Company established in Trieste in 1831. Share Capital € 1,556,873,283.00 fully paid-up.
Insurance has been a great invention of modern times. It was more of an intellectual rather than a commercial innovation, which has strongly contributed to the development and wellbeing of the global economy and society. The insurance business is strictly connected to the major issues of the contemporary world, which have an increasingly global and complex dimension.
Telling one year of business of one of the major insurance groups worldwide can provide a useful contribution to understand the status quo, interpret its underlying trends and get into its complexity. Once again this is done through a clear and user-friendly publication, rich in both numbers and images, showing the pictures of our employees and staff members worldwide. You can see them in their daily activities against the background of the macro-trends mostly influencing our business and our customers’ needs: climate change, urbanisation, demographic evolution etc..
This is the key message: an organization like ours can confidently look at the future only thanks to its people and their ability to innovate.
In accordance with the approach to corporate reporting started in 2013, this year we are again presenting an Annual Integrated Report to give our stakeholders an overview of how we create value. This report complies with both prevailing regulations and the principles of the International <IR> Framework issued by the International Integrated Reporting Council (IIRC). Besides following national and international developments in reporting standards through the <IR> Business Network, we are also continuing our activities as co-chair of the Insurance Network, established in 2014 in order to develop, share and communicate best practices to prepare an integrated report in the insurance sector.
Responsibility for the Annual Integrated Report The Board of Directors of Assicurazioni Generali S.p.A. is responsible for preparing this report. The reporting process was conducted under its responsibility applying the Guiding Principles and Content Elements set out under the International <IR> Framework.
Please send any comments or opinion about the report to integratedreporting@generali.com
Please refer to the Glossary at the end of the report for more information on the acronyms.
Cross-reference to the web Cross-reference to a section of the report or to other Group reports
Elements of the content of the <IR> Framework 20 Gruppo Generali Business Model Sottotitolo Capitolo Sottotitolo Capitolo 21Gruppo GeneraliRendiconto Annuale Integrato
2015 has been a rewarding yet also innovative year for Generali and its stakeholders. The year witnessed the beginning of a new cycle which started with the presentation of the strategic plan based on key elements which are simultaneously distinctive, simple and ambitious. We announced our intentions to focus both on cash generation and dividend growth, as well as position ourselves as a European leader in insurance retail, becoming simper and smarter in offering products and services. We furthermore planned significant albeit selective investments in technology and data analytics. These are key elements to gain leverage in the future of our industry which is all the more dependent on long-term and interactive partnerships with clients and the ability to listen to them.
In terms of results, in line with our strategic targets, we closed 2015 with a significantly increased net profit of over 2 billion Euro and an operating profit of over 4.7 billion. The Solvency 2 ratio amounts to 202%, whereas the written premiums recorded a total income of over 74 billion Euro.
Thanks to these results we are able to distribute a dividend of 72 Euro cents per share to all our shareholders, increased by 12 cents (+20%) compared to the previous year.
We also strengthened our position in Central Eastern Europe, where we are now among the major insurersin the region, acting as leader in most of the countries we operate in.
Technology and the ability to be innovative became key elements in responding to the new trends of the insurance market. In this regard, we are implementing a strategy aimed at exploring new opportunities, identifying particularly dynamic companies, starting long-lasting partnerships and collaboration schemes with centres of excellence. To mention just a few, the acquisition of MyDrive, contractual agreements with Obi Worldphones and Microsoft, but also the threeyear partnership with the United Nations’ Abdus Salam International Centre for Theoretical Physics. This is a new approach to the regular modus operandi in our sector which expands business horizons and industrial prospects in an ever distinctive backdrop of macro-economic trends. The demographic, social, environmental and climate changes as well as challenges in terms of welfare, new technology and volatile and uncertain financial conditions, now represent the normal operating field for a global player such as Generali, especially after closing the process of focusing on the insurance core business in 2015.
The role of an insurance group is now even more focused on contributing to growth, development and society’s welfare, pursuing the goal of sustainability in terms of business and finance from a social responsibility angle and thus looking at things with the long-term perspective, envisioning the future and well-being of the generations to come. We are now even more aware that we achieved these results thanks to the commitment and the engagement of all our employees, distributors and collaborators, our much appreciated partners, to whom we would like to express the most sincere gratitude.
Property&Casualty Recovery in gross written premiums, driven by non motor segment. Strong growth in the operating result. Improving Group Net Cor thanks to the loss ratio trend.
Our greatest strength is our international presence; we are the market leader in Italy, we have a strong presence in Europe and we aim to increase our presence in Asia and South America.
The Group was established as "Assicurazioni Generali Austro - Italiche" in Trieste. Trieste was the ideal choice at the time as a commercial hub located in the main port of the Austro - Hungarian Empire.
1915–1918 The First World War raged across Europe. After the Allied victory over the Central Powers, Trieste became part of Italy and Generali became an Italian company.
1946–2010 The Group resumed its expansion during the “Italian economic boom” years. An agreement was signed with the US-based insurance company Aetna in 1966; Genagricola was founded in 1974 (which heads all agricultural activities of the Group) and Genertel, the first insurance company by phone in Italy, was established in 1994. The Group took control of the AMB Group in 1997 to promote growth in the German market. Banca Generali was established in 1998 in order to concentrate all asset management activities and services under one umbrella. There were some acquisitions in the first decade of the new millennium (INA and Toro) and various joint ventures (Central and Eastern Europe and Asia) which mean that Generali now has a presence in over 60 countries worldwide.
September 20 Gruppo Generali Business Model Sottotitolo Capitolo Sottotitolo Capitolo 21Gruppo GeneraliRendiconto Annuale Integrato
The Generali Group attained 100% ownership of Generali PPF Holding B.V. (GPH) in January by acquiring the remaining 24% of shares held by PPF Group, in accordance with the agreements signed in January 2013. With acquisition of full ownership of GPH, the holding company operating in Central Eastern Europe as one of the largest insurers on that market changed its name to Generali CEE Holding B.V.. The acquisition of the remaining shares of GPH was completed under the terms previously announced to the market, for a final price of € 1,245.5 million.
Net operating cash by 2018 total dividends to 2018 € 1.5 billion in total savings
In July, Generali acquired full control of MyDrive Solutions, an English start-up founded in 2010 and leader in the use of data analytics tools to profile driving styles; the aim was to offer innovative and tailor-made products for customers with the most virtuous drivers benefitting from lower rates. In line with the new strategy announced at the most recent Investor Day, the acquisition of MyDrive will foster the introduction of a centre of excellence in data analysis at Group level. The data analysis activities will be expanded to a vast array of sectors, from fraud prevention to sophisticated customer segmentation, thereby facilitating the creation of intercompany synergies and optimization of the products on offer.
At the end of August, Generali and Obi Worldphones announced a pioneering exclusive deal through which the Group will be able to exploit the mobile channel reaching up to 20 high-growth markets by 2017. Under the terms of the deal, Generali and Obi – a start-up whose co-founder is John Sculley, former CEO of Apple - will jointly develop a mobile insurance platform based on native applications that are included in the standard set-up of mobile devices; the aim is to reach a prospective customer base of more than 10 million people through the offer of highly useful services right from the home screen of Obi Worldphones. The applications will be developed on a country-specific basis and offered to clients in the markets where both Generali and Obi operate, starting with Turkey, India, Indonesia, Vietnam, the Philippines and the United Arab Emirates.
An innovative agreement was signed on 29 October between the Generali Group and the United Nations’ Abdus Salam International Centre for Theoretical Physics (ICTP) - the world’s leading scientific institution in the research and transfer of knowledge to emerging and developing countries; it is based in Trieste, and operates with the support of the Italian Government, the IAEA and UNESCO. This agreement will support a three-year project for the study, analysis and prevention of seismic episodes.
89% of allocated orders, confirming the credit the Group enjoys on the international markets. 49% of the bond was allocated to investors in the UK and Ireland, 11% to Italian investors, approximately 9% to French investors, 9% to German investors and 4% to Northern European investors. There was also significant interest from Asian investors. On 27 October the rating agency AM Best announced that it assigned a bbb+ rating to the subordinated bond issue.
At Generali’s request, Standard & Poor’s (S&P’s) withdrew its rating on the Group on 13 February. Generali will therefore no longer have an S&P rating. The decision is based on a thorough review including consultation with investors and other stakeholders, which highlighted the inflexibility of S&P’s criteria and its failure to take account of the significant improvement in the Group’s financial solidity achieved in the last two years. Furthermore, the automatic link to the sovereign rating applied by S&P did not recognize the high level of diversification in the Group, nor the benefits of its broad geographical presence. That is why General decided to ask for the S&P rating to be withdrawn. In accordance with industry norms, Generali will keep its rating with three major rating agencies: Moody’s, Fitch and AM Best.
Thanks to the improvement in the Group’s capital position and operating performance, the rating agency Fitch upgraded the rating on the Generali bonds on 26 August. A key factor leading to the rating upgrade was the strong focus of the management on the capital strengthening and on reducing the financial leverage. The outlook was confirmed as stable.
On 3 November the Financial Stability Board (FSB), together with the International Association of Insurance Supervisors (IAIS) and the national Control Authority, published its updated list of Global Systemically Important Insurers (G-SIIs), removing Generali from the list.
In January 2016 the rating agency Fitch has confirmed Generali’s and its subsidiaries IFS (Insurer Financial Strenght) rating at A-; the outlook has been confirmed stable. The rating reflects the improvement in Group’s capital position, the expectations that operating performance will remain strong and that management’s ongoing focus will be to preserve capital and reduce financial leverage. On the basis of Fitch’s internal model (FBM), Generali’s capital position remained strong at the end of 2014 and it is now very close to the “Very strong” level, thanks to the improvement in the Group’s capitalization.
The Board of Directors has resolved to assign temporarily the powers of Group CEO to the Chairman of the Company, formerly attributed to Mario Greco, pursuant to the Group’s provisions for succession plan. The Board of Directors has also resolved to task the Appointments and Corporate Governance Committee to initiate the process for the selection of candidates to the Group’s provisions for succession planning.
Social and relationship Distinctive brand New partnerships Better relationships with clients New insurance solutions Tax contribution
Traditionally, the customer journey was a direct path from phonebook to agent
We are aware of the growing need for solutions with a high social security content and the increased need to ensure coverage for the higher health care expenses as people age. We are also aware of the lack of knowledge and the reluctance to look for insurance solutions to adequately meet these needs, due to a lack of comprehensive and easily accessible information on products or insufficient awareness of possible future individual or family needs. We are therefore committed to strengthening dialogue with working age people, helping them 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 and to therefore ensure that future income will be enough to cover the future requirements. It is also important to focus on covering possible immediate requirements, addressing the main risks that could affect the earning capacity of young families and describing adequate risk products. Improved dialogue allows people to be more aware of their needs and allows us to take appropriate actions. In addition to the traditional insurance solutions, we have developed innovative solutions such as the "living age solutions", insurance products linked to lifestyle developed by General Vitality, the start-up launched in partnership with Discovery in 2014. Particular focus is placed on the development of long-term care products (LTC).
The climate is changing, becoming increasingly extreme and unpredictable. This is clearly reflected in the factors that can be used to estimate risk, especially for insurance protection against events that depend on the weather such as floods, drought and storms. The rise in claims tied to weather-related catastrophic events is characterized by higher expected losses and increased volatility, resulting in greater uncertainty in pricing the policies, also due to the higher capital absorption resulting from the events being underwritten. If these changes are not reduced, the prices required from customers to get insurance may get too high, or the risks may even become uninsurable in extreme cases. In a scenario in which the community has to face and deal properly with climate change, P&C insurance products can play a primary role in strengthening the financial solidity of the social and economic system as a whole.
We are actively working towards identifying, following and quantifying environmental risks and are therefore committed to investing in research and studies in this area. We constantly monitor the main dangers and territories where we are exposed, using actuarial models to estimate the damage that could result from natural phenomena. We can therefore optimize our underwriting strategies, and link them to targeted reduction of the related risks in order to optimize price policies and guarantee the long-term sustainability of our products. One of the key ways we have to achieve the aforementioned targets is reinsurance: we manage our protections on a centralized basis in order to take advantage of economies of scale and pricing due to the size of the Group, therefore taking advantage of the business diversification and making the most of our “purchasing power” on the international reinsurance markets. Our answer to the challenges arising from catastrophic events, included those related to climate change, is to develop innovative products, along with a high level of services in order to meet the potential demand of more and improved protection against catastrophes. Finally, we are also committed to promoting an adequate regulatory regime to reinforce the strength of the socio-economic system as a whole.
For more information on this topic please refer to 2015 key facts, page 17 of this document and Environment and climate change in the Sustainability Report 2015.
ata Protection Regulation Regulation on Key Inform ation for investm ent products
As regards the Solvency II regime - that has entered into force for all European Insurers since 1st January 2016 - we have implemented the new organizational requirements as well as the formal procedures for the adoption of the Internal Model to measure the capital requirements. With respect to the European Insurance Distribution Directive, our BORA Wind of change in the EU Insurance Distribution Legislation is progressing; this is an important international and cross-functional initiative aimed at sharing knowledge and best practices in the field of product design and distribution strategies. As regards the new personal data protection requirements, we have closely followed the negotiations on this topic over the past year, proactively contributing to the European debate. We will continue to monitor the final phase of the legislative procedure and will engage to fully apply its principles with respect to all our activities.
Data use is also linked to the development of telematics in the insurance area. Together with other stakeholders, we are contributing to the work carried out at EU level which aims to tackle the different aspects related to the use of telematics and intelligent transport systems. Also Generali will have to comply with the IAIS ComFrame requirements and particularly with the International Capital Standard which will be tested during 2016 and effectively applied as from 2019.
2015 was characterized by modest global growth, uncertainties regarding the possibility of a Grexit, very easy monetary policies and the economic slowdown of emerging economies. In this context, rates on government bonds in advanced countries stayed low and the stock market performance therefore benefited. Once the risk of a Greek exit from the euro was averted thanks to a last minute agreement, market attention shifted to the fragility of emerging markets. In China, fears of an economy worse than the GPD data suggested were also fuelled by a decision by the authorities to intensify depreciation of the Yuan against the dollar. However fears of a hard landing fell towards the end of the year. Other emerging countries have shown some problems, particularly Brazil, with the currency falling sharply and very poor tax metrics. These fears about a global economic slowdown and possible crisis in the international markets prompted the Fed to postpone the first rise in the policy rate. However, the US economy has continued to show signs of recovery: the labour market has confirmed its strength, with unemployment rates down to balanced levels, and the revised GDP in the third quarter led to a 2.1% annualized increase, slightly above the potential. The Fed therefore decided to raise the benchmark rate in December. In the Euro Area, the third quarter GDP stood at +0.3% (compared to the second quarter) due to weak exports. However, business confidence indices point to a recovery in the last three months of the year, both in manufacturing and in services. The overall inflation rate remained well below the ECB's objective. This was largely due to the effect of the drop in oil prices on the prices of manufactured goods and services and the deflationary pressures from emerging countries.
As for the insurance industry, we expect good trends in premiums for the P&C sector in the main countries of the Euro-zone, in line with the, albeit weak, economic recovery. The Life business will continue to be affected by the current low interest rates, in addition to a minimum recovery in disposable income. The position of banks will be crucial, who may have increasingly less interest in pushing insurance products once lending increases.
We have placed more emphasis on the integration of the processes as to product development, strategic asset allocation, asset liability management and risk management in order to properly manage the challenging macroeconomic and financial situation, and the entry into force of the new Solvency II rules. The economic capital requirements, Group income targets and yield expectations of policyholders are the main factors influencing the definition of the asset allocation strategy. The low interest rates are dealt with by ensuring greater diversification in terms of asset class and geographical exposure, and paying more attention to the coherence between assets and liabilities.
Globally, 1 in 4 adults should get more exercise to stay healthy
Deliver on the promise We wish to build a trusting, long-term relationship with our employees, clients and stakeholders. Our work is all about improving the lives of our clients. We use discipline and integrity to fulfil this promise and make a positive impact in a long-term relationship.
Actively We play a proactive and leading role in improving people’s lives through insurance.
Protect We are dedicated to the true role of insurance - managing and reducing risks for people and entities.
People We care deeply about the future and the lives of our clients and our people.
Lives Ultimately, we have an impact on the quality of people’s lives: wealth, safety, advice and service help people’s quality of life in the long term.
Delivering We guarantee that the results will be achieved, striving to provide the best performance possible.
Insurance solutions We want to propose fully comprehensive, personalized insurance solutions in terms of protection, advice and service.
Live the community We are proud to belong to a global group with strong, sustainable and long lasting relationships in every market in which we operate. We feel at home in every market.
Be open We are curious, approachable, proactive and dynamic, with open, diverse mindsets and we want to look at things from a different perspective.
The end of 2014 represented a turnaround for Generali that celebrated the achievement - one year ahead of the 2013 – 2015 plan - of ambitious targets in terms of Solvency, operating result, cash flow and cost reduction. This result was achieved through the sale of several non-core assets. At the same time we acquired minority interests in assets critical to our business, which we now fully control, especially in Central Eastern Europe. We also reorganized the business in Italy. Also 2015 results confirm the target achievement.
Management of serious injury We changed our approach to serious injury cases, introducing greater focus on the customer compared to the more traditional compensation-based approach. This new approach already operates in Germany, France and Austria, with already more than 250 new cases managed, and a strong focus on training and development of new professionals. It is currently being introduced to the Italian market.
❚ a steering committee of senior colleagues, Global Leadership Group (GLG) members and senior managers
Extreme events We are aware that a timely, effective intervention can help to lift entire communities hit by extreme events.
Tornado in Riviera del Brenta (Italy) ❚ Task force with in-house experts for rapid assessment of damage ❚ Activation of the assistance structures to quickly gather the claim notifications ❚ Rapid intervention to repair the damage ❚ Preferential channel to settle claims ❚ Advances on claim settlement amounts ❚ Single victim and more than 1,000 claims paid within the first 2 weeks
Floods in South East France ❚ Joint crisis committee with Generali France/Europ
Assistance France to manage the emergency ❚ Immediate activation of a hotline for customers operating 24/7 ❚ Notices on Nice Matin for the victims to improve organization of the emergency activities ❚ Assignment of a special expert to the partners to assist in logistical help, regulate the flow of requests, identify the damaged goods or vehicles etc.
Our dynamic and proactive approach allows us to offer innovative solutions also in the field of new technologies.
This ambition fits our footprint and our DNA; it is based on our core strengths (for example broad private client base, strong market position in key markets and well-organized, extensive distribution). By pursuing this goal we will also improve our ability to generate and manage cash to finance the investments needed for our transformation.
A high level of engagement and empowerment to spark success for the company
Our geographic focus is still Europe, a region where we generate significant value; however, we are committed to increasing our footprint in other geographical areas and in the Corporate and Commercial business lines.
Two core Group wide initiatives are: Development of the Transactional Net Promoter Score (T-NPS)
The Transactional Net Promoter Score system is a focused, systematic method to listen to and act on customer and distributor feedback. It allows us to improve customer satisfaction, customer value and our profits (by improving customer loyalty and cross-purchasing and uppurchasing ). It also drives cultural change by creating a customerfocused mind-set throughout the organization.
T-NPS deployment is accelerating: 14 business units are currently live at year end 2015. We aim to cover the whole Group by 2017. We have already sent over 817 thousands questionnaires to customers, and got a consistently high response rate (19,4%), showing that our customers wanted to be heard. Two key benefits are emerging in business units where NPS is live: ❚ customer feedback plays a more prominent role in all key decisions, and
❚ we are learning more about what customers appreciate and what creates problems.
Another initiative involves the business units starting specialized training courses to enable frontline employees to further improve their relationship with the customers and therefore to improve our customer experience as a whole (for example, empathy training courses have been given in Poland for its claims handlers, with the staff being evaluated on their empathy skills during the promotional stage of the process, with cash bonuses being given for “most empathetic conversations”).
Thanks to the feedback from using the T-NPS, we detected a certain level of dissatisfaction of our customers in Spain regarding claims management and the related documentation. We therefore created a user-friendly website where customers can follow the process in real time, using a checkmark-based tool which shows the status of their claims. There is also a mobile app available to use this service.
The Generali Group is one of the leading operators in the use of telematics and profiling of driving styles, with the aim of providing innovative and tailormade products for customers and profitable rates for the more virtuous policyholders. The Group telematics portfolio continued to increase in 2015, and reached the milestone of approximately 920,000 policies mainly thanks to the contribution of Generali Italia and Genertel for Italy, Generali España for Spain and Generali Poistovna a.s. for Slovakia.
In this context, the acquisition and integration of MyDrive solutions has played a crucial role in enhancing our skills. MyDrive Solutions is an excellent data analysis company, based in London, and uses its skills in data science and software engineering in addition to algorithms to analyze behaviour for pricing purposes and to provide solutions that currently include: – usage based insurance (risk profiling, pricing, analysis of claims and fraud).
❚ Simplicity: making our customers’ life easier, offering clear, simple solutions.
❚ Flexibility: solutions tailored to customer needs, that are built around the client, allowing a tailored approach to shaping the offer, modifying it as time passes, and choosing the type of channel and payment.
Technical Excellence constitutes a flawless execution as the “Generali way” of delivering on the promise. Valter Trevisani Head of Group Insurance and Reinsurance
Becoming fast, lean and agile is an essential requirement in delivering a competitive and sustainable Group expense ratio and providing the investment resources to become leader in the retail market. With an initial focus on cost efficiency (our Opex Program) we have kept the Group cost base at the same level as 2012, for equivalent savings over € 800 million in 2015.
Key achievements so far include: ❚ Within the scope of the IT systems, we have established the Generali Software Factory through an agreement with 2 major IT providers. This helps all major business units through the application selection, rationalization and sharing and the management of needs and licenses, helping to develop IT applications faster and at lower cost. It also enhances performance and provides the basis to support our digital transformation. In 2015 all major business units joined this project.
❚ Procurement is a major contributor to cost savings and helping to harmonize/improve service levels and the quality of purchased goods across the Group. We have worked to full capacity and developed more than 525 projects involving all operating units.
These initiatives form an integral part of the transformation plans of our operating units, with specific programs delivering large benefits for each unit. Notable achievements in 2015 include the Generali Italia Integration Program, where the major steps in terms of roll-out systems and portfolio migration are completed, the operational transformation initiatives in the Central Eastern European countries, with major programs running in the Czech Republic, Hungary and Poland, and the branch network reorganization in Spain.
We intend to invest and prioritize the resources generated by these programs to become a leader in the retail market, simpler and smarter. We will support the digital transformation process (e.g., through IT support for data analytics, mobile strategy implementation, and ensuring renewal of technological support for our distributors with, inter alia, presence on social media, new CRMs and sales enablers), and new initiatives aimed at increasing both cost efficiency and access for all business units to the best skills, always with a customer driven philosophy.
Going forward we will expand the scope of these Group programs to all areas of the operating platform. This will allow us to reach total savings of € 1.5 billion for the 2012-2018 period, and to finance investments of € 1.25 billion over the next three years.
People are our most valuable resource, our most strategic asset. We believe that a modern and competitive multinational must first and foremost develop and motivate the first ambassadors of our brand with regards to our customers and stakeholders. Our People Strategy is founded on four priorities: ❚ promoting engagement and empowerment ❚ strengthening the skills of our leaders and talents ❚ constructing an agile organisation and developing new expertise
At Generali it is fundamental to promote the engagement and empowerment of people so they can make informed decisions, demonstrate their leadership and better fulfil the needs of our customers.
In 2015 we launched the first Global Engagement Survey, in association with an independent external consultant, involving leaders and managers with the aim of assessing internal levels of engagement and awareness with regard to the Group’s goals and people’s roles in contributing to their achievement. The results enabled us to identify a series of global and local priorities to implement through concrete and simple initiatives, managed by each country and integrated in a structured action plan. At global level the following priorities emerged: ❚ develop a performance culture that is focused on the customer and meritocratic
❚ be simpler and smarter: promote the empowerment and independence of our people through various levers (e.g. training, communication, systems of acknowledgment)
+ 1,000 Workshop arranged by the countries to support local plans
+34,000 open comments received in 29 languages questions are proud to work for Generali would recommend the Group as a good place to work believe in the company’s goals and objectives believe to be inspired by the Company to make their best in the job activities wholly support the Group values are willing to do more than requested to contribute to the company success * Global benchmark: average based on the response rates obtained in all surveys carried out in the last two years at global level by the independent external consultant with whom we collaborated ** Sector benchmark: standard for the independent external consultant with whom we collaborated for finance companies headquartered in Europe
this end we offer various programmes: ❚ Global Leadership Programs, global training programmes aimed at promoting strategic thought and leadership skills, providing participants with different managerial tools and accelerating the transition from manager to leader; ❚ Global Graduate Program, a Group initiative to promote cultural change, to develop Generali’s international reputation as a top employer, and to guarantee the leadership continuity line with 20 young international talents. Graduates take part in an 18-month training course composed of 3 international/ departmental job rotations and a Master’s in Insurance Management; ❚ technical and managerial education, which includes programmes designed to support managers, middlemanagers and professionals, providing short practical training programmes aimed at developing and practicing managerial and across-theboard skills. We strive to promote a common culture with regard to the insurance business, facilitating the alignment of approaches, metrics and languages, providing the necessary fundamental technical skills to make a difference in the global market.
~ 300 people involved so far in international mobility programmes in 35 different countries
Corporate governance lies at the heart of a company and must be considered as a way of running a company’s daily activities in the interests of all stakeholders in order to achieve sustainable results over time. Gabriele Galateri di Genola, Chairman
Established with the goal of ensuring greater alignement on Group strategic priorities and a more effective, shared decision-making process on relevant topics to the Group, by means of a team approach fostering shared information and strenthening international perspectives, it represents the main support mechanism for the Group CEO's strategic decisions, such as those concerning risks and investments, the assessment of Group �nancial and industrial results and the steering of the main strategic programs of the Group and/or impacting on more countries.
Cross-functional Committee that examines and identi�es topics with material impact on the �nancial statements both at Group and Assicurazioni Generali S.p.A. level.
Corporate body appointed by the General Meeting through a slate voting mechanism and responsible for approving the strategy proposed by management and for supervising management activities in pursuit of the corporate objective.
❚ 1,556,873,283 registered shares, all of which are ordinary shares, each with a nominal value of € 1.00 ❚ € 17.01 closing price of Generali shares at 31 December 2015 (€ 15.16 lowest price at 8 July and € 19.21 maximum price at 11 March) ❚ € 26,485,528,290 market capitalization
Corporate body that is appointed by the General Meeting through a slate voting mechanism and has supervisory functions on the compliance with the law and the Articles of Association and on management control.
Cross-functional Committee that supervises the pro�tability and risk level of new insurance business by means of a centralized process of prior approval of new products.
It conducts a periodic analysis of the Group investment policies, the main operational guidelines and the corresponding results, and a prior analysis of major investment and divestment operations.
Corporate body which expresses the will of all the shareholders by issuing resolutions.
Nationality Italian Professional background Manager In office since 28 April 2007 Board committees Appointments and Corporate Governance Committee Remuneration Committee * As defined in the Self-Regulatory Code * Interim holder of the executive powers of the Group CEO, on an urgent basis, since 9 February 2016
The remuneration policy for non-executive directors provides for payment of a fixed amount and additional compensation for those who are also members of board committees in accordance with the powers conferred to those committees and the commitment required in terms of number of meetings and preparation activities involved. Incentive plans based on financial instruments are not involved and a variable component amounting to a total of 0.01% of the Group net result is granted, subject to a maximum total limit of € 300,000 to be equally divided among the directors. The remuneration policy for the Group CEO, the only executive director, comprises a fixed amount, a variable amount (short and medium / long-term) and benefits in line with the remuneration package of the other executives with key responsibilities as described below.
Nationality Italian Professional background Professor In office since 30 April 2013 Board committees Risk and Control Committee Sub Committee for related party transactions
Nationality Italian Professional background Manager In office since 5 December 2014 * As defined in the Self-Regulatory Code
Ge ne ra li ** Spencer Stuart “Italia Board Index 2015”
Percentage of the Directors' attendance at the meetings held in 2015
In te rn at io na l E xp er ie nc e
St ra te gi es a nd b us in es s m od el s
The Board is regularly informed of the main legislative and regulatory developments affecting the Company and its governing bodies, and of the events characterizing the international economic scenario, which may produce any significant impact on the Group's business. Five days to inform of the strategy and Solvency II were organized during 2015.
By 2030, the new global middle class is expected to grow by 172% compared to 2010 levels, especially in emerging economies
His mission is to transform Generali France into a clientobsessed organization serving the four client clusters chosen (individuals, affluent, professional & small enterprises, commercial). The way forward is to engage the teams, to free the initiatives and to give confidence to all employees.
His mission is to strengthen our leadership on the Italian market, building more efficient operative platforms, though integration programs, business development actions and innovation initiatives.
Balanced remuneration packages based on role, responsibilities, skills and abilities demonstrated
Targets setting on an annual and long-term basis to maintain a sustainable level of performance in terms of results and risks taken
Constant monitoring of peer practice and general remuneration trends of the market
Remuneration guidelines compliant with international and national regulatory requirements and in line with Group values
Governance and Compliance 20 Gruppo Generali Business Model Sottotitolo Capitolo Sottotitolo Capitolo 21Gruppo GeneraliRendiconto Annuale Integrato
The Group’s intention is to give competitive total target executive remuneration packages with respect to our peers on the European financial market, with individual positioning based on the assessment of performance, potential and strategic nature of the role.
Variable and their compliance with Group values so that the performance level can be sustainable and is in line with shareholder requests and regulatory requirements.
Merit is a key element of our remuneration policy. The variable remuneration of Group executives comprises short and long-term components: ❚ the Group Short-Term
Incentive (STI) is the annual cash bonus system for the Group CEO and the members of GMC and GLG and provides for individual bonuses from 0% to 200% of the individual baseline target in accordance with: - Group funding, linked to the Group operating result and net profit; - individual balanced scorecards, based on 5 to 7 goals linked to value creation, risk adjusted profitability, process effectiveness and customer and human resources management. A qualitative “Effective leadership as role model in driving Generali as first choice for customers and employees around the globe” goal was introduced in 2014, obligatory and equal for everybody, to reinforce the leadership model and in compliance with regulatory requirements. The minimum weight ranges between 10% and 20% and is based on objective results related to human resources management, the behaviour shown and the impact on the organization itself.
We distribute our products and offer our services through a multi-channel strategy: we have therefore responded to the request of our customers to enable them to contact us in various ways. We aim to become an excellent provider of insurance solutions, available through a variety of channels and accessible in different ways thanks to new technologies: both through our global agents and financial advisors, and through brokers, bancassurance and direct channels. These channels allow clients to be more independent, since they can easily obtain information on alternative products, compare alternative options, purchase the preferred product and get a good post-sales service, thereby creating a positive customer experience.
We sell insurance policies and collect premiums through a multi-channel strategy
For further information please refer to Clients and sale channels in the Sustainability Report 2015
To understand the different and complex needs of the corporate segment within a connected and global world, Generali offers customers and brokers a unique approach for clients and brokers and provide them with specific insurance solutions for employees, P&C products and corporate risk solutions with Europ Assistance, Generali Employee Benefits, Generali Global Corporate & Commercial, Generali Global Health. Flexibility and know-how enable Generali to shape solutions on the needs of international customers. Within a highly industrialized segment, where these customers wouldn’t otherwise be properly positioned as to the retails solutions in the different countries, they are indeed offered simplified procedures in a multilingual system encompassing different juridical and fiscal system.
With regards to investments, for several years we have paid great attention to the issues of sustainable development: we base our investment strategies also on environmental, social and corporate governance criteria (ESG), without compromising profitability and in accordance with the principles of protection of our most important asset, our reputation.
2. Mapping ESG risks Carbon footprint Class action Brand image / Reputation Legislative pressure Competitive advantage Intangible capital 4. Selection of SRI investments Application of ESG and financial filters (benchmark)
❚ Financial analysis of the range of ESG-compliant companies to identify the best investment opportunities.
The exclusive ESG method includes 4 stages (positive screening) and is applied to corporate shares and bonds: over € 26.5 bln billion managed in socially responsible portfolios
For further information please refer to Responsible and social impact investing in the Sustainability Report 2015.
With reference to the macroeconomic scenario, the Italian economy has emerged from a long recession; GDP is expected to grow by 0.8% in 2015 supported by domestic demand, particularly thanks to household consumption, rebuilding of inventories and investments in machinery, equipment and intangible assets. Financial markets had positive performances despite the increased volatility observed in recent months, due to turmoil on the financial markets and the Volkswagen scandal. Sovereign debt was not affected, with a decline in the yield spread between Italian and German ten-year bonds. The sovereign debt securities has not been affected from that; in particular the spread BTP-BUND, that at the end of 2014 was 135 pps, declined to 97 pps.
Despite the excellent performance recorded in 2014, the Italian Life insurance market maintained positive growth rates during 2015 thanks to traditional products, though with a business mix that continues to shift toward hybrid and unit-linked due to the still low interest rates.
Conversely, the P&C market has been declining in the last three years, due to the decrease in average premiums within a still very competitive motor segment. The non-motor segment continued to witness limited growth rates due to the still weak macroeconomic recovery.
The performance of the financial segment was positive thanks to the growing demand for financial advice by customers in a context of declining returns on investments and increasing market volatility.
Our people * The indicated market shares and positions, based on written premiums, refer to the most recent official data.
Generali in Germany is the second-largest insurance group in the German market in Life & P&C, with a market share of 5.7% in P&C and of 10.4% in Life (including the health business). It is the second insurer in the country and market leader in Life, strongly positioned in the unit linked and protection business lines, in hybrid products, corporate pension plans and in the direct channel.
Moreover, thanks to Central, Advocard, Dialog and Badenia tailored insurance solutions for customers and more agile sales channels at country level will be ensured.
As to the whole insurance market, the Life segment is under strong pressure as regards margins, due to the extremely low interest rates and the competition with banks and investment institutions. Conversely, in the P&C market Generali in Germany is expecting a market share growth, a significant improvement in the motor line profitability - despite having already achieved a softening phase - and an excellent performance in terms of combined ratio.
Generali France is a major player on the French market, 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 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.
Livret A yields, a traditional benchmark for savings investments in France, grew to 0.75% in August. As for the equity markets, CAC, the French reference index recorded an excellent performance reaching +10% (-0.54% at 31 December 2014).
The low interest rates environment and especially its short term nature favoured the reallocation of financial assets into Life products, i.e. the savers’ favourite insurance form in France. Net written premiums in the French Life insurance sector were broadly positive and higher than the previous year. Investors particularly valued unit-linked products (approximately 20% of total premiums compared to 16% in 2014), representing an increasing share of the products placed by insurers. Conversely, the P&C market reported a modest increase of approximately 1% compared to the previous year, reflecting the mentioned weak economic environment, ongoing competition and a soft phase within the corporate business line.
Generali CEE Holding* is one of the biggest insurers in the Central Eastern European market with an excellent track record of profitability and leading positions in most of the countries where it operates. It ranks first in the Czech Republic and Hungary, second in Serbia, third in Slovakia and among the top ten in the other countries. Five markets are contributing with more than 90% of the Group’s business in Central Eastern Europe - Czech Republic, Poland, Hungary, Slovakia and Serbia/Montenegro - whereas Romania, Slovenia, Bulgaria and Croatia account for about 10% of premiums.
In 2105 the CEE insurance markets benefited from momentum in economic recovery. However, the region is far from returning to the high growth rates of the pre-crisis period, especially in its most relevant markets. Overall, 2015 ended with stagnating volumes, but the differences between the markets of the region are substantial in terms of dynamics; regional Life insurance premiums decreased, driven by the negative trend recorded in Poland and the Czech Republic, while on the Non-Life side, the change in premium production was positive.
With reference to the financial markets, the equity sector of Czech Republic, the most relevant market in the area, remained substantially stable (+1%), while the Czech Republic ten-year government bond declined to 0.54% from 0.74% at the end of 2014.
CEE includes the Czech Republic, Poland, Hungary, Slovakia, Serbia/Montenegro, Romania, Slovenia, Bulgaria and Croatia.
* As from January 2015 Generali obtained 100% ownership of Generali PPF Holding, having acquired the remaining 24% minority shareholding held by the PPF Group, in line with the agreements signed by the shareholders. Following this, the Company’s name was changed to Generali CEE Holding.
Spain Generali España is one of the main insurance groups in Spain, with a total market share of 4.0% in the Life segment and 4.2% in the P&C segment. It provides a wide range of Life and P&C policies for both private individuals and companies. The Group operates through a multi-channel distribution strategy including bank branches and a network of agents and brokers which is among the most extensive in Spain. Overall, the Group ranks 7th in the Spanish insurance market in terms of total premiums. The bancassurance agreement with Cajamar was expanded and reinforced in 2015, thereby giving Generali España exposure to the main life distribution channel, which is growing also in the P&C segment.
EMEA includes Austria, Belgium, Greece, Guernsey, Ireland, the Netherlands, Portugal, Spain, Switzerland, Tunisia, Turkey and Dubai. P&C Market share
Generali was the third largest insurance operator in terms of written premiums, with a market share of 14.8% in Life insurance and of 16.5% in P&C.
The Generali Group has been operating in the Far East since 1980 and is now covering China, Indonesia, the Philippines, Thailand, India and Vietnam. Two branches are located in Japan and Hong Kong, where the Asia Regional Office is also based. Generali entered the Malaysian market in December 2014 through an agreement with MultiPurpose Capital Holdings Berhad (a wholly owned subsidiary of the Malaysian group headed by MPHB Capital) to acquire 49% of the P&C insurance firm MPIB "Multi-Purpose Insurance Berhad", with the right to exercise a call option after two years on further 21% of MPIB, enabling the Group to obtain a 70% stake in the company, the maximum allowed for foreign companies in Malaysia.
The main contributor to the Group in terms of sales is China, where a joint venture with the local partner CNPC (China National Petroleum Corporation) has become one of the top foreign insurance groups on the market.
While in China, Indonesia, the Philippines and Vietnam the Group operates exclusively in the Life business (mainly savings & pensions, but also protection and unit-linked), Hong Kong, Thailand, Japan, India and Malaysia are also covering the P&C business , which overall accounts for about 8% of the total income in the Far East. The main distribution channels are banks and agencies, and the direct–channel is being developed in China and Thailand.
ASIA includes China, Indonesia, India, Honk Kong, Vietnam, Thailand, the Philippines and Japan.
The Group is a long-established player in Latin America, with Argentina as main market where Generali is ranked as the fourth operator. In 2015, the disposal of a number of companies was finalized (La Estrella and Caia ART in particular) to increase efficiency and focus on the core business. The Argentinian market is characterized by an historically high inflation rate, and a volatile financial environment. Despite the though scenario for the insurance business, the Group has implemented best practices in its Argentinian subsidiaries, placing them at the top in terms of service quality and innovation.
The second most important country is Brazil, currently experiencing a difficult period due to the political instability and an economic slowdown. Despite that, the insurance market still holds potential for development in the coming years thanks to the Brazilian middle class.
The Group also operates in Panama, Colombia, Guatemala and Ecuador. The main distribution channel in these countries is the broker channel.
❚ Enhanced growth in the operating result (+6.1%) mainly due to the performance of the P&C segment
The main countries where the Group operates showed growth: Italy expanded (+11.5%), in addition to France (+3,8%), Germany (+3.4%) and the Central and Eastern European countries (+7.4%).
New business in terms of Annual Premium Equivalents (APE) was substantially stable, amounting to € 5,210 million (-0.2% constant exchange rates and shares attributable to the Group); the development in the unit/index linked business (+14.6%) and risk business (+22.4%) were actually offset by the drop in the savings policies (9.8%).
As noted above, gross written premiums in the P&C segment continued the recovery in place for the first 9 months of the year, increasing to € 20.868 million. The slight increase (+0.8%) was due to the non-motor segment which was up in most of the main territories of the Group. The motor lines were stable despite the strong competitive pressure in some of the main markets the Group operates in; growth in Germany and Eastern European countries was actually offset by the falls in the markets hardest hit by the current macro-economic climate like Italy and France.
Following on the trend of the first nine months of the year, total written premium amounted to € 74,165 million (+4.6%). This growth was led by the life segment where income increased by 6.2 %; the P&C segment also showed recovery (+0.8%) despite the ongoing challenges in the macro-environment in many markets where the Group operates. Premiums written performance for the fourth quarter was positive in both segments.
Life segment written premiums stood at € 53,297 million, recording a 6.2% increase, thanks to improvements across all lines of business. In accordance with the strategy to optimize performance of the life insurance business, favouring products with low capital absorption, the unit/index linked contracts are up by 8.6%
In particular, P&C segment increasing by 8.5% in the operating result which benefitted from the improvement in the Group combined ratio thanks to the reduction in claims. The operating result from the life segment stayed solid, at € 2,965 million, despite the current difficult market conditions.
Finally, the operating result in the holding and other businesses segment improved; this segment refers to 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 the other operations that the Group considers to be ancillary to the core insurance business. The positive development of the financial segment was driven by the growth of the results in Banca Generali and China. The increase in the holding expenses was due to the higher costs incurred for both the projects to reinforce the Head Office structures - with reference in particular to the new Solvency II regime transaction and the activities related to implementation of the new Group strategy - in addition to development of the Regional Offices in charge of managing, coordinating and controlling the business in key areas in terms of growth opportunities. These costs were partially offset by revenues for brand royalties recorded starting from the last quarter of this year.
The operating return on equity amounted to 14%, up from 13.2% at 31 December 2014, and exceeding the strategic profitability target of 13%.
The non-operating result of the Group improved to € -1,318 million (€ -1.464 million at 31 December 2014). More specifically: ❚ the net impairment losses amounted to € -503 million, sharply down from the € -813 million at 31 December 2014. This trend reflected lower impairments on equities and real estate investments; during the fourth quarter of 2015, the Btg Pactual shares, received from the agreements related to the sale of BSI, were impaired for about € 110 million, due to performance of the reference market; ❚ net realized gains decreased, standing at € 758 million (€ 874 at 31 December 2014) due to the lower realized gains from government bond portfolios. In 2015, especially in the fourth quarter, there were higher net realized gains in the real estate sector; ❚ net non-operating income from financial instruments at fair value through profit or loss amounted to € -96 million (€ -263 million at 31 December 2014), due to the improved performance of certain financial markets compared to the same period of the previous year; ❚ other non-operating income and expenses amounted to € -712 million (€ -441 million at 31 December 2014). This item comprised € -142 million for the amortization of the value of acquired portfolios (€ -139 at 31 December 2014), € -269 million for restructuring costs (€ -182 at 31 December 2014), in31 /12/15 31/12/14 fourth quarter. 2015
The result attributable to minority interests, amounted to € 229 million, which corresponds to a minority rate of 10.1% (9.8% at 31 December 2014) was improved from € 182 million of the previous year due to the increase in results of Banca Generali and in China.
interest expenses on financial liabilities and holding expenses that are considered as non-operating, decreased at € -764 million (€ -819 at 31 December 2014), following the reduction of interest expenses on financial debt due to the debt optimisation measures performed by the Group during 2014.
Net operating income from other financial instruments 13,408 13,082 3,123 2,954
Net non-operating impairment losses on other financial instruments and land and buildings (investment properties)
Result of the period attributable to minority interests 229 182 58 21
(*) 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).
(**) The amount is gross of interest expense on liabilities linked to financing activities.
The shareholders’ equity attributable to the Group amounted to € 23,565 million, +1.5% compared to € 23,204 million at 31 December 2014. The change was mainly due to: ❚ the result of the period attributable to the Group, which amounted to € 2,030 million at 31 December 2015; ❚ the dividend distribution of € -934 million, carried out in 2015; ❚ other unrealized gains or losses recognized through shareholders’ equity in the current year amounted to € -118 million. More specifically, € -431 million of this was due to deterioration of the item unrealised gains or losses attributable to available for sale and only partially offset by the improvement in the foreign currency translation reserve of 313 million following depreciation of the Euro compared to the main currencies. Finally, the profits resulting from re-measurement of the liabilities for defined benefit plans recorded an improvement of € 162 million, due to the increase in the applicable rates used to discount those liabilities substantially offset by the reduction in the reserve for disposals groups classified as held for sale with respect to the aforementioned exit of the BSI group (equal to € 157 million at 31 December 2014).
Net unrealized gains and losses on defined benefit plans 162 -537
Shareholders' equity attributable to the Group at the end of the period 23,565 23,204 31/12/2015 31/12/2014
The Group solvency I ratio was 164%, up by 8 pps compared to 31 December 20141. This increase was mainly due to the positive economic performance and the positive impact of the sale of the BSI banking group.
At 31 December 2015, total investments amounted to € 452,662 million, up by 4.5 % over the previous year. Group investments amounted to € 377,697 million (+3.4%) and unit/index linked investments amounted to € 74,966 million (+10.7%).
The corporate component increased in absolute terms to € 134,077 million (€ 125,544 million at 31 December 2014), equal to 45.1% of the bond portfolio (43.2% at 31 December 2014). The change was due to the net purchases made during the year, only partially offset by the value deterioration resulting from the increase in the credit spread. The corporate component includes covered bonds, financial sector bonds and bonds issued by industrial companies. With reference to the new investments, those in the non-financial sector were preferred in order to increase diversification.
Equity securities: share portfolio Equity securities increased in absolute terms, standing at € 18,353 million (€ 17,610 million at 31 December 2014).
Due to the market conditions in 2015, the current return recorded a modest decline, standing at 3.4% (3.6% at 31 December 2014), while in absolute terms the current income increased, amounting to € 12,552 million (€ 12,385 million at 31 December 2014). The reduction in the ratio was partly due to the significant increase in average investments, and also to the low interest rates that can be obtained when reinvesting.
The contribution to the result of the period from realized gains and losses, impairment and unrealized gains and losses recognized through profit or loss (harvesting rate) remained substantially stable at 0.5% (0.7% at 31 December 2014).
Investment properties Investment properties fell in terms of book value, amounting to € 13,783 (€ 14,872 million at 31 December 2014).
Rest of Europe 2 Please refer to the methodological notes attached to this report for details on the calculation of this indicator.
In accordance with the IAS / IFRS managerial model used by the Generali Group, consolidated liabilities were split into two categories: ❚ liabilities linked to operating activities, defined as all the consolidated financial liabilities related to specific balance sheet items from the consolidated financial statements. This category also includes liabilities stated by the insurance companies against invest-
In accordance with Group strategy which requires the senior debt and subordinate debt to be rebalanced in favour of subordinate debt, and prudent advance refinancing policies, the net increase in liabilities linked to financing activities compared to 31 December 2014 is mainly due to the following transactions: ❚ repayment of € 500 million on a senior bond in May 2015; ❚ new issue of a subordinated debt for € 1,250 million in October 2015 by Assicurazioni Generali, in order to refinance the Group bonds with early repayment options for June 2016.
ment contracts and liabilities to banks and customers of banks belonging to the Group; ❚ liabilities linked to financing activities, including the other consolidated financial liabilities, including subordinated liabilities, bonds issued and other loans obtained. This category includes liabilities incurred in connection with a purchase of controlling interests.
This category also includes unlisted subordinated liabilities issued by Assicurazioni Generali S.p.A. and other subsidiaries. Liabilities issued by Assicurazioni Generali S.p.A. in the form of private placements amounted to a nominal amount of € 1,000 million corresponding to an amortized cost of € 997 million. The remaining subordinated liabilities relate to shares issued by subsidiaries in Austria with an amortized cost of about € 28 million.
A subordinated bond was issued in October 2015 for a total amount of € 1,250 million in order to refinance the 2016 call dates on a number of subordinated bonds issued by the Group.
This category also includes the other bonds, and mainly including those issued by the subsidiary Ceska Pojistovna for a nominal amount of CZK 500 million. The corresponding amortized cost amounts to about € 24.6 million. The Group repaid € 500 million on a senior bond in May 2015.
As in established market practice for the sector, Assicurazioni Generali has a number of bilateral revolving credit lines, renewed in May 2015. The new lines with a total maximum amount of € 2 billion were renegotiated, with expiries being extended from 3 to 5 years.
The cash and cash equivalents increased, standing at €13,768 million mainly due to the new cash fl ows generated by the new insurance business – which prudently have not been immediately reinvested since the market
the re-fi nancing operations and the capital optimization operation described above.
31-Dec-14 31-Jan-15 28-Feb-15 31-Mar-15 30-Apr-15 31-May-15 30-Jun-15 31-Jul-15 31-Aug-15 30-Sep-15 31-Oct-15 30-Nov-15 31-Dec-15
❚ New business in terms of APE was stable at € 5,210 million; the new business value (NBV) stood at € 1,097 million (-13.0%).
Italy, due to the strong growth in the “multi-line” products, and in France and Germany) and in business risk (+22.4%). Savings policies were down (-9.8%).
There was a significant increase in gross written premiums in Italy (+11.5%), growing from € 17,393 million at 31 December 2014 to € 19,400 . This was due to the 12.5% increase in individual inflows, especially the individual single premiums (+19.1%). Income performance in the individual single retail premiums was helped by the competitive returns compared to alternative products and was driven by the success of the hybrid products.
Profitability (margins on the APEs) fell slightly to 25.4% (25.7% at 31 December 2014) mainly following the adverse economic situation for the year, despite the increase in the weight of the more profitable unit/index linked products. Following the reduction in volumes and profitability, new business value fell by 8.0% and stood at € 589 million.
The improvement in the net inflows was decisive, and benefitted from the good performance of the premiums, while capital outflow stayed substantially stable; the slight increase in the surrender component was offset by the drop in those at maturity.
France The gross written premiums in France increased from € 8,438 million as at 31 December 2014 to € 8,787 million, benefitting from low interest rates in France which drove many savers to alternative forms of savings investment, including those offered by the insurance sector, especially in the form of unit-linked products. The unit-linked products increased by 34.2%, and the pure risk policies also increased (+4%), mainly from the Small and Medium companies segment which benefitted from the new regulatory environment and the fact that the Group is a leader in this area. On the other hand, savings policies fell by 5% in line with the more restrictive subscription policies introduced by the Group.
The APEs w also up (+16%) thanks to the excellent progress in both annual premiums (+35.8%) and single pre-
miums (+4.6%). With reference to the lines of business, there was a significant increase in unit/index linked business (+41.7%), and in business risk (+46.1%).
The profitability (margins on the APEs) decreased from 10.9% in 2014 to 6.5% in 2015, mainly due to the adverse economic climate strongly reducing the profitability of the savings business, which represented 48.3%
of the business. New business value amounted to € 62 million (-30.1%).
Central and Eastern Europe The gross written premiums in Central and Eastern European countries increased from € 1,487 million as at 31 December 2014 to € 1.603 million (+7.4%). This trend reflects the significant developments in the single premium business, which has almost doubled, especially in Poland due to sales in the bank insurance channel. On the other hand, business from annual premiums has fallen by 2.1% reflecting the trends in the Czech Republic. With reference to the business lines, the protection lines are growing (+25.9%), as are the unit-linked policies (+15.0%); the savings line has decreased (-3.3%).
The decline in profitability (margins on APEs) from 32.8% in 2014 to 23.7% in 2015 is explained both by the strong
The combined effect of lower sales volumes and declining profitability caused the new business value to fall by 30.2% on a like-for-like basis, standing at € 39 million.
The gross written premiums by the EMEA regional structure fell from € 6,919 million at 31 December 2014 to € 6.512 This trend was determined by the performance of the unit/index linked and savings business lines, only partially offset by the increase in the protection policies. In particular, there was a reduction in gross written premiums in Spain, which amounted to € 958 million (€ 984 million at 31 December 2014). The increase in the protection policies (+7.4%) resulting from the numerous Techex initiatives and contribution by Cajamar was more than offset by the drop in the other business lines. More specifically, the savings policies (-5%) were affected by the lower transfers from pension plans and the fall in interest rates.
Gross written premiums in Austria stood at € 1,224 million, down by 5.4%. This performance reflects the effects of the planned strategic reduction of the single premiums (-23.5%), especially in the savings policies, which fell by 13.7% as a whole. On the other hand, the protection lines are growing (+14.6%), as are the unitlinked policies (+1.6%).
The gross written premiums for Switzerland were also down, standing at 1,236 million (-3.6% on a like-for-like basis) due to the reduction in both recurring premiums (-1.9%) and single premiums (-21.7%). With respect to the business lines, only the savings products showed growth (+4.7%), while the protection lines and the unitlinked lines fell by 1.3% and 6.8% respectively.
As noted above, income in Ireland fell from € 2,085 million to € 1,598 million due to the significant drop off in single premiums.
New business in terms of APEs was down (-7.2%), following the reductions in Ireland (-21.5%) and Guernsey (-22.0%), with direct effects on the unit-linked sector (-13.3%). On the other hand, there was good progress in Switzerland (+2.6%) and Belgium (+35.9%). Overall, profitability rose from 25.9% in 2014 to 27.0% in 2015, mainly due to the strong increase in the risk business in Spain, despite the reduction in profitability in Switzerland following the adverse economic climate and the high level of guarantee offered. New business value amounted to € 174 million (-6.4%).
Net inflows for the EMEA regional structure fell to € 1,444 million (€ 2,703 million at 31/12/2014) due to the above-mentioned reduction in premiums in Ireland and the performance in Austria, where the net inflows affected the strong increase in payments and the drop in premium income. The negative amount of net inflows in Spain is due to the type of life portfolio, mainly focused on annuity products and short-term investments. In any case, thanks to the actions taken, net inflows improved in 2015 compared to the previous year (+34.5%).
This development is the result of the growth in the two main countries in the Region; Argentina increased by 31%, driven also by ongoing high inflation levels, and Brazil grew by 23%, mainly thanks to the Generali Employee Benefit sector.
The net inflows also showed particularly positive trends, standing at € 924 million compared to € 197 million at the end of 2014. Even in this case, there was growth in all countries in the Region, but it was especially driven by China, which benefitted from the above-mentioned- higher volumes of premiums.
Finally, net inflows are slightly down (-3%) due to the increase in the capital outflows observed mainly in the foreign branches.
With reference to Asia and Latin America, the new business in terms of APEs is strongly up (+71.2%) with good increases in both Asia (+74.5%) and Latin America (+36.9%). Overall, thanks to the higher profitability (from 11.8% in 2014 to 13.5% in 2015) and the increase in volumes, the value of new business stood at € 42 million, up (+88.6%).
The operating result in the life segment amounted to € 2,965 million, down by 0.4% compared to the € 2,978 million at the end of 2014. In particular, the growth in the technical margin net of insurance operating expenses was more than offset by the worsening trends in the net other operating expenses, including the brand royalties paid to the Head Office for marketing and branding activities. On the other hand, the investment result were slightly increased.
Net insurance claims adjusted for financial interests and bonuses credited to policyholders
This margin does not include the insurance operating expenses, which are reported in Total operating expenses.
Net income from financial instruments related to unit and indexlinked policies
The net investment result, amounted to € 2,260 million was slightly increased (+0,9%) on the € 2,240 million recorded at 31 December 2014. This trend was mainly attributable to the increase in current income, in absolute terms, from equities and bonds investments, despite the low interest rates environment; this was partially offset by lower the net realized gains, mainly in the equity sector.
The policyholders’ interests on operating income from own investments moving from € -14,354 million at 31 December 2014 to € -12,880 million, decreasing from the corresponding period of the previous year, due to the volatility of the income from financial instruments at fair value through profit or loss..
The acquisition and administration costs related to insurance business and the other operating expenses have increased from € -4,795 million at 31 December 2014 to € -5,204 million.
Asia, in contrast with other areas in which the Group operates.
The other non-operating expenses increased, amounting to € -204 million (€ -143 million at 31 December 2014), of which € -86 million related to the amortization of the value of acquired portfolios (€ -76 million at 31 December 2014). This trend is mainly due to certain non-recurring costs that were registered in 2015.
Net operating income from other financial instruments 12,024 11,912 2,808 2,789
Net operating realized gains on other financial instruments and land and buildings (investment properties)
Net non-operating impairment losses on other financial instruments and land and buildings (investment properties)(***)
(***) The amount is net of the share attributable to the policyholders.
(€ million) Savings and Pension Protection Unit/index linked Total 31/12/2015 31/12/2014 31/12/2015 31/12/2014 31/12/2015 31/12/2014 31/12/2015 31/12/2014
At 31 December 2015, total investments in the life segment showed a 4.8% increase over 31 December 2014, amounting to € 407,082 million. Group investments amounted to € 332,117 million (+3.6%), while the investments related to the unit/index linked investments amounted to € 74,966 million (+10.7%).
Even though the percentage was substantially stable, the exposure in absolute terms towards the fixed income instruments and the equity instruments were up, standing at € 296,433 million (€ 286,056 million at 31 December 2014) and € 14,066 million (€ 12,983 million at 31 December 2014) respectively. On the other hand, there was a drop in Group investment properties to 2.7% (3.1% at 31 December 2014). Finally there was an increase in cash and cash equivalents, standing at 2.6% (2.1% at 31 December 2014).
On the other hand, corporate bonds increased to € 119,981 million (€ 110,717 million at 31 December 2014), equal to 44.5% (42.4% at 31 December 2014). This trend is due to the net purchases made during the year, only partially offset by the impairment of their value.
Lastly, the average duration of the bond portfolio was 8.0 years (8.2 years at 31 December 2014), in line with ALM Group strategy.
The net current return from investments in the life segment recorded a modest decline, falling from 3.6% at 31 December 2014 to 3.4% even though the relative income increased to € 11,112 million (€ 10,914 million at 31 December 2014).
The contribution to the result for the period from the harvesting transactions stood at 0.4% (0.6% at 31 December 2014) against the value deterioration of the instruments at fair value through profit or loss.
The technical reserves and financial liabilities of the life segment - not including deferred liabilities towards policyholders - amounted to € 369,539 million; the increase of 6.4% reflects both the increase in reserves for the traditional portfolio (+5.4%), and the linked portfolio (+10.5%), which reflects the developments in the inflows and financial market trends, even though to a lesser extent compared to the corresponding period of the previous year due to the performance of certain financial areas reflected in the trend of the unit-linked reserves.
Finally, deferred policyholders’ liabilities stood at € 22,642 million (€ 25,300 million at 31 December 2014), reflecting the decrease in the value of the investments, particularly in bonds.
The P&C segment premiums amounted to € 20,868 million, up compared to 31 December 2014 (+0.8%).This was due to the 1.1% increase in the non-motor sector which was generally positive in the main Group countries apart from Italy where there was a slight drop.
On the other hand, premiums in the motor sector were stable compared to the previous year; the growth in the main areas of operation was offset by the drop in markets most affected by the current macro-economic situation, and in Italy and France in particular.
A geographical focus follows regarding the main indicators mentioned above: Italy
The non-motor line is also slightly down (-0.7%), while the accident and health line is substantially in line with the previous year (-0.5%), with a positive contribution from the retail area (+1.7%); the SME sector is stable (+0.2%), while the corporate business has dropped by -4.2%. The integration of the networks will allow improved growth rates to be achieved in this sector..
Gross written premiums in France are substantially stable, at € 2,538 million (-0.3 %). The non-motor lines are going well (+1.4%), thanks especially to the protection & health and commercial sectors.
The German gross written premiums performed well, amounting to 3,608 million (€ 3,547 million at 31 December 2014), which increased by 1.7% thanks to both the motor (+2.7%) and non-motor (+1.1%) lines.
Gross written premiums in Asia amounted to € 128 million, increasing from the previous year (+22.5 % on a like-for-like basis), thanks in particular to the business accepted by the Hong Kong branch in the Accident and Health area
The gross written premiums of International Operations amounted to € 1,106 million, down from the fi gure at 31 December 2014 (3,9 % on a like-for-like basis). Specifi cally, the trend is attributable to the foreign activity of the parent company, partially offset by the drop in income related to the care services.
31/12/2015 31/12/2014 Change current year loss ratio excluding natural catastrophes 68.9% 69.3% -0.4 natural catastrophes impact 1.6% 1.2% 0.4 prior year loss ratio -4.6% -3.8% -0.8
Acquisition and administration costs related to the insurance business stood at € 5,404 million, up compared to 31 December 2014 (€ 5,312 million). More specifically, the acquisition costs were up to € 4,229 million (+1.7%) due to the trends observed in the Central and Eastern European countries, Italy and Switzerland. The ratio of acquisition costs to net earned premiums therefore increased to 21.3% (21.2% at 31/12/2014).
The combined ratio of the EMEA regional structure improved compared to 31 December 2014, standing at 95.2% (95.5% at the end of 2014), thanks also to trends in the main markets in the area.
The combined ratio for Austria was much improved (-0.8 pps), standing at 93.4% due to the fall to 66.1% in the loss ratio as a result of fewer big claims despite the higher percentage of catastrophic claims which amounted to 2.6 pps. (0.8 pps at year end 2014). The expense ratio was stable at 27.3%.
While still at a high level, the Latin American combined ratio, of 106.1%, was down by 7.2 pps compared to the end of 2014. There was a positive performance in Argentina, while Brazil was partly affected by the negative performance of 2014 carried forward into the next year, along with a drop in income.
The investment result in the P&C segment amounted to € 1,015 million, increased compared to 31 December 2014 (+0.8%). In particular the current income from investments amounted to € 1,314 million (€ 1,358 million at 31 December 2014); this decrease is mainly attributable to the difficult context of low reinvestment rates. However, the actions by the Group aiming at sustaining the result have allowed the achievement of a current return of 3.2% (3.5% at 31/12/2014).
The non-operating result of the property&casualty segment improved to € -67 million (€ -184 million at 31 December 2014).
The net other non-operating expenses increased, amounting to € -435 million (€ -273 million at 31 December 2014), of which € -55 million related to the amortization of the value of acquired portfolios (€ -63 million at 31 December 2014). This was mainly due to the higher restructuring costs incurred during 2015 and more allocations to the risk provisions in the first half of 2015.
Net operating income from other financial instruments 960 965 228 205
(€ million) Gross written premiums Operating result 31/12/2015 31/12/2014 31/12/2015 31/12/2014
Total investments in the property&casualty segment rose from€ 38,559 million at 31 December 2014 to € 39,624 million (+ 2.8%).
Finally, the average duration of the bond portfolio was 5.0 years (4.6 years at 31 December 2014), in line with the ALM Group strategy.
Property&Casualty insurance provisions 30,482 30,117 of which Motor 13,487 13,254 of which Non Motor 16,996 16,863
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 the other operations that the Group considers to be ancillary to the core insurance business..
Operating holding expenses amounted to € -429 million (€ -418 million at 31 December 2014). The increase in holding expenses was due to the strengthening of the Head Office structures, which began in 2013 and continued through 2014 - also with reference to the new Solvency II regime transaction - and development of the Regional Offices in charge of managing, coordinating and controlling the business in key areas in terms of growth opportunities, such as Asia. As noted above, in the fourth quarter, this result included the revenues for brand royalties paid to the Head Office for marketing and branding activities.
The operating result of other businesses amounted to € 55 million, up compared to the € 40 million recorded in the corresponding period of the previous year.
With respect to the insurance industry, we expect premiums to perform well in the P&C sector in the main eurozone countries (Italy, Germany, France and Spain), in line with the - albeit weak - economic recovery. The life business will continue to feel the effects of the current low interest rates, along with minimum recovery in disposable income. Therefore, in terms of insurance products, policies that are less sensitive to low interest rates will be favoured. Finally, with respect to distribution, the rebalancing in the market towards unit-linked products may meet with resistance from the agency channel, while the banking channel may be less inclined to push insurance products due to the expected recovery in loans.
With reference to the reinsurance area, the catastrophic events which occurred in the world did not have a significant impact on the reinsurance industry. The continuing absence of economically relevant catastrophic events generated a continuing reduction in reinsurance costs, with a consequent reduction in profits for reinsurers. The reinsurance market therefore broadened its product range to deal with this situation. In a similar context, the Generali Group benefitted from favourable market trends, obtaining further reductions in the coverage renewal costs for 2016.
In the life segment, the Group will have to deal with a market scenario characterised by various external constraints, including the Solvency 2 directive, stricter IMD2 rules in terms of governance and transparency in the distribution of insurance products, and in general, financial markets characterized by continuing low interest rates. It will therefore further strengthen its focus on the Techex program initiatives, both at Group level and at the level of the single business units, aiming to strengthen the combined portfolio value by taking a simplification and innovation approach for the range of products. The Group’s commitment towards technical excellence needs to be increasingly driven by developing skills and managing performance: income trends will continue to reflect careful underwriting policies, in line with the common Group goals, driven by the risk appetite framework and the focus on the value of the products. Initiatives aiming at enhancing the value of the in-force portfolio through specific action and the selective development of certain business lines such as Protection and Unit-Linked products as an alternative to investments traditional funds. The development of these business lines will aim at offering a wide range of products suitable to risk and investment profiles for the benefit of both the policyholders and the Group.
Considering the pressure caused by the ongoing context of low returns, the P&C segment will continue to be highly important for the implementation of the Group strategy to become leader in the retail segment in Europe, thanks to the capital absorption level of the retail products allowing an efficient capital allocation.
There has been a further reduction in average premiums as a result of intense market competition, starting with the motor lines, but also expanding to the non-motor lines, individual products relating to household coverage and SMEs, along with a change in the expected development of claim frequency levels (which has tended to fall since 2011) in some countries (such as the motor lines in Italy and Spain). This competitive pressure has been accelerated by the distribution, which - spurred on by the digital transformation - will leave more space to non-traditional distribution networks or non-exclusive networks (for example aggregators), increasing portfolio volatility.
Therefore, from an industrial standpoint, volumes and profits should decrease. In order to deal with this competitive pressure, the Group has launched a series of initiatives aimed at offsetting the negative effects on profitability with counter-cyclical measures, a disciplined approach to risk-selection, enhancing the creation of value by improved customer profiling, concentrating on the most profitable areas and on longer-term relationships, or developing unique products with a modular system or a connectivity-based approach that could also imply cross-selling on the non-motor products.
Group investment policies aim towards allocating assets in such a way as to consolidate current profitability and guarantee that it is consistent with liabilities towards the policyholders. With regard to fixed-income investments, the investment strategy is aimed at diversifying the portfolio, both in government bonds, where European core rates are at minimum levels, and in corporate bonds, including private placements and secured loans. This is in order to ensure adequate profitability for the policyholders and a satisfactory return on capital, while keeping risk under control. Equity exposure will be kept substantially stable, with a geographical and industrial rotation towards geographical and sectorial areas that have higher growth rates than Europe. New investments in the real estate sector will be selectively made in new geographical areas such as Asia, the UK and Eastern Europe in order to improve the overall diversification of the portfolio. The portfolio will also be managed more proactively to improve overall profitability.
As noted above, the Management Report is prepared not only in accordance with the applicable law, but also according to the Content elements (already described at the beginning under Information on the report) as well as to the Guiding Principles envisaged by the International <IR> Framework issued by the International Integrated Reporting Council (IIRC) in December 2013.
In accordance with the Connectivity of information principle, the report should represent the combination and interrelatedness of the factors that influence the ability to create value over time. The key forms of connectivity used by Generali include the connectivity between qualitative and quantitative information, financial and pre-financial information1, in accordance with the information included in other communication tools. Other elements that improve the connectivity of information and the overall usefulness of the report are the cross-referencing (also thanks to the graphic component) and a clear language. The glossary can be used where the language is excessively technical. Generali also publishes an interactive version of the integrated financial statements on its website. This is another tool to further highlight the connectivity of information.
Generali maintains Stakeholder relationships to understand and satisfy their needs, especially in terms of information and dialogue. The stakeholder engagement process promoted by the Group involves the following stakeholder categories, both internal and external: ❚ financial community: 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 attend sector conferences, providing them with the appropriate information. In 2015, discussions took place in the key financial centres.
For further information please refer to Annual Integrated Report 2015, p. 42
❚ legislators and Institutions: 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 such as The Geneva Association and the European Financial Services Round Table (EFR). Our active presence in these organizations allows us also to expand our knowledge of the different regulations and potential impacts.
❚ employees: our people are our most valuable resource and we fully prioritize their engagement and empowerment. We therefore launched our first Global Engagement Survey.
Our report has been improved in many aspects also considering our stakeholders’ feedback, i.e. as to the connectivity among the different parts, becoming easier to read andwith a more logical structure. Conciseness was also improved. The diagram below shows the way from the Annual Integrated Report, drawn up in accordance with the Materiality principle, to the Consolidated Financial Statements, drawn up in accordance with the law.
In accordance with the Consistency and Comparability principle, the report includes information that is consistent with the previous year (any changes in the criteria applied are noted in the Appendix to the Management Report) and the stated strategic objectives.
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. Furthermore, where a new fiscal law materially affects the operating result of the countries where the policyholders’ profit sharing is based on the net result of the period, the estimated non-recurring effect on the income taxes attributable to the policyholders has been accounted for in the operating result.
❚ net other non-operating expenses, principally including the results of real estate development activities, runoff 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.
The holding segment and other businesses include the activities in the banking and asset management sectors, the costs incurred for management and coordination and business financing, and all the other operations that the Group considers to be ancillary to the core insurance business. All profit and loss accounts are considered as operating items, except for the following which are represented in the non-operating result: ❚ non-recurring realized gains and losses and net impairment losses; ❚ net other non-operating expenses that mainly include 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.
* 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.
With reference to holding costs, the general expenses incurred for management and coordination are considered as operating, by the Parent Company and territorial subholdings. In addition, non-operating holding expenses include: ❚ interest expenses on financial debt*; ❚ restructuring charges and other non-recurring expenses incurred in the management and coordination activities; ❚ costs arising from the assignment of stock options and stock grants by the Group.
The following table reconciles the operating and nonoperating result with the corresponding income statement items: Operating and non-operating result Profit and loss account
Net operating income from other financial instruments 1.3 - 1.4 - 1.5 - 2.3 - 2.4 - 2.5.2
The following reclassifications were made in the calculation of the operating result with respect to the corresponding items of the income statement: ❚ the investment management and investment property management expenses in the operating result were reclassified from acquisition and administration costs to net operating income from other financial instruments, more specifically into other expenses from financial instruments and land and buildings (investment properties); ❚ income and expenses related to real estate development activities in the operating result were classified as other non-operating income and expenses, in accordance with the management model adopted that provides for sale at completion; ❚ gains and losses on foreign currencies in the operating result were reclassified in the life and financial segment from net operating income to net operating income from financial instruments at fair value through profit or loss. In the property&casualty segment, gains and losses on foreign currencies in the operating result were reclassified from net operating income to net non-operating income from financial instruments at fair value through profit or loss. The classification for each segment is consistent with the related classification of the derivative transaction drawn up in order to hedge the Group’s equity exposure to the changes in the main currencies of operations. The net operating and nonoperating income from other financial instruments are therefore not subject to financial market volatility; ❚ in net operating income from financial instruments, interest expenses on deposits and current accounts under reinsurance business are not included among interest expenses related to liabilities linked to operating activities but are deducted from the related interest income. Moreover, the interest expenses related to the abovementioned real estate development activities are not included in interest expenses related to liabilities linked to operating activities, but are classified under other non-operating income and expenses in accordance with the management model adopted that provides for sale at completion
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: – interest on financial debt; – income taxes based on a mid-term expected tax rate as assumed in the 2015 Target (please refer to the chapter “The Generali Group’s strategy”); – 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).
The segment investments were presented in accordance with the methods described in the Chapter General drafting and measurement criteria of the Notes, paragraph 6 in the section Other Information.
References: (€ million) 31/12/2015 31/12/2014 20 2.1 Land and buildings (self used) 2,844 2,797 14 3 AMOUNTS CEDED TO REINSURERS FROM INSURANCE PROVISIONS 4,094 4,378 11 4.1 Land and buildings (investment properties) 12,112 12,628 3 4.2 Investments in subsidiaries, associated companies and joint ventures 1,369 1,284 9 4.5 Available for sale financial assets 289,399 276,498 10 4.6 Financial assets at fair value through profit or loss 94,385 83,061 of which financial assets where the investment risk is borne by the policyholders and related to pension funds 5.1 Receivables arising out of direct insurance operations 6,497 7,462 5.2 Receivables arising out of reinsurance operations 1,060 1,143 6.1 Non-current assets or disposal groups classified as held for sale 0 21,304
Generali Group - Annual Integrated Report and Consolidated Financial Statements 2015
References: (€ million) 31/12/2015 31/12/2014 1.1 Shareholders' equity attributable to the Group 23,565 23,204 1.1.4 Revenue reserves and other reserves 7,688 7,571 1.1.6 Reserve for currency translation differences 74 -239 1.1.7 Reserve for unrealized gains and losses on available for sale financial assets 6,067 6,498 1.1.8 Reserve for other unrealized gains and losses through equity -944 -943 1.1.9 Result of the period 2,030 1,670 1.2 Shareholders' equity attributable to minority interests 1,143 981 1.2.1 Share capital and reserves 748 706 1.2.2 Reserve for unrealized gains and losses through equity 166 93 1.2.3 Result of the period 229 182 of which insurance provisions for policies where the investment risk is borne by the policyholders and related to pension funds 17 4.1 Financial liabilities at fair value through profit or loss 20,082 18,374 of which financial liabilities where the investment risk is borne by the policyholders and related to pension funds of which subordinated liabilities 9,643 8,315 5.1 Payables arising out of direct insurance operations 3,464 3,553 5.2 Payables arising out of reinsurance operations 511 557 6.1 Liabilities directly associated with non-current assets and disposal groups classified as held for sale
Items that may not be reclassified to profit and loss in future periods 2.5 Share of other comprehensive income of associates 0 0 2.8 Result of discontinued operations 437 -196 2.6 Reserve for revaluation model on intangible assets 2.7 Reserve for revaluation model on tangible assets 2.9 Actuarial gains or losses arising from defined benefit plans 162 -529 attributable to the Group 1,912 5,042 attributable to minority interests 302 309
Change in the provisions for outstanding claims and other insurance provisions for non-life segment 404 450
Change in receivables and payables arising out of direct insurance and reinsurance operations 774 541
Net cash flows from available for sale financial assets -13,961 -18,983
Net cash flows from subordinated liabilities and other similar liabilities 1,298 487
Effect of exchange rate changes on cash and cash equivalents 134 86
(***) Includes mainly proceeds arising from the disposal of banking group BSI (€ 910 million), companies in Argentina (€ 29 million) and the acquisition of residual stake of Europassistance Italy (€ -10 million).
Basis of presentation and accounting principles Segment reporting Information on consolidation perimeter and group companies 1 Consolidation area 2 Disclosures on interests in other entities 3 Investments in subsidiaries, associated companies and joint ventures 4 Goodwill 5 Non-current assets or disposal group classified as held for sale 6 Related parties disclosure 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 Insurance and investment contracts 13 Insurance provisions 14 Amounts ceded to reinsurers from insurance provisions 15 Deferred acquisition costs Details on insurance and investment contracts Shareholders’ equity and share 16 Shareholders’ equity Financial Liabilities 17 Financial 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
issued by the IASB and endorsed by the European Union, in accordance with the Regulation (EC) No. 1606 of 19 July 2002 and the
In this yearly report the Generali Group prepared its consolidated financial statements and Notes in conformity with the ISVAP (now
The consolidated financial statements at 31 December 2015 were approved by the Board of Directors on 17 March 2016.
The consolidated financial statements at 31 December 2015 were audited by Reconta Ernst&Young S.p.A., the appointed audit firm
The set of the consolidated financial statements is made up of the balance sheet, the income statement, the statement of comprehensive income, the statement of changes in equity and the statement of cash flow, as required by the ISVAP Regulation
The consolidated financial statements of the Group include the financial statements of Assicurazioni Generali SpA and its subsidiaries.
Subsidiaries are all entities (including structured entities) over which the Group has control. Control is achieved when the Group is exposed, or has rights to variable returns from its involvement with the investee and has the ability to affect those returns through its power over the investee.
Business combination and goodwill Business combinations are acquisitions of assets and liabilities that constitutes a business and are accounted for applying the socalled acquisition method The acquisition cost is measured as the sum of the consideration transferred measured at its acquisition date fair value, including contingent consideration, liabilities assumed towards the previous owners, and the amount of any noncontrolling interests. For each business combination, the Group elects whether to measure the non-controlling interests in the acquiree at fair value or at the proportionate share of the acquiree’s identifiable net assets. Acquisition-related costs are expensed as incurred and included in administrative expenses.
Contingent consideration classified as an asset or liability that is a financial instrument and within the scope of IAS 39 Financial
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. In the case of the acquisition cost is less than the fair value of the assets acquired and liabilities assumed, the difference is recognised in the profit and loss account.
Investments in associates and joint ventures The investments in associates and joint ventures are consolidated trough the equity method.
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
The Group controls all the companies for which holds more than half of the voting rights. The Group does not control any subsidiary having less than the majority of voting rights and does not control any entity even though it holds more than half of the voting rights, except in two cases in which the Group controls the company owning half of the voting rights, being exposed to the variability of returns that depend on the operating policies that the Group, in substance, has the power to direct .
In one case, the Group has no significant influence on a subject for which it holds more than 20% of the voting rights as the government structure is such that the Group, in substance, does not have the power to participate in financial and operating policies of the investee.
In the Annexes the complete list of subsidiaries, associates and joint ventures included in the consolidated financial statements at 31 December 2015 is presented . Unless otherwise stated, the annex shows the share capital of each consolidated entity and the proportion of ownership interest held by the Group equals the voting rights of the Group.
Differences arising on settlement or translation of monetary items are recognised in profit or loss with the exception of monetary items that are designated as part of the hedge of the Group’s net investment of a foreign operation. These are recognised in other comprehensive income until the net investment is disposed of, at which time, the cumulative amount is reclassified to profit or loss.
Tax charges and credits attributable to exchange differences on those monetary items are also recorded in other comprehensive income.
Accounting principles The accounting standards adopted in preparing the consolidated financial statements, and the contents of the items in the financial statements are presented in this section.
The most relevant changes for the Group with respect to the consolidated financial statements at 31 December 2014 are described below. In addition, the main documents issued by the International Accounting Standard Board, that could be relevant for the Group, but not yet effective, are described
New accounting principles, changes in the accounting rules that shall be applied from 1 January 2015
IFRS 9 – Financial Instruments IFRS 9 replaces IAS 39 "Financial Instruments: Classification and Measurement" and includes a principle-based model for the classification and measurement of financial instruments, an impairment model based on expected losses and an hedge accounting approach more in line with risk management strategies.
IFRS 9 introduces an approach to the classification of financial instruments that is based on contractual cash flows characteristics and models through which financial instruments are managed (business model).
The standard provides for special treatment when it relates to debt instruments. 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.
The equity instruments shall be classified and measured at fair value through profit or loss. The entity has the irrevocable option at initial recognition to present changes in the fair value of the equity instruments that are not held for the purpose of trading at fair value recorded in other comprehensive income, with no recycling in the income statement except dividends .
 credit risk should not be the key component of the hedged risk (ie the change in fair value of the hedging relationship must not be dominated by the component of credit risk).
Contracts. Both the standards, IFRS 9 (with effective date 1 January 2018) and the new IFRS 4 (with subsequent effective date) are relevant for insurance entities.
The E.D. aims to address the concerns of some interested parties, in particular insurers, about the different effective dates of IFRS
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 4 phase 2 will be applied;  two significant amendments for the user of financial statements in a short period.
Measurement”; 2. the Deferral approach, an optional temporary exemption from applying IFRS 9 that would be available to companies whose predominant activities is to issue insurance contracts. Such a deferral would be available until the new Insurance
The Group considers the Deferral approach as most appropriate to solve the problems resulting from the application of IFRS 9 before the new accounting standard on insurance liabilities. The overlay approach implementation would create incremental costs compared to those of the first implementation of IFRS 9. In particular, the Group has identified critical points related to the alignment and reconciliation of data arising from the simultaneous application of IAS 39 and IFRS 9.
The IFRS 4 provides a completely new valuation model for insurance contracts. The Group is evaluating the impacts of proposed amendments which, at an early stage, could be material but not assessable at the moment.
IFRS 15 – Revenue from contracts with customers On 28 May 2014, the IASB published the IFRS15 “Revenue from contracts with customers”, whose objective is revenue recognition.
IFRS 11 Amendments regarding the accounting for acquisition 1 January 2016 May 2014 of an interest in a joint operation
IAS 28 Amendments regarding the sale and the contribution of assets 1 January 2016 September 2014 between an investor and its associate or joint venture
Amendments resulting from 2014 Annual Improvements 1 January 2016 September 2014
The Regulation (EU) 2015/29 postponed the effective date for the EU countries to annual periods beginning on or after 1 February 2015.
This category includes goodwill and other intangible assets, such as goodwill recognised in the separate financial statements of the consolidated companies, software and purchased insurance portfolio.
Goodwill is tested at least annually in order to identify any impairment losses.
The purpose of the impairment test on goodwill is to identify the existence of any impairment losses on the carrying amount recognised as intangible asset. In this context, cash-generating units to which the goodwill is allocated are identified and tested for impairment. Cash-generating units (CGU) units usually represent the consolidated units within the same primary segment in each country. Any impairment is equal to the difference, if negative, between the carrying amount and the recoverable amount, which is the higher between the fair value of the cash-generating unit and its value in use, i.e. the present value of the future cash flows expected to be derived from the cash-generating units. The fair value of the CGU is determined on the basis of current market quotation or usually adopted valuation techniques (mainly DDM or alternatively embedded value or appraisal value). The Dividend
Contractual relations with customers - insurance contracts acquired in a business combination or portfolio transfer
In case of acquisition of life and non-life insurance contract portfolios in a business combination or portfolio transfer, the Group recognises an intangible asset, i.e. the value of the acquired contractual relationships (Value Of Business Acquired).
Land and buildings (investment properties) In accordance with IAS 40, this item includes land and buildings held to earn rentals or for capital appreciation or both. Land and buildings for own activities and property inventories are instead classified as tangible assets. Furthermore, assets for which the sale is expected to be completed within one year are classified as non-current assets or disposal groups classified as held for sale.
Financial investments – classification and measurement Financial Instruments included in scope of IAS 39 are classified as follows:  Held to maturity
Non-derivative financial assets with fixed and determinable payments, those that the entity has the intention and the ability to hold to maturity, unquoted and not available for sale are subsequently measured at amortised cost.
In the case of an early disposal (significant and not due to particular events) of said investments, any remaining investments must be reclassified as available for sale.
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.
This category comprises financial assets held for trading, i.e. acquired mainly to be sold in a short term, and financial assets that upon initial recognition are designated as at fair value through profit or loss.
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
This item includes receivables arising out of direct insurance and reinsurance operations, and other receivables
Receivables arising out of direct insurance and reinsurance operations Receivables on premiums written in course of collection and receivables from intermediates and brokers, co-insurers and reinsurers are included in this item. They are accounted for at their fair value at acquisition date and subsequently at their presumed recoverable amounts.
Other receivables This item includes all other receivables, which do not have an insurance or tax nature. They are accounted for at fair value at recognition and subsequently at their presumed recoverable amounts
Management must be committed to the sale, which should be expected to qualify for recognition as a completed sale within one year from the date of classification
Deferred tax assets are not recognized in the following cases provided in paragraph 24 of IAS 12:  when the deferred tax asset relating to the deductible temporary difference arises from the initial recognition of an asset or liability in a transaction that is not a business combination and, at the time of the transaction, affects neither the accounting profit nor taxable profit or loss
 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
Other assets The item mainly includes accrued income and prepayments, specifically accrued interest from bonds. It also comprises deferred commissions for investment management services related to investment contracts.
Deferred fee and commission expenses include acquisition commissions related to investment contracts without DPF fair valued as provided for by IAS 39 as financial liabilities at fair value through profit or loss. Acquisition commissions related to these products are accounted for in accordance with the IAS 18 treatment of the investment management service component. They are recognised along the product life by reference to the stage of completion of the service rendered. Therefore, acquisition commissions are incremental costs recognised as assets, which are amortised throughout the whole policy term on a straight line approach, reasonably assuming that the management service is constantly rendered.
Short-term, highly liquid investments that are readily convertible to known amounts of cash and which are subject to an insignificant risk of changes in value are included in this item. Investments are qualified as cash equivalents only when they have a short maturity of 3 months or less from the date of the acquisition.
Ordinary shares are recognized as share capital and their value equals the nominal value.
La voce è destinata ad accogliere categorie speciali di azioni ed eventuali componenti rappresentative di capitale comprese in strumenti finanziari composti.
The item includes the share premium account of the Parent Company.
Reserve for other unrealised gains and losses through equity The item includes the cash flow hedging derivatives reserve, the reserve for hedges of net investments in foreign operations. This item includes gains or losses on cash flow hedging instruments and gains or losses on hedging instruments of a net investment in a foreign operation. In addition, this item also includes the profits and losses relating to defined benefit plans and the part of the balance sheet reserves whose the variation is part of the comprehensive income of participations and those relating to non-current assets or disposal groups classified as held for sale.
Provisions Provisions for risks and charges are provided only when it is deemed necessary to respond to an obligation (legal or implicit) arising from a past event and it is probable that an outflow of resources whose amount can be reliably estimated, as required by IAS 37.
Life insurance policies In accordance with IFRS 4, policies of the life segment are classified as insurance contracts or investment contracts based on the significance of the underlying insurance risk.
Classification requires the following steps:  identification of the characteristics of products (option, discretionary participation feature, etc.) and services rendered;  determination of the level of insurance risk in the contract; and
Premiums, payments and change in the insurance provision related to products whose insurance risk is considered significant (e.g.
term insurance, whole life and endowment with annual premiums, life contingent annuities and contracts containing an option to elect at maturity a life contingent annuity at rates granted at inception, long-term health insurance and unit-linked with sum assured in case of death significantly higher than the value of the fund) or investment contracts with discretionary participation feature –DPF
– (e.g. policies linked to segregated funds, contracts with additional benefits that are contractually based on the economic result of the company) are accounted for in accordance with previous local GAAP. Gross premiums are recognised as a revenue, net of cancellations of the period, and ceded premiums are recognised as expenses of the period.
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.
Investment contracts Investment contracts without DPF and that do not have a significant investment risk, mainly include unit/index-linked policies and pure capitalization contracts. These products are accounted for in accordance with IAS 39 as follows:  the products are recognised as financial liabilities at fair value or at amortised cost. In detail, linked products classified as investment contracts are fair valued through profit or loss, while pure capitalization policies are generally valued at amortised cost;  fee and commission income and expenses are recognised in the profit and loss account. Specifically, IAS 39 and IAS 18 require that they are separately identified and classified in the different components of: (i) origination, to be charged in the profit and loss account at the date of the issue of the product; and (ii) investment management service, to be recognised throughout the whole policy term by reference to the stage of completion of the service rendered;  fee and commission income and incremental costs of pure capitalization contracts without DPF (other than administration costs and other non-incremental costs) are included in the amortised cost measurement; Insurance provisions
 the risk component of linked products is unbundled, if possible, and accounted for as insurance contracts.
Each inadequacy is charged to the profit and loss account, initially reducing deferred acquisition costs and value of business acquired, and subsequently accounting for a provision.
Non-life insurance provisions The local GAAP for each country is applied to non-life insurance provisions, since all the existing policies fall under IFRS 4 scope. In conformity with the international standard, no provisions for future claims are recognised, in line with the derecognition of the equalisation and catastrophe provisions and some additional components of the unearned premiums provisions, carried out on the date of the first-time application.
Furthermore, it includes liabilities to banks or customers, deposits received from reinsurers, bonds issued, other loans and financial liabilities at amortised cost related to investment contracts that do not fall under IFRS 4 scope.
Derecognition A financial liability is derecognised when the obligation under the liability is discharged or cancelled, or expires.
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 25 Other liabilities).
Liabilities directly associated with non-current assets and disposal groups classified as held for sale The item includes liabilities directly associated with non-current assets and disposal groups classified as held for sale, as defined by
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
Tax payables The item includes payables due to tax authorities for current taxes. Current income tax relating to items recognised directly in equity is recognised in equity and not in the income statement.
(the 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 the defined benefit obligation less the fair value of plan assets (if any), adjusted for any actuarial gains and losses and any past service costs not amortised. The rate used to discount future cash flows is determined by reference to market yields on high-quality corporate bonds. The actuarial assumptions are periodically tested to confirm their consistency. The actuarial gains and losses arising from subsequent changes in variables used to make estimates are recognised shall be accounted for in other comprehensive income without any possibility of recycling to profit and loss.
Deferred fee and commission income includes acquisition loadings related to investment contracts without DPF, which are classified as financial liabilities at fair value through profit or loss, according to IAS 39.
Income from subsidiaries, associated companies and joint ventures The item comprises income from investments in subsidiaries, associated companies and joint ventures, which are accounted for in the corresponding asset items of the balance sheet.
Net insurance benefit and claims 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.
Other expenses 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
allocation of surplus capital, stock option exercise, transfer of revaluation reserves related to tangible and intangible assets to retained earnings in accordance with IAS 38.87 and IAS 16.41 etc.), the changes in gains and losses recognized directly in equity.
Changes in ownership interests This section comprises the effects capita transaction of the subsidiaries, that do not result in the loss of control
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 2 inputs other than quoted prices included within Level 1 that are observable for the asset or liability, either directly or indirectly (i.e. quoted prices for similar assets or liabilities in active markets; quoted prices for identical or similar assets or liabilities in markets that are not active; inputs other than quoted prices that are observable for the asset or liability; market-corroborated inputs).
 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).
Valuation techniques 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.
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.
With reference to the fair value adjustment for credit and debt risk of derivatives (credit and debt valuation adjustment CVA / DVA), the Group considered this adjustment as not material for the valuation of its positive and negative derivatives, as almost entirely of them is collateralized. Their evaluation does not take into account for these adjustments.
Derivatives are financial instruments or other contracts with the following characteristics:  their value changes in response to the change in interest rate, security price, commodity price, foreign exchange rate, index of prices or rates, credit rating or other pre-defined underlying variables;  they require no initial net investment or, if necessary, an initial net investment that is smaller than one which would be required for other types of contracts that would be expected to have a similar response to changes in market factors;  they are settled at a future date.
Derivatives are classified as at fair value through profit or loss.
Hedges of a net investment in a foreign operation are accounted for similarly to cash flow hedges: the effective portion of gain or loss on the hedging instrument is recognized among the components of profit or loss, while the part is not effective be recognized in the separate income statement.
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;  financial instruments measured at fair value classified in level 3 of the fair value hierarchy;  the analysis in order to identify durable impairments on intangible assets (e.g. goodwill) booked in in the balance sheet
The stock option plans granted by the Board in past periods configure as share based payments to compensate officers and employees. The fair value of the share options granted is estimated at the grant date and is based on the option pricing model that takes into account, at the grant date, factors such as the exercise price and the life of the options, the current price of the underlying shares, the expected volatility of the share price, the dividends expected on the shares and the risk-free interest rate as well as the specific characteristics of the plan itself. 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.
Generali activities could be split in different lines of business according to the products and services offered. In particular, subject to
Life segment Activities of Life segment include saving and protection business, both individual and for family, as well as unit linked products with investment purposes.
Assets, liabilities, income and expenses of each segment are presented in the appendix to the notes, prepared under the ISVAP
Segment data derives from a separate consolidation of the amounts of subsidiaries and associated companies in each business segment, eliminating of the effects of the transactions between companies belonging to the same segment and, the carrying amount of the investments in subsidiaries and the related portion of equity. The reporting and control process implemented by Generali
Group implies that assets, liabilities, income and expenses of companies operating in different business segments are allocated to each segment through specific segment reporting. Intra-group balances between companies belonging to different business segments are accounted for in the consolidation adjustments column in order to reconcile segment information with consolidated information.
The abovementioned approach reduces consolidation adjustments, that currently include dividends received by life companies and paid by Group companies belonging to other segments, and net commissions for financial services rendered and received by Group companies.
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.
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.
In order to provide a management view of the key performance indicators, the geographical reporting is now disclosed as country’s consolidated view, instead of contribution to the Group’s results. The elimination of transactions between Generali Group companies in different geographic regions is included within the cluster International Operations.
Balance sheet and Income statement by segment are reported in the following tables.
4.1 Land and buildings (investment properties) 4,261 4,191 7,340 7,737 4.2 Investments in subsidiaries, associated companies and joint ventures 4.5 Available for sale financial assets 25,839 25,915 257,193 245,042 4.6 Financial assets at fair value through profit or loss 2,179 1,046 91,611 81,743 1 SHAREHOLDERS' EQUITY
4.1 Financial liabilities at fair value through profit or loss 356 364 19,728 18,004
1 Consolidation area Based on the IFRS 10, the Consolidated financial statements include the figures for both the Parent company and the subsidiaries directly or indirectly controlled.
cash flow from operating activities -915 -997 736 173 cash flow from investing activities 960 1,170 -726 -384 cash flow from financing activities -112 -102 63 221
Transactions with non-controlling interests No Relevant transactions with minority shareholders occurred during 2015. As reported in the paragraph “main events of 2015”, in
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.
Guotai is one of the first professional fund management companies in China. The company manages mutual funds and several Social Security Fund (SSF) portfolios, adding up to approximately € 8 million) value of assets under management
Total comprehensive income attributable to the Group 52 64 27 12
As part of the commercial relationships in the German area with the distribution partner DVAG, we inform that the controlling shareholder holds an option to sell its majority block of shares to an entity held by Generali Group.
Furthermore, the Group holds interests in associates which are not individually material that, as mentioned above, are accounted for according to the equity method. The associates in which the Group has interest mainly operate in the insurance and financial services industries.
In relation to the Group’s interests in joint ventures, no significant contractual, legal or regulatory restrictions exist on the Group’s ability to access or use its assets and settle its liabilities, nor significant commitments exist. For further details regarding restrictions on Group assets, please refer to paragraph 47 Contingent liabilities, commitments, guarantees, pledged assets and collaterals in
Group is deemed to be sponsor since is has originated the insurance risk of the structured entity. Generali pays a premium of 2.25%
per annum on the €190 million of cover under the reinsurance agreement. The related cost is presented within the “Earned premiums ceded” line in the statement of Profit or Loss.
Carrying amount as at the end of the period 6,661 6,617
The table below details the goodwill by relevant companies: Goodwill: details
The goodwill booked was subject to impairment tests as stated by IAS 36.
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 Non-Life. Starting from 2015, the
Central Eastern Europe. This change has been made in order to better align the perimeter of analysis to the one that is currently used by management to steer business and for monitoring the performance.
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.
B) Cost of equity (Ke) of the company net of taxes: Goodwill: cost of equity (Ke) net of taxes ke
The cost of equity (Ke) for each entity is extrapolated based on the Capital Asset Pricing Model (CAPM) formula. In detail:
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. This sensitivity, for Life segment, highlighted that, because of the increase of the Ke of 1%, Generali France and Generali Holding Vienna CGUs showed a recoverable amount substantially equal to the corresponding carrying amount. For Alleanza CGU the matching between the two values was observed with an increase of Ke of 0.8%. In Non-life segment the sensitivities of both financial and non-financial assumptions did not highlight any negative difference between the carrying amount and the recoverable amount.
With reference to policy of divestment of non-core and not strategic assets, as abovementioned, in September 2015, Generali
Moreover, during the first months of 2015 Generali has also completed the sale of the Argentinean entities La Estrella, Caja ART
As far as other related parties are concerned, the most significant transactions are with Mediobanca Group regarding investment bonds for € 624 million, and financial liabilities amounting to € 113 million.
In the table below Group investments are split into the four IAS categories, as reported on balance sheet, as well as by nature into the equity instruments, fixed income instruments, real estate instruments, other investments and cash and similar instruments.
Given their short term investments nature, the reverse repurchase agreements are reclassified within ‘cash and similar instruments’.
The fair value of the held to maturity investments amounted to € 2,140 million, of which € 2,105 million represented by bonds.
The fair value of total loans amounted to € 53,496 million, of which € 36,892 million related to bonds.
This category accounted for 63.9% of the total investments. The increase compared 31 December 2014 was attributable to net acquisition in the period, particularly of debt securities, only partially matched by decrease in value of bonds due both to higher market rates and widening of spreads.
Available for sale bonds represented 89.2% of total bonds with a rating higher or equal to BBB, class assigned to the Italian government bonds.
Available for sale financial assets: gains and losses at profit or loss 31/12/2015
(€ million) Financial assets held for trading Financial assets designated as at fair value through profit or loss
This category accounted for 20.9% of total investments. In detail, these investments were mainly allocated in the life segment (€
The increase compared to 31 December 2014 was due to the increase both in financial assets where the risk is borne by policyholders and in other items of the category, due both to net acquisition in the period and to the revaluation of investments, mainly of Investment Fund Units.
Accumulated depreciation and impairment as at 31 December previous year -2,247 -2,046
Accumulated depreciation and impairment as at the end of the period 2,254 2,247
Gross book value as at the end of the period 14,366 14,875
Bond investments totalled € 297,552 million at the end of the period. The portfolio was composed for € 163,474 million by government bonds, while corporate bonds amounted to € 134,077 million.
Group’s exposures to investments in corporate bonds, detailed by sector and rating, are reported at book value in the following tables:
The investments in corporate bonds totalled € 134,077 million at the end of the period. The portfolio was composed for 38.1% by non-financial corporate bonds, for 35.4% by financial corporate bonds and for 22.0% by covered bonds.
Equities Group’s exposures to investments in equities, detailed by sector and country of risk, are reported at fair value in the following tables: Equity investments: breakdown by sector
As a consequence of the recovery in the value of corporate bonds, the reclassification in loans category of investments previously classified as available for sale financial assets, implied a missing recognition of the revaluation of the related equity reserve of € 481 million (considering both the group share and minorities), € 81 million net of policyholders share and deferred taxes for the 2015 year.
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 € 5 million, € 0.4 million net of policyholders share and deferred taxes for the 2015 year.
Derivative financial instruments The Group’s exposure in derivatives is mainly associated with hedging operations on financial assets and liabilities and it is in line with strategies aiming at mitigating financial and credit risks. The total exposure amounts to € -1,165 million for a corresponding notional amount of € 40,511 million. The notional exposure is presented in absolute amounts, including the positions with both positive and negative balances, and it arises for an amount of € 7.729 million from instruments for which a hedge accounting relationship has been formally designated, in accordance with the international accounting standard IAS 39. The remaining notional amount is attributable to derivative instruments for which, notwithstanding their purpose as hedging instruments, a formal hedge accounting relationship has not been activated.
Derivative instruments designated for hedge accounting The exposure in terms of amounts recognised in the financial statements amounts to € -229 million.
Central-Eastern Europe, with particular reference to risks arising from fluctuations in interest rates and foreign exchange rates.
Other derivative instruments The recognised amounts in the financial statements for these exposures at 31.12.2015 amounted to € -935 million for a corresponding notional amount of € 32,783 million, which mainly relates to over-the-counter positions. The exposure is mainly associated with operations relating to interest rates hedges and foreign exchange rates hedges, with particular reference to the US
dollar. It should also be noted that during the year the Group has implemented a macro hedge strategy in order to protect capital from the risk of a significant reduction in share prices.
Provisions for policies where the investment risk is borne by the policyholders and provisions for pension funds of which provisions for liability adequacy test 1,036 1,053 0 0 1,036 1,053 of which deferred policyholder liabilities 22,642 25,300 0 0 22,642 25,300
(€ million) Direct insurance Accepted reinsurance Total 31/12/2015 31/12/2014 31/12/2015 31/12/2014 31/12/2015 31/12/2014
Life amounts ceded to reinsurers from insurance provisions 635 810 563 534 1,199 1,344
Carrying amount as at 31 December previous year 1,674 1,650 283 307 1,958 1,957
The deferred acquisition costs amounted to € 2,000 million, stable compared to the previous year.
Insurance provisions and financial liabilities related to policies of the life segment
Transfer to Non-current assets or disposal group classified as held for sale 0 -504
Carrying amount as at the ed of the period 275,338 260,722
Life insurance provisions and financial liabilities related to investment contracts: contractual term to maturity
Carry amount as at the end of the period 25,300 3,999
Deferred policyholders liabilities recorded a decrease as a consequence of the decrease of the policyholders’ share recognized on the fair value of the investment available for sale, with particular reference to the bonds component.
The difference between the ultimate cost of claims and the cumulative paid losses for calendar year 2015 constitutes the claim reserve for accident years 2006 to 2015. The reserve reported in the balance sheet also includes a residual claim reserve that is composed almost exclusively by the accident years not reported in the development triangle.
With reference to the reinsurance policy , the table proves that the careful criteria for the selection of reinsurers adopted by the
Group over the past allowed Generali to have a significant presence of counterparties in rating classes of high quality. The small percentage of AAA counterparties reflects the almost total lack of market players that have maintained these characteristics.
"Not rated" counterparties remain; as in the past, they also include a considerable amount of captive insurance companies of large industrial Groups that do not qualify for any rating while showing a good financial strength, companies that are no longer active in the reinsurance market and not valued by the rating agencies, but not necessarily less financially sound , companies that are part of major insurance groups which benefit from high rating but who have abandoned their reinsurance activities, or, finally, of mutual and reinsurance pools.
Reserve for other unrealized gains and losses through equity -944 -943
The Group’s own shares decreased to € −6 million, amounting to 310,273 shares (€ −8 million, 309,133 shares as at 31 December
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 € 6,067 million (€ 6,498 million at 31 December 2014). The variation is essentially attributable to the decrease in unrealized gains and losses attributable to the available for sale financial assets.
The reserve for other unrealised gains and losses though equity comprised, among other component, gains or losses on remeasurement of the net defined benefit liability in accordance with IAS 19 revised, and gains or losses on hedging instruments accounted for as hedging derivatives (cash flow hedge), put in place in order to hedge interest rate change and British pound/Euro rate change on various subordinated bonds issued and the reserves belonging to disposal groups held for sale reclassified also for the comparative period. The item remained substantially stable against the increase in gains arising from the re-measurement of the liability for defined benefit plans for € 162 million, as a result of an increase of the reference interest rates used to discount these liabilities, substantially offset by the decrease in the reserve for disposal groups due to the mentioned BSI disposal (€ 157 million as at 31 December 2014).
Items that may be reclassified to profit and loss in future periods
Net unrealized gains and losses on investments available for sale -398 4,017
Total comprehensive income 2,214 5,351 attributable to the Group 1,912 5,042 attributable to minority interests 302 309
Unrealized gains and losses on available for sale financial assets 353 -1,766
Result of the period of entities included in the consolidation area
Financial liabilities designated as at fair value through profit or loss
Other financial liabilities at FV 0 0 28 25 28 25 18 Other financial liabilities
Financial liabilities related to investment contracts issued by insurance companies 5,070 4,811
The decrease of total of ‘Other financial liabilities’ was mainly attributable to the item ‘other loans’. The decrease was the result of the put option on Generali PPF Holding, outstanding at 31 December 2014. This liability had been recognized in relation to the obligation to purchase the residual share held by PPF and had been closed at the acquisition of the remaining shares of Generali
The main Group’s financial liabilities at amortized cost are represented by senior bonds and subordinated liabilities . The following tables sort Senior and Subordinated liabilities into categories based on maturity, or first call date, when applicable. For each category of maturity, the undiscounted cash flows (including the related hedging derivatives), the book value and the fair value of financial liabilities are reported.
In October 2015 a subordinated liability was issued, which amounted to € 1,250 million with the aim of refinancing some subordinated liabilities issued by the Group with the first callable option fixed in June 2016.
The category of ‘bonds issued’ includes both the issues described in the table ‘Main senior bonds issues’ and the following bonds:  Other senior bonds, of which mainly those issued by Ceska Pojistovna for a nominal amount of CZK 500 million corresponding to an amortized cost of approximately € 24.6 million;  A senior bond issued in May 2010, for a nominal amount of € 560 million (at 31 December 2015 the remaining amount was about € 319 million), to fund the tax recognition of goodwill related to the unusual transaction Alleanza Toro. This issue was classified as operating debt because the debt structure provides a perfect correlation between cash flows arising from their recognition of taxes and loan repayments both in terms of interest and of capital.
In May 2015 the Group repayed a senior bond for an amount of € 500 million.
Value of in-force business arising from insurance business combination 968 1,088
Other intangible assets, which According to the IFRS 3 included the value of the insurance portfolio (or “The value in force”)
Gross book value as at 31 December previous year 3,785 3,865
Accumulated depreciation and impairment as at 31 December previous year -988 -986
Carrying amount as at the end of the period 2,844 2,797
Accumulated depreciation and impairment as at the end of the period 1,020 988
Gross book value as at the end of the period 3,864 3,785
Other tangible assets, which amounted to € 1,625 million (€ 1,814 million at 31 December 2014), mainly includes property inventories for a amount of € 1,296 million (mainly related to Citylife) and furniture, fittings and office equipment, net of accumulated amortisation and impairment losses (€ 294 million).
The category included receivables arising out of the different activities of the Group, such as direct insurance and reinsurance operations.
The slight decrease of 2.9% was attributable to the reduction in receivables arising out of direct insurance and reinsurance operations, only partially offset by the change in other receivables, mainly due to the increase in receivables related to collateral pledged for transactions in derivatives put in place to hedge the currency risk on the US dollar.
The decrease is attributable to the item ‘non-current assets held for sale and discontinued operations’ due to the disposal of BSI
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.
In the normal course of business, the Group may enter into arrangements that do not lead to the recognition of those commitments as assets and liabilities in the consolidated financial statements under IFRS (contingent assets and liabilities). For further information regarding contingent liabilities please refer to the paragraph Contingent liabilities, commitments, guarantees, pledged assets and collaterals in Additional information.
The decrease was attributable to the line item relating to non-current liabilities or belonging to a disposal group held for sale, due to the disposals of the banking group BSI and the Argentinian entities.
Other liabilities also include liabilities related to defined employee benefit plans amounting to € 3,828 million (4,077 million as of 31
Change in the provision for unearned premiums 77 88 -21 -62 56 26 27 Fee and commissions income and income from financial service activities
Fee and commission income related to pension funds management 18 17
Other fees and commission income 15 7 28 Net income from financial asset at fair value through profit and loss
Net income from financial asset at fair value through profit or loss
Reversal of impairment 0 19 30 Income from other financial instruments and land and buildings (investment properties)
Reversal of impairment of land and buildings (investment properties) 73 42
Non-life net insurance benefits and claims 13,604 13,696 -524 -586 13,081 13,110
Change in claims paid to be recovered 6 50 -3 -1 3 49
Change in the provisions for outstanding claims 184 803 -45 24 139 827
Change in the mathematical provisions 12,552 10,851 29 -75 12,581 10,777
Change in the provisions for policies where the investment risk is borne by the policyholders and provisions for pension funds
Fee and commission expenses related to pension funds management 12 11 34 Expenses from subsidiaries, associated companies and joint ventures
35 Expenses from other financial instruments and land and buildings (investment properties)
Impairment of other receivables 41 52 36 Acquisition and administration costs
Net acquisition costs and other commissions 4,229 4,157 3,950 3,727 0 0
In the Non-life segment, non-insurance administration expenses, equal to € 9 million, decline in respect to the previous year (€ 14 million at 31 December 2014); a proportion of € 3 million of these expenses are related to real estate activities.
Expenses from non-current assets or disposal group classified as held for sale 0 0
The components of the income tax expense for 2015 and 2014 are as follow: Income taxes
Furthermore, income taxes of Italian companies include the regional tax on productive activities (IRAP), which was computed – in respect of insurance companies – at the ordinary tax rate generally equal to 6.82%.
Income realised in Germany is subject to the corporate income tax - which is calculated on a rate of 15% plus a solidarity surcharge of 5.50% - and the trade tax (Gewerbesteuer). The trade tax rate varies depending on the municipality in which the company is situated. In 2015 the weighted average tax rate remained substantially unchanged at approximately 16.2%.
Effect of permanent differencies and foreign tax rate differential -142 -253
With respect to the 2015 fiscal year, the effective tax rate is equal to 32.6% with a decrease of 2.9% in comparison to the previous fiscal year. In particular, such a decrease is mainly related to the decrease of the regional tax on productive activities (IRAP), the absence of the extraordinary expense related to the substitute tax on the revaluation of the participation in the Bank of Italy.
in Italy, “Steuerliche Organschaft” in Germany and “Régime d’intégration fiscale” in France).
As for measurement and disclosure, the fair value depends on its unit of account, depending on whether the asset or liability is a stand-alone asset or liability, a group of assets, a group of liabilities or a group of assets and liabilities in accordance with the related
The fair value hierarchy levels are based on the type of inputs used to determine the fair value:  Level 1 inputs are quoted prices (unadjusted) in active markets for identical assets or liabilities that the entity can access at the measurement date.
 Level 2 inputs other than quoted prices included within Level 1 that are observable for the asset or liability, either directly or indirectly (i.e. quoted prices for similar assets or liabilities in active markets; quoted prices for identical or similar assets or liabilities in markets that are not active; inputs other than quoted prices that are observable for the asset or liability; marketcorroborated inputs).
 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).
The table shows the classification of financial assets and liabilities measured at fair value among the levels of fair value hierarchy as defined by IFRS13.
Financial liabilities at fair value through profit or loss 15,687 4,222 173 20,082
Financial assets at fair value through profit or loss 56,585 24,720 1,756 83,061
Other assets at fair value through profit or loss 26 752 386 1,164
The transfers were as follows:  from level 2 to level 1 € 1,145 million of corporate bonds and € 182 million of Investment Fund Units;  from level 1 to level 2 € 417 million of government securities and € 1,287 million of corporate bonds;  from level 2 to level 1 € 11,361 million of financial assets where the risk is borne by the policyholders and related to pension funds in particular following the completion of the harmonization of the levelling policy.
The amount of financial instruments classified in Level 3 represents 2.1% of total financial assets and liabilities at fair value, stable compared to 31 December 2014.
It includes unquoted equity securities, mainly classified into available for sale. Their fair value is determined using the valuation methods described above or based on the net asset value of the company. These contracts are valued individually using appropriate input depending on the security and therefore neither a sensitivity analysis nor an aggregate of unobservable inputs used would be indicative of the valuation.
Are corporate bonds, classified into available for sale and fair value through profit or loss. Their fair value is mainly determined based on the market or income approach. In terms of sensitivity analysis any changes in the inputs used in the valuation do not cause a significant impact on the fair value at the Group level considering the lack of materiality of these securities classified in level
 Financial assets where the investment risk is borne by the policyholders and related to pension funds
Their fair value is determined using the valuation methods used for the above explained asset classes.
In addition to the analyses described above, the Group has decided to classify all asset-backed securities in Level 3 since their evaluation is not generally supported by market inputs. Regarding prices from providers or counterparties have been classified in
Level 3 all those titles for which you cannot replicate the price through market inputs.
Other assets at fair value through profit or loss 386 0 0 0
43 Information on fair value hierarchy of assets and liabilities not measured at fair value The table here below provides information on the fair value hierarchy for the main investment classes and financial liabilities: Fair Value Hierarchy of assets and liabilities not measured at fair value 31/12/2015 Level 1 Level 2 Level 3 Total
Investments in subsidiaries, associated companies and joint ventures 0 0 1,287 1,287
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.
45 Provisions for defined benefit plans The pension benefits of Generali Group’s employees are mainly in the form of defined benefit plans and defined contribution plans.
Part of the Group’s defined benefit plans have assets that are designated, but not legally segregated, to meet the pension defined benefit obligations. These are investments backing insurance provisions or policies issued by Generali Group companies, or other investments owned by the Group entities. Consequently, in accordance with IAS 19, these investments are not recognised as plan assets and so cannot be deducted from the defined benefit obligations. However, to assess the net liability for defined benefit plans, these assets should have been netted against the present value of the related pension obligations.
The actuarial losses recognised during the period are mainly linked to the movements of the reference interest rates, consistently with the requirements of IAS 19, used for the determination of the discount rate for the measurement of the liability related to defined benefit plans. The amounts reported are gross of deferred taxes and deferred policyholders liabilities, where applicable.
Defined benefit obligation as at 31 December previous year 5,119 5,273
Fair value of plan assets as at 31 December 997 934
The average duration of the obligation for defined benefit plans is 14 years at 31 December 2015 (14 years at 31 December 2014).
A sensitivity analysis was carried out showing how the defined benefit obligation would have been affected by changes in the discount rate and the most relevant actuarial assumptions on these liabilities:
To provide an indication of the effect of the defined benefit plans on the future cash flows of the Group, the future expected payments divided by bands of maturity are presented below: Defined benefit plans: expected payments
In line with the last year, a new long-term incentive plan based on Assicurazioni Generali shares – Group Long Term Incentive (LTI) 2015 - has been submitted for the approval of the Shareholders’ Meeting.
In line with market practices and investor expectations, shares are assigned and made available to the participants over a total time frame of 6 years, subject to the achievement of the Group’s performance conditions, ie. return on equity (RoE) and relative total shareholders’ return (rTSR) and the achievement of a minimum return on risk capital (RORC) at a Group level, as detailed below.
The Plan is based on the following essential aspects:  the incentive connected with the achievement of the targets is paid through the grant of Assicurazioni Generali S.p.A.
 the targets to which payment of the incentive is subject are Group financial ones and are defined at the beginning of the three-year performance period.
Once the level of the return on risk capital (RORC) 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.
During each year of the plan and at the end of the three years, the Board of Directors evaluates the degree to which the Group’s return on risk capital (RORC) has been achieved as compared with the limit set as 9.5% (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 RORC should fall below the threshold established.
The maximum number of shares that can be granted is 8,000,000, accounting for 0.51% of the current share capital.
For additional information related to incentive plans refer to the 2015 Remuneration Report.
As regards plans 2013 and 2014, 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.
The overall cost of the plan, sum of the three components above mentioned, is allocated over a period of maturity of 3 years (vesting period) starting from the first financial year on which the performance levels are assessed, with a corresponding increase in equity.
The weighted average expiry date of the stock options granted to managers and employees and outstanding at the balance sheet date is on 25 April 2016. The stock options granted to the Parent Company Chairman and Managing Directors have expired.
Share-based compensation plans granted by Banca Generali At 31 December 2015, the share-based compensation plans granted by Banca Generali are composed of two stock option plans reserved respectively to financial promoters and network managers and Relationship Managers (employees) of Banca Generali, approved by Shareholder’s meeting on 21 April 2010.
Since 2015, remuneration and incentive policy of Banca Generali Group, approved the shareholders' meeting of 23 April 2015, also states that a portion of the most relevant employees variable remuneration will be assigned through payments based on own financial instruments.
As for the remuneration and incentive Policy of Banca Generali group for 2015, approved by the shareholders' meeting on 23 April 2015, it has been provided, in compliance with Diposizione di vigilanza (Circolare Banca d’Italia No. 285 / 2013), 25 percent of the variable remuneration of the most relevant employees and network managers, both short term remuneration as well as long, , takes place through the allocation of Banca Generali financial instruments. The overall number of shares to be assigned has been determined dividing the proportion of the remuneration payable in shares with the average of the prices of the Banca Generali share registered on Borsa Italiana in the 90 days before the approval of the financial statements 2014 by the Board of Directors of the
The effective number of shares assigned to the beneficiaries will be in any case determined following the assessment of the overcoming of the access gate and of the expected targets at individual level for the financial year 2015.
(*) Estimated shares to be allocated on the basis of the new remuneration policy of the banking group.
As for the stock option plans approved during the 2010, reserved respectively to financial promoters, network managers and relationship managers (employees) of Banca Generali, it was determined a fair value between € 1.01 and € 0.65, depending to the expected grant date.
The costs recognized in the profit or loss of the financial year 2015 linked with the stock option plans deliberated during the 2010, reserved respectively to financial promoters, network managers and relationship managers (employees) of Banca Generali amounted totally to € 0.1 million whereas the estimated cost linked to the new stock grant plans is € 1.9 million.
At 31 December 2015, the number of shares granted amounted to 5,263,243 preferred shares, of which 354,729 related to the plan granted for 175th anniversary of foundation of Parent Company.
47 Contingent liabilities, commitments, guarantees, pledged assets and collaterals 47.1 Contingent liabilities
A contingent liability is:  a possible obligation that arise from past events and whose existence will be confirmed only by occurrence or non occurrence of one or more uncertain future events not wholly within the control of the entity; or
 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
As far as other commitments are concerned, approximately € 1,003 million refer to potential commitments of the German life companies towards a German entity in order to protect the policyholders in the local market if the funds already available within the policyholders protection scheme are not sufficient to face the insolvency of one or more insurers.
The Group’s nominal exposure towards third parties amounts to € 768 million, of which € 647 million refer to guarantees given 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.
At 31 December 2015, as already mentioned in the paragraph Assets transferred that do not qualify for derecognition of the section Investments, the Group has pledged approximately € 4,088 million of its assets. In particular, approximately € 1,688 million have been pledged to cover bonds and loans issued, mainly related to the Group’s banking and real estate activities, and approximately € 1.673 million for transactions in derivatives. Residual part is related to collateral pledged in relation to reinsurance business accepted by the Group.
In June Generali approved the demerger from Telco S.p.A., completed in July. The demerger had no impact on the economic and financial position of the Group.
Please refer to the paragraph Non-current assets or disposal group classified as held for sale for further quantitative details on the disposal of BSI Group.
 La Estrella Seguros de Retiro S.A., La Caja Aseguradora de Riesgos del Trabajo ART S.A. and La Caja de Seguros de Retiro
During the first months of the current year Generali concluded the disposal of the Argentinian companies La Estrella de Retiro S.A.,
In compliance with the IFRS 7 requirements, introduced by the Regulation (EC) no. 108 of 11 January 2006 and following amendments, this section describes the nature and extent of risks arising from financial instruments and insurance contracts, which the Group had been exposed to during the accounting period, along with a description of the related risk management processes at the reporting date.
I. Internal Control and Risk Management System Generali Group has developed an Internal Control and Risk Management System, defined by the Board of Directors of the Parent Company, whose principles apply to all Group Companies. It defines the purpose, principles, structure, roles, responsibilities and key provisions of the system, in compliance with the laws and regulations applicable to Group internal control and risk management.
By means of the Internal Control and Risk Management System, Generali Group aims at maintaining the identified risks within an acceptable range in order to optimise the available financial resources required to manage the identified risks and thereby improve the profitability of the business exposed to these risks (risk-adjusted performance). The activities of Generali Integrated Risk Management System at Group level are carried out under the coordination and steering of the Head Office, and rely on a set of Group Policies and Guidelines, monitoring tools as well as common methodological frameworks. The coordination and steering of these activities is ensured through the reporting of the local Risk Management, Compliance and Internal Audit functions to the related function at Head Office level. Such coordination is fundamental to ensure a consistent and efficient implementation of the Risk Management System and to allocate capital to the Group Companies taking into consideration their specific risk profile.
A project of particular importance to ensure full adherence with the Solvency II prudential regime, is the application process for the approval, by the Supervisory Authority, of the Internal Risk Model used for the calculation of the Solvency Capital Requirement. In developing the Internal Risk Model, Generali ensured compliance with all Solvency II requirements, including tests and standards envisaged by regulations, including Validation. The Internal Model approval process has been defined on the basis of a multi-year working plan, coordinated with the College of Supervisors (coordinated by the Group Supervisor and composed by the National Supervisors of the Countries included in the scope of application of the Internal Model). Within the pre-application process several meetings with the College were held, and subsequently the so-called “Application package” was submitted with the objective of receiving the approval for the use of the Internal Model for the calculation of the Solvency Capital Requirement.
In March, following the Application submitted by Assicurazioni Generali S.p.A., IVASS (Istituto per la vigilanza sulle assicurazioni), approved the use, starting from 1 January 2016, of a Partial Internal Model to calculate the consolidated Solvency Capital Requirement at Group level, as well as the Solvency Capital Requirement for the main insurance undertakings in Italy and Germany, for the French non-life Companies and for the Czech Company Ceska Pojistovna A.s..
The process of defining and updating the written policies based on Solvency II Framework has been completed. The policies rule the system of internal controls by defining roles and responsibilities of the control functions, and define the processes related to the management of individual risks (investment, underwriting and operational risk) and the main business processes (including capital management, asset-liability management process and product approval process).The completion of the written policies required by Solvency II is part of a broader commitment of spreading the internal control culture and awareness on the Internal Control and Risk Management System adopted both at Company and at Group level. To this end, the Generali Internal Regulations System (GIRS), which is the Group internal regulatory system, approved by the Board of Directors of Assicurazioni Generali, defines the hierarchy of the Group internal regulations and identifies their main characteristics. It also introduces the process that governs the life cycle of the Internal Regulations in terms of preparation, validation, approval, dissemination and adoption at Group level.
4 Ania stands for Associazione Nazionale fra le Imprese Assicuratrici, being the Association of the Insurance companies at Italian level.
As part of the implementation of the Solvency II Pillar II requirements in terms of governance, the Group ORSA Report (Own Risk and Solvency Assessment) has been prepared, in accordance with the principles and with the content requirements provided by IVASS within Letters to the Market issued according to the EIOPA Guidelines.
The following paragraphs detail general aspects related to the implementation of the Risk Management Policy at Group level, with reference to governance and risk management processes. In particular a definition is provided of the main risks to which the Group is exposed, according to the Group Risk Map, which has been approved within the Risk Management Policy. For each risk category a brief description of the main methodologies applied for the risk assessment is given.
II. Risk Management System In order to ensure an effective management of risks arising from the business with focus on the most significant ones, which could undermine the solvency position of the Group and of the Business Units or constitute a serious obstacle to the achievement of the Group’s objectives, the Board of Directors adopted the “Internal Control and Risk Management System” and the “Risk Management Policy”. In order to guarantee a consistent approach and to monitor the management of the risks throughout the Group, the adoption of these policies is required to all Group subsidiaries.
The Board of Directors approves the risk management policies and strategies, as well as the risk tolerance levels. The risk adjusted performance targets are defined in line with the capital adequacy level.
The Group CEO is also the member of the Board in charge of the Internal Control and Risk Management System who, among other tasks, implements the risk management Policies and proposes initiatives to the Board of Directors aiming at adjusting and reinforcing the Internal Control and Risk Management System.
The GMC supports the Group CEO for the strategic decisions, such as the endorsement of recommendations submitted to the Board of Directors, the main decisions in terms of risk and investment, the assessment of the Group financial and operating results, as well as the definition of the strategic projects having an impact at Group and main Business Units’ level.
The Parent Company Top Management is supported also by the cross functional Balance Sheet Committee, Finance Committee and Product & Underwriting Committee. The Balance Sheet Committee identifies and investigates the issues, which may have a material impact on the balance sheet, both at a Group and Head Office level. The Finance Committee investigates and assesses extraordinary investments and transactions, while the Product & Underwriting Committee oversees the profitability and the riskiness of new insurance products through a centralized process calling for prior approval of new products.
The functions involved in the risk management process operate according to the Three Line of Defence approach, as outlined in the Internal Control and Risk Management System: − the operational department heads (Risk Owners), as primary risk takers through their activities, have the direct responsibility to manage risks and implement appropriate control measures. To this end, they provide Top Management with the information needed to define the policies, methodologies and tools for the management and controls of the risks for which they are responsible, both at Group and Company level. To this extent, they oversee their implementation and ensure their adequacy over time. They also ensure that the operational departments that are under their responsibility comply with their objectives and policies, they implement corrective actions within their delegated authorities, and submit specific recommendations or proposals of improvements to the Top Management; − the Group Risk Management, the Group Compliance and the Group Actuarial Function are the second Line of Defence. The Group Risk Management, whose responsible is the Group Chief Risk Officer, guarantees the accurate implementation and the overall adequacy of the Risk Management System, as prescribed by the regulation and as defined by the Board of Directors. The Group Risk Management Function supports the Board of Directors and the Top Management in the definition of the risk strategy and in the development of the methodologies to identify, evaluate, control and report risks. Through an adequate reporting system, the Group Risk Management Function defines the framework for assessing the strength of the overall Risk management system. With the purpose of fully complying with independence requirements from the business functions, the Group CRO also reports functionally to the Board of Directors. Further, the Chief Risk Officers of the local Companies report also to the Group CRO. The Group Compliance Function, whose responsible is the Group Compliance Officer, has the responsibility to evaluate whether the organization and the internal procedures are adequate to prevent the risk of incurring legal or administrative sanctions, financial losses and damage to reputation as a result of infringements of laws, regulations or measures of Supervisory Authorities or self-regulatory standards. Also the Group Compliance Officer reports functionally to the Board of Directors. The Group Actuarial Function, of which the responsible is the Group Head of Actuarial Function, has to coordinate the computation and the validation of the Technical Reserves of the Group and to develop a common frame of reference rules for the Local Actuarial Functions. Moreover, it sets a common structure for providing opinions on reinsurance and underwriting activities to be adopted by Local Actuarial Functions. Its main task is to provide the Group Board of Directors with an independent opinion regarding the Group Technical Provisions within Solvency II requirements and about the Group underwriting and reinsurance policy. Also the Head of the Actuarial Function reports functionally to the Board of Directors; − the Internal Audit Function, named Group Audit, is the Third Line of Defence and is an objective function carrying out assurance activities for the benefit of the Board of Directors, the Top Management and other departments, with the aim of improving the effectiveness and efficiency of the System of Internal Controls, the organization and the governance processes. The Head of Group Audit Function reports directly to the Board of Directors, by means of the Chairman.
Companies belonging to the Insurance Group are required to comply with the directives for the Internal Control and Risk Management System described above. Local amendments are allowed only in case of conflict with local laws.
The Policy establishes the driving principles and minimum process requirements to identify, evaluate, manage and monitor current and forward looking risks that could arise from the activities performed by Generali Group.
The main processes and procedures prescribed in this Policy are aimed at establishing a sound management of risks to preserve the stability and solvency of Generali Group, and at leveraging synergies, best practices, and specialized competences developed within the Group.
Given the categories provided for in Reg. 20/2008 IVASS, Art. 19 and the Solvency II framework, the main risks to which the Group is exposed to, on a current and forward looking basis, are explained below.
The Group Risk Map, approved by the Assicurazioni Generali Board of Directors, identifies the main risk categories listed hereafter. For each category, a specific measurement methodology is defined: Risks covered by Partial Internal Model
Economic Balance Sheet). The Solvency II Directive provides for specific tests and standards, aimed at ensuring the reliability of the results obtained and their actual use in business decision-making processes.
Hereafter the main principles for the management and monitoring of the above risk categories are described.
For more details on exposures to investments subject to market risk, please refer to section “Investment” of the Notes.
In life business, this absorption is generally based on the level and structure of minimum return guarantees and profit sharing arrangements. The sustainability of minimum guaranteed rates of return is assessed through deterministic and stochastic analysis, on the medium or long terms, performed at Company and, if necessary, at single portfolio level. These analyses take into account the dynamic interaction between assets and liabilities in order to support the product definition and asset allocation strategies aiming at optimising the risk/return profile.
The currency risk arising from borrowings in currencies other than the euro is neutralized using derivative hedging instruments.
Taking into consideration the specific characteristics of the life business, the impact of negative changes in the financial market conditions has to be assessed both on assets and liabilities. As envisaged by IFRS 4, this impact is represented herein as percentage change of Group’s Embedded Value7.
With reference to the covered business at the date of valuation, and to the relevant consolidation perimeter (i.e. the operating life and health Companies of the Group), the EV is equal to the sum of the Adjusted Net Asset Value (ANAV), and the Value In-Force (VIF). Namely: − the Adjusted Net Asset Value corresponds to the market value of the consolidated shareholders’ funds, net of goodwill and DAC (Deferred Acquisition Costs), and before the payment of dividends from profits in the year; − the Value In-Force corresponds to the present value of the projected stream of after-tax industrial profits generated by the business in force at the valuation date. This value takes into account the cost of financial guarantees related to the options, embedded in insurance contracts, and less the frictional costs of holding the capital and the cost of non-financial risks.
Regarding the market risk the Group performs the following sensitivities on its Embedded Value: − Yield curve +0.5%: sensitivity to an upward parallel shift of 50 basis points in the underlying market risk free rates, accompanied by an upward shift in all economic assumptions; − Yield curve -0.5%: sensitivity to a downward parallel shift of 50 basis points in the underlying market risk free rates, (-100 basis points analysis has not been performed at 31/12/2015 because of a lack of significance in a scenario with very low interest rates), accompanied by a downward shift in all economic assumptions; − Equity value -20%: sensitivity to a 20% market value reduction of all equity investments in the portfolio at valuation date; − Property value -10%: sensitivity to a 10% market value reduction of all property investments in the portfolio at valuation date.
Embedded value (%) at 31 December 2015 is reported in the table below.
Valuation of impact on Group’s financial statements deriving from possible changes in interest rate was assessed both considering instrument with fixed interest rate (exposing Group to “fair value” risk with impact on equity or result depending on their accounting classification) and with floating interest rate (exposing Group to “cash flow” risk with impact on profit or loss). This impact was assessed considering the 12-month period ending at the reporting date.
As envisaged in the Group Risk Guidelines, investments in securities with a high credit rating (investment grade) are preferred, and the diversification of risk is encouraged. The Group has a data warehouse for the collection and aggregation of data related to financial investments, which ensures homogeneity, time effectiveness and high quality analysis of financial and credit risks.
In order to mitigate the counterparty risk, related to market risk hedging strategies, the following risk mitigation measures are pursued. These include the selection of counterparties, the use of listed instruments and the integration of ISDA Master Agreements with the Credit Support Annex (CSA). CSA provides for the delivery of a collateral when the value of the contract exceeds a certain threshold.
In addition to debt and derivative financial instruments, the Group is exposed to credit risk through the exposure to reinsurance counterparties to which part of the business is ceded. In particular, the ability by reinsurers to fulfil contractual obligations towards the Group is monitored.
The main criterion consists in the definition of a maximum exposure transferable to each reinsurer. In principle, the maximum risk transferable to an individual reinsurer for each reinsurance program should not exceed a given percentage of its net equity. Generally, such exposure is further reduced according to the rating provided by the rating agencies and to the line of business being considered. Based on the features of risk being transferred, a maximum amount threshold is established. For long-tail business more restrictive criteria are adopted.
For details on the rating of the technical provisions attributable to reinsurers please refer to section "Insurance and investment contracts" in the Notes.
Insurance Risk Life & Health includes biometric risks embedded in life and health policies deriving from the uncertainty in the expected future claims pay-out related to assumptions regarding mortality, longevity, morbidity and disability rates. It includes also risks coming from uncertainty on expenses and those arising from the possible exercise of contract options mainly related to the expected value of lapses and future premiums.
The Group Companies’ life portfolios have a prevailing component of saving contracts, but there are also pure risk covers (death plus riders, such as accident, disability, dread disease, etc.) and some annuity portfolios, with the presence of the longevity risk.
Regarding lapse, a decrease in surrender assumptions could produce both positive and negative effect in the Embedded Value, depending on the portfolio structure and on the economic contingencies. In particular, the magnitude of variances depends on the alignment of some variables such as return of the fund, level of guarantee and structure of surrender penalties. The offsetting effects of these factors result, at Group level, in an increase in the Embedded Value when the lapse rates decrease.
In addition to the quantitative analyses above presented, the qualitative aspects relating to underwriting, monitoring and risk management process are carefully assessed.
As far as the demographic risk related to pure risk portfolios is concerned, the mortality tables used in the pricing include prudential margins. The standard approach is to use population or experience tables with adequate safety loadings. For the most important risk portfolios ad hoc reviews of mortality experience are performed by the Parent Company, based on information provided by each Company, at centralized level, every year in comparison with the expected mortality of the portfolio, determined according to the most up-to-date mortality tables available in each market. This analysis takes into consideration the mortality by sex, age, policy year, sum assured and other underwriting criteria.
There is a particular emphasis, both at local and central level, on the underwriting of new contracts, that considers both the medical and financial and moral aspects. A standard, defined at Group level, in manuals, forms and medical and financial underwriting requirements has been established, both for death covers and for riders. Underwriting autonomy levels for Companies are determined depending on their structure and their portfolio. Above the autonomy granted to Companies, risks are also examined by either the Underwriting Department and Insurance Department of Parent Company (which is the main reinsurer for many Group Companies) or by local reinsurers.
The Parent Company issues underwriting guidelines, determines with the Group Companies operating limits to be followed and defines the standard process to request exemptions in order to maintain the risk exposure between the preset limits and ensure a coherent use of the capital.
Reinsurance is also used to mitigate mortality and morbidity risk. As far as the surplus (proportional) reinsurance is concerned, the Parent Company acts very often as the main reinsurer for its subsidiaries, then ceding to the reinsurance market the portions of individual risks exceeding its own retention. Sometimes reinsurance is made directly by the Company to the local reinsurance market, with the Parent Company’s support and agreement. As far as the catastrophe risk is concerned, it is related to geographical concentrations, which are typical of Group insurance, and it is covered by acquiring ad hoc, non-proportional covers, and by adopting adequate underwriting policies, diversifying the risk at geographical level..
The longevity risk, in the Group Life business portfolio, remains not very significant. For the most important portfolios of annuities under payment, there is an annual evaluation for the adequacy of the technical basis, that considers the demographic component but also the financial component related to the minimum interest rate guarantee and any mismatch between the liabilities and the corresponding assets.
Especially when a guarantee is provided, the most appropriate demographic assumptions are defined to reflect the trend of future mortality. For policies which foresee an accumulation phase and, at maturity, an annuity conversion option for the lump sum, no guarantee is normally granted on the technical basis for the determination of the annuity to be paid in the future; if, however, this is guaranteed, particularly in cases of collective agreements, contractual mechanisms for adjusting the basis of mortality compared with some variations in mortality effective population are often introduced.
Within this framework, aggregate analysis has been made on the best estimate of the risk factors in order to assess the consistency of the assumptions and update them. At the same time, the consistency of assumptions made with the actual experience of the year was assessed, by valuating, risk by risk, the changes in the portfolio values.
For additional information on direct written premiums of life segment please refer to the paragraph “Life segment” of the Management Report.
Non-Life Insurance Risk refers to uncertainty as to the occurrence, amount and timing of insurance liabilities. This includes the following sub-risk: − the pricing (or underwriting) risk and the catastrophe risk cover the risk that the premium earned in the following year is insufficient to cover actual future claims, expense and extreme events; − the reserving risk relates to the uncertainty of the claims reserves run-off around its expected value, in a one-year time horizon. In other words, this covers the risk that actuarial reserves are not sufficient to cover all the liabilities related to the incurred claims.
Pricing risk The pricing risk derives from the possibility that premiums are not sufficient to cover future claims, contracts expenses and extremely volatile events.
Regarding this risk, the Group: − has developed stochastic or deterministic bottom-up simulation models, which are validated by sensitivity analyses and stress tests;
− for frequency risks, determines large risks and catastrophe risks (such as earthquake, flood, windstorm, etc.) possible loss scenarios and risk capital requirements, also in consideration of reinsurance structures (proportional, excess of loss, etc.), net retention and cover; − adopts, also for evaluating reinsurance cessions, models that are consistent with Value Based Management principles, which consider that value creation estimated from risk capital is the metric to be used to evaluate the efficiency and adequacy of the solutions to be chosen.
Treaty reinsurance provides a risk transfer mechanism for the greatest portion of each portfolio, while facultative reinsurance is used to cover individual additional exposure peaks.
The placement of facultative reinsurance is instead managed by the individual Companies, as it is a type of protection strongly related to individual risk assessment carried out by the underwriting unit complying with the principle defined in the Group Reinsurance Guidelines.
Reinsurance counterparties are chosen in accordance to the criteria defined by the Group Head Office (as described in paragraph “Reinsurance credit risk”).
The underwriting policy In the non-life branches, the Group underwriting embraces all lines of business. The Group is active in Retail, Small-Medium Enterprises and Corporate & Commercial lines.
The underwriting guidelines are particularly prudent with reference to emerging risks (electromagnetic fields, genetically modified organisms, nanotechnologies, etc.), while asbestos-related covers are generally excluded.
For additional information on direct written premiums of property&casualty segment please refer to the paragraph “Poperty&Casualty segment” of the Management Report.
VIII. Operational risk Operational risk refers to risks of losses arising from inadequate or failed internal processes, personnel and systems or from external events. The management of operational risks is essentially responsibility of each Business Unit. These units are asked to draw up operational plans aligned with the targets set by the Parent Company and to identify and implement all actions to mitigate any risk which could potentially jeopardize it. The overall assessment of these risks and the consistency of the various mitigating actions are guaranteed by the Group Risk Management department. The Parent Company has defined some common principles for this kind of risks: − policies and basic requirements to handle specific risk-sources; − a detailed operational risk classification and standard criteria to be applied to the whole Group in order to identify and evaluate operational risks within business processes; − criteria to evaluate operational risks and to collect major loss events; − common methodologies and principles guiding the internal audit activities, set by the Group Internal Audit department, in order to identify the most relevant processes to audit.
Liquidity Risk is defined as the uncertainty, arising from business operations, investment or financing activities, over whether the insurer will have the ability to meet payment obligations in a full and timely manner, in a current or stressed environment, for example being able to meet commitments only through a credit market access at unfavourable conditions or through the sale of financial assets incurring in additional costs due to illiquidity of (or difficulties in liquidating) the assets.
Such framework has the aim of providing a common approach to managing liquidity risks in order to ensure the Group Companies’ financial sustainability in terms of expected and unexpected cash outflows over a short/medium time frame.
The Liquidity Risk Management Policy has been formally approved by the Boards of the Group Business Units involved in the scope.
Liquidity Risk Model With the aim of implementing a consistent liquidity risk monitoring approach at Group level, the main Business Units provide periodically the HO with a specific tool, the Liquidity Risk Model, which has the ability to highlight possible future liquidity issues both in a business-as-usual scenario and in stressed scenarios.