Board members Romolo Bardin Ornella Barra Paolo Di Benedetto Alberta Figari Diva Moriani Lorenzo Pellicioli Roberto Perotti Sabrina Pucci Paola Sapienza
Board of Statutory Auditors Carolyn Dittmeier (Chairwoman) Antonia Di Bella Lorenzo Pozza Francesco Di Carlo (substitute) Silvia Olivotto (substitute)
February 1998, no. 58 and art. 81-ter of Consob regulation of 14 May 1999, no. 11971 as amended
The Sustainability Report tells the story of how the Group creates value responsibly over the long term for all of its stakeholders
The Annual Integrated Report and Consolidated Financial Statements expands the content of the Annual Integrated Report, providing details of the Group’s financial performance in compliance with national and international regulations
The Corporate Governance and Share Ownership Report illustrates the functioning of the corporate governance system of Assicurazioni Generali and its ownership structure
The Remuneration Report provides specific information about the remuneration policy adopted by the Group and its implementation
Corporate Governance and Share Ownership Report 2016 185th year generali.com 185th year generali.com
We continue to follow the developments of reporting at national and international level through the <IR> Business Network and the specific network dedicated to insurance companies.
Our strategy, p. 24 Sustainability Report 2016, p. 17 for further information on the materiality matrix process and representation
The Generali Group’s reporting aims to best satisfy stakeholder information requirements. Comments, opinions, questions and requests for hard copies of the Report may be sent to integratedreporting@generali.com
The Group is ready to face this challenging scenario through its targeted strategy. The new plan presented to the market outlines the direction of our development: Generali aims for technical and operational excellence in all areas and in all markets in which it is present. We will measure our success based not on size, but on the profits we generate. We will further improve our operating performance and we will create long-term value. We will increase our efficiency by boosting productivity and we will optimize our geographical presence by reinvesting in markets with the highest potential. We will strengthen our competitive advantage in life and property&casualty, based on technical performance as well as profitability. And as regards the needs of our clients and our distribution networks, we will leverage our capacity for innovation and the strength of our brand, the winged Lion.
Positive trend in premiums driven by motor segment. Increasing operating result due to the improvement of the Group combined ratio thanks to the reduction in loss ratio.
Including € 3,324 mln premiums from investment contracts www.generali.com/ourresponsibilities /performance/ Ethical-indices--
The Group was established as Assicurazioni Generali Austro-Italiche in Trieste. Trieste was the ideal choice at the time as a commercial and international hub located in the main port of the Austro-Hungarian Empire.
Since 1831 we are an Italian, independent Group, with a strong international presence. We are one of the largest global players in the insurance industry, a strategic and highly relevant sector for the growth, development and welfare of modern companies. In almost 200 years we have built a Group that operates in over 60 countries through more than 420 companies and almost 74 thousand employees
Mario Greco affirmed that he would be unwilling to serve another term as CEO. On 9 February the Board of Directors of Assicurazioni Generali approved the mutually agreed termination of all existing relations.
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The Generali Group and The Progressive Group of Insurance Companies, among global leaders in the field of telematics applied to motor insurance, entered into a Research & Development agreement to strengthen their respective skills in the area of data analytics and boost their product ranges.
Two agreements were signed for the disposal of companies in Guatemala and Liechtenstein. These transactions are part of the active management strategy of our operations, which privileges investments in more appealing geographical areas for the Group and in business lines with greater potential and less capital or cash absorption.
Our reference markets: positioning and performance, p. 58 www.generali.com/ media/press-releases/all media/press-releases/all media/press-releases/all
The Board of Directors of Assicurazioni Generali on 25 January decided to appoint Luigi Lubelli
Assicurazioni Generali acquired 510 million ordinary shares of Intesa Sanpaolo, amounting to 3.04% of the share capital, and started the process to terminate the previously disclosed securities lending transaction. It also enter into a collateralized derivative transaction in order to fully hedge the economic risk related to the acquisition of these shares.
Shareholders’ Meeting Approval, inter alia, of the Parent Company Financial Statements as at 31 December 2016 and the Remuneration policy as well as appointment of a new Board of Statutory Auditors www.generali.com/ governance/ annual-general-meeting
Board of Directors Approval of intermediate financial reporting as at 31 March 2017
We distribute our products and we offer our services based on a multi-channel strategy, while also relying on new technologies: not only through a global network of agents and financial advisors, but also through brokers, bancassurance and direct channels which allow our clients to obtain information on alternative products, compare options for the desired product, acquire the preferred product and rely on excellent after-sales service and the best customer experience.
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Protect We are dedicated to the heart of insurance - managing and mitigating risks of individuals and institutions.
Relevant Anticipating or fulfilling a real life need or opportunity, tailored to local and personal needs and habits, perceived as valuable.
Accessible Simple, first of all, and easy to find, to understand and to use; always available, at a competitive value for money.
The Group Policy for the Environment and Climate contains the guiding principles of reference for our environmental management strategies and objectives.
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In May 2015 we rolled out our strategy of becoming a simpler and smarter insurer for customers and distributors, to improve our capacity to generate cash and dividends.
We have already embarked upon a streamlining process with the disposal of our companies in Guatemala and Lichtenstein. We expect to generate at least € 1 billion from the optimization of our international presence by the end of 2017 as to reinvest into the business. We aim to remain in the markets in which we can be in the top 5 in the short-medium term.
In the Czech Republic, we have been the first in the insurance industry to obtain a license to use drones for large property inspections. It is a unique solution for obtaining detailed documentation and cutting time and costs. It took us three years to develop the project, and we foresee an even bigger development potential thanks to its easy implementation elsewhere and the opportunity to merge it with new technologies, like thermo and multispectral cameras, in order to carry out inspections and to take pictures and videos in the most difficult situations, too.
BG Stile Libero represents an innovative investment and protection solution in terms of content, services and distribution opportunities, which is flexible throughout the client’s life. For the first time private networks are going beyond the borders of financial products and mere insurance guarantees and meet a combination of these two worlds resulting in an increased mutuality. This enhances the central role of the wealth planning professional. BG Stile Libero was our most successful product in terms of the net inflows of Banca Generali in the past two years.
l boosting a performance culture We strive to provide every one of our people with the opportunity to dialogue in a structured manner with their managers regarding individual performance in light of predefined targets, and to be assessed regularly in a fair and transparent manner.
– 11 focus groups to better understand the management capacities required to promote empowerment – 243 participants with diverse profiles (geographies, seniority, gender, levels and professional background)
l providing succession plan for top positions and clear career paths l developing leadership skills l identifying and developing talents at local and Group level l attracting, selecting and retaining the best people through internal mobility and training programs l building a simpler Group organization l simplifying our HR processes with a cutting-edge platform l identifying and investing in key new capabilities l sustaining smart working and developing a new approach to working that empowers us by increasing our flexibility, autonomy and responsibility l fostering a customer mindset from day 1 l understanding how to support our customer experience l giving recognition for great customer service showcasing examples of employee actions that create excellent customer experiences l improving diversity and inclusion
We commit to valuing the uniqueness of people and diversity of thought, particularly in relation to generation, gender and geographical differences.
Retail shareholders 26.89% of the share capital 13.04% Mediobanca 3.56% Caltagirone Group 3.16% Delfin S.AR.L. (Leonardo Del Vecchio Group)
Surveillance Body It has duties and powers with respect to the oversight, development and promotion of the continuous updating of our Organization and Management Model, defined to prevent offences that are relevant for the purpose of legislative decree no. 231/2001 with respect to the administrative liability of legal entities.
Related Party Transactions Committee It provides opinions on transactions with related parties, in compliance with the procedure approved by the Board.
Share performance, p. 57 for further information on the share www.generali.com/governance for further information and the Corporate Governance and Share Ownership Report 2016
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Fi na nc ia l a nd ac co un tin g sk ill s
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The fixed component remunerates the role held and responsibilities assigned, also considering the experience of the relevant incumbent and the skills required, as well as the quality of the contribution made in terms of achieving business results.
In te rn at io na l e xp er ie nc e
In this currently uncertain economic environment, consumer attitudes to insurance products and services are changing in light of two global trends: l digitalization, which has introduced new selling options and different insurance product management l economic uncertainty, which has changed spending on savings and other insurance products.
Main long-term factors that could significantly affect the business and capacity of the Group to create value
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Macroeconomic and financial expectations, along with yield expectations of policyholders, the Solvency II rules relating to the calculation of economic capital and Group targets on profitability, are the main factors influencing the definition of our asset allocation strategy. In addition, the progressive decline of interest rates and the new regulatory environment have made asset management disciplined and focused on consistency between assets and liabilities even more important. In investment activities, factors such as geographical diversification and a selective focus on alternative investments are key to limit portfolio risks and strengthen current returns.
We have implemented an analytics platform on cloud in all our business units, leveraging the cutting-edge technologies for the management and analysis of data. The technology was critical to provide a superior user experience, designed to bring us closer to requests for greater digital interaction from our clients. This development is based on a hybrid architecture that offers the latest mobile technology. To protect our trustworthiness, reputation and survival from threats of natural, human and technological origin, we have also implemented a Business Management Continuity process that identifies critical processes and operational risks that may interrupt business operations, as well as risk mitigation measures and solutions to recover and resume vital business processes as soon as possible and with limited financial impact.
Risk Report for a detailed description on the risk profile and the specific methods used to assess it, p. 92 of the Annual Integrated Report and Consolidated Financial Statements 2016
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We monitor and manage the consequences of a changing society. We offer effective, flexible and modular solutions with high pension and assistance content to cover healthcare expenses and any other possible current and future, individual and family requirements. We commit to strengthening dialogue with people, providing complete and easy-to-use information on products and services, helping them to understand the main risks that may impact their earning capacity and to accurately assess their capacity for saving and the financial gap between the pension that has accrued by the age of retirement and the projected income. We therefore believe it is important to provide support to face the possible needs of old age in due time with adequate financing, within a general context characterized by little knowledge of and propensity to seek out insurance solutions.
The Group’s gross written premiums totalled € 70,513 million (-3.9%), following the decline in the life segment (-6.3%), while P&C (+2.1%) reflected the recovery observed in 2016.
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The Group’s operating result posted its best performance ever, at € 4,830 million, with further growth of 0.9% (€ 4,785 million at 31 December 2015) thanks to the positive performance of life and P&C business. In particular, the life operating result came to € 3,127 million, up by 5.5% due to good technical performance, even in the currently complex environment in the financial markets which is impacting profitability. The P&C operating result was also positive, at € 2,044 million, up by 2.9% thanks to the continuous improvement in the combined ratio, which, at 92.5%, is confirmed in first place amongst our peers, consistent with the Group’s strategic policy of technical excellence.
3 This segment includes the activities of the Group companies in the banking and asset management sectors, the costs incurred for management and coordination and business financing, and all other operations that the Group considers to be ancillary to the core insurance business.
Life segment operating result Property&Casualty segment operating result■■ Holding and other businesses ■ Consolidation adjustments■
(€ -503 million at 31 December 2015) and were primarily impairments recognized on financial investments; • net realized gains are down, standing at € 422 million (€ 758 million at 31 December 2015) due mainly to the planned lower profits on real estate and equity portfolios; • net non-operating income from financial instruments at fair value remained stable at € -96 million (€ -96 million at 31 December 2015); • other net non-operating expenses decreased to € -519 million (€ -712 million at 31 December 2015). This item comprises € -139 million for the amortization on the value of the acquired portfolios (€ -142 at 31 December 2015), € -176 million for restructur-
ing costs (€ -269 at 31 December 2015) and € -205 million in other net non-operating expenses (€ -302 million at 31 December 2015), that mainly includes the allocation to the risk provisions; • non-operating holding expenses amounted to
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Net operating income from financial instruments at fair value through profit or loss
(*) At 31 December 2016 the amount is net of operating taxes for € 64 million and of non-recurring taxes shared with the policyholders in Germany for € 79 million (at 31 December 2015 respectively for € 64 million and € -3 million).
The Economic Solvency Ratio, which represents the economic view of the Group’s capital and is calculated by applying the internal model to the entire Group perimeter, stood at 194% (202% 31 December 2015; -8 pps).
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The change during the period is partially due to the sales made in the year and partially to the rotation of the portfolio, aimed at reducing of equity risk against negative performances of the market at the beginning of the period. In this context the exposure to financial securities - more volatile - decreased, and priority was given to Countries and sectors with a more promising economic outlook.
Investment properties Investment properties in terms of book value amounted to € 14,489 million (€ 13,783 million as at 31 December 2015).
In particular, the direct investment properties of the Group, at market value, amounted to € 18,522 million (€ 17,385 million as at 31 December 2015), and are almost all in Western Europe, mainly in Italy, France and Germany. The properties are mainly located in their respective countries of operation.
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(*) The weighted average cost reflects annualized cost of financial debt considering the outstanding debt at the reporting date and the related activities of currency and interest rate hedging.
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At macroeconomic level, the Italian economy has exited its long recession; GDP growth for 2016 is estimated at 0.9%, supported by exports, a weak recovery in both domestic demand and in investments in machinery and equipment. The growth in disposable income caused by more favourable employment conditions is favouring household consumption.
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COR is increasing mainly because of the expense ratio of the nonmotor portfolio. Loss ratio improved (-0.6 pps) thanks to the positive contribution of prior years loss ratio and nat cat claims, which counted for € 100 million (1.9 pps; 2.1 pps in 2015), of which € 56 million are attributable to the earthquake occurred in centre Italy.
Important decrease of unit-linked products (-25.2%), especially for the single premium products, because of financial markets volatility. As for savings products, the decrease (-4.2%) is almost attributable to the more selective underwriting policy, which led to a review of the product range, implemented as a counteraction for the current low-interest rate environment.
France is the third most important market in the Group, after Italy and Germany, contributing roughly 15% to the Group’s total premiums. In the French insurance market, Generali France is a major player, with a strong position and a multi-channel distribution network. Its sales force includes agents, employed sales persons, brokers, financial advisors, banks, direct channels and affinity groups. The variety of the distribution channels reflects the features of the market and of the products distributed. This approach gained momentum after the “Customer centric” reorganization occured in 2014, based on the creation of 4 separate client areas (Individual, Affluent, Professional&SME and Commercial). Generali is also renowned for its leadership in the Internet savings segment thanks to the excellence of the services provided and its important partnerships.
The low interest rates environment, especially in the its short term favoured the reallocation of financial assets into life products, i.e. the savers’ favourite insurance form in France. Net cash inflows in the French life insurance sector was positive, although they were lower than in 2015. Despite contrasting trends in the securities markets, unit-linked products, which represent roughly 20% of premium income, posted a favourable performance at around the same levels as last year. The rather modest trend in the P&C market continues (+1.5% compared to last year), due to the mentioned weak economic environment, ongoing competition and a soft phase within the corporate business underwriting.
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In terms of volumes, main insurance markets are Czech Republic, Poland, Hungary, Slovakia. The contribution of the minor markets has improved during the last years, resulting in an increase of the premium income on the total volume of the area. Generali CEE is the best in the entire region by technical profitability, with a medium-long term Net Combined Ratio at below 90%.
In Czech Republic, the region’s most significant financial market for Generali Group, growth and inflation trends have remained anchored to those of the Eurozone. The continuation of low interest rates has been combined with the increased volatility of the Czech koruna, expected especially in 2017, while awaiting for the launch of different methods of market intervention by the central bank.
In 2016, life premium volumes declined, due for the most part to single premium policies, while there were positive developments in P&C premiums, driven by motor insurance.
CEE includes Czech Republic (Cz), Poland (Pl), Hungary (Hu), Slovakia (Sl), Serbia, Montenegro, Romania, Slovenia, Bulgaria and Croatia.
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EMEA includes Austria (At), Belgium, Greece, Guernsey, Ireland, the Netherlands, Portugal, Spain (Es), Switzerland (Ch), Tunisia, Turkey and Dubai.
The trend in life premiums is explained by the slowdown in income in Austria (-7.5%) and Switzerland (-7.3%), concentrated within savings products, in line with the Group’s commercial strategy, in addition to the significant contraction in Ireland following the decline in single premium unit-linked products. Income from pure risk and healthcare premiums experienced gradual growth, especially in Spain and Austria. New business in terms of APEs was down (-15.4%), following the reductions in Ireland (-23.7%) and Guernsey (-49.8%), with direct effects on the unit-linked sector (-16.1%). On the other hand, there was good progress in Spain (+10.0%) and Belgium (+48.7%) where, in particular, the company’s commercial actions boosted sales of single premium unitlinked products.
Premiums were up, mainly reflecting the performance of the Hong Kong branch, thanks to the volumes of premiums accepted for reinsurance in the accident&health and corporate segments. The downturn in technical performance can be ascribed to a significant extent to the deteriorating profitability of the Hong Kong branch, impacted on one hand by the strengthening of reserves to come into line with the market’s reserving level and, on the other hand, by the increased business mix of the accident and healthcare segment, with a higher loss ratio than the portfolio average. The worse loss ratio was partially offset by the decline in the cost rate, which benefitted from the increase in volumes.
Also in this case, the increase is linked for the most part to Argentina (more than 70% of the Region) and is explained by tariff increases (especially motor) enacted to deal with the peak in inflation. On the other hand, volumes were down in Brazil, as part of the measures taken to restore the company’s profitability. The improved Cor can be explained by the lower impact of the loss ratio with respect to the previous year, as well as the improvement of acquisition costs.
Mobile technology has changed the way we communicate, the way we search for information, the way we live. In a digital world where everyone has a mobile phone in his or her pocket, going to an office or even phoning a call center seems a very old-fashioned and inefficient solution. To minimize the gap between customers and branches, La Caja set up a partnership with Waze, a social app that uses geolocation to connect drivers and create local transport communities. Launched in 2015, this initiative has allowed us to increase brand visibility and client satisfaction.
• Gross written premiums in excess of € 49.7 billion (-6.3%) and APE at € 4,847 million (-6.6%) due to the increasingly disciplined approach to the offer
• Operating result of € 3,127 million, growth of 5.5% thanks to technical margin development
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The effectiveness of the actions put into place, in line with the strategic plan, are also confirmed by the new business value (NBV), which improved significantly (+14.6%), standing at € 1,256 million (€ 1,097 million at 31 December 2015).
tions of rebalancing income towards products with better risk/return characteristics in the main countries in which the Group operates. The unit-linked line (-10.9%) is still impacted by equity market volatility, whilst protection line (-2.8%) is seeing positive performance in the Group’s main areas, offset by the downturn in Germany (-12,4%) due to a positive effect in 2015.
The new business margin (NBM) rose significantly by 4.8 pps to 25.9% (21.0% at 31 December 2015), primarily due to the refocusing of sales towards the pure risk business and the effective recalibration of guarantees, although the economic environment is worse than last year.
The operating result in the life segment amounted to € 3,127 million, up 5.5% compared to the € 2,965 million at the end of 2015. In particular, there was positive development in the technical margin net of acquisition and administration costs, partially offset by the contraction in the net investment result.
Finally, the operating return on investments6 of the life segment stood at 0.74% (0.74% at 31 December 2015), despite the current financial market environment.
Please refer to the Glossary in the Appendix to Management Report section for more details on the way the indicator was calculated.
This margin does not include the insurance and other operating expenses, reported under the item total operating expenses.
The net investment result, amounting to € 2,085 million, was down (-7.7%) on the € 2,260 million recorded at 31 December 2015.
This performance was particularly caused by the decline in net realized gains, reflecting the planned strategy of reducing this income component with a view to supporting the future return on investments. This was partially offset by the increase in current income from investments in equity and bonds despite the low interest rates in general.
Other operating items reduced to € -97 million, due to lower risk provisions. This item also includes the brand royalties paid by the companies in this segment to the Parent company for marketing and branding activities.
The non-operating result of the life segment went from € -312 million at 31 December 2015 to € -464 million due to the decrease in the non-operating result of investments, reflecting the higher net impairment losses, which stood at € -246 million (€ -132 million at 31 December 2015) as well as lower realized gains (€ -1 million compared to € 24 million at 31 December 2015).
The other non-operating income and expenses increased, amounting to € -216 million (€ -204 million at 31 December 2015), of which € -87 million related to the amortization of the value of acquired portfolios (€ -86 million at 31 December 2015). This trend is mainly due to certain non-recurring costs that were made in 2016.
Net fee and commission income and net income from financial service activities 117 142 -17.7%
Net operating income from financial instruments at fair value through profit or loss 2,107 3,117 -32.4%
of which net income from financial assets and liabilities related to unit and index-linked policies
(**) At 31 December 2015 the amount is net of operating taxes for € 64 million and of non-recurring taxes shared with the policyholders in Germany for € -3 million (at 31 December 2014 respectively for € 64 million and € 27 million).
(55.5% at 31 December 2015). The change during the period is due to the purchases made in the period.
Corporate bonds also increased to € 130,304 million (€ 119,981 million at 31 December 2015), equal to 45.4% (44.5% at 31 December 2015). This trend is due to the net purchases made during the year and the increase in value.
The main movements in the asset allocation compared to 31 December 2015 are attributable to a marginal improvement of corporate bonds, which compensates the decrease in the exposure to government bonds, and to the reduction of equities. Priority was given to corporate bonds in order to reduce the dilution of yields. The decrease in equity exposure was due to the negative performances of the markets at the beginning of the period and with the will to protect income statement and equity.
The contribution to the result for the period from the harvesting transactions stood at 0.2% (0.4% at 31 December 2015).
Non-motor premium income is also up slightly (+0.5%), benefitting from positive development in general across the countries in which the Group carries on business, with the exception of Italy.
Group written premiums by line of business at 2016 Group written premiums by line of business at 2015
The operating return on investments in the property&casualty segment increased to 5.13% (5.09% at 31 December 2015).
The technical result stands at € 1,396 million, significant growth compared to 31 December 2015 (+15%); this result includes the impact of catastrophe claims of around € 295 million, mainly deriving from the storms and flooding that took place in France and Germany in May and June, and the earthquakes in central Italy in August and October. Similar events had an impact of approximately € 313 million at 31 December 2015.
The Group combined ratio improved to 92.5% (-0.7 pps compared to 31 December 2015), due entirely to the drop in the loss ratio (-0.8 pps); the cost rate rose to 27.4% (27.3% at 31 December 2015).
With respect to the total loss ratio, the current year loss ratio excluding natural catastrophes rose by 0.4 pps due to the deterioration observed in the non-motor sector, while the loss ratio from previous times stood at -5.7 pps. As usual, the Group maintained its prudent reserving approach, confirmed by the stable reserving ratio of 155%. The percentage catastrophic claims was 1.5 pps, compared to 1.6% in 2015.
Therefore, the expense ratio stood at 27.4% (27.3% at 31 December 2015).
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The change in current income is primarily attributable to the decline in income from fixed income instruments that fell from € 856 million at 31 December 2015 to € 819 million.
Other operating items of the property&casualty segment, which primarily include non-insurance operating expenses, depreciation and amortization of tangible assets and multi-annual costs, provisions for recurring risks and other taxes, were up to € -297 million (€ -242 million at 31 December 2015) mainly due to higher provisions for risks.
The non-operating result for financial management was down due to the reduction in net realized gains from € 662 million to € 400 million at 31 December 2016 and higher impairment losses, which went from € -194 million at 31 December 2015 to € -262 million.
Fee and commission income and income from financial service activities 0 0 n.m
Interest expense on liabilities linked to operating activities -83 -85 -2.6%
(€ million) Motor Non-motor Total 31/12/2016 31/12/2015 31/12/2016 31/12/2015 31/12/2016 31/12/2015
(*) CAT claims impacted on the Group combined ratio for 1.5 pps, of which1.9 pps in Italy, 1.8 pps in France, 2.0 pps in Germany, 1.0 pps in European Eastern Countries and 1.7 pps attributable to International Operations (At 31 December 2015 CAT claims impacted on the Group combined ratio for 1.6 pps, of which 2.1 pps in Italy, 1.9 pps in France, 2.3 pps in Germany, 1 p.p. in Central and Eastern Europe, 1 pps in EMEA and 4,1 p.p in Asia).
Finally, the percentage of cash and cash equivalents decreased from 11.6% at 31 December 2015 to 7.4%.
With reference to the breakdown of the bond investment portfolio, exposure to government bonds increased, standing at € 12,346 million (€ 10,317 million at 31 December 2015), amounting to 47.8% of the portfolio (43.4% at 31 December 2015), against a substantially stable corporate component, of € 13,480 million, with a ratio of 52.2% (56.7% at 31 December 2015).
The main movements in the asset allocation compared to 31 December 2015 were due to the increase in government bonds and to the decrease of equities and cash. The reduction of the equity exposure is attributable to the prudent approach taken due to the volatility and the negative performance of the equity markets, in order to protect income statement and equity position. Cash was reduced in order to limit the dilution of yelds, which are currently negative for bank deposits.
Finally, the average duration of the bond portfolio was 5.4 years (5.0 years at 31 December 2015), in line with the Group’s ALM strategy.
Property&Casualty insurance provisions 30,645 30,482 of which motor 13,631 13,487 of which non-motor 17,014 16,996
The holding and other businesses segment includes the activities of the Group companies in the banking and asset management sectors, the costs incurred for the direction, coordination and financing activities, as well as all other operations that the Group considers to be ancillary to the core insurance business.
The operating result of the holding and other businesses segment amounted to € -91 million, down compared to the € 59 million at 31 December 2015. This performance was mainly caused by the financial segment, particularly the lower results of Banca Generali due to lower performance fees, as well as lower realized gains on real estate in the other businesses segment.
Operating holding expenses amounted to € -459 million (€ -429 million at 31 December 2015). This increase primarily reflects the development of the Regional Offices aimed at directing, coordinating and controlling the business in key areas in terms of growth opportunities, such as Asia.
The operating result of other businesses amounted to € -2 million, down compared to the € 55 million recorded in the corresponding period of the previous year, reflecting lower net realized gains in the real estate sector.
Operating result of the holding and other businesses segment (€ million) 31/12/2016 31/12/2015 Change
Fee and commission income and income from financial service activities 678 697 -2.8%
Interest expenses on liabilities linked to to operating activities -123 -123 0.1%
The purpose of the Risk Report 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.
For more details on financial markets’ developments please see Risks and Opportunities of the external context at page 34 of this Document.
In addition to the financial environment, regulatory developments represent a major external driver of threats and opportunities to insurance companies. These include developments in the area of prudential supervisory regimes, such as Solvency II, International Capital Standards (ICS), as well as regulations defining new principles in terms of distribution, product governance (Insurance Distribution Directive - IDD), Packaged Retail and Insurance-based Investment Products (PRIIPs Regulation), personal data protection (General Data Protection Regulation - GDPR) and anti-money laundering (IV AML Directive).
Given both the PIM extension plan and the objective of better capturing the Group risk profile, the so called Economic Solvency Ratio is also presented in this Report. This takes into account the use of the broader PIM scope. On this basis, the Economic Solvency Ratio as at 31 December 2016 is 193.9%.
The authorization for the French life entity has been granted subsequently to the indicated date.
The results confirm the sound capital position of the Group, which is well positioned above the regulatory threshold and the risk tolerance levels set by the Group within its risk appetite4: the Group Economic Solvency Ratio is positioned above the tolerances set5 respectively at 130% and 160% (hard and soft limits for Economic Solvency Ratio).
Group risk management also relies on a set of tools, such as the Recovery Plan, the Liquidity Risk Management Plan and the Systemic Risk Management Plan, defined following the Financial Stability Board (FSB) and the International Association of Insurance Supervisors (IAIS) standards6.
Starting from this year the Solvency and Financial Condition Report (SFCR) will be published. This year the Risk Report has been restructured to achieve better alignment with the Solvency II risk and capital reporting structure and to pursue alignment with the SFCR structure.
In particular: • Section B provides a brief description of the risk management system; • Section C presents the Solvency Position of the Group and the key elements of the Group’s Capital Management; • Section D provides an overview of the Group’s risk profile.
Finally, Group rating assessment by external rating agencies is provided on the Group web site in the section while sensitivity analyses of life underwriting risks results in terms of EEV (European Embedded Value) are provided in the section Details on insurance and investment contracts of the Notes.
Soft and hard limits’ thresholds set within the RAF aim to limit excessive risk taking and to maintain the Solvency Position at the desired level.
The Group internal control and risk management system is the set of rules, procedures and structures that ensure the effective operation of the company and enable it to identify, manage and monitor the main risks to which it is exposed. Key elements of the system are: • Internal control environment and activities; • Awareness and monitoring; • Reporting duties; • Roles and responsibilities that the Board of Directors
(BoD) and its committees, the Senior Management, including the Chief Executive Officer (CEO), also acting as the Director in charge of the internal control and risk management system, and the Chief Financial Officer (CFO), appointed as Manager in charge of the preparation of the company’s financial reports, as well as risk owners and Control Functions must discharge within the internal control and risk management system.
The Group internal control and risk management system is founded on the establishment of three lines of defence: • The Operating Functions (the “risk owners”), which represent the first line of defence and have ultimate responsibility for risks relating to their area of expertise; • Actuarial, Compliance and Risk Management Functions, which represent the second line of defence; • Internal Audit, which represents the third line of defence.
The roles and responsibilities of the BoD and related committees, Senior Management, Control Functions and the interactions among Control Functions are described within the Corporate Governance Report. Key roles within the risk management system are outlined below: • The BoD defines, with the Risk and Control Committee ’s support, the guidelines of the internal control and risk management system and assesses its adequacy, effectiveness and functioning at least once a year. It also defines the organizational setup, appoints the heads of the Control Functions and defines their mandates, adopts Group risk policies, approves the ORSA results and based on them defines the risk appetite and tolerance limits; • The Senior Management is then responsible for executing the defined strategy, implements the internal control system and keeps it suitable and effective; • Control Functions are established at Group level and within the operating entities: – The Risk Management Function supports the
Heads of Control Functions report functionally to the BoD except the head of Group Audit who reports hierarchically and functionally to the BoD.
policies and guidelines. The Risk Management Policy covers all risks the company is exposed to, on a current and forward-looking basis.
The principles defining the Group risk management system are provided in the Generali Group Risk Management Policy7 which is the cornerstone of all risk-related
Generali Group’s risk management process is defined in the following phases: 1. Risk identification
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 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, emerging risks are also considered.
Identified risks are then measured through their contribution to the capital requirement, 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 risk is covered by an adequate amount of capital that could absorb the loss incurred if the risk materialized.
Consolidated Financial Statements iting excessive risk-taking. These are expressed in terms of hard and soft tolerances.
The RAF governance provides a framework for embedding risk management into day-to-day and extraordinary business operations and control mechanisms as well as the escalation and reporting to be applied in case of risk tolerance breaches.
The purpose of risk monitoring and reporting is to keep Business Functions, Senior Management, BoD and also the Supervisory Authority aware and informed on the development of the risk profile, on the risk trends and on the breaches of risk tolerances.
The ORSA process includes the assessment of the risks in scope of the capital requirement, along with other risks that are not included in the capital requirement calculation. Within the ORSA, stress test and sensitivity analyses are also performed to assess the resilience of the Solvency Position and risk profile to changed market conditions or specific risk factors.
The ORSA Report, documenting main results of this process, is produced on an annual basis. In addition to this, non-regular ORSA Reports are produced when the risk profile has changed significantly.
Solvency II Technical Provision reliability and adequacy are evaluated by the Actuarial Function.
The following template provides the reconciliation between IFRS Net Equity and EOF to cover SCR. The following are the main adjustments applied: • Investments such as loans and real estate are revaluated at fair value; • Technical Provisions (TPs) are accounted based on
To grant a high quality of capital available, the amounts of Tier 2 and Tier 3 items eligible to cover the SCR are subject to the following limits. The eligible amount of Tier 1 items shall be at least one half of the SCR; in case of admissible subordinated liabilities and preference shares, exceeding 20% of total Tier 1, it is downgraded towards Tier 2. The eligible amount of Tier 3 items shall be less than 15 % of the SCR. The sum of the eligible amounts of Tier 2 and Tier 3 items shall not exceed 50 % of the SCR.
MCR. Under Solvency II, 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 MCR is defined following simple rules and remains within the corridor between 25% and 45% of the SCR. The deriving coverage ratio is presented below.
Tier 2 OF refer to subordinated debt, while Tier 3 OF refer to deferred taxes.
Under Solvency II, the SCR is calculated as the Value at Risk (VaR) of the OF subject to a confidence level of 99.5% over a one-year period (in other words the SCR is calculated to ensure 1 in 200 years events coverage).
To define MCR coverage, stricter OF eligibility rules are applied11. EOF are determined as follows: Total EOF to meet the MCR
The SCR covers underwriting, financial, credit and operational risks as follows: Economic SCR split by risk
(*) Credit risk includes default risk, spread widening risk and rating migration risk
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. 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 aggregation process uses advanced mathematical techniques following market best practices and the calibration procedure involves quantitative and qualitative aspects.
To rule the activities related to the Internal Model developments necessary to ensure its appropriateness over time, and more in general to support the Internal Model change process, the Internal Model Change Policy has
A dedicated committee, the Internal Model Committee, has been established to approve PIM calibrations, to support decision making on PIM developments or model changes and to control the full model lifecycle, assuring proper compliance with the Group Internal Model Governance Policy. This Committee is chaired by the Model Design Authority, which is responsible for ensuring the overall consistency and reliability of the Group PIM.
The Group CEO, within the Balance Sheet Committee, is kept informed on key steps and results of the Internal Model Process. The BoD, assisted by the Risk and Control Committee, ensures the ongoing appropriateness of the design and operations, the ongoing compliance of the Group PIM and also that the Internal Model continues to appropriately reflect the risk profile of the Group.
These roles are generally mirrored within the organizational structure of each company within PIM scope.
The Group PIM is subject to regular independent Validation on an ongoing basis, which aims to gain independent assurance of the completeness, robustness and reliability of the processes and results of the Internal Model as well as their compliance with the Solvency II regulatory requirements. In particular, the Validation output is designed to support Senior Management and BoD in understanding the appropriateness of the Internal Model, including areas of weaknesses and limitations, especially with regards to its use.
To ensure an adequate level of independence, the resources performing the Validation activities are not involved in the development and operation of the Internal Model.
Furthermore, the regular Validation procedures also serve as an incentive mechanism to ensure timely and accurate incorporation of modelling refinements.
In order to warrant the appropriateness of the array of elements contained within the Internal Model, the Validation covers both the quantitative and qualitative aspects of the Model, and is therefore not limited to the calculation engine and methodology. Other important items such as Data Quality, documentation and uses of the Model are validated accordingly.
Life and health underwriting risks include 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. Operating risks derive from the uncertainty regarding the amount of expenses and the adverse exercise of contractual options by policyholders. Along with the premium payment, the lapse of the policy is the most significant contractual option held by the policyholders.
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 Solvency II technical provisions before and after the application of the stress.
Life underwriting risks are measured by means of the Group PIM.
Life underwriting risk management is based on two main processes: • Ex-ante selection of risks through underwriting; and • Accurate pricing.
For savings business, this is mainly achieved through profit testing, while for protection business with a biometric component, this 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 are biometric risks considered but also the financial risks related to the minimum interest rate guarantee and any potential mismatch between the liabilities and the corresponding assets.
The product approval process foresees a review by the Risk Management Function to ensure that new products are in line with the risk appetite and that risk absorption is considered part of risk-adjusted performance management.
For the volumes of premiums and related geographic breakdown please refer to property&casualty segment indicators by country in the Management Report, for technical provisions please refer to the Section Details on insurance and investment contracts in the Notes.
In terms of CAT risk, the Group’s largest catastrophe exposures are earthquakes in Italy, European windstorms and European floods. Less material catastrophe risks are also taken into account and assessed by means of additional scenario analysis.
Reinsurance is the key mitigating factor for balancing the P&C portfolio. It aims to optimize the use of risk capital by ceding part of the underwriting risk to selected counterparties, whilst simultaneously minimizing the credit risk associated with such operations.
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 Property Catastrophe Reinsurance Program is designed as follows: • The protection aims to cover single occurrence losses up to a return period of at least 250 years; • The protection has proved capable in all recent major catastrophe losses; • The program has proved to be effective in a multi-territory event by reducing the volatility of the Group; • Substantial risk capital has been saved by means of the protection; • An additional aggregate XL programme is protecting the Group balance sheet in case of multiple events in a year.
Alternative risk transfer solutions are continuously analyzed and options for the implementation of such tools are present in Group protections in order to keep the door open to more competitive reinsurance solutions. As an example, in addition to traditional reinsurance, a protection has been recently placed on the capital market to reduce the impact of a high Loss Ratio for what concerns the Group motor liability portfolio.
The Group invests collected premiums in a wide variety of financial assets, with the purpose of honoring future promises to policyholders and generating value for its shareholders.
As a result, the Group is exposed to the financial risks that: • Invested assets do not perform as expected because of falling or volatile market prices; • Cash from maturing bonds is reinvested at unfavourable market conditions, typically lower interest rates.
Generali’s traditional life savings business is a long term business, therefore the Group holds mostly long term investments which have the capability to absorb shortterm decreases and fluctuations in the market value of assets.
Under Solvency II, the Group is also required to hold a capital buffer, with the purpose of maintaining a sound Solvency Position even in the circumstances of adverse market movements.
The aim of the SAA&ALM process is to define the most efficient combination of asset classes which, according to the “Prudent Person Principle” set out in the Solvency II Directive and related relevant implementation measures, maximizes the investment contribution to value creation, taking into account solvency, actuarial and accounting indicators. The aim is not just to mitigate risks but also to define an optimal risk-return profile that satisfies both the return target and the risk appetite of the Group over the Business Planning period.
The asset portfolio is invested and rebalanced according to the asset class and duration weights. One of the main risk mitigation techniques used by the Group is liability -driven management of the assets. This technique aims at granting the comprehensive management of assets whilst taking into account the liabilities structure (for example, interest rate and currency risk are mitigated when a movement observed on the asset side would correspond to an offsetting movement on the liability side of the balance sheet).
The annual SAA proposal: • Defines target exposure and limits for each relevant asset class, in terms of the minimum and maximum exposure allowed; • Embeds the deliberate ALM mismatches permitted and potential mitigation actions that can be enabled on the investment side.
The Group also uses derivatives with the aim of mitigating the risk present in the asset or/and liability portfolios. The derivatives help the Group to improve the quality, liquidity and profitability of the portfolio, according to the Business Planning targets.
In addition to the risk tolerance limits set on the Group Solvency Position within the RAF, the current Group risk monitoring process is also integrated by the application of the Generali Group Risk Guidelines (GRG). The GRG include general principles, quantitative risk limits (with a strong focus on credit and market concentration), authorization processes and prohibitions that Group entities need to adhere with.
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Regarding P&C business, the Group has to ensure that the benefits can be paid on a timely basis when claims occur.
In more detail, the Group is exposed to: • Equity risk deriving from the risk of adverse changes in the market value of the assets or in the value of liabilities due to changes in the level of equity market prices which can lead to financial losses; • Equity volatility risk deriving from changes in the volatility of equity markets. Exposure to equity volatility is typically related to equity option contracts; • Interest rate risk, defined as the risk of adverse changes in the market value of the assets or in the value of liabilities due to changes in the level of interest rates in the market. The Group is mostly exposed to downward changes in interest rates as lower interest rates increase the present value of the promises made to policyholders more than the value of the assets backing those promises. As a result, it may become increasingly expensive for the Group to maintain its promises, thereby leading to financial losses. Linked to that, interest rate volatility risk derives from changes in the level of interest rate implied volatilities. This comes, for example, from insurance products sold with embedded minimum interest rate guarantees whose market consistent value is sensitive to the level of interest rates volatility; • Property risk deriving from changes in the level of property market prices. Exposure to property risk arises from property asset positions; • Currency risk deriving from adverse changes in exchange rates; • Concentration risk deriving from asset portfolio concentration to a small number of counterparties. This increases the possibility that a negative event hitting only a small number or even a single counterparty can produce large losses.
• For further details on the Group’s key figures and details on financial assets please refer to the Section Investments in the Notes.
Financial risks are measured by means of the Group PIM. In particular, losses are modelled as follows: • Equity risk is modelled by associating each equity exposure to a market index representative of its industrial sector and/or geography. The potential changes in market value of the equities are then estimated based on past shocks observed for the selected indices; • Equity volatility risk models the impact that changes in the equity implied volatility can have on the market values of derivatives; • Interest rate risk models the changes in the term structure of the interest rates for various currencies and the impact of these changes on bonds values (and of other interest rate sensitive assets) and also on the value of future liability cash-flows; • Interest rate volatility risk models the impact that the variability in interest rate curves can have on both the market value of derivatives and on the value of liabilities sensitive to interest rate volatility assumptions (such as minimum pension guarantees); • Property risk models returns on a selection of published property investment indices and the associated impact on the value of the Group’s property assets.
These are mapped to various indices based on property location and type of use; • For currency risk the plausible movements in exchange rate of the reporting currency of the Group in respect to foreign currencies are modelled, as well as the consequent impact on the value of asset holdings not denominated in the domestic currency; • For concentration risk the extent of additional risk borne by the Group due to insufficient diversification in its equity, property and bond portfolios is assessed.
The Economic SCR for financial risk before diversification amounts to € 11,327.4 million. This is mainly given by equity risk, followed by property, interest rate and currency risk. Concentration risk contribution to the risk profile remains negligible.
The Group is exposed to credit risks related to invested assets and also arising from other counterparties (i.e. reinsurance). Similarly to financial risk, the Group has to grant that the value of assets does not fall below the value of insurance obligations.
Credit risks include the following two categories: • Spread widening risk, defined as the risk of adverse changes in the market value of assets due to changes in the market value of non-defaulted credit assets. The decrease in the market value of an asset due to spread widening can be linked either to the market’s assessment of the creditworthiness of the specific obligor (often implying also a decrease in rating) or to a market-wide systemic reduction in the price of credit assets; • Default risk, defined as the risk of incurring in losses because of the inability of a counterparty to honour its financial obligations. 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).
For the overall volume of assets subject to credit risk please refer to the volumes of bonds and receivables (including reinsurance recoverable) provided within the Section Investments of the Notes.
The Economic SCR for credit risk before diversification amounts to € 12,791.3 million. Credit risk is mostly deriving from fixed income securities, while the contribution to SCR of the counterparty risk (including reinsurance default) remains more limited.
Within this framework additional rating assessments can be performed at counterparty and/or financial instrument level. This applies even where an external rating is available. The additional rating assessment has to be renewed at least annually. Moreover, additional assessments shall be performed each time the parties involved in the process possess any information, coming from reliable sources, that may affect the creditworthiness of the issuer/issues.
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 a collateralisation strategy that strongly mitigates the losses that the Group might suffer because of the default of one or more of its counterparties.
Consolidated Financial Statements ensures an early identification of the most severe threats across the Group. In doing so, it provides management at all levels with a holistic view of the broad operational risk spectrum that is essential for prioritizing actions and allocating resources in most risk related critical areas.
To further strengthen the internal control systems and in addition to the usual risk owners’ responsibilities for managing their risks, 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.
An example is the creation of a dedicated unit for the management and coordination of the Group-wide IT Security that steers the evolution of the IT security strategy and operating model, ensuring a timely detection and fixing of the vulnerabilities that occasionally affect the business. This initiative helps the Group to better cope with the growing threat represented by cyber risk.
The Economic SCR for operational risk before diversification amounts to € 2,166.5 million, calculated based on Standard Formula.
The Group is exposed to liquidity risk from its insurance operating activity, depending on the cash flow profile of the expected new business, due to the potential mismatches between the cash inflows and the cash outflows deriving from the business.
Liquidity risk can also stem from investing activity, due to potential liquidity gaps deriving from the management of the asset portfolio as well as from a potentially insufficient level of liquidity in case of disposals (i.e. capacity to sell adequate amounts at a fair price and within a reasonable timeframe). Finally, the Group can be exposed to liquidity outflows related to issued guarantees, commitments, derivative contract margin calls, or regulatory constraints regarding the Insurance Provisions Coverage Ratio and capital position.
The Group’s liquidity risk management relies on projecting cash obligations and available cash resources into the future, in order to monitor that available liquid resources are at all times sufficient to cover the cash obligations that will become due in the same period.
A set of liquidity risk metrics has been defined to monitor the liquidity situation of each Group insurance company
The metrics are calculated under both the so-called “base scenario”, in which the values of cash flows, assets and liabilities correspond to those projected according to each company’s Strategic Plan scenario, and a set of so-called “stress scenarios”, in which the projected cash inflows and outflows, the market price of assets and the amount of technical provisions are recalculated to take into account unlikely but plausible circumstances that would adversely impact the liquidity of each company.
Liquidity risk limits have been defined by Group Head Office in terms of value of the above-mentioned metrics that each Group company cannot exceed. The limit framework is designed to ensure that each Group company holds a “buffer” of liquidity in excess of the amount required to withstand the adverse circumstances depicted in the stress scenarios.
As far as the investment process is concerned, Generali has explicitly identified liquidity risk as one of the main risks connected with investments. As a result, indicators such as cash flow duration mismatch are embedded in the Strategic Asset Allocation process. Investment limits are set to ensure that the share of illiquid assets remains within a level that does not impair the Group’s asset liquidity. As far as product development is concerned, the Group has defined in its Life and P&C Underwriting Policies the principles to be applied to mitigate the impact on liquidity from lapses and surrenders in life business and claims in non-life business.
The following template provides the resilience of the Solvency Position to the main risk drivers (e.g. interest rates, equity shock, credit spreads).
Combined with a high degree of uncertainty on the political front, these elements will once again create a challenging environment for investors. Forecasts point to a modest recovery in the Eurozone equity market and less brilliant performance than last year in the United States.
In 2017, within the insurance sector, the main countries of the Eurozone (Italy, Germany, France and Spain) are expected to show a good performance in the P&C business, which should recover in Italy as well. The life segment, influenced by low interest rates, will show signs of difficulty once again in 2017, except in Italy, where life premiums are expected to improve compared to 2016.
The development of these business lines will aim at offering a wide range of insurance solutions adapted to risk and investment profiles for the benefit of both the policyholders and the Group.
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The Group investments policy will continue to be based on an asset allocation strategy aimed at consolidating current returns and safeguarding consistency with liabilities to the policyholders.
Alternative investments are considered appealing due to their contribution to portfolio diversification, but overall investment volumes are impacted by the limited supply and the high quality characteristics required by investment policies.
The consolidated financial statements of the Generali Group as at 31 December 2016 were drawn up in accordance with the IAS/IFRS international accounting standards issued by the IASB and The Generali Group’s consolidated financial statements at 31 December 2016 were prepared taking into account the IAS/IFRS issued by the IASB and endorsed by the European Union, in accordance with the Regulation (EC) No. 1606/2002, Legislative Decree No. 58/1998 as amended, and Legislative Decree No. 209/2005, as amended by Legislative Decree No. 32/2007.
All reporting by geographical area presented in this report is based on the Group’s territorial structure, consisting of the business units of the three main markets - Italy, France and Germany - and four regional structures: • CEE: Central and Eastern European countries that are part of the EU; • EMEA: Austria, Belgium, Greece, Guernsey, Ireland, the Netherlands, Portugal, Spain, Switzerland, Tunisia, Turkey and Dubai; • LatAm: Argentina, Brazil, Colombia, Ecuador, Guatemala and Panama; • Asia: China, Indonesia, India, Hong Kong, Vietnam, Thailand, the Philippines, Japan and Malaysia.
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We regularly engage with investors, analysts and rating agencies to fulfil their information needs. The interaction takes place during quarterly results presentation, as well as during the Annual Shareholders’ Meeting and Investor Days. We also organise roadshows and sector conferences, providing them with the appropriate information. During 2016 we came into contact with more than 530 people (about 230 individual meetings and 300 smallgroup meetings) in the most important financial centres of Europe and North America.
We regularly interact with regulators and the European Institutions to maintain good relationships and share authoritative and updated information in order to properly interpret and apply new regulations. We also offer our skills and contribute to public consultations for the definition of new laws and regulations in the sector, by providing, in view of our direct experience, concrete indications in order to safeguard the specificities of the Group and the insurance industry. To this purpose, we collaborate with several trade organizations and associations. Our active presence in these organizations allows us also to expand our knowledge of the different regulations and potential impacts. Some years ago we started interacting with students from the main Italian universities, providing specific sessions on our new reporting approach and on the implications at a national and international level. With a survey we are also taking their feedback and suggestions on the Integrated Report implementation. In 2016, we have extended this experience to Group employees as well.
Annual Integrated Report and Consolidated Financial Statements 2016 185th year generali.com
In particular, with respect to the calculation method of the policyholders’ profit sharing based on the net result of the period, the life non-operating result in Germany and Austria was entirely calculated net of the estimated amount attributable to the policyholders.
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, principally including the results of real estate development activities, run-off activities, the impairment losses on property held for own use, company restructuring charges and amortization of the value of the portfolios acquired directly or through the acquisition of control of insurance companies (value of business acquired or VOBA) and other net non-recurring expenses.
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 the results of the run-off activities, company restructuring charges, depreciation of the value of the portfolios acquired directly or through acquisition of control of companies operating in the banking and asset management sectors (value of business acquired or VOBA) and other net 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 above mentioned segments and related consolidation adjustments.
1 For further details on the definition of financial debt, please refer to the paragraph Debt in the section on The financial position of the Management report.
Within the context of the life and property&casualty operating result of each country, reinsurance operations between Group companies in different countries were considered by the same standards as transactions concluded with external reinsurers. This representation of the life and property&casualty operating result by territory makes this performance indicator more consistent with both the risk management policies implemented by each company and the other indicators measuring the technical profitability of the Group’s companies.
The following table reconciles the operating and non-operating result with the corresponding income statement items: Operating and non-operating result Profit and loss account
Net fee and commission income and net income from financial service activities 1.2 - 2.2
Net operating income from other financial instruments 1.3 - 1.4 - 1.5 - 2.3
Net non-operating income from financial instruments at fair value through profit or loss 1.3 - 1.4 - 1.5 - 2.3
Operating result by margins The operating result of the various segments was also shown in accordance with a margin-based layout which shows the operating trends of the changes that occurred in each segment performance more clearly.
The net investment result comprises operating income from investments, net of the portion attributable to the policyholders. Finally, the insurance management and other operating components are indicated separately.
The operating result for the property&casualty segment comprises the technical result, the financial result and other operating items. The technical result is equivalent to 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.
Operating return on equity The operating return on equity indicates the return on capital in terms of the Group operating result. It is calculated through the relationship between: • consolidated operating result as described above adjusted to include: – o interest on financial debt; – o income taxes based on a mid-term expected tax rate as assumed in the 2017 Target (please refer to the chapter “The Generali Group’s strategy”); – o minority interests; • average Group shareholders’ equity at the beginning and end of each period of valuation, adjusted to exclude other gains and losses booked directly to equity included in Other Comprehensive Income OCI (such as gains and losses on AFS investments, foreign currency translation differences, net unrealized gains and losses on hedging derivatives).
Net Operating Cash Net Operating Cash measures the Parent Company’s cash generation. It is the result of the sum of dividends paid by the Subsidiaries, the net result of the Group Reinsurance centralization activity, administrative costs, interest expenses paid and the net balance relating to taxes.
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In line with the concept of Integrated Reporting and the Group targets set as from 31 December 2015 when the Notes were reviewed, the Group has revised the structure and contents of the Risk Report and its position in the Annual Integrated Report.
With the aim of improving the usability of the document for the reader, it has been included in the Management Report by enriching its contents.
Investments 7 Held to maturity investments 8 Loans and receivables 9 Available for sale financial assets 10 Financial assets at fair value through profit or loss 11 Land and buildings (investment properties) 12 Cash and cash equivalents Details on investments
Financial liabilitiese 17 Liabilities at fair value through profit or loss 18 Other financial liabilities
Other balance sheet items 19 Intangible assets 20 Tangible assets 21 Receivables 22 Other assets 23 Other provisions 24 Payables 25 Other liabilities 132 Generali Group Annual Integrated Report and Consolidated Financial Statements 2016
28 Net income from financial asset at fair value through profit and loss 29 Income and expenses from subsidiaries, associated companies and joint venture 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
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Assets References: (€ million) 31/12/2016 31/12/2015 20 2.1 Land and buildings (self used) 2,810 2,844 14 3 AMOUNTS CEDED TO REINSURERS FROM INSURANCE PROVISIONS 3,933 4,094 11 4.1 Land and buildings (investment properties) 12,584 12,112 3 4.2 Investments in subsidiaries, associated companies and joint ventures 1,194 1,369 9 4.5 Available for sale financial assets 313,933 289,399 10 4.6 Financial assets at fair value through profit or loss 95,114 94,385 of which financial assets where the investment risk is borne by the policyholders and related to pension funds 78,317 74,966 5.1 Receivables arising out of direct insurance operations 7,155 6,497 5.2 Receivables arising out of reinsurance operations 1,163 1,060 6.1 Non-current assets or disposal groups classified as held for sale 772 0
Transfer to profit and loss account Other transfer Change in owhership interest
Cash flow statement (€ million) 31/12/2016 31/12/2015 Earnings before taxes 3,157 3,407 Changes in non-cash items 14,647 16,549 Change in the provisions for unearned premiums and for unexpired risks for non-life segment 67 -56
Change in other provisions 179 156 Other non-cash expenses and revenues arising out of financial instruments, investment properties and investments in subsidiaries, associated companies and joint ventures 405 -103
Income taxes paid -728 -1,674 Net cash flows from cash items related to investing or financing activities 3,132 38 Financial liabilities related to investment contracts 885 1,042
The Legislative Decree No. 209/2005 empowered ISVAP to give further instructions for financial statements in compliance with the international accounting standards.
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.
The consolidated financial statements at 31 December 2016 were approved by the Board of Directors on 15 March 2016.
The consolidated financial statements at 31 December 2016 were audited by E&Y S.p.A., the appointed audit firm from 2012 to 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.
Specifically, the Group controls an investee if, and only if, the Group has: • power over the investee (i.e., existing not merely protective rights that give it the current ability to direct the relevant activities of the investee, that impact meaningfully the returns of the investree); • exposure, or rights, to variable returns from its involvement with the investee; • the ability to use its power over the investee to affect its returns.
The Group reviews periodically and systematically if there was a variation of one or more elements of control, based on the analysis of the facts and the essential circumstances.
The assets acquired and liabilities assumed in a business combination are initially recognized at fair value at the acquisition date. Goodwill is initially measured at cost being the excess of the aggregate acquisition cost over the net value of the identifiable assets acquired and liabilities assumed is accounted for as goodwill. If the impairment test lead to the result that theacquisition cost is less than the fair value of the assets acquired and liabilities assumed, the difference is recognised in the profit and loss account.
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At each reporting date, after application of the equity method the Group determines whether there is objective evidence that the investment in the associate or joint venture is impaired. If there is such evidence, the Group calculates the amount of impairment as the difference between the recoverable amount of the associate or joint venture and its carrying value, then recognizes the loss as ‘Share of losses of an associate’ in the income statement. Where the Group’s share of losses in an associate equals or exceeds its interest in the associate, including any other unsecured long-term receivables, the group does not recognize further losses, unless it has incurred obligations or made payments on behalf of the associate or joint venture.
Upon loss of significant influence over the associate or joint control over the joint venture the Group measures and recognizes and retained investment at its fair value. Any difference between the net proceeds and the fair value of the retained interest and the carrying amount is recognized in the income statement and gains and losses previously recorded directly through OCI are reversed and recorded through the income statement.
Significant judgements in determining control, joint control and significant influence over an entity
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New accounting principles, changes in the accounting rules and in the financial statements
Following the endorsement of the European Union, as from the 1st January 2016 new principles and amendments shall be applied. The most relevant changes for the Group with respect to the consolidated financial statements at 31 December 2015 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.
There are no new accounting standards or changes to existing standards effective from 1 January 2016 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 particular, the classification of financial instruments is driven by the business model through which the company manages its investments and the contractual terms of their cash flows.
A financial asset is measured at amortized cost if both of the following conditions are met: • the asset is held to collect cash flows (business model assessment) • the contractual cash flows represent only payments of principal and interest (solely payments of principal and interest – SPPI)
In other cases, the financial instruments are classified and measured at fair value through profit or loss, which is the residual model.
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, the 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 carrying amount (ie 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. For these assets, lifetime ECL are recognised in a capital reserve (loss allowance), and in the profit or loss account , but interest revenue is still calculated on the gross carrying amount of the asset. (ie without deduction of the loss allowance); • Stage 3 includes financial assets that have objective evidence of impairment at the reporting date. For these assets, lifetime ECL are recognised in a capital reserve (loss allowance), and in the profit or loss account. Interest revenue is calculated on the net carrying amount (that is, net of credit allowance)
The Group is assessing the impact of the new impairment model introduced by the standard and expects significant operational impacts related to the implementation of the calculation process of the abovementioned expected credit losses. In light of the high creditworthiness of the debt securities, the new model Expected Credit Losses should not result in significant impacts for the Group.
The application of IFRS 9 beginning from 1 January 2018 would have the following critical issues: • additional volatility to profit or loss arising from the application of SPPI test; • higher costs caused by a first implementation of
IFRS 9 without appropriate international accounting standard fort insurance liabilities and a following revision of the implementation of the standard when IFRS 17 will be applied; • two significant amendments for the users of financial statements in a short period of time.
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Revenue is recognized “point-in-time”, as the control of the asset is passed, or “over time”, during the period. The revenues are recognized “over time” if one of the following criteria is met: 1) the customer simultaneously receives and consumes all of the benefits provided by the entity as the entity performs; 2) the entity’s performance creates or enhances an asset that the customer controls as the asset is created; 3) the entity’s performance does not create an asset with an alternative use to the entity and the entity has an enforceable right to payment for performance completed to date.
Insurance contracts are excluded from the scope of the standard; as a result the potential impacts for insurance companies are connected to contracts that include non-insurance services and asset management fees. The expected impacts are not significant for the Group.
152 Generali Group Annual Integrated Report and Consolidated Financial Statements 2016
On 13 January 2016 the IASB published IFRS 16 “Leases ”. The new standard introduces new requirements for the recognition, presentation and disclosure of leases in the financial statements
In particular the distinction between operating and finance leases is eliminated concerning the lessee accounting: all leases require the recognition of a right -of – use asset along the lease term, and a lease liability, which represents the obligation to pay the lease payments.
IFRS 11 Amendments regarding the accounting for acquisition of an interest in a joint operation 1 January 2016 May 2014
IAS 16 and IAS 38 Amendments regarding the clarification of acceptable methods of depreciation and amortization 1 January 2016 May 2014
IFRS 10 Amendments regarding the sale and the contribution of assets between an investor and its associate or joint venture to be defined September 2014
IAS 1 Amendments resulting from the disclosure initiative 1 January 2016 December 2014 1 The Regulation (EU) 2015/29 postponed the effective date for the EU countries to annual periods beginning on or after 1 February 2015.
2 The Regulation (EU) 2015/28 postponed the effective date for the EU countries to annual period beginning on or after 1 February 2015..
Goodwill is the sum of future benefits not separately identifiable in a business combination. At the date of acquisition, the goodwill is equal to the excess between the sum of the consideration transferred, including contingent consideration, liabilities assumed towards the previous owners the fair value of non-controlling interests as well as, in a business combination achieved in stages, the fair value of the acquirer’s previously held equity interest in the acquiree and the fair value (present value) of net amount of the separately identifiable assets and liabilities acquired.
In accordance with IAS 16, this item includes land and buildings used for own activities.
Land and buildings (self-used) are measured applying the cost model set out by IAS 16.
The cost of the self-used property comprises purchase price and any directly attributable expenditure. The depreciation is systematically calculated applying specific economic/technical rates which are determined locally in accordance with the residual value over the useful economic life of each individual component of the property.
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The item comprises amounts ceded to reinsurers from insurance provisions that fall under IFRS 4 scope. They are accounted for in accordance with the accounting principles applied to direct insurance contracts.
The financial investments are initially recognized at fair value plus, in the case of instruments not measured at fair value through profit or loss, the directly attributable transactions costs.
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 detail, the Generali Group includes in this category some unquoted bonds, mortgage loans, policy loans, term deposits with credit institutions, deposits under reinsurance business accepted, repurchase agreements, receivables from banks or customers accounted for by companies of the financial segment, and the mandatory deposit reserve with the central bank. The Group’s trade receivables are instead classified as other receivables in the balance sheet.
Interests on debt financial instruments classified as available for sale are measured using the effective interest rate with impact on profit or loss. Dividends related to equities classified in this category are reported in profit or loss when the shareholder’s right to receive payment is established, which usually coincides with the shareholders ’ resolution.
The Group evaluates whether the ability and intention to sell its Available for sale financial assets in the near term is still appropriate. When, in rare circumstances, the Group is unable to trade these financial assets due to inactive markets and management’s intention to do so significantly changes in the foreseeable future, the Group 157 We, Generali Our performace OutlookRisk Report Appendices to the Management Report
For a financial asset reclassified from the available-for sale category, the fair value carrying amount at the date of reclassification becomes its new amortised cost and any previous gain or loss on the asset that has been recognised in equity is amortised to profit or loss over the remaining life of the investment using the EIR. Any difference between the new amortised cost and the maturity amount is also amortised over the remaining life of the asset using the EIR. If the asset is subsequently determined to be impaired, then the amount recorded in equity is reclassified to the income statement.
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 pass-through 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.
This item includes receivables arising out of direct insurance and reinsurance operations, and other receivables.
This item comprises non-current assets or disposal groups classified as held for sale under IFRS 5.
Non-current assets and disposal groups are classified as held for sale if their carrying amounts will be recovered principally through a sale transaction rather than through continuing use. The criteria for held for sale classification is regarded as met only when the sale is highly probable and the asset or disposal group is available for immediate sale in its present condition.
• x\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.
The item comprises retained earnings or losses adjusted for the effect of changes arising from the first-time application of IAS/IFRS, reserves for share-based payments, equalisation and catastrophe provisions not recognised as insurance provisions according to IFRS 4, legal reserves envisaged by the Italian Civil Code and special laws before the adoption of IAS, as well as reserves from the consolidation process.
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It also includes the reserve for unrealized gains and losses on available for sale investments and any other gains or losses recognized directly in equity attributable to minority interests
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, longterm 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.
162 Generali Group Annual Integrated Report and Consolidated Financial Statements 2016
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
Life insurance provisions are related to insurance contracts and investment contracts with discretionary participation features. These provisions are accounted for based on local GAAP, in compliance with IFRS 4.
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.
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.
163 We, Generali Our performace OutlookRisk Report Appendices to the Management Report
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.
The non-life insurance provisions meets the requirements of the liability adequacy test according to IFRS 4.
Amounts ceded to reinsurers from insurance provisions are determined in accordance with the criteria applied for the direct insurance and accepted reinsurance.
The item includes financial liabilities within the scope of IAS 39 that are not classified as at fair value through profit or loss and are instead measured at amortised cost.
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.
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 non-current assets and disposal groups classified as held for sale, as 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
This item includes provisions for defined benefit plans, such as termination benefit liabilities and other long-term employee benefits (the Italian provision for “trattamento di fine rapporto” is excluded and classified as other payables ). In compliance with IAS 19, these provisions are measured according to the project unit credit method. This method implies that the defined benefit liability is influenced by many variables, such as mortality, employee turnover, salary trends, expected inflation, expected rate of return on investments, etc. The liability recognised in the balance sheet represents the net present value of 165 We, Generali Our performace OutlookRisk Report Appendices to the Management Report
DPF, which are classified as financial liabilities at fair value through profit or loss, according to IAS 39.
The item includes: revenue arising from sale of goods and rendering of services other than financial services; other insurance income; gains on foreign currency accounted for under IAS 21; realized gains and reversals of impairment on tangible assets and other assets; and any gains recognised on the re-measurement of non-current assets or disposal groups classified as held for sale.
The item includes the amounts paid in respect of claims occurring during the period, maturities and surrenders, as well as the amounts of changes in insurance provisions that fall under IFRS 4 scope, net of recoveries and reinsurance. It also comprises changes in the provision for deferred policyholders liabilities with impact on the profit and loss account.
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
The item includes: other insurance expenses; allocation to provisions; losses on foreign currency accounted for under IAS 21; realized losses, impairment and depreciation of tangible assets not elsewhere allocated; and amortization of intangible assets. It also comprises any loss on the re-measurement of non-current assets or disposal groups classified as held for sale, other than discontinued operations.
Borrowing costs directly attributable to the acquisition, construction or production of an asset that necessarily take a substantial period of time to get ready for its intended use or sale are capitalised as part of the cost of the asset. All other borrowing costs are expensed in the period in which they occur. Borrowing costs consist of interest and other costs that an entity incurs in connection with the borrowing of funds
The item includes income taxes for the period and for previous years, deferred taxes and tax losses carried back.
The statement comprises items of income and expenses different from those included in profit or loss, recognised directly in equity other than those changes resulting from transactions with shareholders. In accordance with the ISVAP (now IVASS) Regulation n.7/2007 as subsequently amended, items of income and expenses are net of taxes as well as net of gains and losses on available for sale assets attributable to the policyholders according to the deferred policyholders liabilities calculation.
The transactions with owners and the result of comprehensive income are presented in the statement of changes in equity
This section comprises the effects capita transaction of the subsidiaries, that do not result in the loss of control
This section comprises the equity components and gains or losses directly recognized in equity at the end of the reporting period.
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
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However when determining fair value, the valuation should reflect its use if in combination with other assets.
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).
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Valuation techniques are used when a quoted price is not available or shall be appropriate in the circumstances and for which sufficient data are available to measure fair value, maximising the use of relevant observable inputs and minimising the use of unobservable inputs.
• income approach: converts future amounts to a single current (i.e. discounted) amount.
In the opposite case, the fair value is determined using the market and income approach. Primary inputs to the market approach are quoted prices for identical or comparable assets in active markets where the comparability between security and benchmark defines the fair value level. The income approach in most cases means a discounted cash flow method where either the cash flow or the discount curve is adjusted to reflect credit risk and liquidity risk, using interest rates and yield curves commonly observable at frequent intervals. Depending on the observability of these parameters, the security is classified in level 2 or level 3.
In the opposite case, the fair value of 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 equiparable to the market price.
The fair value is determined primarily on the basis of the income approach using discounting techniques.
In relation to the issue of some subordinated liabilities, the Group hedged the interest expense rates and GBP/ EUR exchange rate, recognised as cash flow hedges and accounted for as hedging instruments.
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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.
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: • insurance provisions for the life and non-life segment; 173 We, Generali Our performace OutlookRisk Report Appendices to the Management Report
The pricing model is based on a binomial simulation that takes into account the possibility of early exercise of the options. If present, the pricing model estimates separately the option value and the probability that the market conditions are satisfied. Therefore, the abovementioned values determine the fair value of equity instruments granted.
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.
When an equity-settled award is cancelled, it is treated as if it vested on the date of cancellation, and any expense not yet recognised for the award is recognized 174 Generali Group Annual Integrated Report and Consolidated Financial Statements 2016
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.
• 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
In detail, this approach presents the following main changes: both investments and dividends received by non-life and holding and other businesses companies and paid by companies of other segments, and realized gains and losses on intra-segment transactions are eliminated within the non-life and holding and other businesses segments; both investments and dividends received by life holding and paid by companies of other segments, and realized gains and losses on intra-segment transactions are eliminated within the life segment.
Generali Group is divided into seven markets, in line with the strategy to simplify the Group and its governance. The new setup aims to optimise the Group’s international operations and will enable greater coordination between local businesses and the Head office. The new structure is composed of the business units o the three core markets – Italy, France and Germany – and four regional units: CEE (Central and Eastern European countries members of the EU), EMEA (Austria, Belgium, Greece, Guernsey, Ireland, Netherlands, Portugal, Spain, Switzerland, Tunisia, Turkey and Dubai), Asia, and Americas (Argentina, Brazil, Colombia, Ecuador, Guatemala and Panama). The reporting by geographical area presented in this report has been adapted to the new territorial structure of the Group.
For more information on performance indicators used refer to Management report.
31/12/2016 31/12/2015 31/12/2016 31/12/2015 31/12/2016 31/12/2015 179 We, Generali Our performace OutlookRisk Report Appendices to the Management Report
31/12/2016 31/12/2015 31/12/2016 31/12/2015 1.2 Fee and commission income and income from financial service activities 0 0 217 263 1.3 Net income from financial instruments at fair value through profit or loss -29 40 1,830 1,903 1.4 Income from subsidiaries, associated companies and joint ventures 81 47 214 180 1.5 Income from other financial instruments and land and buildings (investment properties) 1,699 2,063 12,792 13,720 2.1 Net insurance benefits and claims -12,836 -13,081 -51,127 -56,010 2.1.1 Claims paid and change in insurance provisions -13,211 -13,604 -51,704 -56,600 2.2 Fee and commission expenses and expenses from financial service activities 0 0 -85 -105 2.3 Expenses from subsidiaries, associated companies and joint ventures -9 -12 -13 -3 2.4 Expenses from other financial instruments and land and buildings (investment properties) -672 -620 -1,838 -1,577 180 Generali Group Annual Integrated Report and Consolidated Financial Statements 2016
31/12/2016 31/12/2015 31/12/2016 31/12/2015 31/12/2016 31/12/2015 181 We, Generali Our performace OutlookRisk Report Appendices to the Management Report
In relation to the Group’s interests in subsidiaries, no significant restrictions exist on the Group’s ability to access or use its assets and settle its liabilities. For further details regarding restrictions on Group assets, please refer to paragraph 47 Contingent liabilities, commitments, guarantees, pledged assets and collaterals in Additional information section.
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).
In relation to the Group’s interests in associates, no significant contractual, legal or regulatory restrictions exist on the Group’s ability to access or use its assets and settle its liabilities. With respect to contingent liabilities, please refer to paragraph 47 Contingent liabilities, commitments, guarantees, pledged assets and collaterals in Additional information section
Nature of the relationship with the Group DVAG is the leading sales network for financial services in Germany and has an exclusive distribution partnership with a company held by Generali Deutschland
The summarised financial information relating to the most significant associates in which the Group has an interest including the reconciliation with the related carrying amounts (including goodwill, where present) are provided here below
Generali pays a different premium every year depending on the subscribed tranche - being 4% on Class A, 6,25% on Class B and 12% on Class C – on the amount of cover provided corresponding to each tranche amounting to € 85 million. The related cost is presented within “The Earned premiums cede” line in the statement of Profit or loss.
Accumulated depreciation and impairment as at the end of the period 0 0
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The slight increase of the period was substantially attributable to the positive trend in the exchange rates which characterised 2016.
Cash generating units were established in accordance with the Group’s participation structure and considering the IFRS 8 requirements relating to operating segments, which Assicurazioni Generali identified as Life and NonLife. This change has been made in order to better align the perimeter of analysis to the one that is currently used by management for the insurance business and for monitoring the performance.
The Dividend Discount Model (DDM) was used for the determination of the recovery value for the following cash generating unit (CGU): Generali Italia, Alleanza Assicurazioni, Generali Deutschland Holding, Generali CEE Holding Group, Generali Schweiz Holding AG, Europ Assistance, Generali Holding Vienna and Generali France.
The application of this criterion entailed in general the following phases: • explicit forecast of the future cash flows to be distributed to the shareholders in the planned time frame, taking into account the limit due to the necessity of maintaining an adequate capital level; • calculation of the cash generating unit’s terminal value, that was the foreseen value of the cash generating unit at the end of the latest year planned.
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The cost of equity (Ke) for each entity is extrapolated based on the Capital Asset Pricing Model (CAPM) formula.
All CGUs passed the impairment test, being their recoverable amounts higher than their carrying amounts. Furthermore a sensitivity analysis was performed on the results changing the cost of own capital of the company (Ke) (+/-1%) and the perpetual growth rate of distributable future cash flows (g) (+/-1%) and for Non-life segment also for the main non-financial assumptions.
Please note that the assets held in Liechtenstein amount to € 670 million, of which approximately € 620 million of investments, mainly unit-linked, while liabilities amount to € 620 million, composed almost entirely from insurance provisions.
With regard to transactions with related parties, the main intra-group activities, conducted at market prices or at cost, were undertaken through relations of insurance, reinsurance and co-insurance, administration and management of securities and real estate assets, leasing, loans and guarantees, IT and administrative services, personnel secondment and claims settlement.
For further information regarding related parties transactions - and in particular regarding the procedures adopted by the Group to ensure that these transactions are performed in accordance with the principles of transparency and substantive and procedural correctness - please refer to the paragraph ‘Related Party Transaction Procedures’ included in section ‘Internal control and risk management system’ of the ‘Corporate governance and share ownership report’.
The subtotal other related parties includes the transactions with Mediobanca Group regarding investment bonds for € 553 million, and financial liabilities amounting to € 114 million.
With reference to the paragraph 18 of Related Party Transactions Procedures adopted by the Board of Directors in November 2010, excluding the aforementioned operation with PPF Group, there were no (i) Operations of major importance concluded during the reporting period (ii) Related Party Transactions, concluded during the reference period, which influenced the Group’s financial statements or profit to a significant extent.
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Given their short term investments nature, the reverse repurchase agreements are reclassified within ‘cash and similar instruments’. For the same reason repurchase agreements are reclassified in the same item, as well. Derivatives instruments are presented net of derivatives held as financial liabilities, Hedging derivatives are excluded, as they are presented within hedged item asset classes.
Investments fund units (IFU) are allocated to respective asset classes based on prevailing underling assets. IFU are therefore allocated within the items equity instruments, fixed income instruments, real estate instruments, other investments and cash and similar instruments.
Financial assets at fair value through profit or loss 1,758 0.4% 2,884 0.8%
Financial assets at fair value through profit or loss 9,520 2.4% 8,970 2.4%
Investments in subsidiaries, associated companies and joint ventures 1,194 0.3% 1,369 0.4%
Total investments 474,069 452,662 191 We, Generali Our performace OutlookRisk Report Appendices to the Management Report
The fair value of the held to maturity investments amounted to € 2,272 million, entirely represented by quoted bonds.
This category accounted for 66.9% of the total investments. The increase compared 31 December 2015 was attributable to net acquisition in the period, particularly of debt securities.
As already mentioned, available for sale financial assets are measured at fair value and unrealized gains and losses on these assets are accounted for in shareholders’ equity in an appropriate reserve. The amortized cost of the available for sale financial assets amounted to € 281,043 million.
The table below shows unrealized gains and losses and gains and losses recognized in profit or loss in the reporting period of available for sale financial assets: Available for sale financial assets - unrealised gains and losses 31/12/2016
Total financial assets at fair value through profit or loss 31/12/2016 31/12/2015 31/12/2016 31/12/2015 31/12/2016 31/12/2015
Investments back to policies where the investment risk is borne by the policyholders and back to pension funds 0 0 78,317 74,966 78,317 74,966
This category accounted for 20.3% of total investments. In detail, these investments were mainly allocated in the life segment (€ 93,562 million, which accounted for 98.4% of this category) whereas the residual part referred to the non-life segment (€ 1,385 million which accounted for 1.4% of this category) and in the financial segment (€ 167 million, which accounted for 0.2% of this category ).
(*) (*) Insurance provisions are net of amounts ceded to reinsurers from insurance provisions.
Accumulated depreciation and impairment as at 31 December previous year -2,254 -2,247
Carrying amount as at the end of the period 12,584 12,112
Gross book value as at the end of the period 15,074 14,366
Cash at bank and short-term securities 6,279 8,792 196 Generali Group Annual Integrated Report and Consolidated Financial Statements 2016
In terms of exposure to different rating classes, the Class AAA credit rating includes German and US titles and some supranational issuances. Class AA includes French, Belgian and Austrian government bonds while the class BBB mainly includes Italian and Spanish bonds.
The investments in corporate bonds totalled € 143,063 million at the end of the period. The portfolio was composed for 49.1% by non-financial corporate bonds, for 32.0% by financial corporate bonds and for 18.9% by covered bonds.
199 We, Generali Our performace OutlookRisk Report Appendices to the Management Report
200 Generali Group Annual Integrated Report and Consolidated Financial Statements 2016
Group’s exposures to direct real estate investments, detailed by country of location, is reported at fair values in the following table: Direct real estate investments: breakdown by country of location
Furthermore, the reclassification into loans category of investments previously classified as financial assets at fair value through profit or loss implied a missing recognition of an unrealized gain in the profit or loss for € 0.6 million, which, net of policyholders share and deferred taxes results immaterial.
At 31 December 2016, the Group has retained substantially all risks and rewards arising from the ownership of the transferred assets and there are no transfers of financial assets which have been completely or partially derecognised on which the Group continues to control. In particular, the Group continues to recognise approximately € 8,997 million of financial assets linked to various contracts and which are still recognised. In particular, approximately € 4,332 are subject to securities lending transactions mainly in France, approximately € 1,249 million are subject to repurchase agreements, while approximately € 3,417 million are assets pledged as collateral (please refer to the paragraph Contingent liabilities, commitments, guarantees, pledged assets and collaterals in section Additional Information).
(€ million) Notional exposure by maturity Total notional Positive fair value
203 We, Generali Our performace OutlookRisk Report Appendices to the Management Report
(€ million) Direct insurance Accepted reinsurance Total 31/12/2016 31/12/2015 31/12/2016 31/12/2015 31/12/2016 31/12/2015 of which provisions for liability adequacy test 0 12 0 0 0 12
Provisions for policies where the investment risk is borne by the policyholders and provisions for pension funds 60,790 57,783 9 11 60,799 57,793 of which provisions for liability adequacy test 1,289 1,036 0 0 1,289 1,036 of which deferred policyholder liabilities 23,882 22,642 0 0 23,882 22,642 refunds, which amounts to € 6,799 million (€ 6,725 million in 2015) and the ageing provisions for life segment, which amount to € 12,960 million (€ 12,242 million in 2015).
In the Life segment insurance provisions increase by 4.5%, mainly attributable to the development of net inflow and the financial revaluation of technical reserves.
The overall total of the other life insurance provisions included both the provision for profit sharing and premium 204 Generali Group Annual Integrated Report and Consolidated Financial Statements 2016
"Provisions for policies where the investment risk is borne by the policyholders and provisions for pension funds" 4 156 138 0 142 156
(€ million) Segment Life Segment Non Life Total 31/12/2016 31/12/2015 31/12/2016 31/12/2015 31/12/2016 31/12/2015
Carrying amount as at 31 December previous year 1,722 1,674 278 283 2,000 1,958
The deferred acquisition costs amounted to € 2,083 million, substantially stable compared to the previous year.
Transfer to Non-current assets or disposal group classified as held for sale -102 0
Carrying amount as at the ed of the period 287,034 275,338
Total insurance provisions include the mathematical provisions and provisions for policies where the investment risk is borne by policyholders and for pension funds net of reinsurance (which amounted to € 274,357 million and € 60,657 million respectively), and net ageing provisions for life segment, which amounted to € 12,943 million (accounted for in other insurance provisions of the life segment ). In the Life portfolio the policies with significant insurance risk amounted to 57.6% (58.5% at 31 December 206 Generali Group Annual Integrated Report and Consolidated Financial Statements 2016
The development of provisions for policies where the investment risk is borne by policyholders and for pension funds highlights the positive trend of net inflow, and the development in the value of assets backing unit/index linked policies, due to financial market movements.
207 We, Generali Our performace OutlookRisk Report Appendices to the Management Report
Carrying amount as at the beginning of the period 22,642 25,300
With reference to the gross direct claims provisions 45.6% was referred to the motor business in line with the prior year (45.3%). In the non-motor business, the personal and commercial lines weighted 80.8%.
The amount refer to direct business gross of reinsurance and recoveries.
The observed trend in the ultimate cost for generations 2007-2016 indicates the adequate level of prudence adopted by the Generali Group in its reserving policy.
209 We, Generali Our performace OutlookRisk Report Appendices to the Management Report
Cumulative claim payments at the end of accident year 5,118 5,409 5,677 5,646 5,181 5,320 5,323 5,083 5,270 5,427 seven years later 11,204 11,711 12,049 eight years later 11,304 11,807 nine years later 11,376
Estimate of ultimate cumulative claims costs: at the end of accident year 11,765 12,719 13,236 13,104 12,416 12,810 12,467 11,909 12,130 12,296 124,852 seven years later 11,965 12,424 12,777 eight years later 11,925 12,407 nine years later 11,913
Estimate of ultimate cumulative claims costs at reporting date 11,913 12,407 12,777 12,565 11,823 11,931 11,745 11,531 11,939 12,296 120,927
Provision recognised in the balance sheet 538 600 728 967 1,177 1,384 1,721 2,424 3,523 6,869 19,931
The change in the “No Rating” component is due to stricter rules set forth by Solvency II regulation which does not allow to fully recognise any forms of guarantee such as cut through clause, parental guarantee or other collaterals, which, in the past, enabled to recognise strong solvency position of counterparties even in the absence of their rating.
Embedded Value (EV) is an actuarially determined estimate of the Group value, net of any value attributable to future new business.
decrease of maintenance expenses; • lapse rate -10%: sensitivity to a 10% decrease of lapse rates; • mortality/morbidity for risk business -5%: sensitivity to a 5% decrease of mortality/morbidity for all product lines except annuities (e.g. term assurance, whole life, annuity during the accumulation period); • mortality for annuity business -5%: sensitivity to a 5% decrease of mortality for annuity business only (e.g. annuities in payment).
212 Generali Group Annual Integrated Report and Consolidated Financial Statements 2016
The share capital is made up of 1,559,883,538 ordinary shares with a par value of € 1 each.
The Group’s own shares decreased to € −7 million, amounting to 310,273 shares (€ −6 million, 310,273 shares as at 31 December 2015).
The reserve for currency translation differences arising from the translation of the subsidiaries’ financial statements denominated in foreign currencies amounted to € 42 million (€ 74 million as at 31 December 2015). The negative variation was attributable to the appreciation of the euro against most major currencies
The reserve for unrealized gains and losses on available for sale financial assets, i.e. the balance between unrealized gains and losses on financial assets, net of life deferred policyholder liabilities and deferred taxes, amounted to € 6,319 million (€ 6,067 million at 31 De-
Shareholders’ equity and share 213 We, Generali Our performace OutlookRisk Report Appendices to the Management Report
Net unrealized gains and losses on cash flows hedging derivatives 26 41
Net unrealized gains and losses on hedge of a net investment in foreign operations -9 -49
Items that may not be reclassified to profit and loss in future periods 0 0
Total comprehensive income 2,170 2,214 attributable to the Group 2,092 1,912 attributable to minority interests 78 302 214 Generali Group Annual Integrated Report and Consolidated Financial Statements 2016
Result of the period (€ million) 2,081 2,030 - from continuing operations 2,081 2,066 - from discontinued operations 0 -35
Diluted earnings per share (in €) 1.32 1.32 - from continuing operation 1.32 1.34 - from discontinued operations 0.00 -0.02
Actuarial gains or losses arising from defined benefit plans 99 -67
Parent Company amounts in conformity with the Italian accounting principles 13,574 1,096 13,768 931
Result of the period of entities included in the consolidation area 7,180 5,855
Reserve for unrealized gains and losses on available for sale financial assets 6,218 5,982
Financial liabilities related to investment contracts issued by insurance companies 0 0 17,491 16,921 17,491 16,921 where the investment risk is borne by the policyholders 0 0 16,220 15,673 16,220 15,673 other financial liabilities related to investment contracts 0 0 87 127 87 127
Other financial liabilities at FV 0 0 33 28 33 28 18 Other financial liabilities
The increase of total of ‘Other financial liabilities’ was attributable to liabilities to banks and customers in the context of the banking activity of the Group.
The following main subordinated issuances are included as part of the subordinated liabilities category: Main subordinated issues
Unquoted subordinated liabilities issued by Assicurazioni Generali S.p.A. and other subsidiaries are also classified in this category. The unquoted private placements issued by Assicurazioni Generali S.p.A. increase up to a nominal amount of € 1,000 million are accounted for at a corresponding amortized cost of € 999 million. The remaining subordinated liabilities are mainly issued by Austrian subsidiaries for approximately € 29 million.
On 16 june 2016 two subordinated notes has been reimbursed by the subsidiary Generali Finance for a total amount of € 1,167 million (carrying amount)
In June 2016 subordinated bond was issued in June 2016 for a total amount of € 850 million the proceeds from which were used to refinance a subordinated bond issued by the Group with a call date in February 2017.
The fair value of subordinated liabilities amounts to € 9,831 million.
218 Generali Group Annual Integrated Report and Consolidated Financial Statements 2016
The fair value of bonds issued amounted to € 3,892 million.
219 We, Generali Our performace OutlookRisk Report Appendices to the Management Report
Value of in-force business arising from insurance business combination 835 968
Accumulated depreciation and impairment as at 31 December previous year -3,459 -3,230
Carrying amount as at the end of the period 2,202 1,985
Accumulated depreciation and impairment as at the end of the period 3,794 3,459
Other intangible assets, which According to the IFRS 3 included the value of the insurance portfolio (or “The value in force”) acquired in business combinations, amounted to € 835 million. This amount was attributable to: • the acquisitions which took place in 2006 of portfolios of Toro Group (€ 103 million net of accumulated amortisation) and in Central-Eastern Europe (€ 15 million net of accumulated amortization); • the acquisition of the Ceška group, which brought a further activation of € 717 million, net of accumulated amortisation.
Accumulated depreciation and impairment as at 31 December previous year -1,020 -988
Accumulated depreciation and impairment as at the end of the period 1,140 1,020
Gross book value as at the end of the period 3,951 3,864
The fair value of land and buildings (self-used) at the end of the reporting period was mainly based on external appraisals.
221 We, Generali Our performace OutlookRisk Report Appendices to the Management Report
Gross book value as at the end of the period 2,935 2,904
222 Generali Group Annual Integrated Report and Consolidated Financial Statements 2016
The amounts recognized in the financial statements are based on valuation models for determining the best estimate of their value. In particular, in the assessment all the peculiarities of the specific provisions are taken into account, including the effective period of incurrence of the contingent liabilities and consequently the expected cash flows on the different estimates and assumptions.
Carrying amount as at the end of the period 1,804 1,807
BTG’s claims, strongly challenged by Generali, are related to alleged damages deriving – according to the counterparty - from the breach of the seller’s representations and warranties contained in the Share and Purchase Agreement of BSI S.A. At this stage, due to the complexity of the litigation, it is not possible to reliably estimate the outcome of such arbitration.
Liabilities directly associated to non-current assets and disposal groups classified as held for sale 702 0
Other liabilities include liabilities related to defined employee benefit plans amounting to € 4,194 million (€ 3,828 million as of 31 December 2015).
224 Generali Group Annual Integrated Report and Consolidated Financial Statements 2016
(€ million) Gross amount Reinsurers' share Net amount 31/12/2016 31/12/2015 31/12/2016 31/12/2015 31/12/2016 31/12/2015
Change in the provision for unearned premiums -16 77 -51 -21 -67 56 27 Fee and commissions income and income from financial service activities
(€ -29 million) and for the holding and other businesses segment (€ 20 million).
Reversal of impairment 14 0 30 Income from other financial instruments and land and buildings (investment properties)
Non-life net insurance benefits and claims 13,211 13,604 -376 -524 12,836 13,081
Change in the provisions for outstanding claims -53 240 190 112 138 352
Change in other insurance provisions 26 42 0 7 26 48
Change in the mathematical provisions 11,729 12,552 3 29 11,732 12,581
Expenses from other finncial instruments and land and buildings (investment properties)
(€ million) Non-life segment Life segment Holding and other businesses 31/12/2016 31/12/2015 31/12/2016 31/12/2015 31/12/2016 31/12/2015
Net acquisition costs and other commissions 4,246 4,229 3,810 3,950 0 0
Within “other administrative costs” of the Life segment, the investment management expenses amounted to € 73 million (€ 76 million at 31 December 2015), the non-insurance management expenses amounted to € 7 million and are mainly refer to real estate activities.
Expenses from service and assistance activities and charges incurred on behalf of third parties 372 440
All other foreign subsidiaries apply their national tax rates, including: Austria (25%), Belgium (34%), Bulgaria (10%), China (25%), Czech Republic (19%), Netherlands (25%), Romania (16%), Spain (25%), Switzerland (22%) and United States (35%).
230 Generali Group Annual Integrated Report and Consolidated Financial Statements 2016
Assessments show that deferred tax assets will be recovered in the future through either (i) expected taxable income of each consolidated company or (ii) expected taxable income of other companies included in the same tax group (e.g. “Consolidato fiscale” in Italy, “Steuerliche Organschaft” in Germany and “Régime d’intégration fiscale ” in France).
Deferred taxes as of 31 December 2016 and 2015 are related to the following assets and liabilities.
If the fair value cannot be measured reliably, amortized cost is used as the best estimate in determining the fair value.
The table below illustrates both the carrying amount and the fair value of financial assets and liabilities recognised in the balance sheet at 31 December 20164.
Fair value Measurement 4 With reference to investments in subsidiaries, associates and joint ventures, the book value, based on the fraction of equity for associates and interests in joint ventures or on cost adjusted for any impairment losses for non-consolidated subsidiaries, was used as a reasonable proxy of their fair value.
233 We, Generali Our performace OutlookRisk Report Appendices to the Management Report
Financial assets at fair value through profit or loss 16,797 16,797
Financial assets at fair value through profit or loss 79,707 13,599 1,807 95,114
Investments back to policies where the risk is borne by the policyholders 67,508 9,528 1,280 78,317
Investments back to policies where the risk is borne by the policyholders 63,149 10,370 1,447 74,966
Financial liabilities related to investments contracts issued by insurance companies 15,684 1,090 147 16,921
• from level 2 to level 1 € 120 million and from level 1 to level 2 € 295 million of investment fund units and other investments classified as available for sale, mainly due to changed availability of quoted prices and changed liquidity of mentioned assets.
The transfers were as follows: • from level 2 to level 1 € 2,235 and from level 1 to level 2 € 1,683 million of corporate and government bonds, mainly due to changed availability of marker observable inputs; 236 Generali Group Annual Integrated Report and Consolidated Financial Statements 2016
It includes unquoted IFU funds, private equity and hedge funds, which are classified into available for sale and fair value through profit or loss. Their fair value is substantially provided by the fund administrators on the basis of the net asset value of the fund.
Being the asses described, by their nature, on a straightline basis sensitive to changes in the value of the underlying assets, the Group considers that, for a given change in the fair value of the underlying of such assets, their value undergoes a similar variation.
For more details on the nature of Group funds please refer to the section Investments in the Notes
In should also be mentioned that, in addition to physiological movements in “Net transfers in (out of) Level 3”, the Group has transferred €510 million of corporate securities from Level 1 to Level 3, because it is considered that market prices are not representative of their fair value.
Available for sale assets 6,146 1,225 190 -579 - Other available for sale financial assets 2,343 941 -204 -169
Financial assets at fair value through profit or loss 2,067 288 -67 -148
Financial liabilities at fair value through profit or loss 173 8 -107 0 - Financial liabilities related to investment contracts issued by insurance companies 147 8 -107 0
Fair Value Hierarchy of assets and liabilities not measured at fair value 31/12/2015 Level 1 Level 2 Level 3 Total
Liabilities to banks and customers 0 3,880 5,327 9,206 240 Generali Group Annual Integrated Report and Consolidated Financial Statements 2016
In particular, the valuation takes into consideration not only the discounted net future income but also the peculiarities of the properties such as intended use and location as well as the entity of the vacancy rate.
The carrying amount, based on the share of equity for associates and interests in joint ventures or on cost adjusted for eventual impairment losses for non-consolidated subsidiaries, is used as a reasonable estimate of the related fair value and, therefore, these investments are classified in level 3.
• Subordinated debts, loans and bonds and liabilities to banks and customers
The fair value is determined primarily on the basis of the income approach using discounting techniques. In particular, the fair value of debt instruments issued by the Group are valued using discounted cash flow models based on the current marginal rates of the Group financing for similar types of instruments, with maturities consistent with the residual maturity of the debt instruments subject to valuation.
241 We, Generali Our performace OutlookRisk Report Appendices to the Management Report
The number of employees decreased due to disposal of the Argentinian and Philippines companies and due to restructuring in some countries where the Group operates.
In Germany and Austria, where is allocated approximately 83% of the present net value of defined benefit obligations, the pension guarantee associations, for yearly con242 Generali Group Annual Integrated Report and Consolidated Financial Statements 2016
The table below shows the movements in the defined benefit obligation during the financial year and the current value of the plan assets: 243 We, Generali Our performace OutlookRisk Report Appendices to the Management Report
Defined benefit obligation as at 31 December current year 5,313 4,928
The assumptions used in the actuarial calculation of the defined benefit obligations and the related periodic pension cost are based on the best estimates of each companies granting defined benefit plans. The main weighted-average hypotheses considered for the value definition of defined benefits plans obligations are summarized in the following table, for the main operating areas: 244 Generali Group Annual Integrated Report and Consolidated Financial Statements 2016
Discount rate for evaluation at reporting date 1.7 2.4 0.6 0.7
The average duration of the obligation for defined benefit plans is 14 years at 31 December 2016 (14 years at 31 December 2015).
of free shares for each share purchased. Please note that the cost component linked to monetary bonuses of the first cycle is fully accrued in the previous years while the cost component linked to the equity component will come to full maturity at the end of next year.
The plan LTI 2013 has fully accrued its relevant cost component in the first half of the year, coming to a close with the equity instruments assignment upon verification of the Group’s performance levels in terms of ROE and relative TSR, as well as threshold levels required in terms of Solvency I ratio.
The LTI plans 2014 and 2015, currently in progress, may result in shares’ granting respectively in 2017 and 2018, subject to the Group performance level (determined by the comparison of ranges of ROE and relative TSR) and the overcoming of the minimum level, where requested in terms of Return on Risk Capital and Solvency ratio (the latter referring to the Solvency I ratio, or to the Economic Solvency Ratio, in line with the regulations in force in the year of performance assessed).
Further details are given in the information reports approved at the time by the Shareholders’ Meeting and published on the Generali Group website, as well as in the Remuneration Report annually published.
With a structure similar to the last year, a new long-term incentive plan based on Assicurazioni Generali shares – Group Long Term Incentive (LTI) 2016 - has been submitted for the approval of the Shareholders’ Meeting.
The maximum number of shares that can potentially be assigned to participants at the end of the three years is divided up into three tranches; the first tranche is for 30% of the maximum number of shares to be possibly assigned, the second is for a further 30% and the remaining 40% represents the third tranche, each tranche being subject to certain specific targets as described below.
Once the level of the Economic Solvency ratio has been reached, the achievement of the Group’s financial targets, represented by the ROE and the relative TSR, compared with the peers part of the STOXX Euro Insurance index, is verified on a yearly and overall three-year cycle basis.
The performance level, expressed as a percentage, is determined by a calculation methodology, based on two independent baskets respectively for the achievement of the ROE and the relative TSR. The final results in each basket, with a 50% weight on the bonus assignable, shall be calculated using a linear interpolation approach. The maximum performance level is 175% (or a different percentage considered the role of the related beneficiaries).
as compared with the limit set as 130%, or alternative percentage as may be chosen from time to time by the Board of Directors. On the basis of this evaluation, the number of shares to be accrued annually or definitively granted may be reduced or even zeroed by the Board of Directors if the Economic Solvency Ratio should fall below the threshold established.
As regards the holding period, in line with investors requests. at the grant date, 50% of the shares are immediately available (to allow the participants to pay the tax charges connected with the grant), the remaining 50% is subject to a two year lock-up period; subject to the requirement for the directors that participate the plan to maintain a suitable number of shares assigned until term of the office in course at the expiry of the lock-up.
The additional number of shares thus determined shall be assigned simultaneously and in relation with the other shares assigned in favour of each beneficiary, subject to the same restrictions (holding period) mentioned above and determined considering the shares’ value at the assignment of the plan, to be calculated as the average price of the share in the three months prior to the meeting of the Board of Directors called to resolve on the draft statutory financial statements of the Parent Company and the consolidated financial statements for the previous year.
The condition related to rTSR configures as a market condition, other conditions mentioned above are considered whether as performance or as service condition.
As regards plans 2013 and 2014, the performance level to be assessed was determined by the cross-comparison of ranges of ROE and relative TSR; for each tranche was calculated a fair value for each of the possible RoE intervals according to the reference matrix for the cross-comparison of ranges of ROE and relative TSR.
Given the calculation method applied last year, described 247 We, Generali Our performace OutlookRisk Report Appendices to the Management Report
Fair value of bonus related to market condition 5.04 5.03 5.03
until the end of the current term (therefore losing all rights in the event of termination of the working relationship for any reason before the end of this term).
bility clauses (e.g. malus, clawback, hedging restrictions) to protect financial solidity and the Group’s non-excessive exposure to risk.
The condition related to TSR configures as a market condition, other conditions mentioned above are considered as service condition.
The estimated fair value of the bonus right subject to the performance in terms of TRS was calculated by multiplying the projection of the future share price at the grant date of approval of the Plan, identified by the forward price of the share at market conditions, with the pay-out given linearly interpolating the probable TSR, estimated by applying a statistical model for the possible evolution of the share price in the three years considered.
The total cost of the plan, sum of the two components described above, was allocated over a period of accrual of three years in line with the service period required; the relative cost share, already accrued during the current financial year, is subject to the possible reversal in the case of non-approval of the Plan by the next Shareholders ’ Meeting.
The cost associated with all above mentioned outstanding plans recognised during the period amounted to € 51.2 million. The maximum number of shares that can be granted in relation to mentioned plans is approximately 18.1 million.
249 We, Generali Our performace OutlookRisk Report Appendices to the Management Report
Banca Generali remuneration and incentive policy foresees that a portion of variable remuneration to key employees is assigned through payments based on own financial instruments.
Option plans designated to financial promoters and network managers and Relationship Managers of Banca Generali
With reference with the plans approved in 2010, at the end of the financial year 2016 the granted options amounted to 434 thousands, of which 38 thousands reserved to the relationship managers (employees). All mentioned options expires by 30 June 2017.The reduction of stock options respect to prior period was mainly due to exercise of options by the relationship manager and, in a lesser extent, to the end of the relationships with some financial promoters.
The fair value mentioned of the share options was between € 1.01 and € 0.65, depending on the exercise date.
The cost recognised during 2016 exercise in relation to these plans was of € 0.03 million.
(*) Excluding shares allocated on the basis of the share based compensation plans linked to the variable component of remuneration related to performance targets, as these plans are not comparable to stock option plans adopted in 2010.
Share-based payment plans as part of the variable component of remuneration linked to performance objectives
The total number of shares to be granted is determined by dividing the 25% of the variable compensation payable in shares, for the average of the price of Banca Generali share in the three months preceding the meeting of the Board of Directors which approves both individual and consolidated financial statements of Banca Generali.
The actual number of shares allocated to beneficiaries can in any case vary in relation to the verification of the effective achievement targets set at the individual level for the year.
For the purposes of determining the number of shares to be allocated, the reference price of Banca Generali shares, determined as the average of the official q uotations between 12 December 2014 and 9 March 2015, it was determined as of 23.94 €. The fair value Banca Generali action on the grant date of the shares was determined based on the action of the market price record-ed as at 23 April 2015, amounted to approximately € 29.4.
The total fair value of the plan was estimated at about € 2 million, of which 1.6 million were already accounted for in 2015, and 0.3 million recorded in the year 2017.
The second plan of payments in shares, on the variable remuneration of 2016, was approved by the shareholders on 21 April 2016 and has substantially the same characteristics as of the previous year, with the only difference of the extension of this type of compensation also for variable compensation below the threshold of € 75 thousands. In this context, the Assembly of April 21, 2016 approved the repurchase of a maximum number n. 67,051 own shares, which was subsequently authorized by the Bank of Italy in date 6 June 2016.
With reference to the stock granting plans assigned by Generali France within the scope of IFRS 2, the charge recognised in the profit or loss amounted to € 17.4 million. The plans are considered as cash-settled and therefore a € 106 million liability was accounted for.
In the course of the ordinary business, the Group may encounter agreements or transactions which do not lead to the recognition of these commitments as assets and liabilities in the consolidated financial statements according to the IFRS definitions and requirements (contingent assets and liabilities). At 31 December 2016 the estimate of the contingent liabilities results as immaterial or related probability of occurrence results as remote.
• a present obligation that arises from past events but is not recognized because: (i) it is not probable than an outflow of resources embodying economic benefits will be required to settle the obligation; or
Generali Group at 31 December 2016 has subscribed commitments for a total amount of approximately € 4,512 million, related to potential commitments on investments, loans and other commitments.
The Group’s nominal exposure towards third parties amounts to € 839 million, of which € 707 million refer to guarantees provided in the context of the Group’s real estate development and € 118 million to sureties normally given by Banca Generali as part of it ordinary business.
Furthermore, the Group in the context of its business operations in some countries receives guarantees provided by third parties, mainly in the form of letters of credit.
In the course of the ordinary business, the Group companies normally enter into leasing agreements as lessees. Mentioned agreements are mainly related to use of real estates used for business, company cars and office furniture and equipment. Among those agreements, none of them results material at single contract level.
Labour Division of the Court of Appeal of Trieste. Furthermore, Generali appealed before the Supreme Court against the first instance decision that had declined its jurisdiction in favour of the “Tribunale delle Imprese” (court specialized in corporate matters) with reference to the claims for damages. The Supreme Court upheld the appeal and the proceeding has been re-filed and is currently pending before the Labour Court of Trieste.
Mr. Agrusti, and subsequently it quantified the STI bonus in 2013 due to the Mr. Agrusti, condemning the company to its payment. In this period it is pending the deadline for appeal against such measures.
At re va lue d am ou nt or a t fa ir va lue
(i nv es tm en t p ro pe rtie s)
Pr ov isi on s for o uts tan din g cla im s 1, 1, 2, 2,
M ath em ati ca l p ro vi sio ns
Pr ov isi on s for p oli cie s w he re th e inv es tm en t r isk is b or ne by th e po lic yh old er s an d pr ov isi on s for p en sio n fun ds
Di re ct ins ur an ce Ac ce pte d re ins ur an ce
,4 5, 5, - o f w hic h qu ote d bo nd s 1,
Lo an s an d re ce iv ab les fr om cu sto me rs 1, 1, 1, 1,
Lo an s an d re ce iv ab les fr om ba nk s
De po sit co mp on en ts of rei ns ura nc e c on tra cts
To tal b oo k va lue He ld to ma tur ity in ve stm en ts
(*) In tra -g ro up a ss ets a nd lia bil itie s re fer to a ss ets a nd lia bil itie s w hic h ar e eli m ina ted in th e co ns oli da tio n pr oc es s. (**
A ss et s an d li ab ili tie s re la te d t o p ol ic ie s w he re t he in ve st m en t ris k is b o rn e b y p ol ic yh ol d er s an d t o p en si o n fu nd s
A p p en d ix 260 Generali Group Annual Integrated Report and Consolidated Financial Statements 2016
Pr ov isi on s for o uts tan din g cla im s 5, 5, 1, 1, 6, 6,
M ath em ati ca l p ro vi sio ns 4, 3, 4, 3,
,3 of w hic h pr ov isi on s for lia bil ity a de qu ac y tes t 1, 1, 1, 1, of w hic h de fer re d po lic yh old er lia bil itie s
fte r t he e lim ina tio n of int ra -g ro up tr an sa cti on s be tw ee n se gm en ts.
Ac ce pte d re ins ur an ce To tal b oo k va lue A pp en di x 7
,9 w he re th e inv es tm en t r isk is b or ne b y the p oli cy ho lde rs
,6 pe ns ion fu nd s 1, 1, 1, 1, oth er lia bil itie s re lat ed to in ve stm en t c on tra cts 5, 5, 5, 5,
o f 1 3 Ju ly he dg ing d er iv ati ve s ar e on ly d er iv ati ve s for w hic h he dg e ac co un tin g is ap pli ed .
Fi na nc ial lia bil itie s he ld for tr ad ing
Fi na nc ial lia bil itie s de sig na ted a s at fai r v alu e thr ou gh p ro fit or lo ss
Fi na nc ia l l ia b ili tie s
A p p en d ix 262 Generali Group Annual Integrated Report and Consolidated Financial Statements 2016
,76 b C ha ng e i n t he pr ov isi on s f or un ea rne d p rem ium s
,58 d C ha ng e i n t he pr ov isi on s f or po lic ies w he re the in ve stm en t ris k i s b orn e b y the po lic yh old ers an d t he pr ov isi on s f or pe ns ion fun ds -3, -3, -5, -5, e C ha ng e i n o the r in su ran ce pr ov isi on s -2, -2,
A p p en d ix 263 We, Generali Our performace OutlookRisk Report Appendices to the Management Report
,4 a fro m la nd an d bu ild ing s (in ve stm en t p ro pe rtie s)
In co m e a nd e xp en se s fro m re ce iv ab le s
In co m e a nd e xp en se s fro m fi na nc ia l l iab ili tie s
To tal re ali ze d ga ins a nd lo ss es To tal u nr ea liz ed ga ins a nd lo ss es
, r ec ei va b le s an d p ay ab le s
A p p en d ix 264 Generali Group Annual Integrated Report and Consolidated Financial Statements 2016
O the r a cq uis itio n co sts 1, 1, c
Ot he r a dm ini str ati on c os ts 1, 1, 1, 1,
A cq ui si tio n an d a d m in is tr at io n co st s of in su ra nc e b us in es s A
Ite m s t ha t m ay b e r ec las sif ied to p ro fit an d lo ss in fu tu re p er io ds
Ne t u nre ali ze d g ain s a nd lo ss es on ca sh flo ws he dg ing d eri va tiv es
Ne t u nre ali ze d g ain s a nd lo ss es on he dg e o f a ne t in ve stm en t in fo rei gn o pe rat ion s
Re su lt o f d isc on tin ue d o pe rat ion s
Ac tua ria l g ain s o r lo ss es ar isi ng fro m de fin ed be ne fit pla ns -1,
266 Generali Group Annual Integrated Report and Consolidated Financial Statements 2016
267 We, Generali Our performace OutlookRisk Report Appendices to the Management Report
Av ail ab le for s ale fin an cia l a ss ets 2,
Fi na nc ial lia bil itie s he ld for tr ad ing 1, 2, 1,
To tal fin an cia l a ss ets a nd lia bil itie s at fai r v alu e on n on re cu rri ng b as is
Av ai la bl e fo r s al e fin an ci al a ss et s Fi na nc ia l a ss et s he ld fo r t ra di ng
Fi na nc ia l a ss ets de sig na te d as a t f ai r va lu e thr ou gh p ro fit or lo ss
Fi na nc ia l l ia bil itie s he ld fo r t ra di ng
Fi na nc ial li ab ilit ie s de si gn at ed a s at fa ir va lu e th ro ug h pr ofi t o r los s
Di sp os al s th ro ug h sa les a nd s et tle m en ts
N et g ain s an d lo ss es re co gn ize d in
of w hic h ne t u nr ea lis ed g ai ns a nd lo ss es
Inv es tm en ts in su bs idi ar ies , a ss oc iat ed co m pa nie s an d joi nt ve ntu re s 1.
A ss et s an d li ab ili tie s no t m ea su re d a t fa ir va lu e: fa ir va lu e hi er ar ch y A
P ro fit (lo ss ) a ttr ib ut ab le to m in or ity in te re st s
To ta l l ia bi liti es a nd sh ar eh ol de rs
' e qu ity at tri bu ta bl e to m in or ity in te re st s
Te ch ni ca l p ro vi si on s
) o f t he pe rio d Di vi de nd s di st rib ut ed to m in or ity in te re st s
: i nt er es ts in e nt iti es w ith s ig ni fic an t m in o rit y in te re st s
Newly consolidated: 1. AFP Planvital S.A., Santiago 2. Asesoria e Inversiones Los Olmos SA, Santiago 3. Atacama Investments Ltd, Tortola 4. FFDTV GmbH, Grünwald 5. FLI GmbH, Grünwald 6. Fondo immobiliare Donizetti, Trieste 7. FPS GmbH, Grünwald 8. GEIH France OPCI, Parigi 9. Generali Finanz Service GmbH, Unterfohring 10. Generali Life (Hong Kong) Limited, Hong Kong 11. Generali Real Estate Investments BV, Amsterdam 12. Generali Real Estate Investments Netherlands B.V., Amsterdam 13. Generali Services Pte Ltd, Singapore 14. Generali Vitality GmbH, Monaco 15. GIAF Financial Limited, Shenzhen 16. GID-FONDS CLTGP, Colonia 17. GLL GmbH & Co. Retail KG, Monaco 18. GRE PAN-EU Brussels 1 s.p.r.l., Bruxelles 19. GRE PAN-EU Munich 1 S.à r.l., Lussemburgo 20. Magister Internacional S.A., Santiago 21. Mustek Properties s.r.o., Praga 22. MyDrive Solutions Limited, Londra 23. Náměstí Republiky 3a, s.r.o., Praga 24. SMALL GREF a.s., Praga 25. SW13, Vienna
274 Generali Group Annual Integrated Report and Consolidated Financial Statements 2016
Europ Assistance Trade S.p.A. 086 EUR 540,000 G 11 91.56 Europ Assistance Italia S.p.A. 100.00 99.99 8.44 Europ Assistance VAI S.p.A.
Genagricola - Generali Agricoltura S.p.A. 086 EUR 199,400,000 G 11 100.00 Generali Italia S.p.A. 100.00 100.00
Fondo Immobiliare Toscanini 086 EUR 812,011,314 G 10 1.87 Generali Vie S.A. 100.00 99.98 0.36 Genertel S.p.A.
275 We, Generali Our performace OutlookRisk Report Appendices to the Management Report
GSS - Generali Shared Services S.c.a.r.l. 086 EUR 1,002,000 G 11 47.90 100.00 99.73 0.10 Generali Belgium S.A.
Generali Investments Europe S.p.A. Società di Gestione Risparmio 66.37 Generali Italia S.p.A.
Fondo Donizetti 086 EUR 95,978,250 G 11 31.64 Alleanza Assicurazioni S.p.A. 100.00 100.00 16.73 Genertellife S.p.A.
276 Generali Group Annual Integrated Report and Consolidated Financial Statements 2016
Dialog LebensversicherungsAktiengesellschaft 094 EUR 2,045,200 G 2 100.00 Generali Deutschland AG 100.00 100.00 94.10 Generali Beteiligungs-GmbH
Generali Lebensversicherung Aktiengesellschaft 094 EUR 520,053,300 G 2 100.00 Generali Deutschland AG 100.00 100.00
Europ Assistance Services GmbH 094 EUR 250,000 G 11 100.00 Europ Assistance Versicherungs-
Generali Deutschland Pensionskasse AG 094 EUR 7,500,000 G 2 100.00 Generali Deutschland AG 100.00 100.00
GLL GmbH & Co. Retail KG 094 EUR 381,010,000 G 10 31.50 52.49 52.49 5.25 AachenMünchener Lebensversicherung AG
Generali Finanz Service GmbH 094 EUR 26,000 G 11 100.00 Generali Deutschland AG 100.00 100.00
Generali Deutschland Finanzdienstleistung GmbH 094 EUR 52,000 G 11 100.00 Generali Deutschland AG 100.00 100.00
278 Generali Group Annual Integrated Report and Consolidated Financial Statements 2016
FPS GmbH 094 EUR 25,000 G 11 100.00 Generali Europe Income Holding S.A. 100.00 99.61
GID Fonds CLAOT 094 EUR 332,085,198 G 11 100.00 Cosmos Lebensversicherungs Aktiengesellschaft 100.00 100.00
GID Fonds CEAOT 094 EUR 564,823,445 G 11 100.00 Central Krankenversicherung Aktiengesellschaft 100.00 100.00
279 We, Generali Our performace OutlookRisk Report Appendices to the Management Report
GLL AMB Generali Properties Fund I GmbH & Co. KG 094 EUR 47,448,479 G 11 100.00
GLL AMB Generali Properties Fund II GmbH & Co. KG 094 EUR 64,304,996 G 11 100.00
GLL Properties Fund II LP 069 USD 82,366,056 G 11 100.00 GLL AMB Generali Properties Fund II GmbH & Co. KG 100.00 100.00
GLL AMB Generali 200 State Street 094 EUR 36,312,097 G 11 100.00 GLL AMB Generali Cross-Border Property Fund FCP 100.00 100.00
GID Fonds CERET 094 EUR 1,824,269,890 G 11 100.00 Central Krankenversicherung Aktiengesellschaft 100.00 100.00
GID-Fonds CLRET 094 EUR 796,311,833 G 11 100.00 GID-Fonds CLRET 2 100.00 100.00
GID Fonds GDPRET 094 EUR 138,615,488 G 11 100.00 Generali Deutschland Pensionskasse AG 100.00 100.00
GID Fonds GVRET 094 EUR 198,206,581 G 11 100.00 Generali Versicherung Aktiengesellschaft 100.00 100.00
GID Fonds GLAKOR 094 EUR 157,333,040 G 11 100.00 Generali Lebensversicherung Aktiengesellschaft 100.00 100.00
280 Generali Group Annual Integrated Report and Consolidated Financial Statements 2016
GID Fonds DLAET 094 EUR 41,799,722 G 11 100.00 Dialog Lebensversicherungs-
GID-Fonds AAINF 094 EUR 144,633,528 G 11 27.50 AachenMünchener Lebensversicherung AG 100.00 100.00
GID-Fonds AACBGS 094 EUR 364,745,261 G 11 41.68 AachenMünchener Lebensversicherung AG 96.96 96.96
GID-Fonds ALAET 094 EUR 301,924,055 G 11 100.00 AachenMünchener Lebensversicherung AG 100.00 100.00
GID-FONDS CLTGP 094 EUR 164,999,965 G 11 100.00 Cosmos Lebensversicherungs Aktiengesellschaft 100.00 100.00
Generali Vie S.A. 029 EUR 336,872,976 G 2 100.00 Generali France S.A. 100.00 98.86
L'Equité S.A. Cie d'Assurances et Réass. contre les risques de toute nature 029 EUR 26,469,320 G 2 99.99 Generali IARD S.A. 99.99 98.86
GFA Caraïbes 213 EUR 6,839,360 G 2 100.00 Generali IARD S.A. 100.00 98.86
281 We, Generali Our performace OutlookRisk Report Appendices to the Management Report
Europ Assistance France S.A. 029 EUR 2,541,712 G 11 100.00 Europ Assistance Holding S.A. 100.00 99.99
Haussmann Investissement SAS 029 EUR 2,501,000 G 9 10.00 Generali IARD S.A. 100.00 98.86 90.00 Generali Vie S.A.
Expert & Finance S.A. 029 EUR 3,203,490 G 11 98.45 Generali Vie S.A. 98.45 97.33
SCI Terra Nova Montreuil 029 EUR 19,800,000 G 10 30.00 Generali Vie S.A. 100.00 98.86 70.00 Generali IARD S.A.
SAS IMMOCIO CBI 029 EUR 61,058,016 G 10 100.00 Immobiliere Commerciale des Indes Orientales IMMOCIO 100.00 98.86
Europ Assistance S.A. 029 EUR 35,402,786 G 2 100.00 Europ Assistance Holding S.A. 100.00 99.99
Europ Téléassistance S.A.S. 029 EUR 100,000 G 11 100.00 Europ Assistance France S.A. 100.00 99.99
SCI Generali Reaumur 029 EUR 10,643,469 G 10 100.00 Generali Vie S.A. 100.00 98.86
GEIH France OPCI 029 EUR 62,000,000 G 11 100.00 Generali Europe Income Holding S.A. 100.00 99.61
SCI 42 Notre Dame Des Victoires 029 EUR 13,869,690 G 10 100.00 Generali Vie S.A. 100.00 98.86
SCI GF Pierre 029 EUR 47,394,248 G 10 1.18 Generali IARD S.A. 100.00 98.86 90.96 Generali Vie S.A.
SCI Generali Commerce 1 029 EUR 100,000 G 10 0.10 Generali Vie S.A. 100.00 98.86 53.80 SCI GF Pierre 46.10 SC Commerce Paris
SCI Generali Commerce 2 029 EUR 100,000 G 10 100.00 Generali IARD S.A. 100.00 98.86
SCI Generali le Moncey 029 EUR 1,923,007 G 10 100.00 Generali Vie S.A. 100.00 98.86
SC Generali Logistique 029 EUR 160,001,000 G 10 100.00 Generali Vie S.A. 100.00 98.86
SCI Beaune Logistique 1 029 EUR 1,000 G 10 100.00 SC Generali Logistique 100.00 98.86
SCI Parcolog Lille Hénin Beaumont 2 029 EUR 1,130,000 G 10 100.00 SC Generali Logistique 100.00 98.86
SCI Parc Logistique Maisonneuve 1 029 EUR 7,051,000 G 10 100.00 SC Generali Logistique 100.00 98.86
SCI Parc Logistique Maisonneuve 4 029 EUR 8,004,000 G 10 100.00 SC Generali Logistique 100.00 98.86
SCI Parcolog Gondreville Fontenoy 2 029 EUR 3,838,000 G 10 100.00 SC Generali Logistique 100.00 98.86
SCI Parcolog Bordeaux Cestas 029 EUR 9,508,000 G 10 100.00 SC Generali Logistique 100.00 98.86
SCI Parcolog Marly 029 EUR 7,001,000 G 10 100.00 SC Generali Logistique 100.00 98.86
SCI Thiers Lyon 029 EUR 1,000 G 10 40.00 Generali Vie S.A. 100.00 98.86 60.00 SCI GF Pierre
SCI Iliade Massy 029 EUR 1,000 G 10 100.00 Generali Vie S.A. 100.00 98.86
OPCI Generali Bureaux 029 EUR 103,996,539 G 10 100.00 Generali Vie S.A. 100.00 98.86
OPCI Generali Residentiel 029 EUR 149,607,800 G 10 100.00 Generali Vie S.A. 100.00 98.86
SCI Berges de Seine 029 EUR 6,975,233 G 10 100.00 Generali Vie S.A. 100.00 98.86
SCI 6 MESSINE 029 EUR 9,631,000 G 10 100.00 OPCI GR1 100.00 98.86
SC Novatis 029 EUR 17,081,141 G 10 100.00 Generali Vie S.A. 100.00 98.86
SCI Bureaux Paris 029 EUR 250 G 10 100.00 Generali Vie S.A. 100.00 98.86
Generali Holding Vienna AG 008 EUR 63,732,464 G 5 29.67 Generali Beteiligungsverwaltung GmbH 100.00 100.00
Europ Assistance Gesellschaft mbH 008 EUR 70,000 G 11 75.00 Europ Assistance Holding S.A. 100.00 99.99 25.00 Generali Holding Vienna AG
Generali Sales Promotion GmbH 008 EUR 50,000 G 11 100.00 Generali Versicherung AG 100.00 100.00
SW13 008 EUR 35,000 G 11 100.00 Generali Europe Income Holding S.A. 100.00 99.61
284 Generali Group Annual Integrated Report and Consolidated Financial Statements 2016
Method(1) Activity(2) Shareholding % Group Equity Ratio(3)Direct Indirect Through Total 3 Banken-Generali - GEN4A Spezialfonds 008 EUR 55,500 G 11 100.00 Generali Versicherung AG 100.00 100.00
Generali Investments Luxembourg S.A. 092 EUR 1,921,900 G 11 100.00 Generali Investments Holding S.p.A. 100.00 99.61
Generali North American Holding 1 S.A. 092 USD 13,246,799 G 11 8.20 Generali Real Estate Investments B.V. 100.00 98.96 91.80 Generali Vie S.A.
Generali European Real Estate Income Investments GmbH & Co. Geschlossene Investment KG
GRE PAN-EU Munich 1 S.à r.l. 092 EUR 12,500 G 9 100.00 Generali Europe Income Holding S.A. 100.00 99.61
BG Fund Management Luxembourg S.A. 092 EUR 2,000,000 G 11 100.00 Banca Generali S.p.A. 100.00 50.30
Generali Diversification USD Investment Grade Corporate Bond Fund 092 EUR 1,084,642,378 G 11 0.65
Vitalicio Torre Cerdà S.l. 067 EUR 1,112,880 G 10 9.34 Grupo Generali España Agrupación de Interés Económico 100.00 99.90
Europ Assistance - Companhia Portuguesa de Seguros de Assistencia, S.A. 99.92 52.95
Generali Belgium S.A. 009 EUR 40,000,000 G 2 32.29 Generali Italia S.p.A. 99.99 99.99
287 We, Generali Our performace OutlookRisk Report Appendices to the Management Report
Generali Schadeverzekering Maatschappij N.V. 050 EUR 1,361,341 G 2 100.00 Generali Nederland N.V. 100.00 98.54
Generali Real Estate Investments Netherlands B.V. 050 EUR 10,000 G 10 100.00
Saxon Land B.V. 050 GBP 15,576 G 10 20.00 Generali Italia S.p.A. 100.00 99.66 10.00 Alleanza Assicurazioni S.p.A.
Generali España, S.A. de Seguros y Reaseguros 0.25 Alleanza Assicurazioni S.p.A.
Generali Portfolio Management (CI) Ltd 201 USD 194,544 G 9 100.00 Generali Worldwide Insurance Company Limited 100.00 100.00 4.92 Generali Deutschland AG
Europai Utazasi Biztosito Rt. 077 HUF 400,000,000 G 2 13.00 Europäische Reiseversicherung Aktiengesellschaft 74.00 70.75
289 We, Generali Our performace OutlookRisk Report Appendices to the Management Report
Vàci utca Center Uzletközpont Kft 077 EUR 4,497,120 G 10 100.00 Generali Immobilien GmbH 100.00 100.00
Generali-Ingatlan Vagyonkezelo és Szolgáltató Kft. 077 HUF 5,296,788,000 G 10 100.00 Generali Biztosító Zrt. 100.00 100.00
ČP Distribuce s.r.o. 275 CZK 200,000 G 10 100.00 Ceská Pojištovna a.s. 100.00 100.00
PCS Praha Center Spol.s.r.o. 275 CZK 396,206,000 G 10 100.00 Generali Versicherung AG 100.00 100.00
IDEE s.r.o. 275 CZK 200,000 G 10 100.00 Generali Real Estate Fund CEE a.s. 100.00 100.00
Small GREF a.s. 275 CZK 100,000,000 G 10 42.00 Generali Pojistovna a.s. 100.00 100.00 32.00 Generali Biztosító Zrt.
Mustek Properties s.r.o. 275 CZK 200,000 G 11 100.00 Generali Real Estate Fund CEE a.s. 100.00 100.00
Ceská pojištovna ZDRAVI a.s. 275 CZK 105,000,000 G 2 100.00 Ceská Pojištovna a.s. 100.00 100.00
FINHAUS a.s. 275 CZK 3,000,000 G 11 100.00 Ceská Pojištovna a.s. 100.00 100.00 80.40 Ceská Pojištovna a.s.
290 Generali Group Annual Integrated Report and Consolidated Financial Statements 2016
PL Investment Jerozolimskie I SP. Z o.o. 054 PLN 10,000 G 11 100.00 Generali Real Estate Fund CEE a.s. 100.00 100.00
Generali Romania Asigurare Reasigurare S.A. 061 RON 178,999,222 G 2 99.97 Generali CEE Holding B.V. 99.97 99.97
Generali Assurances Générales SA 071 CHF 27,342,400 G 3 99.93 Generali (Schweiz) Holding AG 99.93 99.93
Fortuna Lebens-Versicherungs AG 090 CHF 10,000,000 G 3 100.00 Generali (Schweiz) Holding AG 100.00 100.00
Akcionarsko društvo za osiguranje Generali Osiguranje Montenegro 290 EUR 4,399,000 G 3 57.49
Akcionarsko društvo za osiguranje Generali Osiguranje Srbija 289 RSD 2,131,997,310 G 3 0.05 GP Reinsurance EAD 100.00 100.00
291 We, Generali Our performace OutlookRisk Report Appendices to the Management Report
Method(1) Activity(2) Shareholding % Group Equity Ratio(3)Direct Indirect Through Total 99.95 Generali CEE Holding B.V.
Customized Services Administrators Inc. 069 USD 2,974,773 G 11 100.00 Europ Assistance North America, Inc. 100.00 99.99
General Securities Corporation of North America 100.00 99.61 35.73 Generali North American Holding 1 S.A.
GNAREI 1 Farragut LLC 069 USD 34,037,500 G 10 100.00 GNAREH 1 Farragut LLC 100.00 99.61
Generali Consulting Solutions LLC 069 USD 0 G 11 100.00 100.00 100.00
Generali Claims Solutions LLC 069 USD 269,558 G 11 100.00 Generali Consulting Solutions LLC 100.00 100.00
Ritenere S.A. 006 ARS 530,000 G 11 97.15 Caja de Ahorro y Seguro S.A. 100.00 90.00 2.85 Caja de Seguros S.A.
Generali Latam Prestação de Serviços e Partecipações Ltda. 011 BRL 450,000 G 11 99.99 100.00 100.00 0.01 Generali Brasil Seguros S.A.
Asesoria e Inversiones Los Olmos SA 015 CLP 4,769,708,625 G 11 0.92 Participatie Maatschappij Graafschap Holland N.V. 100.00 44.57 99.08 Atacama Investments Ltd
AFP Planvital S.A. 015 CLP 36,243,962,493 G 11 86.11 Asesoria e Inversiones Los Olmos SA 86.11 38.38
Atacama Investments Ltd 249 USD 76,713 G 11 44.06 Participatie Maatschappij Graafschap Holland N.V. 44.06 44.06
Generali Life Assurance Philippines, Inc. 027 PHP 1,641,260,600 G 3 100.00 Generali Asia N.V. 100.00 100.00
Generali Life Assurance (Thailand) Co. Ltd 072 THB 3,300,000,000 G 3 49.00 Generali Asia N.V. 91.42 89.30 42.42 KAG Holding Company Ltd
GIAF Financial Limited 016 CNY 51,703,507 G 11 100.00 NKFE Insurance Agency Company Limited 100.00 89.00
Generali Financial Asia Limited 103 HKD 105,870,000 G 9 89.00 89.00 89.00
293 We, Generali Our performace OutlookRisk Report Appendices to the Management Report
Generali Investments Asia Limited 103 HKD 50,000,000 G 9 100.00 Generali Investments Holding S.p.A. 100.00 99.61
NKFE Insurance Agency Company Limited 103 HKD 62,353,100 G 11 100.00 Generali Financial Asia Limited 100.00 89.00
HealthiChoices (Pty) Limited 078 ZAR 200 G 11 50.50 Europ Assistance Worldwide Services (South Africa) (Pty) Ltd 50.50 44.18
EASA Training Academy (Pty) Ltd 078 ZAR 100 G 11 100.00 Europ Assistance Worldwide Services (South Africa) (Pty) Ltd 100.00 87.49
Buxola (Pty) Ltd 078 ZAR 100 G 11 100.00 Randgo Rewards (Pty) Ltd 100.00 43.83
MRI Criticare (Pty) Limited 078 ZAR 200 G 11 100.00 Europ Assistance Worldwide Services (South Africa) (Pty) Ltd 100.00 87.49
(2) 1=Italian Insurance companies; 2=EU Insurance companies; 3=non EU Insurance companies; 4=Insurance holding companies; 5=EU Reinsurance companies; 6=non EU Reinsurance companies; 7=Banks; 8=Asset Management companies; 9=other Holding companies; 10=Real Estate companies; 11=other”
The total percentage of votes exercitable at shereholders’general meeting, which differs from that of direct on indirect shareholding, is a follows: Generali Nederland N.V. 98.56%
Generali Investments Europe S.p.A. Società di Gestione Risparmio 88.00 Generali Italia S.p.A.
Investimenti Marittimi S.p.A. 086 EUR 39,655,000 b 9 30.00 Generali Italia S.p.A. 30.00 30.00
Generali Innovation Center for Automobile Repairs S.c.a.r.l. 086 EUR 3,100,000 a 11 1.00
Generali Business Solutions S.c.p.A. 100.00 100.00 3,212 98.75 Generali Italia S.p.A.
Generali Deutschland Alternative Investments Verwaltungs GmbH 094 EUR 25,000 a 9 100.00 Generali Deutschland AG 100.00 100.00 25 vSPS Management GmbH 094 EUR 25,000 a 11 100.00 Generali Versicherung Aktiengesellschaft 100.00 100.00 25
Alstercampus Verwaltungsgesellschaft mbH 094 EUR 25,000 a 9 50.00 Generali Real Estate S.p.A. 50.00 50.00 13
Thuringia VersicherungsvermittlungsGmbH 094 EUR 25,600 a 11 100.00 Generali Deutschland AG 100.00 100.00 76
Deutsche Vermögensberatung Aktiengesellschaft DVAG (*) 094 EUR 150,000,000 b 11 40.00 Generali Deutschland AG 40.00 40.00 234,397
296 Generali Group Annual Integrated Report and Consolidated Financial Statements 2016
Central Fixed Assets GmbH 094 EUR 25,000 a 9 100.00 Central Krankenversicherung Aktiengesellschaft 100.00 100.00 25
ASSERCAR SAS 029 EUR 37,000 b 11 14.87 Generali IARD S.A. 29.73 29.39 380
297 We, Generali Our performace OutlookRisk Report Appendices to the Management Report
PMC Treize Montluçon S.A.S. 029 EUR 3,371,730 a 9 79.21 Generali France S.A. 100.00 98.86 2,242 20.79 Cofifo S.A.S.
Generali Gerance S.A. 029 EUR 228,000 a 11 0.07 Generali IARD S.A. 99.73 98.60 99.67 Generali Vie S.A.
EAP France SAS (*) 029 EUR 100,000 c 11 51.00 Europ Assistance France S.A. 51.00 50.99 484
Risque et Sérénité S.A. 029 EUR 6,135,300 a 9 12.04 Generali France S.A. 61.16 60.46 3,955 49.12 Generali Vie S.A.
Reunnion Aerienne & spatiale 029 EUR 999,999 c 11 33.33 Generali IARD S.A. 33.33 32.95
SCI Generali Pyramides 029 EUR 603,600 a 10 32.12 SCI Generali Wagram 100.00 98.86 255 67.88 Generali IARD S.A.
SCI Les 3 Collines Le Ferandou 029 EUR 304,000 b 10 33.30 Generali IARD S.A. 48.30 47.75 142 15.00 Generali Vie S.A.
SCI 9 Messine (*) 029 EUR 2,420,250 c 10 50.00 Generali Vie S.A. 50.00 49.43 4,661
SCI 15 Scribe (*) 029 EUR 14,738,000 c 10 50.00 Generali IARD S.A. 50.00 49.43 26,879
SCI GFA CARAIBES 213 EUR 1,500,000 a 10 100.00 GFA Caraïbes 100.00 98.86 1,474
Lead Equities II. Auslandsbeteiligungs AG 008 EUR 730,000 b 9 21.59 Generali Versicherung AG 21.59 21.59
SK Versicherung AG (*) 008 EUR 3,633,500 b 2 19.23 Generali Versicherung AG 39.66 39.66 5,664 20.43 Generali Holding Vienna AG
Drei Banken Versicherungsagentur GmbH 008 EUR 7,500,000 b 7 20.00 Generali Holding Vienna AG 20.00 20.00 2,546
M.O.F. Immobilien AG 008 EUR 1,000,000 b 10 20.00 Generali Immobilien GmbH 20.00 20.00
Generali FinanzService GmbH 008 EUR 50,000 a 11 100.00 Generali Sales Promotion GmbH 100.00 100.00 187 3 Banken-Generali InvestmentGesellschaft m.b.H. (*) 008 EUR 2,600,000 b 8 48.57 Generali Holding Vienna AG 48.57 48.57 1,998
BONUS Vorsorgekasse AG (*) 008 EUR 1,500,000 b 11 50.00 Generali Holding Vienna AG 50.00 50.00
Keviana – Empreendimentos Imobiliários, S.A. 055 EUR 50,000 a 10 100.00 Generali Vie S.A. 100.00 98.86
Europ Assistance - Companhia Portuguesa de Seguros de Assistencia, S.A. 100.00 52.99 3,400
Co & Co Assurance Sprl 009 EUR 28,500 a 11 99.91 Generali Belgium S.A. 99.91 99.91 237 0.42 Groupe Vervietois d'Assureurs S.A.
Groupe Vervietois d'Assureurs S.A. 009 EUR 94,240 a 11 99.95 Generali Belgium S.A. 99.95 99.94 571
Nederlands Algemeen Verzekeringskantoor B.V. 050 EUR 18,151 a 11 100.00 Generali Nederland N.V. 100.00 98.54 5,118
Société Robert Malatier Ltd 031 GBP 51,258 b 11 33.33 Generali IARD S.A. 33.33 32.95 224
Ioca Entertainment Limited (*) 031 GBP 10,000 b 11 35.00 Banca Generali S.p.A. 35.00 17.61 1,991
Europ Assistance Magyarorszag Kft 077 HUF 24,000,000 a 11 26.00 Generali Biztosító Zrt. 100.00 99.99 100 74.00 Europ Assistance Holding S.A.
Shaza & Toptorony zrt (*) 077 HUF 84,603,426 c 11 50.00 GLL AMB Generali Bankcenter S.à.r.l. 50.00 50.00 31,154
300 Generali Group Annual Integrated Report and Consolidated Financial Statements 2016
VUB Generali dôchodková správcovská spolocnost’, a.s. (*) 276 EUR 10,090,976 b 11 50.00 Generali Poist’ovňa, a.s. 50.00 50.00 8,640
Generali IT S.r.o. 276 EUR 165,970 a 11 100.00 Generali Versicherung AG 100.00 100.00 132
GSL Services s.r.o. 276 EUR 6,639 a 11 100.00 Generali Poist’ovňa, a.s. 100.00 100.00 7
Europ Assistance Polska Sp.zo.o. 054 PLN 3,000,000 a 11 100.00 Europ Assistance Holding S.A. 100.00 99.99 73 9.32 Agricola San Giorgio S.p.A.
Generali Group Partner AG 071 CHF 100,000 a 11 100.00 Generali (Schweiz) Holding AG 100.00 100.00 93
Pluria Productores de Seguros S.A. 006 ARS 50,000 a 11 96.00 Caja de Ahorro y Seguro S.A. 96.00 86.40 290
Europ Assistance (Bahamas) Ltd 160 BSD 10,000 a 11 99.99 Europ Assistance - IHS Services S.A.S. 99.99 99.98
Care Management Network Inc. 160 USD 9,000,000 a 11 100.00 Europ Assistance (Bahamas) Ltd 100.00 99.98
Generali Pacifique NC 253 XPF 1,000,000 a 11 100.00 Generali France S.A. 100.00 98.86 2,095
Cabinet Richard KOCH 253 XPF 1,000,000 a 11 100.00 Generali France S.A. 100.00 98.86
MPI Generali Insurans Berhad (*) 106 MYR 100,000,000 b 3 49.00 Generali Asia N.V. 49.00 49.00 99,185
Europ Assistance (Taiwan) Ltd 022 TWD 5,000,000 a 11 100.00 Europ Assistance Holding S.A. 100.00 99.99
Europ Assistance Travel Assistance Services (Beijing) Co Ltd 016 CNY 3,850,000 a 11 100.00 Europ Assistance Holding S.A. 100.00 99.99
Europ Assistance Worldwide Services Pte Ltd 147 SGD 1,855,602 a 11 100.00 Europ Assistance Holding S.A. 100.00 99.99
Attestation of the consolidated financial statements pursuant to the provisions of art. 154-bis, paragraph 5, of legislative decree 58 of february 24, 1998 and art. 81–ter of consob regulation no. 11971 of 14 may 1999 as amended 1. The undersigned, Philippe Donnet, in his capacity as Managing Director and Group CEO, and Luigi Lubelli, in his capacity as Manager in charge of preparing the financial reports of Assicurazioni Generali S.p.A. and Group CFO, having also taken into account the provisions of Art 154-bis, paragraphs 3 and 4, of the Italian Legislative Decree No. 58 dated 24 February 1998, hereby certify: - the adequacy in relation to the characteristics of the Company and - the effective implementation of the administrative and accounting procedures for the preparation of the consolidated financial statements over the course of the period from 1 January to 31 December 2016.
1. Activities of the Board of Statutory Auditors during the financial year ending on 31 December 2016 (point 10 of Consob Notice no. 1025564/01)
Committee (RCC); • attended the 4 meetings of the Related-Party Transactions Committee (RPTC) (formerly the Related -Party Transactions Sub-Committee (RPTSC)); • attended, in the person of its Chairman or another statutory auditor, the 4 meetings of the Remuneration Committee (RemCom) and the 6 meetings of the Appointments and Remuneration Committee (ARC), set up in May 2016, with specific reference to subjects involving remuneration; • attended, in the person of its Chairman or another statutory auditor, the 10 meetings of the Investment Committee (InvCom).
Statutory Auditors’ Report to the General Meeting of Assicurazioni Generali S.p.A. called to approve the Financial Statements as at 31 December 2016 pursuant to s. 153 of Legislative Decree 58/1998 the Group Audit Manager, the Group Compliance Manager, the Risk Management Manager, the Group Actuarial Manager, the Group Financial Crime Manager, the Manager in Charge of Preparation of the Company’s Financial Reports, Group General Counsel and the Corporate Affairs Manager, and the managers of the Company’s functions affected by the supervisory activities of the BSA at various times; • met members of the Surveillance Body instituted pursuant to Legislative Decree no. 231/2001 for a useful exchange of information; • pursuant to ss. 151.1 and s.151.2 of the CFBA, held meetings and exchanged information with the supervisory bodies of the main subsidiaries (Generali Italia S.p.A., Generali Investment Europe S.p.A., Banca Generali S.p.A., Generali France Assurances and Generali Deutschland Holding AG); • in the course of the statutory dealings between the Board of Statutory Auditors and the External Auditors, held periodic meetings with the external auditors EY S.p.A., at which data and information relevant to the performance of their respective duties were exchanged.
The most significant events involving the Company and the Group in 2016 are also reported on in the Directors’ Report and the Integrated Annual Report. They include the following events. • On 26 January 2016, Group CEO Mario Greco announced that he was not available to serve a further term of office as Managing Director. On 9 February 2016 the Board of Directors approved the termination by mutual consent of Mario Greco’s contract with the Company.
• In March 2016 IVASS (the Insurance Companies Supervision Institute), following an application for authorisation submitted by Assicurazioni Generali S.p.A., authorised the use, as from 1 January 2016, of a partial internal model for the calculation of the consolidated Group Solvency Capital Requirement and the Solvency Capital Requirements of its main Italian and German insurance companies, the French non-life companies and Czech company Ceska Pojistovna, a.s.
• On 25 January 2017 the Board of Directors resolved to terminate the contract of employment of General Manager and Group CFO Alberto Minali, with effect from 31 January 2017, with an agreement drawn up in accordance with the Group’s remuneration policies. Also on 25 January 2017, the Board of Directors appointed Luigi Lubelli (previously Group Head of Corporate Finance) as Group CFO and Manager in Charge of Preparation of the Company’s Financial Reports. Luigi Lubelli also became a member of the Group Management Committee (GMC). As a result of these decisions, all the first-level company functions that reported to the General Manager and Group CFO were required to report directly to the Group CEO (for further details, see paragraph 4 “Organisational structure of the Company and the Group”).
• Also on 25 January 2017, the Board of Directors resolved to grant the Investment Committee responsibilities relating to examination of strategic operations.
As from that date, therefore, the Investment Committee’s name changed to “Investment and Strategic Operations Committee”, and its composition partly changed.
• On 17 February 2017 the Company purchased 510 million ordinary shares of Intesa Sanpaolo S.p.A., namely 3.04% of its share capital, and began the procedure for terminating the said stock loan. At the same time, Generali performed a transaction in collateralised derivative instruments to hedge the whole of the economic risk associated with the purchase of the said shares.
As regards the ongoing litigation relating to former company executives Giovanni Perissinotto and Raffaele Agrusti, the Board of Statutory Auditors has received periodic updates on the progress of the proceedings at meetings of the Board of Directors.
The Group Compliance Function, having examined the suggestions made by the legal adviser and the Group Audit Function, drew up a proposal for amendment of the RPT Procedures and the internal operating regulation of the RPT Sub-Committee, as it was then called. The said proposals were approved by the RPT Sub-Committee on 9 March 2016, after consulting the Board of Statutory Auditors, and then submitted to and approved by the Board of Directors on 17 March 2016. The Group Audit Function in turn expressed an overall assessment of adequacy of the organisational structure and architecture of the main phases of related-party transaction management process, formulating some suggestions for continuous improvement of processes, and a concrete plan of management actions was agreed on the basis of the said suggestions. In 2016, the BSA regularly monitored the actual implementation of the said management plan, receiving periodic updates from the Group Audit Function. All the measures specified in the action plan were completed by February 2017, apart from a single planned measure currently being finalised. In the last financial year the Board of Statutory Auditors also requested the Group Audit Function to include, among the activities for the first half-year of the 2017 Plan, a specific audit of specific aspects of the concrete operation of the RPT Procedures in the parent company and its subsidiaries, including the operation of the Related -Party Transactions Committee and compliance of the preliminary activities performed by the internal functions in support of the said Committee with the Company ’s procedures. This activity was added to the Audit Plan, and duly commenced; it will be monitored by the BSA in the ambit of the periodic updates planned with the Group Audit Function.
Finally, the Related-Party Transactions Committee requested an external adviser to analyse some questions relating to relations between the Related-Party Transactions Committee and the other Board Committees; this activity indicated the advisability of a refinement to the RPT Procedures and the Regulation of the Board of Directors and the Board Committees to ensure better interaction between the various Board Committees and a complete flow of information to the Related-Party Transactions Committee. The new text of the RPT Procedures, incorporating the refinements suggested by the external adviser, was approved by the Board of Directors on 15 February 2017, after obtaining a favourable opinion from the Related-Party Transactions Committee. On the same date, the Board of Directors also approved the cor-
The annual Financial Report illustrates the economic and asset-related effects of the related-party transactions, and describes the most significant relationships. No operations classificated as major transactions pursuant to the above-mentioned Procedures were submitted for the attention of the Related-Party Transactions Committee during the 2016 financial year, nor were any urgent related-party transactions performed. With regard to intercompany transactions during the year, the supervisory activities of the BSA indicate that they were performed in accordance with the annual guidelines approved by the Board of Directors, as required by ISVAP Regulation no. 25 of 27 May 2008, and subsequently by IVASS Regulation no. 30 of 26 October 2016. The main intercompany activities, with payment at market prices or at cost, refer to operations conducted in relation to reinsurance and coinsurance agreements, administration and management of securities and real estate, claims management and settlement, IT and administrative services, loans and guarantees, and personnel loans. The said services allowed the rationalisation of the operational functions and a better level of services.
The organisational structure of the Company and the Group and its developments are described in detail in the Corporate Governance and Share Ownership Report. The Group’s organisational structure is confirmed in its Functions, with a matrix model of Business Units and Group Head Office (GHO) Functions; the latter act as strategic policy, guidance and coordination structures for the business units.
The organisational governance is ensured by integration and coordination mechanisms between the Business Units and the Group Head Office functions, represented by: • the Group Management Committee (GMC), namely the group of top management executives which discusses the main strategic decisions; • the Quarterly Business Review processes, whereby local businesses establish their objectives in line with the global strategy; • three main cross-functional committees that support the Group CEO in guiding the Group’s strategic decisions: the Balance Sheet Committee, Finance Committee and Product & Underwriting Committee; • the Functional Guidelines and Functional Councils, through which functional coordination is implemented at global level; • a matrix system of reporting lines.
Some organisational changes in the organisational structure of Group Head Office and the Group Management Committee took place in 2016, as described in the Corporate Governance and Share Ownership Report. The main changes included the following: • in March 2016, the Board of Directors appointed
• with effect from 9 January 2017, the Board of Directors appointed Timothy Ryan as new Group Chief Investment Officer, and he also became a member of the Group Management Committee.
The main characteristics of the internal control and risk management system are described in the Corporate Governance and Share Ownership Report.
The Company has an internal regulatory system applicable to the whole Group, called the Generali Internal Regulation System (GIRS). That system is structured on three levels: • Group Policy, approved by the Board of Directors; • Group Guidelines, approved by the Group CEO or the managers of the Control Functions; • Group Operating Procedures, approved by the relevant functions of Group Head Office.
The company functions operate in accordance with an organisational model based on three levels of control: • the managers of the operational areas (risk owners); • the functions of the second level of control, in particular Group Risk Management, Group Compliance and the Group Actuarial Function; • Group Audit. •
The Group CEO also holds the position of director responsible for the internal control and risk management system.
On 7 March 2016, IVASS authorised the use of the “Partial Internal Model” for the calculation of the Solvency Capital Requirement of the Group and its main Italian
As regards the latter aspect, in July 2016 the Board of Directors approved the “Group Policy Control Framework” which is designed, among other things, to monitor the Group Policy implementation process at local level.
Having regard to the summary document submitted to the Risk and Control Committee and the Board of Directors by the managers of the Control Functions and the IT management, the Company planned dedicated projects relating to IT subjects with a view to gradual strengthening of the related controls.
In addition to the matters described above, the Board of Statutory Auditors performed further specific periodic checks in accordance with the statutory and regulatory provisions applicable to the insurance industry. In particular the BSA, partly by attending meetings of the Risk and Control Committee: • monitored compliance with the investment policy guidelines resolved on, following the issue of ISVAP Regulation no. 36 of 31 January 2011, by the Board of Directors on 13 May 2011, and updated in 2012, 2013, 2014, 2015 and finally in September 2016, after IVASS Regulation no. 24 of 6 June 2016 came into force; • checked transactions in derivative financial instruments in accordance with the guidelines and limitations issued by the Board of Directors, and checked that the Company had duly submitted periodic communications to IVASS; • analysed the administrative procedures adopted for handling, safekeeping and accounting of financial instruments, checking the instructions issued to depositaries regarding periodic despatch of statements of account with suitable indications of any encumbrances; • checked that the assets destined for covering the technical reserves were free of encumbrances and fully available; • checked on correspondence with the register of assets destined to cover the technical reserves.
The Company adheres to the Corporate Governance Code issued by the Corporate Governance Committee promoted by Borsa Italiana S.p.A.. This BSA has evaluated the procedures for concrete implementation of the Code in question, with reference to the principles and application criteria, and has no observations to make. The Board of Statutory Auditors notes that the Board of Directors has evaluated the operation, size and composition of the Board of Directors and the Board Committees, with the support of a leading firm of consultants.
The Board of Statutory Auditors has also checked on the correct application of the criteria and process initiated by the Board of Directors to assess the independence of directors classed as “independent”; it also established that its own independence requirements were met. With reference to the aspects connected with evaluation process by the directors in establishing that directors meet the independence requirements, the activities commenced in 2015, following requests for analysis and action by this BSA, as illustrated in the report issued pursuant to s. 153 of the CFBA relating to the prior financial year, continued in 2016. In particular, the updated Regulation of the Board of Directors and the Board Committees, which introduced some innovations into the procedure for establishing whether directors meet the independence requirement as defined in the CFBA and the Corporate Governance Code, was approved on 15 June 2016. In that context, bearing in mind that the Board of Directors conducts its own assessments of whether the independence requirement is met on the basis of all the information available to the Company from any source, specific supplementary declarations were defined, which were used upon the appointment of the new Board of Directors in April 2016, in order to obtain from Directors declaring themselves as independent precise, accurate information about the existence of any commercial, financial or professional relations, relations involving
9. External Auditors (points 4, 7, 8 and 16 of Consob Notice no. 1025564/01)
The Management Report included in the draft financial statements of the parent company illustrates the business trend, indicating current and prospective developments, and the Group’s development and reorganisation process.
The Board of Statutory Auditors also declares that it was consulted, together with the External Auditors, by the Risk and Control Committee in the course of the evaluations falling within that Committee’s remit, together with the Manager in Charge of Preparation of the Company’s Financial Reports, regarding the correct use of the accounting standards and the uniformity of their use for the purposes of preparing the consolidated financial statements.
On 30 March 2017, EY S.p.A. issued its report pursuant to s. 19.3 of Legislative Decree 39/2010. No issues which need to be drawn to your attention emerge from that report.
The BSA also held meetings with the managers of External Auditors EY S.p.A. pursuant (inter alia) to s. 150.3 of the CFBA, during which useful exchanges of data and information relevant to the performance of their respective tasks took place, and no noteworthy facts or situations emerged. In that context, in the ambit of the supervision referred to in s. 19 of Legislative Decree 39/2010, the Board of Statutory Auditors also obtained information from EY S.p.A. regarding the planning of its auditing activities. The BSA examined the further tasks/services commissioned from External Auditors EY S.p.A. and companies belonging to its network. Their fees are set out in detail in the Notes to the Financial Statements, to which the reader is referred. Having regard to the declaration of confirmation of its independence issued by EY S.p.A. as required by s. 17.9 of Legislative Decree no. 39/2010, and the nature of the tasks commissioned from it and the companies belonging to its network by Assicurazioni Generali S.p.A. and the Group, no situations were found that prejudiced the independence of the External Auditors or any grounds for incompatibility pursuant to the applicable legislation. During the 2016 financial year, in view of art. 5.4 of Regulation EU 537/2014, which will be applicable from the 2017 financial year, the BSA drew up a specific procedure for approval of the commissioning of non-auditing services allowed by the legislation to the External Auditors and companies belonging to its network. As requested by the BSA, on 1 January 2017 the Company adopted the specific “Guideline for the assignment of non-audit services to auditors”.