Consolidated Results at December 31, 2013 - Press release

Generali Group Consolidated Results as of December 31, 2013¹

Operating result rose to more than €4.2 bln (+5.3%)

Net result €1.915 bln (€94 mln FY12), the highest of the last 6 years

Dividend per share €0.45, more than doubled (€0.20 FY12)

Strong improvement in cash generation. Net Free Surplus up to €2.1 bln (+38%), already above the 2015 target

Significant progress made towards 2015 targets:

• Operating RoE increased by 80 bps to 12.1% (2015 target: >13%)
• Solvency I ratio approximately 150% as of end of February, on track with the >160% 2015 target (141% FY13)
• Debt reduced by €500 mln with an 80 bp improvement of the debt leverage ratio to 39.6% (2015 target: <35%)

Improved operating results in Life (+4.3%) and P&C (+3.5%). Stable premium income at €66 bln

The Generali Group CEO, Mario Greco, said: “2013 has been a fundamental year for the turnaround of Generali and the results confirm that we are on track, or ahead, of the targets in our strategic plan. For the first time, after many years, our net result derives entirely from our business operations rather than being impacted by one-off items.

During the year we have made deep changes to the Group. In particular, we have disposed of €2.4 billion of non-core assets and acquired minorities in strategic areas for €1.5 billion. We have strengthened the management structure and simplified the Group’s governance, which is now in line with international best practice. Over 2013, we generated a total shareholder return of 26%. These results and the more than doubling of our dividend confirm we are on the right track. We are aware that a lot still needs to be done to reach the targets we set ourselves. In 2014 the debt will be reduced further and significant cost savings will be achieved. We estimate to improve the operating result and the net profit further, in line with the plan that aims to gradually increase the profitability for our shareholders.”

Milan – At a meeting chaired by Gabriele Galateri di Genola, the Board of Directors of Generali has approved the consolidated financial statements and the parent company’s draft financial statements for 2013.

2013 has been the first year of the Group’s three-year turnaround plan during which Generali has taken steps towards the rebuilding of profitability and capital solidity. The Group has also re-focused on its core insurance business, through the disposal of non-core businesses and the investment to acquire full control of strategic activities. Furthermore, it has strengthened its governance by creating a simpler and more effective organization.

The progress achieved over the year in the turnaround of the business allowed the Group to register a boost in profitability despite an uncertain economic recovery, low interest rates and high natural catastrophe losses. Generali closed the year with an operating result of €4,207 million (+5.3%; €3,994 mln FY12) reflecting growth in all the lines of business.

These results helped Generali reach a net result of €1,915 million (€94 mln FY12), derived entirely from operating performance, the highest of the last 6 years. Taking into account the proceeds of disposals and the gain on the Group’s stake in the Bank of Italy² which have been offset by extraordinary negative impacts on Telco (-€189 mln), BSI (-€217 mln) and other items, the overall impact of these one-offs is broadly neutral.

A dividend per share of €0.45, more than doubled relative to last year (€0.20 FY12), will be proposed to shareholders at the AGM by the Board of Directors. The total dividend on outstanding shares will amount to €700,592,977.35. The dividend will be paid on May 22, 2014 and the record date will be May 21, 2014. Shares will trade ex-dividend as from May 19, 2014.

In the Life business, premium income was stable at €45,115 million (+0.2%) with an improved business mix oriented towards products with higher margin. The new business contribution showed improved profitability with a New Business Margin at 21% (19.2% FY12), driving the significant rise in the operating result to €2,645 million (+4.3%).

In the P&C business, premiums were broadly stable (€20,940 mln; -0.6%) despite the challenging economic environment in some of the Group’s core markets. The Combined Ratio improved further to 95.6% (-0.2 p.p.) despite natural catastrophes accounting for 2.3 percentage points (1.5 p.p. in 2012), leading to a growth of the operating result of 3.5% to €1,616 million.

In the financial segment, third-party assets expanded by +3.8% to €104,346 mln supporting the 5.4% increase of the Group’s total Assets Under Management to €508 billion. The operating result was up by 18.4% to €483 million.

These results were supported by a solid capital position with a 4% increase in Generali’s shareholders’ equity to €19,778 million over the year.

The results show a significant progress towards the 2015 targets with an operating RoE which increased by 80 bp to 12.1% in line with the 2015 target of an operating RoE in excess of 13%.

The Solvency I ratio as of end of February reached approximately 150%. The year-end ratio, at 141% (145% at the beginning of 2013), was principally impacted by the investments made to purchase the minorities and – for approximately 3 p.p. – the ineligibility of a €500 million subordinated hybrid loan issue at the end of 2008. During the third quarter of 2013, in relation to the upcoming introduction of the new prudential regulation for banks, Generali received a request by the lender to apply the ‘increased cost’ contractual clause. In order to assess the bank’s request, Generali carried out a thorough assessment of the contractual documentation. During the assessment, the Group verified that a contract gave the option to Generali to redeem the loan ahead of the contractual expiration date, subject to the approval of the Supervision Authority, and that in 2008, at the time of entering into the Loan, there was a failure to notify the Authority about this option contract. As a result, the Group has submitted to the Authority in a timely manner the full documentation relating to the loan. IVASS, following its auditing procedure, has resolved to disqualify the loan as part of the Group's eligible regulatory capital, effective from year-end 2013. Generali intends to repay this subordinated hybrid loan using existing resources and replace it with a suitable substitute capital instrument. This issue does not affect the Group's ability to achieve its 160% Solvency I target by 2015.

The excellent business performance and the Group’s strategy to support Life products with lower capital absorption enabled Generali to increase the Net Free Surplus significantly to €2.1 billion, thereby exceeding the 2015 target (>€2 bln).

Furthermore, as per the new Group’s strategy, new initiatives have been introduced to optimize the capital management, to the benefit of the Group’s remittance ratio³.

During 2013, the reduction of approximately €500 million in the Group’s debt contributed to the improvement of the debt leverage ratio(****) by approximately 1 percentage point to 39.6%. The interest coverage ratio – the ratio between EBIT and interest expenses on financial debt – benefitted as well and increased to 4.2x (+0.5x) against a 2015 target of approximately 7x.

KPIs	31/12/2012	31/12/2013	Δ	2015 target
Operating RoE	11.3%	12.1%	+0.8 pp	>13%
Net Free Surplus	€1.5 bln	€2.1 bln	38%	>€2 bln
Remittance ratio	n.a.	70%	n.a.	75%
Debt leverage ratio	40.4%	39.6%	-0.8 pp	<35%
Interest coverage ratio	3.6x	4.2x	+0.5x	app. 7x
Solvency I	145%	app. 150%*	+5 pp	>160%
Non-core asset disposals	n.a.	€2.4 bln	n.a.	€4 bln

* End of February 2014 

• Operating result grew by 4.3% despite low interest rates
• Life net inflows almost tripled to €8.7 bln. Stable premium income at €45.1 bln (+0.2%).
• Focus on greater profitability drove the New Business Value to €937 mln (+14.2%) and Margin to 21% (19.2% FY12)

The Group’s premium income remained broadly stable at €45,115 million. The slight increase of 0.2% is attributable to the growth of the unit linked contracts (+8.8%), consistent with the strategy to prioritize lower capital absorption products, offsetting the slight contraction of savings (-2.6%) and protection covers (-0.4%). Germany, with €14,989 million of premiums (+4.7%), is the Group’s largest market once again. Contributions from Italy (+8%), Asia (+24.2%) and LatAm (+17%) were very positive as well.

In France, the 2013 premium income fell by 19% relative to 2012, when the Group registered the positive contribution of some extraordinary actions taken to preserve production against a substantial amount of maturing capital. Unit linked premiums, nevertheless, grew significantly by +34.3%. The slight fall in premiums in the CEE countries (-2.1%) was due to recent regulatory changes and uncertainties in the Polish and Czech pension sectors. Their impact was only partially offset by the growth of the unit linked premiums.

The new business in terms of APE remained high at €4,470 million (-1%) with a small decrease of annual premiums (-1.9%) but a slight increase in single premiums (+0.4%) driven by the performance in Italy (+19.1%) and Germany (+19.4%). The New Business Value grew significantly to €937 million (+14.2%) with an improved profitability (NBM) at 21% (19.2% in 2012).

The Life net inflows (i.e. premiums less payments) registered a strong growth to €8,702 million, almost three times last year’s figure, due to the containment of surrenders and maturities and the healthy premium income.

 

• Excellent technical profitability sustained the operating result at more than €1.6 bln (+3.5%) despite a €460 mln impact from Nat Cat
• Combined Ratio improves further to 95.6% (-0.2 p.p.) even after higher Nat Cat impact of 2.3 p.p.
• Stable premium income to €20.9 bln (-0.6%)

Natural catastrophes – especially the floods and storms that hit France, Germany and the CEE countries from June to October – had an impact equal to €460 million on the P&C operating result, or 2.3 p.p. on the Combined Ratio (1.5 p.p. FY12). Nevertheless, the improvement of the loss ratio (68.5%, -0.2 p.p.) and the steady expense ratio at 27.1% meant the overall Combined Ratio improved to 95.6% (-0.2 p.p.). Looking at the main markets, the Combined Ratio improved significantly in Italy to 92.4% (95.7% FY12), while France (+4.1 p.p.) and Germany (+1.2 p.p.) directly suffered from the Nat Cat impact. Central-Eastern Europe is once again a high-performing region in terms of technical profitability with a Combined Ratio at 88.8% (+0.3 pp).

Premium income amounted to €20,940 million, a slight decrease of 0.6% that reflects the fall of the Non-Motor lines (-1.2%) due to the negative trend of the Corporate and Accident/Health sectors. The Motor lines posted a growth of +0.3%. Contribution from Germany was very positive (+4.8%) due to the favorable market conditions as well as the launch of new products. The strong pressure from competition and the prolonged negative economic context burdened the performance in Italy (-7.6%), France (-4.9%) and Spain (-6.7%).

 

• Operating result up by 18.4% to €483 mln

As of December 31, 2013, the total third-party assets managed by the Group’s banking and AM companies were €104,346 million (€96,379 mln FY12), a 3.8% growth. The financial segment’s operating result benefitted from both higher net commissions and net realized gains and increased by 18.4% to €483 million. The cost income ratio improved from 69% to 66.3% mostly due to the progress of the investment management.

For 2014 the Group estimates a further improvement of the operating result and the net profit, in line with the three-year strategic plan, in spite of a still uncertain macroeconomic context.

The Group’s business strategy will continue to be based on customer retention and value, also through developments focused on the agency network and on strengthening the Group in multi-channel integrated distribution. In the Life segment, a selective underwriting policy will be oriented toward products with higher margin. In particular, protection coverage and unit linked products will be developed to maintain a stable Life production and good profitability. In the Property & Casualty segment, initiatives aimed to favour technical excellence – among which sophisticated pricing techniques, product technological innovations and systems for optimizing claim management – will result into an improvement of profitability.

***

The Board of Directors has called both the ordinary and the extraordinary Shareholders’ Meetings on April 28-29-30, 2014.

The ordinary Meeting will resolve on:

• The approval of the Consolidated Annual Report as of December 31, 2013, the net result allocation and the dividend distribution;
• The appointment of the Board of Statutory Auditors and its Chairman and the definition of the Auditors’ annual remuneration;
• The appointment of a member of the Board of Directors;
• The approval of the Remuneration Report;
• The approval of the new 2014 Long Term Incentive Plan to the benefit of the Group CEO and the Company or Group managers. The Plan has the purpose of strengthening the link between the variable component of remuneration which relates to medium-long term goals and the creation of value for shareholders, with regard to Group sustainability and achieved goals;
• The authorization to purchase and dispose a maximum of 7 million treasury shares in accordance to the Long Term Incentive Plan. The authorization is requested for a period of 18 months from the date of the adoption of the Meeting resolution. The minimum price of the shares shall not be lower than its nominal value (€1), while the maximum price shall not be more than 5% higher than the reference price of the stock on the day before each single purchase transaction. Purchases of treasury shares will be made in compliance with article 144-bis, paragraph 1, letters b) and c) of the Issuers’ Regulations, according to the operating procedures defined by the markets’ organizational and management regulations, in order to ensure an equal treatment among shareholders.

The extraordinary Meeting will resolve on the proposal to delegate to the Board of Directors a free and divisible capital increase in accordance to the new Long Term Incentive Plan to a maximum of €7 million, for a period of 5 years from the date of the Meeting. Please note that up to this date the Company and its subsidiaries currently own 593,582 Generali shares, equal to 0.038% of the Company’s share capital.

***

Finally, the Board of Directors approved the 2013 Annual Report on corporate governance and ownership structure, which will be made available in accordance with the terms and modalities prescribed by law.

The full text of the proposals for resolution and the Board of Directors’ reports on the subjects of the agenda, together with the complete related documentation, will be made available at the Company’s legal office, as well as on the Company’s website www.generali.com and on the website of Borsa Italiana Spa (www.borsaitaliana.it), according to the terms and modalities prescribed by law.

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.

¹ 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 and own investments are calculated excluding the disposed entities from the comparative period.
² The gain on the stake in the Bank of Italy determined a pre-tax capital gain of €290 mln in the fourth quarter of 2013. The competent authorities have jointly communicated that further analysis is currently being carried out by the competent international bodies regarding the accounting method to be applied to this transaction in the financial reports that comply with IAS/IFSR and have suggested that the most complete information possible is given as far as the effects of the adopted method are concerned. The analysis by the competent international bodies might lead to a different interpretation of the accounting principles and, as a consequence, the above-mentioned capital gain might be booked as part of the shareholders’ equity instead of the income statement, without prejudice for the overall profitability.
³ The portion of the gross free surplus generated by the operating units and remitted to the Parent Company.
(****) The ratio between the Group’s financial debt and its shareholders’ equity, gross of minorities and excluding G/L in Other Comprehensive Income.