Growth factors

 The ‘Lifetime Partner 24: Driving Growth’ strategy has proven to be particularly effective in enabling us to implement the activities envisaged by our plan, also taking these challenges into account and guaranteeing the systematic assessment and adequate risk monitoring.
 

Geopolitical and financial instability

The economic situation in 2023 was mainly characterized by a global weakness in industrial production coupled with falling inflation and an increasingly restrictive monetary policy. Geopolitical tensions soared, particularly as a result of the ongoing war in Ukraine and escalating conflicts in the Middle East.

In 2023, activity in financial markets was initially dominated by high inflation and restrictive monetary policy; in the second half of 2023, the expectation that both the Fed and the ECB were not planning any further interest rate hikes prevailed. Towards the end of the year, despite uncertainties due to rising geopolitical risks, optimism in the markets increased, driven by the expectation of declining key interest rates in 2024 and the increased likelihood of a soft landing for the economy, especially in the United States.

Our management

The Group’s asset allocation strategy keeps being mostly guided by consistency between liability management and targets on return and solvency. The higher interest rates allowed to lock-in attractive yields both for government bonds with high rating, which are the main instruments used to pursue the matching of long term liabilities, and for the investments in corporate bonds, vast majority of which having investment grade rating. In order to sustain current return and increase diversification, the Group keeps investing in private assets, among which private debt still offering an illiquidity premium and less exposure to raising rates due to its prevalent exposure to variable rates. Real assets (real estate and/or infrastructure investments, both direct and indirect) continue to be important in current investment activities; the multi-boutique Asset Management platform developed by the Group aims to enhance investment capacity in these market sectors. ESG dimensions play a more and more relevant role in the process of investment allocation, specifically focusing on climatic change, backing companies that have a lower impact in terms of fossil emissions and that are focused on sustainable development, both environmental and social.

We are exposed to market risks stemming from the fluctuations of the value of the investments and to credit risks linked to the inability of the counterparties to fulfill their obligations as well as the possible increase of the credit spread.

We are handling these risks by following principles of sound and prudent management, in line with the Prudent Person Principle and with the Group Investment Governance Policy and risk guidelines. We measure financial and credit risks using the Group’s Partial Internal Model, which offers us a better representation of our risk profile. We also assess the impacts of the macro-economic and financial scenarios deriving from the geopolitical context on the Group’s solvency and liquidity position, considering different levels of severities.

We are also exposed to operational risks arising from the current turbulent and uncertain external context. Geopolitical tensions combined with market instability contribute to maintaining a high exposure to risks related to cyberattacks, operational resilience, and financial crimes.

 

Digital revolution and cyber security

The rapid evolution and interaction of different technologies is bringing an equally intense growth in the sensitivity to ethical aspects and implications of the adoption of such technologies: on the one hand, Internet of Things (IoT), cloud services, cognitive computing, Advanced Analytics (AA), Smart Automation (SA), Artificial Intelligence (AI), Generative AI (GenAI), Customer Relationship Management (CRM), digital tools, 5G and hyperconnected infrastructures may thoroughly renew products and operations, optimising efficiency and delivering personalisation for customers, agents and employees; on the other, side trustworthiness and fairness of these technologies and applications should always be driving the development and implementation roadmap.

We are surrounded by data, public, paid and context data, which, thanks to the increasing digitalisation of customer’s interactions, the computational power available and the growing capabilities to generate meaningful and trustworthy insights, allow all businesses - including insurance - to transform their way of creating value and interacting into the so-called world of digital ecosystems, where the boundaries between different industries and players blur to provide customers with a relevant mix of innovative services and traditional products.

Technological evolution also involves exponential growth in cyber threats, such as attacks aimed at stealing information or blocking operational processes.

Our management

Our digital ambition translates into our lust to provide our customers, agents and employees with a superior experience, transforming Generali into an agile, innovative, digital organization that leverages strategic and trustworthy usage of data.

We pursue responsible usage of data and algorithms to gain full digital trust from all our stakeholders, leading to a sustainable competitive advantage and a stronger Lifetime Partner relationship.

To feed and accelerate our path to become true Lifetime Partners and digitize the operating model, we defined the new transformation strategy which relies on four transformation levers:

• Innovation;
• Digital and Ecosystems;
• IT Convergence;
• Data, Artificial Intelligence and Automation.

 

Climate change

Climate change is a material mega trend with complex impacts in different geographies and different sectors.
Climate change risks can be divided in:

• physical risks, arising from the worsening of catastrophic events such as storms, floods, heat waves;
• transition risks, arising from the economic developments generated by the transition to a greener economy, with lower or virtually zero levels of greenhouse gas emissions, as well as from litigation risks.

Climate change also generates opportunities for companies that are able to develop solutions supporting the transition to a climate resilient economy and that increase its resilience through adaptation.

Our management

We have defined processes and tools to mitigate climate risks and to seize the opportunities arising from the green transaction. These include monitoring the adequacy of the actuarial models to assess and rate risks, recourse to risk transfer mechanisms, periodical analysis of the investments, product and service innovation processes, dialogue with stakeholders and development of partnerships to share knowledge and identify effective solutions.

Particularly noteworthy is our participation in the Net-Zero Asset Owner Alliance, the PRI (Principles for Responsible Investments) Climate Action 100+ network, and the PRI and LSE Investing in a Just Transition project.

 

Ageing and new welfare

Modern communities continue to be influenced by distinct demographic and social phenomena with a strong impact on their socio-economic balances. In the more mature European economies, we are witnessing a continual process of population aging, driven by an increase in life expectancy, net of the still uncertain long-term pandemic effects, and a decrease in birth rates. The international migration phenomena only partially counter-balance this trend, which is in any case otherwise influenced by socio-political initiatives adopted locally.

In most European markets, the adult working-age population is often affected by the pressure of combining work and caregiver responsibilities for elderly age groups (a growing phenomenon), children and young people. The younger age groups are affected by a reduced and often discontinuous capacity to generate average income; this is strongly influenced by a flexible but precarious labour market that does not ensure reasonable certainty for financing the public welfare system. We confirm the presence of unbalanced communities, where the increase in social security and healthcare needs does not match the appropriate funding and coverage of public systems by the active population.

The healthcare need naturally evolves towards increasingly sophisticated, hence costlier, supplies and services, which have to face new needs. The stable expansion of the elderly and vulnerable age groups highlights the trend of a constant increase in chronic diseases with severity and incidence prolonged over time. At the same time, a widespread and enhanced awareness of the bond between health, lifestyles and the environmental context is perceived thanks to both public social initiatives and greater proactiveness and promotion from private market. In the context described above, the limited financial resources produced by the younger categories of the population, or from private savings in general, have to be directed and valued more carefully.

Our management

We actively engage in creating more stable communities while monitoring and tackling the effects of a changing society. This is why we develop and offer flexible, modular pension and welfare solutions for the coverage of healthcare costs and other potential current and future needs for individuals, families and communities.

We are committed to becoming a Lifetime Partner to our customers, strengthening the dialogue with individuals during their entire period of interaction with our companies through new, streamlined services accessible 24/7.

Generali is active in the development and/or diffusion of modern subscription processes, in particular for protection and health products, based on digitalization and automation, as key levers for improving the accessibility and the usability of the service

We believe that insurance coverage is the most appropriate tool to forecast and meet potential needs for people of all ages with the required advance notice; we therefore formulate, and present offers even in the case of market contexts with little knowledge and low individual propensity for insurance solutions.