Glossary

General definitions

Integrated report: concise communication that illustrates how the strategy, governance and future prospects of an organization, in the external environment in which it operates, are used to create value in the short, medium and long term.

Capitals: stocks of value as inputs to the business model. They are increased, decreased or transformed through the organization’s business activities and outputs. The capitals are categorized in the International <IR> Framework as:

  • financial capital: the pool of funds that is available to an organization for use in the production of goods or the provision of services, obtained through financing, such as debt, equity or grants, or generated through operations or investments
  • manufactured capital: manufactured physical objects (as distinct from natural physical objects) that are available to an organization for use in the production of goods or the provision of services
  • intellectual capital: organizational, knowledge-based intangibles
  • human capital: people’s competencies, capabilities and experience, and their motivations to innovate
  • social and relationship capital: the institutions and the relationships within and between communities, groups of stakeholders and other networks, and the ability to share information to enhance individual and collective well-being
  • natural capital: all renewable and non-renewable environmental resources and processes that provide goods or services that support the past, current or future prosperity of an organization.

Output: an organization’s products and services, and any by products and waste.

Outcomes: the internal and external consequences (positive and negative) for the capitals as a result of an organization’s business activities and outputs.

Equivalent terms: refer to equivalent exchange rates and equivalent consolidation scope.

Equivalent consolidation area: refers to equivalent consolidation scope.

Technical components

Gross written premiums: equal to gross written premiums of direct business and accepted by third parties.

Gross direct premiums: equal to gross premiums written of direct business.

Investment contracts: investment contracts that have the legal form of insurance contracts but as they substantially expose the insurer to significant insurance risk (such as the mortality risk or similar insurance risks cannot be classified as insurance contracts. In accordance with the definitions of FRS 4 and IAS 39 39 these contracts are recognized as financial liabilities. investment contracts that have the legal form of an insurance contract but as they substantially expose the insurer to significant insurance risk (such as the mortality risk or similar insurance risks) cannot be classified as such. In line with the definitions of FRS 4 and IAS 39 these contracts are recognized as financial liabilities.

Net cash inflows: it is an indicator of cash flows generation of the Life segment. It is equal to the amount of premiums collected net of benefits paid.

PVNBP, present value of premiums of new production: present value of the expected future new business pre- miums, allowing for lapses and other exits, discounted to point of sale using reference rates.

APE, new business annual premium equivalent: it is an indicator of volumes of Life segment, annual and nor- malized, and it is equivalent to the sum of new annual premium policies, plus a tenth of premiums in single pre- mium policies (calculated net of minority interests).

NBV, value of new business: it is an indicator of new value created by the new business of Life segment. It is obtained by discounting at the date of new contracts the corresponding expected profits net of the cost of capital (net of the portion attributable to minority interests). The shift from APE, which conventionally attributed to the sin- gle premiums a weight of 10%, to PVNBP allows a bet- ter representation of the margins on all new production volumes. The margin on PVNBP is now to be seen as a prospective ratio between profits and premiums.

New Business Margin: it is a performance indicator of the new business of Life segment, equal to the ratio NBV/ APE

Operating return on investments: it is an indicator of both Life segment and Property&Casualty segment, calculated as the ratio between the operating result and the average investments calculated based on the financial statement values, as described in the Methodological notes on alternative performance measures.

Cor, combined ratio: it is a technical performance indi- cator of Property&Casualty segment, calculated as the weight of the loss ratio and the acquisition and general expenses (expense ratio) on the earned premiums net of insurance.

Current accident year loss: it is a further detail of combined ratio calculated as the ratio between:

  • current year incurred claims + related claims management costs net of recoveries and reinsurance; and
  • earned premiums net of reinsurance.

Previous accident year loss: it is a further detail of combined ratio calculated as the ratio between:

  • previous year incurred claims + related claims management costs net of recoveries and reinsurance; and
  • earned premiums net of reinsurance.

Provisions for unearned premiums: it comprises the unearned premium component, defined as the part of gross premiums written which is to be allocated to the following financial periods, and the provisions for unexpired risk on insurance contracts in force in excess of the related unearned premiums.

Provisions for outstanding claims: it shall comprise the estimated overall amounts which, from a prudent valua- tion based on objective elements, are required to meet the payment of the claims incurred during the current year or the previous ones, and not yet settled, as well as the related settlement expenses. The outstanding claims provisions shall be estimated as the total ultimate cost taking into account all future foreseeable charges, based on reliable historical and forecast data, as well as the specific features of the company.

Provisions for sums to be paid: technical reserves constituted at the end of each financial year by companies operating in Life segment in order to cover the overall amounts required to meet the payment of the capitals and annuities accrued, surrenders and claims outstanding.

Mathematical provisions: is the amount that shall be set aside by the insurance company to meet its future obligations to policyholders.

Provisions arising from policies where the investment risk is borne by the policyholders and from pension funds: comprises the amounts to be allocated to the policyholders or to the beneficiaries relating to Life segment products where the risk arising from the underlying financial investments backing the technical liabilities is borne by the policyholders.

Financial assets and liabilities

Financial asset
A financial asset is any asset that is:

(a) cash;
(b) an equity instrument of another entity;
(c) a contractual right:
(i) to receive cash or another financial asset from another entity; or
(ii) to exchange financial assets or financial liabilities with another entity under conditions that are potentially favourable to the entity; or
(d) a contract that will or may be settled in the entity’s own equity instruments and is:
(i) a non-derivative for which the entity is or may be obliged to receive a variable number of the entity’s own equity instruments; or
(ii) a derivative that will or may be settled other than by the exchange of a fixed amount of cash or another financial asset for a fixed number of the entity’s own equity instruments. For this purpose, the entity’s own equity instruments do not include puttable financial instruments that are classified as equity instruments.

Financial liability
A financial liability is any liability that is:

(a) a contractual obligation:
(i) to deliver cash or another financial asset to another entity; or
(ii) to exchange financial assets or financial liabilities with another entity under conditions that are potentially unfavourable to the entity; or
(b) a contract that will or may be settled in the entity’s own equity instruments and is:
(i) a non-derivative for which the entity is or may be obliged to deliver a variable number of the entity’s own equity instruments; or
(ii) a derivative that will or may be settled other than by the exchange of a fixed amount of cash or another financial asset for a fixed number of the entity’s own equity instruments. For this purpose, the entity’s own equity instruments do not include puttable financial instruments that are classified as equity instruments.

Weighted average cost of debt
The annualized cost of financial debt considering the nominal amounts at the reporting date and the related transactions of currency and interest rate hedging.

Average duration
It is defined as the average residual economic maturity (considering the first call option date) of the financial debt outstanding as at the reporting date, weighted for the nominal amount.

Investments – asset allocation

The Generali Group uses for the management and presentation of investments a different aggregation respect to financial statements. In particular, within total invest- ments are included also cash and cash equivalents and specific items of financial liabilities having nature similar to investments, such as derivatives liabilities and repurchase agreements. Below are described asset classes that compose the total investments:

Fixed income instruments: direct investments in government and corporate bonds, loans, term deposits other than those presented as cash and cash equivalents, and reinsurance deposits. Moreover, this asset class includes also investments funds mainly exposed to investments or risks similar to direct investments presented within this asset class.

Equity investments: direct investments in quoted and unquoted equity instruments. Moreover, this asset class includes also investments funds mainly exposed to in-vestments or risks similar to direct investments presented within this asset class, including also private equity and hedge funds.

Investments properties: direct investments in real-estates. Moreover, this asset class includes also investments funds mainly exposed to real-estate investments.

Cash and cash equivalents: the item includes cash and highly-liquid short-term financial investments (readily convertible in specific amounts of cash which are subject to an irrelevant risk of change in value). Furthermore, this asset class includes also short term deposits and money-market investment funds, which are included in the Group liquidity management.

Investments back to unit and index-linked policies: includes various types of investments backing insurance liabilities related to unit and index-linked policies.

Other investments: includes participations in non-consolidated Group companies, associated companies and joint ventures, derivative investments and receivables form banks and customers, the latter mainly related to Group banking operations.

Asset owner: who owns investments and bears the related risks.

General account: investments reported in the financial statements (excluding financial assets categorized as unit- and index-linked or deriving from pension funds management) and cash and cash equivalents. They also include some liabilities, with features similar to invest- ments, among which derivative liabilities and REPOs.

Stranded asset: invested assets that may lose their economic value in advance of the expected duration, due to regulatory changes, market forces, technological innovation, environmental and social problems associated with the transition to a low-carbon economy. They are typically associated with the coal and fossil fuel sector, with an indirect impact on the utilities and transport sectors.

Alternative performance measures

Operating result: it was obtained by reclassifying the components making up earnings before tax in each line of business on the basis of the specific characteristics of each segment, and taking account of recurring expense of the holding.
All profit and loss items were considered, with the exception of net non-operating costs, i.e., results of di- scontinued operations, corporate restructuring costs, amortisation of portfolios acquired directly or through acquisition of control of insurance companies or compa- nies in the holding and other activities segment (value of business acquired or VOBA) and other net non-recurring costs. In the Life segment, the following are also considered as non-operating items: realised gains and losses on investments not considered in determining profits attributed to policyholders and net measurement losses that do not contribute to the formation of local technical reserves but exclusively in determining the deferred liability to policyholders for amounts not relating to policyhol- ders and those on free assets. In the Property&Casualty segment, the following are considered as non-operating items: all realized and measurement gains and losses, including exchange-rate gains and losses. In the holding and other activities segment, the following are considered as non-operating items: realized gains and losses and non-recurring net measurement losses. The total operating result does not include non-operating holding costs such as interest expense on borrowings and costs arising from parent stock option plans and stock grants.

P&L Return on Investments
The ratio between average investments calculated at book value and the following income items:

  • interest and other income, including income from financial instruments at fair value through profit and loss (excluding income from financial instruments related to linked contracts) net of depreciation on real estate investments, for the net return;
  • net realized gains, net impairment losses and realized and unrealized gains and losses from financial instruments at fair value through profit and loss (excluding those from financial instruments related to linked contracts), foreign exchange impact and investment expenses.

Share performance indicators

Earning per share: it is equal to the ratio of Group net result and the weighted average number of ordinary shares outstanding.

Operating earning per share is the ratio between:

  • total operating result net of interest on financial liabilities, taxes and third party interests (as defined in the Methodological note on alternative performance indicators), and
  • the weighted average number of ordinary shares outstanding.

Operating return on equity: an indicator of return on capital in terms of the Group operating result (adjusted as described in the Methodological note on alternative performance indicators) compared to the average Group shareholders’ equity. The annualized operating ROE is calculated as the sum of the last four quarterly operating ROE.

Other indicators

Net Operating Cash
Net Operating Cash is a view of cash generation at the Group’s parent company level. The figure is the sum of: The dividends paid by Group subsidiaries, earnings from parent company reinsurance activities, expenses and interest paid, and the net balance of tax payments and recoveries.

Share based compensation

Lockup clause: it imposes the unavailability of the sha- res assigned with respect to some incentive plans (or a specific share) for a specific time horizon as defined by any individual plan. The clause provides for the commitment of the issuing Company and potentially of some shareholders not to pursue selected actions on the equity of the company itself in the period subsequent to a public offering

Stock granting: free shares assignment.

Stock option: it represents the right of the holder to buy shares of the Company at a predefined price (so called strike). These options are assigned free of charge.

Solvency II

Regulatory Solvency ratio: defined as the ratio between the Eligible Own Funds and the Group Solvency Capital requirement, both calculated according to the definitions of the SII regime. Own funds are determined net of proposed dividend. The ratio at 30 June 2016 has to be in- tended as preliminary since the definitive Regulatory Solvency Ratio will be submitted to the supervisory authority in accordance with the timing provided by the Solvency II regulations for the official reporting.

Economic Solvency ratio: it is defined as the ratio between Eligible Own Funds and the Group Solvency Capital requirement, both calculated applying the internal model also to all the companies for which at present the authorization was not obtained yet.

Non-financial definitions

Products of significant social value

  • products that respond to the needs of specific ca- tegories of customers or particularly unfortunate events in life, including products dedicated to the young, to the elderly, to the disabled, to immigrants, to the unemployed and to coverage for professional disabilities, or which in some way support and foster social inclusion; products that promote a more prosperous and stable society, with particular attention on small and medium-sized enterprises and people involved in voluntary work; products with high pension or microinsurance content
  • products that promote responsible and healthy lifestyles, leveraging on the opportunities provided by new technologies, on the importance of preventive healthcare or other virtuous behaviours of policyholders
  • products that supplement the public health service, designed to help manage the costs of treatment and assistance, as well as the reduction in earnings of customers in the event of serious illnesses or the loss of self-sufficiency.

Prodotti a elevato valore ambientale:

  • products designed to promote sustainable transport with reduced environmental impact, including policies that reward responsible driving
  • products that support the energy efficiency of buildings
  • products for covering the risks connected with the production of renewable energies
  • products specifically designed to cover catastrophe risks or specific environmental damage
  • anti-pollution products.

Customer: either a physical person or a legal entity that holds at least one active policy and pays a premium to Generali (the policy is either with Generali, other non-Ge- nerali local brand, or white labeled).

Customer T-NPS (Transactional Net Promoter System): NPS approach to get a systematic feedback from customers after specific transactions (purchase, claims handling, etc.) selected locally. A survey is sent via email to customers to assess their propensity to recommend or not – Generali to their closest persons (family members, friends and colleagues) using a scale from 0 to 10. Thanks to this feedback, the company is able to identify detractors (rating from 0 to 6), passives (rating of 7 or 8) and promoters (rating of 9 or 10). Each detractor is systematically called back by a member of Generali to understand the problem faced and solve it (quick wins). Those problems that have a more structural nature - and need, for example a revision of core processes and practices or investments - are addressed and solved in a cross functional working group (structural improvements).

Exclusive distributor: is both the agent with exclusive mandate to promote and distribute Generali products, and the employed sales force permanently involved in the activities of promoting and distributing Generali products.

Distributor R-NPS (Relationship Net Promoter System): NPS approach to collect a direct feedback from our distributors. This approach is similar to T-NPS, but covers the overall relationship with each distributor and is not focused on a specific transaction. A questionnaire is sent via email. As for T-NPS, detractor distributors are systematically called back in order to understand the root cause of dissatisfaction and solve the issue faced.

Responsible business management
It refers to policies, guidelines and procedures defining the internal system of rules which enables accountability and transparency.

Climate change and natural disasters
Climate change is already taking place and natural disasters are on the rise, constituting a threat to global economic development. In this context, the mitigation of climate risks and adaptation strategies are key factors at global level for strengthening the resilience of communities.

Responsible remuneration and incentives
A remuneration system based on internal equity, competitiveness, consistency and merit through a direct relationship between commitment and the recognition of merit makes it possible to create long-term value at all levels of the organisation.

Quality of the customer experience
In the relations with clients it is essential to be able to guarantee a unique and distinctive experience, maintaining and strengthening the loyalty on which the phases of the customer experience are based.

Product and service development
The requirements of customers constantly change and evolve in response to the changing scenarios, mega trends and technological innovations. Companies must be able to identify needs and to update their offers with a practical approach that is in keeping with expectations and with the constantly changing regulatory framework.

Responsible investments and underwriting
In the context of sustainable development, the environmental, social and governance (ESG) aspects of investments and underwriting are becoming increasingly important for the market.

Attracting talent and development of human capital In an increasingly competitive and selective market, it is important to be able to count on well-prepared and motivated resources that are able to rise to the challenges of the sector.

Employee engagement and promotion of a common culture
Strengthening the motivation and commitment of employees to meeting our goals is important for maintaining a single, shared company vision. Dialogue and listening activities and the sharing of information are key aspects for the involvement of employees.

Data and cyber security
The quantity and quality of personal data now available is such that they must be managed carefully and professionally to ensure their confidentiality. The risks arising from the computerised management of acquired data nd the vulnerability of systems to external or internal attacks require appropriate prevention and protection systems that ensure the protection of all stakeholders and business continuity.

Demographic and social change
Migration, new family structures, new coming generations and the aging of the population due to the fall in the birth rate and the increase in average life expectancy have relevant impact on public finances (in the management of both pensions and health care) and the attitude of citizens towards saving.

Prevention of corruption
In a sector based on trust, such as that of insurance, the promotion of business ethics and the prevention of corruption have a key role in protecting the company’s reputation and credibility, the efficiency of the business and fair competition.

Diversity, inclusion and equal opportunities
Enhancing diversity, promoting inclusion and contrasting any kind of discrimination allow us to create the best possible conditions in our relationships with stakeholders and to promote targeted behaviour to prevent inequalities.

Relations with distributors
Distributors play a key role in the promotion and distribution of products and are able to provide important feedback for the development of products and improvement of services. Developing our relationship with the sales networks through dialogue, training and involvement in business strategies increases their satisfaction and loyalty.