Consolidated results at 31.12.2012
14 March 2013 - 08:45 price sensitive
Consolidated results as of 31 December 2012 (*)
Operating result in excess of € 4.2 bln (+10.5%) and total premiums at € 70 bln (+3.2%)
Strengthened capital position, shareholders’ equity up to € 19.8 bln (+28%). Solvency I at 150% (117% FY11)
Net profit € 90 mln (€ 856 mln FY11) after € 1.7 bln of net impairments. € 1.3 bln impairments in 4Q due to the detailed asset review, the alignment of policy to international best practice and the Telco share
Dividend per share at € 0.20 maintained in line with 2011
The Generali Group CEO, Mario Greco, said: “2012 saw the start of a deep transformation of Generali, with today’s results marking a turning point in the evolution of our Group towards international best practice. We have recently outlined a new strategy, built on introducing discipline, simplicity and focus across all our activities. We are simplifying our structure and adopting a more disciplined approach to managing the Group and its investments, as we refocus on our insurance business.”
“The growth in our operating result - Greco added - demonstrates the quality of our underlying business. The progress we have made to date in improving our Solvency I ratio is evidence of the capital-strengthening plans we have already initiated and will continue to implement over the coming years. Maintaining a stable dividend is a testament to our continued commitment to providing appropriate returns for our shareholders, even at a time when we are focused on strengthening our capital position.”
Life segment: Operating result rises to € 2.7 bln (+9.7%), despite the challenging economic environment
- Gross premiums € 46.8 bln (+3.1%), driven by savings products (+5.8%)
- New business APE broadly stable at € 4.5 bln (-1.4%). Solid New Business Margin at 19.2%, despite interest rates remaining at low level.
P&C segment: Operating result € 1.7 bln (+5.6%), with strong improvement in the combined ratio at 95.7% (96.5% FY11) despite the Nat Cat impact of 1.4 p.p.
- Gross premiums rise to € 22.8 bln (+3.3%) with progress in all lines of business
- Operating result driven by technical result (+21.5%)
Financial segment: Operating result € 408 mln (+21.7%), with good performance by Banca Generali
Milan – At a meeting chaired by Gabriele Galateri di Genola, the Board of Directors of Assicurazioni Generali approved the consolidated financial statements and the parent company draft financial statements for 2012.
The Group closed 2012 with a strong growth in underlying performance, reporting a positive trend in premiums, reaching approximately € 70 billion (+3.2%), of which more than 70% came from outside Italy. The strong profitability, drove the total operating result to € 4,219 million (+10.5%), reflecting the solidity of the business, with a significant improvement across all lines of business.
In Life, despite the challenging financial environment, the operating result rose to € 2,658 million (+9.7%) benefitting from the initiatives taken by the Group to limit guarantees. The P&C operating result was € 1,664 million (+5.6%), with the combined ratio improving by 0.8 percentage points to 95.7%, the higher Nat Cat impact of 0.5 percentage points notwithstanding.
In addition to an excellent operating performance, the Group has significantly strengthened its capital position. Shareholders’ equity rose by 28% to € 19,828 million (€ 15,486 million FY11) due to capital gains on all the asset classes of the AFS reserve. The equity increase was positively reflected on the Solvency I ratio which rose to 150% (140% 9M12; 117% FY11) with a surplus of € 9 billion. The improvement in operating profitability of the Group boosted the operating Return on Equity2 to reach 11.9% (10.8% FY11).
Net profit, at € 90 million (€ 856 million FY11), was impacted by significant impairments of € 1,682 million, of which € 1,271 million arose in the fourth quarter. The impairments in the fourth quarter are attributable to the AFS securities for € 792 million, to the investment in Telco for € 148 million, to loans and receivables for € 118 million, to the real estate assets for € 56 million and to other assets for € 156 million.
Almost all impairments impact the non-operating result. The Solvency I ratio and the rating capital position were not materially impacted by these impairments as most of the relevant assets had previously been marked to market from a capital perspective.
The impairments follow the completion of the prudent and detailed asset review and incorporate the impact of the Group’s decision to align its impairment criteria – which define when an asset has suffered a “significant” or “prolonged” decline in value – with international best practice, enabling a more accurate comparison with peers. The former “loss significance” criteria, which varied by sector but averaged 50%, have been replaced with one single threshold of 30%. With regard to the definition of “prolonged” loss, the threshold has been reduced from 36 to 12 months. The result was also affected by the sharp increase in the tax rate to approximately 77% from 40% at year-end 2011, mostly due to the fact that a significant part of the above mentioned impairments was not tax deductible.
Taking into account the growth of operating result, the first steps taken towards strengthening the capital position and the implementation new strategy, a stable dividend of € 0.20 will be proposed to shareholders at the AGM by the Board of Directors. The total dividend on outstanding shares amounts to € 311 million. The dividend will be paid from May 23 and shares will trade ex-dividend as from May 20. The proposed dividend is testament to the Group’s strong commitment to provide an appropriate return for shareholders, even when the Group is focused on strengthening its capital base.
Considering the initiatives undertaken by the Group, despite the still uncertain macro-economic environment, the Group expects to achieve further improvement in the total operating result in 2013 and continue the capital strengthening process and the cost reduction plan, announced in January.
As of 31 December 2012, investments totalled € 392.7 billion (+11.2%). The Group’s own investments amounted to € 338.8 billion (+11.1%) and those relating to linked contracts to € 53.8 billion (+11.8%).
|Fixed income instruments||81.1%||77.6%|
|Cash and cash equivalents||6.1%||7.9%|
|Real estate investments||4.4%||4.9%|
|Total own investments||€ 338.8 bln||€ 310.8 bln|
In a market environment still impacted by high volatility, the Group continued its de-risking activity across its portfolios to limit financial risks, while maintaining profitability at adequate levels for liabilities towards policyholders. Consistent with this strategy, exposure to fixed-income instruments increased to 81.1% (77.6% FY11) while the proportion of equity instruments was down to 4.6% (5.5% FY11). At 6.1% (7.9% FY11), liquidity was down, although it remained at temporarily high levels.
Healthy production levels in Life was coupled with solid operating profitability, which drove the segment’s operating result to € 2,658 million (+9.7%; € 2,542 million FY11). This result was supported by the improvement in the financial margin (+12.8%) and the technical margin (+2%), and by performances in Italy (+9.3%) and France (+57.4%), as far as core markets are concerned.
With regard to production, performance in savings products (+5.8%) and protection covers (+3.2%) drove growth in gross premiums to € 46,810 million (+3.1%). Life new business in terms of APE was strong at € 4,508 million, broadly in line with the previous year (-1.4%; € 4,787 million FY11). The performance in Italy (-4.5%) was affected by the contraction in annual premiums, whilst positive trends were registered in France (+0.5%) and Germany (+1%), as well as strong growth in Central-Eastern Europe (+23.6%), driven in particular by pension products in the Czech Republic.
Despite the broad reduction in market interest rates, New Business Value was € 863 million (-9.5%; € 976 million FY11) with a solid New Business Margin at 19.2% (20.4% FY11).
Life net inflows – premiums less payments – were positive at € 3.5 billion, showing significant growth trend in the fourth quarter relative to the first 9 months of 2012, when it was € 1.1 billion.
|€ mln||APE||Operating result|
|31/12/2012||Δ like-for-like||31/12/2012||Δ like-for-like|
|Rest of Europe||622||-5.5%||430||-3.2%|
|Rest of the world||201||+0.2%||193||+36.3%|
The P&C operating result rose by 5.6% to € 1,664 million (€ 1,561 million FY11) due to the growth of the technical margin (+21.5%), despite the impact of natural catastrophes for € 298 million (€ 177 million FY11). Performances were particularly positive in Italy (+15.9%) and Central-Eastern Europe (+6.3%).
The combined ratio improved by 0.8 percentage points to 95.7% (96.5% FY11) due to the reduction of the loss ratio (68.2%; 69% FY11). The expense ratio was stable at 27.5% (27.6% FY11). The current year loss ratio excluding natural catastrophes improved by 1.6 percentage points.
Regarding the core markets, significant improvements in the combined ratio were achieved in Italy at 95.2% (96.8% FY11) and Central-Eastern Europe at 88.5% (89.5% FY11). Technical profitability remained high in Germany, with a combined ratio at 94.5% in line with 2011 (94.4%).
With regard to premiums, the progress seen throughout the year was confirmed (+3.3%), in particular in Germany and Central-Eastern Europe.
|€ mln||Combined Ratio||Operating result|
|Rest of Europe||96.4%||-0.0 p.p.||354||+5.6%|
|Rest of the world||99.5%||-4.6 p.p.||67||+51.7%|
In the financial segment, third-party assets under management increased by 14.4% to € 96,379 million (€ 88,207 million FY11). The operating result, due in particular to the positive contribution from investment result, improved by 21.7% to € 408 million (€ 342 million FY11). Important progress was achieved on the interest margin, as a result of better investment opportunities on the liquidity market, and trading on the equities portfolio also produced a healthy result.
The cost/income ratio – the ratio between management expenses and intermediation margin – improved from 73.2% to 69%, reflecting the segment’s enhanced efficiency.
NEW REMUNERATION SYSTEM
The Generali Group has reviewed its remuneration structure and formulated a new structure of variable short-term incentive plans (STIP) and medium/long-term incentive plans (LTIP) for managers with strategic roles in all countries in which the Group operates.
The new STIP, focused on remuneration of performance, refers to the trend in two key Group parameters, Operating result and Net result, and to an individual assessment of managers’ objectives, and is linked to the attainment of a predefined Solvency I target as a performance condition.
The new LTIP, which replaces the 2011 plan, aims to align performance with attainment of long-term strategic targets. The Plan is a rolling program organised in 3-year cycles and envisages the allocation of free Generali shares upon attainment of predefined performances and that incentives will be granted subject to attainment of ROE and Total Shareholders Return targets.
For the purposes of execution of the LTIP, the free shares granted to the plan recipients will be sourced, in full or in part, from share buy-backs and/or from a potential specific scrip issue effected through use of profit and/or retained earnings. The buy-back and the issue – which will be executed by empowering the Board of Directors pursuant to articles 2439 and 2443 of the Italian Civil Code – will be constituted of up to 7 million shares.
At the AGM, shareholders will be asked to authorise, for a maximum period of 18 months, the purchase of own shares on the market in accordance with art. 144-bis, paragraph 1, heads b) and c) of the Issuers Regulation. As of today, the Generali Group holds 16,129,841 Generali shares representing 1.036% of the parent share capital.
At the AGM, shareholders will also be asked to authorise the entry bonuses in the form of Generali shares for the Group CEO and some of the Group’s managers. The purpose of this remuneration process is to attract and motivate highly qualified personnel from the external market and encourage the engagement of senior managers, aligning the interests of the beneficiaries with those of the shareholders, in order to achieve a continued improvement of business results, thereby creating further value for shareholders. In order to provide the company with the resources required to implement the entry bonus, the shareholders will be asked to authorise, for a maximum period of 18 months, the purchase of up to 800,000 own shares to be purchased on the market, in accordance with the procedures set out in the above-mentioned Issuers Regulation.
RE-ORGANISATION IN ITALY
With regard to the plans for the re-organisation of the insurance group in Italy, the Board of Directors carried a resolution to proceed with the merger and rationalisation of the Group business units and distribution networks. Specifically, the restructuring project announced in December 2012 and reviewed by the Board of Directors meeting envisages:
- the transfer to Ina Assitalia, which will assume the denomination of Generali Italia SpA, of the business unit and related agency or broker networks currently operating in Assicurazioni Generali, Alleanza Toro and Ina Assitalia;
- the transfer to a new company wholly owned by Alleanza Toro, which will assume the denomination of Alleanza Assicurazioni SpA, of the business unit and related traditional direct distribution network of employed producers currently operating in Alleanza Toro.
The parent company will retain control of the Group’s management and coordination activities, a number of Life and P&C insurance units in Italy and abroad and the reinsurance operations.
At the end of this process, the Generali Group in Italy will comprise 3 insurance companies: Generali Italia SpA, its headquarters being registered in Mogliano Veneto (TV, Italy), with an agent and broker distribution network, controlling: Alleanza Assicurazioni SpA, with a distribution network made of employed producers and Genertel, with online and bancassurance distribution channels; in addition to the DAS joint venture, with agent and broker networks.
2013 ANNUAL GENERAL MEETING
The Board of Directors has called the Annual General Meeting, in ordinary and extraordinary sessions, for 27-29-30 April 2013.
At the ordinary session, in addition to approval of the financial statements as at and for the year to 31 December 2012, distribution of profit for the period and the dividend, the shareholders will deliberate on the appointment of the Board of Directors after the number of members to be appointed has been established; on the remuneration of the members of the Board of Directors; on the remuneration report; on the grant of financial instruments to the Group CEO and to company senior managers, and related authorisation to purchase and dispose of own shares to service the said grant; on the approval of the new Long-Term Incentive Plan.
At the extraordinary session the shareholders will deliberate on amendments to articles 3), with regard to the elimination of secondary headquarters in Mogliano Veneto; 4), with regard to the ‘ISVAP’ denomination, updated to the current ‘IVASS’; articles 8), 32), 39) and 40); and on the abrogation of article 38 of the Articles of Association.
The Board of Directors also approved the 2012 annual corporate governance and share ownership report, which will be made available to the public as required by law.
The full text of the proposed deliberations and the reports of the Board of Directors relating to the items on the order of business and all related documents will be made available, as legally required, at the company head office, on the company website www.generali.com, and on the website of Borsa Italiana S.p.A. (www.borsaitaliana.it).
The Manager in charge of preparing the company’s financial reports, Alberto Minali, declares, pursuant to paragraph 2 article 154 bis of the Consolidated Law on Finance, that the accounting information in this press release corresponds to the document results, books and accounting entries.
(*) Change in premiums, net inflows and APE is calculated on a like-for-like basis (on equivalent exchange rates and consolidation area). Changes in operating results, own investments and third-party assets under management is calculated excluding the Migdal Group from the comparative period.
(**) The ratio of operating profit net of tax and minorities, to average shareholders’ equity net of Other Comprehensive Income