Please note that the Report is translated into English solely for the convenience of international readers.
Board members Romolo Bardin Paolo Di Benedetto Alberta Figari Ines Mazzilli Antonella Mei-Pochtler Diva Moriani Lorenzo Pellicioli Roberto Perotti Sabrina Pucci
Assicurazioni Generali S.p.A. Company established in Trieste in 1831 Registered office in Trieste, piazza Duca degli Abruzzi, 2 Share capital € 1,569,773,403 fully paid-up Fiscal code and Venezia Giulia Companies’ Register no. 00079760328 VAT no. 01333550323 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 Pec: assicurazionigenerali@pec.generaligroup.com
Comments and opinion on the Report can be sent to integratedreporting@generali.com
Index 4 The integrated overview of our reports 5 About the Annual Integrated Report 6 Letter from the Chairman and the Group CEO
The integrated overview of our reports generali.com for further information on the Group.
Management Report and Parent Company Financial Statements It provides information on the performance of Assicurazioni Generali, in accordance with currently effective regulations.
Taking also into consideration the new Group strategy and the adoption of the Sustainability Policy, in 2019 we developed the methodology of this process and strengthened its ability to support a strategic interpretation of the operations context in a long-term perspective, to organically consider the expectations of the various stakeholders and to integrate the risk assessment in the corporate processes. The Group’s new materiality matrix, approved by the Board of Directors on 6 November 2019, shows three materiality clusters for the so-called mega trends for which both their potential impact on Generali and the possibility that they are influenced by us were considered, also through our value chain, consistent with the perspective of the double materiality introduced by the Guidelines on non-financial reporting of the European Commission and afterwards picked up by ESMA4. More information on the process and its results are described in the Consolidated Non-Financial Statement.
The Report is drafted in compliance with currently effective regulations. In particular, the environmental, social, employee-related, respect for human rights and anti-corruption and bribery information forming the content of the Consolidated Non-Financial Statement (NFS) provided for by leg. decree 254/2016 is clearly identified through a specific infographic (NFS), in line with the presentation method of the prior edition.
Digital transformation and cybersecurity 2 The International Integrated Reporting Council (IIRC) is a global coalition of regulators, investors, companies, standard setters, the accounting profession and NGOs; <IR> stands for Integrated Reporting.
3 The “Guidelines on non-financial reporting: supplement on reporting climate-related information” were published in June 2019. They are available on ec.europa.eu/info/ publications/non-financial-reporting-guidelines_en#climate.
Generali closed the year with a record operating result at € 5.2 billion. This was made possible thanks to the contribution of all the business segments with diversification of the sources of profit. In fact, profitable growth was recorded both in the Life and P&C segments, the latter continued to be distinguished by technical excellence with the best combined ratio among peers. The contribution of asset management further increased. In line with the plan’s targets, the adjusted net profit went up by 6.6% and the Group was able to strengthen its Solvency position despite the persistently low interest rates. All of these results allow us to distribute an increased proposed dividend at € 0.96 to shareholders.
The insurance and asset management sectors play a crucial role in supporting companies and the entire economic system, on the one hand by reducing risks and on the other by backing growth through long-term investments. Consistent with this role, Generali operates with a sustainable and long-term vision, summed up in our purpose: to help people to shape a safer future by caring for their lives and dreams.
10 Generali Group Annual Integrated Report and Consolidated Financial Statements 2019
Since 1831 we are an Italian, independent Group, with a strong international presence. We are one of the largest global players in the insurance industry, a strategic and highly relevant sector for the growth, development and welfare of modern societies. In almost 200 years we have built a Group that operates in 50 countries through more than 400 companies.
of which € 15,224.3 mln PREMIUMS FROM SOCIAL AND ENVIRONMENTAL PRODUCTS (+19.8%)2
The scope for non-financial indicators included in the NFS is reported in the chapters dedicated to them. 2 Social and environmental products are products which, due to the type of customer protected or coverage supplied, have specific social or environmental characteristics. 3 Adjusted for impact of gains and losses related to disposals. 4 The Responsible Investment Guideline is the document that codifies responsible investment activities at Group level. 5 Sustainable and Responsible Investments (SRI) are assets managed according to Generali Insurance Asset Management’s SRI proprietary methodology both on behalf of Group insurance companies and third-party clients (two funds and three mandates).
10 They are the organizational entities where smart working is applicable in accordance with local laws and regulations. 11 They are either physical persons or legal entities that hold at least one active insurance policy and pay a premium to Generali accordingly, a banking product or a pension fund product. 12 They represent the sales force within traditional distribution networks. 13 The Relationship Net Promoter Score (NPS) is based on customer research data and calculated deducting the percentage of detractors from the percentage of promoters. The
12 Generali Group Annual Integrated Report and Consolidated Financial Statements 2019 2019 key facts
Moody’s and AM Best rated that issue “BBB”, “Baa3” (hyb) and “a-”, respectively.
March, respectively). The exercise of this option was authorized by the
Viridium Gruppe in the German insurance market, aimed at managing assets in the Life portfolio of Generali Lebensversicherung.
July 2018, closed the sale of the entire shareholding in Generali
Life-insurance-based wealth management and employee benefit solutions to a global audience, and in Generali Link, an Irish company providing shared services in fund and policy administration. Generali
Partners, a new real estate boutique focusing on shopping centre investments. The partnership is in line with the Generali’s strategy to further increase its exposure to real estate, where it is already one of the world’s leading investors through
Generali’s asset management strategy, will allow to enrich the offering with innovative investment solutions and to strengthen focus and capabilities on sustainability and responsible investments for clients.
Some amendments to the Articles of Association were also approved, among which the removal of the age limits set for the appointment of the
Elected the new Board of Directors that will be in office for three financial years, until the approval of the financial statements at 31
Appointed KPMG S.p.A. as independent auditor for the period 2021-2029, after the selection process coordinated by the Board of
Assicurazioni Generali will exercise the early redemption option on all outstanding perpetual subordinated notes belonging to
Completed the 100% acquisition of the Polish asset management company Union Investment TFI S.A., launched in October 2018.
Director/Group CEO related to the 2016-2018 term in office, approved by the Shareholders’ Meeting in 2017. The shares have a par value of € 1.00 each, including the additional so-called dividend equivalent shares, and will be subject to the so-called minimum holding period, as set forth in the plan rules.
14 Generali Group Annual Integrated Report and Consolidated Financial Statements 2019
Forbes, on the basis of criteria of trustworthiness, social conduct, product and service quality, and treatment of employees.
Barcolana Autumn Cup sailing regatta in Trieste, Generali promoted two projects on diversity and the safeguarding the marine ecosystem. Palazzo
Generali on a global level, and which aims to have a long-term impact on the lives of the most vulnerable people and bring out their talents.
The Royal Gardens of Venice were reopened following thoroughgoing restoration promoted and carried out by the
The Royal Gardens’ cultural activities are closely connected to the aims of The Human Safety
The green bond issue represents another important step in fulfilling the Group’s sustainability commitments, which are part of our business model.
Significant events after 31 December 2019 and 2020 corporate event calendar
The transaction announced in July 2019 represents an important step in the execution of the Group’s three-year strategy which aims to strengthen Generali’s leadership in Europe.
Asset Owner Alliance, a group of 18 pension funds and insurers, committed to decarbonize their portfolios to net-zero emissions to avoid a global temperature increase above the 1.5°C
Paris target. The Alliance will closely work with companies in portfolios as to change their business models, adopting climate friendly practices and ideally setting a net-zero target based.
Ministry of Health guidelines as part of a preventive health approach, Energy Hub is the latest stage in a true welfare journey for Group employees.
Investments to operate as an asset manager (Società di Gestione del
The first Italian boutique of Generali, announced in April, aims to offer highly diversified multi-asset investments and solutions, with an innovative integrated investment approach across a wide range of asset classes.
Financial Statements Proposal and the Corporate Governance and Share Ownership Report at 31
First tranche* of dividend payout on the share of Assicurazioni Generali
Linked Securities, alternative mechanisms for the transfer of insurance risk to institutional investors.
16 Generali Group Annual Integrated Report and Consolidated Financial Statements 2019
We distribute our products and we offer our services based on a multi-channel strategy, while also relying on new technologies: not only through a global
unit-linked policies, as well as motor third-party liability (MTPL), home, accident and health policies, to sophisticated coverage for commercial and industrial risks and tailored plans for multinational companies.
to our policyholders or their beneficiaries after death, accidents or the occurrence of the insured event.
18 Generali Group Annual Integrated Report and Consolidated Financial Statements 2019
The slowdown in global growth that began in 2018 continued throughout 2019, while showing signs of improvement towards the end of the year. The World Bank pointed out a context of increasing risks due to the renewed trade tension between China and the USA that eased off towards the end of the year, economic weakness in the industrialised countries, and the downturn in global trade and the strength of the US dollar. The complex management of the Brexit continues in Europe, following the formal country’s withdrawal from EU occurred at the end of January 2020. The beginning of 2020 was also characterized by the spread of a pandemic generated by the Covid-19 Coronavirus, initially developed in China. The Eurozone was affected by a combination of endogenous uncertainties and weaker global growth, with a recession in the manufacturing sector, fewer production expectations and a resulting drop in investments. In the United States, GDP grew by 2.3% in 2019 against a backdrop of trade tensions, slowdown in domestic consumption and greater contraction in investments. In this context, the Federal Reserve (Fed) and European Central Bank (ECB) adopted accommodating policies. The Fed cut rates by 75 base points while the ECB relaunched quantitative easing, with consequent possible inflation increases over the mid-term. With reference to the insurance sector, the downtrend distinguishing the European Life segment since 2015 is less noticeable, although it continues to be influenced by the long-term weakness of the government yields and, as a result, by the switching from traditional to unit-linked and hybrid products. Despite the not particularly dynamic macro-economic scenario that distinguished 2019, in the P&C market premiums in the main Eurozone countries grew at a good pace, above all with good performance in the health business, mostly in Italy and France.
From the analysis of the context in which we operate and after listening to the parties affected by our activities, we have identified and itemised below the four most material mega trends that present significant risks and opportunities for the Group, for its value chain and for the stakeholders. We systematically assess the risks and guarantee that they are adequately monitored, and we also define our strategies and manage the activities while taking into account these challenges to protect our ability to create value over the years.
The asset allocation strategy is still mostly guided by market expectations and the Group’s profitability and solvency objectives. The regulatory system and the continued low interest in a global context of continuing uncertainty render it essential to manage assets in a rigorous and careful manner that is consistent with liabilities. Geographical diversification and selective focus on alternative investments (private equity and private debt) and real assets (real estate assets and/or infrastructural assets, both direct and indirect) continue to be important factors in current investment activities which aim to contain portfolio risks and sustain current profitability.
The development of a multi-boutique insurance asset managers platform is part of the strategy to enhance the investment capacity in these market sectors. We are exposed to the market risks arising from the value fluctuations of the investments and to the credit risks linked to the risk of counterparties’ non-fulfilment as well as to expansion of the credit spread. We are handling these risks by following principles of sound and prudent management, in line with the Prudent Person Principle and with the Group Investment Governance Policy and risk guidelines. We measure financial and credit risks using the Group’s Partial Internal Model, which offers us a better representation of our risk profile.
Risk Report, p. 101 in the Annual Integrated Report and Consolidated Financial Statements 2019 for more detailed information on the risk management model and on the capital requirement
In the perspective of ongoing improvement and exploring new opportunities, we are continuing to scout platforms both based on traditional integration technologies (API) and the Blockchain/Distributed Ledger type that lead the way to new digital ecosystems. We are in step with the new technologies and are protecting ourselves from the new threats. We are continuing to enhance our ability to prevent, detect and respond to potential cyber attacks while implementing the most innovative security solutions and constantly improving our response processes. Through the Security Operation Center (SOC), we are able to monitor all events recorded by our security solutions 24 hours a day, detect potential incidents and step in with containment and restoration actions. SOC’s performance are monitored in a structured manner through specific indicators, that are not reported due to security reasons. In agreement with the operational risk management model, we have adopted an intervention assessment and prioritisation framework supported by an IT tool available to our countries. The regulatory corpus concerning security at Group level, which is in line with the major reference standards (NIST, ISO 27001, etc.) and with the sector’s best practices, has been further reinforced with a specific Security Policy. Lastly, we are busy consolidating the security ethos in the Group via many communication and training initiatives, including internal phishing simulation campaigns. We are measuring operational risk following the regulatory standards and with qualitative and quantitative models that allow us to grasp our most important exposures and to define the adequacy of the existing controls.
20 Generali Group Annual Integrated Report and Consolidated Financial Statements 2019
Climate change is a material risk with potential more limited effects over the short term, however potentially catastrophic over the long term. Associated with this risk is a high degree of uncertainty in accurately determining a time frame and magnitude of the impacts, especially at the local level. The identified impacts can be classified as physical risks and transition risks (from which litigation risks might emerge) and opportunities. The physical risks are determined by the change or intensification of weather phenomena, including extreme natural events such as storms and cyclones, flooding, floods, fires and a rise in sea level. For the insurance sector, these phenomena above all affect pricing risk and natural catastrophe risk in the P&C segment, impacting - conditions being equal - on the number and cost of the claims and their management expenses, as well as reinsurance costs. The Life segment might also be impacted. The intensification of the heat waves and the expansion of the habitats suitable for hosting carriers of tropical diseases indeed might worsen the expected mortality and morbidity rates. Furthermore, the physical risk caused by climate change, which worsens the living conditions of the population and increases damages not covered by insurance, might lead to a deterioration of socio-political stability and the macroeconomic and geopolitical conditions, with cascade effects on the overall economy and on the financial system.
Our performance Risk Report 14 The TCFD (Task force on Climate-related Financial Disclosures) was established in 2015 by the Financial Stability Board (FSB) aiming at formulating a set of recommendations on reporting climate change-linked risks in order to guide and encourage companies to align the information disclosed with the expectations and needs of investors..
In order to seize the opportunities linked to the decarbonisation of the economy and to carrying out measures to strengthen the resilience of the territories to meet climate change, we are increasing our investments in green bonds and in sustainable infrastructure projects. We also issued our first green bond to finance or refinance projects relating to, for example, the improved energy efficiency of the Group’s real estate assets in 2019.
The healthcare need naturally evolves towards increasingly sophisticated, hence costlier, supplies and services. At the same time, an enhanced awareness of the bond between health, lifestyles and the environmental context is developing thanks to both public social initiatives and greater proactiveness and promotion from private market. Erratic local political choices are weighing on the solidity of the welfare systems. A greater perception of uncertainty impacts the coverage of the immediate healthcare and public welfare access requirement, so it is altering system balances that can only take shape over a long-term horizon. In the context described above, the limited financial resources produced by the younger categories of the population, or from private savings in general, have to be directed and valued more carefully. Lastly, the matter of human rights grows in importance, especially in the less mature economies, where labour law is under development.
We provide customers with complete and easily accessible information on products and services while helping them to understand the primary factors that may affect their income capacity and quality of life, and aiding them in accurately assessing their capacity to save as well as identifying their current and future needs. We believe that insurance coverage is the most appropriate tool to forecast and meet potential needs for people of all ages with the required advance notice; we therefore formulate, and present offers even in the case of market contexts with little knowledge and low individual propensity for insurance solutions.
INCREASE CAPITAL GENERATION: > € 10.5 billion cumulative capital generation 2019-2021
Leading the European insurance market for individuals, professionals and SMEs, while building a focused, global asset management platform and pursuing opportunities in high potential markets about € 1 billion total investment in internal strategic initiatives 2019-2021
Being a Life-time Partner to customers, offering innovative, personalized solutions thanks to an unmatched distribution network
HIGHER RETURN FOR SHAREHOLDERS: Three key enablers which drive the execution of the strategy: The Generali 2021 strategy 16 Based on IAS-IFRS gross written premiums in Europe at year-end 2017.
During 2019, we launched a number of initiatives to guarantee implementation of the new transformation strategy based on its ambition to become a Life-time Partner for our customers. The strategic initiatives are applied to both the corporate functions and the Group’s geographies throughout. They therefore involve all the business units and are focused on implementing the priorities identified in Generali 2021, such as the creation of a European platform for developing mobility, the launching of a new range of modular products and the transforming the operational model. The strategic initiatives actively involve hundreds of colleagues throughout the Group, and their goal is to accompany the business units on their paths to meeting the objectives of the strategic plan by promoting an agile and entrepreneurial work method, by increasing the level of involvement and sharing between all employees. We have also developed another tool supporting the strategy called FastBoard. It is a dashboard that summarises the performance of the key indicators functional for carrying out the Generali 2021 strategy, and it is used to both monitor progress and as a tool for communicating and sharing with all Group employees.
We therefore launched a number of projects oriented toward the creation of innovative solutions to develop business and aimed at making Generali an important player in the field of innovation and digitalisation. The launch of the Pan-European platform for mobility and development of the new digital strategy are examples of this. More specifically, the strategic initiative concerning implementation of the mobility platform sets the goal of developing digital services for the integrated mobility market in both the retail and corporate areas by leveraging innovative solutions defined by Jeniot, the new services company created in Italy. We are aiming at developing an offer at European level, starting from the markets where the Group is mostly present. In 2019, we signed an agreement aimed at developing traditional and connected insurance business with FCA in Italy, Germany, France and Poland. As far as the new digital strategy is concerned, we are aiming at offering excellent experiences to our customers, distributors and employees, by transforming Generali into a data-based agile organisation and by leveraging innovation and collaboration with technological start-ups (for example, partnerships with Plug and Play and HITS - House of Insurtech Switzerland). We have singled out five key enablers: Innovation give inspiration and methods to best exploit new business and technological opportunities
Data Analytics and Artificial Intelligence guide business decisionmaking process and enhance competitive advantage through data, analytics and artificial intelligence
Agile Organization a lean, flexible and empowered organisation will enable us to move more quickly
Our goal is to build the best digital omnichannel experience for all our customers around the world and continuously improve it. We want our tools to become the easiest and fastest channel of interaction for our customers 24 hours a day, offering value and inspiration, fostering engagement and loyalty through seamless digital interaction.
Our aim is to offer personalized solutions that help our customers to get the best out of their life’s, every day. We add value added services such as prevention, protection, assistance to all our products in order to strengthen the relationship with our customers.
We want to write all our documents in B1 language, a language level that 95% of the population understands. Our documents and daily communications must be clear and transparent, avoiding complicated sentences and jargon.
Life-time Partner is our transformation strategy. It’s an operational and cultural transformation that combines simplicity and innovation with empathy and care at all touchpoints and channels. For customers, it is about making them feel that we are not only the trusted partner for their insurance needs, but that we are always accessible, that we care for their needs, that we are proactive, and that we can offer protection, prevention and assistance in every field that is relevant for them (family, home, mobility, health, safety etc.). In other words, that we can stand by them over the course of their entire lives. It’s a journey that started listening to our customers and distributors, understanding their needs and acting based on their feedback. Now key role in this journey is played by 8 Hallmarks. We have identified four customer hallmarks, distinguishing traits that we want our customers to experience in their relationship with us, and four distributor hallmarks, which will allow our distributors to better meet all client needs.
Customer Hallmarks to become Life-time Partners to our customers n.m. 61 million customers20 20 The number of customers refers to all insurance entities, banks and pension funds (line-by-line consolidated entities, few insurance entities in Asia measured with the equity method where Generali has relevant shareholdings, and relevant direct B2C - Business to Consumer - business of Europ Assistance in Belgium, Italy, France, Spain and USA).
In Generali, it passes through the revision and radical reappraisal of processes, computer systems, procedures and roles of the entire Group structure. We are particularly redesigning the processes using the design thinking methodology, involving both experts of the sector and direct interesting parties and leveraging the new technologies such as automation. We are developing Artificial Intelligence technology-based tools and are introducing new tools to manage, in mobility or totally digital, customer relations, and we are also creating innovative products based on data generated by Internet of Things sensors. We also believe that it is necessary to adapt and expand knowledge and skills of our people. GPeople Strategy is planning a specific training programme for reskilling and upskilling that will affect 50% of our employees over the next two years, so that they can perform activities with more effective tools while relying on information and records generated by evolved analysis systems.
Digital transformation also has a significant external impact, first and foremost on the offer to our customers and in the experience of our agents. We undertake to create and consolidate digital access points able to guarantee the use of the information and the services with a rich, simple and quick experience using many digital channels. We are also continuing down our technology observation and testing journey to support the digitalisation of the operating model and ecosystem in which we operate. New platforms, like those made possible by Blockchain and Distributed Ledger, automatic image analysis tools and biometric technologies are allowing processes, even those that are highly complex, involving Group customers, partners and companies to be transformed.
We will generate and manage leads with a data driven and performance focused approach, in order to boost conversion. An always-on, targeted marketing paired with digital tools to enhance the distribution of leads will activate sales in the most efficient way, creating a positive impact on our distribution network.
Digital visibility 80% of consumers start their search online when they seek product or service information. That is why our first hallmark is for our 156 thousand distributors to be present online, including social media..
All the lines of transformation are supported by specific global and local initiatives and targets defined and monitored in line with Generali 2021.
Generali encourages an environment where people are open and inclusive, supporting genuine values, consistent behaviours and a common purpose.
Life-time Partner - Behaviours In order to promote a culture of innovation and become the Life-time Partner to our customers, the adoption of four new behaviours is key: ownership, simplification, innovation and the human touch in everything that we do. In 2019, a training experience called Behaviours in action experience was designed. It allowed over 9,800 people working at the various Group companies to experience these four behaviours. The objective was to train all our people through this format provided both in the classroom and through an e-learning platform.
Managerial Acceleration Program (MAP) In 2017, we launched the Managerial Acceleration Program (MAP), dedicated to all people managers of the Group. It is based on the eight Generali Empowerment Manifesto (GEM) behaviours and its aim is to encourage a people empowerment-based managerial culture. In 2019, the programme was updated in line with Generali 2021, and the remaining managers were trained, which contributed toward the goal of training 100% of our people managers. The MAP is held by our managers who are properly prepared with training and ad hoc coaching (207 managers trained for the MAP trainer role).
Three key enablers of our strategy which drive its execution: The acquisitions during 2019 led to an increase in the number of employees, that was higher than the reduction due to the disposals of German and Belgian businesses.
More than 430 local actions were identifed to be communicated and launched as from January 2020.
The engagement score is based on the average percentage of favourable responses collected, based on the following items: I strongly believe in the goals and objectives of my Company 82% favourable responses
I am proud to work for the Generali Group 86% favourable responses
I am willing to work beyond what is required to help my Company succeed 87% favourable responses
My Company inspires me to do my best work 71% favourable responses response rate engagement score
+170 organizational entities +33,460 open comments received 22 The index refers to all relevant Group business units and countries where applicable on the basis of the priorities which are part of the index itself. 23 The data refer to Group companies, equal to 57,438 employees (80% of the total), that are included in the scope of the Group Performance Management process.
The trends of the sector, our ambition to become the Life-time Partner of our customers and the new technologies demand the development of new skills. We will provide our people with the skills to continue to grow and to assert themselves in the digital age, and to support the strategic business priorities. A methodology has been defined and spread throughout the Group in order to identify in advance how the roles and skills of the future will evolve. On the one hand, it helps identify the roles and skills most widely exposed to change and, on the other, it helps establish the initiatives to fill the personnel training gap consistently with the strategy. As regards the latter, the We LEARN programme is of basic importance. We LEARN aims to carry out reskilling for 50% of the employees by the end of 2021. It breaks down into 3 training components - Foundation, New Skills for Evolving Roles and New Role Schools (mini-master) - and a new, innovative, interactive Group digital platform that enable to develop new business, technical, technological and behavioural skills.
Guiding and implementing our strategy requires strong leadership capabilities. Our future leaders must guide the organisation to transformation, have a global mentality and be an example with behaviour for becoming the Life-time Partner for our customers. We stimulate sharing and local cascading of the Group strategy and we support the development of leaders and global talent with personalised training courses, including: – Leading the Lifetime Partner transformation - the role of the CEO: 46 CEOs, 3 days at the London Business School; – Leading the Lifetime Partner transformation: 38 Senior Leaders, 3 days at the London Business School; – Global Leadership Program - Take Off: 36 Group Talent Managers, 3 days at Insead and 5 weeks online; – Global Mentoring Program: 41 Senior Leaders and 41 Group Talent Managers.
Confirming the centrality of people in our strategy, we held 11 meetings with the European Works Council - the representative body for Group employees - at the permanent forum dedicated to social dialogue.
We strive towards our brand ambition to become a Life-time Partner to our customers aligned with the Generali 2021 strategy. The goal is to shift Generali from a product seller to an integrated solutions provider demonstrating our core values of simplicity, innovation with empathy and care. Together with technology, we must connect the human aspect helping people to live a better life, while creating value beyond policy. It’s key to focus on customer experience and building deeper relationships, integrating protection with prevention and assistance, creating tailor-made products and services. We aim to provide a seamless omnichannel experience, both in the digital and physical world: our strong network made up of 156 thousand distributors26 worldwide is at the very heart of our transformation. Data and technology 2. A strong brand 25 Where applicable in accordance with local laws and regulations.
Our performance Risk Report are crucial levers that will provide the opportunity to adapt products and services to suit the distributors’ needs through mobile, web and in person interactions.
+3 RNPS27 27 The target audience span 20 markets where we operate in Europe and Asia. 28 The new green and sustainable investments refer to the 2018-2019 cumulative data of Generali Insurance Asset Management and Generali Global Infrastructure. About 50% of these investements were made in 2019.
Our commitment to sustainability is the third fundamental pillar of Generali 2021, and refers to the creation of longterm value for our stakeholders: not only shareholders, investors and customers, but also employees, suppliers, the environment, local communities and society in general. The identified objectives are tied to our core business activities and to our commitment to the community. Specifically, as regards our insurer activities, by the end of 2021 we undertake to: – increase premiums from environmental and social products by 7-9%; – allocate € 4.5 billion for new green and sustainable investments.
Objectives, metrics and results of managing climate change impacts The Group initiated a process to assess the sustainability and resilience of its business model in the face of climate change, with particular focus placed on the investment, underwriting and customer and other stakeholder relations management activities.
Objectives and metrics to seize opportunities 2019 results € 4.5 bln new green and sustainable investments (2018-2021) > € 2,667 mln new green and sustainable investments28
Increase in premiums from environmental products > +5.5% € 1,359.5 mln premiums from environmental products
In addition to EnterPRIZE - an international award for the best sustainable SMEs created by Generali and for which in 2019 we started up a work group with the main European countries - here follow the other 2 strategic initiatives that fully integrate the sustainability of our process to create value: Responsible consumer Generali is drawing up a distinctive offer dedicated to responsible consumers who want to have a positive impact on the environment and society. The offer consists of environmental and social products and sustainable investment solutions. In 2019, we started up the activities to identify the requirements and needs of the responsible consumer and we are studying insurance and investment solutions. The first sustainable investment solutions, consistent with these purposes, have been launched by Banca Generali and by Generali Italia, linking their offer to the United Nations Sustainable Development Goals.
Glossary available at the end of this documentGroup’s performance, p. 49 29 The greenhouse gas emissions and purchases of electricity from renewable sources comprise the impacts generated by the employees working in offices managed by the Group in Austria, France, Germany, Italy, Czech Republic, Spain and Switzerland, equal to 42% of the total of our people.
Increase in purchases of electricity from renewable sources > +11 pps 99% of the total purchases of energy from renewable sources29
Premiums from customers of the coal sector below the 0.1% threshold of P&C premiums > Lower insurance exposure, below the 0.1% threshold of P&C
Engagement for a just transition of the eight companies of the coal sector operating in heavily coal-dependent countries, where the Generali Group has a primary presence as an investor and/or insurer. Six out of eight companies are identified by Urgewaald in its Top 120 Coal Plant Developers’ 2018 list > Interruption of investments and property underwritings with two companies, due to their unwillingness to confront the issue. Ongoing engagement with six companies, two of which are among the top 120 operators in the world by expansion of coal capacity, as identified in the Urgewald 2019 database
For Refugee Start-ups We support refugees start their businesses by promoting their social and economic integration in their host countries.
Together with The Human Safety Net, we are helping people like Dima, an art teacher of Syrian origin intent on opening a creativity school for children in Saarbrucken, Germany, or Ana, an Indonesian mother who was able to give a positive change to her children’s lives by improving the life of her family in the Jakarta suburbs.
Glossary available at the end of this document www.thehumansafetynet.org/newsroom/all to discover more information on the stories www.thehumansafetynet.org for further information on the initiative
We run our business in compliance with the law, internal regulations and codes, and professional ethics. We are continuously monitoring the developments of the national and international regulatory system, also by talking with legislators and the institutions, in order to assess both new business opportunities and our exposure to the risk of non-compliance and to take prompt measures to adequately manage it. We have a governance, management and reporting system that guarantees compliance with the principles of sustainability and their actual integration in everyday decisions, in line with the goal of promoting sustainable development of the business and of generating long-lasting value.
Approved by BoD of Assicurazioni Generali S.p.A. on 15 March 2017
Declaration of Human Rights, the core international standards of the International Labour Organisation and the UN Guiding Principles on Business and Human Rights. The analysis assessed the potential impact on human rights by taking into consideration both the risk tied to the businesses directly carried on by the Group companies and the country risk of those countries where said companies operate. For this purpose, we have identified a list of the key human rights potentially impacted by the Group’s operations in the various businesses and, for each, the tools already implemented to mitigate risks, assessing their level of control, considering it in line with their positioning and practices common to the sector. The Group will keep up its ongoing monitoring action to guarantee a more and more virtuous and responsible behaviour in all of its businesses.
We have a structured internal Group regulatory system, regulated by the Generali Internal Regulation System (GIRS) Policy that aims to promote a solid, efficient governance and coherent implementation of the internal Group regulations at local level. The Group regulations cover the governance system, the internal control system, the risk management system that is particularly linked to monitoring solvency (Solvency II), and the other primary areas of risk.
Corporate Governance and Share Ownership Report 2019, p. 34 www.youtube.com/watch?v=ZeFiFJLmf7E www.generali.com/our-responsibilities/responsible-business/code-of-conduct for further information on the Code of Conduct, communication channels and the process on managing reported concerns 1 Compliance Week A path of Trust. Step by step we can shape a safer future was the motto of the last edition of Compliance Week. The campaign was associated with the Generali 2021 strategy topics, in which trust and the human touch are essential elements for becoming the Life-time Partner. Group Compliance was made available to Group colleagues to raise their awareness and to answer their questions on the Code of Conduct and ethical behaviour.
NFS As of today, there is no employee shareholding system according to the provisions of the Testo Unico delle disposizioni in materia di Intermediazione Finanziaria (TUIF), also if it is reported that the three-year share plan for Group employees, approved by the Shareholders’ Meeting held in May 2019, will have the effect of assigning them a stake of shares in November 2022. This plan, promoted as part of the Generali 2021 strategy, is aimed at achieving the strategic objectives in the perspective of a culture of ownership and empowerment, and the participation of employees in the creation of sustainable value within the Group.
Our performance Risk Report 38.24% of the share capital Institutional investors**
Percentage of share capital represented in the Shareholders’ Meeting over the last five years 38.24% of the share capital Institutional investors**
0.61% of the share capital Non-identifiable shareholders 8.80% of the share capital Other investors 25.46% of the share capital Retail shareholders * The category takes account of legal entities including foundations, trust companies, religious institutions. ** The category includes asset managers, sovereign funds, pension funds, Life insurers.
Percentage of share capital represented in the Shareholders’ Meeting over the last five years
We maintain continuing relations with all external stakeholders: institutional investors, proxy advisors, financial analysts and retail shareholders. Our intense relationship activities consist of various types of interaction with individual stakeholders or groups, as part of roadshows and sector conferences, as well as ad hoc occasions for the discussion of specific topics, ranging from business, financial and performance matters to corporate governance, remuneration and sustainability topics relevant to the various financial community representatives. Some of the main recurring occasions for interaction with the Company’s top management are the annual Shareholders’ Meeting, events on the strategic plan (Investor Day) and the main presentation of the financial results.
Independent Auditors enrolled in the dedicated registry and appointed by the Shareholders’ Meeting
Board of Statutory Auditors ensuring compliance with the applicable laws, regulations, and the Articles of Association as well as management control
Surveillance Body having duties and powers with respect to the oversight, development and promotion of the continuous updating of our Organization and Management Model (OMM)
Board of Directors having all the broadest management powers for the pursuit of the corporate purpose and being supported by Committees with advisory, proposing and investigating responsibilities
Group Management Committee aiming at ensuring both greater alignment on strategic priorities among business units and a more effective, shared decision-making process www.generali.com/governance for further information on governance and the Corporate Governance and Share Ownership Report 2019
Skills and experiences international experience managerial experience entrepreneurial skills academic experience knowledge of legal context and regulatory requirements financial and accounting skills industrial (insurance) experience experience in large cap companies average age female directors independence level executive director average attendance at meetings meetings
In 2019, induction sessions were held on the impacts of the future application of IFRS 9 and IFRS 17, on IT impacts on the insurance sector (Insurtech) and on financial, risk and governance matters.
Corporate Governance and Share Ownership Report 2019, p. 57 for further information on the diversity of administration, management and control bodies
The Managing Director/Group CEO, who is the unique executive director, and the relevant personnel not belonging to key functions receive a remuneration package consisting of a fixed component, a variable component with noclaims bonus and claw back mechanisms, and benefits.
The fixed component remunerates the role held and responsibilities assigned, also considering the experience and skills required, as well as the quality of the contribution made in terms of achieving business results.
33 It is calculated as a change in the shares’ market price, including distributions or dividends reinvested in the shares, as compared to a selected list of peers.
Economic & Financial Risk Adjusted Performance 2019 - 2021 Strategic Projects/KPIs
Core business KPIs − focus on net profit and total expenses; − total remittance in mature markets or ROCE in developing markets; − RORC as mandatory risk adjusted KPI.
− KPI linked to the implementation of Group strategic projects at global level for all leaders/sponsors of the projects; − KPI linked to the implementation of local strategic plans, including sustainability initiatives/KPIs (e.g. % social and green products, % green and sustainable investments, quality of non-financial information & reporting); − customer/brand KPI based on specific KPIs evidence (e.g. % customer retention, brand preference).
Additional information in the Notes of the Annual Integrated Report and Consolidated Financial Statements 2019 for further information on pension benefits of the Group employees www.generali.com/governance/remuneration for further information on remuneration policy and the Report on Remuneration Policy and payments, also including information about remuneration
55 Group’s financial position 64 Share performance 65 Our main markets: positioning and performance 78 Life segment 88 Property & Casualty segment 96 Asset Management segment 98 Holding and other businesses segment
Total gross written premiums were up by 4.3% due to the positive performance in both segments. Excellent net inflows, at over € 13.6 billion (+19.6%). Life technical provisions increased by 7.6%.
Result of the period up 15.7%, reflecting, in addition to the growth of operating performance, also the positive contribution of disposals. Adjusted net profit2 without one-off liability management up by 6.6%.
The gross written premiums of the Group amounted to € 69,785 million, showing an increase of 4.3% as a result of growth in both segments.
The Life gross written premiums3, which amounted to € 48,260 million, posted a 4.5% increase, particularly due to the performance recorded in the second half of the year. With reference to the lines of business, growth in protection premiums (+7.6%) was confirmed throughout the countries where the Group operates. Savings policies went up by 5.5%, reflecting the performance observed in Italy, France and Germany. Premiums from unit-linked products dropped by 2.8%, although they recovered during the second half of the year that was distinguished by positive performance in several areas of operation of the Group.
Life net inflows was confirmed at very good levels, totalling € 13.6 billion. The 19.6% growth was mainly driven by Italy, France and Asia. The new business (in terms of present value of new business premiums - PVNBP) amounted to € 45,664 million, showing an increase of 10.1%.
Specifically, protection products performed well (+17.3%), showing growth in all the countries where the Group operates. Also, savings and pension products went up too (+15.2%), especially in Germany and Italy (above all due to the increase in capital-light products), more than offsetting the drop in Spain and China. The unit-linked business decreased (-3.7%) owing to the unfavourable performance in Italy that was partially offset by good performance in Germany and France.
The total new business value (NBV) decreased by 2.2% and stood at € 1,777 million (€ 1,877 million at 31 December 2018).
The motor line increased by 2.4%, mainly driven by the growth in premiums in ACEER (+6.1%), France (+4.1%), and the Americas and Southern Europe (+13.5%, driven by Argentina due to the inflation phenomena in the country ). Motor premiums in Italy were down by 1.3%, following the contraction of the motor third-party liability portfolio. The non-motor segment grew (+3.8%), with positive trends broadly extended across the Group’s various areas of operations. Premiums increased in the ACEER region (+6.1%. with diversified growth in the territory), France (+3.2%), Italy (+2.9%) and in the International cluster (+5.8%), driven by Spain.
Property & Casualty gross written premiums € mln 31/12/2019 31/12/2018 3 Including premiums from investment contracts for € 1,558 million (+6.9%).
50 Generali Group Annual Integrated Report and Consolidated Financial Statements 2019
(*) Total gross written premiums for Global Business Lines (GBL), taking into consideration the business underwritten in the various countries, amounted to € 3,817 million (+9.1%) and broken down as follows: - Global Corporate&Commercial € 2,116 million; - Generali Employee Benefits and Generali Global Health € 1,701 million.
The details by geographical area highlighted in this document reflected the Group’s managerial structure in place in 2019, made up of the three main markets - Italy, France and Germany - and the regional structures (ACEER, International, Investments, Asset & Wealth Management, and Group holdings and other companies)4.
The Group’s operating result amounted to € 5,192 million, a 6.9% increase (€ 4,857 million at 31 December 2018), following the positive trend of all segments.
With reference to the different segments, Life recorded an operating result up by 2.0% to € 3,129 million, due to both the trend of the technical performance and growth in investment result. The P&C operating result also increased and totalled € 2,057 million (+3.3%), reflecting the contribution of the technical result thanks to the improvement of the combined ratio that was confirmed at technical excellence levels (92.6%; -0.4 pps).
The operating result of the Asset Management segment rose from € 335 million to € 425 million due to the good market trend as a whole and to the consolidation of the revenues of the new multi-boutiques.
The operating result of the Holding and other businesses segment also showed improvement as it reflected the positive result of Banca Generali and of the other private equity businesses. It was only partially offset by the increased holding expenses, mainly because of the higher expenses linked to the Group’s strategic projects.
Finally, the change in the consolidation adjustments was mainly due to fewer intragroup transactions following finalisation of the disposals.
The non-operating result of the Group came to € -1,581 million (€ -1,361 million at 31 December 2018). In particular: – net impairment losses decreased to € -333 million (€ -431 million at 31 December 2018) mainly due to lower impairments on both equity and fixed income instruments; – net realized gains totalled € 21 million (€ 265 million at 31 December 2018), mostly for € 245 million5 of expenses for the liability management transaction announced in September 2019, which involved the buyback of three series of subordinated notes with an aggregate nominal amount of around € 1 billion. Furthermore, the first half of 2018 had benefited from € 113 million in realized gains from the disposal of the investment in Italo - Nuovo Trasporto Viaggiatori; – net non-operating income from financial instruments at fair value through profit or loss amounted to € -42 million (€ 11 million at 31 December 2018); – other net non-operating expenses increased to € -520 million (€ -411 million at 31 December 2018). The item comprised € -137 million for the amortization of the value of the acquired portfolios (€ -98 million at 31 December 2018; the increase came from the new acquisitions of Sycomore, Lumyna and Adriatic Slovenica ), € -137 million for restructuring costs (€ -211 million at 31 December 2018; the decrease was due to minor costs mainly in Germany), and € -246 million in other net non-operating expenses (€ -102 million at 31 December 2018). The latter included the capital gain from the disposal of operations in Panama in 2018, while in 2019 there were higher costs tied to completion of the disposal of the German assets and to IT investments in the business units; – non-operating holding expenses amounted to € -707 million (€ -795 million at 31 December 2018). The improvement is mainly attributable to the decrease in interest expense on financial debt that, in line with the strategy to reduce external debt, decreased from € -666 million to € -605 million. In 2018, the item comprised the restructuring costs for transfer of the Generali Employee Benefits headquarters and the closure of the branch in Japan, as well for the development of asset management activities.
The result of the period attributable to the Group stood at € 2,670 million, showing an increase of 15.7% over the € 2,309 million posted at 31 December 2018. It reflected: – the improvement in the aforementioned operating result; – the result from discontinued operations of € 475 million, which included the € 352 million gain from the disposal of Generali Lebensversicherung and the € 128 million gain from the disposal of the business in Belgium; – the decrease in the tax rate, down from 32.6% to 31.3%, mainly attributable to the higher deductible acquisition costs in China and to the income from taxes of previous years recorded in Italy and Germany; – the result attributable to minority interests, equal to € 269 million, which corresponded to a minority rate of 9.2% (7.6% at 31 December 2018) and which increased compared to last year (€ 189 million), mainly reflecting the trend of Banca Generali and Asia.
Net fee and commission income and net income from financial service activities 679 428 58.5%
Interest expense on liabilities linked to operating activities -401 -333 20.4%
Result of the period attributable to the Group 2,670 2,309 15.7%
Result of the period attributable to minority interests 269 189 42.6%
(*) At 31 December 2019 the amount is net of operating taxes for € 52 million and non-recurring taxes shared with the policyholders in Germany for € -27 million (at 31 December 2018 for € 52 million and € -6 million, respectively).
Risk Report, p. 101 of the Annual Integrated Report and Consolidated Financial Statements 2019 for further information on the Group’s solvency
At 31 December 2019, total investments amounted to € 468,293 million, up by 12.6% over the previous year. Both Group investments at € 389,819 million (+11.3%) and unit/index-linked investments at € 78,475 million (+19.3%) increased. In terms of weight of the main investment categories, the relative exposure of the fixed income instruments was down to 84.4% (85.6% at 31 December 2018), while that of equity instruments increased, up to 6.6% (5.7% at 31
December 2018). The weight of investment properties decreased to 4.1% (4.4% at 31 December 2018), while that of other investments was basically stable at 1.3% (1.2% at 31 December 2018). Other investments mainly include receivables from banks and customers, investments in subsidiaries, associated companies and joint ventures, and derivatives. Finally, the weight of liquidity went from 3.2% to 3.6%.
Fixed income instruments increased by 9.8% to € 329,071 million compared to € 299,736 million at 31 December 2018. In particular, the bond portfolio grew to € 291,388 million (+7.3%). With reference to the composition of the bond portfolio, government bonds, which represented 53.6% (53.2% at 31 December 2018), were up, standing at € 176,355 million (€ 159,431 million at 31 December 2018). The change during the period was mostly due to the increase in value of the securities in portfolio. The exposure to individual government bonds was mainly allocated to the respective countries of operation, in line with the Group’s ALM policy.
Supported by the current context of interest rates on the market value of this asset class, the corporate component increased in absolute terms to € 115,033 million (€ 112,017 million at 31 December 2018), equal to 35.0% of the bond portfolio (37.4% at 31 December 2018). The exposure due to aiming the reinvestment strategy at the sovereign bond component decreased in nominal terms. Taking into consideration, on the other hand, the current breakdown of the portfolio, the allocation is basically stable with a slight preference for the telecommunications sector.
The Group’s corporate portfolio confirmed its improvement in terms of creditworthiness, with over 94% of the securities classified as Investment Grade (93% at the end of the previous year). Non-investment grade securities declined by € 0.4 billion compared to 31 December 2018.
58 Generali Group Annual Integrated Report and Consolidated Financial Statements 2019
Investment properties in terms of book value amounted to € 16,004 million (€ 15,258 million at 31 December 2018).
In implementation of the Responsible Investment Guideline - the document which regulates the various responsible investment activities at Group level - we identify, evaluate and monitor issuing companies in the portfolio which are involved in controversial sectors (for example, non-conventional weapons) or in activities that involve serious or systematic violations of human rights, serious environmental damage or corruption. Thanks to the creation of a proprietary ESG methodology - which considers environmental, social and corporate governance aspects - we evaluate the degree of responsibility and involvement of the issuing companies and promote specific actions with respect to them, ranging from a ban on making new investments to the settlement of current holdings or the retention of same until their expiration, or even direct dialogue to encourage them to act responsibly. A cross-functional committee named Responsible Investment Committee retains the task of supporting the decisions of the Group Chief Investment Officer in relation to potential exclusions from the investable universe of the Group.
At 31 December 2019, the methodology was applied to: – funds totalling € 0.9 billion in assets (+73.1%). Of these, 95.1% was subject to the SRI analysis and reported a compliance rate of 100% with the SRI principles of Generali Insurance Asset Management. The remaining 4.9% was the cash component of funds; – mandates totalling € 34.6 billion in assets (+6.1%). Of these, 81.7% was subject to the SRI analysis and reported a compliance rate of more than 94% with the SRI principles of Generali Insurance Asset Management. The remaining 18.3% was not covered by the SRI analysis (mutual funds, issuers located in non-European regions and unlisted issuers ).
www.generali.com/info/download-center/sustainability/bilanci for more information on the results achieved with regard to proxy voting and engagement activities
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, among which subordinated liabilities, bonds issued, and other loans obtained. This category includes, for example, liabilities incurred in connection with a purchase of controlling interests.
The decrease in the Group’s liabilities linked to financing activities is mainly due to the combination of: – redemption of three subordinated notes issued in 2009 for a nominal amount of € 750 million, funded with a new issue of € 500 million; – completion of the liability management transaction, which involved the buyback of € 1 billion in subordinated liabilities with call date 2022, partially funded with a new issue of € 750 million in green liabilities; – completion of the acquisition of Adriatic Slovenica, which entailed the consolidation of also the subordinated liability issued by the Slovenian company for the amount of € 50 million.
Interest expenses on liabilities linked to operating activities 401 333 20.4%
Interest expenses on liabilities linked to financing activities 605 666 -9.2%
(*) The weighted average cost reflects annualized cost of the liabilities, considering the nominal amounts at the reporting date and the related transactions of currency and interest rate hedging.
In the first part of 2019, Generali drew up the Group Green Bond Framework, which represents as much an element of continuity with the green credit lines negotiated in 2018 as much as an element of consistency with the Generali 2021 strategy, of which sustainability is a fundamental premise. Developed in compliance with the guidelines dictated by the Green Bond Principles, the Framework - the subject matter of a Second Party Opinion issued by Sustainalytics - defines the eligibility criteria for the use of proceeds, the evaluation and selection of projects, the governance of the green bonds, including the creation of a Green Bond Committee and the rules on reporting the green bond. The Generali Green Bond Framework was designed following 3 key principles: – simplicity: written clearly and unambiguously, it aims to be understood by both market professionals and the common reader of financial reports; – transparency: based as much as possible on independent assessment criteria, it reduces the margin of subjective judgement of the Group regarding the selection and inclusion of the pool of eligible assets; – consistency: in line with our investment strategy that contemplates expansion of the real estate and private assets, and with our history as a large investor in the European real estate sector. Aware of the close tie between global CO
In September 2019, Generali announced the Green Bond Framework to the market and also its first issue of a Green Bond by the Group, which also corresponds to the first issue by any European insurance company. The € 750 million Tier 2 green bond maturing in 2030 was warmly welcomed by investors with a demand that surpassed the issued amount by 3.6 times. Over half of the orders came in from green bond market investors or from institutional investors with the aim of implementing green investment plans. The Green Bond of Generali was included in the Bloomberg Barclays MSCI Green Bond index. Within 12 months following the date of issue Generali will issue an audited allocation and impact report.
This category includes all subordinated liabilities issued by Assicurazioni Generali and other subsidiaries. The remaining subordinated liabilities are mainly issued by Austrian subsidiaries for approximately € 25 million at amortized cost.
The average duration stood at 5.52 years at 31 December 2019 compared to 5.34 years at 31 December 2018.
Assicurazioni Generali has revolving credit facilities for a total amount of € 4 billion. They represent, in line with best market practice, an efficient tool to protect the Group’s financial flexibility in case of adverse scenarios.
The two facilities, syndicated with a value of € 2 billion each, have a duration until 2021 and 2023. The revolving credit facilities also present innovative features in terms of sustainability: their cost is linked to both the targets on green investments and the progress made in sustainability. This transaction further strengthens Generali’s commitment to sustainability and the environment, as set out in the Charter of Sustainability Commitments and in the climate change strategy. This will only impact the Group’s liabilities linked to financing activities if the facilities are drawn down.
(*) The payout ratio at 31 December 2019 calculated on adjusted net profit including one-off liability management amounting to € 2,191 million was 69.1%. The 2018 data was restated based on adjusted profit in that year.
Generali confirms its leadership position in the Italian insurance market with an overall share of 16.2% as it can rely on a complete range of insurance solutions for its clients in both the Life and P&C segments. At the distribution level, a multi-channel strategy strongly hinged on agents continues. It has a strong position in the direct Life and P&C channel, through Genertel and Genertellife, the first online insurance launched in Italy. Thanks to its partnership with Banca Generali, the Group is able to offer its customers a broad and complete variety of insurance, pension and savings products. Generali presents itself to the Italian market with three distinct brands marked by a clear strategic positioning - Generali (retail market and SME), Alleanza (households) and Genertel and Genertellife (alternative channels). During 2019, Generali Italia continued to implement its simplification programme with the goal to improve the customer experience by simplifying the relationship between customers and agents for the entire process by providing more and more accessible and innovative services. Furthermore, in 2019 Jeniot, a company launched by Generali Italia at year-end 2018 that develops innovative services in the Internet of Things and connected insurance area tied to mobility, home, health and work, continued to grow.
Within The Human Safety Net, the Group’s global initiative for the society, Generali Italia launched Ora di Futuro, an innovative project for educating children and families that involves teachers, primary schools and non-profit networks throughout Italy. The purpose is to help families and to sustain responsible growth of their children.
The Italian insurance market, down by 1.5%, suffered from the trend of Life premiums (-2%), which was conditioned by the trend of the unit-linked products (-18.3%). The new Life business continues to be even more oriented toward the traditional products, whose performance rose compared to 2018 (+12.4%), and the multi-business products (+17.3%), still mostly focused on the traditional component. The P&C insurance market, enjoying expected growth of 3.3%, still benefits from the development of the non-motor line (forecast to grow by 5.7%), supported by the protection business (+8.8% thanks to the increasing attention that clients pay to welfare) together with the property line (+4.3%). The motor business enjoyed moderate growth (+0.6%), driven by the other demages business (+4.8%) while the motor third-party liability line (-0.3%) continued to feel the effects of the competition between the different operators.
GENERASVILUPPO SOSTENIBILE In 2019, the integrated new generation offer of Generali Italia was extended with GeneraSviluppo Sostenibile, the first insurance solution for investing in the UN 2030 for Sustainable Development Targets, which encourages responsible behaviour. The client is given the possibility to choose from the following five thematic investment portfolios based on their values, and to afterwards measure the impact on communities and environment: – Equal opportunity: companies that promote respect for equal opportunity, protection of minorities and equality of gender by encouraging impartial professional growth; – Sustainable growth: companies that promote smart cities distinguished by technological development, respect for the environment and for the work force in order to improve the quality of life of their citizens; – Health and well-being: companies operating in the field of health, natural foods, products and services that promote an active and healthy lifestyle; – Responsible consumption: companies that implement a circular economy that respects natural resources in line with protection of the seas and land; – Climate protection: energies that are renewable and in companies that implement environmental policies that protect natural resources.
In a context of a market distinguished by persistent low interest rates and high volatility, Generali Italia has concentrated on a full-scale offer that comprises development of the Pension, Savings, Investment and Protection products according to the pre-set goals of improving advice given to the client and strengthening of premium with low capital absorption. This strategy was pursued through value consultancy aimed at optimising the productivity of the current channels and integrated with the new digital tools introduced with the recent Simplification programme. An agreement with Google focused on the transformation, innovation and personalisation of offers and services made possible by clouds, data & technology was also signed to support the digitalization pillar.
The growth of Generali’s Life premiums therefore showed excellent performance of protection business (+14.8%) and traditional savings and pension products (+6.1%). The linked products fell (-16.3%) due to the volatility of the financial markets in the second half of 2018, which conditioned the risk appetite of customers in the first nine months of 2019. The new business in terms of present value of new business premiums (PVNBP) stood at € 19,510 million, up 5.8% following the growth of single premiums (+16.4%), which amply offset the drop in the present value of future annual premiums (-6.3%). With reference to the business lines, positive growth of both protection business (+30.8%) and savings and pension business (+16.1%) was recorded. Despite the satisfactory contribution of hybrid products, there was a reduction in the unit-linked business (-20.4%).
The new business margin (expressed as a percentage of PVNBP) decreased by 0.59 pps, from 5.30% in 2018 to 4.71% in 2019. The decrease is mainly led by the negative economic context, with negative repercussions also on the highly profitable hybrid products sold during the year, only partially offset by the increased production from new products with lower capital absorption. Despite the higher volumes, the lower profitability caused by the economic context led to the new business value amounting to € 920 million (-6.0%).
It is point out the growth in Property & Casualty premiums (+1.5%) arising from changes, each different from the other. In 2019, Generali concentrated on improving profitability and on defending the motor portfolio with interventions on the flexibility and development of smart-pricing models that enhance the value of the contribution offered by the new advanced analytics structure. The total decrease in motor (-1.3%) was then offset by a significant improvement in profitability in a market that is still strongly competitive. In the non-motor lines (+2.9%), the renewal of the product range through development of new associated services and products and the ever-increasing attention paid to improving the industrial processes and relevant levels of service led to a considerable increase in premiums (+2.9%), which benefitted from the good trend above all of the corporate and Employee Benefit lines. The combined ratio rose slightly due to a lower contribution of the previous generations and to a higher impact of the natural catastrophe claims as compared to 2018, only partially offset by an improvement in current claims above all associated with the motor segment.
Generali also successful continued to execute many initiatives part of The Human Safety Net programme. The programme, which initially supported refugees and their start-ups, was also extended to families with children in underprivileged situations in 2019. During 2019, Generali’s colleagues located in Germany were for the first time involved in the programme through corporate voluntary activities, and The Human Safety Net was hosted as part of the Bürgerfest initiative promoted by the President of the German Federal Republic.
In spite of the economic slowdown that commenced during the second half of the year, the performance of the insurance sector posted a positive trend. Thanks to expansion in the single premiums business, Life insurance grew beyond expectations (+11.3%). In confirming the trend seen in the previous years, Property & Casualty business grew with rates over 3%.
Life premiums grew by 7.2%, thanks to the contribution of all the business lines. Solid growth was seen in the unit-linked products (+7.4%) and protection products (+3.3%), in line with the Group’s strategic initiatives. The savings premiums went up 11.6% in both the single premium component, following the trend of the entire market, and in the recurring premium component, where the market was instead stagnant. The new business in terms of (PVNBP) increased significantly (+27.3%), affecting both the Life business (+25.6%) and the healthcare business (+47.8%) and the present value of future annual premiums (+27.2%) and single premiums (+27.7%). The business of all business lines is increasing; in particular, savings and pension products grew by 42.2%, protection products by 25.2% and unit-linked products by 16.6%. The profitability of the new business (stated as a percentage of the PVNBP) came to 2.73%, stable on equivalent terms, due to the reduction of guarantees offered on the new products that offsets the unfavourable economic context of reference. New business value grew by 27.4% and amounted to € 261 million.
Generali has been active in France since 1831 with one of the Group’s first foreign branches. The operating structure was consolidated toward the mid-2000s, when the merger of the various brands forming the Group led to the creation of one of the country’s largest insurance companies. Generali France operates with a multi-channel approach of agents, employed sales persons, brokers, financial advisors, banks, direct channels and affinity groups. The multiplicity of the distribution forms reflects the market segment served and the type of product sold, with focus always placed on the customer. Generali France boasts a leadership position in savings Life products distributed through internet and for the so-called affluent customers, just as holds true in the market of supplementary pensions for self-employed workers. The presence of professionals, SMEs and personal risks in the segments is also significant.
Like in the main geographical areas where the Group operates, in France as well initiatives aimed for the most part at consolidated the bond of trust in customer relations through their lifetimes were taken in the perspective of strengthening the brand and the image throughout the country. Furthermore, in 2019 the Group initiated a number of strategic initiatives in France as part of a project called Excellence2022 that envisages different streamlining and corporate business transformation actions over a three-year span. The main areas of intervention, also in terms of new investments, having - among other things - the purpose of increasing competitiveness in the country, are the Information Technology sector (Digital Transformation project), the claims management area and the costs sector, with rationalisation of the fixed structure costs. Considerable efforts are also put forth in the commercial area, with the objective of growing in the P&C market by diversifying the portfolio mix, and consolidation of the position in the savings sector by enriching the distribution of products with alternative and innovative formulas. This will be implemented on the one hand with actions to streamline the internal distribution network and, on the other, with development of external agency networks.
As regards the insurance market, although it slowed down compared to the previous year, 2019 was marked by a positive increase in Life insurance premiums (+3% compared to +4% of 2018) owing to the trend recorded in traditional products. While the volatility of the financial markets continues to slow down the demand for unit-linked products, the success of the hybrid solutions is growing, represented by the combination of traditional products together with unit-linked products.
Life premiums (+9.5%) are supported by the traditional savings policies (+11.7%) that this year, in particular, represented one of the forms of investment most appreciated for coping with the volatility of the markets. Despite this, the Group strategy continues to focus on development of both the unit-linked and the protection insurance coverage, whose growth during the year were 6.9% and 4.7%, respectively. With reference to the new business, good growth in PVNBP (+10.1%): both the present value of future annual premiums (+17.5%) and the single premiums (+9.1%) were up. The business of all business lines is increasing; in particular, savings and pension products grew by 14.0%, protection products by 8.5% and unit-linked products by 6.6%.
Property & Casualty premiums grew by 3.9%, driven by the motor business (+4.1%) where, in addition to the contribution of the new distribution partnerships started last year, several tariff adjustments aimed at coping with the evolution of claims were implemented. The non-motor business, as a whole up by 3.2%, received a sharp boost from the accident & health sector (+4.3%), which as well was favoured by the development of the new business collaborations. The improved combined ratio is mostly attributable to the drop in current claims, from 73.1% to 69.7%. The impact of natural catastrophe claims during the year compared to that recorded in 2018 also slightly dropped. As a whole, the improvement in claims management fully absorbed the increased costs rate, which went up from 27.7% to 28.5%. This was mainly due to the development of commercial partnerships.
The ACEER regional structure is the fourth most important market for Generali, in which the Group has strengthened its presence up to becoming one of the top insurance companies of the entire area. The scope comprises 12 countries: Austria (At), Czech Republic (Cz), Poland (Pl), Hungary (Hu), Slovakia (Sk), Serbia, Montenegro, Romania, Slovenia, Bulgaria, Croatia and Russia (Regional Office). The Group boasts its presence in the Eastern Europe territories since 1989. In 2008, a joint venture collaboration with PPF Holding started and ended in 2015, the year in which Generali acquired full control and powers over Generali CEE Holding. The year 2018 was affected by several important events, such as the entry of Austria, where Generali has been present since 1832, the year after the company’s foundation in Trieste, and Russia, where Generali is expanding. Also in 2018 Generali strengthened its presence in the CEE region with acquisitions in Slovenia (Adriatic Slovenica) and Poland (Concordia), in this way balancing and diversifying the portfolios, sales channels and presence in the area, and signed the collaboration agreement with Unicredit for the distribution of insurance solutions mainly concerning Credit Protection Insurance (CPI) in the entire region. In 2019, the acquisition in Poland of Union Investment TFI S.A from the German group Union Asset Management Holding AG was completed and the agreement to acquire all Life, P&C and Mixed portfolios of three companies of ERGO International AG in Hungary and the Slovakia was concluded, in line with Group strategy. This operation will allow the cross-selling opportunities to be exploited through the customer base and to increase it. The Group takes top rankings in the Czech Republic, Hungary, Serbia, Austria and Slovakia, and among the top ten in the other countries. In terms of volumes, main insurance markets are Austria, Czech Republic, Poland, Hungary, Slovakia and Slovenia. The contribution of the minor territories has improved during the last years, resulting in an increase of their gross written premiums on the total volume of the area. Lastly, Generali is leader in terms of technical profitability thanks to a medium-long term net combined ratio lower than 90%.
Macroeconomic growth continued in 2019 in the Czech Republic, the most important Eastern European country, with particular reference to the labour market, as a result leading to increased inflation. The Czech National Bank again raised the reference interest rate from 1.75% to 2%. In Austria, growth in GDP was lower than in 2018 and the yield of the Austrian bond dropped, just like the other core yields of the Eurozone, from 0.5% at the beginning of the year to -0.05% in early December.
The decrease in Life premiums is attributable to the fall in traditional savings and pension products (-4.6%, mostly recurring premium policies), followed by the reduction in unit-linked insurance coverage (-5.3%, first of all due to single premium policies), partly offset by the positive changes in the protection business (+8.4%). This trend is explained by the decreased volumes mainly in Poland (-10.5%, downward trend of bancassurance and the unit-linked products), Croatia (-30.3%, fall recorded in the traditional lines) and the Czech Republic (-1.1%, linked to the continual fall of the new business of savings and pension products in the subsidiary Ceska Pojistovna), only partly counter-balanced by the premiums growth in Hungary (+5.2%, driven by the protection and unit-linked lines), Romania (+33.7%, as the result of the partnership with the Unicredit bank), Slovakia (+5.3%) and Slovenia (+5.6%, thanks to the protection products distributed through the banking channel). Austria is stable. The new business in terms of present value of new business premiums (PVNBP) increased by 2.1% thanks to the growth of the present value of future regular premiums (+5.0%), which partially offset the drop in the single premiums (-4.6%).
P&C segment volumes grew supported by good performance of the main business lines. The motor business (+6.1%) is supported by the contributions provided by Hungary (+30.5% ascribable to an increase in vehicles), the Czech Republic (+4.8%, following the tariff adjustments on the inforce portfolio, followed by higher volumes recorded by the fleet and leasing segments resulting from cooperation with Volkswagen Financial Services), and Austria (+3.7% linked to the higher number of contracts). The non-motor business recorded 6.1% growth owing to the higher volumes coming mostly from Poland (+21%, driven by the Global Corporate & Commercial lines), Hungary (+8.7% mainly thanks to the home and accident & health lines), Serbia (+22% thanks to the accident & health lines) and Croatia (+81.8%, fully ascribable to the underwritten business through bancassurance with Unicredit).
The combined ratio dropped by 0.9 pps compared to 2018. This improvement is entirely due to the lower expense ratio and, more specifically, to the reduced acquisition ratio (-1.5 pps) arising from a lower commission rate in Eastern Europe, above all in the non-motor business. Loss ratio is stable, in spite of the considerable impacts tied to natural catastrophe claims that impact by 1.6 pps.
The combined ratio took a turn for the worse at 93.1% (+0.9 pps), mainly because of natural catastrophe events and higher costs tied to strategic projects.
Life premiums were down 2.0% following the slowdown in savings and pension products. The new business in terms of PVNBP stood at € 546 million, up 36.0% driven by both the increase in the present value of future annual premiums (+36.0%) and the single premiums (+35.1%). Growth over all the lines is seen at the business level. Specifically, it is very good for both the unit-linked products (+41.4%) and the protection products (+17.1%). The profitability of new business (expressed as a percentage of the PVNBP) showed a good increase from 4.35% in 2018 to 5.47% in 2019 mainly due to the increase in the profitability of the unit-linked business. The value of new business was € 30 million, up 72.9%. P&C premiums went up 1.1% thanks to the positive trend of the motor business following the new tariffs implemented starting from the second half of 2018. Non-motor business is basically stable. Combined ratio improved at 90.5% (-2.5 pps), mainly reflecting a positive prior years’ development.
Americas and Southern Europe Generali is ranked as the fifth operator in Argentina, which is the main South American market for the Group. It is marked by a historically high inflation rate and a volatile financial situation. Despite this tough scenario for the insurance business, the Group has implemented best practices in its Argentinian subsidiaries, enabling them to stand out in terms of service quality and innovation. The company Caja leads the market in Argentina, excluding the business lines in which it does not operate (Workers Compensation and Annuities). The second most important country of the Region is Brazil that, following an extended period of economic crisis and political instability, continues to show signs of improvement, bolstered by infrastructure investments and optimistic forecasts of the macroeconomic indicators. Specifically, the insurance sector today is characterised by significant expansion potential and a hike in the penetration level. The Generali Group also operates in Chile, Ecuador and the USA. In Southern Europe, the Group operates in Greece, Turkey and Portugal, where it has reinforced its strategic positioning through the acquisition, completed in early January
2020, of 100% of Seguradoras Unidas and AdvanceCare, becoming the second largest insurance Group of the country in P&C, and the third most important of the entire market.
In continuity with the Group strategy announced in 2017, the Investments, Asset & Wealth Management business unit is the main managerial entity of the Group operating in the area of investments, asset management and financial planning consultancy. In a continuously evolving market in which specialisation, efficiency and innovation are crucial elements in order to compete, Generali aims at becoming a company of reference in the asset management market not only for the insurance companies of the Generali Group, but also for third-party clients. This objective will continue to be followed for the entire duration of the three-year plan in order to: – exploit the cross-selling opportunities - by promoting the growth of a capital-light business such as the LDI (Liability Driven Investments) Solutions services - that set out to offer institutional clients the expertise developed in investment management; – expand the multi-boutique platform in order to increase the offer of products and services for all clients. The multi-boutiques are companies acquired on the market or created in partnership with operators having acknowledged investment skills in highly specialised asset classes.
Several acquisitions were concluded in 2019, including: Sycomore Factory SAS, a player of reference for the ESG/SRI investment solutions in France, KD Skladi in Slovenia, acquired through Adriatic Slovenica and Union Investments TFI S.A. in Poland (later renamed Union Generali TFI), the sixth largest asset management operator in Poland. Axis Retail Partners was also launched in the early months of 2019. It is a new real estate boutique focusing on shopping centre investments that, in light of the current economic scenario, offer interesting investment opportunities. The other boutiques operating in the Investments, Asset & Wealth Management business unit are: – Generali Global Infrastructure (GGI), a platform that employs internal know-how and also creates partnerships to invest in infrastructure debt across a wide geographical and sectorial investment scope; – Aperture Investors, an innovative asset management company based on a revenue model that is radically different from what is present on the market; – Lumyhna, a leading company in developing alternative UCITS (Undertakings for the Collective Investment of Transferable Securities) strategies, with an important international clientele that positively contributes to increasing Generali’s offer and distribution capacities to clients and distribution partners.
Our people negative performance of China, where a savings business with reduced margins weighs compared to previous year; the development of profitability in Vietnam (+7.86%) was on the other hand very positive owing to the excellent business of Universal Life sold to replace the low-profitability savings and pension products. The value of new business amounted to € 107 million, down by 14.3%. In the P&C segment, inflow grew by 26.3%, thanks to the non-motor line. The negative impact of the A&H businesses in Thailand and the Hong Kong determined an increase in the combined ratio of the Region, which amounted to 108.4%.
The main entities of Other companies in this area are: – Europ Assistance, falling within the scope of responsibility of the Country Manager France & Europ Assistance; – Generali Global Business Lines (GBL) which, falling within the scope of responsibility of the Country Manager & CEO of Generali Country Italia and Global Business Lines, support companies of global reach with a complete insurance offer. The GBLs include two units: Generali Global Corporate & Commercial and Generali Employees Benefits, which offer medium to large companies flexible and smart insurance services and solution in the Life and P&C segments, health protection and pension plans for local and global employees of multinational companies.
Europ Assistance (EA) Established in 1963, EA, which falls within the scope of responsibility of the Country Manager France, is one of the leading global brands in the field of private assistance. Today it is present in over 200 countries and territories, supported by its 41 assistance centres and its network of 750 partner suppliers. EA offers insurance coverage and assistance in the travel sector, the automotive area with road-side assistance, and personalised coverage for assisting the elderly, cyber-security, and medical and concierge services. In 2019, the EA Group’s total turnover came to € 1.9 billion, up 10% compared to the previous year. EA continues to pursue a growth strategy focused on strengthening its leadership position in the travel sector, at the same time expanding and diversifying its offer of motor and personal assistance products. The goal is to reach € 2.4 billion in revenues by 2022. One important step in this direction was taken in early 2019 with the acquisition of TripMate in the USA, a company operating in the travel insurance sector. Thanks to
Generali Employee Benefits (GEB) GEB is an integrated network that offers services for employees of multinational companies consisting of protection, life and health coverage, and pension plans for both local and expat employees. Located in over 100 countries and with more than 400 coordinated multinational programmes (of which about 40 captive), GEB today is the market leader for multinational companies with a premium volume of € 1.5 billion. GEB has been operating through the new branch in Luxembourg, entirely dedicated to the employee benefit business, since 2019. Furthermore, GEB includes Generali Global Health (GGH), a division of the Generali Group dedicated to the International Private Medical Insurance (IPMI) sector since September 2019. GGH achieved about € 0.2 billion in premium volume in 2019.
€ mln € mln € mln 31/12/2018 31/12/2018 31/12/2018 € mln 31/12/2018 31/12/2019 31/12/2019 31/12/2019 31/12/2019
The Life premiums increased by 4.5% to € 48,260 million thanks to a particularly favourable fourth quarter. With reference to the performance of the business lines, protection premiums increased by 7.6%, supported by the growth throughout the countries where the Group operates. Savings and pension policies also went up
Gross direct premiums by line of business at 31 December 2018
The profitability of new business (margin on PVNBP) fell by 0.49 pps, to 3.89% (4.35% at 31 December 2018), mainly because of the unfavourable economic context. The decrease was partially mitigated by the additional reduction of financial guarantees and by the improved business mix. The total new business value (NBV) decreased by 2.2% and stood at € 1,777 million (€ 1,877 million at 31 December 2018).
Insurance and other operating expenses ■ Technical margin■ Net investment result
The operating result of the Life segment stood at € 3,129 million, up 2.0% compared to € 3,607 million at year-end 2018, thanks to the positive development of the technical margin and investment result. The positive performance in Italy and France was partially offset by the operating performance in Switzerland, which reflected the impact of the low interest rates. The operating return on investments8, calculated on the higher value of investments following the trend of the markets, stood at 0.79% (0.83% at 31 December 2018).
8 Please refer to the Glossary for details on the calculation of this indicator. 9 Please refer to the chapter Methodological notes on alternative performance measures for details on the calculation of this indicator.
This margin did not include the insurance operating expenses, which were reported under the item Insurance and other operating expenses.
Net income from financial instruments at fair value through profit or loss 9,986 -6,349 n.m.
Policyholders' interests on operating income from own investments -17,793 -807 n.m.
This trend mainly reflected the lower impairments on equity securities following the positive market performance in 2019; – other operating net financial expenses, including interest expenses on liabilities linked to operating activities and investment management expenses, amounted to € -988 million (€ -931 million at 31 December 2018).
The net income from financial assets and liabilities related to unit- and index-linked contracts went from € -5,834 million at 31 December 2018 to € 9,784 million. This reversal in trend reflected the positive performance of some stock markets compared to the same period of last year, and the effect on the trend of the corporate securities due to the lower spread. The policyholders’ interests on operating income from own investments went from € -807 million at 31 December 2018 to € -17,793 million, mainly due to the related increase in income from financial instruments at fair value through profit or loss related to linked contracts.
The insurance and other operating expenses increased from € -4,587 million at 31 December 2018 to € -5,024 million. In particular, insurance operating expenses amounted to € -4,838 million (+7.6%). Following the increases in almost all of the major countries where the Group operates, the acquisition costs increased to € -3,903 million (+8.7%), essentially reflecting the development in premiums, and the administration costs grew to € -935 million (+3.2%).
The ratio of the acquisition and administration costs to premiums stood at 10.2% (9.9% at 31 December 2018), reflecting the increase in the acquisition component in Italy and ACEER. The ratio of the total administration costs related to insurance business to the average technical provisions remained substantially stable at 0.26%.
The non-operating result of the Life segment went from € -437 million at 31 December 2018 to € -342 million. The net non-operating income from investments improved, reflecting the lower net non-operating impairment losses, which stood at € -138 million (€ -279 million at 31 December 2018). Other net non-operating expenses went from € -165 million to € -190 million at 31 December 2018 following increased restructuring costs and other non-operating expense to complete the disposal of the German activities and the IT investments of the business units. This item also included € -62 million relating to the amortization of the value of the portfolios acquired (€ -58 million at 31 December 2018).
Acquisition and administration costs related to insurance business -4,827 -4,484 7.7%
Net fee and commission income and net income from financial service activities 26 16 63.3%
of which net income from financial assets and liabilities related to unit and indexlinked policies
Interest expense on liabilities linked to operating activities -204 -174 17.5%
(*) At 31 December 2019 the amount is net of operating taxes for € 52 million and of non-recurring taxes shared with the policyholders in Germany for € -27 million (at 31 December 2018 for € 52 million and € -6 million, respectively).
(*) PVNBP data are presented on historical basis, they include possible assets under disposal and do not isolate the contribution of companies in Group holdings and other companies.
(*) The data relating to Operating result also include country adjustments.
(€ million) Savings and Pension Protection Unit-linked Total 31/12/2019 31/12/2018 31/12/2019 31/12/2018 31/12/2019 31/12/2018 31/12/2019 31/12/2018
(*) The breakdown by line of business at 31/12/2018 was restated to be more coherent with the features of some products in Germany and Asia.
At 31 December 2019, total investments in the Life segment showed a considerable increase of 13.2% over 31 December 2018, amounting to € 415,070 million. General accounts investments amounted to € 336,595 million (+11.8%), while the investments back to unit/index-linked policies amounted to € 78,475 million (+19.3%). The exposure in absolute terms to fixed income instruments increased, standing at € 293,618 million (€ 266,502 million at 31 December 2018), with a weight to total remaining slightly down (from 88.5% to 87.2%). Also that to equity instruments went up, with an exposure of € 17,118 million (€ 12,820 million at 31 December 2018). The Group’s investment properties slightly rose to € 9,169 million (€ 8,827 million at 31 December 2018). Finally, cash and other cash equivalents increased both in absolute terms and in relative terms, which stood at 2.5% (2.1% at 31 December 2018).
With reference to the bond portfolio breakdown, the exposure to government bonds increased, standing at € 157,262 million (€ 142,144 million at 31 December 2018), with a weight to bond portfolio equal to 53.6% (53.3% at 31 December 2018). The change during the period was mostly due to the increase in value of the securities in portfolio, together with the effect of the purchases made during the period. Corporate bonds also increased to € 103,678 million (€ 100,758 million at 31 December 2018), equal to 35.3% (37.8% at 31 December 2018). The trend was mainly due to the increase in value generated by the context of interest rates. The average duration of the bond portfolio was 8.9 (8.4 at 31 December 2018), in line with the Group’s ALM strategy.
The net current return on investments in the Life segment posted a decline, falling from 3.1% at 31 December 2018 to 2.9%, with the related current income increasing slightly to € 9,509 million (€ 9,489 million at 31 December 2018).
The contribution to the result of the period from the harvesting transactions showed a reversed trend, standing at 0.4% (-0.1% at 31 December 2018), owing to a lower impact of impairments and to a slight increase in net realized gains.
Life technical provisions and financial liabilities - excluding deferred liabilities to policyholders - amounted to € 369.385 million. The increase on an equivalent consolidation area stood at 7.6% and reflected the increase in both the provisions relating to the traditional business (+4.7% on an equivalent consolidation area) and those regarding the unit-linked portfolio (+19.6% on an equivalent consolidation area). The positive effect of the net inflows was added to the positive performance of financial markets, reflected in the evolution of these provisions. The deferred liabilities to policyholders stood at € 18,650 million (€ 10,584 million at 31 December 2018), reflecting the change in the investments value, particularly in government bonds.
Positive trend in gross written premiums (+3.9%) thanks to the growth of both lines of business.
Operating result at € 2.1 billion (+3.3%), including € 413 million of natural catastrophe claims.
Our performance Risk Report € mln 31/12/2018 31/12/2018 31/12/2019 31/12/2019 € mln 31/12/2018 31/12/2019
The Property & Casualty (P&C) premiums continued the growth observed during 2019, standing at € 21,526 million, up 3.9% thanks to the positive performance of both business lines.
The operating result of the P&C segment amounted to € 2,057 million (€ 1,992 million at 31 December 2018), up 3.3% following growth of the technical result. The operating return on investments10 of the P&C segment remained stable at 5.2%.
The technical result amounted to € 1,391 million, up by 10.7% compared to 31 December 2018 thanks to the 0.4 pps improvement recorded in the Group combined ratio. The combined ratio of the Group stood at 92.6%, the best amongst peers in the market. This result included the impact of natural catastrophe claims for approximately € 413 million, mainly deriving from the bad weather that affected Central Europe and Italy in June, as well as storms and floods. Similar events had an impact of approximately € 342 million at 31 December 2018. The impact of large man-made claims dropped. The increase in the acquisition costs results from the growth in premiums previously discussed.
The improved Group combined ratio (92.6%; -0.4 pps compared to 31 December 2018) was entirely attributable to the trend of the loss ratio, only partially offset by the rising costs rate.
Administration costs rose from € 1,030 million to € 1,084 million, up by 5.2% due to widespread increases in the various countries where the Group operates, except for Italy. The ratio of costs to net earned premiums is however stable at 5.3%.
Acquisition and administration costs related to insurance business -5,779 -5,468 5.7%
Net operating income from financial instruments at fair value through profit or loss 39 84 -53.5%
Net impairment losses on other financial instruments and land and buildings (investment properties)
(€ million) Gross written premiums Operating result 31/12/2019 31/12/2018 31/12/2019 31/12/2018
Group holdings and other companies (*) 1,520 1,396 61 59 of which Europ Assistance 873 834 100 95
Combined ratio (*) Loss ratio Expense ratio 31/12/2019 31/12/2018 31/12/2019 31/12/2018 31/12/2019 31/12/2018
Property & Casualty direct written premiums by line of business and by country
(€ million) Motor Non-motor Total 31/12/2019 31/12/2018 31/12/2019 31/12/2018 31/12/2019 31/12/2018
Group holdings and other companies 43 34 965 929 1,008 963
The net current return on investments in the P&C segment remained basically unaltered compared to 31 December 2018, standing at 3.0%, with the related current income amounting to € 1,183 million (€ 1,180 million at 31 December 2018).
The Asset Management segment includes the activities exercised by Asset Management companies operating within the Group. This segment operates as a provider of products and services both to the insurance companies of the Generali Group and to third-party clients. The products include equity and fixed-income funds, as well as alternative products. The aim pursued by Asset Management is to identify investment opportunities and sources of growth for all of its clients, while managing risks.
The operating result of the Asset Management segment stood at € 425 million, up by 27%. This performance was largely due to the increase in operating revenues, amounting to € 813 million (+34%), due to the good performance of the market as a whole, to the consolidation of revenues of the new multi-boutiques which saw an increase particularly in the third-party client component, and to the transaction fees realized by the company engaged in real estate following the sale of property assets. The fees and commissions component amounted to € 738 million (€ 545 million at year-end 2018), increasing by 35%. Performance fees, zero in 2018, posted a value of around € 11 million. Operating expenses rose by 43%, equal to € 388 million, as a consequence of both integration of the new multi-boutiques and the higher costs associated with strengthening of the central and control structures.
The net profit of the Asset Management segment stood at around € 280 million (+19%).
Fee and commission income and income from financial service activities 623 470 32.6%
Net operating income from financial instruments at fair value through profit or loss 1 3 -51.2%
The Holding and other businesses segment includes the activities of the Group companies in the banking and asset management sectors, the costs incurred for the direction, coordination and financing activities, as well as all other operations that the Group considers to be ancillary to the core insurance business.
Operating holding expenses amounted to € -529 million (€ -467 million at 31 December 2018), reflecting the higher costs linked to the strategic projects of the Group (including IFRS 17 and IFRS 9 implementation), the costs relating to the Employee Stock Ownership Plan (WeShare) and the costs for implementing strategic initiatives in the business units.
Fee and commission income and income from financial service activities 578 441 31.0%
Interest expenses on liabilities linked to to operating activities -129 -97 33.0%
When addressing the Group’s risk profile, it is important to consider that the insurance sector is mostly vulnerable to financial markets and the macro-economic landscape. Generali has proven to be resilient to both financial risks and credit risks. Nevertheless, financial instability and the persistently low interest rate environment still represent the key challenges for the insurance sector and Generali Group as well.
Insurance industry risk management system is focused on financial, underwriting, operational (among which Cyber and IT) and other risks, such as liquidity and strategic risks. At the same time, new vulnerabilities are recognized in emerging trends and future risks, such as the climate change, digitalization, geopolitical instability and demographic changes. While focusing on these risks, ESG (environmental, social and governance ) factors are increasingly recognized as relevant. In particular, among ESG related (or so-called sustainability ) risks, climate change is prioritized as the most important of all.
Challenges and opportunities of the market context, p. 18 for more details on financial markets’ developments, climate change, demographics and digitalization
In addition to the financial environment, regulatory developments represent a major external driver of threats and opportunities. These include developments in the area of prudential supervisory regimes, such as the review of Solvency II (so-called Solvency II 2020), Insurance Capital Standards (ICS), as well as regulations on sustainability and accounting (IFRS17 and IFRS9).
1 Approval for the two major Spanish entities has been granted on 29 November 2019.
The Group uses its Partial Internal Model (PIM), which has been approved by the Supervisory Authority, to calculate capital requirements to better reflect its risk profile. The Group PIM authorization was granted for all major Business Units, being Italy, Germany, France, Austria, Switzerland, Czech Republic and Spain1 and an extension plan is in progress to cover the operational risk evaluation under Internal Model. The Solvency Ratio is calculated with the PIM for the Group Legal Entities for which authorization has been granted, while other insurance entities adopt the standard formula. Other financial regulated entities contribute to the Group Solvency Ratio based on local sectorial regulatory requirements (mostly banks, pension funds, and asset managers).
Based on this, the Solvency Ratio amounts to 224% as at 31 December 2019, confirming the strong capital position of the Group, well above the tolerances and within the operating target range defined in the Group Risk Appetite Framework.
Generali Group risk management system is based on a system of governance and structured risk management processes, defined within a set of risk policies in the broader Generali Internal Regulation System (GIRS).
In addition to ORSA, the Group also relies on a set of tools, such as the Recovery Plan, the Liquidity Risk Management Plan and the Systemic Risk Management Plan, defined following the Financial Stability Board
(FSB) and the International Association of Insurance Supervisors (IAIS) standards2 as well as the most recent Supervisory Authority requirements.
More details on the solvency position and risk profile are then provided in the Solvency and Financial Condition Report (SFCR), available on Generali Group website.
2 Generali Group is not included in the list of Global Systemically Important Insurers (GSIIs), issued by FSB.
Risk governance is a part of the broader Group system of governance.
The Group system of governance, which includes the internal control and risk management system, consists of the roles and responsibilities of the Administrative, Management or Supervisory Body (AMSB), of the Senior Management and of the Key Functions. It also consists of the policies, administrative and accounting procedures and organizational structures aimed at identifying, evaluating, measuring, managing and monitoring the main risks.
To ensure a consistent framework through the Group, the Parent Company sets Group Directives on the System of Governance, complemented by Group internal control and risk management policies, which have to be applied by all Group Legal Entities.
Key roles within the internal control and risk management system are outlined below: – the AMSB is the ultimate responsible for the system of governance and must ensure that the Group Legal Entities’ system of governance and internal control and risk management system are consistent with all the applicable regulations. To this end, the AMSB, supported by the Key Functions, reassesses the system of governance adequacy periodically and at least once a year. The AMSB approves the Group Legal Entities’ organizational set-up, establishes the Key Functions defining their mandate and reporting lines as well as, where appropriate, any support committee, adopts Group internal control and risk management policies, performs the duties related to the ORSA, risk concentration and intragroup transactions, approves the ORSA results and based on them defines the risk appetite; – the Senior Management is responsible for the implementation, maintenance and monitoring of the system of internal controls and risk management, including risks arising from non-compliance with regulations, in accordance with the directives of the AMSB; – Key Functions are established at Group level and within the Group Legal Entities: – the Risk Management Function supports the AMSB 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 that the organizational and the internal procedures are adequate to manage the risk to incur in administrative or judiciary fines, economic losses or reputational damages as a consequence of non-compliance with laws, regulations, provisions, and the risk deriving from unfavourable changes in the law or judicial orientation (compliance risk); – the Actuarial Function coordinates the technical provisions calculation and grants the adequacy of underlying methodologies, models and assumptions, verifies the quality of the related data and expresses an opinion on the overall Underwriting Policy and on the adequacy of reinsurance arrangements; – the Internal Audit Function verifies business processes and the adequacy and effectiveness of controls in place also proving support and advice.
Heads of Key Functions report to the AMSB. Group Key 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 Key Functions is granted by the so-called solid reporting lines model established between the head of the Group Key Function and heads of the respective functions within the operating entities.
The principles defining the Group risk management system, including strategies, processes and reporting procedures, are provided in the Risk Management Group Policy3, which is the cornerstone of all risk-related poli1. Risk identification 2. Risk measurement 3. Risk management and control 4. Risk reporting cies and guidelines. The Risk Management Group Policy covers all risks, on a current and forward-looking basis, and is implemented in a consistent manner across the Group. Generali Group’s risk management process is defined in the following phases: 3 The Risk Management Group 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; P&C Underwriting and Reserving Group Policy; Life Underwriting and Reserving Group Policy; Group Operational Risk Management Policy; Liquidity Risk Management Group Policy; other risk-related policies, such as Group Capital Management Policy, Supervisory Reporting & Public Disclosure Group Policy, Group Risk Concentrations Management Policy, etc..
4 Major details on emerging risk definition are provided in section D. Risk Profile. 5 The PIM use for the SCR calculation at Group level has been approved for the insurance entities in Italy, Germany, France, Austria, Switzerland, for the biggest Czech company
The risks which the Group is exposed to are managed on the basis of the Group Risk Appetite Framework (Group RAF), defined by the Board of Directors of Assicurazioni Generali S.p.A. (hereafter, Board of Directors). 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. In particular, the Group RAF includes the statement of risk appetite, the
The purpose of risk reporting is to keep business functions, Senior Management, AMSB and Supervisory Authority aware and informed on the development of the risk profile, the trends of single risks and the breaches of risk tolerances on an ongoing basis.
The ORSA process includes the reporting on the assessment of all risks, in a current and forward-looking view. The ORSA process includes the assessment of all risks, quantifiable and not in terms of capital requirements. Within the ORSA, stress test and sensitivity analyses are also performed to assess the resilience of the solvency position and risk profile to changed market conditions or specific risk factors. Generali Group applies a Group-wide process, which implies that each Group Legal Entity is responsible for the preparation of its own ORSA Report and the Parent Company coordinates the Group ORSA reporting process.
The purpose of the ORSA process 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. The Group ORSA Report, documenting main results of this process, is produced on an annual basis. A non-regular ORSA Report can also be produced in case of significant changes of the risk profile.
Risk and capital management are closely integrated processes aimed at managing the Group’s solvency position and the Group’s risk profile.
The solvency position is defined as the ratio between Group Own Funds (GOF) and Solvency Capital Requirement (SCR).
The Solvency Ratio7 as at 31 December 2019 is equal to 224%. The increase in respect to previous year (+8 pps) is mainly attributable to the solid contribution of the capital generation, that has more than compensated the impact of the foreseeable dividend and the partial redemption of subordinated debt.
– the excess of assets over liabilities as defined in accordance with art. 75 of Directive 2009/138/EC; – plus subordinated debt eligible in basic own funds; – less foreseeable dividends; – plus additional own funds related to unrealised capital gains from French pension activities arising from the application of the IORP8 transitory regime9; – less deductions for participations in sectoral entities; – less deduction for regulatory filters applied to non-available items at Group level, restricted own funds items and shares of the parent company.
Impact of filter for non-availability & minorities and other deductions -1,011 -1,457
Reconciliation between IFRS equity and Solvency II excess of assets over liabilities
The GOF split by tiers is reported in the following table: Group own funds by tiering
The main elements of reconciliation from the IFRS shareholders ’ equity (€ 29,386 million) to the Solvency II excess of assets over liabilities (€ 40,756 million) are the following: – intangibles (€ -11,236 million) not recognised under Solvency II and including also the IFRS goodwill related to non-insurance operations; – mark to market of assets: this adjustment (€ 8,936 million ) is primarily due to the fair valuation of real estate assets. The negative mark to market of bonds and other assets is due to the impact of French IORP bonds, equities, investment fund units and derivatives that are recognised at fair value for IFRS purposes and kept at cost in the Solvency II balance sheet (the IORP eligible unrealised gains emerge in the movement from excess of assets over liabilities to basic own funds). The significant change to fair value of participations is mainly driven by the increase of the quoted market value of Banca Generali; – mark to market of liabilities: this adjustment (€ 20,374 million) is primarily due to net technical provisions (€ 21,385 million deriving from the difference between IFRS and Solvency II valuation); – impact of net deferred taxes (€ -6,704 million) is a consequence of the change to fair value of the items reported above.
The SCR covers underwriting, financial, credit and operational risks as follows: SCR split by risk
(2) Credit risk includes default risk, spread widening and rating migration risks for PIM entities.
(3) Within this category other regulated financial entities are included (e.g. IORP, banks etc.).
2019 Group own funds are mainly composed by high-quality capital. Tier 1 counts for about 86.7% of the total (87.8% in 2018), tier 2 represents 13.2% (12.1% in 2018) and tier 3 only 0.2% of the total (0.1% in 2018). The minor changes in the tier 1 restricted and tier 2 mainly reflect the liability management operations occurred during 2019. No eligibility filters are triggered thanks to the high-quality of the capital-tiering.
The calibration procedure involves quantitative and qualitative aspects. The aggregation process uses advanced mathematical techniques following market best practices.
In implementing the PIM, the Group has adopted the socalled Monte-Carlo approach with proxy functions to determine the Probability Distribution Forecast (PDF) of the 10 The SCR, MCR and OF calculations disclosed are based on the last available information. More details on the Solvency Ratio will be disclosed in the Solvency and Financial Condition Report.
11 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 Requirement. No capital from sectoral is considered.
To rule the activities related to the Internal Model developments necessary to ensure its appropriateness over time and, more in general, to support the Internal Model change process, the Group Internal Model Change Policy has been also defined with the aim to specify roles and responsibilities in the implementation of major and minor changes.
A dedicated committee, the Internal Model Committee, has been established to approve Group PIM calibrations, to support the Group Chief Risk Officer (GCRO) in the decision-making process on Group PIM developments or model changes and to control the full model lifecycle, assuring proper compliance with the Group Internal Model Governance Policy. This Committee is chaired by the Model Design Authority, in the person of the Head of Group Enterprise Risk Management, responsible for ensuring the overall consistency and reliability of the Group PIM. The members of the Internal Model Committee are all the Model Owners and the Model Design Authority and possibly further participants required by the Model Design Authority.
The GCRO 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 GCRO is also responsible for defining the methodology of each model component, based on the Group Internal Model Committee’s proposals, as well as for the results ’ production and ultimately for submitting the relevant Internal Model supporting documentation to the Board of Directors and to the Risk and Control Committee.
The Board of Directors, assisted by the Risk and Control Committee, ensures the ongoing appropriateness of the design and operations, the ongoing compliance of the Group PIM and also that the Group PIM continues to appropriately reflect the risk profile of the Group.
The Group PIM is subject to validation review on an ongoing basis, which aims to gain independent assurance of the completeness, robustness and reliability of the processes and results of the Group PIM as well as their compliance with the Solvency II regulatory requirements.
The Internal Model validation process excludes those aspects covered by the assurance work of the Group Actuarial Function (i.e. technical provisions and related IT systems, actuarial platforms and their governance). Furthermore, the validation process also serves as an incentive mechanism to ensure timely and accurate incorporation of modelling refinements.
In order to warrant the appropriateness of the array of elements contained within the Group PIM, the validation covers both the quantitative and qualitative aspects of the Internal Model and is therefore not limited to the calculation engine and methodology. Other important items such as data quality, documentation and uses of the Internal Model are validated accordingly.
Life and health underwriting risks derive from the Group’s core insurance business in the life and health segment. The major part of the business and the related risks derive from direct portfolio underwritten by the Group. Health business represents a minor component of the portfolio.
The life portfolio is given by traditional business, which mainly includes insurance with profit participation, and unit-linked products. The prevailing component of traditional business includes products with insurance coverage linked to the policyholders’ life and health. It also includes pure risk covers, with related mortality risk, and some annuity portfolios, with the presence of longevity risk. The vast majority of the insurance coverages include legal or contractual policyholder rights to fully or partly terminate, surrender, decrease, restrict or suspend the insurance cover or permit the insurance policy to lapse, or to fully or partially establish, renew, increase, extend or resume the insurance or reinsurance cover. For these reasons, the products are subject to lapse risk.
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.
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 undertaken.
Non-life underwriting risks arise from the Group’s insurance business in the P&C segment.
Management Report, Property & Casualty segment indicators by country, for volumes of premiums and related geographic breakdown
Non-life underwriting risks are measured by means of the Group PIM15. 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.
At the same time, there is a constant on-going improvement to consider risk metrics within profitability metrics and to use risk adjusted KPIs in decision making processes.
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 Legal Entities 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 Legal Entity.
Reinsurance is the key mitigating technique for balancing the P&C portfolio. It aims to optimize the use of risk capital by ceding part of the underwriting risk to selected counterparties, whilst simultaneously minimizing the credit risk associated with such operations.
Generali Group traditional life savings business is longterm in nature; therefore, the Group holds mostly longterm investments which have the ability to withstand short-term decreases and fluctuations in the market value of assets.
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 Asset Liability Management (ALM) and the Strategic Asset Allocation (SAA) within the same process. The aim of the ALM&SAA process is to define the most efficient combination of asset classes which, according to the Prudent Person Principle, maximizes the investment contribution to value creation, taking into account solvency, actuarial and accounting indicators. The aim is not just to mitigate risks but also to define an optimal risk-return profile that satisfies both the return target and the risk appetite of the Group over the business planning period. The assets’ selection is performed by taking into consideration the risk profile of the liabilities held in order to satisfy the need to have appropriate and sufficient assets to cover the liabilities. This selection process aims to guarantee the security, quality, profitability and liquidity of the overall portfolio, providing an adequate diversification of the investments.
Regarding specific asset classes such as (i) private equity, (ii) alternative fixed income, (iii) hedge funds, (iv) derivatives and structured products, the Group has mainly centralized their management and monitoring. These kinds 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 Group also uses derivatives with the aim of mitigating the risk present in the asset and/or liability portfolios. The derivatives help the Group to improve the quality, liquidity and profitability of the portfolio, according to the business planning targets. Operations in derivatives are likewise subject to a regular monitoring and reporting process.
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 potentially long period. If the yields generated by the financial investments are lower than the guaranteed return during this period, then the Group shall compensate the shortfall for those contractual guarantees. In addition, independently on the achieved asset returns, the Group has to secure that the value of the financial investments backing the insurance contracts remains sufficient to meet the value of its obligations.
In more detail, the Group is exposed to the following generic financial risk types: – equity risk deriving from the risk of adverse changes in the market value of the assets or in the value of liabilities due to changes in the level of equity market prices which can lead to financial losses; – equity volatility risk deriving from changes in the volatility of equity markets. Exposure to equity volatility is typically related to equity option contracts or to insurance products sold with embedded guarantees whose market consistent value is sensitive to the level of equity volatility; – interest rate risk, defined as the risk of adverse changes in the market value of the assets or in the value of liabilities due to changes in the level of interest rates in the market. The Group is mostly exposed to downward changes in interest rates as lower interest rates increase the present value of the promises made to policyholders more than the value of the assets backing those promises. As a result, it may become increasingly costly for the Group to maintain its promises, thereby leading to financial losses. Linked to that, interest rate volatility risk derives from changes in the level of interest rate implied volatilities. This comes, for example, from insurance products sold with embedded minimum interest rate guarantees whose market consistent value is sensitive to the level of interest rates volatility; – property risk deriving from changes in the level of property market prices. Exposure to property risk arises from property asset positions; – currency risk deriving from adverse changes in exchange rates; – concentration risk deriving from asset portfolio concentration to a small number of counterparties.
Notes, Investments, for further details on the Group’s key figures and details on financial assets
17 For the scope of the Group PIM please refer to section A. Executive Summary. Entities not included in the Group PIM scope calculate the capital requirement based on standard formula.
Credit risks include the following two categories: – spread widening risk, defined as the risk of adverse changes in the market value of debt security assets. Spread widening can be linked either to the market’s assessment of the creditworthiness of the specific obligor (often implying also a decrease in rating) or to a market-wide systemic reduction in the price of credit assets; – default risk, defined as the risk of incurring in losses because of the inability of a counterparty to honour its financial obligations.
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, which treats bonds issued by EU Central Governments and denominated in domestic currency as exempt from credit risk. The SCR for credit risk amounts to € 7,045 million before diversification (equal to 23% of total SCR before diversification ). Credit risk is mostly driven by spread risk on fixed income securities, while the contribution to SCR of the counterparty risk (including reinsurance default) remains more limited.
Operational risk is the risk of loss arising from inadequate or failed internal processes, personnel or systems, or from external events. The definition includes the compliance risk and financial reporting risk and excludes the 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 ensures an early identification of the most severe threats across the Group. In doing so, it provides management at all levels with a holistic view of the broad operational risk spectrum that is essential for prioritizing actions and allocating resources in most risk related critical areas.
The SCR for operational risk amounts to € 2,188 million before diversification (equal to 7% of total SCR before diversification). The SCR for operational risk is calculated based on standard formula.
The Group is exposed to liquidity risk from its insurance and reinsurance operating activity, due to the potential mismatches between the cash inflows and the cash outflows deriving from the business. Liquidity risk can also stem from investing activity, due to potential liquidity gaps deriving from the management of the asset portfolio as well as from a potentially insufficient level of liquidity in case of disposals (e.g. capacity to sell adequate amounts at a fair price and within a reasonable timeframe). Liquidity risk from financing activity is related to the potential difficulties in accessing external funding or in paying excessive financing costs. The Group can be also exposed to liquidity outflows related to issued guarantees, commitments, derivative contract margin calls or regulatory constraints.
The Group liquidity risk management framework relies on projecting cash obligations and available cash resources over a 12-month time horizon, to monitor that available liquid resources are at all times sufficient to cover cash obligations that will become due in the same horizon. A liquidity risk metric (liquidity indicator) has been de-
The changes in terms of percentage points in respect to baseline scenario as at 31 December 2019 (Solvency Ratio equal to 224%) are the following: Sensitivity Analysis
Delta on Solvency Ratio +12 pps -14 pps -15 pps +1 pps +5 pps -7 pps
During 2020, following EIOPA’s review of the Solvency II risk free rates term structure, the UFR (Ultimate Forward Rate) will be further modified (for Euro, the UFR will be decreased by 15bps): the anticipated impact of such change as at 31 December 2019 Solvency Ratio amounts to -2 pps.
The strategy to rebalance the Group Life portfolio will continue in order to further strengthen its profitability, following a more efficient capital allocation approach. The Generali brand continues to be consolidated by simplifying and innovating the range of product solutions which will be marketed through the most suitable, efficient and modern distribution channels that are increasingly based on digital processes. As a result, actions dedicated to Life portfolio enhancement continue: – new business growth based on the selective development of sustainable business lines such as protection and health, and on capital-light savings and investment insurance solutions. The development of these 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. In particular, for products in the protection and health line, we aim to offer modular solutions in which traditional risk coverage is combined with substantial service packages for an even more concrete management and resolution of the critical issues covered. Amongst the capital-light products, unit-linked target products are increasingly characterized by financial mechanisms that are capable of coping with potential market contractions (e.g. protected funds) and of mitigating risk (e.g. selection of volatility-controlled funds); – with regard to in-force business, actions dedicated to strengthening relations with existing customers on the basis of an updated analysis of current insurance needs; – actions on the Life portfolio in general, which will have a new important focus on senior customers, a market segment with substantial development potential.
The Group will follow up on the positive results of the rebalancing of the business mix while emphasizing the focus on market positioning in terms of premiums. Premium trends will continue to reflect a careful underwriting policy, in line with the common Group goals and driven by a focus on the central importance of customers’ interest, as well as the value of the products and the risk appetite framework.
Our objective in the Property & Casualty segment is to maintain the upswing trend of premium income combined with outstanding profitability in the mature insurance markets in which the Generali Group is present, and at the same time strengthen ourselves in the high growth potential markets by expanding our presence and offer on the territory. Additional profitability is expected to be recovered in the motor business, although in a strongly competitive and quickly evolving context. Indeed, there is a switch from vehicle insurance to insuring the person/household in the broad sense of mobility, in which customers are accompanied in their movements and protected in a sustainable and door-to-door integrated manner in their everyday lives. Climate change and a growing sensitivity to sustainable behaviour is influencing the electric vehicle market, which requires that we review and re-modulate our products and services. The digital transformation, with
The fixed-income investment strategy aims to diversify the portfolio, both within the sector of government bonds as well as in terms of corporate bonds, in order to guarantee adequate profitability to policyholders as well as a satisfactory return on capital while maintaining a controlled risk profile.
The Group’s priority is to accompany growth with a strong commitment to sustainability, which is based on concrete and precise objectives relating to good corporate governance, the care of our people and the communities in which we operate. We will continue on our path of full integration of sustainability into our key activities, with a focus to the environment, both as regards direct impacts and in relation to the insurance solutions offered and investment decisions. Our new materiality matrix identifies the most material mega trends on which the Group’s common strategic initiatives will focus in the coming years.
By leveraging all of these initiatives and in light of the sound results achieved at the end of 2019, the Group confirms its targets announced for the next three years which forecast an increase in earnings per share of between 6% and 8%, an average RoE of more than 11.5% and a target dividend payout ratio between 55% and 65%.
Consolidated Non-Financial Statement pursuant to legislative decree of 30 December 2016, no. 254 as amended
In 2019, we developed the materiality analysis process methodology by concentrating our efforts on the identification and assessment of the mega trends, i.e. the large social, environmental and governance transformations, which is expected to be able to change the world of enterprises, society and the natural environment significantly over a tenyear horizon, and this entails risks and opportunities for the Group, its value chain and its stakeholders.
Compared to the previous materiality analysis, this approach supports a strategic interpretation of the context in which we operate, in a forward-looking perspective. The focus is on the assessment of the changes in the scenario that the Group and its stakeholders consider as the most urgent The Statement reflects this approach: it focuses on the most material megatrends identified and describes the management tools in place to mitigate risks and seize opportunities related to them. The following activities were carried out to identify the material aspects: - identification of the potentially material mega trends in connection with the Group’s activities, strategy and countries which were identified based on public scenario analysis documents and sustainable development research drawn up by international non-government institutions and associations, think tanks, and trade associations and forums in the industry; - assessment of the mega trends, aggregating2 the viewpoint of the internal and external stakeholders, with which it was asked to order by priority the identified mega trends, considering both their potential impact on Generali and the possibility that they are influenced by us, also through our value chain, consistent with the perspective of the double materiality. This perspective, that considers both the financial materiality and the social and environmental materiality for each mega trend, was introduced by the non-binding Guidelines on reporting non-financial information adopted by the European Commission and afterwards picked up by ESMA. Over 120 top managers at the Group Head Office and business unit levels were involved internally through interviews and focus groups. To guarantee adequate consideration of the risk component of the identified mega trends, the internal assessment considered the results of the Group Own Risk and Solvency Assessment process.
1 The International Integrated Reporting Council (IIRC) is a global coalition of regulators, investors, companies, standard setters, the accounting profession and NGOs; <IR> stands for Integrated Reporting.
2 The assessment was made using an approach based on the consolidation of the results of multiple repetitive analysis cycles conducted with groups of experts (so-called Delphi method).
Risk Report, p. 101 of the Annual Integrated Report and Consolidated Financial Statements 2019
The assessment of the external stakeholders3 was supplemented by the analysis of the investment policies of 20 large SRI and traditional investors, the results of opinion polls conducted by Eurobarometer involving a sample of over 114,000 people in Europe, and the analysis of a survey conducted with the sustainability managers of roughly 190 multinational companies. Furthermore, about 1,700 company reports, 2,600 rules and bills of law, 4,000 articles published online and over 108 million tweets published between April and October 2019 were analysed using Artificial Intelligence technology and computational linguistics with the support of a specialised provider; - processing of the Group materiality matrix, previously discussed by the Governance and Sustainability Committee and the Board of Statutory Auditors, and then approved by the Board of Directors on 6 November 2019. The Group’s new materiality matrix identifies three materiality clusters: 1. cluster 1: it comprises mega trends found by Generali management and stakeholders to be the most material, on which the common Group strategic initiatives and their reporting will be focused; 2. cluster 2: it comprises the mega trends found alternatively by Generali management and stakeholders to be of considerable relevance, and that will be the basis for potential projects developed by specific business units or functions; 3. cluster 3: it comprises those mega trends that based on the opinion of General management and of the stakeholders are of minor relevance compared to the other factors analysed.
3 The opinions of the external stakeholders - 50 opinion leaders representing the major stakeholder categories, such as customers, investors, employees, representatives of the Group’s workers (European Works Council), regulatory institutions and authorities, enterprises and trade associations in the industry, universities and research centres, NGOs and future generations - were collected both through direct engagement activities and indirectly with the use of artificial intelligence technology and computational linguistics for the quantitative analysis of a large number of document sources .
4 The following matters envisaged by leg. decree 254/2016, art. 3, paragraph 2 are not material: water use, air pollutant emissions and impact on health and safety.
In order to monitor the processes for the non-financial information collection, we have implemented an internal control system. Specifically, we have drafted a manual that not only defines the indicators and relevant scope of reporting, but also includes a standard catalogue of control objectives applicable to the processes at both the Group Head Office and each contributing company level. The internal control model currently used is therefore based on a streamlined approach that allows the control activities implemented to be identified and assessed. This model leverages and is consistent with the control approach adopted for the financial reporting to the market.
5 They represent the categories in line with the provisions of the European directive 2009/138 on the taking-up and pursuit of the business of insurance and reinsurance (Solvency II). Please refer to the Risk Report chapter in the Annual Integrated Report and Consolidated Financial Statements 2019 for their specific management.
Total emissions Purchased renewable energy Premiums from environmental products Insurance exposure to clients of the coal sector Engagement activities with companies of the coal sector New green and sustainable investments Direct investments to which the Responsible Investment Guideline is applied Sustainable and Responsible Investments Engagement activities
Emerging risks with foreseeable developments on strategic, underwriting and operational risks
Women empowerment and minorities inclusion 4) Respect for human rights Growing expectations toward corporate purpose, sustainability practices and transparency
The following table connects the megatrends mentioned above to the five matters envisaged by leg. decree 254/2016, including the related main risk categories and pages of the Report in which they are reported. It also highlights our support for the Sustainable Development Goals of the United Nations.
Sede Legale: Via Lombardia, 31 - 00187 Roma Capitale Sociale Euro 2.525.000,00 i.v.
We have been appointed to perform a limited assurance engagement pursuant to Article 3, paragraph 10, of Legislative Decree 30 December 2016, n. 254 (hereinafter "Decree") and article 5 of CONSOB Regulation adopted with Resolution 20267/2018, on the consolidated disclosure of nonfinancial information of Assicurazioni Generali S.p.A. and its subsidiaries (hereinafter the "Group") for the year ended 31 December 2019 in accordance with article 4 of the Decree presented in the specific section of the Annual Integrated Report and Consolidated Financial Statements 2019 approved by the Board of Directors on 14 March 2020 (hereinafter "DNF").
The Directors are also responsible, within the terms provided by law, for that part of internal control that they consider necessary in order to allow the preparation of the DNF that is free from material misstatements caused by fraud or not intentional behaviors or events.
The Directors are also responsible for identifying the contents of the DNF within the matters mentioned in article 3, par. 1, of the Decree, considering the business and the characteristics of the Group and to the extent deemed necessary to ensure the understanding of the Group’s business, its performance, its results and its impact.
Auditors’ responsibility It is our responsibility to express, on the basis of the procedures performed, a conclusion about the compliance of the DNF with the requirements of the Decree and of the selected GRI Standards illustrated in the Annual Integrated Report and Consolidated Financial Statements 2019 section “Note to the Management Report”. Our work has been performed in accordance with the principle of "International Standard on Assurance Engagements ISAE 3000 (Revised) - Assurance Engagements Other than Audits or Reviews of Historical Financial Information" (hereinafter "ISAE 3000 Revised"), issued by the International Auditing and Assurance Standards Board (IAASB) for limited assurance engagements. This principle requires the planning and execution of work in order to obtain a limited assurance that the DNF is free from material misstatements. Therefore, the extent of work performed in our examination was lower than that required for a full examination according to the ISAE 3000 Revised ("reasonable assurance engagement") and, hence, it does not provide assurance that we have become aware of all significant matters and events that would be identified during a reasonable assurance engagement.
The procedures performed on the DNF were based on our professional judgment and included inquiries, primarily with company’s personnel responsible for the preparation of the information included in the DNF, documents analysis, recalculations and other procedures in order to obtain evidences considered appropriate.
4. understanding of the processes that lead to the generation, detection and management of significant qualitative and quantitative information included in the DNF.
Furthermore, at group level, for significant information, considering the Group activities and characteristics: - at Group level: a) with reference to the qualitative information included in the DNF, and in particular to the business model, policies implemented and main risks, we carried out inquiries and acquired supporting documentation to verify its consistency with the available evidence; b) with reference to quantitative information, we have performed both analytical procedures and limited assurance procedures to ascertain on a sample basis the correct aggregation of data.
Conclusion Based on the procedures performed, nothing has come to our attention that causes us to believe that DNF of the Generali Group for the year ended 31 December 2019 has not been prepared, in all material aspects, in accordance with the requirements of articles 3 and 4 of the Decree and the selected GRI Standards illustrated in the Annual Integrated Report and Consolidated Financial Statements 2019 section “Note to the Management Report”.
142 Notes to the Management Report 146 Methodological notes on alternative performance measures
The Annual Integrated Report and Consolidated Financial Statements 2019 is drafted in compliance with currently effective regulations and it applies the IAS/IFRS international accounting standards as well as the International <IR> Framework.
The Group used the option provided for under art. 70, paragraph 8, and art. 71, paragraph 1-bis of Issuers’ Regulation to waive the obligation to publish the information documents provided for in relation to significant mergers, demergers or capital increases by contribution of assets, acquisitions and disposals.
Our rules for running business with integrity Organisational overview and external environment Risks and opportunities
The Report is drafted also applying the Guiding Principles of the Framework. The strategy together with our vaue creation process remain at the heart of our story. The strategic focus and future orientation principle is, in fact, applied in the whole document.
The materiality approach, that evolved in 2019, is presented in detail in the Consolidated Non-Financial Statement.
Generali maintains stakeholder relationships in order to understand and meet their needs, especially their information and dialogue needs. We regularly engage with investors, analysts and rating agencies. We meet them every quarter following our results’ presentation and in specific occasions, thus sharing the reporting required. We organise roadshows and we participate in sector conferences. Some of the main annual recurring occasions for interaction between the financial community and the Company’s top management are the annual Shareholders’ Meeting, events on the strategic plan (Investor Day) and the main presentation of the financial results. After the presentation of the current strategic plan in November 2018, we met analysts and investors at the event Exploring Generali in
May; we shared geographical and financial details on some strategic issues. During 2019 we came into contact with more than 500 people - individual meetings and small group meetings - in the main financial centres of Europe and North America. We regularly interact with regulators and the European and international Institutions to maintain good relationships and share authoritative and updated information in order to properly interpret and apply new regulations. We are committed to transparency in our relations with European public authorities: in 2014 the Group joined the Transparency Register, a joint initiative of the European Parliament and the European Commission with the aim of informing the public about how Generali represents its interests. We also offer our skills and contribute to public consultations for the definition of new laws and regulations in the sector, by providing, in view of the Group’s direct experience, concrete indications in order to safeguard the specificities of the Group and the insurance industry. To this purpose, we collaborate with several trade organizations and associations in the sector. Our active presence in these organizations allows us also to expand our knowledge of the different regulations and potential impacts. We also engage customers, distributors and Group employees with a view to continuous improvement.
In accordance with the consistency and comparability principle, the Report includes information that is consistent with the previous year, unless otherwise indicated.
The standard adopted in this Report for the disclosure of the material mega trends identified by the Group, including non-financial matters envisaged by leg. decree 254/2016, is the Consolidated Set of GRI Sustainability Reporting Standards, issued in 2016 by the GRI-Global
Reporting Initiative (GRI-Referenced claims), with reference to selected GRI Standards - in accordance with the provision of GRI 101: Foundation, paragraph 3, in addition to GRI 103: Management Approach - and indicators of the GRI G4 Financial Services Sector Disclosures.
GRI 305: Emissions 305-1 Direct (Scope 1) GHG emissions (b,d,g) 305-2 Energy indirect (Scope 2) GHG emissions (c,d,g) 305-3 Other indirect (Scope 3) GHG emissions (b,e,g) 305-5 Reduction of GHG emissions
GRI 404: Training and Education 404-3 Percentage of employees receiving regular performance and career development reviews (a, aggregated data)
Product portfolio G4 FS7: Monetary value of products and services designed to deliver a specific social benefit for each business line broken down by purpose
We use key performance indicators in accordance with a proprietary disclosure methodology for material mega trends. They are not envisaged by the standard adopted but they are representative of our business and, in line with our strategy, they are monitored in the planning and control processes. These indicators are: insurance exposure to clients of the coal sector, investments in internal strategic initiatives, customers, employees, female employees, trained employees, training investment, organizational entities with smart working, Diversity & Inclusion index and managed reports related to the Code of Conduct.
Under CESR Recommendations on alternative performance measures (CESR/05 - 178b), the operating result cannot replace earnings before taxes calculated in accordance with IAS/IFRS. In addition, it should be read with the financial information and related notes on the accounts which are included in the audited financial statements.
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 that do not affect both the local technical reserves, but only the deferred liabilities towards policyholders for the amount not attributable to the policyholders, and the free assets; – net other non-operating expenses that mainly include results of the run-off activities, company restructuring costs, amortization of the value of the portfolios acquired directly or through acquisition of control of insurance companies (Value Of Business Acquired, VOBA) and net other non-recurring expenses.
In particular, the Life non-operating result in Germany and Austria is net of the entire estimated amount attributable to the policyholders in order to consider the specific calculation method of the policyholders’ profit sharing based on the net result of the period in these countries. Furthermore, where a new fiscal law or other non-recurring fiscal impacts materially affects the operating result of the countries where the policyholders’ profit sharing is based on the net result of the period, the estimated amount of non-recurring effects mentioned above is accounted for in the operating result.
As for holding expenses, general expenses incurred for management and coordination by the Parent Company and territorial sub-holdings are considered as operating items. Non-operating holding expenses include:
In accordance with the approach described above, the operating result in the main countries where the Group operates is reported 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 disclosure 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. Within the context of the Life and Property & Casualty operating result of each country, reinsurance operations between Group companies in different countries are considered as transactions concluded with external reinsurers. This representation of the Life and Property & Casualty operating result by geographical area makes this performance indicator more consistent with both the risk management policies implemented by each company and the other indicators measuring the technical profitability of the Group’s companies.
Net operating income from financial instruments at fair value through profit or loss 1.3 - 1.4 - 1.5 - 2.3 - 2.4 - 2.5.2
Net non-operating income from financial instruments at fair value through profit or loss 1.3 - 1.4 - 1.5 - 2.3 - 2.4 - 2.5.2
The indicators for the return on investments are: – net current return calculated as the ratio of: – interest and other income, including income from financial instruments at fair value through profit and loss (excluding income from financial instruments
The indicators for the return on investments described above are presented for the Group and for Life and Property & Casualty segments.
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
Other balance sheet items 19 Intangible assets 20 Tangible assets 21 Receivables 22 Other assets 23 Other provisions 24 Payables 25 Other payables
Fair value measurement 39 Fair value hierarchy 40 Transfers of financial instruments measured at fair value between Level 1 and Level 2 41 Additional information on level 3 42 Information on fair value hierarchy of assets and liabilities not measured at fair value
References: (€ million) 31/12/2019 31/12/2018 20 2.1 Land and buildings (self used) 2,888 2,505 14 3 AMOUNTS CEDED TO REINSURERS FROM INSURANCE PROVISIONS 4,382 4,009 11 4.1 Land and buildings (investment properties) 14,168 13,650 3 4.2 Investments in subsidiaries, associated companies and joint ventures 1,365 1,320 7 4.3 Held to maturity investments 2,243 2,171 9 4.5 Available for sale financial assets 318,195 283,773 10 4.6 Financial assets at fair value through profit or loss 95,672 79,500 of which financial assets where the investment risk is borne by the policyholders and related to pension funds 5.1 Receivables arising out of direct insurance operations 7,377 7,130 5.2 Receivables arising out of reinsurance operations 1,653 1,481 6.1 Non-current assets or disposal groups classified as held for sale 0 55,914 6.3 Deferred tax assets 2,478 2,345 12 7 CASH AND CASH EQUIVALENTS 6,874 6,697
References: (€ million) 31/12/2019 31/12/2018 1.1 Shareholders' equity attributable to the Group 28,360 23,601 1.1.2 Other equity instruments 0 0 1.1.4 Revenue reserves and other reserves 10,831 10,035 1.1.6 Reserve for currency translation differences -28 -146 1.1.7 Reserve for unrealized gains and losses on available for sale financial assets 7,458 3,454 1.1.8 Reserve for other unrealized gains and losses through equity -1,240 -716 1.1.9 Result of the period attributable to the Group 2,670 2,309 1.2 Shareholders' equity attributable to minority interests 1,491 1,042 1.2.1 Share capital and reserves 1,114 904 1.2.2 Reserve for unrealized gains and losses through equity 108 -50 1.2.3 Result of the period attributable to minority interests 269 189 of which insurance provisions for policies where the investment risk is borne by the policyholders and related to pension funds 17 4.1 Financial liabilities at fair value through profit or loss 4,983 4,159 of which financial liabilities where the investment risk is borne by the policyholders and related to pension funds of which subordinated liabilities 7,717 8,124 5.1 Payables arising out of direct insurance operations 4,240 3,424 5.2 Payables arising out of reinsurance operations 697 658 6.1 Liabilities directly associated with non-current assets and disposal groups classified as held for sale 6.2 Deferred tax liabilities 3,174 1,789
References: (€ million) 31/12/2019 31/12/2018 1.1.1 Gross earned premiums 68,137 65,192 1.1.2 Earned premiums ceded -1,898 -1,786 27 1.2 Fee and commission income and income from financial service activities 1,354 1,028 28 1.3 Net income from financial instruments at fair value through profit or loss 10,177 -6,008 of which net income from financial instruments where the investment risk is borne by the policyholders and related to pension funds 29 1.4 Income from subsidiaries, associated companies and joint ventures 148 166 1.5 Income from other financial instruments and land and buildings (investment properties)
1.5.4 Unrealized gains and reversal of impairment losses 121 157 32 2.1 Net insurance benefits and claims -71,062 -52,032 2.1.1 Claims paid and change in insurance provisions -72,321 -53,239 33 2.2 Fee and commission expenses and expenses from financial service activities -650 -576 34 2.3 Expenses from subsidiaries, associated companies and joint ventures -60 -16 2.4 Expenses from other financial instruments and land and buildings (investment properties)
2.4.4 Unrealized losses and impairment losses -742 -1,423 36 2.5 Acquisition and administration costs -11,551 -10,682 2.5.1 Commissions and other acquisition costs -8,587 -8,015 2.5.2 Investment management expenses -230 -228 2.5.3 Other administration costs -2,735 -2,438
EARNINGS AFTER TAXES 2,465 2,324 4 RESULT OF DISCONTINUED OPERATIONS 475 173
(€ million) 31/12/2019 31/12/2018 1 CONSOLIDATED RESULT OF THE PERIOD 2,939 2,497
Items that may be reclassified to profit and loss in future periods 2.1 Foreign currency translation differences 57 -45 2.2 Net unrealized gains and losses on investments available for sale 4,223 -2,322 2.3 Net unrealized gains and losses on cash flows hedging derivatives 137 26 2.4 Net unrealized gains and losses on hedge of a net investment in foreign operations -41 -4 2.5 Share of other comprehensive income of associates 22 -18 2.8 Result of discontinued operations -255 -308
Change in the provisions for outstanding claims and other insurance provisions for non-life segment -271 -109
Change in the mathematical provisions and other insurance provisions for life segment 24,898 6,114
Other non-cash expenses and revenues arising out of financial instruments, investment properties and investments in subsidiaries, associated companies and joint ventures
Change in receivables and payables arising out of direct insurance and reinsurance operations 426 -390
Net cash flows from cash items related to investing or financing activities 2,083 694
Net cash flows from available for sale financial assets -12,019 -10,700
Net cash flows from shareholders' equity attributable to minority interests(****) -307 -136
Effect of exchange rate changes on cash and cash equivalents 27 49
CASH AND CASH EQUIVALENTS AT THE END OF THE PERIOD(**) 6,783 6,585
(**) Cash and cash equivalents at the end of the period include cash and cash equivalents ( € 6,874 million), liabilities to banks payables on demand (€ -68 million), bank overdrafts (€ -23 million).
(***) Includes mainly proceeds arising from the disposal of the company in Generali Leben (€ 924 million), Belgium (€ 529 million), Guernsey (€ 404 million) and the consideration paid for the acquisition of Adriatic Slovenica (€ 275 million), Sycomore (€ 249 million) and Union Investment (€ 93 million).
The consolidated financial statements at 31 December 2019 were audited by E&Y S.p.A., the appointed audit firm from 2012 to 2020.
The set of the consolidated financial statements is made up of the balance sheet, the income statement, the statement of comprehensive income, the statement of changes in equity and the statement of cash flow, as required by the ISVAP Regulation No. 7 of 13 July 2007, as subsequently amended. The financial statements also include special items that are considered significant for the Group. The Notes, which are mandatory as minimum content established by IVASS, are presented in the appendices to the notes to this report. 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. The profit and loss account items are translated based on the average exchange rates of the year. They reasonably approximate the exchange rates at the dates of the transactions.
– The Group reviews periodically and systematically if there was a variation of one or more elements of control, based on the analysis of the facts and the essential circumstances.
Assets, liabilities, income and expenses of a subsidiary acquired or disposed of during the year are included in the consolidated financial statements from the date the Group gains control until the date the Group ceases to control the subsidiary. In preparing the consolidated financial statements: – the financial statements of the Parent Company and its subsidiaries are consolidated line by line through specific reporting packages, which contribute to the consistent application of the Group’s accounting poli-
(*) in accordance with IAS 29, the items of profit or loss has been restated at the exchange rate at the end of the period
cies. For consolidation purposes, if the financial yearend date of a company differs from that of the Parent Company, the former prepares anyhow for the financial period the financial statements closed at 31 December 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 the shareholder’s 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.
Investment funds managed by the Group in which the Group holds an interest and that are not managed in the primary interest of the policyholders are consolidated based on the substance of the economic relationship and whether the conditions of control stated by IFRS 10 are satisfied. On consolidation of an investment fund, a liability is recognized to the extent that the Group is legally obliged to buy back participations held by third parties. Where this is not the case, other participations held by third parties are presented as non-controlling interests in equity.
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. Generali Group has assessed the nature of its current joint arrangements and determined them to be joint ventures and none are joint operations. The considerations made in determining significant influence or joint control are similar to those necessary to determine control over subsidiaries. Investments in associates and joint ventures are accounted for using the equity method and they are initially recognized at cost, which includes goodwill arising on acquisition. Goodwill is not separately tested for impairment. Negative goodwill is recognized in the income statement on the acquisition date. The carrying amount of the investment is subsequently adjusted to recognize changes in the Group’s share of the net assets of the associate or joint venture since the acquisition date. The income statement reflects the Group’s share of the results of operations of the associate or joint venture. Any change in OCI of those investees is presented as part of the Group’s OCI. Dividends receivable from associates are recognized as a reduction in the carrying amount of the investment. At each reporting date, after application of the equity method the Group determines whether there is objective evidence that the investment in the associate or joint venture is impaired. If there is such evidence, the Group calculates the amount of impairment as the difference between the recoverable amount of the associate or joint venture and its carrying value, then recognizes the loss as share of losses of an associate in the income statement. Where the Group’s share of losses in an associate equals or exceeds its interest in the associate, including any other unsecured long-term receivables, the group does not recognize further losses, unless it has incurred obligations or made payments on behalf of the associate or joint venture.
Upon loss of significant influence over the associate or joint control over the joint venture the Group measures and recognizes the retained investment at its fair value. Any difference between the net proceeds and the fair value of the retained interest, and the carrying amount is recognized in the income statement and gains and losses previously recorded directly through OCI are reversed and recorded through the income statement.
Significant judgements in determining control, joint control and significant influence over an entity The control is normally ensured by the full ownership of the voting rights, having thus the ability to direct the relevant activities and consequently being exposed to the variability of results arising from those activities.
Transactions in foreign currencies are initially recorded by the Group’s entities at their respective functional currency spot rates at the date the transaction first qualifies for recognition.
Monetary assets and liabilities denominated in foreign currencies are translated at the functional currency spot rates of exchange at the reporting date. Differences arising on settlement or translation of monetary items are recognised in profit or loss with the exception of monetary items that are designated as part of the hedge of the Group’s net investment of a foreign operation. These are recognised in other comprehensive income until the net investment is disposed of, at which time, the cumulative amount is reclassified to profit or loss. Tax charges and credits attributable to exchange differences on those monetary items are also recorded in other comprehensive income. Non-monetary items that are measured in terms of historical cost in a foreign currency are translated using the exchange rates at the dates of the initial transactions. Non-monetary items measured at fair value in a foreign currency are translated using the exchange rates at the date when the fair value is determined. The gain or loss arising on translation of non-monetary items measured at fair value is treated in line with the recognition of gain or loss on change in fair value of the item (i.e., translation differences on items whose fair value gain or loss is recognised in other comprehensive income or profit or loss are also recognised in other comprehensive income or profit or loss, respectively).
IAS 29 - Financial Reporting in Hyperinflationary Economies application on the Argentine companies At 31 December 2019, as in the previous year, the IAS 29 - Financial Reporting in Hyperinflationary Economies to the financial statement values of the Argentine companies of the Group, Caja de Seguros S.A, Europ Assistance Argentina S.A, Caja de Ahorro y Seguro S.A., Ritenere S.A. is required, in particular the cumulative inflation rate over three years exceeds 100%.
The effects of reassessment until 31 December 2018 are included in the opening balance of shareholder’s equity. The impacts at consolidated level are not material and do not require the presentation of the statements of Argentine companies.
From 1 January 2019, the accounting standard IFRS 16 - Leases has come into force. IFRS 16 replaces IAS 17, IFRIC 4, SIC-15 and SIC-27. The new standard was published on 13 January 2016 and introduces new requirements for the recognition, presentation in the financial statements and disclosure of leases. In particular, the distinction between operating and financial leases is eliminated for what concerns the lessee accounting: all leases require the recognition of a lease asset, which represents the right-of-use of the leased asset for the lease term, and a lease liability, which represents the obligation to pay rent payments. The accounting treatment of leases is unchanged for the lessor.
The Group has adopted IFRS 16 from 1 January 2019, but has not restated comparatives, according to the paragraph C5 b) of the Standard. New classifications arising from new leasing rules are therefore recognised in the opening balance sheet on 1 January 2019, including right-of-use assets within the same line item as that within which the corresponding underlying assets would have been presented if owned.
In applying IFRS 16, the Group chose not to reassess whether a contract is or contains a lease at the date of initial application. Instead, for contracts entered into before the transition date, the Group relied on its assessment made by applying IAS 17 and IFRIC 4 - Determining whether an Arrangement contains a Lease.
On adoption of IFRS 16, the Group recognised lease liabilities related to leases which had previously been classified as operating leases under IAS 17. These liabilities were measured at the present value of the remaining lease payments throughout the enforceable period, excluded short term leases and leases of low value assets where no liability was recognized. Being the determination of the interest rate implicit in the lease usually not readily determinable, excluding peculiar and isolated cases, Group entities acting as lessees used incremental borrowing rates to discount lease liabilities. Within this context, when determining the borrowing rates, it has been considered the financing costs of senior not collateralized bonds or borrowings. Considering the Group organisation, in absence of borrowing operations or bond issuances at single companies’ level, it has been considered, unless when inappropriate, for each specific maturity cluster, a parent company’s borrowing rate, increased appropriately to reflect the subsidiaries’ specific risk.
Group companies act also as lessors, mainly related to real estate rentals through operating leases. Majority of investments held for investment purposes consequently are leased out for different uses. Income from operating leases has been allocated according to the nature of the underlying item rented. There are limited activities related to automobile/vehicle leasing solutions provided by a Group financial leasing company to the private and business sector. For additional details please refer to section Additional Information, paragraph Leasing.
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 a hedge accounting approach more in line with risk management strategies.
In particular, the classification of financial instruments is driven by the business model through which the company manages its investments and the contractual terms of their cash flows. A financial asset is measured at amortized cost if both of the following conditions are met: – the asset is held to collect cash flows (business model assessment); – the contractual cash flows represent only payments of principal and interest (solely payments of principal and interest – SPPI).
The equity instruments shall be classified and measured at fair value through profit or loss. The entity has the irrevocable option at initial recognition to present changes in the fair value of the equity instruments that are not held for the purpose of trading at fair value recorded in other comprehensive income, with no recycling in the income statement except dividends. In other cases, the financial instruments are classified and measured at fair value through profit or loss, which is the residual model. The Group is assessing the impacts of the new classification model. For further information see the following paragraph Implementation of the standard and the paragraph Disclosure regarding the deferred application of IFRS 9 - Financial Instruments. Overall, the Group expects to have limited impacts on the classification and measurement of instruments, in particular about the application of the SPPI test.
For these assets, lifetime ECL are recognised in a capital reserve (loss allowance), and in the profit or loss account, but interest revenue is still calculated on the gross carrying amount of the asset. (i.e. without deduction of the loss allowance); – Stage 3 includes financial assets that have objective evidence of impairment at the reporting date. For these assets, lifetime ECL are recognised in a capital reserve (loss allowance), and in the profit or loss account. Interest revenue is calculated on the net carrying amount (that is, net of credit allowance).
The model also introduces a simplified approach to trade receivables and leases for which it is not necessary to calculate the 12-month expected credit losses but are always recognized the lifetime expected credit losses. The Group is assessing the impact of the new impairment model introduced by the standard and expects significant operational impacts related to the implementation of the calculation process of the abovementioned expected credit losses. In light of the high creditworthiness of the debt securities, the new model Expected Credit Losses should not result in significant impacts for the Group.
Considering some critical issues raised by stakeholders regarding some requirements of IFRS 17 and the interpretative elements that emerged from the Transition Resource Group (TRG), the IASB proposed changes to the standard in the exposure draft Amendments to IFRS 17 published on 26 June 2019. The changes introduced do not affect the fundamental principles of the standard and do not reduce the usefulness of the information for investors. First of all, the amendment confirmed the proposal to defer the entry into force of the standard on 1 January 2022; furthermore, the major changes concerned: – the scope of application, with particular reference to loans that transfer significant insurance risks; – the allocation, recognition and assessment of the recoverability and disclosure related to the financial cash flows in the event of expected contractual renewals; – the allocation of the CSM relating to the investment components on the basis of the insurance coverage units and the return on investments; – the extension of risk mitigation, a risk hedging option, to reinsurance contracts; – the recognition of losses on onerous contracts on the date of initial recognition and of profits on reinsurance contracts held; – simplified representation of insurance contracts by portfolio; – transitional measures for business combinations and application of both the risk mitigation option (mentioned above) and the fair value transition approach.
The Group is monitoring the IASB’s new re-deliberation process, continuing with the standard implementation program. The Group expects a radical change in the financial statement information both in terms of evaluation of the technical provisions and in the representation of the economic performance and the notes to the financial statements.
In order to adopt IFRS 17 in the Group’s consolidated financial statements, a global finance transformation program is in place. This program involves various central and local functions and has the objective of implementing IFRS 17 and IFRS 9 consistently at Group level. In particular, the program includes functional workstream dedicated to developing the methodological and interpretative aspects of the standard in coherence with the market practices of the sector and evaluating the evolutions coming from the process of new resolution of the IASB and endorsement at European level, and implementation workstream dedicated to the implementation of the operating model and architecture of the target information systems.
The Group is evaluating the impacts of the joint application of IFRS 17 and IFRS 9 on the consolidated financial statements through regular quantitative impact exercises. At the balance sheet date, however, the potential impact of the combined effect of the two standards on the Group’s financial and economic situation is not foreseeable, in light of the current revision process of IFRS 17 as well as the state of maturity of the implementation process.
The amendment will be effective from 1 January 2020. However, the assessments done highlighted insignificant impacts on the pricing of derivatives and on the effectiveness of the hedging relationships in place for the Group. A specific Group project is in place to evaluate the impacts of the entire reform. Based on the first estimates, the impacts should be more operational (e.g. on pricing systems) and not on the financial statements. At the end of 2019, the IASB started discussions on the aforementioned second phase of the project which will deal with issues such as modification and derecognition and an exposure draft is expected in 2020.
Amendments to IAS 19: Plain Amendment, Curtailment or Settlement 1 January 2019 February 2018
Amendments to IAS 28: Long-term Interests in Associates and Joint Venture 1 January 2019 October 2017
Amendments to IAS 1 and IAS 8: Definition of Material w1 January 2020 October 2018
Amendments to Conceptual Framework in IFRS Standards 1 January 2020 March 2018
In accordance with IAS 38, an intangible asset is recognised if, and only if, it is identifiable and controllable, and it is probable that the expected future economic benefits attributable to the asset will flow to the company and the cost of the asset can be measured reliably. This category includes goodwill and other intangible assets, such as goodwill recognised in the separate financial statements of the consolidated companies, software and purchased insurance portfolio.
After initial recognition, goodwill is measured at cost less any impairment losses and it is no longer amortised. According to IAS 36, goodwill is not subject to amortization. Realized gains and losses on investments in subsidiaries include the related goodwill. Goodwill is tested at least annually in order to identify any impairment losses. 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 Market Value Balance Sheet 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. Should any previous impairment losses no longer exist, they cannot be reversed.
The difference between the fair value of the insurance contracts acquired in a business combination or a portfolio transfer, and the insurance liabilities measured in accordance with the acquirer’s accounting policies for the insurance contracts that it issues, is recognised as intangible asset and amortised over the period in which the acquirer recognises the corresponding profits. The Generali Group applies this accounting treatment to the insurance liabilities assumed in the acquisition of life and non-life insurance portfolios. The future VOBA recoverable amount is nonetheless tested on yearly basis. As for as the life and non-life portfolios, the recoverable amount of the value of the in-force business acquired is carried out through the liability adequacy test (LAT) of the insurance provisions — mentioned in the paragraph related to life and non-life insurance provisions— taking into account, if any, the deferred acquisition costs recognised in the balance sheet. If any, the impairment losses are recognised in the profit or loss account and cannot be reversed in a subsequent period.
In accordance with IAS 16, this item includes land and buildings used for own activities. Land and buildings (self-used) are measured applying the cost model set out by IAS 16. The cost of the self-used property comprises purchase price and any directly attributable expenditure. The depreciation is systematically calculated applying specific economic/technical rates which are determined locally in accordance with the residual value over the useful economic life of each individual component of the property 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.
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. The residual values, useful lives and methods of depreciation of property, plant and equipment are reviewed at each financial year end and adjusted prospectively, if appropriate.
This item also includes leased assets that are allocated to the specific balance sheet items based on the nature of the assets.
To measure the value of land and buildings (investment properties), the Generali Group applies the cost model set out by IAS 40, and adopts the depreciation criteria defined by IAS 16. Please refer to the paragraph on land and buildings (self-used) for information about criteria used by the Group and finance leases of land and buildings. This item also includes leased assets that are allocated to the specific balance sheet item based on the nature of the assets.
The financial investments are initially recognized at fair value plus, in the case of instruments not measured at fair value through profit or loss, the directly attributable transactions costs. Non-derivative financial assets with fixed and determinable payments, those that the entity has the intention and the ability to hold to maturity, unquoted and not available for sale are subsequently measured at amortised cost.
In detail, the Generali Group includes in this category some unquoted bonds, mortgage loans, policy loans, term deposits with credit institutions, deposits under reinsurance business accepted, repurchase agreements, receivables from banks or customers accounted for by companies of the financial segment, and the mandatory deposit reserve with the central bank. The Group’s trade receivables are instead classified as other receivables in the balance sheet. Loans and receivables are accounted for at settlement date and measured initially at fair value and subsequently at amortised cost using the effective interest rate method and considering any discounts or premiums obtained at the time of the acquisition which are accounted for over the remaining term to maturity. Short-term receivables are not discounted because the effect of discounting cash flows is immaterial. Gains or losses are recognised in the profit and loss account when the financial assets are de-recognised or impaired as well as through the normal amortization process envisaged by the amortised cost principle.
Available for sale financial assets are accounted for at the settlement date at the fair value at the related transaction dates, plus the transaction costs directly attributable to the acquisition. The unrealized gains and losses on available for sale financial assets arising out of subsequent changes in value are recognised in other comprehensive income in a specific reserve until they are sold or impaired. At this time the cumulative gains or losses previously recognised in other comprehensive income are accounted for in the profit and loss account. This category includes quoted and unquoted equities, investment fund units (IFU) not held for trading, nor designated as financial assets at fair value through profit or loss, and bonds, mainly quoted, designated as available for sale.
The Group evaluates whether the ability and intention to sell its Available for sale financial assets 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 do so significantly changes in the foreseeable future, the Group may elect to reclassify these financial assets. Reclassification to loans and receivables is permitted when the financial assets meet the definition of loans and receivables and the Group has the intent and ability to hold these assets for the foreseeable future or until maturity. Reclassification to the held to maturity category is permitted only when the entity has the ability and intention to hold the financial asset accordingly.
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.
Non-current assets or disposal groups classified as held for sale, deferred acquisition costs, tax receivables, deferred tax assets, and other assets are classified in this item and includes leased assets that are allocated to the specific balance sheet items based on the nature of the assets.
Deferred tax assets are recognized for deductible temporary differences between the carrying amounts of assets and liabilities and the corresponding amounts recognized for tax purposes. In the presence of tax losses carried forward or unused tax credits, deferred tax assets are recognized to the extent that it is probable that future taxable profit will be available against which the aforementioned tax losses or unused tax credits. Deferred tax relating to items recognised outside profit or loss is recognised outside profit or loss. Deferred tax items are recognised in correlation to the underlying transaction either in other comprehensive income or directly in equity Deferred tax assets and deferred tax liabilities are offset if a legally enforceable right exists to offset current tax assets against current income tax liabilities and the deferred taxes relate to the same taxable entity and the same taxation authority. 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 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
Receivables related to current income taxes as defined and regulated by IAS 12 are classified in this item. They are accounted for based on the tax laws in force in the countries where the consolidated subsidiaries have their offices. Current income tax relating to items recognised directly in equity are recognised in equity and not in the income statement..
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. Deferred fee and commission expenses include acquisition commissions related to investment contracts without DPF fair valued as provided for by IAS 39 as financial liabilities at fair value through profit or loss. Acquisition commissions related to these products are ac-
As provided for by IAS 32, the item includes equity instruments of the Parent company held by the same company or by its consolidated subsidiaries.
Reserve for unrealised gains and losses on available for sale financial assets
The item comprises equity instruments attributable to minority interests. It also includes the reserve for unrealized gains and losses on available for sale investments and any other gains or losses recognized directly in equity attributable to minority interests.
This item comprises amounts, gross of ceded reinsurance, of liabilities related to insurance contracts and investment contracts with discretionary participation features.
In accordance with IFRS 4, policies of the life segment are classified as insurance contracts or investment contracts based on the significance of the underlying insurance risk.
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