Our reference markets: positioning* and performance

Generali is a leader on the Italian insurance market with an overall share of 16.2% thanks to the complete range of insurance solutions the Group offers its clients – retail, SME and corporate – in both the life and P&C segments. For distribution, Generali operates through a multi-channel strategy, mainly concentrated on agents. It also has a strong position in the direct channel, through Genertel – Genertellife, the first online insurance launched in Italy. The Group also offers a complete variety of insurance, pension and savings products to its customers through Banca Generali.

With the completion of the integration process, launched in 2013, aiming at the unification of all the existing brands into three main strategic brands - Generali (retail market and SME), Alleanza (households) and Genertel (alternative channels) – in 2016 Generali Italia has launched its simplification programme. The goal is to improve the customer experience by simplifying the relationship between customers and agents - for the entire process from pre-sales to assistance - and providing more accessible and innovative services.

At macroeconomic level, the Italian economy has exited its long recession; GDP growth for 2016 is estimated at 0.9%, supported by exports, a weak recovery in both domestic demand and in investments in machinery and equipment. The growth in disposable income caused by more favourable employment conditions is favouring household consumption.

Unlike the trend observed in 2015, the Italian life insurance market declined considerably in 2016, with a business mix that was more oriented, despite low rates of return, towards traditional products, which are more attractive than unit-linked products when financial markets are particularly volatile.

The domestic financial market was characterized by increased volatility starting in the second part of the year, due to the Italian bank recapitalization process in addition to the constitutional referendum.The P&C market also recorded worse performance this year due to strong competition amongst the various motor insurers, resulting in a further decline in average premiums. Benefitting from the macroeconomic recovery, though modest, positive growth rates continued to be seen in the non-motor segment.

Government bonds were impacted by this to a certain extent, with the yield spread between the 10-year Italian bond and the German bund expanding to 162 bps (97 bps at the end of 2015), while the equity market recorded negative performance overall (FTSE MIB -10%) despite the significant recovery in December after the quick formation of a new government and the accommodating actions of the ECB.

Important decrease of unit-linked products (-25.2%), especially for the single premium products, because of financial markets volatility. As for savings products, the decrease (-4.2%) is almost attributable to the more selective underwriting policy, which led to a review of the product range, implemented as a counteraction for the current low-interest rate environment.

New production registered a negative trend in terms of APE (-8.3%) following the reduction of both annual (-2.7%) and single premiums (-13.0%), mainly because of the drop in hybrid products sales caused by the review of the product range. NBM (margin on APE) grew from 25.4% (year end 2015) to 27.2, mainly because of the calibration of the offered guarantees, of more profitable unit-linked products and of a taxation reduction. Notwithstanding the reduction in terms of volumes, the increase in profitability brought the new production value to € 579 million (-1.8%), slightly lower than the previous year one.

The reduction of the gross written premiums is attributable to both segment trends. As for the motor one (-5.2%), its result is impacted by the decrease of the average premium and the loss of important fleet contracts occurred during the first part of the year. The negative trend of non-motor segment (-3.6%) has to be entirely conducted to the SME sector which is affected by strong competition.

Cor is increasing mainly because of the expense ratio of the nonmotor portfolio. Loss ratio improved (-0.6 pps) thanks to the positive contribution of prior years loss ratio and nat cat claims, which counted for € 100 million (1.9 pps; 2.1 pps in 2015), of which € 56 million are attributable to the earthquake occurred in centre Italy.

In Italy we offer Generali qui per voi, a service to be used in the case of natural catastrophes which involve several people. A team specialized in Natural events is activated when the events occurs. It is made up of an event manager and of several teams which on one hand will help local agencies with the work-peaks in case of emergency and on the other hand it will identify and coordinate partners for the definition and settling of claims. A dedicated line and an operating unit are also set in case local agencies are unavailable because of the natural catastrophe. Generali Italia has also extended policies’ coverage for earthquake and flooding risks for the customers already insured against fire and other damages, not considering a possible State help in case of calamity.
Sustainability Report 2016 p. 59

In Germany, Generali Deutschland is the second insurance group in terms of total premium income. Its market share is 5.6% in the P&C segment and 10.2% in the life segment (also including the healthcare business), and is particularly well positioned in the unit-linked and protection business lines, in hybrid products, corporate pension plans and in the direct channel.

In 2016 Generali Deutschland continued the strategic repositioning aimed at implementing different initiatives to strengthen its position by leveraging its strong multi-channel presence, the simplified and market focused approach, a new business model in the life segment, as well as through the launch of innovative and smart products and of services and processes focusing on the specific customer needs.

Thanks to the strategic repositioning on German market started in May 2015, governance in Generali Deutschland has been strongly revised and made more efficient. The local holding, whose headquarter wad based in Cologne, organizationally speaking has been integrated with the two main business units - Generali Versicherung (P&C) and Generali Leben (life) located in Munich - becoming the new Generali Deutschland AG. With the realignment of the different Group companies’ board of directos and the creation of a matrix management structure, Generali in Germany is continuously oriented towards agile governance.

The product range is built on the following three pillars:
- Generali as a multi-channel life and P&C insurer, mainly relying on agents and brokers as to the distribution;
- AachenMünchener, leader in unit-linked products with a successful partnership with DVAG, representing the strongest financial consultant network in Germany;
- CosmosDirekt as first direct insurer and leader in term-life products.

Central, Advocard, Dialog and Badenia also guarantee tailored insurance solutions for customers and more agile sales channels at country level.

July saw the launch of Vitality, an innovative programme combined with life policies, particularly term life and professional disability, in order to promote healthy lifestyles.

The negative performance of the German life segment, which began in 2015, continued again in 2016: interest rates have remained quite low and are not expected to recover in the short term. The main sector counter play was to push towards unit-linked products. In P&C, on the other hand, motor continues to grow at good pace, also thanks to rising vehicle registrations, but a slowdown is forecast in the years to come due to the flattening of the tariff cycle and decreased expectations of GDP growth.

Within a context of high volatility, the yield on the 10-year German bund declined significantly, even recording negative returns during the summer, to then bounce back to around 0.2% (0.6% at the end of 2015).

On the other hand, there was growth in the equity market (DAX +7%).

Decrease of savings products (-18.8%), in particular the single premium one, consistently with the strategic actions implemented for the reduction of this product category.

New business in terms of APEs was down (-14.2%) due to the drop in the life segment (-14.9%), primarily following the decrease in single premium policies, whereas there was growth in the healthcare line (+3.4%). In terms of business lines, there was an increase in unit-linked policies (+1.8%) but savings products were down (-34.9%).

The NBM (margins on the APEs) increased from 23.1% in 2015 to 38.8% in 2016, mainly due to the better business mix, a recalibration of guarantees offered and a reduced cost of capital. New business value amounted to € 275 million (+44.3%).

Motor segment (+2.3%) benefitted from the pricing policies on the existing portfolio; non motor segment is also increasing (+0.6%).Increase in the Gross written premiums thanks to the positive trends of both motor and non motor segments.
Cor strongly improves, thanks to the reduced current accident year loss and to the expense ratio restraint, which reflects the cost-reduction policies, and the reduced catastrophe losses (€ 71 million, 2.0 pps. instead of the 2.3 pps of last year.).

Generali Vitality is the first holistic health- and wellness-based insurance product which thanks to its innovative approach helps consumers gain in-depth knowledge about their health, how to improve it, and how to reap the rewards for improving their lifestyle. We decided to reinvent insurance, creating a constant and emotional way to keep in touch and reward people. We did this by taking a start-up mentality and combining it with central and local teams; then we inspired those teams and launched a partnership with Discovery in order to reshape value proposition based on customer research. We wanted to be the first in Europe to capture the wellness insurance space. We created a new eco-system, also thanks to valuable partners such as Adidas and Fitness First. Vitality will change our relationship with customers, offering them a tailored program of services to help them improve their lives. Sales will be able to engage with customers about rewards and wellness instead of death, illness, and disability. That’s why the 90% of agents subscribed to Vitality membership in the first week.
Sustainability Report 2016 p. 30

France is the third most important market in the Group, after Italy and Germany, contributing roughly 15% to the Group’s total premiums. In the French insurance market, Generali France is a major player, with a strong position and a multi-channel distribution network. Its sales force includes agents, employed sales persons, brokers, financial advisors, banks, direct channels and affinity groups. The variety of the distribution channels reflects the features of the market and of the products distributed.

This approach gained momentum after the “Customer centric” reorganization occured in 2014, based on the creation of 4 separate client areas (Individual, Affluent, Professional&SME and Commercial).

Generali is also renowned for its leadership in the Internet savings segment thanks to the excellence of the services provided and its important partnerships.

The French economy showed signs of recovery in 2016 compared to the previous year, although GDP growth has remained at low levels just over 1% yearly in real terms. Within a weak growth and low inflation scenario, interest rates remained at historically low levels, as in the rest of Europe. In particular, the yield on the 10- year OAT government bond declined to close to zero in the summer, and thereafter rose to 0.7% (1% at the end of 2015). There was moderate growth in the equity market (CAC40 +5%).

The low interest rates environment, especially in the its short term favoured the reallocation of financial assets into life products, i.e. the savers’ favourite insurance form in France. Net cash inflows in the French life insurance sector was positive, although they were lower than in 2015.

Despite contrasting trends in the securities markets, unit-linked products, which represent roughly 20% of premium income, posted a favourable performance at around the same levels as last year.

The rather modest trend in the P&C market continues (+1.5% compared to last year), due to the mentioned weak economic environment, ongoing competition and a soft phase within the corporate business underwriting.

Saving products shrinkage (-7.8%) due to the strict underwriting policies put into action to counter the difficult financial context characterized by low interest rates. This difficult environment affected also unit-linked products (-8.0%). Positive trend for pure-risk segment (+7.9%), thanks to the positive effect of the ANI reform.

APE was substantially stable (-0.4%), reflecting the excellent development of annual premiums (+10.2%), offset by the contraction in single premium policies (-8.4%). With reference to the lines of business, the risk business had particularly excellent performance (+21.7%). The NBM (margins on the APEs) increased from 6.5% in 2015 to 9.6% in 2016, mainly due to the decrease in guarantees offered in the savings segment, which represented 42.8% of business. New business value amounted to € 90 million (+37.0%).

Property&Casualty premium income was down to a modest extent; the motor segment (-0.6%) reflects the lower average retail premium and the fleet portfolio restructuring actions. The slight decline in the non-motor segment (-0.4%) was caused primarily by multi-risk and corporate businesses.

Cor is improving continuously as a result of the decline in the loss ratio, which reflects actions undertaken in recent years to restore an adequate level of profitability. The impact of catastrophe claims remained basically unchanged (1.8 pps compared to 1.9 pps in 2015).

Generali France found a new way to help SMEs be more aware of their risk exposure and to help them manage and expand their business: Generali Performance Globale (GPG), a new holistic approach to risk management.
GPG is an innovative strategy of risk management, with a focus not only on traditional and insurable risks, but with a wider perspective on business. After a preliminary assessment phase of in-depth data-collection from the company and analysis, we determine a company’s strengths and weaknesses and make a cross-business risk-management plan with an eye toward sustainable development issues.
By 2016, ten years after its birth, GPG’s influence has extended to larger organizations and franchise networks, leaving a mark on the history of risk management for any kind of business, thanks to its innovative and responsible approach.

CEE includes Czech Republic (Cz), Poland (Pl), Hungary (Hu), Slovakia (Sl), Serbia, Montenegro, Romania, Slovenia, Bulgaria and Croatia.

Generali CEE Holding is one of the biggest insurers in the Central Eastern European market. The Group ranks second in the Czech Republic, Hungary and Serbia, third in Slovakia and among the top ten in the other countries.

In terms of volumes, main insurance markets are Czech Republic, Poland, Hungary, Slovakia. The contribution of the minor markets has improved during the last years, resulting in an increase of the premium income on the total volume of the area. Generali CEE is the best in the entire region by technical profitability, with a medium-long term Net Combined Ratio at below 90%.

In the Czech Republic, the region’s most significant financial market for Generali Group, growth and inflation trends have remained anchored to those of the Eurozone. The continuation of low interest rates has been combined with the increased volatility of the Czech koruna, expected especially in 2017, while awaiting for the launch of different methods of market intervention by the central bank.

As in other regions, in Eastern European countries local supervisory authorities are continuing to issue new insurance market regulations, thereby increasing the level of complexity for companies during their subsequent adoption and implementation.

In 2016, life premium volumes declined, due for the most part to single premium policies, while there were positive developments in P&C premiums, driven by motor insurance.

There was a decline in unit-linked products (-23.9%, particularly single premium policies) and savings products (-6.1%, for the most part recurring premium policies). In detail, this evolution can be ascribed to a significant extent to the drop in the Czech Republic (-7.5%), where there was strong competition amongst the main market players focusing on market share, and in Poland (-28.7%). In the latter country, premium income was down due to the complex legislative environment and the company’s continuous focus on boosting insurance business profitability.

By contrast, the protection (+7.9%) recorded positive performance, in line with the Group strategy.

The drop in new business in terms of APE (-16.8%) is mainly due to the reduction in the unit-linked business (-28.3%). The rise in NBM (margins on APEs) from 23.7% in 2015 to 34.8% in 2016 is explained mainly by the sharp drop in the profitability of the risk business, which represents 56.9% of business, up compared to the previous year. The increased profitability despite lower volumes resulted in a new business value of € 47 million (+21.2%).

The improvement in premium income emerged entirely from the motor segment (+7.1%), in particular the Czech Republic (+4.6%, thanks primarily to Casco line), Romania (+64.6%, especially due to retail trends), Slovakia (+13%) and Hungary (+8.3%).

The improved Net Cor can be ascribed entirely to the limitation of the expense ratio (-1.3 pps, linked to cost reduction policies), offsetting the pressure that can be observed in the net loss ratio, which reflects the deterioration in non-motor segments.

Claims management is key to how clients perceive us. Hence, we want to prove to our customers that they can truly rely on us, especially in the toughest times. We want to offer more: a more personal experience, a more convenient service, faster communications by launching a series of smart and simple actions to improve our customers’ experience. For example, we have introduced a real-time claims payment, a service that is unrivaled in Hungary and that, thanks to online systems, gives
the customer the opportunity to initiate the claim process directly on-site and to receive payout right away. We send regular email updates on the settlement process and we make phone calls to
communicate certain information. Moreover, we provide our motor insurance clients with additional
services free-of-charge, such as interior and exterior car-washes and a one-year guarantee at a selected repair shops.

EMEA includes Austria (At), Belgium, Greece, Guernsey, Ireland, the Netherlands, Portugal, Spain (Es), Switzerland (Ch), Tunisia, Turkey and Dubai.

The Group’s main EMEA markets are Spain, Switzerland and Austria. In these countries the implementation of strategic initiatives focused on improving client centricity and the quality of service offered is on-going, with the aim to develop smart and innovative solutions in coherence with the Group strategy.

Generali España is one of the main insurance groups in Spain, ranked eighth in terms of total premiums, with a market share of 3.7% in the life segment and 4.3% in the P&C segment.

The Group offers a wide range of life and P&C policies dedicated to private individuals and companies, using a multi-channel distribution strategy including bank offices and a network of agents and brokers which is among the most extensive in Spain.

In 2016, the bancassurance agreement with Cajamar was renewed and reinforced, thereby giving Generali España exposure to the main life distribution channel, which is also expanding in the P&C segment.

With reference to the insurance market, in 2016 the P&C segment grew for the second consecutive year since 2008, also supported by signs of recovery in the motor sector and in multi-risk and healthcare products. There was also a significant recovery in the life market, benefitting in part from the recovery of the bancassurance channel, which pushes the distribution of savings products.

Generali has been operating in Switzerland since 1987, consolidating its presence over time by the acquisition and merger of many insurance companies. Generali Switzerland is the 8th largest insurance group in terms of life and P&C premium income, with a life market share of 3.7%, and a P&C share of 4.9%. In accordance with the Group strategy, Generali Switzerland focuses on the retail business and provides high quality and innovative services through various distribution channels.

Overall, the Swiss economy has shown flexibility even after the decision of the central bank to abandon the floor on the exchange rate, which proves again to be stable. However, the inflation rate remains negative, the rate of unemployment, especially for young people, is growing and consumption levels are less dynamic.

As regards market trends, we are witnessing stable performance for the life segment - despite the context of low interest rates - and slight growth in the P&C segment.

Generali has operated in this country since 1832 and is the third largest insurance operator in terms of written premiums, with a market share of 14.0% in life insurance and of 16.3% in P&C. It currently operates in the country through the insurance companies Generali Versicherung, BAWAG P.S.K. Versicherung and Europäische Reiseversicherung. The multi-channel distribution strategy involves multiple sales channels: agents, brokers, financial advisors and banks (BAWAG P.S.K.

and 3Banken). The strategy adopted in the Austrian market reflects that of the Group, allowing the company to confirm its position as market leader in the retail sector thanks to the focus on customers and on their needs and to the quality of services, offering simple and innovative solutions.

At market level, the economic context remains overall quite complex, due to low interest rates, low inflation and a slightly increasing unemployment rate. As for the insurance market, price competition is very high, especially for the broker market, in which there has been a trend of concentration in pools.

There have been difficulties in hiring new people for the sales force, and comparative web portals are on the rise.

The trend in life premiums is explained by the slowdown in income in Austria (-7.5%) and Switzerland (-7.3%), concentrated within savings products, in line with the Group’s commercial strategy, in addition to the significant contraction in Ireland following the decline in single premium unit-linked products. Income from pure risk and healthcare premiums experienced gradual growth, especially in Spain and Austria.

New business in terms of APEs was down (-15.4%), following the reductions in Ireland (-23.7%) and Guernsey (-49.8%), with direct effects on the unit-linked sector (-16.1%). On the other hand, there was good progress in Spain (+10.0%) and Belgium (+48.7%) where, in particular, the company’s commercial actions boosted sales of single premium unit-linked products.

Overall, NBM rose from 27.0% in 2015 to 39.0% in 2016, mainly due to the sharp decrease in traditional business in favour of the risk business in Austria, the recovery in profitability in Switzerland in light of new unit-linked products and the recalibration of the level of guarantee offered.

New business value amounted to € 212 million (+23.3%).

P&C premium growth in both segments was due in particular to Spain and Switzerland, which posted non-motor line growth. The motor segment is driven for the most part by growth in Spain and the Netherlands.

The Cor improved due to the lower loss ratio, especially in Austria and Belgium in non-motor lines and in Spain in the commercial line. The expense rate was down slightly, especially thanks to trends in Spain and the Netherlands.

In Spain the need to optimize the underwriting process, finds its solution in an underwriting platform that is conceived and managed to maximize industrialization, task-prioritization, and business specialization.
Our main goal is to improve on the main challenge areas of our previous system, while maintaining and even improving its strengths such as system flexibility and technical control.
The implementation of a state-of-the-art underwriting platform has had a huge impact, internally allowing us to gain high efficiency in analysis and network management, and externally to improve the satisfaction of intermediaries and to reduce the administrative burden. Although the solution is almost fully scaled up, additional synergies with respect to economies of scale and emerging technologies could still be generated.

Asia includes China, Indonesia, India, Hong Kong, Vietnam, Thailand, the Philippines, Malaysia and Japan.

The Group has carried on business in Asia since the 1980s. It is currently present in China, Indonesia, the Philippines, Hong Kong, Japan, Thailand, Vietnam, India and Malaysia. The companies present in these last two countries, as well as China P&C, are not consolidated line-by-line as, at the moment, the relative shareholdings do not reach 50%.

Hong Kong is also home to the regional office, which coordinates the entire area’s activities. The life business comes from China, Indonesia, Hong Kong, the Philippines, Thailand, Vietnam and India, and is concentrated primarily in the saving&pension segment, as well as Protection and, to a lesser extent, unit-linked.

In the P&C segment we operate in China, India, Malaysia, Hong Kong, Thailand and Japan, with a premium volume which is in any event limited with respect to total income in the Region (directly and not directly consolidated).

The main distribution channels are banks and agencies, in rapid development especially in China. The direct channel is still in the initial phases of development in China and Thailand. The main contributor in terms of sales and profit in the Region is the Chinese life company, Generali China Life, a joint venture with the local partner CNPC, which today has become one of the top foreign insurance groups on the market.

Recently, the most significant transactions were the creation of a new life company in Hong Kong, added alongside the branch and the regional office. The company, founded in July 2016, is specialized in the High Net Worth segment. On the other hand, at the end of 2014 the Group entered the Malaysian market through an agreement with Multi-Purpose 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 option to exercise a call option on the additional 21% of MPIB in the course of 2017. Thus, the Generali Group would hold a 70% stake in the company, the maximum allowed for foreign companies in Malaysia.

Income experienced growth in all countries, driven by China and Hong Kong, the latter thanks to the High Net Worth business from the new life insurance company that has operated since July 2016.

Premiums were up, mainly reflecting the performance of the Hong Kong branch, thanks to the volumes of premiums accepted for reinsurance in the accident&health and corporate segments.

The downturn in technical performance can be ascribed to a significant extent to the deteriorating profitability of the Hong Kong branch, impacted on one hand by the strengthening of reserves to come into line with the market’s reserving level and, on the other hand, by the increased business mix of the accident and healthcare segment, with a higher loss ratio than the portfolio average. The worse loss ratio was partially offset by the decline in the cost rate, which benefitted from the increase in volumes.

The Generali brand was not recognizable in the Hong Kong life insurance market back in 2014. That year, Generali Asia made a strategic decision to launch a High Net Worth (HNW) project and developed a high benefit term life product called “Sigillo” to tap into Hong Kong’s fast growing HNW-individual market. After the launch of this project we were able to offer competitive policies to the high-end customer base. The structure of Sigillo maximises the value for both insurers and insurees. Our share in life single premium sales in the Hong Kong brokerage market jumped from virtually 0% to 10% in two years.
It was such a success that Generali HK immediately shared its knowledge and experience with the company’s China and Southeast Asia teams so that they, too, could grow their HNW business strategy.

The new business in terms of APEs is up (+32.8%) with a good increase in Asia (+36.9%), despite the decline in Latin America (-23.1%).

Overall, thanks to the confirmation of higher NBM (13.5% in 2015 and 2016) and the increase in volumes, the value of new business stood at € 53 million, up 33.2%.

Americas includes Argentina, Brazil, Colombia, Chile, Ecuador, Guatemala and Panama.

Argentina is the main market in this region, where Generali is ranked as the fourth operator.

The Argentinian market is characterized by an historically high inflation rate, and a volatile financial environment, both of which have accentuated after the last political elections in late 2015. However, in the second part of 2016, the economy began to show signs of stabilization and opening towards the international markets despite the recession, which are positive signs for the future of this key Latin American country. Despite the tough scenario for the insurance business, the Group has implemented best practices in its Argentinian subsidiaries, enabling them to stand out in terms of service quality and innovation.

Brazil is the second most important country in this area, although the current economic crisis and political instability are limiting development. Despite systemic turbulence, Brazil boasts of an emerging middle class which represents potential for insurance market development in the coming years.

The Group also operates in Chile, Colombia, Ecuador, Guatemala (whose disposal was finalised in early 2017) and Panama.

The evolution in volumes is mainly associated with Argentina (more than 60% of the entire Region), operating in the protection segment, driven by the continuation of high inflation.

Also in this case, the increase is linked for the most part to Argentina (more than 70% of the Region) and is explained by tariff increases (especially motor) enacted to deal with the peak in inflation. On the other hand, volumes were down in Brazil, as part of the measures taken to restore the company’s profitability.

The improved Cor can be explained by the lower impact of the loss ratio with respect to the previous year, as well as the improvement of acquisition costs.

Mobile technology has changed the way we communicate, the way we search for information, the way we live. In a digital world where everyone has a mobile phone in his or her pocket, going to an office or even phoning a call center seems a very old-fashioned and inefficient solution. To minimize the gap between customers and branches, La Caja set up a partnership with Waze, a social app that uses geolocation to connect drivers and create local transport communities. Launched in 2015, this initiative has allowed us to increase brand visibility and client satisfaction.

* The indicated market shares and positions, based on written premiums, refer to the most recent official data.