Board of Statutory Auditors Carolyn Dittmeier (Chairwoman) Antonia Di Bella Lorenzo Pozza Francesco Di Carlo (Alternate Auditor) Silvia Olivotto (Alternate Auditor)
Management Report 9 We, Generali 10 Group’s highlights 12 2019 key facts 15 Significant events after 31 December 2019 and 2020 corporate event calendar 16 The value creation process 18 Challenges and opportunities of the market context 24 The Generali 2021 strategy 36 Our rules for running business with integrity 38 Our governance and remuneration policy 47 Our performance 49 Group’s performance 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 101 Risk Report 129 Consolidated Non-Financial Statement pursuant to legislative decree of 30 December 2016, no. 254 as amended 135 Independent Auditor’s Report on the Consolidated Non-Financial Statement 141 Appendices to the Management Report 142 Notes to the Management Report 146 Methodological notes on alternative performance measures
Consolidated Financial Statements 155 Consolidated financial statements 285 Appendices to the Notes
Our sustainable value creation story is moving forward on the basis of the integrated thinking. It started in 2013, when the first integrated report was published, and then developed using the Core&More1 reporting approach. The Annual Integrated Report is the Core report of the Group, centred on material financial and non-financial information. All other More reports and channels of communication include further information, some of which targets a specialized audience.
Management Report and Parent Company Financial Statements 2019 188th year generali.com
Annual Integrated Report and Consolidated Financial Statements 2019 188th year generali.com
Report on Remuneration Policy and payments It provides specific information on the remuneration policy adopted by the Group and its implementation.
Group Annual Integrated Report It provides a concise and integrated view of the Group’s financial and non-financial performance, also pursuant to legislative decree 254/2016 (leg. decree 254/2016).
1 The Core&More approach developed by Accountancy Europe provides for a core report, including a summary of all key information required to evaluate and understand a company, and more reports, presenting more detailed information. www.accountancyeurope.eu/ for further information.
The Board of Directors of Assicurazioni Generali is responsible for the Annual Integrated Report, which is presented also in accordance with the Guiding Principles and Content Elements established by the International <IR> Framework. The Board, through its competent Committees, and the Board of Statutory Auditors are regularly engaged by the management in specific meetings aiming at sharing the approach to the preparation and presentation of the Report.
4 European common enforcement priorities for 2019 annual financial reports is available on www.esma.europa.eu.
Notes to the Management Report, p. 142 for the criteria of the International <IR> Framework and selected indicators
Dear reader, dear Generali shareholder, 2019 was, first af all, the year that saw the start of the execution of Generali 2021: Leveraging Strengths to Accelerate Growth, the ambitious three-year strategic plan based on three pillars: profitable growth, capital management and financial optimization, innovation and digital transformation. During these first 12 months, we have already achieved several important results that are in line with the targets announced to investors. We strengthened our leadership role in Europe, becoming the second largest company in Portugal in the P&C segment thanks to the acquisition of Seguradoras Unidas and also acquiring AdvanceCare, a services platform operating in the health sector, scalable in other countries. Other important acquisitions were successfully finalised in Poland and Slovenia. We further extended our insurance offer, launching innovative solutions such as Arte Generali and implementing our pan-European mobility platform. In line with the Group’s objectives, we continued to grow in the asset management business, carrying forward the development of our multi-boutique platform that today numbers 16 boutiques that allow us to cover an ever-growing number of asset classes. We also overachieved the financial optimization targets we had set for 2021 by considerably reducing our outstanding financial debt and related interest expenses. Lastly, we launched a number of important initiatives aimed at transforming the Group from a cultural and operational standpoint. This will allow us to turn the challenges posed by the digital revolution into opportunities, and to reach the ambition of becoming a Life-time Partner to our customers, creating a long-term bond with them based on trust and on the ability to offer prevention, protection and assistance in all areas and in a proactive and personalized way.
At the macroeconomic level, 2019 was a year marked by low - and in many cases negative - interest rates, world GDP growth at the slowest pace of the last ten years, significant tensions at geopolitical level and in international trade and, last but not least, persistent doubts surrounding the solidity of the Italian economy. To this regard, it is important to emphasize that the Group prepared to tackle a scenario of persistent low interest rates well in advance. Already when executing the 2015-18 strategic plan, we successfully implemented a set of measures aimed at overcoming this challenge: focusing on low capital absorption solutions, reducing the exposure to high-guarantee products and pursuing growth in the P&C segment and in the health and protection lines. These measures are still being implemented today in the execution of Generali 2021.
Generali has embraced the global challenges of our era - climate change, geopolitical instability, ageing of the population and digital transformation - by including them in its materiality matrix, which was approved by the Board of Directors at the end of 2019. The matrix represents the premise for tangibly integrating sustainability in our business. Generali applies a governance, management and reporting model that guarantees alignment with the ESG principles by placing them at the core of its decisions on a daily basis. We create sustainable value for the real economy by proposing responsible insurance solutions and managing our investments according to the criteria of our Responsible Investment Guideline. By 2021, we will have allocated € 4.5 billion in sustainable investments. In 2019, Generali became the first European insurance company to issue a green bond. It was confirmed in the Dow Jones Sustainability World Index and included for the first time in the Dow Jones Sustainability Europe Index.
Creating long-lasting value also means sharing it with the most disadvantaged people and striving for a fairer society. Generali puts this commitment into practice by playing an active role in the communities where it operates through The Human Safety Net, the project dedicated to developing human potential in the frailest social contexts.
2019 was a year of transformation and success for Generali, reflecting once again the strength of our Group and its proven ability to successfully meet its goals. This is made possible by the talent and passion of our almost 72 thousand employees and over 156 thousand distributors. Every day, they contribute to making the winged Lion fly high all over the world, and we sincerely thank them for this.
12 2019 key facts 15 Significant events after 31 December 2019 and 2020 corporate event calendar 16 The value creation process 18 Challenges and opportunities of the market context 24 The Generali 2021 strategy 36 Our rules for running business with integrity 38 Our governance and remuneration policy
+8 pps 1 All changes in this Report are calculated on 2018, unless otherwise reported. Changes in premiums, Life net inflows and new business are on equivalent terms, i.e. at constant exchange rates and consolidation scope. Operating result, Assets Under Management and Life technical provisions exclude entities under disposal or disposed of in the period.
of which € 311.7 bln DIRECT INVESTMENTS TO WHICH THE RESPONSIBLE INVESTMENT GUIDELINE IS APPLIED4 (+7.7%) and € 35.5 bln SUSTAINABLE AND RESPONSIBLE INVESTMENTS5 (+6.9%)
Our performance Risk Report 7 The Generali Global Engagement Survey (GGES) is launched every two years. During the year when it is conducted, the data monitored are the engagement score and the response rate while the subsequent year the percentage of local actions implemented after the GGES is reported.
8 The index is calculated as an average that differently weighs, according to our priorities, a series of indicators related to gender, age, culture and inclusion. 9 It represents the percentage of employees participating in We LEARN, the Group training programme.
Good performance: both net inflows and gross written premiums increased. Operating result grew.L IFE
Premiums increased in both lines of business. Operating result grew; CoR confirmed at excellent level.
Sale of Generali Belgium, launched in April 2018, completed; the Group remains present in Belgium through its Global Business Lines, continuing to provide insurance and assistance solutions.
A € 500 million subordinated bond issue was successfully placed with institutional investors, for the partial refinancing of € 750 million in subordinated debt of the Group, with the first call date in 2019. The issue received orders from roughly 450 investors for a total in excess of € 6.5 billion, 13 times the amount offered. The rating agencies Fitch,
(IVASS) and will take place with respect to all notes outstanding, in compliance with the respective terms and conditions.
Mate, the leading company in the market of travel insurance for tour operators in the United States.
Slovenica and its subsidiaries, that provide a full suite of pension, P&C, health and life products.
Signed an agreement to take over the insurance portfolios of three entities of ERGO International AG
in Hungary and Slovakia, in line with the Group’s strategy to further enhance its leading position in
The Group announced its decision to not refinance € 1.25 billion of senior debt maturing in January 2020, in line with the debt reduction target included in the Generali 2021 strategic plan.
Assicurazioni Generali resolved to submit a 2019-2022 special stock plan for the Managing Director/
Assicurazioni Generali to € 1,569,773,403 in execution of the special stock plan for the Managing
Company Financial Stateme nts, the Group’s remuneration policy and Long-Term Incentive
Signed an agreement for the sale of the Life run-off portfolio of its
credit rating to “A” from “A-” and confirmed its Issuer Default Rating
Generali is inspired by the Group’s aim to expand its value proposition to customers, as part of its Profitable growth pillar of Generali 2021.
America, as to empower the non-life insurance business. The agreement makes it possible to strengthen the Group’s digital transformation process, developing innovative
Index (DJSI) for the second year running and added, for the first time, to the Dow Jones
Group Academy headquarter, has been reopened to the public. The international training centre will support
Generali in the management transformation processes, building and strengthening new leadership positions, facilitating career paths through skills development, and contributing to attracting, developing and retaining talent. All the spaces have been organised according to the Smart Workspaces guidelines of Generali; the restructuring work also involved seismic upgrading and energy efficiency measures, in line with the objectives to reduce environmental impacts set by the Group.
As for the support to sports activities and events that encourage a healthy lifestyle, aimed at improving the wellbeing of people, Generali is the title sponsor of the Milan
Marathon for the second year running. The Group will be represented at the event, which will be held in April 2020, by
The Human Safety Net, the initiative that unites the potential of the social sector with that of
The Generali 2021 strategy, p. 24 Debt and liquidity, p. 60
Generali successfully concluded the buyback of its subordinated bonds for an aggregate principal amount of up to € 1 billion callable in 2022 and the placement of its first green bond for an amount of € 750 million. In line with the Generali 2021 strategy, this proactive approach to managing the debt contributes to the reduction in the external debt and its interest costs.
Corporations, consisting of the world’s 100 most sustainable corporations. This recognition highlights the evolution of
Generali Tower in the CityLife district of Milan, an innovative space dedicated to stimulating the physical and mental energy of all employees and promoting a healthy and sustainable lifestyle. Designed in line with
Yearly Financial Report at 30 June 2020 and Board’s verification of capital and regulatory requirements for the payment of the second tranche* of dividend payout on the share of Assicurazioni Generali
In line with the Group’s sustainability and capital management strategy, Generali developed its first Framework for the Green Insurance
* As deliberated by the Board of Directors in April 10, 2020.
Deliver on the promise Value our people Live the community Be open
Within a challenging economic and financial environment, we are convinced that our governance - which complies with the best
The premiums we receive from our clients to enter into insurance contracts are responsibly
They represent one of the building blocks of our strategy. The communities promote a collaborative approach among colleagues, by removing any functional and geographical barriers; they share knowledge and work together also for the identification and scale-up of best practices in the Group. Thanks to their new way of working, based on collaboration and co-creation, they accelerate the implementation of innovative ideas in an inclusive environment, in full alignment with strategic initiatives.
network of agents and financial advisors, but also through brokers, bancassurance and direct channels.
We are facing a profound change guided by the interaction and the cumulative effects of various developments in technology: Internet of Things, cloud services, cognitive computing, advanced analytics, Robotic Process Automation (RPA), artificial intelligence and the development of mobile networks are elements that contribute to creating a renewed environment in which to operate in order to optimise efficiency, operations and proximity with our customers. We are particularly witnessing the spread of public and context data, the progressive digitalisation of customers, the growing appetite for personalised products and the computing power available at low prices that doubles one year after the next. These elements allow insurance companies to transform their way of doing business and to step into the so-called world of ecosystems, where the borderlines between businesses at one time different and distinct are becoming fainter and fainter in order to offer customers a service in addition to a product. Technological evolution also involves exponential growth in cyber threats, such as attacks aimed at stealing information or blocking operational processes. Adequate management of this risk is therefore fundamental in order to limit potential effects of economic and operational nature but also to preserve, in particular, the confidence of customers in the processing of their data which are frequently sensitive. The issue is also increasingly relevant for regulators which have in recent years introduced specific safety measures as well as reporting processes in the case of security incidents (for example, General Personal Data Protection Regulation).
The analysis, enhancement and governance of data are increasingly part of the DNA of the Group’s production processes, from the systems for improving fraud identification to personalisation of the offer, from the automation of processes to anticipating customers’ needs. The formulations and analyses necessary to enrich customer relations are carried out - while guaranteeing anonymity - both by the single business units on their own and with the Group’s support through specific tools and skill sets. The increasing internal culture has made it possible to consolidate platforms that let us leverage synergies coming from the RPA and the cognitive technologies, thus allowing increasingly complex processes to be automated which increases quality and efficiency. Our goal is now to extend the successful cases achieved in the analytical and technological area by some of our companies to the entire Group, in this way realizing scale economies. The strength of internal sharing is the many Communities of Practice that catalyse the interests of sector and business experts, making the sharing and orchestration of investments effective.
In the case of insufficient infrastructural and organisational measures to prevent and mitigate physical risk caused by climate change, in order to strengthen the resilience of the territories, the insurance sector might be subject to reputation risk tied to the tendential reduction in its ability to offer the population adequate insurance coverage at accessible economic terms and conditions. The transition risk is associated with the decarbonisation of the economy: changes in domestic and international public policies, in technologies and in consumer preferences might affect the value of investments linked to activities, sectors or countries having a high carbon footprint (so-called stranded assets). A good portion of the impact of these risks depends on the speed to come into line with stricter environmental standards and on the public support that will be guaranteed for reconversion. The transition risk is therefore influenced by factors marked by a high degree of uncertainty, such as political, social and market dynamics and technological changes. Even though the speed of transition and its risks are hard to determine today, they will probably have wide-ranging consequences, especially in several sectors such as energy. One transition risk is reputation risk that comes from trade relations with companies of the coal sector, which are subject to increasing censure by public opinion. Lastly, the climate change mitigation and adaptation strategies present opportunities. A connected increase in demand for protection through specific solutions is plausible as weather phenomena and extreme natural events change or intensify. The new regulations in Europe aimed at creating incentives for transition to a green economy, together with the changes in consumer preferences, are also supporting the market of insurance products tied to the renewable energy sector, and this strengthens the demand for investment products linked to green finance by both institutional investors and the retail segment, and boosts demand for insurance solutions that accompany the customer in adopting sustainable lifestyles. Lastly, the decarbonisation of the economy and, more specifically, the large-scale spread of systems producing energy from renewable sources require substantial investments that are only partly covered with public funds, in this way increasing investment opportunities for private parties.
We have defined processes and tools to mitigate the risks and to seize the opportunities arising from climate change. These include monitoring the adequacy of the actuarial models to assess and rate risks, recourse to risk transfer mechanisms, periodical analysis of the investments, product and service innovation processes, dialogue with the stakeholders and development of partnerships in the sector to share knowledge and identify system solutions. Particularly noteworthy is our participation in the UNEP-PSI TCFD14 work group, the PRI (Principles for Responsibles Investments) Climate Action 100+ network, in the PRI and LSE (The London School of Economics and Political Science) Investing in a Just Transition, and the Investors Leadership Network. We manage short-term physical risk by adopting a risk monitoring and underwriting strategy optimisation process with the use of actuarial models that are periodically updated in order to estimate potential damage, including natural catastrophe damage, influenced by climate change. We turn to reinsurance contracts and alternative risk transfer instruments, such as the issue of insurance securities protecting against natural catastrophe risk (cat bonds). Furthermore, in order to reduce exposure to the physical risk of our corporate customers in the Property & Casualty segment, we provide engineering consulting services to introduce technical-organisational improvements capable of increasing the protection of the insured assets even from natural calamity events, and we define claim prevention programmes and periodically monitor them. Lastly, we have set up special procedures to speed up damage appraisal and claims settlement in the case of natural catastrophes and extreme events so as to strengthen the resilience of the territories struck and to facilitate the post-emergency assistance and return to normality phase. As regards the management of transition risk, we are reducing the already limited exposure of the investment portfolio to issuers of the coal and tar sand sectors. For the insurance activities, the Group no longer underwrites any risk tied to the construction of new coal-fuelled power plants or coal mines. In those countries where coal accounts for over 45% of the domestic electricity mix15, to limit the negative social impacts deriving from our decision to quit this sector, we are carrying out engagement activities with the companies with whom we have trade relations to implement the principle of just transition that combines the need to protect the climate with minimisation of consequences for local employment and energy procurement. The engagement activity is focused on monitoring emission reduction, worker protection and retraining, and community support plans by analysing their costs and investments allocated for these purposes. Lastly, to demonstrate consistency with the commitments requested of our customers, issuers and trade partners, we are monitoring the greenhouse gas emissions generated by our direct activities and implementing progressive reduction strategies, also by purchasing energy produced by renewable sources.
In order to seize the opportunities arising from mitigation and adaptation to climate change, we have developed and promoted the distribution of insurance solutions to protect customers from natural catastrophe damage, including damage influenced by climate change, to support customers in adopting sustainable lifestyles and coverage for the renewable energy sector. We are also expanding the offer of thematic investment products linked to green finance for the retail segment.
22 Generali Group Annual Integrated Report and Consolidated Financial Statements 2019
Modern communities continue to be influenced by distinct demographic and social phenomena with a strong impact on their socio-economic balances. In the more mature European economies, we are witnessing a continual process of population aging, driven by an increase in life expectancy and a decrease in birth rates. The international migration phenomena only partially counter-balance this trend, which is in any case otherwise influenced by socio-political initiatives adopted locally. Outside of Europe, we are noticing similar phenomena, though of a diversified scope and in any case significant on a broader time horizon. In the most European countries, the younger age groups are affected by a reduced and often discontinuous capacity to generate average income; this is strongly influenced by a flexible but precarious labour market that does not ensure reasonable certainty for financing the public welfare system. The result is increasingly unbalanced communities where higher post-retirement pension and healthcare requirements are no longer properly financed and covered by the public system.
We actively engage in creating more stable communities while monitoring and tackling the effects of a changing society. This is why we develop and offer flexible and modular pension and welfare solutions for the coverage of healthcare costs and other potential current and future needs for individuals, families and communities. We are committed to become a Life-time Partner to our customers, strengthening the dialogue with individuals during their entire period of interaction with our companies through new, streamlined services accessible 24/7. We are focused on digitalization both as a communication channel and as a lever of efficiency of services to our customers, as well as to our distribution network. In particular, we are focusing on the senior customers segment with modular solutions that combine savings, protection and services in a welfare perspective.
Life and Health products, including pension and welfare products, imply Generali’s acceptance of biometric underwriting risks, typically mortality, longevity and health. We therefore need to manage them through underwriting processes that are based on an updated assessment of the socio-demographic conditions of the population whose purpose is to understand their relative trends. We also have solid pricing and product approval processes that offer a preliminary analysis of the cases regarding the biometric factors, in line with Local Product Oversight Governance Policies. Such processes are part of a structured governance defined in the Group Policy on Life underwriting. Lastly, we measure the mortality, longevity and health risks using the Group’s Partial Internal Model. We also commit ourselves to and monitor the respect of human rights thanks to the Group’s guidelines and policies, including the Code of Conduct, the Responsible Investment Guideline and the Responsible Underwriting Guideline.
FOCUS ON HIGH POTENTIAL INSURANCE MARKETS: 15%-25% earnings CAGR 2018-2021 depending on country/segmentv
HIGHER RETURN FOR SHAREHOLDERS: Three key enablers which drive the execution of the strategy: 17 3 year CAGR; adjusted for impact of gains and losses related to disposals. 18 Adjusted for impact of gains and losses related to disposals. 19 Based on IFRS Equity excluding OCI and on total net result.
Investments in internal strategic initiatives 2019 in line with 2021 target, amounting to about € 1 billion
The third pillar of Generali 2021, based on innovation and digital transformation, has the following objectives: : – make Generali Life-time Partner for its customers; – support the digital transformation of its distributors; – transform the operational model in order to make it more digital-oriented.
Customer Relationship Management reinvent customer journeys, customer knowledge, touchpoints, transparency and interactions
Smart Automation accelerate process automation thanks to reengineering and adoption of new technologies
Our mission is to ensure Human & Caring experiences are perceived everywhere in the customer journey, across all channels and touchpoints, in the language we speak, in our products, in our attitude.
Paperless We want to be a sustainable Group. We want to be efficient. Part of this means providing an increasingly digital experience and reducing our use of paper documents. This will allow for e-signatures, make it easier to store information and cut down on waste
In line with the launch of the new strategic plan and business priorities, in 2018 we developed the new Generali People Strategy, GPeople 2021, which will guide the Group’s priorities and initiatives in 2019-2021. This strategy was defined through a co-creation process involving more than 400 of the Group’s people at various organizational levels. The result was the definition of five lines of transformation: – promote a culture of innovation, customer-centricity and inclusion; – build and develop key competencies for the digital age; – favour the development of leaders and global talent; – leverage excellence and the creation of sustainable value; – become a simple, agile and efficient organization..
30 Generali Group Annual Integrated Report and Consolidated Financial Statements 2019
We want to accelerate towards excellence, leveraging on our current strengths and acting quickly upon our main opportunities for improvement. Three global priorities were identified on the basis of the results achieved: – eliminate bureaucracy to boost efficiency and decision making; – unlock people potential fostering transparent meritocracy, recognition and growth; – nurture an inclusive environment to embrace diversity.
Diversity & Inclusion Strategy The Group sped up the advancement of both an environment and an organisation culture that are inclusive, that promote all diversities. We implemented the Diversity & Inclusion index (D&I index), a tool that monitors the progress on four priorities: gender, age, culture and inclusion. Many initiatives were launched on a global scale: the From unconscious bias to conscious inclusion programme aimed at raising the awareness of business leaders on the subject of unconscious bias, the Lioness Acceleration Program to develop the feminine pipeline, the gender pay gap analysis and related mitigation actions. Preparatory work is also underway to recognize and enhance the LGBT (Lesbian, Gay, Bisexual and Transgender) ecosystem, which will result in concrete actions during 2020. People’s engagement is at the basis of the creation of the first D&I Community, that leverages the collective intelligence of employees to launch and spread new initiatives. In 2019, the Group renewed its commitment to combat all forms of discrimination and harassment, including sexual harassment, by focusing on greater transparency and communication and araising awareness on the use of the internal helpline and the publication of dedicated articles and videos. The Group and the European Works Council endorsed the joint Diversity & Inclusion Declaration. Borsa Italiana gave us the Best D&I Employer award at the Women In Finance - Italy award for our governance and measures implemented. .
Full Performance Management Framework Increasing the accountability of our people also means boosting a performance culture. Through Group Performance Management we focus our efforts on spreading this culture while also strengthening transparency and meritocracy in line with what our people asked in the Generali Global Engagement Survey. In 2019, 99%23 of our people was engaged in the performance management process. The framework is divided into different phases: objectives’ definition, performance assessment, feedback and individual development plans.
I fully support the Values for which the Generali Group stands 86% favourable responses
+62,000 employees more than 8 out of 10 of us fell engaged
Generali Global Engagement Survey As to measure and promote the engagement of our people, in June 2019 we carried out the third edition of the Generali Global Engagement Survey, a managerial tool for continuous improvement.
In 2019, taking into consideration the overall training available to Group’s employees, 97.7% of them were involved in at least 1 training programme. The training investment totalled € 60.3 million and 2.4 million training hours were supplied.
Our ambition is to foster a meritocratic environment, where the performance of our people is recognised and rewarded. This is possible through our Group Reward Strategy, which encourages alignment with the strategic objectives and the participation of all our people in the value creation process. Therefore, we have conceived and launched We SHARE, the first share plan of its kind for Group employees, with the goal of involving the highest number of people around the world to become Generali shareholders. In line with Generali 2021, We SHARE acknowledges the crucial role that our people play in achieving strategic objectives through an ownership culture, one of the basic behaviours for reaching our ambition of becoming the Life-time Partner for our customers. We SHARE was launched in 35 countries for approximately 60,000 employees. 21,430 of them joined the plan, with a participation rate of 35.3%. That is proof of both the important level of engagement of our people and the strong commitment to the Group’s strategy. Related to the plan, over € 420,000 were assigned to The Human Safety Net Foundation thanks to the donations of employees and that of Generali for each participant.
24 The indicator refers to Group employees, except for sales force.
Our objective is to strengthen our ability to adapt to change, to focus our attention on the customer and to instil responsibility in our people through simpler and more flexible organisations. We will adopt new work methods in order to leverage our collective intelligence. The Group’s organization is a fundamental asset for ensuring the proper execution of the strategy and the achievement of business objectives. We believe in a clear and simple organisational model that also encourages new methods of working that are more streamlined in order to facilitate speed, collaboration, accountability and innovation. Within this context, we support smart working, which will be extended to the entire Group by the end of 2021.
We developed a framework for the assessment and management of operational risks inspired by international best practices and consistent with the requirements of the Solvency II directive. As part of the assessment conducted every year by the Group companies, the risks that could impact areas concerning our people were identified and precisely analysed, and the initiatives implemented with a view to mitigating such risks were evaluated. The areas of analysis regarded the following specific categories: – employment relationships, with a particular focus on matters relating to key people and business ethics; – safety at work; – discrimination, diversity and inclusion.
In 2019, a new risk was added to the catalogue of operational risks. It is about the possibility to fail in the acquisition of new skills and competences for the execution of the Group strategy. The assessment is satisfactory, also in light of the initiatives implemented within the Generali People Strategy described and the centrality of our people within the Group strategy.
We are committed to strengthening our brand to become 1st choice in the Relationship Net Promoter Score (RNPS) among our European international peers by 2021, fostering change. We must get consumers to consider, prefer and acquire Generali, and connect them with our distributors. Our goal is to have a higher brand preference than our market share.
Sustainable finance > Issue of a green bond worth € 750 mln
34 Generali Group Annual Integrated Report and Consolidated Financial Statements 2019
Total emissions are calculated according to the location-based method; we also report them according to the market-based method on our website. The base year 2013 was redetermined (now t 121,161 CO2e, reduced by t 3,495 CO2e compared to past disclosures) in line with the update of the new methodology used to calculate emissions from the corporate fleet of our people. The new methodology harmonised at Group level the criteria for dividing the use of the car for business reasons (70% of total journeys), included in the calculation of emissions, from its use for private reasons, excluded from the calculation of Group emissions (30% of total journeys).
The Human Safety Net Initiatives for the communities where the Group operates have been addressed to The Human Safety Net since 2017, with a view - provided in internal guidelines - to focusing on a smaller number of more similar and impactful initiatives compared to the past. It aims to activate both financial and technical resources, as well as the network of people and the skills of Generali’s employees and agents to meet shared goals, favouring contact with local communities and making lasting change in the lives of recipients.
Objectives and metrics to reduce our direct impact 2019 results 20% reduction in greenhouse gas emission tied to the Group’s direct activities (2013-2020) > The Group’s carbon footprint29 is t 96,784 CO2e
Exclusion of new investments in companies of the coal and tar sand and disinvestment of approximately € 2 bln > No new investment and constant reduction of residual investments made up of run-off bonds
Exclusion of underwriting property coal-related risks for new customers of this sector and for the building of new coal capacity (coal plants) > No new customers of the coal sector and no coverage for the building of new coal capacity (coal plants)
For Newborns We improve care and support for premature newborns, or those with complications at birth such as neonatal asphyxia, so that they can survive and develop in the best way possible.
The Human Safety Net is active through three programmes with the shared mission of freeing the potential of disadvantaged people to enable them to improve the living conditions of their families and communities, by working alongside partners, like local social businesses and non-governmental organizations. Every country and business unit of the Group can choose to participate in one of these three programmes, identifying, conducting due diligence on and suggesting one or more partners to directly manage activities with beneficiaries. All of the activities and the results achieved are monitored through a measurement system based on the London Benchmarking Group’s international standard.
In the coming three years, our ambition is to further extend The Human Safety Net. We aim to achieve it by keeping high quality programmes that so far have characterized us, while enhancing initiatives where we are present through active engagement of employees and distributors, including volunteering activities, as well as of customers and other third-party organizations that share its approach and mission.
Our sustainability model is based on the Charter of Sustainability Commitments, approved by the Board of Directors of Assicurazioni Generali, which is broken down into three pillars: 1. do business in a sustainable manner, focusing on excellence in the corporate processes; 2. experience the community by playing an active role where the Group operates and going beyond everyday activities; 3. adopt governance and rules that are appropriate for running business with integrity. A Sustainability Committee was established at top management level, together with work groups integrated with the Head Office business functions and the Group’s business units.
We have a collection of Group public policies and guidelines which support our operations in a sustainable and responsible manner, such as: – Group Sustainability Policy that, approved by the Board of Directors in March 2019, outlines the system for identifying, assessing and managing the risks connected with environmental, social and corporate governance (ESG) factors). It particularly defines the rules for: - identifying, assessing and managing ESG factors that might present risks and opportunities for achieving corporate objectives; - identifying, assessing and managing the positive and negative impacts that the decisions and corporate activities might have on the outside environment and on the legitimate interests of the stakeholders; – Code of Conduct that defines the basic behavioural principles which all the personnel of the Group are required to comply with: these principles are outlined in specific guidelines that refer, for example, to the promotion of diversity and inclusion as well as the management of conflicts of interest, personal data protection and corruption prevention; – Group Policy for the Environment and Climate that contains the guiding principles for the strategies and objectives of environmental management; – Responsible Investment Guideline that codifies the responsible investment activities at Group level; – Responsible Underwriting Group Guideline that outlines principles and rules aimed at assessing environmental, social and governance features of customers and prospects in the P&C underwriting process; – Ethical Code for suppliers that highlights the general principles for the correct and profitable management of relations with contractual partners.
Together, these Group policies and guidelines contribute to ensuring respect for human rights. For example, the Responsible Investment Guideline filter allows us each year to identify and exclude from our investments those companies that have committed serious human rights violations. In order to reinforce, where necessary, the controls already in place on this topic, in-depth analysis has been started, in line with the most important international principles and tools, including the United Nations Universal
The main non-compliance risks are monitored through specific programmes spread throughout the Group. We regularly monitor - by means of specific risk assessment activities - our exposure to these risks with the aim of minimizing potential reputational and economic damages deriving from the violation of regulatory provisions, including those which aim to prevent money laundering, financing terrorism and corruption. We are firmly committed to preventing the use of our products and services for money laundering and financing terrorism purposes and to being in compliance with the provisions concerning international sanctions. We have adopted both Group policies and high standards in line with the European and international regulations, as well as the most appropriate risk mitigation measures. We condemn and combat all forms of corruption. Our employees, suppliers and customers can use, also anonymously, several communication channels, including the Group Compliance Helpline, always reachable with direct access from the Group Portal and the website, which has been simplified in its navigation and enriched with a video tutorial in order to better guide the whistleblower. These channels, active 24/7, ensure an objective and independent management of reports of behaviour or actions which might violate law, the Code of Conduct, its internal rules or other corporate rules, in accordance with the process on managing reported concerns and the whistleblowing policy which we have been applying for years. We have also adopted a rigorous policy against retaliations.
+9.6% 149 managed reports -2.6% 52,197 employees30 have completed the training course on the Code of Conduct
Our people, p. 29 www.generali.com/governance/remuneration/share-plan-for-the-generali-group-employees for further information on the share plan for the Group employees
We also facilitate participation in shareholders’ meetings for beneficiaries of long term incentive (LTI) plans - which are based on Generali shares - by providing them with a designated representative.
26.89% of the share capital Main shareholders (> 3%) 13.03% Mediobanca Group 5.00% Caltagirone Group 4.86% Del Vecchio Group 4.00% Benetton Group
Notes to the Management Report, p. 142 for further information on stakeholder relations www.generali.com/governance/annual-general-meeting for further details on the SMEI programme
Group CEO main person responsible for Company management, in the capacity of Managing Director, as well as acting as the Director responsible for the internal control and risk management system
NFSGovernance monitoring climate change management The Group governance is structured in such a way as to favour effective management of the risks and opportunities tied to climate change, which is considered one of the ESG factors most material for the Group and for its stakeholders. Specifically, the Board of Directors ensures that the Group organisation and management system is complete, functional and effective in monitoring climate change-related impacts. It therefore adopted the Climate Change Strategy in 2018 and is informed through the Governance and Sustainability Committee on the measures taken by the management to implement that strategy and on the results achieved. These elements were analysed during four Committee meetings in 2019. The Sustainability Committee at top management level guides and assists the decisions necessary so that the assessment and consistent management of the climate change impacts can be integrated in the main corporate processes. The decisions taken by the Committee are implemented by the competent management, each one for their own area of responsibility. This interdepartmental approach is also reflected in the Climate Strategy Task Force, which pools together the Group Investment, Asset & Wealth Management, Group P&C Retail, Group P&C Corporate & Commercial, Group Life & Health, Group Integrated Reporting and Group Risk Management functions, coordinated by Group Sustainability & Social Responsibility. The goal of the work group is to guarantee the management of the risks and opportunities tied to climate change in compliance with the strategy defined by the Board and to ensure the reporting on these aspects both to the competent in-house bodies and to the outside stakeholders, in line with the TCFD recommendations. Furthermore, a project led by the Risk Management function involving the main interested corporate functions was launched in 2019 more specifically to define a reference framework for managing risks tied to climate change in a forecasting prospective. It is broken down into the four main risk management steps, i.e. identification, measurement, management and reporting of risks.
▲ Director responsible for the internal control and risk management system
Our remuneration policy is designed to attract, motivate and retain the people who - due to their technical and managerial skills and their different profiles in terms of origin, gender and experience - are key to the success of the Group, as reflected in our values. Our remuneration policy reflects and supports both our strategy and values: to be a global insurance Group aiming at creating value and sustainable results, while valuing our people and maintaining commitments to all stakeholders.
Merit- and performance-based reward in terms of results, behaviours and respect for Group values
The annual variable remuneration is based on an incentive system, whereby a cash bonus ranging from 0% to 200% of the individual target baseline can be accrued depending on: – the Group funding, connected with results achieved in terms of Group operating result and adjusted net profit as well as the achievement of a minimum threshold of Regulatory Solvency Ratio; – the achievement of the objectives defined in the individual balanced scorecards, which establish up to 8 objectives at Group, business unit, region, country, function and individual level - as appropriate - based on the following perspectives: In line with Generali 2021, focused on profitable growth, value creation, innovation and digital transformation, two KPIs linked to the implementation of Group and local strategic projects - including sustainability initiatives - are provided in all individual balanced scorecard for the achievement of the plan objectives. A focus remains on the customer & brand goals, based on results linked to the managerial assessment of specific projects and performance indicators (e.g. customer retention ratio and brand preference).
Benefits consist of, for example, a supplementary pension and healthcare assistance for employees and their families, in addition to a company car and further benefits, including some linked to domestic or international travel (e.g. accommodation expenses, travel and education for children), in line with market practices.
− managerial assessment based on specific KPIs evidence, with focus on
Engagement Survey and other selected objectives (e.g. % talent pool retention, % reskilling plan execution, D&I index, local HR initiatives).
Following the increased performance of all Group segments, the operating result rose to over € 5 billion (+6.9%).
Solid Group’s capital position confirmed with Solvency Ratio increased to 224%.
1 All changes in this Report are calculated on 2018, unless otherwise reported. Changes in premiums, Life net inflows and new business are on equivalent terms, i.e. at constant exchange rates and consolidation scope. The operating result, Assets Under Management and Life technical provisions do not comprise the entities under disposal or disposed of in the period.
2 Adjusted for impact of gains and losses from disposals. Please refer to the comment in the paragraph on Group result of the period.
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 Property & Casualty gross written premiums reached € 21,526 million, growing by 3.9%, thanks to both business lines, which confirmed the positive performance recorded in the previous quarters.
* The definitions of social and environmental products were reviewed in 2019 in order to meet the different stakeholders’ requests and reflect the market evolution in terms of sustainability. Therefore, the change in premiums from social and environmental products is calculated on 2018 data restated. Premiums from social and environmental products refer to a higher number of consolidated companies compared to 2018 that represents 98.5% of the total gross direct written premiums.
As for premiums from environmental products, the premium from multi-risk policies covering NATCAT events only refers to the NATCAT guarantee. If the premium cannot be split into green-related component and other components, only the premium from the policies which are predominantly providing a green coverage or service is reported
(*) Investments, Asset & Wealth Management area includes the main Group entities operating in investment advisory, asset management and financial planning; it includes, among others, Banca Generali. Adding the operating result of AM of the Central and Eastern European countries to that of Investments, Asset & Wealth Management reported in the table, the total operating amounts to € 711 million (€ 542 million at 31 December 2018).
The adjusted net profit, which does not include the impact of gains and losses related to disposals, amounted to € 2,191 million. Excluding the one-off expense of € 188 million for the above-mentioned liability management transaction relating to the buyback of subordinated notes, the adjusted net profit was € 2,379 million, up +6.6%.
Net operating income from financial instruments at fair value through profit or loss 10,279 -6,018 n.m.
Net non-operating income from other financial instruments (**) -312 -166 88.5%
(**) The amount is gross of interest expenses on liabilities linked to financing activities.
Shareholders’ equity attributable to the Group shareholders’ equity attributable to minority interests € bln
Shareholders' equity attributable to the Group at the end of the previous period 23,601 25,079
Reserve for unrealized gains and losses on available for sale financial assets 4,004 -2,288
Net unrealized gains and losses on defined benefit plans -391 81
Shareholders' equity attributable to the Group at the end of the period 28,360 23,601
The Regulatory Solvency Ratio - which represents the regulatory view of the Group’s capital and is based on the use of the Internal Model, solely for companies that have obtained the relevant approval from IVASS, and on the Standard Formula for other companies - stood at 224% (217% at 31 December 2018; +8 pps). The positive normalized generation of capital more than offset the negative market variances, mainly associated with the decrease in interest rates, and capital variances (including the foreseeable dividend allocation and the early redemption of part of the subordinated debt).
Bond portfolio: detail by sector Government bonds: detail by country of risk
Equity instruments increased in absolute terms, standing at € 25,816 million (€ 19,807 million at 31 December 2018). The change was mostly due to the equity portfolio market effect together with purchases of both listed and alternative instruments.
Specifically, the Group’s direct investment properties at fair value amounted to € 22,693 million (€ 20,631 million at 31 December 2018), and were almost all in Western Europe, mainly in Italy, France and Germany, and were held in the respective countries of operations.
+7.7% € 311.7 mld direct investments of Group insurance companies to which the Responsible Investment Guideline is applied
Climate strategy In line with the principles of responsible investment which we have been applying for years, and in execution of the Group Policy for the Environment and Climate, we have defined our commitment, even through investment activities, to mitigate climate change and transition towards energy sources as alternatives to coal and fossil fuels..
Thanks to a methodology developed internally by a dedicated team - which integrates non-financial and traditional financial aspects - we select the best companies in relation to corporate social responsibility and sustainable development policies in order to establish dedicated SRI (Sustainable and Responsible Investments) funds and mandates.
* 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).
As a responsible investor, we undertake to promote sustainability in our investees through proxy voting and engagement activities. To this end, we have a Voting Guideline and an Engagement Guideline which express the fundamental values of the Group, including with respect to sustainability.
+17.7% +21.1% 0 pps Partecipation in 1,414 18,472 resolutions 13% votes shareholders’ meetings voted against
The contribution to the result of the period deriving from net realized gains, net impairment losses and net unrealized gains (harvesting rate)6 showed an increase to 0.4% (-0.1% at 31 December 2018), benefitting from both a lower impact of the impairments and a higher contribution of the net realized gains.
6 The contribution to investments backing unit-linked contracts was excluded. Please refer to the chapter Methodological notes on alternative performance measures for details on the calculation of the Return on investments.
In accordance with the IAS/IFRS managerial model used by the Generali Group, consolidated liabilities were split into two categories: – liabilities linked to operating activities, defined as all the consolidated financial liabilities related to specific balance sheet items from the consolidated financial statements.
Details of issues and redemptions of subordinated liabilities and senior bonds
2 emissions and buildings and transportation, the pool of eligible assets for the Green Bond will be mostly represented by investments in green buildings and transportation.
The senior debt of € 1,250 million issued in 2014 reached maturity in January 2020. Consistent with what was anticipated in May 2019 at the Exploring Generali event, this redemption was not refinanced as part of the plan to reduce debt according to the Generali 2021 strategy.
Liquidity rose from € 11,114 million of year-end 2018 to € 13,931 million at 31 December 2019; the increase in Group’s cash and cash equivalents reflected the improved generation of cash of the underlying business and the focus on restating the net result in cash flows.
(**) The total shareholders’ return (TSR) is the measure of performance which combines share price variation and dividends paid to show the total return to the shareholder expressed as an annualized percentage.
Share performance 2019 performance of the total shareholders’ return 31/12/18 31/01/19 28/02/19 31/03/19 30/04/19 31/05/19 30/06/19 31/07/19 31/08/19 30/09/19 31/10/19 30/11/19 31/12/19
7 The indicated market shares and ranking, based on written premiums, refer to the most recent official data.
Generali has been active in Germany since 1837. The Group ranks second in terms of total premium income due to a 9.1% market share in the Life business (also including health business), in which it plays a leadership role in the unit-linked and protection lines, and to a 5.3% P&C share, distinguished by a sharply higher premium profitability than the market average. In 2019, Generali successfully completed implementation of the strategic turnaround programme Simpler, Smarter for You to Lead in Germany. This programme, fully consistent with the Group’s strategy, was aimed at: – maximisation of the distribution power by: integrating the channel of exclusive Generali agents in the DVAG network, which with 37,000 agents is the largest distribution network in Germany, operating on an exclusive basis to sell Generali brand products; the strengthening of its leadership in the direct channel (CosmosDirekt), also through sizeable investments in the simplification of the processes and extension to new forms of digital intermediation; and the focusing of the broker channel (Dialog) on improvement of profitability and on the digitalisation process; – maximisation of operational efficiency and innovation with creation of the “One company ” model that led to concentrating employees in two main companies, creation of four product factories (Life, P&C, Health, Prevention and assistance) serving all distribution channels with considerable management synergies, and rationalisation of the brands portfolio, with significant strengthening of the Generali brand. To this regard, in October 2019 the merger of the P&C companies AachenMünchener Versicherung and Generali Versicherungen was finalised. It led to the creation of Generali Deutschland Versicherung, a company dedicated to the exclusive sale channel. The P&C company Dialog Versicherungen for the broker channel was set up. During the year, the Group retained its leading positioning on the market in the product innovation area and in customer services thanks to the Smart Insurance approach, focused on strengthening the Prevention and assistance offer, particularly thanks to the Generali Vitality programme and the products in telematics (Generali Mobility), domotics (Generali Domocity), and digital security through the CyberIdentity solutions; – mitigation of the interest rate risk and return on invested capital: during 2019, Generali finalised the sale of 89.9% of Generali Lebensversicherung to Viridium Gruppe,
with which it had come to an industrial partnership agreement for the profitable management of the traditional guaranteed Life portfolio that is particularly subject to the interest rate risk. The transaction, which entailed a comprehensive valuation of 100% of Generali Lebensversicherung totalling € 1 billion and repayment to the Group of € 882 million in subordinated instruments, will allow more efficient and remunerative resources for the Group to be allocated.
The initiatives carried out in 2019 fall within the Generali 2021 context, which also in Germany are aimed at fulfilling the Group’s ambition to become a Life-time Partner of its customers and to be number one on the market in terms of profitable growth, return on capital and innovation.
As regards the financial markets, the yield of the ten-year German Bund closed the year even lower, at -0.19% (0.25% in 2018). The DAX stock market earned 25.5%.
The P&C segment volumes went up slightly (+0.4%), entirely driven by the non-motor business (+1.7%), which benefits from the positive trend mainly in the home and commercial lines, further supported by the Global Corporate & Commercial lines. The motor line went down (-1.5%), which reflects both the activities of existing portfolio pruning and the focusing on the profitability in acquiring new customers. The combined ratio marks a considerable improvement (-3.1 pps), entirely attributable to the reduction in claims thanks to the positive trend of the current generations, the lower catastrophe impact (-0.6 pps) and the greater contribution of the result of the previous generations. The costs rate increased (+2.0 pps), driven by the greater commission charges following integration of the exclusive EVG network in DVAG in mid-2018.
The changes in the Property & Casualty business lines (+2.6%), basically stable compared to 2018, confirms strong growth in the health sector (+6.5%), led by the strong increase in health guarantees at both the individual and collective levels.
With reference to the financial markets, the ten-year French bond closed the year at 0.1%, down 0.7% compared to year-end 2018. The French stock market index, CAC 40, went up just like the other European indexes, to close the year with a 30.5% gain.
The new business margin (expressed as a percentage of PVNBP) decreased by 0.51 pps, from 2.29% in 2018 to 1.78% in 2019. The decrease is explained mainly by the unfavourable economic context, which is partially absorbed by the positive effects of an improved product mix and the constant reduction in guarantees offered. Despite the higher volumes, this lower profitability led to the new business value falling to € 188 million (-14.3%).
Countries that provided the greatest contribution to the observed increase are Austria (+4.6%), Hungary (+14.5%) and Romania (+49.8%), which offset the decline recorded particularly in Poland (-9.9%) and Croatia (-32.5%). New business profitability (expressed as a percentage of PVNBP) increased slightly to 6.97%, mainly because of the increased weight of the highly profitable protection products, which rose from 47.4% to 50.8% (specifically in Austria and the Czech Republic).
Spain Generali, in Spain since 1834, operates in the country through Generali España, a wholly-owned subsidiary, and two bancassurance agreements with Cajamar (Life and P&C), which guarantee the Group exposure to the major Life distribution channel and continuous expansion in P&C. Generali is one of the main insurance groups in Spain, with a market share in 2018 of 3.0% in the Life segment and 4.4% in the P&C segment. The Generali España group offers a wide range of Life and P&C policies dedicated to private individuals and companies, using a multi-channel distribution strategy including not only bank offices, but also a network of agents and brokers which is among the most extensive in Spain. All in all, the Group ranks ninth in the Spanish insurance market in terms of total premiums (sixth place in the P&C market). With reference to the insurance market, in 2019 the P&C segment continued its growth trend (+3.4%), although at a slower pace than 2018, primarily due to the performance of the motor business. The Life premiums, down by 5.1%, confirm the trend of the previous two-year period, driven by the drop recorded by the individual savings products; the unit-linked line grew (+19.4%). The growth of GDP is stable, although it is slower than the previous year. The tenyear Bonos-Bund spread ended 2019 at 66 bps, below the level recorded at the beginning of 2019, while the Spanish stock market (IIBEX 35) closed the year with a 16.6% gain.
Life premiums fell by 1.4%, reflecting the decline in savings products (-13.8%) in line with the Group’s strategy of reorienting the business mix towards products with lower capital absorption. Consequently, both pure risk and protection policies (+8.9%) and unit-linked products (+42%) increased. New production in terms of PVNBP was slightly down (-1.6%) both in single premium products (-1.9%) and in annual premium products (-0.9%). In terms of business lines, the savings and pension products posted a 24.9% contraction due to the closing of non-profit making products (in line with Group strategy), which is almost entirely offset by a considerable increase in the unit-linked business (+124.9%, mainly due to the sale of two new index-linked products) and the positive trend of the protection business (+6.3%) representing 46.6% of the business. Thanks to the excellent profitability of the protection business (26.99%), the new business margin (expressed as a percentage of PVNBP) is high and stable compared to the previous year, recorded at 12.96%. New business value amounted to € 115 million, down (-2.4%). In the P&C segment, premiums grew by 3% entirely thanks to the development of the non-motor business line, which posted positive trends in the corporate segment and funeral coverage.
Switzerland The Generali Group has been operating in Switzerland since 1987, where it has been able to consolidate its position through the acquisition and merger of several insurance companies. In line with the strategy defined by the Group, Generali focuses on the retail business and provides high quality and innovative services through various distribution channels: agents, brokers, financial promoters and direct channels. Generali ranked as the number two insurance group on the market in terms of premium income in the individual Life segment with a 14.9% market share, and was eighth in the P&C segment with a 4.7% market share. Generali does not operate in the Collective Life segment. In 2019, the insurance market recorded a substantial stagnation of the Life segment (+0.6%), partly caused by the continuing low interest rates. The P&C segment on the other hand continued with slow, though constant, growth.
The development of the Swiss economy was weakened by the slowdown of the world’s economic situation and by the German economic situation particularly in the second half as it affected exports and investments. Uncertainty in the Eurozone supported the Swiss franc and slowed down the yields of government securities, making an impact particularly on the financial services sector. GDP grew 0.8%, especially thanks to the energy sector and to the export of the chemical-pharmaceutical industry.
Life volumes showed a growth of 12.9% compared to 2018, thanks to the positive performance of Brazil and of all of Southern Europe. New business in terms of PVNBP was up (+42.2%) with a profitability of new business (expressed as a percentage of PVNBP) that came to 2.33%. The value of the new business amounted to € 6 million. P&C premiums, which accounted for about 60% of motor products, grew by 14.2% thanks largely to Argentina (+23%) mainly due to the effect of tariff adjustments as a result of the high inflation. The combined ratio of the Region worsened (106.1%; +4.5 pps) compared to the previous year due to the inflationary effect on the cost of claims that increased more than proportionately compared to the tariff adjustment on the premiums.
Asia Generali is one of the key European insurers in the Asian market, and currently operates in eight territories. The predominant segment is Life, with premium income mostly concentrated in the savings and protection lines and, to a lesser extent, in the unitlinked lines. Generali offers its products in the entire region adopting a distribution strategy that includes agents, brokers, digital channels and agreements with banking groups. Generali operates in China with Generali China Life, in partnership with China National Petroleum Corporation (CNPC), which is one of the largest Chinese stateowned companies as well as one of the major energy groups in the world. Generali has a joint venture agreement with CNPC for the P&C products offer as well. Owing to its prominent presence in the Chinese market, Generali China Life is the leading contributor to the turnover and operating result of the entire region. Future Generali Insurance is a Life and P&C joint venture with Future Group, one of India’s major retailers. Its purpose is to offer insurance solutions throughout India, also by leveraging the distribution network of Future Group through the digital channel. In December 2018, the Generali Group increased its share in the joint venture to 49% by investing up to € 120 million. Generali operates as Life insurer also in the emerging markets of the Philippines, Indonesia, Thailand and Vietnam, and as P&C insurer in Thailand and Malaysia, in the latter market with a 49% investment in MPI Generali. The companies China P&C, India Life, India P&C and in Malaysia are not fully consolidated since a non-controlling interest is held. Generali has also been operating in the Hong Kong market since 1980, offering both Life and P&C products. Hong Kong is also the location of the regional office (Generali Asia Regional Office), which coordinates all activities in the region. Lastly, it is pointed out that the P&C business in Japan is in liquidation, having transferred its portfolio to Mitsui Sumitomo in April 2019.
Life premiums rose slightly (+0.3%), particularly thanks to the growth posted in China and Vietnam in the protection policies. New business in terms of PVNBP was down (-5.7%). The decrease mainly concerns the single premiums (-12.8%), while the current value of the future annual premiums is still stable (-0.7%). Offsetting the decrease in China (-7.5%), Thailand (-19.6%) and Hong Kong (-20.8%) is the good production in Vietnam (+29.9%), India (+41.5%) and the Philippines (+31.0%). With reference to the business lines, there was an increase in protection products (+23.9%), while the savings business (-19.1%) and unit-linked products (-38.0%) fell. The profitability of the new business (expressed as a percentage of the PVNBP) recorded a decrease from 6.02% in 2018 to 5.19% in 2019, conditioned by the
The business unit operates in the three areas depicted by its name: – Investment Management: implementation of the Asset Liability Management (ALM) and Strategic Asset Allocation (SAA) models on behalf of the Group Insurance Companies; Total operating result
www.generali.com/who-we-are/global-positioning/investmentsasset -and-wealth-management for more information on the breakdown of the segment
– Wealth Management: financial planning and asset protection for customers through a network of consultants at the top of the sector in terms of skills and professionalism, mainly through Banca Generali, a leading private bank in Italy.
The operating result of the Investments, Asset & Wealth Management business unit, including also the AM result of CEE countries, grew by 31%, from € 542 million in 2018 to € 711 million in 2019. In this context, the contribution in terms of operating result provided by Wealth Management was € 327 million, up by about € 95 million compared to 2018, mainly due to the performance commissions that increased to € 147.4 million.
This node includes the Parent Company’s management and coordination activities, including Group reinsurance, other companies as other financial holding companies and suppliers of international services not included in the previous geographical areas.
Our performance Risk Report this operation, Generali Global Assistance now is positioned as the third largest operator in the travel insurance market in the USA, and significantly contributes to the global reinforcement of the EA Group in this sector.
Excellent net inflows, at over € 13.6 billion (+19.6%). Life technical provisions grow to € 369 billion (+7.6%). Gross written premiums increased by 4.5% to € 48,260 million thanks to the growth of the protection line and savings and pension line.
Operating result at € 3,129 million, up 2.0% thanks to growth of the technical margin and net investment result.
Our performance Risk Report € 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 net inflows stood at € 13,632 million, reaching the top level in the market. The 19.6% growth was mostly driven by Italy (+27.3%), whose net inflows benefitted from the higher savings and pension single premiums. Also making significant contributions were France (+33.5%), due to higher premiums, and Asia (+28.9%), which particularly benefitted from lower surrenders on the savings and pension products.
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. 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 technical margin9 amounted to € 6,168 million (+6.0%), reflecting the growth in fees linked to the sale of unit-linked and hybrid products mainly in Italy and Germany, as well as in ACEER, with widespread trends in the area.
Net income from financial instruments related to unit and index-linked policies 9,748 -5,834 n.m.
Net other income from financial instruments at fair value through profit or loss 238 -515 n.m.
Acquisition and administration costs related to insurance business -4,838 -4,497 7.6%
The net other operating expenses went from € -90 million to € -186 million at 31 December 2019. This item also included the brand royalties paid by the companies in this segment to the Parent Company for global marketing and branding activities.
of which change in the provisions for unit and index-linked policies -11,852 2,172 n.m.
Group holdings and other companies 1,007 850 48 67 - -
Life segment direct premiums by line of business (*) and by country
Group’s CoR at 92.6% (-0.4 pps), the best amongst our peers, despite 2.0 pps arising from natural catastrophe claims.
The increase in the motor line (+2.4%) was supported by the growth in ACEER (+6.1%), which reflected the positive trend in the Czech Republic for pricing policies and the development of partnerships in fleets and leasing, the increase in car sales in Hungary and the expanded portfolio in Austria. France also increased (+4.1%), partly as a result of new distribution partnerships, and Americas and Southern Europe (+13.5%), mainly due to the pricing adjustments made in Argentina following inflation. Motor premiums in Italy were down by 1.3%, following the trend of the motor third-party liability portfolio.
Non-motor premiums also rose (+3.8%), thanks to the positive trends broadly extended across the Group’s various areas of operations. Premium income in ACEER increased (+6.1%), positively led by Poland (+21.4% deriving from the corporate business) and Hungary (+8.7% which mostly benefitted from growth in home and in the accident & health products). Performance was positive in France (+3.2%, following the performance of the accident & health line and multi-risk lines), Italy (+2.9% due to growth in health and commercial lines), Germany (+1.7% due to the home and commercial lines, further backed by the Global Corporate & Commercial lines), and International cluster (+5.8%), driven by Spain (+4.6%).
Gross direct premiums by line of business at 31 December 2019 Gross direct premiums by line of business at 31 December 2018
■ Other operating items Investment result ■ ■ Technical result 31/12/2019 31/12/2018 € mln
10 Per dettagli sulla modalità di determinazione di tale indicatore si rimanda al Glossario.
The loss ratio stood at 64.2%, up thanks to the trend of non-catastrophe current year loss ratio (-1.2 pps), also due to the lower impact of the above-mentioned large man-made claims. The impact from natural catastrophe claims was 2.0% (1.7% at 31 December 2018). The prior year loss ratio was stable at -5.7%, which confirms that the Group is maintaining a prudent reserving policy. As regards the main countries where it operates, the combined ratio of Italy achieved excellent levels (91.9%; +1.0 pps). Natural catastrophe claims impacted the ratio by 2.9 pps; the costs rate was stable. The combined ratio of Germany improved to 89.6% (-3.1 pps) thanks to the positive trend of both the current and the prior year loss ratio. The ratio includes 2.1 pps of natural catastrophe claims due to the different storms that struck the country (2.7 pps in 2018). The combined ratio of ACEER improved to 87.2%, despite the bigger impact of natural catastrophe claims, confirming it is the best of the Group. The CoR of France decreased to 96.8% (-3.0 pps) thanks to the improvement in the loss ratio. The CoR of Americas and Southern Europe went up and stood at 106.1%, reflecting the inflationary effects in Argentina.
The investment result of the P&C segment amounted to € 918 million, slightly down compared to 31 December 2018. In particular, current income from investments were basically stable at € 1,235 million. Current income from investment properties was up at € 272 million (€ 255 million at 31 December 2018).
Other operating net financial expenses, including interest expenses on liabilities linked to operating activities and investment management expenses, increased to € -317 million (€ -298 million at 31 December 2018).
The other operating items of the P&C segment, which primarily included non-insurance operating expenses, depreciation and amortization of tangible assets and multi-annual costs, provisions for recurring risks and other taxes, amounted to € -251 million (€ -196 million at 31 December 2018) mainly due to higher costs for reorganisation of the German activities.
The non-operating result of the P&C segment came to € -290 million (€ -202 million at 31 December 2018). In particular, the non-operating investment result improved, reflecting, on the one hand, lower net impairment losses on bonds and equities, which went from € -172 million to € -174 million at 31 December 2019, and, on the other, higher net realized gains, which went from € 172 million to € 279 million at 31 December 2019.
Net non-operating income from financial instruments at fair value through profit or loss decreased to € -84 million (€ +7 million at 31 December 2018). Other net non-operating expenses amounted to € -311 million (€ -209 million at 31 December 2018), of which € -45 million relating to the amortization of the value of portfolios acquired (€ -39 million at 31 December 2018). In 2018, this item had benefitted from € 77 million in gains from the disposal of the activities in Panama.
Fee and commission income and income from financial service activities 1 0 66.4%
Interest expense on liabilities linked to operating activities -72 -64 11.1%
Net realized gains on other financial instruments and land and buildings (investment properties)
Group holdings and other companies 95.6% 92.1% 70.0% 66.7% 25.6% 25.4%
(*) CAT claims impacted on the Group combined ratio for 2.0%, of which 2.9% in Italy, 2.4% in France, 2.1% in Germany and 1.6% in ACEER (at 31 December 2018 CAT claims impacted on the Group combined ratio for 1.7%, of which 2.7% in Germany, 2.6% in France and 1.5% in Italy).
Total investments in the P&C segment rose from € 37,806 million at 31 December 2018 to € 39,646 million (+4.9%). With reference to the exposure to the various asset classes, the fixed income portfolio showed a slight decrease, amounting to € 26,691 million, with a weight to total of 67.3%. Following the net purchasing position adopted by the Group and the market’s effect, the exposure to equity instruments increased slightly, from 6.0% at 31 December 2018 to 7.0%, while the exposure to investment properties fell from 10.6% to 10.1%. Finally, the weight of cash and other cash equivalents increased from 7.2% at 31 December 2018 to 9.1%.
The harvesting rate increased to 0.3% (0.1% at 31 December 2018), supported by the realized gains and a lower impact of impairments.
With reference to the bond portfolio breakdown, the exposure to government bonds increased, standing at € 11,695 million (€ 11,625 million at 31 December 2018), with a weight of 43.8% (43.5% at 31 December 2018), while the exposure to corporate bonds fell, amounting to € 11,408 million, with a weight of 42.7% (44.7% at 31 December 2018). The average duration of the bond portfolio remained unaltered at 5.5, in line with the Group’s ALM strategy.
The Cost/Income ratio therefore increased by 3 pps from 45% at the end of 2018 to 48%.
The total Assets Under Management of the segment was € 531 billion at 31 December 2019. Third-party Assets Under Management rose from € 27 billion at the end of 2018 to € 106 billion at the end of 2019, primarily due to integration of the new boutiques, as well as to the contribution of assets of a number of companies disposed of during the year, previously held by the Group and retained under its management as a result of the sale agreements.
Asset Management segment 11 I dati comparativi del segmento Asset Management comprendono gli asset delle società cedute nel periodo, che rimangono in gestione a seguito degli accordi di cessione.
Interest expenses on liabilities linked to to operating activities -4 -1 n.m.
The operating result of the Holding and other businesses segment came to € 8 million, an improvement compared to € -70 million at 31 December 2018. In particular, the operating result of the financial and other businesses rose to € 538 million (€ 397 million at 31 December 2018). The 35.3% increase mainly reflected the growth in the result of Banca Generali, which stood at € 327 million (€ 233 million at year-end 2018) and that benefitted from a more favourable context of the international financial markets, which brought about an increase in managed assets and commissions.
Net operating income from financial instruments at fair value through profit or loss 20 10 n.m.
Net non-operating income from financial instruments at fair value through profit or loss
Net non-operating realized gains on their financial instruments and land and buildings (investment properties)
Holding and other businesses segment earnings before taxes -908 -787 15.4%
The purpose of this section is to provide an overview of the Group’s solvency position and risk profile, as well as its risk management framework. To this end a brief introduction on economic and regulatory environment is hereby provided.
In terms of solvency position, the Group and all its European insurance subsidiaries comply with Solvency II regulation, which requires capital to be held for all quantifiable risks.
For risks not included in Solvency Capital Requirement (SCR) calculation, additional assessment techniques are used. In particular, for liquidity risk, the Group has in place methodologies and models to grant a sound risk management in line with the Group risk strategy, defined in the Group Risk Appetite Framework.
The Risk Report structure is the following: – section B providing a brief oversight of the risk management system; – section C providing the Group solvency position and the key elements of the capital management process; – section D providing a highlight on the Group’s risk profile and sensitivity analysis to main risks.
Finally, Group rating assessment by external rating agencies is provided on the Group website in the section.
The Group system of governance is founded on the establishment of an AMSB and of three lines of defence: – the operating functions (risk owners), which represent the first line of defence and have ultimate responsibility for risks relating to their area of responsibility; – Actuarial, Compliance and Risk Management Functions, which represent the second line of defence; – Internal Audit Function, which represents the third line of defence.
Internal Audit Function together with Actuarial, Compliance and Risk Management Functions represent the Key Functions.
(Česká pojišťovna a.s.) and for Spanish companies (Generali Espana S.A. de Seguros y Reaseguros e Cajamar Vida S.A. de Seguros y Reaseguros). For the other entities, the standard formula is applied. Other financially regulated entities apply local sectorial requirements.
The purpose of the risk identification is to ensure that all material risks to which the Group is exposed are properly identified. To this end, the Risk Management Function interacts with the main business functions and Business Units in order to identify the main risks, assess their importance and ensure that adequate measures are taken to mitigate them, according to a sound governance process. Within this process also emerging risks4 related to new risks and developing trends, characterized by uncertain evolution and often of systemic nature, are considered.
The Group main risks’ identification process is based on the results of the local risk identification processes.
Identified risks are then measured through their contribution to the SCR, complemented by other modelling techniques deemed appropriate and proportionate to better reflect the Group risk profile. Using the same metric for measuring the risks and the capital requirements ensures that each quantifiable risk is covered by an adequate amount of capital that could absorb the loss incurred if the risk materializes. For SCR calculation purposes 1 in 200 years events are considered. The SCR is calculated by means of the Group’s PIM5 for financial, credit, life and non-life underwriting risks.
Operational risks are measured by means of standard formula, complemented by qualitative risk assessments6. The PIM provides an accurate representation of the main risks the Group is exposed to, measuring not only the impact of each risk taken individually but also their combined impact on the Group’s own funds.
Group PIM methodology and governance are provided in the section C. Solvency Position. Insurance and ReInsurance Entities not included in the PIM scope calculate the capital requirement based on standard formula, while other financial services (e.g. banks, pension funds and asset manager) calculate the capital requirement based on their own specific sectoral regimes. For liquidity risk a Group model is used to calculate the metrics, as defined in section D. Liquidity Risk. Other risks are assessed by means of quantitative and qualitative techniques.
risk preferences, the risk metrics, the tolerance and the target levels. The purpose of the Group RAF is to set the desired level of risk on the basis of the Group strategy. The Group RAF statement is complemented by qualitative assertions (risk preferences) supporting the decision -making processes, risk tolerances providing quantitative boundaries to limit excessive risk-taking and an operating target range to provide indications on the solvency level at which the Group aims to operate. Tolerance and target levels are referred to capital and liquidity metrics. The Group RAF governance provides a framework for embedding risk management into day-to-day and extraordinary business operations, control mechanisms and escalation and reporting to be applied in case of risk tolerance breaches. Should an indicator approach or breach the defined tolerance levels, pre-defined escalation mechanisms are activated.
At Group level, the process is coordinated by the Risk Management Function, supported by other functions for what concerns own funds, technical provisions and other risks.
In compliance with the Solvency II regulatory requirements, Group own funds are defined as the sum of consolidated basic own funds (BOF) related to insurance entities, holding and ancillary undertakings attributable to insurance activity and the own funds attributable to non-insurance entities, defined according to their sectoral regulatory regimes.
Basic own funds, can be further analysed as the sum of the following components: 7 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.
8 IORP stands for Institutions for Occupational Retirement Provisions. 9 These additional own funds are authorised by Supervisor for the years between 2016 and 2022, a period during which the proportion of the eligible unrealised capital gains will decrease gradually.
Commenting on the items contributing to the GOF, it can be noted that: – the increase of the excess of assets over liabilities (€ 2,417 million) is mainly attributable to the contribution of the total own funds generation of the year (€ 3,525 million) and to the payment of the 2018 dividend made during 2019 (€ -1,413 million); – the reduction of the subordinated debt eligible in basic own funds (€ -366 million) is due to its early redemption occurred during 2019; – the foreseeable dividend increases to € 1,513 million; – the reduced contribution of the unrealised gains on IORP business stems from their progressive yearly haircut required by the French regulator; – the higher impact of deductions for participations in sectoral entities (€ -663 million) mainly comes from the higher value (quoted market price) of the participation in Banca Generali; – the reduction of the impact of filters for minorities and non-available items (€ 446 million) mainly comes from the reduction of the filters on Surplus Funds after the disposal of Generali Leben; – the reduced contribution of sectoral entities (€ -172 million) reflects the impact of the acquisition (and related activation of goodwill) of some entities within Multiboutique Europe asset management perimeter.
Under the Solvency II regime, Solvency II excess of assets over liabilities is valuated starting from IFRS shareholders ’ equity and by adjusting at fair value consolidated assets and liabilities in accordance with Article 75 and Section 2 of the Solvency II Directive. More precisely, these adjustments consist of: – eliminating intangible assets (e.g. goodwill); – revaluating investments not accounted at fair value, such as loans, held to maturity investments and real estate; – accounting for the technical provisions according to Solvency II rules as a sum of Best Estimate of Labilities (BEL) and risk margin; – including the Solvency II evaluation of financial liabilities and recognising material contingent liabilities; – recalculating the impact of net deferred taxes on the above adjustments.
Reconciliation between IFRS shareholders’ equity and Solvency II excess of assets over liabilities
(*) 2019 IFRS Equity adjusted (for illustrative purpose) for the proportional consolidation of China operations within Solvency II.
According to Solvency II regulation, Group own funds items are classified into three tiers representing different level of quality, depending on the ability to absorb losses due to adverse business fluctuations on a going-concern basis and in the case of winding-up. The Group’s tiering is described below: – Tier 1 unrestricted own funds includes the following items: – ordinary share capital and the related share premium account; – available surplus funds (from German, Austrian and French business); – reconciliation reserve; – additional own funds from French pension activities; – Tier 1 restricted includes undated subordinated debt; – Tier 2 includes the remaining part of subordinated debt which is classified as dated; – Tier 3 is composed by net deferred tax assets, which are characterised by lower capital quality being not immediately available to absorb losses.
Based on last available information for 2019, official figures for 2018.
The above SCR breakdown highlights that: – financial and credit risks, account for the 70% of the total SCR before diversification, due to the predominance of traditional life business; – life and non-life underwriting risks, accounting for respectively 9% and 13% of the total SCR before diversification; within this CAT risks remain limited thanks to a comprehensive reinsurance program; – health underwriting risk deriving from standard formula based entities accounting for 1% of the total SCR before diversification; – operational risks contribute to the Group SCR for 7%. This contribution is calculated using the standard formula.
Each risk category is further detailed in the section D. Risk Profile.
In addition to SCR coverage, the Group calculates the Minimum Consolidated Group SCR (MCR) coverage. The MCR calculation is required to determine the minimum level of capital, under which the Group would be exposed to an unacceptable level of risk when allowed to continue its operations.
The Minimum Solvency Ratio10 stands at 261% as at 31 December 2019, with an increase of +1 pps in respect of previous year. In the following table, the MCR coverage is reported
To define MCR coverage, stricter own fund eligibility rules are applied compared to the ones previously used for the SCR11. In the following table, the split by tiers of the own funds covering the MCR is reported: GOF to meet the MCR by tiering
changes in the basic own funds over a 1-year horizon. The own funds’ probability distribution allows to determine the potential losses at any percentile for risks in scope and, in particular, the SCR corresponding to the 99.5th percentile. The risk measure applied is the VaR (Value at Risk). Monte-Carlo methods are used in the industry to obtain sound numerical results using the embedded characteristics of repeated random sampling to simulate the more complex real-world events. Proxy functions are mathematical functions that mimic the interaction between risk drivers and insurance portfolios to obtain the most reliable results.
The Group PIM is considered to be the most appropriate way of assessing the Group SCR. It represents the best way of capturing the risk profile of the entire Group and of the Legal Entities in scope in terms of granularity, calibration and correlation of the various risk factors.
The Group PIM is structured around a Risk Map, which contains all quantifiable risks that Generali Group has identified as relevant to its business, allowing for the calculation of the SCR at single risk level and at higher aggregation levels.
12 Tier 1 includes also available capital of sectoral entities and the unrealised gains and losses on French Institutions for Occupational Retirement Provision (IORP) business as agreed with the Group Supervisory Authority.
Governance and processes regarding the Group PIM are defined in the Group Internal Model Governance Policy, ensuring that: – models and components are appropriate for their purpose; – procedures are in place to design, implement, use and validate new models and model changes; – the appropriateness of models on an ongoing basis is verified.
These roles are generally mirrored within the organizational structure of each Group Legal Entity within PIM scope.
Within the validation process, also results obtained during previous validation exercises are considered, as well as developments within internal and external business environment, financial market trends and Group PIM changes.
The validation process is carried out on regular annual basis and when requested by the Senior Management or Board of Directors.
Notes, Details on insurance and investment contracts, for Group’s life underwriting business key figures
Life and health underwriting risks can be distinguished in biometric and operating risks embedded in the life and health insurance policies. Biometric risks derive from the uncertainty in the assumptions regarding mortality, longevity, health, morbidity and disability rates taken into account in the insurance liability valuations. Operating risks derive from the uncertainty regarding the amount of expenses and the adverse exercise of contractual options by policyholders. Policy lapse is the main contractual option held by the policyholders, together with the possibility to reduce, suspend or partially surrender the insurance coverage. Life and health underwriting risks are: – mortality risk, defined as the risk of loss, or of adverse change in the value of insurance liabilities, resulting from changes in mortality rates, where an increase in mortality rates leads to an increase in the value of insurance liabilities. Mortality risk also includes mortality catastrophe risk, resulting from the significant uncertainty of pricing and provisioning assumptions related to extreme or irregular events; – longevity risk that, similarly to mortality, is defined as the risk resulting from changes in mortality rates, where a decrease in mortality rates leads to an increase in the value of insurance liabilities; – disability and morbidity risks derive from changes in the disability, sickness, morbidity and recovery rates; – lapse risk is linked to the loss or adverse change in liabilities due to a change in the expected exercise rates of policyholder options. The relevant options are all legal or contractual policyholder rights to fully or partly terminate, surrender, decrease, restrict or suspend insurance cover or permit the insurance policy to lapse. Mass lapse events are also considered; – expense risk results from changes in the expenses incurred in servicing insurance or reinsurance contracts; – health risk results from changes in health claims and also includes health catastrophe risk (for PIM entities).
In addition to the risks above, the Group Risk Map includes also the going concern reserve risk, a German business specific risk that refers to misestimation of new business assumptions.
The approach underlying the life underwriting risk measurement is based on the calculation of the loss resulting from unexpected changes in biometric and/or operating assumptions. Capital requirements for life underwriting risks are calculated on the basis of the difference between the insurance liabilities before and after the application of the stress.
Life underwriting risks are measured by means of the Group PIM13.
The SCR for life underwriting risk amounts to € 2,709 million before diversification (equal to 9% of total SCR before diversification). This is mainly given by expense14 risk, followed by lapse and longevity risks. In terms of contribution to the risk profile, it is to be noted that life underwriting risks are well diversified with other risk categories. The overall contribution to the risk profile therefore remains limited.
13 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.
Life underwriting risk management is embedded in the key underwriting processes being: – product development and accurate pricing; – ex-ante selection of risks through underwriting; – setting and monitoring of operative underwriting limits; – portfolio management and monitoring.
Product pricing consists in setting product features and assumptions regarding expenses, financial, biometric and policyholders’ behaviour to allow the Group Legal Entities to withstand any adverse development in the realization of these assumptions. For savings business, this is mainly achieved through profit testing, while for protection business with a biometric component, it is achieved by setting prudent assumptions.
The same annual assessment of the adequacy of the mortality tables used in the pricing is performed for longevity risk. In this case, not only biometric risks are considered but also the financial risks related to the minimum interest rate guarantee and any potential mismatch between the liabilities and the corresponding assets.
As part of the underwriting process, Generali Group adopts underwriting guidelines. Risk Management Function reviews implications of new lines of business/ products on the Group risk profile. Moreover, a particular emphasis is placed on the underwriting of new contracts with reference to medical, financial and moral hazard risks. The Group has defined clear underwriting standards through manuals, forms, medical and financial underwriting requirements. For insurance riders, which are most exposed to moral hazard, maximum insurability levels are also set, lower than those applied for death covers. In order to mitigate these risks, policy exclusions are also defined.
Finally, reinsurance represents the main risk mitigating technique. The Parent Company acts as core reinsurer for the Group Legal Entities and cedes part of the business to external reinsurers. The Group reinsurance strategy is developed consistently with the risk appetite and with the risk preferences defined in the Group RAF, and with the reinsurance market cycle. The definition of a reinsurance arrangement is based on the process managed by Group Reinsurance Function in constant interaction with Risk Management and Actuarial Functions.
Non-life underwriting risks include the risk of underestimating the frequency and/or severity of the claims in defining pricing and reserves (respectively pricing risk and reserving risk), the risk of losses arising from extreme or exceptional events (catastrophe risk) and the risk of policyholder lapses from P&C insurance contracts (lapse risk). In particular: – pricing and catastrophe risks derive from the possibility that premiums are not sufficient to cover future claims, also in connection with extremely volatile events and contract expenses; – reserving risk relates to the uncertainty of the claims reserves (in a one-year time horizon); – lapse risk arises from the uncertainty of the underwriting profits recognised in the premium provisions.
The SCR for non-life underwriting risk amounts to € 4,071 million before diversification (equal to 13% of total SCR before diversification). This is mainly given by reserve and pricing risks, followed by CAT risk. Non-life lapse risk contributes only for a marginal amount to the risk profile.
Moreover, the Group uses additional indicators for risk concentrations. This is specifically the case for catastrophe risks and commercial risks, which are both coordinated at central level as they generally represent a key source of concentration.
In terms of CAT risk, the Group’s largest exposures are earthquakes in Italy, European floods and European windstorms. Less material catastrophe risks are also taken into account and assessed by means of additional scenario analysis.
Additional indicators such as relevant exposures, risk concentration and risk capital figures are used for the purpose of P&C underwriting risk monitoring. The indicators are calculated on a quarterly basis to ensure alignment with the Group RAF.
The P&C Group Reinsurance Strategy is developed consistently with the risk appetite and the risk preferences defined in the Group RAF on one side and taking into account the reinsurance market on the other. The Group has historically preferred traditional reinsurance as a tool for mitigating catastrophe risk resulting from its P&C portfolio, adopting a centralized approach where the placement of reinsurance towards the market is managed through a central Group Reinsurance Function.
The Group aims at diversifying its cessions to reinsurers to avoid excessive concentrations, to optimize its reinsurance purchases, including from a pricing perspective, and to continuously develop know-how in the most innovative risk transfer techniques. For this reason, part of the Italian earthquake, European flood and European windstorm exposures were carved out from the traditional catastrophe reinsurance program and placed in the Insurance Linked Securities (ILS) market. This innovative issuance was completed successfully and at competitive terms. Alternative risk transfer solutions are continuously analysed and implemented. As an example, in addition to traditional reinsurance, a protection is in place to reduce the impact of an unexpectedly high loss ratio for the Group motor liability portfolio.
The Group invests collected premiums in a wide variety of financial assets, with the purpose of honouring future obligations to policyholders and generating value for its shareholders. As a result, the Group is exposed to the financial risks driven by either: – invested assets not performing as expected because of falling or volatile market prices; – reinvested proceeds of existing assets being exposed to unfavourable market conditions, such as lower interest rates.
15 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.
The asset portfolio is then invested and rebalanced according to the asset class and duration weights. The main risk mitigation techniques used by the Group are liability -driven management of the assets and regular use of rebalancing. The liability driven investment helps granting a comprehensive management of assets whilst taking into account the liability structure; while, at the same time, the regular rebalancing redefines target weights for the different asset classes and durations, alongside the related tolerance ranges defined as investment limits. This technique contributes to an appropriate mitigation of financial risks. ALM&SAA activities aim at ensuring the Group holds sufficient and adequate assets to reach defined targets and meet liability obligations. For this purpose, analyses of the asset-liability relationship under a range of market scenarios and expected/stressed investment conditions are undertaken. The Group works to ensure a close interaction between the Investment, Finance (incl. Treasury), Actuarial and Risk Management Functions to secure that the ALM&SAA process remains consistent with the Group RAF, the strategic planning and the capital allocation mechanisms. The annual SAA proposal: – defines target exposure and limits for each relevant asset class, in terms of minimum and maximum exposure allowed; – embeds the asset and liabilities duration mismatches permitted and potential mitigation actions that can be enabled on the investment side.
In addition to the risk tolerance limits set on the Group solvency position within the Group RAF, the current Group risk monitoring process is also integrated by the application of the Investments Risk Group Guidelines (IRGG). The IRGG include general principles, quantitative risk limits (with a strong focus on credit and market concentration ), authorization processes and prohibitions that Group entities need to comply with.
16 The Prudent Person Principle set out in Article 132 of Directive 2009/138/EC requires the company to only invest in assets and instruments whose risks can be identified, measured, monitored, controlled and reported as well as taken into account in the company overall solvency needs. The adoption of this principle is ruled in the Group Investment Governance Policy (GIGP).
Unit-linked business typically does not represent a source of financial risk for insurers (except when there are guarantees embedded in the contracts), although market fluctuations typically have profitability implications. Regarding P&C business, the Group has to ensure that the benefits can be paid on a timely basis when claims occur.
The SCR for financial risk amounts to € 14,678 million before diversification (equal to 47% of total SCR before diversification). This is mainly driven by equity risk, followed by interest rate, property and currency risk.
The Group is exposed to credit risks related to invested assets and those arising from other counterparties (e.g. cash, reinsurance).
Notes, Investments, for the overall volume of assets subject to credit risk please refer to the volumes of bonds and receivables (including reinsurance recoverable)
Credit risks are measured by means of the Group PIM18. In particular: – credit spread risk models the possible movement of the credit spread levels for bond exposures of different rating, industrial sector and geography based on the historical analysis of a set of representative bond indices. Spread-sensitive assets held by the Group are associated with specific indices based on the characteristics of their issuer and currency; – default risk models the impact of default of bond issuers or counterparties to derivatives, reinsurance and other transactions on the value of the Group’s assets. Distinct modelling approaches have been implemented to model default risk for the bond portfolio (i.e. credit default risk) and the risk arising from the default of counterparties in cash deposits, risk mitigation contracts (such as reinsurance), and other types of exposures (i.e. counterparty default risk).
The internal credit rating assignment system at counterparty level is based on the evaluation of quantitative metrics and qualitative elements. The risk elements that are considered, among others, are referred to the assessment of the riskiness of the sector to which they belong, of the country in which the activities are carried out and of the controlling group, where present. At financial instrument level, instead, the risk of its issuer is one of the main elements considered, including the peculiarities of the instrument itself.
The most important strategy for the mitigation of credit risk used by the Group is the application of a liability -driven SAA, which can limit the impact of the market spread volatility. In addition, the Group is actively mitigating counterparty default risk by using, where feasible like e.g. for derivative transactions, the collateralisation strategy that strongly alleviates the losses that the Group might suffer as a result of the default of one or more of its counterparties.
18 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.
Based on the last assessments, the most relevant scenarios at Group level are related to cyber-attacks, customer data privacy, product flaws, distribution, money laundering, international sanctions and terrorism financing.
To further strengthen the risk management system and in addition to the usual risk owners’ responsibilities, the Group established specialised units within the first line of defence with the scope of dealing with specific threats (e.g. cyber risk, fraud, financial reporting risk) and that act as a key partner for the Risk Management Function. Another benefit of this cooperation is constituted by a series of risk management measures triggered across the Group as a result of control testing, assessments and collection of operational risk events.
Liquidity risk is defined as the uncertainty, emanating from business operations, investment or financing activities, over the ability of the Group and its Legal Entities to meet payment obligations in a full and timely manner, in a current or stressed environment.
Liquidity risk limits have been defined in terms of value of the above-mentioned liquidity indicator. The limit framework is designed to ensure that each Group Legal Entity holds an adequate buffer of liquidity in excess of the amount required to withstand the adverse circumstances described in the stress scenario.
The Group has defined a metric to measure liquidity risk at Group level, based on the liquidity metric calculated at Legal Entity level. The Group manages expected cash inflows and outflows in order to maintain a sufficient available level of liquid resources to meet its medium-term needs. The Group metric is forward-looking and is calculated under both the base and liquidity stress scenario; liquidity risk limits have been defined in terms of value of the above-mentioned Group liquidity risk indicator. The Group has established clear governance for liquidity risk management, including specific limit setting and the escalation process in case of limit breaches or other liquidity issues.
The principles for liquidity risk management designed at Group level are fully embedded in strategic and business processes, including investments and product development. Since the Group explicitly identifies liquidity risk as one of the main risks connected to investments, indicators as cash flow duration mismatch are embedded in the SAA process. Investment limits are set to ensure that the share of illiquid assets remains within the level that does not impair the Group’s asset liquidity. The Group has defined in its Life and P&C Underwriting and Reserving Group Policies the principles to be applied to mitigate the impact on liquidity from surrenders in life business and claims in non-life business.
Although not included in the calculation of SCR, the following risks are also assessed: – reputational risk referring to potential losses arising from deterioration or a negative perception of the Group among its customers and other stakeholders. Within the Reputational Risk Group Guideline, reputational risks are mostly considered second order risks, directly referred to ESG19 related transactions or consequent to operational risks; – emerging risks arising from new trends or evolving risks which are difficult to perceive and quantify, although typically systemic. The most important are the environmental trends and climate change, technological changes and digitalization, geopolitical developments and demographics and social changes. For the identification and the assessment of these risks and to raise the awareness on the implications of the emerging trends, the Group Risk Management Function engages with a dedicated network, including specialists from business functions (e.g. Group Life & Health Insurance, Group P&C, Group Reinsurance, Group Investments, Asset & Wealth Management, Group Strategic Planning & Control, Group Data & Digital, Group Integrated Reporting, Group Chief Marketing & Customer Officer, Group Strategy and Group Sustainability and Social Responsibility given the relevant interrelation with ESG factors). In 2019 a dedicated Climate Change Risk Project has been launched with the purpose to implement a climate risk management framework. The Group also participates to the Emerging Risk Initiative (ERI), a dedicated working group of the CRO Forum, which involves the CROs of the main European groups. Within ERI emerging risks common to the insurance industry are discussed and Position Papers on selected emerging risks are published. ERI Paper 2019 “Medical Advances – Risks and Opportunities for the (re)insurance industry” as well as previous papers are available on the CRO Forum website.
Challenges and opportunities of the market context, p. 18 for more details on climate change, demographics and digitalization www.generali.com/what-we-do/emerging-risks for more details on emerging risks 19 ESG stands for Environmental, Social and Governance.
In addition to the calculation of the Solvency Capital Requirement, the Group regularly performs sensitivity analyses of the variability of its Solvency Ratio to changes in specific risk factors. The aim of these analyses is to assess the resilience of the Group capital position to the main risk drivers and evaluate the impact of a wide range of shocks. For this purpose, several sensitivity analyses have been performed as at 31 December 2019, in particular: – increase and decrease of interest rates by 50bps; – increase of Italian government bonds spread (Buoni del Tesoro Poliennali - BTP) by 100bps; – increase of corporate bonds spread by 50bps; – increase and decrease of equity values by 25%.
World GDP is expected to grow by 2.4% in 2020. Eurozone internal demand will remain weak: its GDP and inflation are forecast to rise by approximately 0.4% and 1.2%, respectively. World and European GDP growth forecasts could be revised downwards. In this context, the main central banks could strengthen their accommodative policies. The Fed cut the reference rate in early March and could cut again the cost of money during 2020. The ECB could retain quantitative easing. Both central banks could extend their policies to support credit and liquidity in the economic and financial system. With reference to the financial markets, concerns about the impact of Coronavirus on the real economy will keep risk-free yields low. The prospects for a further decline of the Eurozone core yields are however modest. The equity market, despite having suffered a significant fall in this first part of 2020 due to the uncertainty linked to the Coronavirus and fears of a negative impact on the economy, still remains attractive compared to bonds, albeit with an extremely prudent attitude in the short term by investors. In case the global contagion would be higher than the base scenario, Eurozone core government bond yields could record new lows and risky assets could be characterized by high volatility for a longer period. In a context of greater uncertainty and volatility due to the further spread of Coronavirus - for which it is not currently possible to make a reasonable estimate of the medium-term impact - we continue to focus on the disciplined execution of the strategy. Generali has promptly implemented a series of initiatives to ensure business continuity and to protect the health of the people who work for the Group and its customers. Generali is a global insurance player that increasingly uses digital technology in its customer relations. It is recognized as one of the most solid operators in the industry thanks to its excellent Solvency level and efficient financial management.
As regards the insurance sector as a whole, no improvement in performance in the Life segment over 2019 is expected in 2020 given the negative trend in financial market observed in the first part of the year. Growth in the P&C segment will continue, in line with 2019, in major Eurozone countries despite the economic slowdown forecast, especially in the health business.
the introduction of autonomous vehicles to the market, will make impacts on the business model, on insured risk and on claims. Generali’s aim is to continue to develop innovative insurance solutions that guarantee a competitive edge and the business line’s profitability. In line with the strategic guidelines for profitable growth and above all for becoming the Life-time Partner of our customers, development of the non-motor line will concentrate on modular products designed to meet specific needs and any new customer needs, providing innovative services, prevention and assistance with the support of digital tools and platforms (for example, coverage of cyber, hyper-connectivity risks and risks of everything that revolves around the Internet of Things world). Growth in this segment will also be supported by taking advantage of the opportunities offered by demographic and social changes, new markets and moving forward with distribution channel and partnership initiatives. To handle these changes, the Group has rolled out a number of initiatives to exploit the opportunities offered by new technologies, for claims settlement as well as for increasing market penetration. These initiatives will continue to work alongside a disciplined portfolio management approach - pricing, selection and profitability of risks - and careful assessments of the customer’s new requirements, which are placed at the very centre of product development. Management of the P&C segment - also considering the level of capital absorption of these products - will therefore continue to be a foundational principle for implementing the Group’s strategy whose objective is to retain its leadership role in the European insurance market for private individuals, professionals and SMEs.
The international reinsurance market recorded a certain frequency of natural catastrophe claims in 2019, most of which were in the Pacific and Caribbean islands areas, in addition to devastating fires in California for the third year in a row that in some cases generated significant technical losses for reinsurers that were only partly compensated by adequate asset management. This trend of recent years has brought out the reinsurers’ need to adopt greater discipline in providing reinsurance capacity. All of this has led to a reversal in the reinsurance cycle with stable costs or costs subject to even significant increases, at least for the cedant companies hit by claims. The growth trend is even more evident in the long-tail sectors, where very low interest rates that preclude the possibility to get satisfactory financial returns bear significant weight. The Generali Group was able to benefit from favourable conditions due to its centralized reinsurance structure which allows for greater control over risk retention levels and good diversification in reinsurer portfolios. Minimal increases were found only on treaties characterised by a higher claims frequency or on business classes more sensitive to the interest rate trends, or where the capacity offer is generally smaller.
With reference to the Asset Management segment, actions will continue during 2020 to identify investment opportunities and sources of income for all customers, while at the same time managing risks. Consistent with the Group’s strategy, growth will be achieved through the expansion of the multi-boutique platform in order to increase the product catalogue in terms of real assets, high conviction and multi-asset strategies for customers and partners. This platform, which is at present mainly based in Europe, aims to become global with the increase in revenues and assets under management (AUM) that will result from third-party clients that do not fall within the scope of the Group’s insurance policies.
With reference to the Group investments policy, an asset allocation strategy aimed at consolidating current returns and safeguarding consistency with liabilities to policyholders will continue.
Alternative investments and investments in real assets continue to be considered appealing due to their contribution to portfolio diversification and profitability, particularly in the persistent context of low interest rates. The Group continues to develop a multi-boutique insurance asset manager platform to enhance the investment capacity in these market sectors and better monitor their management in terms of complexity as well as liquidity.
New direct investments in the real estate sector will be primarily oriented towards the European market, while investments in the United States and Asia will be made selectively through funds. During 2019, the major initiatives linked to the General 2021 strategic plan were started with the aim of consolidating its leadership in Europe and strengthen its position in high-potential markets, financial optimisation, and innovation and the digital transformation of the operating model. The implementation of these initiatives is continuing in a context influenced by a further lowering of interest rates in Europe and not only, which poses new challenges above all in the traditional Life segment and, as a result, creating the need to redesign the offer of these products. As regards financial optimisation, note that the reduction of debt has accelerated, and this will allow the mini-
The Report contains statements concerning events, estimates, forecasts and future expectations based on the current knowledge of the Group’s management. Such statements are generally preceded by expressions such as “a decrease/increase is expected”, “is forecast”, “should grow”, “we believe it may decline” or other similar wording. Please note that these forward-looking statements should not be considered forecasts of the Group’s actual results or of factors outside the Group. Generali assumes no obligation to update or revise such forecasts, even after new information, future events or other elements come to light, unless required by law.
mum threshold of objectives announced to the market in early 2020 to be reached. The Group is also continuing to follow its strategy of growth driven by the technical components, efficiency of the operating machine and the solidity of the Group’s distribution network, growth that anticipates a positive contribution also from the recent expansion operations both in eastern Europe and asset management.
130 Generali Group Annual Integrated Report and Consolidated Financial Statements 2019
The Annual Integrated Report of the Generali Group includes non-financial information in compliance with the provisions of legislative decree of 30 December 2016, no. 254 (leg. decree 254/2016), in implementation of European directive 2014/95. In line with the approach adopted, this information is clearly identified through a specific infographic (NFS) created for the purposes of improving accessibility to the information itself.
Information relating to environmental matters, social and employee-related matters, respect for human rights, anticorruption and bribery matters - which is relevant to the activities and characteristics of the Group - is reported to the extent necessary for an understanding of the Group development, performance, position and impact of its activity. It comprises a description of the:: - organization and management model, including direct and indirect impact (p. 16-17). The main operating companies based in Italy have adopted models, pursuant to art. 6, paragraph 1, letter a), of legislative decree of 8 June 2001, no. 231. These models aim at mitigating risks connected to offences that are relevant also to leg. decree 254/2016; - policies applied (p. 18-23; 36-37); - non-financial key performance indicators (p. 10-11, 26-37 and in Our performance, where indicated through the infographic); - principal risks related to the matters mentioned above, as reported in the table below, and their management.
The Report complies with currently effective regulations and applies the International <IR> Framework issued by the International Integrated Reporting Council (IIRC)1. The standard adopted 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 and indicators of the GRI G4 Financial Services Sector Disclosures.
Corporate Governance and Share Ownership Report 2019, p. 113 for the organization and management model of the Parent Company
The material information pursuant to the decree4 was identified taking the mega trends belonging to the first 2 clusters into consideration. Confirming the approach adopted in the previous Statement, and in line with the priorities indicated by ESMA, the material mega trends specified above are reported in this Report using indicators announced through the new Generali 2021 strategic plan and monitored in the planning and control processes. The scope of reporting for these indicators is the consolidated one, unless otherwise specified. A comparison is offered with the previous period, where feasible.
Investments in internal strategic initiatives Customers Distributors Relationship Net Promoter Score Premiums from social products Direct investments to which the Responsible Investment Guideline is applied Sustainable and Responsible Investments Engagement activities Countries and partners of The Human Safety Net
Increasing inequality and reducing social mobility p. 35 3) Employee-related matters Growing expectations toward corporate purpose, sustainability practices and transparency
Employment dynamics and restructuring of business landscape p. 11, 29, 32
Operational risks Direct investments to which the Responsible Investment Guideline is applied Sustainable and Responsible Investments Engagement activities 5) Anti-corruption and bribery matters
Emerging risks with foreseeable developments on underwriting, financial and operational risks
Pursuant to art. 5 of the Consob Regulation 18 January 2018, no. 20267, the Generali Group has assigned the auditing firm EY S.p.A. - the current external auditor for the financial statements - with the task of performing the limited assurance activity on this Statement. The Report drafted by EY S.p.A. is attached to this document.
Iscritta alla S.O. del Registro delle Imprese presso la C.C.I.A.A. di Roma Codice fiscale e numero di iscrizione 00434000584 - numero R.E.A. 250904 P.IVA 00891231003 Iscritta al Registro Revisori Legali al n. 70945 Pubblicato sulla G.U. Suppl. 13 - IV Serie Speciale del 17/2/1998 Iscritta all’Albo Speciale delle società di revisione Consob al progressivo n. 2 delibera n.10831 del 16/7/1997
Independent auditors’ report on the consolidated disclosure of nonfinancial information in accordance with Article 3, par. 10, of Legislative Decree 254/2016 and with Article 5 of CONSOB Regulation adopted with Resolution n. 20267 of January 2018
Responsibilities of Directors and Board of Statutory Auditors for the DNF The Directors are responsible for the preparation of the DNF in accordance with the requirements of articles 3 and 4 of the Decree and the “Global Reporting Initiative Sustainability Reporting Standards” defined in 2016 by GRI – Global Reporting Initiative (“GRI Standards”), identified by them as a reporting standard, with reference to selected GRI Standards, as illustrated in the Annual Integrated Report and Consolidated Financial Statements 2019 section “Note to the Management Report”.
In particular, we have performed the following procedures: 1. analysis of the relevant topics in relation to the activities and characteristics of the Group reported in the DNF, in order to assess the reasonableness of the selection process applied in accordance with the provisions of article 3 of the Decree and considering the reporting standard applied; 2. analysis and evaluation of the criteria for identifying the consolidation area, in order to evaluate its compliance with the provisions of the Decree; 3. understanding of the following aspects: o Group's management and organization business model, with reference to the management of the topics indicated in article 3 of the Decree; o policies adopted by the Group related to the matters indicated in art. 3 Decree, results achieved and related key performance indicators; o main risks, generated or suffered related to the matters indicated in the article 3 of the Decree.
In particular, we have conducted interviews and discussions with the management of Assicurazioni Generali S.p.A. and with the personnel of the subsidiaries Generali Italia S.p.A., Generali Versicherung AG (Austria), Česká pojišt’ovna a.s., Generali France S.A., Generali Deutschland AG, Generali Personenversicherungen AG, Generali España S.A. de Seguros y Reaseguros, Generali Insurance Asset Management S.p.A., Generali Global Infrastructure S.A.S and we have performed limited documentary evidence procedures, in order to collect information about the processes and procedures that support the collection, aggregation,
processing and transmission of non-financial data and information to the management responsible for the preparation of the DNF.
- We have selected the following companies, Generali Italia S.p.A., Generali Versicherung AG (AT), Česká pojišt’ovna a.s., Generali France S.A., Generali Deutschland AG, Generali Personenversicherungen AG, Generali España S.A. de Seguros y Reaseguros, Generali Insurance Asset Management S.p.A., Generali Global Infrastructure S.A.S which we have selected based on their activity, relevance to the consolidated and respective countries performance indicators; we have carried out site visits during which we have had discussions with management and have obtained evidence about the appropriate application of the procedures and the calculation methods used to determine the indicators.
The Report is drawn up in euro, i.e. the functional currency used by the entity that prepares the Annual Integrated Report and Consolidated Financial Statements. The amounts are shown in million and rounded to the first decimal, unless otherwise reported. Therefore, the sum of each rounded amounts may sometimes differ from the rounded total.
The details by geographical area highlighted in this document reflect the Group’s managerial structure in place in 2019, made up of: – Italy; – France; – Germany; – ACEER: Austria, Central Eastern Europe (CEE) countries - Czech Republic, Poland, Hungary, Slovakia, Serbia/ Montenegro, Romania, Slovenia, Bulgaria and Croatia - and Russia; – International, consisting of Spain, Switzerland, Americas and Southern Europe, and Asia; – Investments, Asset & Wealth Management, which includes the main Group entities operating in investment advisory, asset management and financial planning; – Group holdings and other companies, which consists of the Parent Company’s management and coordination activities, including Group reinsurance, as well as Europ Assistance, Other companies (among which, Generali Global Health and Generali Employee Benefits) and other financial holding companies and suppliers of international services not included in the previous geographical areas.
At 31 December 2019, the consolidation area increased from 455 to 463 companies, of which 423 were consolidated line-by-line and 40 measured with the equity method.
The Report is drafted in line with the International <IR> Framework issued by the International Integrated Reporting Council (IIRC): each chapter of the Report meets one or more Content Elements envisaged by the Framework.
Group’s highlights Performance 2019 and 2020 key facts Organisational overview and external environment
Annual Integrated Report and Consolidated Financial Statements, p. 166 for further details on the basis of presentation and accounting principles
1 The Report includes links to web pages that might not exist in the future.
The Generali 2021 strategy, p. 24 www.generali.com/our-responsibilities/responsible-business/stakeholder-engagement for different methods of dialogue with stakeholders
144 Generali Group Annual Integrated Report and Consolidated Financial Statements 2019
Reliability and completeness are supported by a structured information system, built for the drafting of the Report and processing financial and non-financial information while ensuring their homogeneity and reliability. The performance indicators are those used in the business management in line with the strategic plan. They refer to the whole Group, unless otherwise indicated.
2 The reduction of total emissions amounted to t 24,377 CO2e compared to base year 2013. The latter was chosen since it is the baseline for the goal to reduce total emissions by 20% by 2020. The reduction was attributable to indirect emissions (Scope 2 and Scope 3). The gases included were: CO2, CH4 e N2O. The methodology adopted is the WRI GHG Corporate Standard Protocol, location-based method.
GRI 205: Anti-corruption 205-2 Communication and training about anti-corruption policies and procedures (e, aggregated data)
GRI 404: Training and Education 404-1 Average hours of training per year per employees (a, aggregated data)
GRI 404: Training and Education 404-2 Programs for upgrading employee skills and transition assistance programs (a)
Product portfolio G4 FS8: Monetary value of products and services designed to deliver a specific environmental benefit for each business line broken down by purpose
Active ownership G4 FS11: Percentage of assets subject to positive and negative environmental or social screening
The reporting process and methodologies to calculate all indicators are included in a specific manual, shared at both the Group Head Office and each contributing company level.
In order to help the assessment of the quality and sustainability of the net result of the Generali Group in the various business segments and territorial areas, the Management Report includes the following alternative performance measures.
Gross written premiums in the Management Report differ from gross earned premiums in the Income Statement, since they include premiums related to investment contracts as to better present the insurance turnover of the Group and they exclude changes in the provisions for unearned premiums.
The operating result is drawn up by reclassifying items of earnings before taxes for each segment on the basis of the management characteristics of each segment and taking into consideration the recurring holding expenses. Specifically, the operating result represents earnings before taxes, gross of interest expense on financial debt, specific net income from investments and non-recurring income and expenses.
In the Property & Casualty segment, all profit and loss accounts are considered as operating items, except for the following which are represented in the non-operating result: – realized gains and losses, unrealized gains and losses, net impairment losses on investments, including gains and losses on foreign currencies; – net other non-operating expenses that mainly include results of both real estate development activities and run-off activities, impairment losses on self-used properties, company restructuring costs and amortization of the value of the portfolios acquired directly or through the acquisition of control of insurance companies (Value Of Business Acquired, VOBA) and net other non-recurring expenses.
In the Asset Management segment, all profit and loss accounts are considered as operating items, except for the following which are represented in the non-operating result: – net other non-operating expenses that mainly include project costs, including consulting, and severances.
The Holding and other businesses segment includes activities in the banking and asset management sectors, expenses for management, coordination and financing activities, as well as all the other operations that the Group considers to be ancillary to the core insurance business. All profit and loss accounts are considered as operating items, except for the following which are represented in the non-operating result: – non-recurring realized gains and losses and net impairment losses; – 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 companies operating in the banking and asset management sectors (Value Of Business Acquired, VOBA) and net other non-recurring expenses.
The operating result and non-operating result of the Group are equivalent to the sum of the operating result and the non-operating result of the abovementioned segments and related consolidation adjustments.
The following table reconciles the operating and non-operating result with the corresponding items in the income statement: 3 Please refer to the paragraph Debt in the chapter Group’s financial position for further details on the definition of financial debt.
Net non-operating income from investments 1.3 - 1.4 - 1.5 - 2.3 - 2.4 - 2.5.2
The Life operating result is made up of the technical margin excluding insurance expenses, the net investment result and the component that includes acquisition and administration costs related to the insurance business and other net operating expenses. Specifically, the technical margin includes loadings, technical result and other components, and unit- and index-linked fees. The net investment result comprises operating income from investments, net of the portion attributable to the policyholders. Finally, the insurance management and other net operating components are indicated separately. The Property & Casualty operating result is made up of the technical result, the financial result and other operating items. Specifically, the technical result represents the insurance activity result, i.e. the difference between premiums and claims, acquisition and administration costs and other net technical income. The investment result comprises current income from investments and other operating net financial expenses, like expenses on investment management and interest expenses on operating debt. Finally, other operating items mainly include acquisition and administration costs related to the insurance business, depreciation of tangible assets and amortization of long-term costs, provisions for recurring risks and other taxes.
The adjusted net profit is the profit adjusted for impact of gains and losses related to disposals.
Our performance Risk Report related to linked contracts) net of depreciation on real estate investments; to
–average investments (calculated on book value); – harvesting rate calculated as the ratio of: – net realized gains, net impairment losses and realized and unrealized gains and losses from financial instruments at fair value through profit and loss (excluding those from financial instruments related to linked contracts); to
The average investments (calculated on book value) include: land and buildings (investment properties), investments in subsidiaries, associated companies and joint ventures, loans and receivables, cash and cash equivalents, available for sale financial assets, financial assets at fair value through profit or loss excluding those related to linked contracts. Total investments are adjusted for both derivative instruments classified as financial liabilities at fair value through profit of loss and REPOs classified as other financial liabilities. The average is calculated on the average investment base of each quarter of the reporting period.
– REPOs classified as liabilities are presented in cash and cash equivalents.
Investments by segment are presented in accordance with the methods described in the chapter Segment reporting in the Notes.
Consolidated financial statements Balance sheet Income statement Statement of comprehensive income Statement of changes in equity Statement of cash flow
Notes to the income statement 26 Net earned premiums 27 Fee and commissions income and income from financial service activities 28 Net income from financial asset at fair value through profit and loss 29 Income and expenses from subsidiaries, associated companies and joint ventures 30 Income from other financial instruments and land and buildings (investment properties) 31 Other income 32 Net insurance benefits and claims 33 Fee and commissions expenses and expenses from financial service activities 34 Expenses from subsidiaries, associated companies and joint ventures 35 Expenses from other financial instruments and land and buildings (investment properties) 36 Acquisition and administration costs 37 Other expenses 38 Income taxes
Additional information 43 Disclosure regarding the deferred application of IFRS 9 - Financial Instruments 44 Information on employees 45 Provisions for defined benefit plans 46 Share-based compensation plans 47 Contingent liabilities, commitments, guarantees, pledged assets and collateral 48 Significant non-recurring events and transactions 49 Leases 50 Other information 51 Audit and other service fees for the fiscal year 52 Information about Coronavirus
Items that may not be reclassified to profit and loss in future periods 0 2.5 Share of other comprehensive income of associates -0 0 2.8 Result of discontinued operations 4 25 2.6 Reserve for revaluation model on intangible assets 2.7 Reserve for revaluation model on tangible assets 2.9 Actuarial gains or losses arising from defined benefit plans -392 81 2 OTHER COMPREHENSIVE INCOME 3,757 -2,564 3 TOTAL COMPREHENSIVE INCOME 6,696 -66 attributable to the Group 6,268 -208 attributable to minority interests 428 141
Change in the provisions for unearned premiums and for unexpired risks for non-life segment 45 28
Net cash flows from investments in subsidiaries, associated companies and joint ventures(***) 1,162 499
Net cash flows from subordinated liabilities and other similar liabilities -779 -245
CASH AND CASH EQUIVALENTS AT THE BEGINNING OF THE PERIOD(*) 6,585 6,313
(*) Cash and cash equivalents at the beginning of the period include cash and cash equivalents (€ 6,697 million), liabilities to banks payables on demand (€ -110 million) and bank overdrafts (€ -2 million).
This document is the consolidated financial statements of Generali Group, registered under number 026 of the Insurance Groups Register, whose Parent Company is Assicurazioni Generali SpA, a company established in Trieste in 1831 with a share capital of € 1,569,773,403 fully paid up. The registered office of the Group and the Parent Company is established in Trieste, Piazza Duca degli Abruzzi, 2 and is registered under the number 1,00003 of the register of insurance and reinsurance companies.
In this yearly report the Generali Group prepared its consolidated financial statements and Notes in conformity with the ISVAP (now IVASS) Regulation No. 7 of 13 July 2007, as subsequently amended, and information of the Consob Communication No. 6064293 of 28 July 2006. As allowed by the aforementioned Regulation, the Generali Group believed it appropriate to supplement its consolidated financial statements with detailed items and to provide further details in the Notes in order to also meet the IAS/IFRS requirements. For more information on discontinued operations and their accounting treatment, please refer to the paragraph Non-current assets or disposal group classified as held for sale in the section Information on consolidation area and Group companies. The consolidated financial statements at 31 December 2019 were approved by the Board of Directors on 12 March 2020.
The exchange rate differences arising from the translation of the statements expressed in foreign currencies are accounted for in equity in an appropriate reserve and recognized in the profit and loss account only at the time of the disposal of the investments. For what concerns the accounting criterion for the translation of the financial statements of subsidiaries operating in countries subject to hyperinflation, please refer to a subsequent section.
Exchange rates used for the translation in euro of specifically relevant currencies for Generali Group are disclosed below:
Generally, there is a presumption that a majority of voting rights results in control. To support this presumption and when the Group has less than a majority of the voting or similar rights of an investee, the Group considers all relevant facts and circumstances in assessing whether it has power over an investee, including: – the contractual arrangements with the other vote holders of the investee; – rights arising from other contractual arrangements; – Group voting rights and potential voting rights.
The impact of the changes in the ownership interest of a subsidiary, without a change of control, is accounted for as an equity transaction. Consequently, no additional goodwill or badwill is recognized. If the Group loses control over a subsidiary, it derecognizes the related assets (including goodwill), liabilities, non-controlling interest and other components of equity while any resultant gain or loss is recognized in the profit or loss. Any retained investment is recognized at fair value.
Business combinations are acquisitions of assets and liabilities that constitutes a business and are accounted for by applying the so-called acquisition method. The acquisition cost is measured as the sum of the consideration transferred measured at its acquisition date fair value, including contingent consideration, liabilities assumed towards the previous owners and the amount of any non-controlling interests. For each business combination, the Group elects whether to measure the non-controlling interests in the acquiree at fair value or at the proportionate share of the acquiree’s identifiable net assets. Acquisition-related costs are expensed as incurred and included in administrative expenses. If in a business combination achieved in stages, the acquirer ’s previously held equity interests in the acquiree is re-measured at its acquisition date fair value and any resulting gain or loss is recognized in the profit or loss. Any contingent consideration to be transferred or received by the acquirer will be recognised at fair value at the acquisition date. Contingent consideration classified as an asset or liability that is a financial instrument and within the scope of IAS 39 Financial Instruments: Recognition and Measurement, is measured at fair value with changes in fair value recognised in either profit or loss or as a change in the other comprehensive income. If the contingent consideration is not within the scope of IAS 39, it is measured at fair value with changes in fair value recognized in profit or loss. Contingent consideration that is classified as equity is not re-measured and subsequent settlement is accounted for within the shareholder ’s equity.
The investments in associates and joint ventures are consolidated trough the equity method. An associate is an entity over which the investor has significant influence. Significant influence is the power to participate in the financial and operating policy decisions of the investee but is not control or joint control over those policies. If an investor holds, directly or indirectly through subsidiaries, 20% or more of the voting power of
Our performance Risk Report the investee, it is presumed that the investor has significant influence.
The Group controls all the companies for which holds more than half of the voting rights. The Group does not control any subsidiary having less than the majority of voting rights and does not control any entity even though it holds half of the voting rights, except in two cases in which the Group controls the company owning half of the voting rights, being exposed to the variability of returns that depend on the operating policies that the Group, in substance, has the power to direct. To a minor extent, the Group holds interests in associates and joint ventures. The agreements under which the Group has joint control of a separate vehicle are qualified as joint ventures where they give rights to the net assets. In one case, the Group has no significant influence on a subject for which it holds more than 20% of the voting rights as the government structure is such that the Group, in substance, does not have the power to participate in financial and operating policies of the investee.
The qualitative and quantitative disclosures required by IFRS 12 are provided in the paragraph Information on consolidation perimeter and Group companies in the Notes.
The financial statements items of the abovementioned Argentine companies have been restated, applying the Argentine Consumer Price Index, which reflects the change of general purchasing power. In particular, the following items have been restated at the unit current at the end of the reporting period: – non-monetary assets and liabilities; – all items of comprehensive income, applying the change of the general price index from the date when income and expenses were initially registered in the financial statements; – the items of income statement have been restated at the closing exchange rate; – restatement in the first period of application of the standard of the components of owners’ equity, except retained earnings and any revaluation surplus, applying the Consumer Price Index from the dates the components were contributed. Restated retained earnings are derived from the restatement of assets and liabilities; – restatement at the end of the period of the components of owner’s equity, applying the Consumer Price Index at the beginning of the period.
New accounting principles, changes in the accounting rules and in the financial statements Following the endorsement of the European Union, as from the 1 January 2019 new principles and amendments shall be applied. The most relevant changes for the Group with respect to the consolidated financial statements at 31 December 2018 are described below. In addition, the main documents issued by the International Accounting Standard Board, that could be relevant for the Group, but not yet effective, are described.
New accounting principles, amendments and interpretations that shall be applied from 1 January 2019 There are no new accounting standards or changes to existing standards effective from 1 January, relevant for the Group. The changes which become applicable are not significant for the Group and are indicated in the corresponding specific section, after the new accounting standards and changes that are not yet effective, below.
In applying IFRS 16, the Group adopted the simplified accounting treatment for short-term leases (within 12 months) and leases of low value assets (equal or less than € 5.000), which allows lessees not to recognise any amount of assets and liabilities in the financial statements, but only to recognise expenses for lease payments. In applying IFRS 16, Group lessees applied single discount rates to discount future payments, depending on maturity of remaining payments. In majority of cases there was no need to consider specific features of assets subject to leasing. Due to Group approach to apply modified retrospective approach, there was no impact on Shareholders’ equity.
Lease liabilities and right of use assets recognized at first time adoption of IFRS 16 for Group lessees
As indication of borrowing rate used, considering a range of 8 years as average remaining durations of lease contracts, lessee’s incremental borrowing rate applied to the lease liabilities on 1 January 2019 was 2.21%.
Group lease liabilities recognised as at 1 January 2019 were approximately of € 670 million. The difference with Group undiscounted future minimum lease payments under operating leases pursuant to IAS 17 relates mainly to the discounting effect. In addition, the lower value of recognised liabilities compared to the value of undiscounted future minimum lease payments is attributable also to the existence of short-term leases and leases of low value assets, to a fine-tuning of approach regarding the evaluation of extension and termination options of some contracts existing within the Group and to the peculiar treatment of a sale and leaseback transaction, which has mainly impacted the right of use asset value. Regarding extension and termination options of lease contracts existing within the Group, according to the Standard statement that if the lessee cannot enforce the extension of the lease without the agreement of the lessor, then the lessee does not have the right to use the asset beyond the non-cancellable period, in evaluating the duration of lease terms the Group considered that if the lessor and the lessee both have an option to terminate the lease in the lease contract, the lessee cannot consider that the lease term is enforceable beyond the notice period, notwithstanding any consideration in respect of non-contractual conditions such as economic assessment of incentives or compulsion not to cancel or to prolong a lease contract. Accordingly, the maximum term of the lease would be the non-cancellable period (if any) plus any notice period for leases for which both the lessee and the lessor must agree to extend the lease beyond any non-cancellable period. The same conclusion would be considered valid also for tacit renewal contracts. On adoption of IFRS 16, the Group recognised right-ofuse assets for leases previously classified as an operating lease applying IAS 17. At initial application, right of use assets were measured at an amount equal to related lease liabilities and, where applicable, adjusted by any prepaid or accrued lease payments recognised in the statement of financial position immediately before the date of initial application. Adoption of IFRS16 generated an increase of assets, due to recognition of the right of use assets for lessees, for about € 600 million, of which around € 510 million related to real estates (mainly offices, agencies and similar items), € 50 million to land and around € 40 million to company cars and other assets.
In applying IFRS 16 the Group chose not to present right of use assets and lease liabilities separately from other assets and liabilities in the balance sheet. Right of use assets and lease liabilities arising from the application of the new standard affected the following items in the balance sheet.
Right of use assets and lease liabilities Balance sheet line item affected
Properties used for own activities subject to leasing 2.1 Land and buildings (self used)
Land and agricultural property subject to leasing 2.1 Land and buildings (self used)
The introduction of the IFRIC 23 Uncertainty over Income Tax Treatment interpretation, which defines how uncertainties in the accounting of income taxes are recognized in the financial statements in the event of uncertain tax treatment in terms of acceptability by the tax authority, has had non-material impacts on the Group’s equity and financial situation, since the method of recording taxes already appropriately considers any uncertainties in the application of the legislation. The application of IFRIC 23 has had a limited impact on a Country of Group operations which has recognized the effect of uncertainty in the determination of taxes in the income statement in order to anticipate any additional tax charges. In application of IAS 12 and on the basis of the IFRIC update published in September 2019, provisions for income taxes have been reclassified from the item Provisions to the item Current tax liabilities for an amount of € 66 million.
IFRS 9 introduces an approach to the classification of debt instruments that is based on contractual cash flows characteristics and models through which financial instruments are managed (business model).
Considering to the contractual characteristics, a financial instrument is eligible for measurement at amortized cost if it consists in a basic lending agreement. The entity shall make its own assessment on the single financial instrument to assess if the nature of the contractual cash flows characteristics exclusively consists in payments of principal and interest (SPPI). If a modification of the time value of the interest results in cash flows that are significantly different than those of a basic lending agreement, then the instrument must be classified and measured at fair value through profit or loss. If the business model (assessed on portfolio basis) has the objective to collect the cash flows from the investments and to sell financial assets and the contractual cash flows characteristics represent only payments of principal and interest, the financial instrument under assessment shall be measured at fair value through other comprehensive income with recycling to profit or loss when the instrument is realized.
IFRS 9 introduced a new impairment approach for debt instruments measured at amortized cost or fair value recorded in other comprehensive income, which is based on expected losses. In particular, such new standard outlines an approach for the impairment in three stages based on the assessment of credit quality from the date of initial recognition at each balance sheet date: – Stage 1 includes the financial instruments that have not had a significant increase in credit risk since initial recognition or that have low credit risk at the reporting date (investment grade). For these assets expected losses (ECL) over the next 12 months (12-month expected credit losses - losses expected in view of the possible occurrence of events of default in the next 12 months) are recognized in the profit or loss account. Interest is calculated on the gross carrying amount (i.e. without deduction of the loss allowance); – Stage 2 includes financial instruments that have had a significant increase in credit risk since initial recognition (unless they have low credit risk at the reporting date) but that do not have objective evidence of impairment.
IFRS 9 introduces a model substantially reformed for hedge accounting that allows better than in IAS 39 to reflect in financial statements the hedging activities undertaken by risk management. In particular there is a significant simplification of the effectiveness test. There are no more predetermined thresholds of coverage to achieve effective hedge (i.e. 80-125% in the current IAS 39), but it is sufficient that: – there is an economic relationship between the hedging instrument and the hedged item; and
– credit risk should not be the key component of the hedged risk (i.e. the change in fair value of the hedging relationship must not be dominated by the component of credit risk).
The quantitative criteria for the purpose of adopting the deferral and the disclosure required to entities that apply IFRS 9 in arrears are included in the Information section relating to the deferred application of IFRS 9.
The implementation of IFRS 9 aims to by the Group aims to ensure the correct and consistent application of the new accounting standard in conjunction with the entry into force of IFRS 17, the future standard on insurance contracts. The Group expects impacts that may be material with reference to the classification and measurement of financial instruments and consisting of a larger part of the portfolio of financial investments measured at fair value through profit or loss. With reference to impairment, the Group assessed that the Expected Credit Losses model should lead to less relevant impacts on the financial statements considering the high creditworthiness of the Group debt portfolio.
On 18 May 2017, the IASB published IFRS 17 - Insurance Contracts, which replaces the current IFRS 4 - Insurance Contracts. The new standard introduces a new model for measuring insurance contracts, structured on a Building Block Approach based on the expected value of future cash flows, weighted by the probability of occurrence, on a risk adjustment) and on the expected value of the margin for the services offered (Contractual Service Margin - CSM). The adoption of a simplified approach (Premium Allocation Approach) is allowed if the contractual coverage period is less than one year or if the model used for the assessment provides a reasonable approximation with respect to the block approach. The Variable Fee Approach (VFA) was also introduced, an alternative model to the Building Block Approach which applies in particular to profit sharing contracts, whose scope of application is very significant for the Group in light of the current portfolio mix.
As is known, the project to replace the EURIBOR and EONIA reference rates by the European Commission, started in 2018, is going on. This change may have an impact on the existing hedging relationships and on the pricing of the financial assets and liabilities linked to these indices. The IASB has launched a project in order to limit the accounting impacts deriving from the reform, structured in 2 phases: – pre-replacement phase, aimed at limiting any impacts on the financial statements in the period preceding the replacement of the current interest rate benchmarks with alternative rates (according to recent developments, the current transition phase has an expected duration until 2021); – replacement phase, aimed at limiting any impacts on the balance sheet in the period following the replacement.
The board completed the first phase, by publishing on 26 September 2019 the amendment to IAS 39 and IFRS 9 Interest Rate Benchmark Reform, endorsed by EU Regulation 2020/34 on 15 January 2020. The new standard introduces changes to hedge accounting requirements in such a way that the reform of the reference rates has no effect on the hedging relationships that should be directly impacted by the modification of the interest rate benchmarks.
The entity can assume that the cash flows linked to these reference rates are not affected by the change so as not to determine the ineffectiveness of the existing hedging relationships and their discontinuation. Substantially the impacts are neutralized by the amendment in question. In particular, the significant changes to IAS 39 are as follows: – the high probability for the effectiveness of a hedge of a forecast transaction is not affected by the change in the reference rate and the hedging relationship does not cease; – as regards the effectiveness test, the change in rates does not determine the ineffectiveness and discontinuation of the hedging relationship.
Amendment EU Effective date Date of pubblication Amendments to IFRS 9: Prepayment Features with Negative Compensation 1 January 2019 March 2018 (issued on 12 October 2017)
AnAnnual improvements to IFRS Standards 2015-2017 Cycle 1 January 2019 December 2017 (issued on 12 December 2017)
For further details see paragraph Information on consolidation perimeter and Group companies in the Notes.
Other intangible assets with indefinite useful life are not subject to amortization. They are periodically tested for impairment. Gains or losses arising from de-recognition of an intangible asset are measured as the difference between the net disposal proceeds and the carrying amount of the asset and are recognised in the income statement when the asset is de-recognised. Other intangible assets include the right of use of leased assets and is subject to the recoverability test, carried out with a view to the overall cash generating unit, as illustrated in the dedicated paragraphs.
(Value Of Business Acquired). The VOBA is the present value of the pre-tax future profit arising from the contracts in force at the purchase date, taking into account the probability of renewals of the one-year contracts in the non-life segment. The related deferred taxes are accounted for as liabilities in the consolidated balance sheet. The VOBA is amortised over the effective life of the contracts acquired, by using an amortization pattern reflecting the expected future profit recognition. Assumptions used in the development of the VOBA amortization pattern are consistent with the ones applied in its initial measurement. The amortization pattern is reviewed on a yearly basis to assess its reliability and, if applicable, to verify the consistency with the assumptions used in the valuation of the corresponding insurance provisions.
They are initially measured at cost and subsequently recognised net of any accumulated depreciation (except inventories that are not depreciated) and any impairment losses. They are systematically depreciated on the basis of economic/technical rates determined in accordance with their residual value over their useful economic life. In particular the inventories are measured at the lower of cost (including cost of purchase, cost of conversion and cost incurred the inventories to their present location and condition) and net realizable value, i.e. the estimated selling price in the ordinary course of business less the estimated cost of completion and costs to sell.
This item includes investments in subsidiaries and associated companies valued at equity or at cost. Immaterial investments in subsidiaries and associated companies, as well as investments in associated companies and interests in joint ventures valued using the equity method belong to this category. A list of such investments is shown in attachment to this Consolidated financial statement
Financial Instruments included in scope of IAS 39 are classified as follows: – Held to maturity; – Loans and receivables; – Available for sale financial assets; – Financial assets at fair value through profit or loss.
The category comprises the non-derivative financial assets with fixed or determinable payments and fixed maturity that a company has the positive intention and ability to hold to maturity, other than loans and receivables and those initially designated as at fair value through profit or loss or as available for sale. The intent and ability to hold investments to maturity must be demonstrated when initially acquired and at each reporting date. In the case of an early disposal (significant and not due to particular events) of said investments, any remaining investments must be reclassified as available for sale.
This category comprises financial assets held for trading, i.e. acquired mainly to be sold in a short term, and financial assets that upon initial recognition are designated as at fair value through profit or loss. In particular both bonds and equities, mainly quoted, and all derivative assets, held for both trading and hedging
Our performance Risk Report purposes, are included in this category. Financial assets at fair value through profit or loss also take into account investments back to policies where the investment risk is borne by the policyholders and back to pension funds in order to significantly reduce the valuation mismatch between assets and related liabilities. Structured instruments, whose embedded derivatives cannot be separated from the host contracts, are classified as financial assets at fair value through profit or loss.
The financial assets at fair value through profit or loss are accounted for at settlement date and are measured at fair value. Their unrealized and realized gains and losses at the end of the period are immediately accounted for in the profit and loss account. The Group evaluates its financial assets held for trading, other than derivatives, to determine whether the intention to sell them in the near term is still appropriate.
When, in rare circumstances, the Group is unable to trade these financial assets due to inactive markets and management’s intention to sell them in the foreseeable future significantly changes, the Group may elect to reclassify them. The reclassification to loans and receivables, available for sale or held to maturity depends on the nature of the asset. This evaluation does not affect any financial assets designated at fair value through profit or loss using the fair value option at designation, as these instruments cannot be reclassified after initial recognition.
A financial asset (or, where applicable, a part of a financial asset or part of a group of similar financial assets) is de-recognised when: – the rights to receive cash flows from the asset have expired; – the Group has transferred its rights to receive cash flows from the asset or has assumed an obligation to pay the received cash flows in full without material delay to a third party under a pass-through arrangement; and either (a) the Group has transferred substantially all the risks and rewards of the asset, or (b) the Group has neither transferred nor retained substantially all the risks and rewards of the asset, but has transferred control of the asset.
When the Group has transferred its rights to receive cash flows from an asset or has entered into a passthrough arrangement, it evaluates if and to what extent it has retained the risks and rewards of ownership. When it has neither transferred nor retained substantially all of the risks and rewards of the asset, nor transferred control of the asset, the asset is recognised to the extent of the Group’s continuing involvement in the asset. In that case, the Group also recognises an associated liability. The transferred asset and the associated liability are measured on a basis that reflects the rights and obligations that the Group has retained. Continuing involvement that takes the form of a guarantee over the transferred asset is measured at the lower of the original carrying amount of the asset and the maximum amount of consideration that the Group could be required to repay.
Discontinued operations are excluded from the results of continuing operations and are presented as a single amount in profit or loss after tax from discontinued operations in the income statement.
– in respect of deductible temporary differences associated with investments in subsidiaries, associates and interests in joint ventures, deferred tax assets are recognised only to the extent that it is probable that the temporary differences will reverse in the foreseeable future and taxable profit will be available against which the temporary differences can be utilized.
– for all deductible temporary differences between the carrying amount of assets or liabilities and their tax base to the extent that it is probable that taxable income will be available, against which the deductible temporary differences can be utilised.
Cash in hand and equivalent assets, cash and balances with banks payable on demand and with central banks are accounted for in this item at their carrying amounts. Short-term, highly liquid investments that are readily convertible to known amounts of cash and which are subject to an insignificant risk of changes in value are included in this item. Investments are qualified as cash equivalents only when they have a short maturity of 3 months or less from the date of the acquisition.
The item includes preference shares and equity components of compound financial instruments.
The item includes the cash flow hedging derivatives reserve, the reserve for hedges of net investments in foreign operations. This item includes gains or losses on cash flow hedging instruments and gains or losses on hedging instruments of a net investment in a foreign operation. In addition, this item also includes the profits and losses relating to defined benefit plans and the part of the balance sheet reserves whose the variation is part of the comprehensive income of participations and those relating to non-current assets or disposal groups classified as held for sale.
Premiums, payments and change in the insurance provision related to products whose insurance risk is considered significant (e.g. term insurance, whole life and endowment with annual premiums, life contingent annuities and contracts containing an option to elect at maturity a life contingent annuity at rates granted at inception, long-term health insurance and unit-linked with sum assured in case of death significantly higher than the value of the fund) or investment contracts with discretionary participation feature –DPF – (e.g. policies linked to segregated funds, contracts with additional benefits that are contractually based on the economic result of the company) are accounted for in accordance with previous local GAAP. Gross premiums are recognised as a revenue, net of cancellations of the period, and ceded premiums are recognised as expenses of the period.
In order to mitigate the valuation mismatch between financial investments carried at fair value according to IAS 39 and insurance provisions which are accounted for in accordance with previous local GAAP, shadow accounting is applied to insurance contracts and investments contracts with DPF. This accounting practice attributes to the policyholders’ part of the difference between IAS/ IFRS valuation of the basis on which the profit sharing is determined and valuation which is used to determine the profit sharing actually paid. This accounting treatment is included in the deferred policyholder liabilities in the life insurance provisions. The policyholders’ share is calculated on the average contractual percentage for the policyholder participation, as the local regulation already foresees the protection of guaranteed obligations through the recognition of additional provisions for interest rate risk if future financial returns based on a proper time horizon are not sufficient to cover the financial guaranties included in the contract. The accounting item arising from the shadow accounting application is included in the carrying amount of insurance liabilities whose adequacy is tested by the liability adequacy test (LAT) according to IFRS 4 (refer to paragraph Details on insurance and investment contracts), to rectify the IAS/IFRS carrying amount of insurance provisions.
The main accounting effect of the shadow accounting is double fold: on the one hand, the recognition of the policyholders’ share of unrealized gains and losses on available for sale financial assets in the deferred policyholders ’ liabilities; on the other, the insurer’s share is recognised in equity. If financial instruments are fair valued through profit or loss or financial investments are impaired, the policyholders’ share on the difference between the market value and valuation used to determine the return which the profit sharing is based on (e.g. the carrying amount in segregated fund) is recognised in the profit and loss account. The shadow accounting also allows the recognition of an insurance liability related to unrealized gains on available for sale financial assets linked to contracts with discretionary participation feature, up to the amount of the increase in value of these assets due to the change of market rates.
As previously mentioned, insurance provisions include deferred policyholder liabilities related to contracts with DPF. The recognition of the deferred policyholder liabilities is made in accordance to shadow accounting, as already mentioned in paragraph Shadow accounting of section Insurance Provision.
In accordance with IFRS 4, in order to verify the adequacy of the reserves a Liability Adequacy Test (LAT) is performed. The aim of the test is to verify if the technical provisions - inclusive of deferred policyholders’ liabilities - are adequate to cover the current value of future cash flows related to insurance contracts. The liability adequacy test is performed through the comparison of the IFRS reserves (which include the impact of shadow accounting), net of any deferred acquisition costs or intangible assets related to these contracts, with the current value of future cash flows related to insurance contracts. The abovementioned amount also includes the costs of embedded financial options and guarantees, which are measured with a market-consistent methodology. Technical reserves which are subject to the Liability Adequacy Test also include the interest rate risk provisions as required by local regulations.
The insurance contracts modelling and best estimates assumptions used are consistent with the evaluation process of the insurance provisions in accordance with Solvency II and subject to audit process in compliance with the current regulation. Each inadequacy is charged to the profit and loss account, initially reducing deferred acquisition costs and value of business acquired, and subsequently accounting for a provision.
The local GAAP for each country is applied to non-life insurance provisions, since all the existing policies fall under IFRS 4 scope. In conformity with the international standard, no provisions for future claims are recognised, in line with the derecognition of the equalisation and catastrophe provisions and some additional components of the unearned premiums provisions, carried out on the date of the first-time application. The provisions for unearned premiums include the pro-rata temporis provision, which is the amount of gross premiums written allocated to the following financial pe-
This item comprises both subordinated liabilities, which, in the case of bankruptcy, are to be repaid only after the claims of all other creditors have been met, and hybrid instruments. Bond instruments issued are measured at issue price, net of costs directly attributed to the transaction. The difference between the aforesaid price and the reimbursement price is recognised along the duration of the issuance in the profit and loss account using the effective interest rate method. Furthermore, it includes liabilities to banks or customers, deposits received from reinsurers, bonds issued, other loans and financial liabilities at amortised cost related to investment contracts that do not fall under IFRS 4 scope.
This item mainly includes provisions for the Italian trattamento di fine rapporto (employee severance pay). These provisions are accounted for in accordance with IAS 19 (see paragraph Other liabilities).
The item includes liabilities directly associated with a disposal group, for which assets are equally classified as held for sale, as by defined by IFRS 5.
Deferred tax liabilities are not recognized in the following cases provided for in paragraph 15 of IAS 12: – When the deferred tax liability arises from the initial recognition of goodwill or 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; – In respect of taxable temporary differences associated with investments in subsidiaries, associates and interests in joint ventures, when the timing of the reversal of the temporary differences can be controlled and it is probable that the temporary differences will not reverse in the foreseeable future.
The item includes payables due to tax authorities for current taxes. Current income tax relating to items recognised directly in equity is recognised in equity and in the comprehensive income, while not in the income statement. This item includes also the uncertainties in the accounting treatment of income taxes, as required by IFRIC 23.
The item includes fee and commission expenses for financial services received by companies belonging to the financial segment and fee and commission expenses related to investment contracts.
The item comprises acquisition commissions, other acquisition costs and administration costs related to contracts that fall under IFRS 4 scope. Other acquisition costs and administration costs related to investment contracts without discretionary participation features are also included, as well as overheads and personnel expenses for investment management, and administration expenses of non-insurance companies.
Our performance Risk Report shares, for the sale of shares pursuant to IAS 32.33, for the reclassification to equity instruments previously recognized in liabilities and, in the consolidated financial statements, for changes in scope of consolidation), changes within equity reserves (es. allocation of surplus capital, stock option exercise, transfer of revaluation reserves related to tangible and intangible assets to retained earnings in accordance with IAS 38.87 and IAS 16.41 etc.), the changes in gains and losses recognized directly in equity.
A fair value measurement assumes that the transaction to sell the asset or transfer the liability takes place either: (a) in the principal market for the asset or liability; or (b) in the absence of a principal market, in the most advantageous market for the asset or liability.
The fair value is equal to market price if market information is available (i.e. relative trading levels of identical or similar instruments) into an active market, which is defined as a market where the items traded within the market are homogeneous, willing buyers and sellers can normally be found at any time and prices are available to the public. If there isn’t an active market, a valuation technique should be used which shall maximise the observable inputs. If the fair value cannot be measured reliably, amortised cost is used as the best estimate in determining the fair value.
of assets, a group of liabilities or a group of assets and liabilities in accordance with the related IFRS. However, when determining fair value, the valuation should reflect its use if in combination with other assets.
With reference to non-financial assets, fair value measurement of a non-financial asset takes into account a market participant’s ability to generate economic benefits by using the asset in its highest and best use or by selling it to another market participant that would use the asset in its highest and best use. The highest and best use of a non-financial asset takes into account the use of the asset that is physically possible, legally permissible and financially feasible. However, an entity’s current use of a non-financial asset is presumed to be its highest and best use unless market or other factors suggest that a different use by market participants would maximise the value of the asset. For the liabilities, the fair value is represented by the price that would be paid to transfer a liability in an orderly transaction in the principal (or most advantageous) market at the measurement date under current market conditions (i.e. an exit price).
Assets and liabilities measured at fair value in the consolidated financial statements are measured and classified in accordance with the fair value hierarchy in IFRS13, which consists of three levels based on the observability of inputs within the corresponding valuation techniques used. The fair value hierarchy levels are based on the type of inputs used to determine the fair value with the use of adequate valuation techniques, which shall maximize the market observable inputs and limit the use of unobservable inputs: – Level 1 inputs are quoted prices (unadjusted) in active markets for identical assets or liabilities that the entity can access at the measurement date.
– Level 3: inputs are unobservable inputs for the asset or liability, which reflect the assumptions that market participants would use when pricing the asset or liability, including assumptions about risk (of the model used and of inputs used).
A fair value measurement developed using a present value technique might be categorised within Level 2 or Level 3, depending on the inputs that are significant to the entire measurement and the level of the fair value hierarchy within which those inputs are categorised. If an observable input requires an adjustment using an unobservable input and that adjustment results in a significantly higher or lower fair value measurement, the resulting measurement would be categorised within the level attributable to the input with the lowest level utilized.
– Equity securities Generally, if available and if the market is defined as active, fair value is equal to the market price.
In the opposite case, the fair value of IFU is mainly determined using net asset values (NAV) provided by the fund’s managers provided by the subjects responsible for the NAV calculation. This value is based on the valuation of the underlying assets carried out through the use of the most appropriate approach and inputs, eventually adjusted for illiquidity and consequently hierarchized in accordance with the quality of used inputs. Moreover, depending on how the share value is collected, directly from public providers or through counterparts, the appropriate hierarchy level is assigned. If this NAV equals the price at which the quote can be effectively traded on the market in any moment, the Group considers this value comparable to the market price.
– Derivatives Generally, if available and if the market is defined as active, fair value is equal to the market price.
– Financial assets where the investment risk is borne by the policyholders and related to pension funds
Generally, if available and if the market is defined as active, fair value is equal to the market price. On the contrary, valuation methodologies listed above for the different asset classes shall be used.
– Financial liabilities Generally, if available and if the market is defined as active, fair value is equal to the market price.
As for financial assets, except investments at fair value through profit or loss, IAS 39 is applied whether there is any objective evidence that they are impaired. Evidence of impairment includes, for example, significant financial difficulties of the issuer, its default or delinquency in interest or principal payments, the probability that the borrower will enter bankruptcy or other financial reorganisation and the disappearance of an active market for that financial asset.
The threshold of significance is defined at 30%, while the prolonged decline in fair value is defined as a continuous decline in market value below average cost for 12 months.
Revenues from contracts with customers within to scope of IFRS 15 The Generali Group is a predominantly insurance group. The revenues arising from this business are defined by IFRS 4 - Insurance contracts; the other revenues arising from the sale of goods and services different from financial and insurance services, and arising from asset management are defined and disciplined by IFRS 15. These revenues are included in the income statement item Other income. In particular, within Generali Group, entities specialized in in banking, asset management and other residual businesses included in the segment Holding and other activities operates. Revenues from contracts with customers for Generali Group are mainly financial and real estate asset manager, investment and pension funds commissions, as well as service and assistance. These revenues are not multi-annual and recognized on accrual basis during the financial year, and included in the item Commission income (note 27). In some cases, in particular in case of asset and pension fund management, the revenues are linked to managed amounts or to the performance of the assets. Despite this, significant judgements in estimate and measurement of revenues has been rarely needed, i.e. for the definition of transfer price, timing. Within the Group, there are also other entities which operates in different activities, with an absolutely residual impact on revenues and income. The revenues arising from these activities are included in the item Other income and further detailed in note 37.
The asset/liabilities arising from contracts with customers are not significant, in particular due to the above illustrated business.
The preparation of financial statements compliant to IFRS requires the Group to make estimates and assumptions that affect items reported in the consolidations financial balance sheet and income statement and the disclosure of contingent assets and liabilities. The use of estimates mainly refers to as follows:
The fair value of the right to obtain free shares in relation to market condition is assessed at grant date and is based on a model that takes into account factors such as historical volatility of the Generali share price and of the peer group, the correlation between these shares, the dividends expected on the shares, the risk-free interest rate as well as the specific characteristics of the plan itself. The pricing model is based on simulation models generally used for this type of estimation. Other conditions different than market condition are considered external to this valuation. The probability that these conditions are satisfied, combined with the estimated fair value of the right to obtain free shares, defines the overall plan cost. The cost is charged to the profit and loss account and, as a double-entry, to equity during the vesting period, taking into account, where possible, the probability of satisfaction of the vesting condition related to the rights granted. The charge or credit to the profit or loss for a period represents the change in cumulative expense recognised as at the beginning and end of that period. No expense is recognised for awards that do not ultimately vest, except for equity-settled transactions for which vesting is conditional upon a market or a non-vesting condition. These are treated as vested irrespective of whether or not the market or non-vesting condition is satisfied, provided that all other performance and/or service conditions are satisfied. When the terms of an equity-settled award are modified, the minimum expense to be recognised is the expense had the terms had not been modified, only if the original terms of the award are met. An additional expense is recognized for any modification that increases the total fair value of the share-based payment transaction, or is otherwise beneficial to the employee as measured at the date of modification.
In accordance with IFRS 7 and IFRS 4, the information which enables the users of financial statements to evaluate the Group exposure to financial and insurance risks and how these risks are managed is disclosed in the section Risk report in the management report. It provides a description of the principal risks to which the Group is exposed and risk governance.
Generali activities could be split in different lines of business according to the products and services offered. In particular, in accordance to IFRS 8, four main sectors of activity have been defined: – Non-life segment, which includes insurance activities performed in the non-life business; – Life segment, which includes insurance activities performed in the life business; – Asset management; – Holding and other business segment.
Activities of Non-life segment include both motor and non-motor businesses, among which motor third party liabilities, casualty, accident and health. It includes also more sophisticated covers for commercial and industrial risks and complex plans for multinationals. Investment vehicles and entities supporting the activities of Non-life companies are also reported in this segment.
This segment operates as a supplier of products and services both for the insurance companies of the Generali Group and for third-party customers identifying investment opportunities and sources of income for all of its customers, simultaneously managing risks. The products include equity and fixed-income funds, as well as alternative products.
The main impacts are explained below: – the elimination in the non-life segment and holding and other businesses segment of participations and loans to companies of other segments, belonging to the same country, as well as related income (dividends and interests); – the elimination in the non-life segment and holding and other businesses segment of realized gains and losses arising from intra-segment operations; – the elimination in the life segment of participations and loans to companies of other segments, belonging to the same country, as well the related income (dividends and interests) if not backing technical reserves
– the elimination in the life segment of realized gains and losses arising from intra-segment operations if not backing technical reserves.
Furthermore, loans and related interest expenses on loans between Group companies belonging to different segments are eliminated directly in each segment. This approach allows to reduce consolidation adjustments, which in this view principally consist of investments and dividends received by life and non-life companies from companies belonging to other segments, intragroup financing and related interest income and fee and commissions income and expenses on financial services rendered or received by Group companies, still allowing for an adequate performance presentation for each segment.
4.1 Financial liabilities at fair value through profit or loss 325 319 4,609 3,846
31/12/2019 31/12/2018 31/12/2019 31/12/2018 1.2 Fee and commission income and income from financial service activities 1 3 71 63 1.3 Net income from financial instruments at fair value through profit or loss -33 111 10,171 -6,124 1.4 Income from subsidiaries, associated companies and joint ventures 138 143 273 288 1.5 Income from other financial instruments and land and buildings (investment properties)
cash flow from operating activities -329 448 124 68 cash flow from investing activities -46 136 -711 -160 cash flow from financing activities -113 -158 556 81 1 Consolidation area
Based on the IFRS 10, the Consolidated financial statements include the figures for both the Parent company and the subsidiaries directly or indirectly controlled. As at 31 December 2019, the consolidation area increased from 455 to 463 companies, of which 423 are subsidiaries consolidated line by line and 40 associated companies valued at equity. Changes in the consolidation area compared to the previous year and the table listing companies included in the consolidation area are attached to these Notes, in the Appendix related to the change in the consolidation area, compared to 2018.
2 Disclosures on interests in other entities 2.1 Interests in subsidiaries
A summary of the financial information relating to each subsidiary that have non-controlling interests material for the Group is provided here below. The amounts disclosed are before inter-company eliminations (except for the item Cumulated non-controlling interests of the subsidiary and profit or loss attributable to non-controlling interests that are disclosed from a consolidated perspective).
Guotai is one of the first professional fund management companies in China. The company manages mutual funds and several Social Security
parties when and if the option is exercised on the basis of the fair value measurement criteria of the option itself. Furthermore, the Group holds interests in associates which are not individually material that, as mentioned above, are accounted for according to the equity method. The associates in which the Group has interest mainly operate in the insurance and financial services industries.
At the reporting date no liability has been accounted for because the put option refers to an associate and therefore it does not fall into the category of the options on non-controlling interests referred to in par. 23 of IAS 32. The potential outflow of resources will be defined by the
The summarised financial information relating to the most material associates in which the Group has an interest including the reconciliation with the related carrying amounts (including goodwill, where present) are provided here below.
(*) The financial information are referred to the last approved financial statements by the Shareholders meeting of the associated company Deutchsche Vermogensberatung Aktiengesellshaft DVAG.
Total comprehensive income attributable to the Group 67 53 18 12
Carrying amount in investee at the end of the year 169 146 177 163
Here below please find the information on Group joint ventures: Aggregated information on immaterial joint ventures
In relation to the Group’s interests in joint ventures, no significant contractual, legal or regulatory restrictions exist on the Group’s ability to access or use its assets and settle its liabilities, nor significant commitments exist. For further details regarding restrictions on Group assets, please refer to paragraph Contingent liabilities, commitments, guarantees, pledged assets and collaterals in Additional information section.
Gross book value as at 31 December previous year 6,680 6,679
Gross book value as at the end of the period 7,201 6,680
Irish special purpose company, which for a period of four years will cover the possible catastrophic losses suffered by the Generali Group following storms and floods in Europe and earthquakes in Italy. The Lion II Re transaction transfers part of the risk to bond investors, thus optimizing the Group’s protection against disasters. Generali paid an annual premium of 3.29% for a total of € 200 million of reinsurance coverage. This amount will be returned by Lion II Re DAC to investors if during the 4 years of operation of the transaction no events occurred on the Generali Group, deriving respectively from storms or floods in Europe or earthquake in Italy, in excess of pre-established damage thresholds each type of risk.
The table below shows the details of the Group’s goodwill by cash generating unit: The table below details the goodwill by relevant companies: Goodwill: details