This year our reports have taken a further step ahead towards a true narrative dimension. The coherence of the different communicative languages used highlights the story, the “symbolic universe” around which our targets and aspirations are set.
Our integrated report meets both the International <IR> Framework and the existing compliance requirements, taking into consideration the different information needs of the final users: the Annual Integrated Review becomes an Annual Integrated Report, as indicated below.
Group highlights 10 | Generali Group - Annual Integrated Report 2014
highlights on the main events of 2014 16 | Generali Group - Annual Integrated Report 2014
In 2014, global economic growth remained in line with the previous year, with a growth rate higher than last year in the advanced economies and lower in those developing. The difficult economic situation of the euro Zone countries and the continuous decrease in inflation have pushed the European Central Bank to announce new stimulus measures, pushing government rates at their historical minimum. USA are showing a growth trend also due to the lowering of the unemployment rate while Russia is facing a tough economic period and China has slowed down its growth. The financial markets are characterized by an environment of low interest rates and a positive trend although differentiated between the geographical areas of the equity markets. With regards to the insurance sector, the moderate growth in household income together with the low interest rates require companies, especially those in the life business, an accurate analysis of their business model.
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. Our markets are our homes.
Focus on the Board of Directors Focus on the Group Management Committee (GMC) at 15 January 2015
In line with the strategy, which aims to increase the international integration of the Group and the strengthening of its role at international level, the pillars of our compensation policy, coherent at a global level, are applied throughout the organization in accordance with local specificities and regulations. In particular, we pay careful attention to the governance processes related to the members of the GLG, who is made up of the 200 most influential positions of the Group, in terms of organizational key roles, impacts on results and implementation of the strategy.
— Clear and transparent governance; — sound guidelines on remuneration compliant with global and local regulatory requirements and in line with Group values; — Dialogue with institutional investors and proxy advisors.
Insurance operations of Generali Group Other countries in which Europ Assistance operates
The process also envisages the dialogue with the companies aimed at helping them understand their areas of improvement. Generali Investments Europe currently manages over € 22 billion in socially responsible portfolios in accordance with such ESG (Environmental Social and Governance) methodology. GIE also tries to influence on the governance of the companies through the voting policy: the process envisages the identification of specific voting recomendations - on the basis of the GIE voting policy principles - in the annual general meetings of the main European companies of which GIE is a shareholder.
The German life insurance market experienced a weak first quarter (-3.5%), followed by a very positive second quarter (+7.7%). This fluctuating trend is, as in the past, attributable to single premiums. The economic uncertainty over the medium-long term, the good reputation of the German life insurance sector and satisfactory yields (if compared to those granted by the bunds) has allowed a good volume of sales, even though, the spread between the minimum guarantee and the profitability of government bonds is straining the profitability of the sector. The Motor line showed a positive trend (+4.7%) despite signs of slowdown. The Property line also registered positive growth rates.
To achieve the pursued client centricity, Generali France has changed its organizational structure, dividing itself between four client areas (Individuals, Affluent, Professional&Small Enterprises, Commercial).
In a multi-channel distribution scenario, we focused on identifying the IT capabilities required by such approach and the opportunities for sharing the capabilities, such as lead management, mobility for distributors and clients, customer portals, with the objective to provide higher functionalities at a more competitive price.
The Leverage ratio at 38.5% and the Interest coverage ratio at 5.3x are shown net of the double counting linked to the pre-financing activity of the 2015 maturities. The improvement of 1.1 p.p. of the Leverage ratio compared to 2013 is a consequence of the stock debt reduction by € 1,000 million, of which € 500 million related to the senior bond already pre-financed. The Interest coverage ratio increased by 1.1x thanks to the improvement of the Group profitability and to the reduction in interest expenses due to the refinancing activity at lower rates and the net reduction of the stock of debt.
— Enhanced growth in the operating result (+10.8%), due to the positive performance of the core insurance business segments6.
The result from discontinued operations amounted to € -69 million and includes the effects of the IFRS 57 application to BSI, which generated a negative impact of € 112 million, and some companies in Argentina, which have been classified as discontinued operations as a result of the aforementioned sale agreements, as well as the effects of the sale of Fata.
This category also includes unquoted subordinated liabilities issued by Assicurazioni Generali SpA and other subsidiaries. Liabilities issued by Assicurazioni Generali SpA in the form of private placements amounted to a nominal value of € 1,000 million corresponding to an amortized cost of € 997 million. The remaining subordinated liabilities are denominated in securities issued by subsidiaries in Austria for approximately € 25 million euro.
In particular, there is a reduction in gross written premiums in spain which amounted to € 984 million (€ 1,006 million at 31 December 2013); this decrease (-2.1%) is attributed to the decrease of the savings line, single premiums, mainly due to the interruption of sales of group pension policies (SPE) in mid 2013. The positive evolution of the individual protection line is mainly due to the contribution of Cajamar but is offset by the negative trend in the group protection line.
Without taking into account deferred policyholders liabilities, the insurance provisions and financial liabilities of the life segment amounted to € 347,183 million; an increase on a comparable basis of 6.9% which reflects both the increase in reserves for the traditional portfolio (+5.2% on a comparable basis), and the linked portfolio (+14.5% on a comparable basis), due to the combined effect of cash inflows and the recovery of financial markets.
— Gross written premiums stable (+0.2% on equivalent terms), with different trends in the main countries where the Group operates.
The combined ratio of Switzerland, amounting at 92.7%, registered an improvement (-1.7 pps) due to the positive trend (-2.5 pps) of the expense ratio, which amounts to 22.6%. The claim rate increased (+0.9 pps).
The combined ratio of Latin America increased by 12.4%, amounting to 113.3%, because of the trend of the Brazilian cor, which suffered from worsening of the claims rate on the motor line, caused by a specific line of business in run-off.
Net other non-operating expenses increased, amounting to € -273 million (€ -368 million at 31 December 2013), of which € -63 million related to the amortization of the value of acquired portfolios (€ -70 million at 31 December 2013). This trend is mainly due to the one-off effect registered during 2013.
Net operating income from other financial instruments 965 984 205 231
(€ million) Motor Non motor Total 31/12/2014 31/12/2013 31/12/2014 31/12/2013 31/12/2014 31/12/2013
Government bonds amounted to € 10,021 million (€ 10,872 million at 31 December 2013), reducing their weight to 26.0% (30.2% at 31 December 2013). Corporate bonds increased to € 13,611 million (€ 11,277 million at 31 December 2013), equal to 57.6% (50.9% at 31 December 2013).
The harvesting rate decreased to 1.0% (1.4% at 31 December 2013) due to an increase in the impairment losses.
In accordance with the consistency and comparability principle, the report includes information that is consistent with the previous year (changes in criteria are reported in the paragraph below) and the strategic objectives announced.
The following table reconciles the statement of operating and non-operating result to the corresponding income statement items: 7 For further details on the definition of financial debt, please refer to the paragraph Debt in the section Group financial position of the Management report.
The operating result of the property&casualty segment consists of a technical result, an investment result and other operating items. The technical result is equivalent to the insurance activity result, i.e. the difference between premiums and claims, acquisition and administration costs and other net technical income. The investment result is made up of current income from investments and other operating net financial expenses, like expenses on investment management and interest expenses on operating debt. Finally, other operating items mainly include acquisition and administration costs not related to the insurance business, depreciation of tangible assets and amortization of multi-annual costs, provisions for recurring risks and other taxes.
In a different way: 1a (capital) + 2a (profits) is the Expected Cash Flow generation from the Existing business and 1b + 2b is the New business strain.
Group 253 10 Significant non-recurring events and transactions 255 11 Atypical and/or unusual transactions 255 12 Non-current assets or disposal group classified as held for sale 259 13 Audit and other service fees for the fiscal year 259 14 Other information 260 Appendices to the Notes 279 Appendices 280 Change in the consolidation area 282 Subsidiaries consolidated line by line 304 Non-consolidated subsidiaries and associated companies 313 List of Countries 315 List of currencies 317 AttestAtIon oF the consolIdAted FInAncIAl stAtements pursuant to the provisions of Art. 154-bis of Legislative Decree No. 58 of 24 February 1998 and Art. 81-ter of Consob Regulation No. 11971 of 14 May 1999 321 BoARd oF AudItoRs’ RePoRt 333 IndePendent AudItoR’s RePoRt 338 Glossary
Items that may be reclassified to profit and loss in future periods 2.1 Foreign currency translation differences 110 -346 2.2 Net unrealized gains and losses on investments available for sale 4,017 -48 2.3 Net unrealized gains and losses on cash flows hedging derivatives 21 104 2.4 Net unrealized gains and losses on hedge of a net investment in foreign operations -1 0 2.5 Share of other comprehensive income of associates 49 -17 2.8 Result of discontinued operations 29 -113
Net cash flows from shareholders' equity attributable to minority interests(****) -119 -216 Net cash flows from subordinated liabilities and other similar liabilities 487 -200
Business combinations are acquisitions of assets and liabilities that constitutes a business and are accounted for applying the so-called acquisition method The acquisition cost is measured as the sum of the consideration transferred measured at its acquisition date fair
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 amendment to IFRS 10, 11, 12 “Consolidated Financial Statements, Joint Arrangements and Disclosure of Interests in Other Entities: Transition Guidance” have been endorsed by European Union with Regulation 313/2013.
Specifically, a financial asset and a financial liability shall be offset and the net amount presented in the statement of financial position when, and only when, an entity: — currently has a legally enforceable right to offset the recognised amounts; and
The costs related to their development and maintenance are charged to the profit and loss account of the period in which they are incurred.
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.
Current income tax relating to items recognised directly in equity are recognised in equity and not in the income statement.
Balance sheet – liabilities and equity 1. shareholder’s equity 1.1 shareholder’s equity attributable to the Group 1.1.1 Share capital
The item comprises acquisition commissions, other acquisition costs and administration costs related to contracts that fall under IFRS 4 scope.
sure ISVAP (now IVASS) No. 2784 of 8 March 2010, and distinguishing its component items among operating, investing and financing activities.
The report, prepared using the indirect method, is drawn up in accordance with the ISVAP (now IVASS) requirements n. 7 of 13 July 2007, as amended by Meaother information 1. Fair value
If there isn’t an active market, a valuation technique should be used which shall maximise the observable inputs.
When the terms of an equity-settled award are modified, the minimum expense to be recognised is the expense had the terms had not been modified, if the original terms of the award are met.
In compliance with the IFRS 7 requirements, introduced by the Regulation (EC) n. 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 has been exposed to during the period, along with a description of the related risk management processes.
The Policy ensures a sound and effective management of risks throughout Generali Group consistently with the stated risk appetite defined by the Board of Directors of Assicurazioni Generali .
Companies belonging to the Insurance Group are required to comply to 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 “Risk Management Policy” is the main reference point for all policies and guidelines related to risks. The Policy is approved by the Board of Directors, assisted by the Risk and Control Committee, upon proposal of the Group Chief Risk Officer.
Within the processes of investment management, Group companies are required to apply the Group Risk Guidelines.
For the internal rating assessment of an issue or issuer, ratings of the main agencies ratings are used. In the case of different rating judgments, the second best
The table above shows a progressive shift of the exposures towards ‘less than 3%’ guarantee classes, also due to the new business. Lastly, the amount of provisions without guaranteed interest showed an increase amounting to € 70,638 million (€ 60,907 million as at 31 December 2013).
From a quantitative point of view regarding the life underwriting risk and according to the parameters indicated by the CFO Forum, the Group performs the following Embedded Value sensitivities: — maintenance expenses -10%: sensitivity to a 10% decrease of maintenance expenses;; — lapse rate -10%: sensitivity to a 10% decrease of lapse rates; life embedded value sensitivities: underwriting Risks
As far as riders are concerned, which are mostly exposed to moral risks, maximum insurability levels by country and company are set, lower than those applied for death covers; at the same time, in order to mitigate these risks, consistent policy conditions are established, especially for what refers to policy exclusions.
The table above shows the major importance of savings and protection contracts (59.7% of the total), while the unit/index linked portfolio accounts for 24.8% of the total gross direct written premiums. Concerning the health business, the Group has a strong presence in markets such as Germany and Austria where operate companies dedicated to this segment; while in all the other geographical areas health premiums refers to life insurance rider covers.
Cumulative claim payments at the end of accident year 4,948 5,122 5,533 5,799 6,011 5,874 5,467 5,578 5,493 5,252 seven years later 10,295 10,780 11,704 eight years later 10,346 10,876 nine years later 10,384
In October 2014, the rating agency A.M. Best has revised the outlook of Assicurazioni Generali from negative to stable and confirmed its Financial Strength rating to A (Excellent). The rating shows the strong position of the Group’s business, the solid operating performance and the increasing capitalization, while the improvement in the outlook reflects the stabilization of the Italian macroeconomic and financial scenario and the success of the strategic plan of Generali.
In addition, in coherence with the guidelines and directions by EIOPA and IVASS, the Group regulator, in December 2014 Group approved the reporting policy, the policy that defines responsibilities for the preparation, validation and transmission of the data set required for Pillar III reporting, together with the characteristics of the information platform used for this scope. This policy is being implemented also by the Group’s subsidiaries involved in Solvency II Pillar II reporting, both on undertaking’s and Group’s perspective.
Also, as part of the G-SII project, the Board of Directors of AG has approved: — Systemic Risk Management Plan (“SRPM”) — Liquidity Risk Management Policy (“LRMP”) — Recovery Plan (“RcP”)
The expected cash flows used in the analysis for each CGU, were those detailed in the Strategic Plan 20152017, presented to the Board of Directors in December 2014 and subsequent amendments. In order to extend the analysis horizon to a 5 year period, the main economic and financial data were calculated for further two years (2018 and 2019). The net result (2017 and 2018) was calculated using a sustainable growth rate for each CGU.
Investments fund units (IFU) are allocated to respective asset classes based on prevailing underlying as3. Amounts ceded to reinsurers from insurance provisions
For REPO contracts, the Group continues to recognise in its financial statements the underlying financial asset as the risks and benefits are retained by the Group. The consideration received upon ale is recognised as a liability.
Finally, the Group is committed in a variety of transactions in which some financial assets are pledged as collateral but they are still recognised in the financial statements because all risks and rewards are retained by the Group.
Carrying amount as at 31 December current year 1,674 1,650 283 307 1,958 1,957
The investment contracts within the scope of IAS 39 accounted for 6.2% (5.5% in 2013). They are mainly unit/index linked policies without significant insurance risk.
The fair value of subordinated liabilities amounts to € 9,271 million.
The item “Changes in consolidation scope and others” mainly refers to the classification of BSI as disposal group held for sale consistently with the requirements of IFRS 5.
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 related to insurance policies issued by Generali Group insurers, or other investments owned by the Group entities. Consequently, in accordance with IAS 19 these are not recognised as plan assets and so cannot be deducted from the defined benefit obligations. However, to obtain the economic net liability for defined benefit plans these assets would have to be netted against the present value of the related pension obligations.
1.4 Income and expenses from subsidiaries, associated companies and joint venture
Reversal of impairment 19 3 1.5 Income from other financial instruments and land and buildings (investment properties
Change in the provisions for outstanding claims 803 117 24 0 827 118
Assessments show that deferred tax assets will be recovered in the future through either (i) expected taxable income of each consolidated company or (ii) expected taxable income of other companies included in the same tax group (e.g. “Consolidato fiscale” in Italy, “Steuerliche Organschaft” in Germany and “Régime d’intégration fiscale” in France).
L’IFRS 13 - Fair Value Measurement provides guidance on fair value measurement and requires disclosures about fair value measurements, including the classification of financial assets and liabilities in the levels of fair value hierarchy.
Adequate controls have been set up to monitor all measurements including those provided by third parties. If these checks show that the measurement is not considered as market corroborated the instrument must be classified in level 3.
Furthermore, the Group has received financial assets as collateral for approximately € 6,864 million, in particular for transactions in bonds and loans for approximately € 5,153 million and for the transactions in derivatives for approximately € 685 million. Finally, with respect to reinsurance transactions of the Group approximately € 880 million have been received.
4. contingent liabilities, commitments, guarantees, pledged assets and collaterals 4.1 contingent liabilities
Individual tranches of shares are only granted at the end of the performance period and, therefore, at the end of the three years, after verifying the degree to which the targets have been achieved in the third year (i.e. assessment by the Board of Directors on the actual bonus is disbursed of which a part hall be re-invested in Generali shares. This is then followed by a second cycle, after which, again assuming certain targets have been achieved, participants may be granted a certain number of free shares for each share purchased (further details are given in the information reports approved at the time by the Shareholders’ Meeting and published on the Generali Group website).
At 31 December 2014, the share-based compensation plans granted by Banca Generali are as follows: — two stock option plans, respectively reserved to the financial advisors and some managers of the group approved in the Shareholders’ Meeting of Banca Generali of 18th July 2006; — two stock option plan reserved for networks distribution - financial advisors and private bankers - and relationship managers approved in the Shareholders ’ Meeting of Banca Generali of 21st April 2010.
At 31 December 2014, the options related to the stock option plan granted and exercisable referring to the plans approved in 2006 amounted to 30 thousand entirely granted to employees, because the exercise period for financial advisors has expired last 31.03.2014. For employees instead, the exercise period of the assigned options, following the three-year extension approved in 2010, ends on 31 December 2015.
Information on the reinsurance policy of the Group is provided in the Risk Report of the consolidated annual financial statements 2014.
The comprehensive impact of this operation on Group net income, allocated to the item result from discontinued operations, amounted to € - 112 million.
Financial assets at fair value through profit or loss 1,183 564 1 1,749
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ha ng e i n t he m ath em ati ca l p rov isi on s
Ne t u nr ea liz ed g ain s an d los se s on c as h flo w s he dg ing d er iv ati ve s
Generali Northern America Real Estate Investments GmbH & Co. KG 094 EUR 17,560,021 G 10 27.75 AachenMünchener Lebensversicherung AG 100.00 100.00
Generali IARD S.A. 029 EUR 70,310,825 G 2 100.00 Generali France Assurances S.A. 100.00 98.95
SCI GF Pierre 029 EUR 47,394,248 G 10 1.18 Generali IARD S.A. 100.00 98.96 90.96 Generali Vie S.A.
Generali Pensionskasse AG 008 EUR 350,000 G 8 100.00 Generali Holding Vienna AG 100.00 100.00
Generali Luxembourg S.A. 092 EUR 75,000,000 G 2 100.00 Generali France S.A. 100.00 98.95
Casa-Bouw Sprl 009 EUR 15,719,831 G 10 38.20 Generali Belgium Senior Homes FCP FIS 100.00 99.42 61.80 Generali Real Estate Investments B.V.
Generali Biztosító Zrt. 077 HUF 4,500,000,000 G 2 100.00 Generali PPF Holding B.V. 100.00 76.00
Apollo Business Center IV, spol. s r.o. 276 EUR 25,000 G 10 100.00 Ceska pojistovna, a.s. 100.00 76.00
VOV GmbH 094 EUR 154,000 b 11 21.50 AachenMünchener Versicherung 43.00 43.00 1,735 21.50 Generali Versicherung AG
AM Versicherungsvermittlung 094 EUR 25,000 a 11 100.00 AachenMünchener Versicherung 100.00 100.00 25
Schroder Nordic Property Fund (*) 094 EUR 1,450,000 b 11 20.69 Generali Lebensversicherung AG 20.69 20.69 25,418
Parcolog Isle d’Abeau Gestion 029 EUR 8,000 a 10 100.00 SC Generali Logistique 100.00 98.95 12
Bois Colombes Europe Avenue SC (*) 029 EUR 1,000 c 10 50.00 Generali Vie S.A. 50.00 49.47 6,256
Generali 10 S.A.S. 029 EUR 37,000 a 9 100.00 Generali France Assurances SA 100.00 98.95 37
SCI Château La Pointe 029 EUR 34,309,128 a 10 100.00 Generali France S.A. 100.00 98.95 35,646
TTC-Training Center Unternem. 008 EUR 35,000 a 11 100.00 Europäische Reiseversicherungs 100.00 74.99 133
GBK Vermögensverwaltung GmbH 008 EUR 35,000 a 11 100.00 Generali Bank AG 100.00 100.00 8,036
Europ Assistance Kft 077 HUF 24,000,000 a 11 74.00 Europ Assistance Holding S.A. 100.00 93.01 99 26.00 Generali Biztosító Zrt.
2. The adequacy of the administrative and accounting procedures in place for preparing the consolidated financial statements as at 31 December 2014 has been assessed through a process established by Assicurazioni Generali S.p.A. on the basis of the guidelines set out in the Internal Control – Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission, an internationally-accepted reference framework.
— In the month of June 2014, Assicurazioni Generali S.p.A. resolved in support of the proposed demerger of its subsidiary Telco S.p.A. The transactions will be completed as soon as the necessary authorizations have been granted.
— At the end of July 2014, the Group reached an agreement with Allianz to become the sole owner of Citylife S.p.A. by acquiring the 33% stake not owned by Generali. Citylife S.p.A. furthermore reached a binding agreement with the banks funding the project in order to redefine some terms and conditions of the original contract.
We also regarded as adequate the information supplied by the Board of Directors in the annual Financial Report concerning intragroup transactions and with related parties.
The Board of Auditors, by obtaining information from the heads of the relevant corporate functions, gained knowledge of and maintained oversight of the overall organizational structure of the Company and of the
The Company adheres to the Voluntary Self-Regulatory Code issued by the Corporate Governance Committee, as promoted by Borsa Italiana S.p.A., whose concrete implementation was assessed by this Board, with reference to its application principles and criteria, without any comments to make on the matter. The Board of Auditors acknowledges that the Board of Directors assessed its functioning, size and composition and those of the board committees, assisted by a leading consultancy firm.
On 31 December 2014 shareholder Alfonso Sonnessa asked to be brought up to date regarding a previous complaint, as per article 2408 of the Civil Code, submitted by him in March 2014 and concerning the subsidiary INA Assitalia S.p.A (now Generali Italia S.p.A.). An answer was given to him during the Meeting of 30 April 2014 and later, at the instance of the Board of Auditors of the subsidiary Generali Italia S.p.A., the Internal Audit function had conducted the necessary investigations, which had concluded in July 2014 and had found no critical issues related to shareholder Sonnessa ’s remarks. The Board of Auditors also reviewed the latest notice issues, showing the current and future evolution, as well as the development and restructuring of the insurance group. The Board of Auditors also acknowledges that it was consulted, together with the auditing firm, by the Control and Risk Committee within the assessment conducted by the latter, along with the Manager in charge of preparing the corporate books, about the correct and uniform use of accounting standards when drawing up the consolidated financial statements.
Carolyn Dittmeier Lorenzo Pozza Antonia Di Bella dated 31 December 2014 written by Mr. Sonnessa, finding that it does not contain any new elements compared to the previous notice of March 2014. In view of the results of the investigations concluded in July 2014, no critical issues warranting their inclusion in this report have emerged.
Without prejudice to the updates sent to Consob and IVASS regarding the measures taken by the Company before this Board of Auditors took office on anti-money laundering and counter-terrorism and being implemented, its supervisory activities found no actions notewor-