Attestation and Reports 333 Attestation to the Consolidated Financial Statements pursuant to art. 154-bis, paragraph 5, of legislative decree of 24 February 1998, no. 58 and art. 81-ter of Consob regulation of 14 May 1999, no. 11971 as amended 337 Board of Statutory Auditors’ Report 351 Independent Auditor’s Report on the Consolidated Financial Statements 360 Glossary 368 Contacts
Annual Integrated Report and Consolidated Financial Statements It expands the content of the Group Annual Integrated Report, providing details of its financial performance in compliance with national and international regulations.
This Annual Integrated Report carries the Group’s financial and non-financial performance and explains, through our value creation process, the connections between the context in which we carry on our business, our strategy called Generali 2021, the corporate governance structure and our remuneration policy.
6 They are investments that support green and/or social projects, with the explicit aim of creating a positive impact and contributing to the United Nations Sustainable Development
outlook was modified from positive to stable, while the FSR outlook remained stable.
September 2018. The strategic partnership, that is another step forward in the execution of
ISIN XS0440434834 for a € 50 million nominal amount. The early redemption of all outstanding notes, which will take place in accordance with the relevant terms and conditions, was authorized by the
(DJSI Europe). This important recognition is testament to the Group’s commitment to sustainability, which plays a fundamental role in the Generali 2021 strategy.
TRANSFORM AND DIGITALIZE OPERATING MODEL, p. 28 dividend payout range18 2019-2021
28 Generali Group Annual Integrated Report and Consolidated Financial Statements 2019
Our distributors will gain access to a tool with a 360° view of customer data so that they can advise their customers and find the best solutions matching their goals and lifestyle. Products will be modular and data will allow for a high level of personalization.
21 The number of distributors refers to all insurance entities with relevant traditional distribution networks (line-by-line consolidated entities and few insurance entities in Asia measured with the equity method where Generali has relevant shareholdings).
I would recommend the Generali Group as a place to work 82% favourable responses
32 Generali Group Annual Integrated Report and Consolidated Financial Statements 2019
26 The number of distributors refers to all insurance entities with relevant traditional distribution networks (line-by-line consolidated entities and few insurance entities in Asia measured with the equity method where Generali has relevant shareholdings).
For Families We help parents nourish the first six years of their children’s lives with the essential abilities for their future lives.
Focus on the Board of Directors in office until the 2022 annual Shareholders’ Meeting
32 It represents the remuneration package for all those described, except for the key functions to whom specific remuneration policy and rules are applied.
The deferred variable remuneration is built on a multi-year plan based on Assicurazioni Generali shares (subject to Shareholders’ Meeting approval). The maximum potential bonus to be disbursed in shares amounts to 200% of the fixed remuneration for the members of the Group Management Committee (GMC) and to 175% for other relevant personnel. Here the features of the plan are: – it is based on an overall three-year performance period linked to specific Group performance goals (average net Return on Equity, earning per share growth and relative total shareholder return33) and is subject to the verification of the achievement of a minimum threshold of the Regulatory Solvency Ratio; – it is based on deferral periods differentiated on the basis of the beneficiary population cluster and additional lockup periods on granted shares (i.e. minimum holding) of up to two years.
4 Group holdings and other companies comprises the Parent Company’s management and coordination activities, including Group reinsurance, Europ Assistance, Other companies (including Generali Global Health and Generali Employee Benefits) as well as other financial holding companies and suppliers of international services not included in the other geographical areas. Please refer to the Notes to the Management Report for a detailed description of the geographical areas.
The shareholders’ equity attributable to the Group amounted to € 28,360 million, an increase of 20.2% compared to € 23,601 million at 31 December 2018. The change was mainly attributable to: – the result of the period attributable to the Group, which amounted to € 2,670 million at 31 December 2019; – the dividend distribution of € 1,413 million, carried out in 2019; – other comprehensive income (€ 3,598) due to both the increase in the reserve for unrealized gains or losses on available for sale financial assets of € 4,004 million, mainly arising from the performance of bonds, partially offset by both the reduction in the reserve attributable to disposal groups of € -250 million and the increase in unrealized gains or losses for defined benefit plans of € 391 million.
The liabilities linked to operating activities posted an increase due mainly to the increase in the deposits of the Group banks. The weighted average cost of liabilities linked to financing activities stood at 4.95%, down from 5.66% at 31 December 2018. The weighted average cost reflects the annualized cost of the liabilities, considering the nominal amounts at the reporting date and the related transactions of currency and interest rate hedging.
– Asset Management: asset management for the most part addressed to insurance clients, with its clients base expanded to comprise external clients, both institutional (such as pension funds and foundations) and retail.
(**) NBV data are presented on historical basis, they include possible assets under disposal and do not isolate the contribution of companies in Group holdings and other companies.
Acquisition and administration costs related to insurance business amounted € 5,779 million (€ 5,468 million at 31 December 2018). In detail, acquisition costs increased to € 4,695 million (+5.8%), reflecting the increase in costs resulting from the growth in premiums in Germany and Italy. The ratio of acquisition costs to net earned premiums therefore went from 22.6% to 23.1%, reflecting the increase of the non-motor business.
The segment includes companies specialised in institutional and retail clients, Group insurance companies or third-party clients, or in products such as real assets, high conviction strategies or more traditional investments. Its scope includes, for example, companies in the Generali Investments group, Generali Real Estate, Generali Investments CEE and Fortuna Investments, to which are added the other companies linked to the multi-boutique strategy and some companies operating in Asia.
Within the risk management system, the Own Risk and Solvency Assessment (ORSA) process represents a fundamental risk management tool, with the twofold purpose to provide a comprehensive risk reporting and supporting the Group risk strategy update.
6 An extension plan to cover also Operational risk with the Internal Model is in progress.
The contribution to the Group own funds of each element above listed is detailed in the following table: Group own funds components
Dependencies among risks are defined through the use of a so-called Copula approach that simulates the interaction between several risk drivers (elements that mimic the underlying sources of risk) throughout the simulations generated by the Monte-Carlo stochastic method.
The validation process follows the principles and procedures defined within the Group Internal Model Validation Policy and related guidelines. In particular, the validation outputs are designed to support Senior Management and Board of Directors in understanding the appropriateness of the Group PIM, including areas of weaknesses and limitations, especially with regards to its use. To ensure an adequate level of independence, the resources performing the validation activities are not involved in the development or operation of the Group PIM.
Financial risks are measured by means of the Group PIM17. In particular, losses are modelled as follows: – equity risk is modelled by associating each equity exposure to a market index representative of its industrial sector and/or geography. Potential changes in market value of the equities are then estimated based on past shocks observed for the selected indices; – equity volatility risk models the impact that changes in the equity implied volatility can have on the market values of derivatives; – interest rate risk models the changes in the term structure of the interest rates for various currencies and the impact of these changes on any interest rate sensitive asset and also on the value of future liability cash-flows alike; – interest rate volatility risk models the impact that the variability in interest rate curves can have on both the market value of derivatives and the value of liabilities sensitive to interest rate volatility assumptions (such as minimum pension guarantees); – property risk models the returns on a selection of published property investment indices and the associated impact on the value of the Group’s property assets. These are mapped to various indices based on property location and type of use; – for currency risk, the plausible movements in exchange rate of the reporting currency of the Group in respect to foreign currencies are modelled, as well as the consequent impact on the value of asset holdings not denominated in the domestic currency; – for concentration risk the extent of additional risk borne by the Group due to insufficient diversification in its equity, property and bond portfolios is assessed.
Since 2015 the Group has been exchanging operational risk data, properly anonymized, through the Operational Risk data eXchange Association (ORX), a global association of operational risk practitioners where main industry players also participate. The aim is to use the data to improve the risk management and to anticipate emerging trends. In addition, since losses are collected by the first line, the process contributes to create awareness among the risk owners upon risks that actually impact the Group. In this sense, a primary role is played by Group-wide forward-looking assessments that aim to estimate the evolution of the operational risk exposure in a given time horizon, supporting in the anticipation of potential threats, in the efficient allocation of resources and related initiatives.
An example is the creation of a dedicated unit for the management and coordination of the Group-wide IT Security that steers the evolution of the IT security strategy and operating model, ensuring a timely detection and fixing of the vulnerabilities that may affect the business. This initiative helps the Group to better cope with the growing threat represented by cyber risk.
132 Generali Group Annual Integrated Report and Consolidated Financial Statements 2019
The key forms of connectivity of information used by Generali include the connectivity between qualitative and quantitative information, financial and non-financial information, present and future information, that is coherent with the information included in other communication tools in accordance with the Core&More reporting approach. Other elements that improve the connectivity of information and the overall usefulness of the Report are the crossreferencing1, the graphic component and a glossary at the end of this document to use in case of insurance sector’s terminology.
Lastly, for some years we interact with students attending university and master courses, providing them with specific sessions on the integrated reporting approach adopted by Generali and its developments at a national and international level, while collecting their feedback and suggestions on its implementation through a specific survey. As from 2016, we have extended this experience to Group employees as well.
The conciseness principle is met through the issue of the Group Annual Integrated Report. The diagram below shows the shift from the Annual Integrated Report, drafted in accordance with the materiality principle, to the Annual Integrated Report and Consolidated Financial Statements, compliant with regulations.
Active ownership G4 FS10: percentage and number of companies held in the insitution’s portfolio with which the reporting organization has interacted on environmental or social issues
The operating result of the various segments are reported also in accordance with a margin-based view which shows the operating trends of the changes occurred in each segment performance more clearly.
–average investments (calculated on book value). The profit and loss return is the sum of the net current return and the harvesting rate net of investment management expenses as well as gains and losses on foreign currencies.
Financial liabilities 17 Financial liabilities at fair value through profit or loss 18 Other financial liabilities
Net cash flows from shareholders' equity attributable to the Group 0 0
The Generali Group’s consolidated financial statements at 31 December 2019 were drawn up in accordance with the IAS/IFRS issued by the IASB and endorsed by the European Union, in accordance with the Regulation (EC) No. 1606 of 19 July 2002 and the Legislative Decree No. 58/1998, as subsequently amended. The Legislative Decree No. 209/2005 empowered ISVAP (now IVASS) to give further instructions for financial statements in compliance with the international accounting standards.
Simultaneously also liabilities increased by approximately € 600 million. The final amount of lease liabilities of € 670 million includes liabilities related to new right of use recognized on balance sheet and a reclassified liability already recognised under IAS 17 related to a specific accounting treatment of a sale and leaseback agreement which contained significant financing component.
A transitional provision allows continuing to apply IAS 39 for all hedging transactions until completion of the macrohedging project. The principle has been endorsed by the European Union by the EU Regulation 2016/1905 The Group has opted for a deferred implementation in application of the amendment to IFRS 4 - Applying IFRS 9 Financial Instruments with IFRS 4 - Insurance Contracts.
In light of the extraordinary significance of the changes introduced by the standard, very significant impacts are also expected in terms of resources, processes and information systems to support the assessment framework.
The item comprises the exchange differences to be recognised in equity in accordance with IAS 21, which derive from accounting for transactions in foreign currencies and from the translation of subsidiaries’ financial statements denominated in foreign currencies.
The item includes gains or losses arising from changes in the fair value of available for sale financial assets, as previously described in the corresponding item of financial investments. The amounts are accounted for net of the related deferred taxes and deferred policyholder liabilities.
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 Measure ISVAP (now IVASS) No. 2784 of 8 March 2010, and distinguishing its component items among operating, investing and financing activities.
– Investments fund units Generally, if available and if the market is defined as active, fair value is equal to the market price.
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.
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. Long term incentive plans, aimed at strengthening the bond between the remuneration of management and expected performance in accordance with the Group strategic plan, as well as the link between remuneration and generation of value in comparison with peers, are also treated as an equity-settled share-based payment.
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 Contingent liabilities, commitments, guarantees, pledged assets and collaterals in Additional information section.
Liabilities without guaranteed interest amount to € 87,651 million in 2019, showing an increase compared to the previous year (€ 75,604 million as at 31 December 2018), mainly determined by the financial revaluation component related to investment result of unit-linked business and by the new production without guarantee.
With reference to the gross direct claims provisions 44.5% was referred to the motor business in line with the prior year (44.8%). In the non-motor business, the personal and commercial lines weighted 80.7%.
Accumulated depreciation and impairment as at 31 December previous year -4,079 -4,087
Other intangible asset, which included according to IFRS 3, among the others, the value of the insurance portfolio (or the value in force) acquired in business combinations, amounted to € 644 million. This amount was attributable to: – the acquisitions which took place in 2006 of portfolio of Toro Group (€ 47 million net of accumulated amortisation ) and in Central-Eastern Europe (€ 6 million net of accumulated amortisation); – the acquisition of Ceska group, which brought a further activation of € 545 million, net of amortization; – other acquisition occurred during the period in Central -Eastern Europe equal to € 47 million net of accumulated amortization (of which Adriatic Slovenica for € 42 million net of amortization).
Accumulated depreciation and impairment as at the end of the period 1,054 979
Income from service and assistance activities and recovery of charges 981 815
Change in other insurance provisions 106 51 -1 -0 105 51
Change in the mathematical provisions 11,361 7,481 -58 11 11,302 7,492
In the Property&Casualty segment, acquisition and administration costs increased mainly due to increase in costs related to insurance activities; non-insurance administration expenses amounted to € 28 million (€ 16 million at 31 December 2018), of which € 13 million related to real estate activity (€ 11 million at 31 December 2018).
The amount of financial instruments classified in Level 3 represents 2.5% of total financial assets and liabilities at fair value, stable compared to 31 December 2018. Generally, the main inputs used in valuation techniques are volatility, interest rates, yield curves, credit spreads, dividend estimates and exchange rates. The more significant assets classified within Level 3 are the following: – Unquoted equities
*** Policy loans, reinsurance deposits and leasehold assets are excluded from the scope of SPPI test because in the scope respectively of insurance contracts and leases. Other receivables have been currently excluded from the scope of instruments subject to the standard, still to be defined. However, the Group use the reasonable assumption that other receivables pass the SPPI, taking into account basic loan features of these financial instruments.
The carrying amount of bonds that do not have low credit risk, considered as exposure with a rating lower than investment grade, is € 7,845 million and fair value of € 7,742 million. In addition to the bonds presented in the table above, financial assets that envisage cash flows represented solely by principal and interest payments also include mortgages and other loans, term deposits, repurchase agreements (reverse REPO) and receivables from banks and bank customers. The loan portfolio consists mainly of mortgages with low credit risk (analogous to investment grade); largely guaranteed by collateral, mainly real estate, and primarily managed by Group banks. Furthermore, the credit risk management process includes a careful assessment of the customer’s credit rating, whether an individual or corporation.
The maximum number of shares that can be granted is 12,000,000, accounting for 0.77% of the current share capital. In line with the previous plans, the 2019 LTI plan can be treated as an equity-settled share-based payment falling under IFRS 2 scope, which provides a grant date measurement model seeking to capture the value of the contingent right to shares promised at grant date, to the extent that promises become an entitlement of the counterparty, rather than the value of any shares finally delivered. The condition related to relative TSR configures as a market condition, other conditions mentioned above are considered whether as performance or as service condition.
At the balance sheet date, there are the following sharebased compensation plans granted by Generali France to the employees of Generali France Group: thirteen stock grant plans approved by the board on 21 December 2006, 20 December 2007, 4 December 2008, 10 December 2009, 9 December 2010, 14 March 2012, 25 June 2013, 7 March 2014, 6 March 2015, 9 March 2016, 9 March 2017, 1 March 2018 and 7 March 2019. At 31 December 2019, the number of shares granted amounted to 6,945,455 preferred shares, of which 172,104 related to the plan granted for 175th anniversary of foundation of Parent Company.
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Generali Northern America Real Estate Investments GmbH & Co. KG 094 EUR 17,387,755 G 10 45.42 AachenMünchener Lebensversicherung AG 99.89 99.89
ATLAS Dienstleistungen für Vermögensberatung GmbH 094 EUR 4,100,000 G 11 74.00 AachenMünchener Lebensversicherung AG 74.00 74.00
GID Fonds GDRET 094 EUR 175,807,521 G 11 21.38 Generali Deutschland AG 100.00 100.00 2.95 Cosmos Versicherung Aktiengesellschaft 28.51 ADVOCARD Rechtsschutzversicherung AG
GID Fonds AVAOT III 094 EUR 9,273,590 G 11 100.00 ADVOCARD Rechtsschutzversicherung AG 100.00 100.00
GID-Fonds CLRET 094 EUR 754,027,058 G 11 100.00 GID-Fonds CLRET 2 100.00 100.00
GID-Fonds AAINF 094 EUR 185,288,824 G 11 25.00 Cosmos Lebensversicherungs Aktiengesellschaft 100.00 100.00 45.90 AachenMünchener Lebensversicherung AG
SCI GRE PAN-EU 146 Haussmann 029 EUR 1,000 G 11 0.10 Generali Europe Income Holding S.A. 100.00 98.92 99.90 GEIH France OPCI
SCI Parc Logistique Maisonneuve 4 029 EUR 5,471,190 G 10 100.00 SC Generali Logistique 100.00 99.04
SC Novatis 029 EUR 17,081,141 G 10 100.00 Generali Vie S.A. 100.00 98.62
Pojišťovna Patricie a.s. 275 CZK 500,000,000 G 2 100.00 Generali Żeská pojišŻovna a.s. 100.00 100.00
Transformovaný fond Penzijní společnosti České Pojišťovny, a.s. 275 CZK 300,000,000 G 11 100.00 Penzijní společnost České Pojišťovny, a.s. 100.00 100.00
Generali Życie Towarzystwo Ubezpieczeń Spółka Akcyjna 054 PLN 63,500,000 G 2 100.00 Generali CEE Holding B.V. 100.00 100.00 317 We, Generali Consolidated Non-Financial Statement
Plac M LP Spółka Z Ograniczoną Odpowiedzialnością 054 EUR 3,493,490 G 11 100.00 Generali Europe Income Holding S.A. 100.00 98.92
Europ Assistance CEI OOO 262 RUB 10,000 G 11 100.00 Europ Assistance Holding S.A.S. 100.00 99.99
AG SE&A Prestação de Serviços e Partecipações Ltda. 011 BRL 150,000 G 11 99.99 99.99 99.99
IWF Holding Company Ltd 072 THB 2,300,000 G 4 43.48 Generali Participations Netherlands N.V. 100.00 94.52 56,52 DWP Partnership
Risque et Sérénité S.A. 029 EUR 6,135,300 a 9 41.52 Generali Vie S.A. 51.52 50.81 2,721 10.00 Generali France S.A.
GGI GP SAS 029 EUR 12,500 a 11 100.00 Generali Global Infrastructure S.A.S. 100.00 51.03
SCI 15 Scribe (*) 029 EUR 14,738,000 c 10 50.00 Generali IARD S.A. 50.00 49.31 24,950
GRE PAN-EU Frankfurt 2 S.à r.l. (*) 092 EUR 33,002,000 c 10 50.00 Generali Europe Income Holding S.A. 50.00 49.46 15,554
Citadel Insurance plc 105 EUR 5,000,400 b 11 20.16 Generali Italia S.p.A. 20.16 20.16 978
Bezpieczny.pl Sp z.o.o. 054 PLN 125,500 a 11 51.00 Generali Finance spólka z ograniczoną odpowiedzialnością 51.00 51.00 3,528
Generali Investments Asia Limited 103 HKD 50,000,000 a 9 100.00 Generali Investments Holding S.p.A. 100.00 99.53 4,987
5. Internal Control and Risk Management System, administrative/accounting system and financial reporting process (points 13 and 14 of Consob Notice no. 1025564/01)
Since 2018, in compliance with industry regulations, the Company has adopted a “reinforced” corporate governance model, based on the quali-quantitative parameters
As regards the administrative accounting system and the financial reporting process, the Board of Statutory Auditors monitored the activities conducted by the Company for continuous assessment of their adequacy and operation.
The development activities begun in 2018 led to the approval of an update to the organisation and management model pursuant to Lgs.Decree 231/2001 on the administrative liability of entities and subsequent amendments and additions, through a resolution of the Board of Directors on 8 April 2019. The aim of the update is to ensure closer integration of the model with the internal regulatory system, greater simplification and usability through clear links between functions and relative applicable controls, and specific attention to indicating the regulatory controls adopted at local branch level. During 2019, the Surveillance Body completed its assessment of the impact of the crime risks envisaged by legislation that came into force after the resolution passed by the Board of Directors on 8 April 2019. The Company will update the organisation and management model during 2020 on the basis of the results of the assessment.
The Company follows the Corporate Governance Code issued by the Corporate Governance Committee promoted by Borsa Italiana S.p.A. The checklist for compliance
Evaluation of complex or non-listed financial investments At 31 December 2019, the consolidated financial statements included Eur 31,049 million and Eur 10,533 million categorised respectively as level 2 and level 3 of the fair value hierarchy stated by IFRS 13 – Fair Value
Measurement. The financial statement information relating to investments is disclosed in the explanatory notes in the section “Accounting principles” and in notes n. 39, 40 and 41.
We have provided those charged with governance with a statement that we have complied with the ethical and independence requirements applicable in Italy, and we have communicated with them all matters that may reasonably be thought to bear on our independence, and where applicable, related safeguards.
Change in healthcare needs and services: the treatment and healthcare systems are undergoing transformation due to demographic, technological and public policy evolution, leading to a higher demand for increasingly advanced healthcare services that are patient-focused, with growing healing and quality treatment expectations. That means that the level of sophistication and of healthcare service cost is growing, with an increasing integration of the public offer with private entrepreneurial initiative.
Outcomes: the internal and external consequences (positive and negative) for the capitals as a result of an organization ’s business activities and outputs.
P&L return on investments: it is the sum of the current return on investments and the harvesting rate net of investment management expenses. Please refer to the chapter Methodological notes on alternative performance measures for further information.
Women empowerment and minorities inclusion: in the various areas of social life, from the labour world to that of political representation and public communication, we are witnessing growing demands for full inclusion and exploitation of the diversities linked to gender, age, origin, ethnic group, religious belief, sexual orientation and disability conditions. The topic of development of female talent and reducing the income and employment gap between genders has taken on particular emphasis. However, in the face of these trends we are noting an increase in forms of intolerance, social exclusion and violence against women, ethnic and religious minorities, immigrants and LGBTI+ people and those with mental -physical disabilities, especially in the lower income and lower education social brackets.