income and expenses are recognised in the profit and loss account. Specifically, IAS 39 and IAS 18 require that they are separately identified and classified in the different components of: (i) origination, to be charged in the profit and loss account at the date of the issue of the product; and (ii) investment management service, to be recognised throughout the whole policy term by reference to the stage of completion of the service rendered; • fee and commission income and incremental costs of pure capitalization contracts without DPF (other than administration costs and other non-incremental costs) are included in the amortised cost measurement; • the risk component of linked products is unbundled, if possible, and accounted for as insurance contracts
Liabilities related to insurance contracts and investment contracts with discretionary participation features are determined analytically for each kind of contract on the basis of appropriate actuarial assumptions. They meet all the existing commitments based on best estimates.
In accordance with IFRS 4, in order to verify the adequacy of the reserves a Liability Adequacy Test (LAT) is performed. The aim of the test is to verify if the technical provisions - inclusive of deferred policyholders liabilities - are adequate to cover the current value of future cash flows related to insurance contracts.
The abovementioned amount also includes the costs of embedded financial options and guarantees, which are measured with a market-consistent methodology. Technical reserves which are subject to the Liability Adequacy Test also include the interest rate risk provisions as required by local regulations.
The local GAAP for each country is applied to non-life insurance provisions, since all the existing policies fall under IFRS 4 scope. In conformity with the international standard, no provisions for future claims are recognised, in line with the derecognition of the equalisation and catastrophe provisions and some additional components of the unearned premiums provisions, carried out on the date of the first-time application.
Bond instruments issued are measured at issue price, net of costs directly attributed to the transaction. The difference between the aforesaid price and the reimbursement price is recognised along the duration of the issuance in the profit and loss account using the effective interest rate method.
When an existing financial liability is replaced by another from the same lender on substantially different terms, or the terms of an existing liability are substantially modified, such an exchange or modification is treated as the 164 Generali Group Annual Integrated Report and Consolidated Financial Statements 2016
derecognition of the original liability and the recognition of a new liability. The difference in the respective carrying amounts is recognised in the income statement.
The item includes payables arising out of insurance and reinsurance operations.
The item comprises liabilities not elsewhere accounted for. In detail, it includes liabilities directly associated with non-current assets and disposal groups classified as held for sale, tax payables and deferred tax liabilities and deferred fee and commission income.
• In respect of taxable temporary differences associated with investments in subsidiaries, associates and interests in joint ventures, when the timing of the reversal of the temporary differences can be controlled and it is probable that the temporary differences will not reverse in the foreseeable future..
The item includes payables due to tax authorities for current taxes. Current income tax relating to items recognised directly in equity is recognised in equity and not in the income statement..
the defined benefit obligation less the fair value of plan assets (if any), adjusted for any actuarial gains and losses and any past service costs not amortised. The rate used to discount future cash flows is determined by reference to market yields on high-quality corporate bonds. The actuarial assumptions are periodically tested to confirm their consistency. The actuarial gains and losses arising from subsequent changes in variables used to make estimates are recognised shall be accounted for in other comprehensive income without any possibility of recycling to profit and loss.
Deferred fee and commission income includes acquisition loadings related to investment contracts without
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The item comprises expenses from land and buildings (investment properties) and from financial instruments not at fair value through profit or loss. It includes: inter167 We, Generali Our performace OutlookRisk Report Appendices to the Management Report
This section comprises changes of the closing balance of the previous financial year determined by the correction of errors or changes in accounting policies (IAS 8) and the recognition of gains or losses arising from the first time application of accounting standards (IFRS 1).
This section comprises the allocation of the profit or loss of the year, the allocation of the previous year profit or loss into the capital reserves, increases in capital and other reserves (for the issuance of new shares, equity instruments, stock options or derivatives on own shares, for the sale of shares pursuant to IAS 32.33, for the reclassification to equity instruments previously recognized in liabilities and, in the consolidated financial statements, for changes in scope of consolidation), changes within 168 Generali Group Annual Integrated Report and Consolidated Financial Statements 2016
As for measurement and disclosure, the fair value depends on the unit of account, depending on whether the asset or liability is a stand-alone asset or liability, a group of assets, a group of liabilities or a group of assets and liabilities in accordance with the related IFRS.
For the liabilities, the fair value is represented by the price that would be paid to transfer a liability in an orderly transaction in the principal (or most advantageous) market at the measurement date under current market conditions (ie an exit price).
• Level 2 inputs other than quoted prices included within Level 1 that are observable for the asset or liability, either directly or indirectly (i.e. quoted prices for similar assets or liabilities in active markets; quoted prices for identical or similar assets or liabilities in markets that are not active; inputs other than quoted prices that are observable for the asset or liability; market-corroborated inputs).
Three widely used valuation techniques are: • market approach: uses prices and other relevant information generated by market transactions involving identical or comparable (i.e. similar) assets, liabilities or a group of assets and liabilities; • cost approach: reflects the amount that would be required currently to replace the service capacity of an asset; and
In the opposite case, the fair value is determined using the market and income approach. Primary inputs to the market approach are quoted prices for identical or comparable assets in active markets where the comparability between security and benchmark defines the fair value level. The income approach in most cases means a discounted cash flow method estimating the present value of future dividends. Depending on the observability of these parameters, the security is classified in level 2 or level 3.
In the opposite case, the fair value of private equity funds and hedge funds is generally expressed as the net asset value at the balance sheet date, determined using periodical net asset value and audited financial statements provided by fund administrators. If at the balance sheet date, such information is not available, the latest official net asset value is used. The fair value of these investments is also closely monitored by a team of professionals within the Group.
third parties. In particular, the fair value is determined primarily on the basis of income approach using deterministic or stochastic models of discounted cash flows commonly shared and used by the market.
With reference to the fair value adjustment for credit and debt risk of derivatives (credit and debt valuation adjustment CVA / DVA), the Group considered this adjustment as not material for the valuation of its positive and negative derivatives, as almost entirely of them is collateralized.
Derivatives are financial instruments or other contracts with the following characteristics: • their value changes in response to the change in interest rate, security price, commodity price, foreign exchange rate, index of prices or rates, credit rating or other pre-defined underlying variables; • they require no initial net investment or, if necessary, an initial net investment that is smaller than one which would be required for other types of contracts that would be expected to have a similar response to changes in market factors; • hey are settled at a future date. Derivatives are classified as at fair value through profit or loss.
When the hedging instrument expires or is sold, or the hedge no longer meets the criteria for hedge accounting, the cumulative gain or loss on the hedging instruments, that remains recognized directly in the other components of other comprehensive income from the period when the hedge was effective, remains separately recognized in comprehensive income until the forecast transaction occurs. However, if the forecasted transaction is no longer expected to occur, any related cumulative gain or loss on the hedging instrument that remains recognized directly in the other components of comprehensive income from the period when the hedge was effective is immediately recognized in profit or loss.
With reference to emissions of some subordinated liabilities, the Group has entered into hedging transactions of the interest rates volatility and exchange rate fluctuations GBP/EURO, which for accounting purposes is designated as hedging the volatility of cash flows (cash flow hedge) and accounted adopting the hedge accounting technique.
A significant or prolonged decline in the fair value of an investment in an equity instrument below its average cost is considered as an objective evidence of impairment.
The prolonged decline in value of bonds and loans are evaluated as a result of specific analysis that involve the single issuances.
If there is objective evidence of impairment the loss is measured as follows: • on financial assets at amortised cost, as the difference between the asset’s carrying amount and the present value of estimated future cash flows discounted at the financial asset’s original effective interest rate; • on available for sale financial assets, as the difference between the cost and the fair value at the measurement date.
Reversals of impairment are recognized respectively: in the profit or loss in the case of debt instruments, in the equity reserve in the case of equity securities including shares of mutual funds (IFU).
• financial instruments measured at fair value classified in level 3 of the fair value hierarchy; • the analysis in order to identify durable impairments on intangible assets (e.g. goodwill) booked in in the balance sheet (impairment test); • deferred acquisition costs and value of business acquired; • other provisions • deferred and anticipated taxes; • defined benefit plan obligation; • share-base payments.
The stock option plans granted by the Board in past periods configure as share based payments to compensate officers and employees. The fair value of the share options granted is estimated at the grant date and is based on the option pricing model that takes into account, at the grant date, factors such as the exercise price and the life of the options, the current price of the underlying shares, the expected volatility of the share price, the dividends expected on the shares and the risk-free interest rate as well as the specific characteristics of the plan itself.
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 link between remuneration and generation of value in comparison with peers, are also treated as an equity-settled share-based payment.
No expense is recognised for awards that do not ultimately vest, except for equity-settled transactions for which vesting is conditional upon a market or a non-vesting condition. These are treated as vested irrespective of whether or not the market or non-vesting condition is satisfied, provided that all other performance and/or service conditions are satisfied.
An additional expense is recognized for any modification that increases the total fair value of the share-based payment transaction, or is otherwise beneficial to the employee as measured at the date of modification.
immediately. This includes any award where non-vesting conditions within the control of either the entity or the employee are not met. However, if a new award is substituted for the cancelled award, and designated as a replacement award on the date that it is granted, the cancelled and new awards are treated as if they were a modification of the original award, as described in the previous paragraph.
Generali activities could be split in different lines of business according to the products and services offered. In particular, subject to IFRS 8, tree main sectors of activity have been defined: • Non life segment, which includes insurance activities performed in the Non life business; • Life segment, which includes insurance activities performed in the Life business; • Holding and other business segment.
Activities of Life segment include saving and protection business, both individual and for family, as well as unit linked products with investment purposes.
This grouping is an heterogeneous pool of non insurance assets and in particular it includes banking and asset management activities, expenses regarding coordination activities and interest expenses on the Group financial debt, as well as other activities that the Group considers ancillary to the core insurance business. The holding expenses mainly include the holding and territorial sub-holding direction expenses regarding coordination activities, the expenses relating to the parent company of stock option and stock grant plans as well interest expenses on the Group financial debt.
Segment data derives from a separate consolidation of the amounts of subsidiaries and associated companies in each business segment, eliminating of the effects of the transactions between companies belonging to the same segment and, the carrying amount of the investments in subsidiaries and the related portion of equity. The reporting and control process implemented by Generali Group implies that assets, liabilities, income and expenses of companies operating in different business segments are allocated to each segment through specific segment reporting. Intra-group balances between companies belonging to different business segments are accounted for in the consolidation adjustments column in order to reconcile segment information with consolidated information.
The main impacts are explained below: • the elimination in the non-life segment and holding and other businesses segment of participations and loans to companies of other segments, belonging to the same country, as well as related income (dividends and interests)
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4.1 Financial liabilities at fair value through profit or loss 365 356 19,120 19,728
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Based on the IFRS 10, the Consolidated financial statements include the figures for both the Parent company and the subsidiaries directly or indirectly controlled.
Information on consolidation area and group companies 182 Generali Group Annual Integrated Report and Consolidated Financial Statements 2016
TOTAL COMPREHENSIVE INCOME ATTRIBUTABLE TO NON-CONTROLLING INTERESTS 78 101 25 59
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Guotai is one of the first professional fund management companies in China. The company manages mutual funds and several Social Security Fund (SSF) portfolios adding up to approximately 60 billion of renmimbi (approximately € 8 billion) value of assets under management
Total comprehensive income attributable to the Group 58 52 12 27
Carrying amount in investee at the end of the year 234 264 145 151 184 Generali Group Annual Integrated Report and Consolidated Financial Statements 2016
In relation to the Group’s interests in joint ventures, no significant contractual, legal or regulatory restrictions exist on the Group’s ability to access or use its assets and settle its liabilities, nor significant commitments exist. For further details regarding restrictions on Group assets, please refer to paragraph 47 Contingent liabilities, commitments, guarantees, pledged assets and collaterals in Additional information section.
Total comprehensive income 23 23 185 We, Generali Our performace OutlookRisk Report Appendices to the Management Report
As of 31 December 2016, Generali Group holds no interests in unconsolidated structured entities that expose the Group to the variability of returns arising from their performance.
Gross book value as at 31 December previous year 6,661 6,617
Gross book value as at the end of the period 6,664 6,661
Carrying amount as at the end of the period 6,664 6,661
At 31 December 2016 Group’s goodwill amounted to € 6,664 million.
This method represents a variant of the method of cash flows. In particular, the Excess Capital variant, defines the entity’s economic value as the discounted dividend 187 We, Generali Our performace OutlookRisk Report Appendices to the Management Report
maintaining an appropriate capital structure taking into consideration the capital constraints imposed by the Supervisor as the solvency margin. This method results in the sum of discounted value of future dividends and the cash generating unit terminal value.
The expected cash flows used in the analysis for each CGU, were those detailed in the Strategic Plan 20172019, presented to the Board of Directors in December 2016 and any significant subsequent events. In order to extend the analysis horizon to a 5 years period, the main economic and financial data were estimated for a further two years (2020 and 2021). The net result (2020 and 2021) was calculated using a sustainable growth rate for each CGU.
In detail: • the risk free rate was defined as the average value - observed during the last three months of 2016 of the 10-years government bond of the reference country of operation of the CGU, on which the goodwill has been allocated; • the Beta coefficient was determined based on a homogeneous basket of securities of the non-life and life insurance sectors, which was compared to market indexes. The observation period was 5 years with weekly frequency; • the market risk premium amounts to 5.5% for all Group’s CGUs.
This sensitivity, for Life segment, highlighted that for CGU Alleanza, Generali Holding Vienna e Generali CEE Holding the correspondence between the recoverable amount and the carrying amount is observed with an increase of ke respectively of 0.5%, 0.2% and 0.2%.
In Non-life segment the sensitivities of both financial and non-financial assumptions did not highlight any negative difference between the carrying amount and the recoverable amount.
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With reference to policy of divestment of non-core and not strategic assets, during 2016 Generali Group has entered the agreements for the sale of assets in Liechtenstein and insurance assets in Guatemala. Disposals will be finalized in the course of 2017, when the necessary regulatory authorisation will be obtained. Group considers these companies as “non-current assets classifies as held for sale”, presenting them separately from other items in the balance sheet.
The assets held in Guatemala amount to € 100 million, of which € 70 million of held to maturity investments, while liabilities amount to € 80 million, of which €65 million of insurance provisions.
The subtotal associated companies includes loans to Group companies valued with equity method for € 335 million, mostly related to real estate French companies .
The Group limits the use of this category only to high quality quoted bonds that Group companies are able to hold till maturity.
This category accounts for 9.4% of total investments. It mainly consisted of unquoted bonds and mortgage loans, which represent 67.9% and 15.4% of total loans, respectively. Vast majority of the bonds category is represented by fixed income medium-to-long term bond instruments.
The debt securities of this category are almost entirely investment grade and more than 60% of the class boasts a rating greater or equal to A.
The fair value of total loans amounted to € 49,216 million, of which € 33,198 million related to bonds.
192 Generali Group Annual Integrated Report and Consolidated Financial Statements 2016
Other available for sale financial assets 3,429 637 2,792 193 We, Generali Our performace OutlookRisk Report Appendices to the Management Report
Available for sale financial assets: gains and losses at profit or loss 31/12/2016
Other available for sale financial assets 4 -16 -39 194 Generali Group Annual Integrated Report and Consolidated Financial Statements 2016
Bond securities in this category belong to classes of rating greater than or equal to BBB.
The increase compared to 31 December 2015 was mainly due to the increase in financial assets where the risk is borne by policyholders.
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Gross book value as at 31 December previous year 14,366 14,875
Accumulated depreciation and impairment as at the end of the period 2,490 2,254
Group’s exposures to bonds - detailed by rating and maturity - are reported at book value in the following tables: Bonds: breakdown by rating
Bond investments totalled € 317,427 million at the end of the period. The portfolio was composed for € 174,364 million by government bonds, while corporate bonds amounted to € 143,063 million.
Group’s exposures to government bonds, detailed by country of risk and rating, are reported at book value in the following tables: 197 We, Generali Our performace OutlookRisk Report Appendices to the Management Report
The government bonds portfolio amounted to € 174,364 million at the end of the period, with the 59.2% 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.
Group’s exposures to investments in corporate bonds, detailed by sector and rating, are reported at book value in the following tables: 198 Generali Group Annual Integrated Report and Consolidated Financial Statements 2016
As of 1st January 2009 the Group transferred to the loans and receivables category € 14,658 million of corporate bonds, according to the IAS 39 reclassification option.
At 31 December 2016, after sales and pay backs during the years, the stock of these reclassified financial instruments amounted to € 2,819 million.
Financial assets at fair value through profit or loss 630 67 36 31 31
As a consequence of the recovery in the value of corporate bonds, the reclassification in loans category of investments previously classified as available for sale financial assets, implied a missing recognition of the revaluation of the related equity reserve of € 475 million (considering both the group share and minorities), € 77.2 million net of policyholders share and deferred taxes for the 2016 year.
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The Group’s exposure to derivative instruments is mainly associated with economic hedging transactions of financial assets or liabilities, in line with strategies aiming at mitigating financial and currency risks. The total exposure amounts to € -149 million for a corresponding notional amount of € 33,269 million. The notional exposure is presented in absolute amounts, including positions with both positive and negative balances, and it arises for an amount of € 7,126 million from instruments for which a hedge accounting relationship has been formally designated, in accordance with the international accounting standard IAS 39. The remaining notional amount is attributable to derivative instruments for which, notwithstanding their purpose as economic hedging instruments, a formal hedge accounting relationship has not been activated.
The exposure in terms of amounts recognised in the financial statements amounts to € -346 million.
The Group continued the hedging strategy aimed at neutralising risks arising from foreign exchange fluctuations of its subsidiaries whose functional currency is the Swiss franc.
The recognised amounts in the financial statements for these exposures at 31 December 2016 amounted to € 197 million for a corresponding notional amount of € 26,079 million, which mainly relates to over-the-counter positions. The exposure is mainly associated with 202 Generali Group Annual Integrated Report and Consolidated Financial Statements 2016
operations relating to interest rates hedges and foreign exchange rates hedges, with particular reference to the US dollar. Furthermore during the year the Group has renewed the macro hedge strategy aimed at protecting the capital from the risk of a significant reduction in share prices.
The Generali Group makes its own analysis of sensitivity to market and credit risks following the logic of Solvency II. For further information and the relevant numerical evidence please refer to the Risk Report in the Management Report.
As part of the technical provisions of the life segment, subject to liability adequacy test, are also included the reservations made in accordance with applicable locally regulations related to the risk of interest rates change.
(€ million) Direct insurance Accepted reinsurance Total 31/12/2016 31/12/2015 31/12/2016 31/12/2015 31/12/2016 31/12/2015
Non-life amounts ceded to reinsurers from insurance provisions 1,897 2,086 808 809 2,704 2,895
Life amounts ceded to reinsurers from insurance provisions 484 635 745 563 1,229 1,199
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The increase in mathematical provisions and ageing for life segment shows both the development of net inflow and the financial revaluation of the period.
Transfer to Non-current assets or disposal group classified as held for sale -443 0
Carrying amount as at the ed of the period 60,790 57,783
Group’s financial guarantee of life insurance provisions and financial liabilities of gross direct insurance is reported in the following table
The total insurance provisions include the gross direct amount of mathematical provisions, which amount to € 274,077 million (€263,099 million at 31 December 2015), the provisions for policies where the investment risk is borne by the policyholders and for pension fund, which amount to € 60,790 million (€ 57,783 million at 31 December 2015), the ageing provision for life segment, which amount to € 12,957 million (€ 12,240 million at 31 December 2015), and financial liabilities related to investment contacts, which amount to € 22,934 million (€ 21,991 million at 31 December 2015).
The table above shows a progressive shift of the exposures towards ‘less than 3%’ guarantee classes, also due to the new business. Lastly, the amount of provisions without guaranteed interest showed an increase amounting to € 81,690 million (€78,213 million as at 31 December 2015).
The table below shows the amount of the life gross direct insurance provisions broken down by expected contractual residual duration. For contracts without maturity (annuity or whole life contracts) the expected residual duration is calculated considering an expected date of conclusion of the contract, according to the embedded value valuation.
Carrying amount as at the end of the period 23,882 22,642
Deferred policyholders liabilities recorded an increase as a consequence of the increase of the policyholders’ share recognized on the fair value of the investment liability is broken down by remaining duration in proportion to the cash flows expected to arise during each duration band.
The following table shows the cumulative claim payments and the ultimate cost of claims by accident year and their development from 2007 to 2016. The ultimate cost includes paid losses, outstanding reserves on reported losses, estimated reserves for IBNR claims and ULAE.
The difference between the ultimate cost of claims and the cumulative paid losses for calendar year 2016 constitutes the claim reserve for accident years 2007 to 2016. The reserve reported in the balance sheet also includes a residual claim reserve that is composed almost exclusively by the accident years not reported in the development triangle.
Total provision included in the balance sheet 26,601 210 Generali Group Annual Integrated Report and Consolidated Financial Statements 2016
With reference to the reinsurance policy, the table proves that the careful criteria for the selection of reinsurers adopted by the Group over the past allowed Generali to have a significant presence of counterparties in rating classes of high quality. The small percentage of AAA counterparties reflects the almost total lack of market players that have maintained these characteristics.
“Not rated” counterparties still remain; as in the past, they also include a considerable amount of captive insurance companies of large industrial Groups that do not qualify for any rating while showing a good financial strength, companies that are no longer active in the reinsurance market and not valued by the rating agencies, but not necessarily less financially sound , companies that are part of major insurance groups which benefit from high rating but who have abandoned their reinsurance activities, or, finally, of mutual and reinsurance pools.
In some circumstances, local regulations, market practice or specific types of business allow the Group to benefit from mitigation of the related reinsurance credit risk through deposits from reinsurers and/or letters of credit as a guarantee on ceded reserves
The impact of underwriting risk, as envisaged by IFRS4, is represented as percentage change of Life Embedded Value3.
With reference to the covered business at the date of valuation, 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 (ANAV), and the Value In-Force (VIF): • the Adjusted Net Asset Value corresponds to the market value of the consolidated shareholders’ funds, net of goodwill and DAC (Deferred Acquisition Costs), and before the payment of dividends from profits in the year; • the Value In-Force corresponds to the present value of the projected stream of after-tax industrial profits generated by the business in force at the valuation date. This value takes into account the cost of finan3 The Group publishes annually an Embedded Value Report on the activities of the Life segment.
211 We, Generali Our performace OutlookRisk Report Appendices to the Management Report
cial guarantees related to the options, embedded in insurance contracts, and less the frictional costs of holding the capital and the cost of non-financial risks.
Regarding the life underwriting risk and according to the parameters indicated by the CFO Forum, the Group performs the following Embedded Value sensitivities: • maintenance expenses -10%: sensitivity to a 10%
The table above shows that the reduction of expenses and mortality rates (except for annuities) has a positive effect in the value; on the contrary, as expected, for the annuities, a reduction in mortality rates leads to a corresponding decrease in value.
Regarding lapse, a decrease in surrender assumptions could produce both positive and negative effect in the
Reserve for unrealized gains and losses on available for sale financial assets 6,319 6,067
Reserve for other unrealized gains and losses through equity -1,153 -944
During the year the Parent company distributed dividends amounting to € 1,123 million.
Net unrealized gains and losses on investments available for sale 195 -398
Actuarial gains or losses arising from defined benefit plans -244 162
The following table shows the change of deferred tax assets and liabilities related to gains or losses recognized in shareholders’ equity or transferred from shareholders’ equity.
average number of shares owned by itself or by other Group companies during the period.
Earnings per share (in €) 1.34 1.30 - from continuing operation 1.34 1.33 - from discontinued operations 0.00 -0.02
Net unrealized gains and losses on cash flows hedging derivatives -5 -21
In accordance with the CONSOB Communication No. 6064293 of 28 July 2006, the table below summarizes the reconciliation of the result of the period and shareholders ’ equity of the Group and the Parent Company.
Adjustments to Parent Company for IAS/IFRS application 938 42 1,229 -241
Parent Company amounts in conformity with IAS/IFRS principles 14,513 1,138 14,997 691
Elimination of participations, equity valuation impacts and other consolidation adjustments -3,352 -255 -4,080 779
Shareholders equity attributable to the group 22,464 2,081 21,535 2,030 216 Generali Group Annual Integrated Report and Consolidated Financial Statements 2016
Financial liabilities related to investment contracts issued by insurance companies 5,443 5,070
The main Group’s financial liabilities at amortized cost are represented by senior bonds and subordinated liabilities . The following tables sort Senior and Subordinated liabilities into categories based on maturity, or first call date, when applicable. For each category of maturity, the undiscounted cash flows (including the related hedging derivatives), the book value and the fair value of financial liabilities are reported 217 We, Generali Our performace OutlookRisk Report Appendices to the Management Report
The category of ‘bonds issued’ includes both the issues described in the table ‘Main senior bonds issues’ and the following bonds: • Other senior bonds, of which mainly those issued by Ceska Pojistovna for a nominal amount of CZK 500 million corresponding to an amortized cost of approximately € 48 million; • A senior bond issued in May 2010, for a nominal amount of € 560 million (at 31 December 2015 the remaining amount was about € 255 million), to fund the tax recognition of goodwill related to the unusual transaction Alleanza Toro. This issue was classified as operating debt because the debt structure provides a perfect correlation between cash flows arising from their recognition of taxes and loan repayments both in terms of interest and of capital.
Gross book value as at 31 December previous year 5,443 5,213
Gross book value as at the end of the period 5,996 5,443
With reference to the other intangible assets, the change of the period is mostly attributable to the novation of the bancassurance agreement with Cajamar Vida S.A.
Deferred tax liabilities were accounted for with reference to the above mentioned intangible assets. Further information on calculation method are detailed in the paragraph ‘Other intangible assets’ of the section Basis for presentation and accounting principles.
Other balance sheet items 220 Generali Group Annual Integrated Report and Consolidated Financial Statements 2016
Gross book value as at 31 December previous year 3,864 3,785
Carrying amount as at the end of the period 2,810 2,844
Gross book value as at 31 December previous year 2,904 3,054
Accumulated depreciation and impairment as at 31 December previous year -1,279 -1,241
Carrying amount as at the end of the period 1,666 1,625
Other tangible assets, which amounted to € 1,666 million (€ 1,625 million at 31 December 2015), mainly includes property inventories for an amount of € 1,079 million (mainly related to Citylife) and furniture, fittings and office equipment, net of accumulated amortisation and impairment losses (€ 348 million).
Non-current assets or disposal groups classified as held for sale 772 0
In the normal course of business, the Group may enter into arrangements that do not lead to the recognition of those commitments as assets and liabilities in the consolidated financial statements under IFRS (contingent assets and liabilities). For further information regarding contingent liabilities please refer to the paragraph Contingent 223 We, Generali Our performace OutlookRisk Report Appendices to the Management Report
During the year Generali group has received from Banco BTG Pactual S.A. requests for damages by means of a notice of arbitration as provided by the Share and Purchase Agreement of BSI S.A.
Other fees and commission income 15 15 28 Net income from financial asset at fair value through profit and loss
Total financial investments at fair value through profit or loss 31/12/2016 31/12/2015 31/12/2016 31/12/2015 31/12/2016 31/12/2015 31/12/2016 31/12/2015
The net income from financial assets at fair value through profit or loss mainly referred to the life segment (€ 1,830 million). This item is not material for non-life segment
Reversal of impairment of land and buildings (investment properties) 88 73
Reversal of impairment of available for sale financial assets 37 8
Reversal of impairment of other receivables 92 94 226 Generali Group Annual Integrated Report and Consolidated Financial Statements 2016
Income from non-current assets or disposal group classified as held for sale 0 1
Change in claims paid to be recovered -55 6 1 -3 -54 3
Impairment losses 27 14 35 Expenses from other finncial instruments and land and buildings (investment properties)
Impairment of other receivables 52 41 228 Generali Group Annual Integrated Report and Consolidated Financial Statements 2016
The item “other administration costs” includes expenses related to real estate activity which, overall, increased amounting to € 53 million (€ 37 million at 31 December 2015), focusing mainly in the holding and other businesses segment for an amount of € 43 million.
In the Property&Casualty segment, non-insurance administration expenses, equal to € 8 million, slightly declined in respect to the previous year (€ 9 million at 31
December 2015); a proportion of € 6 million of these expenses are related to real estate activities.
Restructuring charges, termination employee benefit expenses and allocation to other provisions 453 648
Other expenses 447 636 229 We, Generali Our performace OutlookRisk Report Appendices to the Management Report
The components of the income tax expense for 2016 and 2015 are as follow: Income taxes
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 2016 the weighted average tax rate remained substantially unchanged at approximately 16.20%.
In France, income taxes are calculated by using an overall corporate income tax rate of 34.43%. In particular, this overall rate includes the basic rate expected in the tax on corporate income, equal to 33.33%, increased by an additional (contribution sociale) of 3.30% and a further additional temporary always calculated with reference the standard rate.
Effect of permanent differencies and foreign tax rate differential -170 -142
With respect to the 2016 fiscal year, the effective tax rate decreased to 3.5 basis points compared to the previous fiscal year and amounted to 29.1%. In particular, due to the impacts linked to the decrease of the substitute taxes due to the reduction of the scope of the CFC companies, the reduction of the nominal corporate income taxes in France and Spain, as well as extraordinary income recognized in Germany in relation to lower for previous years.
Fiscal losses carried forward are recognised to the extent that future taxable income will be sufficient to offset the amount of the losses before their expiration.
Fiscal losses carried forward as of 31 December 2016 and 2015 are scheduled according to their expiry periods as follows.
Deferred income taxes are calculated on the temporary differences between the carrying amounts of assets and liabilities reported in the financial statements and their tax base, by using the tax rates applicable at the expected time of realisation according to each country’s current legislation. In particular, with regard to Italian companies, in 2016 fiscal year, the deferred taxes have been determined taking into account the reduction in the corporate income tax rate (IRES) at 24% from 2017, as provided by Law no. 208/2015.
The ultimate realisation of deferred tax assets is dependent on the generation of future taxable income during the periods in which those temporary differences become deductible.
Total net deferred tax liabilities 2,616 3,034 232 Generali Group Annual Integrated Report and Consolidated Financial Statements 2016
From the table above, in line with IFRS 13 definitions, the following items, part of below mentioned balance sheet categories, are excluded: • Loans and receivables: reinsurance deposits provided and term deposits; • Other financial liabilities: reinsurance deposits received and liabilities arising from investment contracts measured at cost sold by insurance entities.
The fair value hierarchy levels are based on the type of inputs used to determine the fair value: • Level 1 inputs are quoted prices (unadjusted) in active markets for identical assets or liabilities that the entity can access at the measurement date.
• Level 3 inputs are unobservable inputs for the asset or liability, which reflect the assumptions that market participants would use when pricing the asset or liability, including assumptions about risk (of the model used and of inputs used).
Financial liabilities at fair value through profit or loss 19,484 19,484
Total financial liabilities 45,396 46,721 234 Generali Group Annual Integrated Report and Consolidated Financial Statements 2016
Fair Value Hierarchy 31/12/2016 Livello 1 Livello 2 Livello 3 Totale
Financial liabilities related to investments contracts issued by insurance companies 16,538 906 46 17,491
Total liabilities at fair value 16,546 2,882 56 19,484 235 We, Generali Our performace OutlookRisk Report Appendices to the Management Report
Fair Value Hierarchy: comparative period 31/12/2015 Level 1 Level 2 Level 3 Total
• from level 2 to level 1 € 292 and from level 1 to level 2 € 105 of investments where the risk is borne by policy-holders for the same reason as in point above.
The amount of financial instruments classified in Level 3 represents 2.1% of total financial assets and liabilities at fair value, stable compared to 31 December 2015.
Generally, the main inputs used in valuation techniques are volatility, interest rates, yield curves, credit spreads, dividend estimates and exchange rates.
Financial assets and financial liabilities are mainly transferred from level 1 to level 2 when the liquidity and the frequency of transactions are no longer indicative of an active market. Conversely, for transfers from level 2 to level 1.
The more significant assets classified within Level 3 are the following: • Unquoted equities
The fair value of these investments is closely monitored by a team of professionals inside the Group.
Moreover, given the analyses described above, the Group has decided to classify all the asset-backed securities items in Level 3 considering that their evaluation is generally not corroborated by market inputs. For what regards prices provided by providers or counterparties, bonds for which it is not possible to replicate the price using market inputs have been classified in Level 3. Therefore, given the lack of information concerning the inputs used for the determination of the price, the Group is not able to perform a sensitivity analysis on this bonds.
Investments back to policies where the investment risk is borne by the policyholders 1,447 167 -15 -73
Other assets at fair value through profit or loss 42 55 0 -41
Total liabilities at fair value 173 8 -107 0 238 Generali Group Annual Integrated Report and Consolidated Financial Statements 2016
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In comparison to the previous period some impacts due to methodological changes regarding the attribution of Fair value hierarchy levels can be observed, mainly related to repurchase arrangements, classified as Other debt, which are considered as Level 2.
Fair Value Hierarchy of assets and liabilities not measured at fair value 31/12/2016 Level 1 Level 2 Level 3 Total
Investments in subsidiaries, associated companies and joint ventures 0 0 1,194 1,194
The category includes primarily bonds, which valuation is above described. If the fair value cannot be reliably determined, the amortized cost is used as the best estimate for the determination of fair value..
Considering their nature, the amortized cost is generally considered a good approximation of fair value and therefore classified within level 3. If appropriate, they are valued at market value, considering observable inputs, and therefore classified within level 2.
The fair value of land and buildings (investment properties ) is mainly based on external appraisals based on methods described above.
If measured at amortized cost as an approximation of fair value, they are classified in Level 3.
The main defined benefits plans are concentrated in Germany, Austria and Switzerland, while in Italy the provision for Trattamento di fine rapporto (employee severance pay) matured until 1st January 2007 is included in the provisions for defined benefit plan for € 106 million.
The table below shows the movements in the defined benefit plans liability which occurred during the financial year, net of assets legally separate and held solely to pay or fund employee benefits: Net defined benefit plans liabilities: movements
tributions to be paid by the companies, are liable for the fulfilment of the pension commitments granted in case of company insolvency.
The net defined benefit plans expense of the year recognised in the profit or loss account is represented as follows: Net defined benefit plans expenses recognised in profit or loss
Defined benefit obligation as at 31 December previous year 4,928 5,119
Defined benefit obligation as at 31 December previous year 997 934
Fair value of plan assets as at 31 December 1,015 997
A sensitivity analysis was carried out showing how the defined benefit obligation would have been affected by changes in the discount rate and the most relevant actuarial assumptions on these liabilities: Defined benefit plans: sensitivity
To provide an indication of the effect of the defined benefit plans on the future cash flows of the Group, the future expected payments divided by bands of maturity are presented below: Defined benefit plans: expected payments 31/12/2016 31/12/2015
Within the next 12 months 211 207 46 Share-based compensation plans
At 31 December 2016 different incentive plans based on equity instruments granted by the Parent Company and other Group companies are outstanding.
From 2011 to 2012, the Company adopted multi-year plans, currently still in place, based on two cycles of three years. Once the first cycle reaches its conclusion, if the relevant targets have been achieved, a monetary bonus is disbursed of which a part shall be re-invested in Generali shares. This is then followed by a second cycle, after which, again assuming certain targets have been achieved, participants may be granted a certain number 245 We, Generali Our performace OutlookRisk Report Appendices to the Management Report
From 2013, Generali adopted new plans based on a single three-year cycle, after which, assuming certain targets have been achieved, free shares, subject to specific lock-up periods, may be granted to the participants.
In line with market practices and investor expectations, shares are assigned and available to beneficiaries over a total time frame of 6 years, subject to the achievement of Group’s performance conditions (Return on Equity – ROE - and relative Total Shareholders Return - rTSR) and the achievement of a minimum level of Economic Solvency Ratio, as detailed below.
The Plan is based on the following essential aspects: • the incentive connected with the achievement of the targets is paid through the grant of Assicurazioni Generali S.p.A. ordinary shares; • the right to receive the shares is subject to an entry threshold, defined annually by the Board of Directors and which represents a condition precedent; • the targets to which payment of the incentive is subject are Group financial ones and are defined at the beginning of the three-year performance period.
The maximum number of shares that can be assigned is determined at the start of the plan. The maximum potential bonus to be disbursed in shares equals to 175% of the gross fixed remuneration of the plan participants (or a different percentage considered the role of the related beneficiaries); therefore, the maximum number of shares that can be assigned is the result of the ratio of the maximum bonus and the share value, with the latter calculated as the average price of the share in the three months prior to the meeting of the Board of Directors called to resolve on the draft statutory financial statements of the Holding Company and the consolidated financial statements for the previous year.
During each year of the plan and at the end of the three years, the Board of Directors evaluates the degree to which the Economic Solvency Ratio has been achieved 246 Generali Group Annual Integrated Report and Consolidated Financial Statements 2016
In line with the LTI plan 2015, a dividend equivalent mechanism has been introduced on the basis of the dividends distributed during the three-year performance period. In particular, should the shareholders’ meeting resolve upon the distribution of dividends in favour of the shareholders during the three-year reference period, at the expiry of such three-year reference period, an additional number of shares determined in relation to the overall dividends distributed during the three-year reference period will be assigned in favour of the beneficiaries.
The maximum number of shares that can be granted is 10,000,000, accounting for 0.64% of the current share capital.
For additional information related to incentive plans refer to the 2016 Remuneration Report.
The fair value of the right to receive free shares related to the market condition is estimated at grant date using statistic model which estimates the statistically probable positioning of Group TSR respect to peer group identified in the STOXX Euro Insurance Index.
above and based on an independent assessment of the levels of achievement on the Group’s financial indicators, the cost of the plans 2015 and 2016 was determined by separating the component connected to the relative TSR to the one linked to the ROE.
For each tranche of the LTI plan 2016, the table below shows the fair value at the grant date of the bonus right related to the performance level in terms of rTSR: Tranche 2017
The related cost on overall plan is resulted from the multiplication, weighted for each tranche, of the above mentioned fair value with the number of rights related to the market condition, to be assigned based on the satisfaction of the vesting condition.
The overall cost of the LTI plans 2015 and 2016, sum of the three components above mentioned, is allocated over a period of maturity of 3 years (vesting period) starting from the first financial year on which the performance levels are assessed, with a corresponding increase in equity.
During the year, the Board of Directors resolved to submit to the next Shareholders’ Meeting a special Stock Plan for the Managing Director / Group CEO.
The Plan involves the free award of a maximum of n. 200.000 ordinary Assicurazioni Generali shares, subject to the following conditions being met: • the Managing Director/Group CEO continuing to hold his existing n. 200.000 Assicurazioni Generali shares, acquired with his own means, until the end of his current term in office; • achieving a specific three-year Total Shareholders Return (TSR) target of +72,8%, calculated over the period 5 July 2016 - 5 July 2019; • maintaining predetermined Solvency thresholds; • remaining in office as Managing Director/Group CEO
Furthermore, the Plan calls for the award of additional shares, determined on the basis of the amount of the overall dividends distributed during the reference period, according to a dividend equivalent mechanism.
The Plan also obligates the Managing Director/Group CEO to retain 50% of the shares awarded to him for free for at least two years, as well as other standard sustaina248 Generali Group Annual Integrated Report and Consolidated Financial Statements 2016
The relative cost of the overall plan is obtained by multiplying the market value above mentioned (amounting to EUR 2.6) with the number of rights relating to the market condition, assignable on the basis of the achievement of vesting condition; the cost related to the recognition of dividends paid during the three-year period (so called dividend equivalent) was estimated by applying a deemed dividend to the expected number of shares to be assigned under the Plan.
The options held by executive and non executive personnel expired during the year. The options for the benefit of the president, managing directors and general managers had already expired in previous years.
As part of the policy on remuneration and incentives in relation to key personnel of Banca Generali Group, applied as from 2015, on, is expected that a portion of the variable remuneration, both current and deferred, takes place through the allocation of financial instruments of Banca Generali.
The fair value Banca Generali share at the grant date is the stock market price recorded on the date of the shareholders meeting approving the Remuneration Policy for the current year.
Within the first cycle linked to variable remuneration for 2015, approved by the shareholders on 23 April 2015, the shares to be allocated to key personnel totalled 68,250, of which 51,960 assigned to network managers, 14,578 to employees of Banca Generali and 1,712 to employees of BGFML.
250 Generali Group Annual Integrated Report and Consolidated Financial Statements 2016
The first tranche of the shares has been allocated on 27 April 2016 for a total of 38,099 own shares.
For the purposes of determining the number of shares to be allocated, the reference price of Banca Generali shares, determined as the average of the official quotations between 12 December 2015 and 9 March 2016, was defined as of € 25.26. The fair value Banca Generali shares on the grant date of the shares was determined based on the market price recorded as at 21 April 2016, amounting to € 26.
In relation to the assessment of the achievement by the key personnel of the objectives set for 2016 it is estimated that the share of variable compensation subject to payment of shares amounts to approximately 77.4 thousand shares, for a total fair value of the plan of € 1.9 million.
At the balance sheet date there are the following sharebased compensation plans granted by Generali France to the employees of Generali France group: eight stock grant plans approved by the board on 21 December 2006, 20 December 2007, 4 December 2008, 10 December 2009, 9 December 2010, 14 March 2012, 25 June 2013, 7 March 2014 and 6 March 2015 and 9 March 2016, and a stock granting plan, reserved to the employees of the Generali France group.
At 31 December 2016, the number of shares granted amounted to 5,643,393 preferred shares, of which 323,197 related to the plan granted for 175th anniversary of foundation of Parent Company.
A contingent liability is: • a possible obligation that arise from past events and whose existence will be confirmed only by occurrence or non occurrence of one or more uncertain future events not wholly within the control of the entity; or
In particular, approximately € 1,780 million represent commitments associated with alternative investments (private equity), mainly allocated in private equity funds which are consolidated line-by-line by the Group. Approximately € 1,008 million refer to several investment opportunities and, in particular, to real estate investment funds. The potential commitments to grant loans amount to approximately € 444 million, mainly associated to liquidity or funding needs of the customers of the Group’s banking operations.
At 31 December 2016, as already mentioned in the paragraph Assets transferred that do not qualify for derecognition of the section Investments, the Group has pledged approximately € 3,417 million of its assets. In particular, approximately € 1,891 million have been pledged to cover bonds and loans issued, mainly related to the Group’s banking and real estate activities, and approximately € 1.037 million to cover its reinsurance activities. Residual part is related to collateral pledged in relation to transactions in derivatives.
Furthermore, the Group has received financial assets as collateral for approximately € 5,641 million, in particular for transactions in bonds and loans for approximately € 4,428 million and € 827 million to cover Group reinsurers’ obligations.
In some cases Group companies acts also as lessor, mainly related to real estates rental through operating lease. The value of real estates involved in these arrangements is of approximately € 3,330 million. Among those agreements, none of them results material at single contract level.
The Group is concluding the sale arrangement of assets in Guatemala and Lichtenstein.
For more information on this matter refer to the paragraph “Information on consolidation perimeter and group companies”.
In 2015 the Company appealed the decision of the Labour Court of Trieste that had dismissed Generali’s claim to make null and void the settlement agreement signed upon termination of the work relationship and to obtain the restitution of the amount already paid to Mr. Perissinotto. The proceeding is currently pending before the 252 Generali Group Annual Integrated Report and Consolidated Financial Statements 2016
The same Labour Court of Trieste, with separate measures of March 2015 and November 2016, initially dismissed both the claims for damages, and of the appeal of the settlement of the employment relationship with Mr. Agrusti, as well as the claims for damages of the same
In the table below, filled under the article 149-duodecies of Consob Regulation, are reported the 2016 fees for auditing and other services to Parent company’s audit and companies within audit company’s network..
Other service fees 571 3,632 of which Tax service fees 307 150 of which Other services 264 3,482 253 We, Generali Our performace OutlookRisk Report Appendices to the Management Report
Ot he r i nta ng ibl e as se ts 2, 2,
Ta ng ib le a nd in ta ng ib le a ss et s A
p p en d ix 257 We, Generali Our performace OutlookRisk Report Appendices to the Management Report
Pr ov isi on s for u ne ar ne d pr em ium s
A m ou nt s ce d ed o r ei ns ur er s fr o m in su ra nc e p ro vi si o ns
A p p en d ix 258 Generali Group Annual Integrated Report and Consolidated Financial Statements 2016
,37 - o f w hic h qu ote d eq uit ies 9, 9,
De po sit s u nd er re ins ura nc e bu sin es s ac ce pte d
Ot he r f ina nc ial in ve stm en ts 6, 6,
Fin an cia l a ss ets h eld fo r t ra din g
Fi na nc ial as se ts de sig na ted a s a t fa ir v alu e thr ou gh pr ofi t o r lo ss
of 3 J uly h ed gin g de riv ati ve s a re on ly de riv ati ve s for w hic h h ed ge a cc ou nti ng is a pp lie d.
A p p en d ix 259 We, Generali Our performace OutlookRisk Report Appendices to the Management Report
) I ns ur an ce p ro vi sio ns a re n et of am ou nts c ed ed to re ins ur er s fro m in su ra nc e pr ov isi on s.
e in su ra nc e pr ov is io ns
In su ra nc e p ro vi si o ns
A p p en d ix 261 We, Generali Our performace OutlookRisk Report Appendices to the Management Report
Su bo rd ina ted lia bil itie s 9, 9, 9, 9,
Fi na nc ial lia bil itie s re lat ed to in ve stm en t c on tra cts is su ed b y ins ur an ce c om pa nie s
De po sit c om po ne nts o f in su ra nc e co ntr ac t
Fi na nc ial lia bil itie s at fai r v alu e thr ou gh p ro fit or lo ss
,67 b C ha ng e i n t he pr ov isi on s f or ou tst an din g c lai ms c C ha ng e i n c lai ms to be re co ve red d C
ha ng e i n t he pr ov isi on s f or ou tst an din g c lai ms c C ha ng e i n t he m ath em ati ca l p rov isi on s
In co m e a nd e xp en se s fro m in ve st m en ts
b fro m in ve stm en ts in su bs idi ar ies
, a ss oc iat ed c om pa nie s an d joi nt ve ntu res c fro m he ld to m atu rity in ve stm en ts d fro m lo an s a nd re ce iva ble s 2, 1, 1, e fro m av ail ab le for s ale fin an cia l a ss ets 1, 2,
,2 f fr om fin an cia l a ss ets h eld fo r tr ad ing g fro m fin an cia l a ss ets d es ign ate d a s at fai r v alu e t hr ou gh pr ofi t o r l os s 5,
In co m e a nd e xp en se s fro m c as h an d ca sh eq ui va le nt s
,4 a fro m fin an cia l li ab ilit ies he ld for tr ad ing
,3 bfr om fin an cia l li ab ilit ies de sig na ted a s a t fa ir va lue th ro ug h pr ofi t o r l os s c fro m ot he r fi na nc ial lia bil itie s
In co m e a nd e xp en se s fro m p ay ab les
To tal in co me a nd ex pe ns es
Re ali ze d ga ins Re ali ze d los se s
Un re ali ze d ga ins a nd re ve rs al of im pa irm en t lo ss es Un re ali ze d l os se s an d im pa irm en t los se s
Co m m iss ion s an d oth er a cq uis itio n co sts 4, 4, 3, 4, a
A cq uis itio n an d ad m ini str ati on c om m iss ion s 3, 3, 2, 3, b
p p en d ix 265 We, Generali Our performace OutlookRisk Report Appendices to the Management Report
Re se rv e f or cu rre nc y tra ns lat ion di ffe ren ce s
Ne t u nre ali ze d g ain s a nd lo ss es on in ve stm en ts av ail ab le for sa le
S ha re of oth er co mp reh en siv e i nc om e o f a ss oc iat es
Re ve nu e r es erv e f rom v alu ati on of eq uit y
Re se rv e f or rev alu ati on m od el on in tan gib le as se ts
Re se rv e f or rev alu ati on m od el on ta ng ibl e a ss ets
Bo ok va lue re cla ss ifie d a t
p p en d ix o r lo ss a cc ou nt a nd c o m p re he ns iv e in co m e
Fi na nc ial a ss ets a nd lia bil itie s at fai r v alu e thr ou gh p ro fit or los s on re cu rri ng b as is
Fi na nc ial a ss ets h eld fo r tr ad ing 1, 1, 1,
Fi na nc ial a ss ets d es ign ate d at fai r v alu e thr ou gh p ro fit or lo ss
To tal fin an cia l a ss ets a t fa ir va lue 9,
Fi na nc ial lia bil itie s de sig na ted a t fa ir va lue th ro ug h pr ofi t o r l os s
rre nt lia bil itie s or o f d isc on tin ue d op er ati on s
A ss et s an d li ab ili tie s m ea su re d a t fa ir va lu e o n re cu rr in g an d n o nre
cu rr in g b as is : f ai r va lu e hi er ar ch y
A p p en d ix 268 Generali Group Annual Integrated Report and Consolidated Financial Statements 2016
Pu rc ha se s an d is su es 1,
Fi na nc ia l a ss et s at fa ir va lu e thr ou gh p ro fit or lo ss
In ve st m en t p ro pe rti es
D et ai ls o f t he v ar ia tio ns o f a ss et s an d li ab ili tie s m ea su re d a t fa ir va lu e o n a re cu rr in g b as is c la ss ifi ed in L
A p p en d ix 269 We, Generali Our performace OutlookRisk Report Appendices to the Management Report
He ld to m atu rity in ve stm en ts 2.
p p en d ix 270 Generali Group Annual Integrated Report and Consolidated Financial Statements 2016
In te re st s of vo tin g rig ht s in th e
Fi na nc ia l L ia bi liti es To ta l l ia bi liti es a nd sh ar eh ol de rs ' e qu ity
A p p en d ix 271 We, Generali Our performace OutlookRisk Report Appendices to the Management Report
Company disposed of/wound up/merged in: 1. CA Global Property Internationale Immobilien AG (merged in Generali Versicherung AG), Vienna 2. Courtage Inter Caraibes (merged in GFA Caraïbes), Fort de France 3. Europ Assistance Service S.p.A. (merged in Europ Assistance Vai S.p.A.), Milano 4. FATA Asigurari S.A., Bucarest 5. Flandria Participations Financières S.A. (merged in Graafschap Holland N.V.), Bruxelles 6. Fondo Cimarosa - Fondo Immobiliare chiuso (merged in Fondo Immobiliare Toscanini), Trieste 7. Fortuna Investment AG, Vaduz, Vaduz 8. Generali Argentina Compañía de Seguros S.A., Buenos Aires 9. Generali Beteiligungs- und Verwaltungs-AG (merged in Generali Deutschland AG), Monaco 10. Generali Bulgaria Holding EAD, Sofia 11. Generali Capital Management GmbH (merged in Generali Holding Vienna AG), Vienna 12. Generali France Assurances S.A. (merged in Generali France S.A.), Parigi 13. Generali Investments CEE a.s.(merged in CP INVEST investicní spolecnost, a.s.), Praga 14. Generali Investments Deutschland Kapitalanlag mbH (merged in Generali Investments Europe S.p.A. SGR), Monaco 15. Generali IT-Solutions GmbH (merged in Generali Versicherung AG), Vienna 16. Generali Life Insurance AD, Sofia 17. Generali Pilipinas Holding Co. Inc., Makati City-Manila 18. Generali Pilipinas Life Assurance Co. Inc., Makati City-Manila 19. Generali Real Estate Investments B.V., Amsterdam 20. Generali VIS Informatik GmbH (merged in Generali Versicherung AG), Vienna 21. Keviana - Empreendimentos Imobiliários, S.A., Lisbona 22. MKE Kaufhausvermietungs GmbH (merged in HSR Verpachtung GmbH), Vienna 23. SCI Font Romeu Neige et Soleil, Parigi 24. SCI Generali Pyramide, Parigi 25. Sellin Bond Sub-Fund II, Lussemburgo 26. Telco AG S.r.l., Trieste
UMS Immobiliare Genova S.p.A. 086 EUR 15,993,180 G 10 99.90 Generali Italia S.p.A. 99.90 99.90
Europ Assistance VAI S.p.A. 086 EUR 4,325,000 G 11 100.00 Europ Assistance Italia S.p.A. 100.00 99.99
Banca Generali S.p.A. 086 EUR 116,424,502 G 7 9.55 Generali Vie S.A. 50.41 50.30 0.44 Genertel S.p.A.
Fondo Immobiliare Mascagni 086 EUR 2,013,791,705 G 10 1.35 Genertel S.p.A. 100.00 100.00 29.18 Alleanza Assicurazioni S.p.A.
Generali Investments Europe S.p.A. Società di Gestione Risparmio 0.10 Generali Vida Companhia de Seguros S.A.
Alfuturo Servizi Assicurativi s.r.l. 086 EUR 70,000 G 11 100.00 Alleanza Assicurazioni S.p.A. 100.00 100.00
BG Fiduciaria - Società di Intermediazione Mobiliare S.p.A. 086 EUR 5,200,000 G 8 100.00 Banca Generali S.p.A. 100.00 50.30
Method(1) Activity(2) Shareholding % Group Equity Ratio(3)Direct Indirect Through Total 51.64 Generali Italia S.p.A.
Generali Investments Europe S.p.A. Società di Gestione Risparmio 086 EUR 60,085,000 G 8 17.13 Alleanza Assicurazioni S.p.A. 100.00 99.68 82.87 Generali Investments Holding S.p.A.
Generali Versicherung Aktiengesellschaft 094 EUR 27,358,000 G 2 100.00 Generali Deutschland AG 100.00 100.00
Generali Private Equity Investments GmbH 094 EUR 500,000 G 9 100.00 Generali Investments Holding S.p.A. 100.00 99.61
277 We, Generali Our performace OutlookRisk Report Appendices to the Management Report
Generali European Real Estate Income Investments GmbH & Co. Geschlossene Investment KG 094 EUR 252,520,250 G 10 1.00
Generali Northern America Real Estate Investments GmbH & Co. KG 094 EUR 17,560,021 G 10 27.77 AachenMünchener Lebensversicherung AG 99.94 99.94
Deutsche Bausparkasse Badenia Aktiengesellschaft 094 EUR 40,560,000 G 7 100.00 Generali Deutschland AG 100.00 100.00
Generali Deutschland Services GmbH 094 EUR 100,000 G 11 100.00 Generali Deutschland AG 100.00 100.00
FLI GmbH 094 EUR 25,000 G 11 100.00 Generali Europe Income Holding S.A. 100.00 99.61
FFDTV GmbH 094 EUR 25,000 G 11 100.00 Generali Europe Income Holding S.A. 100.00 99.61
GID Fonds AAREC 094 EUR 3,538,647,418 G 11 0.85 Dialog Lebensversicherungs22. 74 AachenMünchener Lebensversicherung AG
GID Fonds GDRET 094 EUR 175,807,521 G 11 21.38 Generali Deutschland AG 100.00 100.00 47.16 Generali Versicherung Aktiengesellschaft 2.95 Cosmos Versicherung Aktiengesellschaft 28.51 ADVOCARD Rechtsschutzversicherung AG
GID-Fonds GPRET 094 EUR 85,203,041 G 11 96.24 Generali Pensionsfonds AG 96.24 96.24
GLL Properties Fund I LP 069 USD 33,010,030 G 10 100.00 GLL AMB Generali Properties Fund I GmbH & Co. KG 100.00 100.00
GID Fonds AVAOT II 094 EUR 40,670,985 G 11 100.00 AachenMünchener Versicherung AG 100.00 100.00
GID Fonds AVAOT III 094 EUR 32,709,688 G 11 100.00 ADVOCARD Rechtsschutzversicherung AG 100.00 100.00
GID Fonds ALRET 094 EUR 1,370,033,598 G 11 100.00 AachenMünchener Lebensversicherung AG 100.00 100.00
GID Fonds GLRET 094 EUR 4,161,715,237 G 11 100.00 Generali Lebensversicherung Aktiengesellschaft 100.00 100.00
GID-Fonds AAHYSL 094 EUR 321,306,343 G 11 40.85 AachenMünchener Lebensversicherung AG 98.20 98.20
Prudence Creole 247 EUR 7,026,960 G 2 95.34 Generali IARD S.A. 95.35 94.27 0.01 Generali France S.A.
SAS Lonthènes 029 EUR 529,070 G 10 100.00 Generali Vie S.A. 100.00 98.86
Suresnes Immobilier S.A.S. 029 EUR 43,040,000 G 10 100.00 Generali Vie S.A. 100.00 98.86
GEII Rivoli Holding SAS 029 EUR 12,000,000 G 10 100.00 Generali Europe Income Holding S.A. 100.00 99.61
Immobiliere Commerciale des Indes Orientales IMMOCIO 029 EUR 134,543,500 G 10 100.00 Generali Vie S.A. 100.00 98.86
SCI du 54 Avenue Hoche 029 EUR 152,400 G 10 100.00 Generali Vie S.A. 100.00 98.86
SCI Landy-Novatis 029 EUR 672,000 G 10 0.10 Generali Vie S.A. 100.00 98.86 99.90 SC Novatis
SCI Cogipar 029 EUR 10,000 G 10 100.00 Generali Vie S.A. 100.00 98.86
282 Generali Group Annual Integrated Report and Consolidated Financial Statements 2016
SCI Landy-Wilo 029 EUR 1,000 G 10 0.10 Generali IARD S.A. 100.00 98.86 99.90 Generali Vie S.A.
SCI Iris La Défense 029 EUR 1,350 G 10 44.44 Generali IARD S.A. 100.00 98.86 55.56 Generali Vie S.A.
OPCI Parcolog Invest 029 EUR 225,848,750 G 10 100.00 Generali Vie S.A. 100.00 98.86
SCI Parc Logistique Maisonneuve 2 029 EUR 5,104,000 G 10 100.00 SC Generali Logistique 100.00 98.86
SCI Parc Logistique Maisonneuve 3 029 EUR 8,004,000 G 10 100.00 SC Generali Logistique 100.00 98.86
SCI Parcolog Isle D'Abeau 1 029 EUR 11,472,000 G 10 100.00 SC Generali Logistique 100.00 98.86
SCI Parcolog Isle D'Abeau 2 029 EUR 12,476,000 G 10 100.00 SC Generali Logistique 100.00 98.86
SCI Parcolog Isle D'Abeau 3 029 EUR 12,476,000 G 10 100.00 SC Generali Logistique 100.00 98.86
SCI Parcolog Mitry Mory 029 EUR 11,320,950 G 10 100.00 SC Generali Logistique 100.00 98.86
SC Parcolog Messageries 029 EUR 1,000 G 10 100.00 SC Generali Logistique 100.00 98.86
SCI Commerces Regions 029 EUR 1,000 G 10 1.00 Generali IARD S.A. 100.00 98.86 99.00 Generali Vie S.A.
SAS Parcolog Lille Henin Beaumont 1 029 EUR 302,845 G 10 100.00 OPCI Parcolog Invest 100.00 98.86
283 We, Generali Our performace OutlookRisk Report Appendices to the Management Report
OPCI GR1 029 EUR 200,481,793 G 10 19.13 Generali IARD S.A. 100.00 98.86 73.69 Generali Vie S.A.
L'Equité S.A. Cie d'Assurances et Réass. contre les risques de toute nature
SCI 18-20 Paix 029 EUR 20,207,750 G 10 100.00 Generali Vie S.A. 100.00 98.86
SCI 204 Pereire 029 EUR 4,480,800 G 10 100.00 OPCI GR1 100.00 98.86
SCI 5/7 MONCEY 029 EUR 13,263,396 G 10 100.00 OPCI GR1 100.00 98.86
Europäische Reiseversicherung Aktiengesellschaft 008 EUR 730,000 G 2 74.99 Generali Holding Vienna AG 74.99 74.99
HSR Verpachtung GmbH 008 EUR 100,000 G 10 40.00 Generali Versicherung AG 100.00 85.00 60.00 BAWAG P.S.K. Versicherung AG
BAWAG P.S.K. Versicherung AG 008 EUR 12,000,000 G 2 75.00 Generali Holding Vienna AG 75.00 75.00
Care Consult Versicherungsmakler GmbH 008 EUR 138,078 G 11 100.00 Europäische Reiseversicherung Aktiengesellschaft 100.00 74.99 3 Banken-Generali-GLStock 008 EUR 5,724 G 11 100.00 Generali Versicherung AG 100.00 100.00 3 Banken Generali GLBond Spezialfonds 008 EUR 9,330 G 11 100.00 Generali Versicherung AG 100.00 100.00 3 Banken-Generali-GSBond 008 EUR 3,650 G 11 100.00 Generali Versicherung AG 100.00 100.00
BAWAG Spezialfonds 6 008 EUR 13,730 G 11 100.00 BAWAG P.S.K. Versicherung AG 100.00 75.00 3 Banken-Generali - GNLStock 008 EUR 1,248,500 G 11 100.00 Generali Versicherung AG 100.00 100.00
Generali European Retail Investments Holdings S.A. 092 EUR 256,050 G 9 100.00
Generali Luxembourg S.A. 092 EUR 75,000,000 G 2 100.00 Generali Vie S.A. 100.00 98.86
Generali North American Holding 2 S.A. 092 USD 7,312,384 G 11 100.00 Generali Northern America Real Estate Investments GmbH & Co. KG 100.00 99.94
Generali España, S.A. de Seguros y Reaseguros 31.62 Generali Vie S.A.
285 We, Generali Our performace OutlookRisk Report Appendices to the Management Report
GLL AMB Generali Cross-Border Property Fund FCP 092 EUR 225,000,000 G 9 33.33 AachenMünchener Lebensversicherung AG 100.00 100.00
Generali Diversification USD Corporate Bond Fund AAA - A- 092 EUR 2,456,773,109 G 11 0.49
Generali Financial Holding FCP-FIS - Sub4. 69 Generali Deutschland Holding AG
286 Generali Group Annual Integrated Report and Consolidated Financial Statements 2016
Method(1) Activity(2) Shareholding % Group Equity Ratio(3)Direct Indirect Through Total 44.53 Generali Italia S.p.A.
Grupo Generali España Agrupación de Interés Económico 067 EUR 35,599,000 G 11 99.97
Europ Assistance - Serviços de Assistencia Personalizados S.A. 055 EUR 250,000 G 11 99.92
GRE PAN-EU Brussels 1 s.p.r.l. 009 EUR 492,391 G 11 100.00 Generali Europe Income Holding S.A. 100.00 99.61
Generali Levensverzekering Maatschappij N.V. 050 EUR 11,344,505 G 2 100.00 Generali Nederland N.V. 100.00 98.54
Participatie Maatschappij Graafschap Holland N.V. 050 EUR 3,000,000,000 G 4 52.43 100.00 100.00 3.36 Alleanza Assicurazioni S.p.A.
288 Generali Group Annual Integrated Report and Consolidated Financial Statements 2016
CZI Holdings N.V. 050 CZK 2,662,000,000 G 4 100.00 Generali CEE Holding B.V. 100.00 100.00
MyDrive Solutions Limited 031 GBP 776 G 11 100.00 Participatie Maatschappij Graafschap Holland N.V. 100.00 100.00
Námestí Republiky 3a, s.r.o. 275 CZK 1,000,000 G 10 100.00 Generali Real Estate Fund CEE a.s. 100.00 100.00
Generali Investments CEE, Investicní Spolecnost, a.s. 275 CZK 91,000,000 G 8 100.00 CZI Holdings N.V. 100.00 100.00
Generali Real Estate Fund CEE a.s. 275 CZK 364,000,000 G 9 23.63 GP Reinsurance EAD 100.00 100.00 16.21 Small GREF a.s.
Green Point Offices a.s. 276 EUR 25,000 G 10 100.00 Ceská Pojištovna a.s. 100.00 100.00
Generali Towarzystwo Ubezpieczen S.A. 054 PLN 191,000,000 G 2 100.00 Generali CEE Holding B.V. 100.00 100.00
PL Investment Jerozolimskie II SP. Z o.o. 054 PLN 5,000 G 11 100.00 Generali Real Estate Fund CEE a.s. 100.00 100.00
Generali Societate de Administrare a Fondurilor de Pensii Private S.A. 061 RON 52,000,000 G 11 0.01 Generali Romania Asigurare Reasigurare S.A. 100.00 100.00 99.99 Ceská Pojištovna a.s.
Europ Assistance (Suisse) S.A. 071 CHF 200,000 G 11 100.00 Europ Assistance (Suisse) Holding S.A. 100.00 69.99
Europ Assistance (Suisse) Holding S.A. 071 CHF 1,400,000 G 4 70.00 Europ Assistance Holding S.A. 70.00 69.99
Generali (Schweiz) Holding AG 071 CHF 4,332,000 G 4 51.05 100.00 100.00 20.01 Generali Holding Vienna AG
General Securities Corporation of North America 069 USD 364,597 G 9 1.00 Generali North American Holding 1 S.A. 100.00 99.61 1.00 Generali North American Holding 2 S.A.
Europ Assistance Canada Inc. 013 CAD 4,708,011 G 9 100.00 Europ Assistance Holding S.A. 100.00 99.99
Caja de Seguros S.A. 006 ARS 228,327,701 G 3 99.01 Caja de Ahorro y Seguro S.A. 100.00 90.10
292 Generali Group Annual Integrated Report and Consolidated Financial Statements 2016
Magister Internacional S.A. 015 CLP 138,980,475 G 11 99.98 AFP Planvital S.A. 99.98 38.37
Generali Colombia Vida - Compañia de Seguros S.A. 017 COP 5,613,344,100 G 3 11.56 99.86 93.26 76.15 Generali Colombia Seguros Generales S.A.
PT Generali Services Indonesia 129 USD 11,376,454 G 10 1.00 Generali IARD S.A. 100.00 98.86 99.00 Generali Vie S.A.
Generali Insurance (Thailand) Co. Ltd 072 THB 1,105,000,000 G 3 48.42 Generali Asia N.V. 86.43 84.52 38.01 KAG Holding Company Ltd
IWF Holding Company Ltd 072 THB 2,300,000 G 4 43.48 Participatie Maatschappij Graafschap Holland N.V. 100.00 94.67 56.52 DWP Partnership
KAG Holding Company Ltd 072 THB 1,911,244,200 G 4 5.99 Generali Asia N.V. 100.00 94.98 94.01 IWF Holding Company Ltd
Generali Vietnam Life Insurance Limited Liability Company 062 VND 2,182,600,000,000 G 3 100.00 100.00 100.00
Generali Services Pte Ltd 147 SGD 300,000 G 11 100.00 Generali Asia N.V. 100.00 100.00
Generali Life (Hong Kong) Limited 103 HKD 475,000,000 G 3 100.00 Generali Asia N.V. 100.00 100.00
Europ Assistance Worldwide Services (South Africa) (Pty) Ltd 078 ZAR 881,385 G 11 87.50 Europ Assistance Holding S.A. 87.50 87.49
Europ Assistance Financial Services (Pty) Ltd 078 ZAR 100 G 11 58.00
Access Health Africa (Proprietary) Limited 078 ZAR 1,000 G 11 100.00 Europ Assistance Worldwide Services (South Africa) (Pty) Ltd 100.00 87.49
Randgo Rewards (Pty) Ltd 078 ZAR 1,000 G 11 50.10 Europ Assistance Worldwide Services (South Africa) (Pty) Ltd 50.10 43.83
294 Generali Group Annual Integrated Report and Consolidated Financial Statements 2016
Generali Corporate Services S.c.a.r.l. in liquidazione 086 EUR 10,000 a 11 1.00 100.00 99.49 10 1.00 Banca Generali S.p.A.
Initium S.r.l. in liquidazione (*) 086 EUR 250,000 b 10 49.00 Generali Properties S.p.A. 49.00 49.00 3,067
Finagen S.p.A. in liquidazione 086 EUR 6,700,000 a 8 99.90 Alleanza Assicurazioni S.p.A. 100.00 100.00 4,274 0.10 Generali Italia S.p.A.
CityLife Sviluppo 2 S.r.l. 086 EUR 10,000 a 10 100.00 Generali Properties S.p.A. 100.00 100.00
Solaris S.r.l. in liquidazione 086 EUR 20,000 b 10 40.00 Generali Properties S.p.A. 40.00 40.00 33.77 Generali Italia S.p.A.
Generali Deutschland Alternative Investments GmbH & Co. KG 094 EUR 75,000 a 9 100.00 Generali Deutschland AG 100.00 100.00 75
BA1 Alstercampus Grundstücksgesellschaft mbH & Co. KG 094 EUR 1,000 c 10 50.00
MLV Beteiligungverwaltungsgesellschaft mbH 094 EUR 51,129 a 9 100.00 Generali Holding Vienna AG 100.00 100.00 77
MPC Real Value Fund GmbH & Co. KG 094 EUR 5,000,200 a 11 100.00 Generali Lebensversicherung Aktiengesellschaft 100.00 100.00 3,229
Volksfürsorge Fixed Assets GmbH 094 EUR 104,000 a 11 100.00 Generali Lebensversicherung Aktiengesellschaft 100.00 100.00 104
Generali European Retail Investments GmbH & Co. KG 094 EUR 252,520,250 a 10 6.00
AM RE Verwaltungs GmbH 094 EUR 25,000 a 9 100.00 AachenMünchener Lebensversicherung AG 100.00 100.00 25
Dein Plus GmbH - Vorteile für Gewerkschaftsmitglieder 094 EUR 50,000 b 11 60.00
L'Equité S.A. Cie d'Assurances et Réass.contre les risques de toute nature
Generali Reassurance Courtage S.A. 029 EUR 3,016,656 a 11 100.00 Generali France S.A. 100.00 98.86
Trieste Courtage S.A. 029 EUR 39,000 a 11 0.02 Generali Vie S.A. 99.98 98.84 39 99.96 Generali France S.A.
Europ Assistance - IHS Services S.A.S. 029 EUR 3,225,950 a 11 100.00 Europ Assistance Holding S.A. 100.00 99.99 12,400
ABT SAS 029 EUR 125,000 c 11 25.00 Generali France S.A. 25.00 24.72 25
SCI Parcolog Isle d'Abeau Gestion 029 EUR 8,000 a 10 100.00 SC Generali Logistique 100.00 98.86
SCE Château La Pointe 029 EUR 2,068,903 a 10 100.00 Generali France S.A. 100.00 98.86 35,646
Bois Colombes Europe Avenue SCI (*) 029 EUR 1,000 c 10 50.00 Generali Vie S.A. 50.00 49.43 8,351
SCI Pasquier (*) 029 EUR 6,437,750 c 10 50.00 Generali IARD S.A. 50.00 49.43 11,919
SCI Daumesnil (*) 029 EUR 16,753,270 c 10 50.00 Generali IARD S.A. 50.00 49.43 23,405
SCI Malesherbes (*) 029 EUR 32,930,674 c 10 50.00 Generali Vie S.A. 50.00 49.43 22,747
SCI CIC 213 EUR 1,000,000 a 10 100.00 GFA Caraïbes 100.00 98.86 1,000
TTC - Training Center Unternehmensberatung GmbH 008 EUR 35,000 a 11 100.00
Point Partners GP Holdco S.à r.l. (*) 092 EUR 25,000 b 11 25.00 Generali European Retail Investments Holdings S.A. 25.00 24.88
Point Partners Special Limited Partnership (*) 092 GBP 55,102,630 b 11 25.00
GARBE Logistic European Strategic Fund II (*) 092 EUR 57,682,765 b 11 23.84
299 We, Generali Our performace OutlookRisk Report Appendices to the Management Report
Ponte Alta - Consultoria e Assistência, Lda 055 EUR 400,000 a 11 100.00
Amulio Governance B.V. 050 EUR 18,000 c 9 50.00 Lion River II N.V. 50.00 49.99 9
Anac All-Finance Nederland Advies Combinatie B.V. 050 EUR 12,500 a 11 100.00
Famillio Befektetési és Tanácsadó Korlátolt Felelösségü Társaság 077 HUF 780,000,000 a 11 100.00 Generali Biztosító Zrt. 100.00 100.00 72
GP Consulting Pénzügyi Tanácsadó Kft. 077 HUF 11,000,000 a 11 100.00 Generali Biztosító Zrt. 100.00 100.00 676
Europ Assistance s.r.o. 275 CZK 3,867,000 a 11 74.99 Europ Assistance Holding S.A. 100.00 99.99 1,698 25.01 Ceská Pojištovna a.s.
GLL 200 State Street L.P. (*) 069 USD 89,200,000 c 11 49.90 GLL AMB Generali 200 State Street 49.90 49.90 42,093
Europ Assistance Argentina S.A. 006 ARS 3,285,000 a 11 28.90 Caja de Seguros S.A. 84.99 55.76 112
Europ Assistance Brasil Serviços de Assistência S.A. 011 BRL 2,975,000 c 11 100.00
EABS Serviços de Assistencia e Partecipaçoes S.A. 011 BRL 46,238,940 c 9 50.00
Europ Assistance SA 015 CLP 612,287,500 a 11 25.48 Ponte Alta - Consultoria e Assistência, Lda 50.96 38.98 176 25.48 Europ Assistance Holding S.A.
La Nacional Compañia Inmobiliaria (Lancia) C.A. 024 USD 47,647 a 10 100.00
301 We, Generali Our performace OutlookRisk Report Appendices to the Management Report
Europ Assistance Pacifique 253 XPF 10,000,000 a 11 100.00 Europ Assistance Holding S.A. 100.00 99.99 63
Future Generali India Life Insurance Company Ltd (*) 114 INR 15,074,502,660 c 3 25.50
Future Generali India Insurance Company Ltd (*) 114 INR 8,098,037,050 c 3 25.51
Generali China Insurance Co. Ltd (*) 016 CNY 1,300,000,000 b 3 49.00 49.00 49.00 63,720
Guotai Asset Management Company (*) 016 CNY 110,000,000 b 8 30.00 30.00 30.00 144,775
Europ Assistance IHS Services Angola Limitada 133 AOA 2,250,000 a 11 90.00
(1) a=non consolidated subsidiaries (IAS 27); b=associated companies (IAS 28); c=joint ventures (IAS 31)
(2) 1=Italian Insurance companies; 2=EU Insurance companies; 3=non EU Insurance companies; 4=Insurance holding companies; 5=EU Reinsurance companies; 6=non EU Reinsurance companies; 7=Banks; 8=Asset Management companies; 9=other Holding companies; 10=Real Estate companies; 11=other
NIGER 150 302 Generali Group Annual Integrated Report and Consolidated Financial Statements 2016
304 Generali Group Annual Integrated Report and Consolidated Financial Statements 2016
305 We, Generali Our performace OutlookRisk Report Appendices to the Management Report
2. The adequacy of the administrative and accounting procedures in place for preparing the consolidated financial statements as at 31 December 2016 has been assessed through a process established by Assicurazioni Generali S.p.A. on the basis of the guidelines set out in the Internal Control – Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission, an internationally-accepted reference framework.
3. The undersigned further confirm that: 3.1 the consolidated financial statements as at 31 December 2016: 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 financial 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 financial 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.
Dear Shareholders, in compliance with s. 153 of Legislative Decree no. 58 of 24 February 1998 (CFBA) and the indications contained in Consob notice no. 1025564 of 6 April 2001, as amended, and having regard to the code of conduct recommended by the National Accountants’ and Bookkeepers’ Council, the Board of Statutory Auditors of Assicurazioni Generali S.p.A. reports on the supervisory activities conducted during the 2016 financial year.
The Board of Statutory Auditors (BSA) performed the activities for which it is responsible during the 2016 financial year by holding 35 meetings, with an average duration of about two hours thirty minutes. The BSA also: • attended the 16 meetings of the Board of Directors
(BoD); • attended the 13 meetings of the Risk and Control
• In addition to the above activities, in the course of its activity plan, the Board of Statutory Auditors, among other things: • obtained a report on the proceedings of the Appointments and Corporate Governance Committee (replaced, from May 2016, by two committees, the Corporate Governance and Social and Environmental Sustainability Committee (CGS) and the Appointments and Remuneration Committee (ARC)), which met 5 times in the first 4 months of the year, until its replacement; • held meetings with, and obtained information from
The BSA monitored compliance by the Company with the legislation and the Articles of Association and observance of the principles of correct administration, with special reference to transactions having a significant impact on the economic, financial and assets position, by regularly attending meetings of the Board of Directors and examining the documentation supplied.
In this context, the BSA received information from the Managing Director and the Board of Directors about the activities performed and transactions with a significant impact on the economic, financial and assets position conducted by the Company, including through directly or indirectly controlled companies. On the basis of the information provided, the BSA reasonably concluded that the said transactions can be deemed to comply with the legislation, the Articles of Association and principles of sound management, and that they do not appear to be manifestly imprudent, rash or in conflict with the resolutions passed by the General Meeting, or such as to prejudice the integrity of the Company ’s assets.
In particular, the BSA was informed about transactions in which Directors declared an interest, on their own account or on behalf of third parties, and has no comments to make about the compliance of the corresponding resolutions with the legislation and regulations.
• On 17 March 2016, the Board of Directors co-opted Philippe Donnet, granting him executive powers and appointing him Group CEO. The Board of Directors also appointed Group CFO Alberto Minali as the Company’s General Manager.
• On 22 April 2016 the Company increased the share capital to € 1,559,883,538, by way of implementation of the Long-Term Incentive Plan approved by the General Meeting on 30 April 2013.
• On 28 April 2016 the General Meeting elected the new Board of Directors, to hold office for three financial years, until the approval of the financial statements as at 31 December 2018. The Board of Directors also appointed, for the three-year period 2016-2018, Gabriele Galateri di Genola as Company Chairman, Francesco Gaetano Caltagirone and Clemente Rebecchini as Vice-Chairmen, and Philippe Donnet as Managing Director and Group CEO.
• In May 2016 Generali issued a subordinated bond amounting to a total of € 850 million, aimed at institutional investors. The issue, which concluded on 8 June 2016, is designed to refinance the subordinated debt.
• On 28 November 2016 the Board of Directors examined the voluntary Public Offer made by Banca Monte dei Paschi di Siena S.p.A. (BMPS) to purchase subordinated instruments issued or guaranteed by it, with the obligation for the proceeds to be reinvested in new BMPS shares. The Board of Directors approved the conversion, authorising the Group CEO to convert the Company’s exposure to BMPS subordinated debt to which the offer relates to BMPS shares; however, the conversion operation not did not reach a successful conclusion, as announced by Banca Monte dei Paschi di Siena S.p.A. on 22 December 2016.
• On 12 December 2016 the Board of Directors appointed as Country Manager for Italy Marco Sesana, who maintains his position as Managing Director of Generali Italia. The Board of Directors also appointed Timothy Ryan as the new Group Chief Investment Officer (CIO), with effect from 9 January 2017.
• On 8 February 2017 subsidiary Generali Finance B.V. exercised the option of early repayment of the perpetual subordinated bond issued by it on 8 February 2007. Refinancing of the subordinated debt has already been completed, with the subordinated bond issue that concluded on 8 June 2016 for a total of € 850 million, aimed at institutional investors.
The Company has “Related-Party Transaction Procedures ” (“RPT Procedures”), adopted in compliance with Consob Regulation 17221/2010, as amended, and s. 2391-bis of the Civil Code, which are also applicable to transactions performed by subsidiaries. These procedures underwent a first update in December 2013 and a new update on 17 March 2016, as illustrated below. In 2015 the Board of Statutory Auditors, as part of its supervisory and monitoring activities, requested the conduct of an in-depth study of the RPT Procedures and controls for identification and management of related -party transactions in the Generali Group. The Company therefore conducted the required analyses, which concluded in the early months of 2016, with the aid of the Group Audit Function, which in turn obtained assistance from an external legal adviser. The external legal adviser expressed the opinion that the procedural structure complied on the whole with the applicable legislation, and was in line with the best practices found on the market. However, some suggestions were made by the legal adviser, with a view to further refinement of the procedures.
The BSA also concluded that the information provided by the Board of Directors in the draft financial statements relating to intercompany and related-party transactions was adequate. As far as we are aware, no atypical and/or unusual transactions were conducted.
Philippe Donnet as Group CEO and Alberto Minali as General Manager and Group CFO, also approving the consequent updates to the Group’s organisational structure. In particular, the Board of Directors granted all powers and responsibilities for the management of the Company and the Group to the new Group CEO. The General Manager and Group CFO was granted powers in the Strategy & Business Development, Insurance & Reinsurance, Finance Operations, Marketing and Data areas, to be exercised in accordance with the guidelines established by the Board of Directors and the Group CEO; • in May 2016, a new position called CEO Global Business Lines & International was instituted, to which Frédéric de Courtois was appointed; • the Group Insurance and Reinsurance Function was renamed Group Chief Insurance Office, managed by Valter Trevisani, who became a member of the Group Management Committee; • with effect from 1 December 2017, the Board of Directors appointed as Country Manager for Italy Marco Sesana (who maintains his position as Managing Director and General Manager of Generali Italia). Marco Sesana also became a member of the Group Management Committee;
Further organisational changes were made during the early months of the 2017 financial year, including the following: • at the end of January 2017, Alberto Minali left the
Group as a result of the decision taken by the Board on 25 January 2017 to terminate the contract of employment of the General Manager and Group CFO. The office of General Manager specified in the Articles of Association was left vacant for the time being. As a result of those decisions, all the first-level company functions that reported to the General Manager were required to report directly to the Group CEO; • on 25 January 2017 Luigi Lubelli was appointed Group Chief Financial Officer, and became a member of the Group Management Committee in that capacity; • the review and reinforcement of the Group Head Office functions was completed; • the Group Compliance Function commenced its resource strengthening programme, which is due to be completed by the end of the 2017 financial year.
The Board of Statutory Auditors, by obtaining information from the managers of the relevant company functions, monitored the adequacy of the overall organisational structure of the Company and the Group as well as the adequacy of the instructions issued by the Company to its subsidiaries pursuant to s. 114.2 of the CFBA, to rapidly obtain the information required to meet the statutory communication obligations From examination of the reports of the supervisory bodies of the subsidiaries, and/or the information sent by them to the BSA following specific requests, no information emerged that requires inclusion in this report.
The Company monitored legislative developments during the year, activated compliance checking plans and continued its ongoing reinforcement of the procedural structure, as described in the parent company’s Risk Report and Financial Statements. The internal control and risk management system policies are also adopted by the main subsidiaries, having regard to the specific legislation in each country in which the Group operates, and any special features of the business. These policies are continuously updated. As regards risk assessment, including prospective risks, in accordance with Regulation 20/2008 and the IVASS Letter to the Market of 15 April 2014, and with the “ORSA (Own Risk Solvency Assessment) Policy” approved by the Company as an integral part of the Risk Management Policy, the Group ORSA Report as at 31 December 2015 was submitted to IVASS in June 2016. The “Main Risk Self-Assessment” process, designed to identify the main risks with a view to establishing the major impacts in terms of the Group’s profits, liquidity profile and capital position deriving from each scenario, was also adopted by the Risk Management Function. That process is continuously developing, and the project involving integration of operational risks into the said process was commenced (inter alia) in 2016.
and German insurance companies, the French non-life insurance company and Czech company Ceska Pojistovna A.s. In October 2016, the Company submitted an application to the Board of Regulators to make some amendments to the said Internal Model, to take effect from 31 December 2016, and to extend the Internal Model to French life insurance company Generali Vie. By resolution dated 28 February 2017, IVASS authorised, with effect from 31 December 2016, the extension of the sphere of application of the Group Internal Model to Generali Vie, and the calculation of its Solvency Capital Requirement, and substantial amendments to the Partial Internal Model used to calculate the consolidated Group Solvency Capital Requirement and the Solvency Capital Requirements of the insurance and reinsurance companies already included in the sphere of application of the Internal Model.