In that context of constant development and reinforcement of controls, in accordance with the applicable industry regulations, the Board of Statutory Auditors has constantly monitored the adequacy of the internal control and risk management system of the Company and its Group. In particular, the BSA: i) took note of the favourable opinion of the adequacy of the internal control and risk management system issued by the Board of Directors after consulting the Risk and Control Committee; ii) examined the summary document regarding the assessment of the adequacy and efficacy of the internal control and risk management system drawn up by the Group Audit, Group Compliance, Group Risk Management and Group Actuarial Functions; iii) obtained information about the development of the corresponding organisational structures and the activities performed by the Group Audit, Group Compliance, Group Risk Management and Group Actuarial Functions, partly by attendance at the meetings of the Risk and Control Committee and discussions with the managers concerned; iv) examined the reports on the activities of the Group Compliance, Group Risk Management and Group Actuarial Functions submitted to the Risk and Control Committee and the Board of Directors; v) examined the half-yearly reports of the Group Audit Manager; vi) examined the Audit Plan drawn up by the Group Audit Function, which further developed methodological aspects of risk-based planning, and accepted some of the BSA’s suggestions on the subject; vii) observed that the Audit Plan approved by the Board of Directors had been complied with, and received information about the audit results; viii) obtained information about the activities of the Surveillance Body instituted by the Company in compliance with Legislative Decree no. 231/2001, by means of specific reports and update meetings regarding the activities performed by it; ix) obtained information from the managers of the respective company functions; x) exchanged information with the supervisory bodies of the subsidiaries, as required by ss. 151.1 and 151.2 of the CFBA; xi) obtained information about the development of the Group’s regulatory system, in particular the Company ’s structure of policies, regulations, guidelines and procedures designed to ensure compliance with the specific regulations by the insurance industry and listed companies (including, on the subject of market abuse, management of privileged information, internal dealing and related-party transactions).
In the course of its supervisory activities relating to the internal control and risk management system, the BSA, since first taking office, has always paid particular attention to the aspects of compliance with the anti-money laundering legislation. The BSA, in liaison with the statutory audit committees of the subsidiaries concerned, has constantly monitored the actual implementation of the action plan adopted by the Company in this respect and submitted by it to the Regulator, in relation to the issues that emerged in earlier years, which were illustrated in the reports issued pursuant to s. 153 of the CFBA for the
The Control Functions also found variations in some cases in the actual timing of implementation and the dates initially scheduled for completion of the action plans at the end of the audit activities. The Risk and Control Committee and the Board of Directors agreed on the importance of drawing the management’s attention to the need for action plans to be completed by the scheduled dates, and informing those bodies of the reasons for any delays and rescheduling of the corresponding deadlines. The said actions and projects will be implemented by the Director in charge of the internal control and risk management system, and regularly monitored by the Board of Statutory Auditors.
In the light of all the above information and having regard to the above-mentioned areas requiring attention, no factors emerged from the analyses conducted or the information obtained that could lead this BSA to consider the Company’s internal control and risk management system as not adequate as a whole. In any event, in view of the evolutionary nature of any internal control system, the Company has already planned specific updates for 2017, as part of the process of ongoing improvement of the efficacy of the system pursued by it.
In particular, during the current year, the Board of Directors and the Risk and Control Committee have already begun actions involving further reinforcement of the internal control system to take account of the new requirements which will become applicable pursuant to the European money-laundering, data protection, insurance distribution and Packaged Retail Investment-based Insurance Products (PRIIPS) legislation.
As regards the administrative accounting system and the financial reporting process, the Board of Statutory Auditors monitored (inter alia) the Company’s activities designed to assess their adequacy continuously. This objective was pursued by the Company by adopting a “financial reporting model” consisting of a set of principles, rules and procedures designed to guarantee an adequate administrative and accounting system. The Corporate Governance and Share Ownership Report describes the main characteristics of the model, as defined by the Manager in Charge of Preparation of the Company’s Financial Reports, who is supported by the Financial Reporting Risk structure. No significant deficiencies in the internal control system relating to the financial reporting process emerged from the report issued by the External Auditors pursuant to s. 19.3 of Legislative Decree 39/2010. That report was discussed and analysed at information exchanges between the Board of Statutory Auditors and the External Auditors.
In September 2016, consistently with the evolution of the applicable legislation, the Company decided to modify its quarterly financial reporting, as from the third quarter of 2016, by producing a more concise representation of its business, focusing on relevant information.
In the Notes to the Financial Statements, the Company supplied a report on share-based payment agreements, in particular the incentive plans based on equity instruments allocated by the parent company and other companies belonging to the Group.
7. Organisational and management model pursuant to Legislative Decree no. 231/2001
self-employment, employment or other pecuniary or professional relations, which are relevant as defined in the Corporate Governance Code and the CFBA. Specific quantitative criteria predefined to evaluate the significance of the said relations/dealings were also formalised in the Regulation of the Board of Directors and the Board Committees, in line with the best market practices and the recommendations set out in art. 3 of the Corporate Governance Code. To provide the Board of Directors, after examination by the Corporate Governance and Social and Environmental Sustainability Committee, with the completest possible information in readiness for the independence assessments, the activities for the formulation of internal procedures and operational guidelines for the assessment process and the implementation of systematic procedures for the collection of relevant information, expressly requested by the Board of Statutory Auditors, continued in 2016. In particular, the Corporate Affairs Function has drafted and is in the process of finalising an operating procedure designed to ensure, by means of formal processes, information flows from the various Company functions involved to the Board of Directors and the Corporate Governance and Social and Environmental Sustainability Committee. The said procedure also governs the procedures for delivery to the bodies responsible for independence assessments of relevant information already collected by the Company and the Group, even for other purposes, primarily those managed by the Group Compliance Function in the ambit of the RPT Procedures. In addition, as requested by the BSA, the necessary amendments were also made to the Regulation of the Board of Directors and the Board Committees to enable it to attend meetings of the Corporate Governance and Social and Environmental Sustainability Committee, which performs preliminary activities in readiness for the independence assessment by the Board of Directors.
The BSA notes that the Board of Directors has adopted a specific top management succession policy and plan. The BSA has no comments to make about the consistency of the remuneration policy with the recommendations of the Corporate Governance Code and its compliance with ISVAP Regulation no. 39 of 9 June 2011. Finally, the BSA notes that on 6 July 2016 the Board of Directors resolved to submit for approval by the next General Meeting, pursuant to s. 114-bis of the CFBA, a special share plan in favour of the Managing Director/ Group CEO.
The firm EY S.p.A. was appointed as External Auditors to audit the financial statements of Assicurazioni Generali S.p.A. and the consolidated financial statements of the Group; during the 2016 financial year the said External Auditors checked that the Company’s accounts were properly kept and transactions properly recorded in the books of account. On 30 March 2017 the External Auditors issued the reports required by ss. 14 and 16 of Legislative Decree 39/2010 relating to the financial statements and the consolidated financial statements of the Group as at 31 December 2016. The said reports indicate that the financial statements were drawn up clearly, and truthfully and correctly represent the assets and financial situation, profit and cash flows for the year ending on that date, in accordance with the related standards and rules. The Manager in Charge of Preparation of the Company’s Financial Reports and the Managing Director and Group CEO issued the declarations and certifications required by s. 154-bis of the CFBA with reference to the financial statements and the consolidated financial statements of Assicurazioni Generali S.p.A. as at 31 December 2016. The BSA monitored, within the terms of its remit, the general layout of the financial statements and the consolidated financial statements in accordance with the legislation and specific regulations governing drafting of insurance companies’ financial statements. The BSA notes that the consolidated financial statements of the Assicurazioni Generali Group were drawn up in compliance with the IAS/IFRS International Accounting Standards issued by the IASB and approved by the European Union, in compliance with EU Regulation no. 1606 of 19 July 2002 and the CFBA, and Legislative Decree 209/2005 as amended. The consolidated financial statements were drawn up as required by ISVAP Regulation no. 7 of 13 July 2007 as amended, and contain the information required by Consob Notice no. 6064293 of 28 July 2006. The Notes to the Financial Statements illustrate the evaluation criteria used, and provide the information required by the applicable legislation.
10. Opinions issued by the Board of Statutory Auditors during the financial year (point 9 of Consob Notice no. 1025564/01)
On the same occasion, the BSA also issued a favourable opinion of the resolution to increase the share capital for the purposes of the 2013 LTI Plan. Again in the first few months of 2016, the BSA expressed a favourable opinion of the remuneration of the Group Audit Manager (meeting of 2015 targets and setting of 2016 targets) and the Audit Plan for 2016. In May 2016, after the renewal of the Board of Directors for the three-year period 2016-2018 resolved on by the General Meeting on 28 April 2016, the Board of Statutory Auditors expressed a favourable opinion of the proposed remuneration of the Chairman of the Board of Directors and the proposed fee payable to members of the Board Committees. In July 2016 it also expressed a favourable opinion of the Group CEO’s remuneration. During the 2016 financial year the BSA also regularly commented on the Half-Year Reports on complaints prepared by the Group Audit Manager in accordance with ISVAP Regulation no. 24 of 19 May 2008, as amended. The reports did not highlight any particular problems or organisational deficiencies. The BSA also checked that the Company sent the reports and associated comments by the BSA promptly to IVASS. With reference to the first few months of 2017, at the meeting of the Board of Directors held on 25 January 2017, the Board of Statutory Auditors expressed, pursuant to s. 154-bis.1 of the CFBA and art. 40.2 of the Company’s Articles of Association, a favourable opinion of the proposed appointment of Luigi Lubelli as new Manager in Charge of Preparation of the Company’s Financial Reports.
At the meeting of the Board of Directors held on 15 February 2017, the Board of Statutory Auditors expressed a favourable opinion of the remuneration of the Group Audit Manager (meeting of 2016 targets and setting of 2017 targets) and the Audit Plan for 2017.
The Board of Statutory Auditors received no complaints during the 2016 financial year apart from the three complaints received in the first quarter of the year, already illustrated in the Report issued pursuant to s. 153 of CFBA by this BSA on 4 April 2016, in preparation for the General Meeting held on 28 April 2016.
No complaints pursuant to s. 2408 of the Civil Code were received in the first few months of the 2017 financial year. No reprehensible actions, omissions or irregularities requiring reports to the Regulators emerged from the supervisory activities performed.
On the basis of all the factors set out in this Report, the Board of Statutory Auditors finds no reason to object to the approval of the financial statements of Assicurazioni Generali S.p.A. for the financial year ending on 31 December 2016, as submitted to you by the Board of Directors, and expresses a favourable opinion of the proposed dividend distribution, partly funded by the profit for the year and partly from the special reserve formed by the profits of the preceding years.
Report on the consolidated financial statements We have audited the accompanying consolidated financial statements of Generali Group which comprise the balance sheet as at December 31, 2016, the income statement, the statement of comprehensive income, the statement of changes in equity, the statement of cash flow for the year then ended and the related explanatory notes.
An audit involves performing procedures to obtain audit evidence about the amounts and disclosures in the consolidated financial statements. The procedures selected depend on the auditor’s professional judgment, including the assessment of the risks of material misstatement of the consolidated financial statements, whether due to fraud or error. In making those risk assessments, the auditor considers internal control relevant to the entity’s preparation of consolidated financial statements that give a true and fair view in order to design audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the entity’s internal control. An audit also includes evaluating the appropriateness of accounting policies used and the reasonableness of accounting estimates made by Directors, as well as evaluating the overall presentation of the consolidated financial statements.
General definitions Integrated report: concise communication that illustrates how the strategy, governance and future prospects of an organization, in the external environment in which it operates, are used to create value in the short, medium and long term.
Investment contracts: investment contracts that have the legal form of insurance contracts but as they substantially expose the insurer to significant insurance risk (such as the mortality risk or similar insurance risks cannot be classified as insurance contracts. In accordance with the definitions of FRS 4 and IAS 39 39 these contracts are recognized as financial liabilities. investment contracts that have the legal form of an insurance contract but as they substantially expose the insurer to significant insurance risk (such as the mortality risk or similar insurance risks) cannot be classified as such. In line with the definitions of FRS 4 and IAS 39 these contracts are recognized as financial liabilities.
Current accident year loss: it is a further detail of combined ratio calculated as the ratio between: - current year incurred claims + related claims management costs net of recoveries and reinsurance; and - earned premiums net of reinsurance.
Provisions for outstanding claims: it shall comprise the estimated overall amounts which, from a prudent valuation based on objective elements, are required to meet the payment of the claims incurred during the current year or the previous ones, and not yet settled, as well as the related settlement expenses. The outstanding claims provisions shall be estimated as the total ultimate cost taking into account all future foreseeable charges, based on reliable historical and forecast data, as well as the specific features of the company.
Provisions for sums to be paid: technical reserves constituted at the end of each financial year by companies operating in life segment in order to cover the overall amounts required to meet the payment of the capitals and annuities accrued, surrenders and claims outstanding.
Provisions arising from policies where the investment risk is borne by the policyholders and from pension funds: comprises the amounts to be allocated to the policyholders or to the beneficiaries relating to life segment products where the risk arising from the underlying financial investments backing the technical liabilities is borne by the policyholders.
Financial assets and liabilities Financial asset: A financial asset is any asset that is: (a) cash; (b) an equity instrument of another entity; (c) a contractual right: (i) to receive cash or another financial asset from another entity; or
Weighted average cost of debt: The annualized cost of financial debt considering the nominal amounts at the reporting date and the related transactions of currency and interest rate hedging.
332 Generali Group Annual Integrated Report and Consolidated Financial Statements 2016
Operating return on equity: an indicator of return on capital in terms of the Group operating result (adjusted as described in the previous methodological note) compared to the average Group shareholders’ equity. The annualized operating ROE is calculated as the sum of the last four quarterly operating ROE.
Stock option: it represents the right of the holder to buy shares of the Company at a predefined price (so called strike). These options are assigned free of charge.
Since 2015, our new corporate website generali.com has had a more agile and modern layout, a significant focus on the visual approach, a broader range of content on topics of international interest and a specific focus on the most interesting news about the Group.
Annual Integrated Report and Consolidated Financial Statements 2016 prepared by Group Integrated Reporting & CFO Hub
Company established in Trieste in 1831 Share capital € 1,559,883,538 fully paid-up Registered office in Trieste, piazza Duca degli Abruzzi, 2 Tax code and Company Register no. 00079760328 Company entered on the Register of Italian insurance and reinsurance companies under no. 1.00003 Parent Company of the Generali Group, entered on the Register of insurance groups under no. 026 Certified email (Pec): assicurazionigenerali@pec.generaligroup.com
In recent years, the Generali Group reports were prepared from different perspectives: financial, sustainability, governance and remuneration. In 2016, we embarked upon a new path inspired by the innovative concept of integrated thinking and reporting. The functions responsible for the Group reports have established the Integrated Lab with the objective of further developing integrated reporting to describe the Group’s value creation process from different perspectives, within a coherent framework in terms of content and graphics
Reference to a section of the report or other Group reports www.generali.com/info/download-center/results for the Group’s reports and policies in pdf format and in interactive format
Each report contains cross references to other sections in it or to other reports for details and a glossary with the definitions of the abbreviations and acronyms used.
This Report provides an overview of the Group’s value creation process, reporting current and outlook financial and non-financial information and highlighting the connections between the environment in which we carry on our business, our strategy and our corporate governance structure. Information in this report regards material aspects which, as such, are included within the Group’s strategy and specified in our materiality matrix. In pursuing our strategy, we will continue to carefully use the range of capital available and to consider how it is interconnected. This is how we will create value for our internal and external stakeholders. Active dialogue with all of them will also enable us to manage, measure and represent the relevant topics within a materiality matrix for which we commit to developing concrete actions and consistent initiatives.
About the Annual Integrated Report www.generali.com for further information about the Group
We closed 2016 with excellent results. This is true for business trends as well as our technical insurance performance, capital strength and, in particular, our new strategic policy which has launched a business turnaround intended to rapidly change the Group. Generali closed the year with a record operating result of € 4.8 billion and profit in excess of € 2 billion, a RoE of 13.5% and an Economic Solvency Ratio of 194%. These results are even more significant as they were achieved within a complex environment marked by high market volatility and low interest rates, elements which always have significant repercussions in our sector, as well as extraordinary geopolitical events, which in some cases were quite difficult to predict. In addition, there has been an abrupt shift in the technological paradigm linked to the use of big data, and the increasingly stringent nature of regulations.
We will do all of this having confirmed our highly ambitious 2018 financial targets: cash generation of more than € 7 billion, dividends exceeding € 5 billion and an average Operating RoE in excess of 13%. We will do this by increasing our speed of execution and making intensive use of technology and innovation, essential conditions to win the race to the top in the insurance sector, which is confirmed as one of the most important and vital for the growth and well-being of modern societies.
* Changes in premiums, net cash inflows and Annual Premium Equivalent (APE) are on a like-for-like basis, i.e. at equivalent exchange rates and consolidated scope.
Increasing operating result thanks to the positive technical performance. The trend in premiums continued to embed the approach in the offering that is even more disciplined.
The First World War raged across Europe. After the Allied victory over the Central Powers, Trieste became part of Italy: as a result, Generali became an Italian company.
Generali returned to the growth that had been temporarily interrupted during World War I. In line with what was going on in Italy in those years when public construction activities and agriculture were strongly boosted through the policies adopted by the government, Generali made significant investments in agriculture and real estate starting from 1933.
After World War II, Trieste’s future appeared uncertain: in 1947, Generali transferred its registered office to Rome to formalize its position as an Italian company.
Fitch confirmed the Insurer Financial Strength (IFS) rating at A- for Generali, with a stable outlook.
The Board of Directors of Assicurazioni Generali co-opted Philippe Donnet, vesting him with executive powers and appointing him Group CEO, and appointed Group CFO Alberto Minali as General Manager of the Company.
The Shareholders’ 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 appointed for the three years 2016-2018 Gabriele Galateri di Genola Chairman of the Company, Francesco Gaetano Caltagirone and Clemente Rebecchini Deputy Chairmen, and Philippe Donnet Group CEO and Managing Director.
The Generali Group presented the updated strategic plan at Investor Day, confirming its targets for 2018.
The Business Digital Transformation agreement with Microsoft was announced, which aims to enhance the efficiency of Generali employees, agents and partners, improve operating processes and boost revenues thanks to new insurance products and innovative business models.
The Board of Directors announced its favourable assessment of the conversion into Banca Monte dei Paschi di Siena (BMPS) shares of the Group’s exposure to the subordinated debt of BMPS.
Moody’s confirmed the IFS rating at Baa1 for Generali, with a stable outlook, thanks to the strong geographical diversification of the Group in spite of the negative outlook on the Italian sovereign.
Significant events after 31 December 2016 and 2017 corporate event calendar
Marco Sesana, appointed Italy Country Manager in December 2016, and Timothy Ryan, incoming Group Chief Investment Officer, became members of the Group Management Committee.
Our governance and remuneration policy, p. 32 as Group CFO, who also joined the Group Management Committee, as a consequence to the termination of employment relationship with Alberto Minali. It also decided that the Investments Committee would expand its responsibilities to strategically relevant operations, so its name was changed to the Investments and Strategic Operations Committee.
Value our people We value our people, encourage diversity and invest in continuous learning and growth by creating a transparent, cohesive and accessible working environment. Developing our people will ensure our company’s long term future.
The Responsible Investment Guideline codifies responsible investment activities at Group level.
The Ethical Code for suppliers highlights the general principles for the proper and profitable management of relations with contractual partners.
Sustainability Report 2016, p. 24 for other information on the prevention of corruption topic
We also have a structured internal regulatory system named Generali Internal Regulation System (GIRS).
Accelerate to excellence at the heart of the strategyOur people a lways
~30 bp reduction in average portfolio guarantee to 1.5% by 2018
We already have strong technical capabilities but to become the best player we will continue with price sophistication, risk selection and claims management in our P&C business while with the continuous improvement in the quality of our products and the capital return optimization in our life business.
We are committed to constantly improving our operating machine to maximize the Group’s potential, by implementing optimization initiatives such as streamlining the product portfolio, simplifying processes and integrating IT platforms. At the same time, we will invest in new competences enhance those activities that have higher value for stakeholders.
We are one of the insurance industry leader in the area of telematics, with over 1.3 million policies that use various technology tools, such as Mobile Apps or Black Boxes, to encourage the adoption of responsible driving behaviour to help reduce accidents, and to collect useful information that can be used to provide products and services that are increasingly tailored to the needs of customers. Recently, the first connected home policies have also been launched, important innovations in the domestic risk insurance sector.
In addition, we strive to offer our clients the possibility of interacting with us even more via mobile. This is why we created Mobile Hub, a framework shared at Group level which will enable our clients to manage their policies easily on their own. They will be able to file a claim, contact an agent or renew a policy right from their mobile phone by simply downloading our app which, with its user friendly interface, aims to improve customer satisfaction.
– developing a culture focused on the customer 100% employees assessed following a common Group framework
Global Engagement Survey, the first step on a path aimed at making Generali an even better place to work 82% engagement rate 85% response rate 61% employees assessed*
The transformation process that results in us being Simpler, Smarter. Faster is supported by the based on four priorities: Our people always at the heart of the strategy
– Breaking bias and building bridges, a program that has involved a considerable number of people from the international HR offices on the topic of unconscious bias and the impact that this may have in decision-making processes, with a focus on people selection, management, promotion and performance management processes
Governance and Sustainability Committee It has a consultative, recommendatory and preparatory role in favour of the Board in taking the decisions for which it is responsible with respect to the structure of corporate governance rules and social and environmental sustainability matters.
Investments and Strategic Operations Committee It has a consultative, recommendatory and preparatory role in favour of the Board with respect to investments and strategic operations.
Our governance* and remuneration policy * The corporate governance is updated as at 25 January 2017.
Nationality: Italian Professional background: Professor In office since 30 April 2013
Nationality: Italian Professional background: Professor In office since 30 April 2010, elected from the minority slate
Nationality: Italian Professional background: Entrepreneur In office since 28 April 2007 Vice-Chairman since 30 April 2010
Nationality: Italian Professional background: Manager In office since 11 May 2012 Vice-Chairman since 6 November 2013
Nationality: Italian Professional background: Manager In office since 8 April 2011
38.4% Average ageFemale director Induction sessions on internal model – Solvency II and insurance market 61.5% Executive directorIndependence level 1
The remuneration policy for the Managing Director and Group CEO, the only executive director, instead comprises a fixed amount, a variable amount (short and medium/long-term) and benefits in line with the remuneration package of the GMC members and the other executives with key responsibilities as later described.
Evaluation of merit and performance in terms of results, conduct and values
In du st ria l e xp er ie nc e
Board of Directors 7Investments Committee appointment topics 5 remuneration topics 6
Focus on the Group Management Committee (GMC) as at 15 February 2017
In 2016, numerous political events have impacted the global economy: the referendum on the constitutional reform in Italy, Brexit and the US presidential elections. At macroeconomic level, Italy remains in difficulty, with expected growth of 0.8%; Eurozone growth forecasts stand at 1.7% in 2016 and 1.5% in 2017. The British economy has not yet shown signs of a slowdown, and the pound has depreciated by 17% with respect to the euro. Consumption has slowed and investments are weak in the United States. US growth forecasts are 1.6% for 2016 and 2.2% for 2017; the Fed will therefore raise benchmark interest rates. The European insurance sector was characterized by good performance in property&casualty premiums (with the exception of Italy), in line with the albeit feeble economic recovery and a certain difficulty in the performance of life premiums, influenced by low interest rates. This situation should also continue in 2017; the only exception is forecast in Italy, which is expected to record an improvement in life premiums.
The insurance industry is characterized by a detailed regulatory system consisting of continuously evolving domestic and European rules and regulations. Some of the most significant are: – Solvency II, the European insurance market supervisory framework which includes three pillars in terms of capital measurements, risk management systems and risk disclosures – Common Framework of the International Association of Insurance Supervisors (IAIS)
The global warming caused by greenhouse gas emissions originating from human activity is triggering a rise in extreme weather events, such as higher temperatures and flooding, that become increasingly frequent and violent. These factors impact the economic and social system as well as the relative insurance needs. Proper measures are therefore necessary to avoid higher losses and increased volatility that would impact on insurance policies’ price, also due to higher capital absorption resulting from the events being underwritten, and make the access to insurance too expensive or, in extreme cases, the offering uninsurable.
Modern communities are characterized by conflicting demographic and social phenomena: the continuous aging of populations, driven by increased life expectancies and lower birth rates, which is partially offset by increasing migration, boosting younger populations, whose average income capacity is however quite limited and highly conditioned by a flexible, yet precarious, job market. The risk of increasingly unbalanced societies remains, where the higher post-retirement requirements of the older population with greater willingness to save are no longer properly covered by the public system, and the economic and financial resources produced by the younger categories of the population, or from private savings, have to be directed and valued more carefully.
Changes in premiums, net cash inflows and Annual Premium Equivalent (APE) are presented in equivalent terms, i.e., at constant exchange rates and scope of consolidation.
• Group capital solidity confirmed, with the Regulatory Solvency Ratio at 177% and Economic Solvency Ratio a 194%
The operating result of the Holding and other businesses segment3 declined to € -91 mln. 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 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 (€
The tax rate was 29.1% (32.6% at 31 December 2015). Compared to last year, this performance is primarily attributable to the reduction of the nominal tax rate on corporate income in France and Spain, as well as extraordinary income recognized in Germany against lower taxes on previous years.
Interest expense on liabilities linked to operating activities -358 -411 -12.8%
Result of the period attributable to minority interests 158 229 -31.0%
Net unrealized gains and losses on defined benefit plans -243 162
Shareholders' equity attributable to the Group at the end of the period 24,545 23,565
The Regulatory Solvency Ratio – which represents the regulatory view of the Group’s capital and is based on the use of the internal model, solely for companies that have obtained the relevant approval from IVASS, and on the Standard Formula for other companies – stood at 177% (171% 31 December 2015; +6 pps).
With respect to the ratio of the main investment categories, the relative exposure of the fixed income instruments was up to 88.1% (87% at 31 December 2015). The ratio of investment properties is stable at 3.7% (3.7% at 31 December 2015), while the incidence of the equity instruments declined to 4.5% (4.9% at 31 December 2015) and that of other investments remained substantially stable, at 0.9% (0.9% at 31 December 2015). Other investments mainly include receivables from banks or banking customers, equity investments and derivatives. Lastly, the liquidity ratio decreased from 3.7% to 2.8% due to the planned gradual reinvestment of liquidity..
Sustainability Report 2016, p. 36 for further information on Group responsible investments
A breakdown by credit rating of the bond portfolio at 31 December 2016 split between corporate and government bonds follows.
The contribution to the result for the period from realized gains and losses through profit or loss (harvesting rate) experienced a reduction to 0.2% (0.5% at 31 December 2015) mainly due to a decline in realized gains both in the life segment and in the property&casualty segment, in particular on equity securities and investment properties, aimed at preserving future return of portfolio in a context of ongoing low interest rates, and to an increase of impairment losses, mainly on the equities side, due to the negative trend of the markets.
A subordinated bond was issued in June 2016 for a total amount of € 850 million the proceeds from which were used to refinance a subordinated bond issued by the Group with a call date in February 2017.
As in established market practice for the sector, in May 2015 Assicurazioni Generali renewed the previous revolving credit lines programme. The series of lines with a total maximum amount of € 2 billion has expiries from 3 to 5 years.
Generali is a leader on the Italian insurance market with an overall share of 16.2% thanks to the complete range of insurance solutions the Group offers its clients – retail, SME and corporate – in both the life and P&C segments. For distribution, Generali operates through a multi-channel strategy, mainly concentrated on agents. It also has a strong position in the direct channel, through Genertel – Genertellife, the first online insurance launched in Italy. The Group also offers a complete variety of insurance, pension and savings products to its customers through Banca Generali. With the completion of the integration process, launched in 2013, aiming at the unification of all the existing brands into three main strategic brands - Generali (retail market and SME), Alleanza (households) and Genertel (alternative channels) – in 2016 Generali Italia has launched its simplification programme. The goal is to improve the customer experience by simplifying the relationship between customers and agents - for the entire process from pre-sales to assistance - and providing more accessible and innovative services.
Italy towards traditional products, which are more attractive than unit-linked products when financial markets are particularly volatile. The P&C market also recorded worse performance this year due to strong competition amongst the various motor insurers, resulting in a further decline in average premiums. Benefitting from the macroeconomic recovery, though modest, positive growth rates continued to be seen in the non-motor segment.
The domestic financial market was characterized by increased volatility starting in the second part of the year, due to the Italian bank recapitalization process in addition to the constitutional referendum. Government bonds were impacted by this to a certain extent, with the yield spread between the 10-year Italian bond and the German bund expanding to 162 bps (97 bps at the end of 2015), while the equity market recorded negative performance overall (FTSE MIB -10%) despite the significant recovery in December after the quick formation of a new government and the accommodating actions of the ECB.
The reduction of the gross written premiums is attributable to both segment trends. As for the motor one (-5.2%), its result is impacted by the decrease of the average premium and the loss of important fleet contracts occurred during the first part of the year. The negative trend of non-motor segment (-3.6%) has to be entirely conducted to the SME sector which is affected by strong competition.
The product range is built on the following three pillars: - Generali as a multi-channel life and
P&C insurer, mainly relying on agents and brokers as to the distribution; - AachenMünchener, leader in unit-linked products with a successful partnership with DVAG, representing the strongest financial consultant network in Germany; - CosmosDirekt as first direct insurer and leader in term-life products.
Central, Advocard, Dialog and Badenia also guarantee tailored insurance solutions for customers and more agile sales channels at country level. July saw the launch of Vitality, an innovative programme combined with life policies, particularly term life and professional disability, in order to promote healthy lifestyles.
The negative performance of the German life segment, which began in 2015, continued again in 2016: interest rates have remained quite low and are not expected to recover in the short term. The main sector counter play was to push towards unit-linked products. In P&C, on the other hand, motor continues to grow at good pace, also thanks to rising vehicle registrations, but a slowdown is forecast in the years to come due to the flattening of the tariff cycle and decreased expectations of GDP growth.
The French economy showed signs of recovery in 2016 compared to the previous year, although GDP growth has remained at low levels just over 1% yearly in real terms. Within a weak growth and low inflation scenario, interest rates remained at historically low levels, as in the rest of Europe. In particular, the yield on the 10year OAT government bond declined to close to zero in the summer, and thereafter rose to 0.7% (1% at the end of 2015). There was moderate growth in the equity market (CAC40 +5%).
Saving products shrinkage (-7.8%) due to the strict underwriting policies put into action to counter the difficult financial context characterized by low interest rates. This difficult environment affected also unit-linked products (-8.0%). Positive trend for pure-risk segment (+7.9%), thanks to the positive effect of the ANI reform. APE was substantially stable (-0.4%), reflecting the excellent development of annual premiums (+10.2%), offset by the contraction in single premium policies (-8.4%). With reference to the lines of business, the risk business had particularly excellent performance (+21.7%). The NBM (margins on the APEs) increased from 6.5% in 2015 to 9.6% in 2016, mainly due to the decrease in guarantees offered in the savings segment, which represented 42.8% of business. New business value amounted to € 90 million (+37.0%).
Property&Casualty premium income was down to a modest extent; the motor segment (-0.6%) reflects the lower average retail premium and the fleet portfolio restructuring actions. The slight decline in the non-motor segment (-0.4%) was caused primarily by multi-risk and corporate businesses. Cor is improving continuously as a result of the decline in the loss ratio, which reflects actions undertaken in recent years to restore an adequate level of profitability. The impact of catastrophe claims remained basically unchanged (1.8 pps compared to 1.9 pps in 2015).
Generali CEE Holding is one of the biggest insurers in the Central Eastern European market. The Group ranks second in the Czech Republic, Hungary and Serbia, third in Slovakia and among the top ten in the other countries.
There was a decline in unit-linked products (-23.9%, particularly single premium policies) and savings products (-6.1%, for the most part recurring premium policies). In detail, this evolution can be ascribed to a significant extent to the drop in the Czech Republic (-7.5%), where there was strong competition amongst the main market players focusing on market share, and in Poland (-28.7%). In the latter country, premium income was down due to the complex legislative environment and the company’s continuous focus on boosting insurance business profitability. By contrast, the protection (+7.9%) recorded positive performance, in line with the Group strategy. The drop in new business in terms of APE (-16.8%) is mainly due to the reduction in the unit-linked business (-28.3%). The rise in NBM (margins on APEs) from 23.7% in 2015 to 34.8% in 2016 is explained mainly by the sharp drop in the profitability of the risk business, which represents 56.9% of business, up compared to the previous year. The increased profitability despite lower volumes resulted in a new business value of € 47 million (+21.2%).
The way you deal with claims results in how clients perceive you. Hence, we want to prove to our customers that they can truly rely on us, especially in the toughest times. We want to offer more: a more personal experience, a more convenient service, faster communications by launching a series of smart and simple actions to improve our customers’ experience. A real-time loss payment, and a service that is unrivaled in Hungary - a service that, thanks to online systems, gives the customer the opportunity to initiate the claim process directly on-site and to receive payout right away. We send regular email updates on the settlement process and we make phone calls to customers before they are sent a letter, especially if we have to communicate a denial. Moreover for our motor insurance clients we provide a better claims settlement process and additional services free-of-charge (such as a one-year guarantee at a selected repair shops, interior and exterior car-washes etc.).
Overall, the Swiss economy has shown flexibility even after the decision of the central bank to abandon the floor on the exchange rate, which proves again to be stable. However, the inflation rate remains negative, the rate of unemployment, especially for young people, is growing and consumption levels are less dynamic. As regards market trends, we are witnessing stable performance for the life segment - despite the context of low interest rates - and slight growth in the P&C segment
The new business in terms of APEs is up (+32.8%) with a good increase in Asia (+36.9%), despite the decline in Latin America (-23.1%). Overall, thanks to the confirmation of higher NBM (13.5% in 2015 and 2016) and the increase in volumes, the value of new business stood at € 53 million, up 33.2%.
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 werw able to offere 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.
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. The development of these business lines will aim at offering a wide range of insurance solutions adapted to risk and investment profiles for the benefit of both the policyholders and the Group.
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.
Property&Casualty segment management will therefore continue to play a key role in the implementation of the strategy of the Group, which aims to become a leader in the retail segment in Europe thanks to the degree of capital absorption of those products which allows for efficient allocation.
The investment strategy for fixed-income investments aims at portfolio diversification, in both government bonds and corporate bonds. This is in order to ensure adequate profitability for the policyholders and a satisfactory return on capital, while maintaining a controlled risk profile.
Despite the challenging environment and the high volatility of the financial markets, in 2017 the Group expects to increase shareholder remuneration, consistently with the strategic plan presented to the market.
Attestation of the Consolidated Financial Statements pursuant to art. 154-bis of legislative decree of 24 February 1998, no. 58 and art. 81-ter of Consob regulation of 14 May 1999, no.
At 31 December 2016, the consolidated scope of the Group decrease from 435 to 428 companies, of which 393 were consolidated on a line by line basis, and 35 measured with the equity method.
This report was drawn up in euros (the functional currency used by the entity that prepared the consolidated financial statements) and the amounts are shown in millions, rounded to the first decimal unless otherwise stated, and therefore the rounded amounts may not always coincide with the rounded total.
In particular, the Risk Report was restructured with a view to providing a disclosure aligned with the regulatory context of Solvency 2 and the associated reporting. In addition, in order to make the document more usable for the reader, it is presented as a supplementary part of the Management Report.
As noted above, the Management Report is prepared in accordance with the applicable law as well as the Content Elements and the Guiding Principles envisaged by the International <IR> Framework of the International Integrated Reporting Council (IIRC). The Annual Integrated Report adds to the Management Report to provide more information and clarify matters, expanding on it while maintaining a more rigorous and logical order.
In accordance with the Connectivity of information principle, the report should represent the combination and interrelatedness of the factors that influence the ability to create value over time. The key forms of connectivity used by Generali include the connectivity between qualitative and quantitative information, financial and pre-financial * information, in accordance with the information included in other communication tools. Other elements that improve the connectivity of information and the overall usefulness of the report are the cross-referencing (also thanks to the graphic component) and a clear language. The Glossary can be used where the language is excessively technical. Generali also publishes an interactive version of the integrated financial statements on its website. This is another tool to further highlight the connectivity of information.
Sustainability Report 2016, p. 16 for more information on stakeholders and methods of dialogue
Our report has been improved in many aspects also considering our stakeholders’ feedback; for instance, Conciseness was improved, as was connectivity among the Group’s different reports and among the different parts of the report, therefore making it easier to read with a more logical structure. The diagram below shows the passage of the Annual Integrated Report, drawn up in accordance with the Materiality principle, and the Consolidated Financial Statements were drawn up in accordance with the law.
As for Reliability and completeness, the Annual Integrated Report is supported by a structured information system, processing financial and pre-financial information. This allows Generali to increase homogeneity and reliability of both types of information. As for the scope of the reporting, the performance indicators refer to the entire Group unless otherwise indicated.
In accordance with the Consistency and Comparability principle, the report includes information that is consistent with the previous year (any changes in the criteria applied are noted in the Appendix to the Management Report) and the strategic objectives announced to the market.
Assets References: (€ million) 31/12/2016 31/12/2015 20 2.1 Land and buildings (self used) 2,810 2,844 14 3 AMOUNTS CEDED TO REINSURERS FROM INSURANCE PROVISIONS 3,933 4,094 11 4.1 Land and buildings (investment properties) 12,584 12,112 3 4.2 Investments in subsidiaries, associated companies and joint ventures 1,194 1,369 9 4.5 Available for sale financial assets 313,933 289,399 10 4.6 Financial assets at fair value through profit or loss 95,114 94,385 of which financial assets where the investment risk is borne by the policyholders and related to pension funds 78,317 74,966 5.1 Receivables arising out of direct insurance operations 7,155 6,497 5.2 Receivables arising out of reinsurance operations 1,163 1,060 6.1 Non-current assets or disposal groups classified as held for sale 772 0 84 Generali Group Annual Integrated Report 2016
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 85 We, Generali Our performance Outlook Appendices
Income statement References: (€ million) 31/12/2016 31/12/2015 26 1.1 Net earned premiums 65,352 68,507 1.1.1 Gross earned premiums 67,176 70,400 27 1.2 Fee and commission income and income from financial service activities 1,010 1,094 28 1.3 Net income from financial instruments at fair value through profit or loss 1,822 1,941 of which net income from financial instruments where the investment risk is borne by the policyholders and related to pension funds 1,727 2,275 29 1.4 Income from subsidiaries, associated companies and joint ventures 133 130 30 1.5 Income from other financial instruments and land and buildings (investment properties) 14,860 16,219 1.5.1 Interest income 9,955 10,075 1.5.2 Other income 2,043 2,065 1.5.3 Realized gains 2,605 3,873 1.5.4 Unrealized gains and reversal of impairment losses 258 206 32 2.1 Net insurance benefits and claims -63,963 -69,091 2.1.1 Claims paid and change in insurance provisions -64,916 -70,204 2.1.2 Reinsurers' share 953 1,113 33 2.2 Fee and commission expenses and expenses from financial service activities -611 -586 34 2.3 Expenses from subsidiaries, associated companies and joint ventures -43 -16 35 2.4 Expenses from other financial instruments and land and buildings (investment properties) -3,425 -3,215 2.4.1 Interest expense -1,110 -1,103 2.4.2 Other expenses -350 -390 2.4.3 Realized losses -471 -686 2.4.4 Unrealized losses and impairment losses -1,495 -1,035 36 2.5 Acquisition and administration costs -10,838 -10,856 2.5.1 Commissions and other acquisition costs -8,056 -8,179 2.5.2 Investment management expenses -188 -96 2.5.3 Other administration costs -2,594 -2,581 37 2.6 Other expenses -4,066 -4,792 2 TOTAL EXPENSES -82,947 -88,555 EARNINGS BEFORE TAXES 3,157 3,407
Philippe Donnet Luigi Lubelli Managing Director and Group CEO Manager in charge of preparing the Company’s financial reports and Group CFO
Previous accident year loss: it is a further detail of combined ratio calculated as the ratio between: + - previous year incurred claims + related claims management costs net of recoveries and reinsurance; and - earned premiums net of reinsurance.
Weighted average cost of debt The annualized cost of financial debt considering the nominal amounts at the reporting date and the related transactions of currency and interest rate hedging.
Fixed income instruments: direct investments in government and corporate bonds, loans, term deposits other than those presented as cash and cash equivalents, and reinsurance deposits. Moreover, this asset class includes also investments funds mainly exposed to investments or risks similar to direct investments presented within this asset class.
Cash and cash equivalents: the item includes cash and highly-liquid shortterm financial investments (readily convertible in specific amounts of cash which are subject to an irrelevant risk of change in value). Furthermore this asset class includes also short term deposits and moneymarket investment funds, which are included in the Group liquidity management.
P&L Return on Investments The ratio between average investments calculated at book value and the following income items: – 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, for the net return; – 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), foreign exchange impact and investment expenses.
Operating earning per share is the ratio between: – total operating result net of interest on financial liabilities, taxes and third party interests (as defined in the section 3 of the methodological note), and