Consolidated Financial Statements. Financial Year 2016

Transcription

1 Consolidated Financial Statements Financial Year 2016 Approved by the Board of Directors March 16th, 2017

2 Please note that the original Report is in Italian. In case of doubt the Italian version prevails.

3 Contents Group Structure 9 Reference Scenario 13 Management Report 21 The Group in Key indicators of Cattolica Group business performance Business Plan 32 Ways in which the Group image and information are disclosed 38 Business performance for the period 41 A brief outline of the business performance 43 Insurance business and other sectors of activities 46 Financial and asset management 59 Solvency II ratio 61 Risk management 65 Risk management procedures 67 Insurance risk - non-life business 69 Insurance risk - life business 70 Market and credit risks 72 Other risks 76 Headcount and sales network 79 Human resources 81 Sales network 85 Significant events and other information 91 Significant transactions carried out during the year 93 Corporate governance and internal control system 99 Prevention and countering fraud 100 Group complaints management 100 Disclosure on Solvency II fulfilments 101 Information systems 102 Management and co-ordination activities according to Article 2497 et seq. of the Italian Civil Code 103 Tax consolidation 104 Own shares held by the Parent Company and by its subsidiaries 104 Transactions with related parties 105 Atypical or unusual transactions and non-recurrent significant operations and events 105 3

4 Performance of Cattolica stock 105 Significant events during the first few months of Outlook for business activities 106 Consolidated Financial Statements 109 Statement of financial position 111 Income statement 113 Statement of comprehensive income 114 Cash flow statement 116 Statement of changes in shareholders equity 117 Reconciliation statement of the result of the period and shareholders equity of the Group and the Parent Company 121 Notes to the accounts 127 Part A - Basis of presentation and consolidation area 129 Part B - Accounting principles 141 Part C Information on the consolidated statement of financial position and income statement 163 Part D Other information 213 Certification of the Appointed Executive 219 Independent Auditors Report 221 Report 4

5 Summary index of tables Table 1 - Key economic indicators 27 Table 2- Key equity indicators 27 Table 3 - Headcount and sales network 28 Table 4- Reclassified consolidated statement of financial position 29 Table 5 - Reclassified consolidated income statement 30 Table 6 - Reclassified consolidated income statement by segment of activities 31 Table 7 - Key indicators 32 Table 8 - Total premiums written 50 Table 9 - Life premiums written 51 Table 10 - Solvency II ratio USPs 61 Table 11 - Solvency II ratio Standard Formula 62 Table 12 - Group exposure to re-insurers by rating category 70 Table 13 - Stratification of the bond portfolio by rating 75 Table 14- Group headcount 82 Table 15 - Ratios per share 105 Table 16 - Consolidation area (ISVAP Regulation No. 7 dated July 13th, 2007) 134 Table 17 - Consolidation area: equity investments in companies with significant minority interests (ISVAP Regulation No. 7 dated July 13th, 2007) 136 Table 18 - Interest holdings in non-consolidated structured entities (ISVAP Regulation No. 7 dated July 13th, 2007) 136 Table 19 - Statement of financial position by sector of activities (ISVAP Regulation No. 7 dated July 13th, 2007) 165 Table 20 - Intangible assets 166 Table 21 - Goodwill - changes during the year 166 Table 22 - Changes in the cost of own capital and the long-term growth rate necessary for rendering the recoverable amount equal to the book value 169 Table 23 - Other intangible assets - changes during the year 169 Table 24 - Tangible assets 171 Table 25 - Property and other tangible assets - changes during the year 171 Table 26 - Analysis of technical provisions - reinsurance amount (ISVAP Regulation No. 7 dated July 13th, 2007) 172 Table 27 - Investments 173 Table 28 - Investment property - changes during the year 173 5

6 Table 29 - Analysis of tangible and intangible assets (ISVAP Regulation No. 7 dated July 13th, 2007) 175 Table 30 - Investments in subsidiaries, associated companies and joint ventures 175 Table 31 - Analysis of non-consolidated equity investments (ISVAP Regulation No. 7 dated July 13th, 2007) 176 Table 32 - Summary data of non-consolidated subsidiaries, associated companies and joint ventures 177 Table 33 - Financial Investments 178 Table 34 - Analysis of financial assets (ISVAP Regulation No. 7 dated July 13th, 2007) 178 Table 35 - Exposure in government debt securities issued or guaranteed by EU zone countries - Available for sale financial assets 180 Table 36 - Exposure in government debt securities issued or guaranteed by EU zone countries - Financial assets at fair value through profit or loss 180 Table 37 - Exposure in government debt securities issued or guaranteed by EU zone countries - Held to maturity investments 180 Table 38 - Assets and liabilities valued at fair value on a recurrent and non-recurrent basis: breakdown by fair value hierarchy (ISVAP Regulation No. 7 dated July 13th, 2007) 181 Table 39 - Analysis of changes in level 3 financial assets and liabilities valued at fair value on a recurrent basis (ISVAP Regulation No. 7 dated July 13th, 2007) 183 Table 40 - Assets and liabilities not valued at fair value: breakdown by fair value hierarchy (ISVAP Regulation No. 7 dated July 13th, 2007) 184 Table 41 - Analysis of assets and liabilities relating to contracts issued by insurance companies where the investment risk is borne by the policyholder and deriving from pension fund management (ISVAP Regulation No. 7 dated July 13th, 2007) 185 Table 42 - Sundry receivables 186 Table 43 - Other asset items 186 Table 44 Other assets 188 Table 45 - Shareholders equity 189 Table 46 - Provisions and allowances - changes during the year 190 Table 47 - Analysis of technical provisions (ISVAP Regulation No. 7 dated July 13th, 2007) 192 Table 48 - Analysis of financial liabilities (ISVAP Regulation No. 7 dated July 13th 2007) 195 Table 49 - Payables 196 Table 50 - Sensitivity test hypotheses 198 Table 51 - Sensitivity test results 199 6

7 Table 52 - Employee severance indemnity, length-of-service bonus and premiums on health contracts 199 Table 53 - Other liability items 199 Table 54 - Other liabilities 200 Table 55 - Breakdown of direct and indirect gross premiums written 202 Table 56 - Insurance business 203 Table 57 - Analysis of insurance operating expenses 203 Table 58 - Financial operations 204 Table 59 - Financial and investment income and charges (ISVAP Regulation No. 7 dated July 13th, 2007) 205 Table 60 - Income taxes for the year 207 Table 61 - Reconciliation of the tax rate - analysis 208 Table 62 - Analysis of the statement of other comprehensive income - net amounts (ISVAP Regulation No. 7 dated July 13th, 2007) 209 Table 63 - Income statement by sector of activities (ISVAP Regulation No. 7 dated July 13th, 2007) 210 Table 64 - Analysis of technical insurance items (ISVAP Regulation No. 7 dated July 13th, 2007) 211 Table 65 - Analysis of insurance operating expenses (ISVAP Regulation No. 7 dated July 13th, 2007) 211 Table 66 - Transactions with related parties 217 7

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9 Group Structure

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13 Reference Scenario

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15 Reference Scenario Macro-economic scenario 2016 confirmed the global economic growth trend that was seen in 2015, albeit at a lower level than had been expected at the beginning of the year. In the US, the latest data available disclosed growth in GDP higher than 3%, mainly guided by the pick-up in domestic demand, with a positive performance of the employment market and a consequent unemployment rate down further to 4.7%. In this context, internal consumption benefited, supported by the gradual pick-up in salaries in the second half of the year, along with the real estate sector. The manufacturing and energy sectors, penalised in the first part of the year, benefited from the rise in the prices of oil and materials in the second half. In November, the US presidential elections were held with the unexpected victory of Donald Trump In conclusion, it should be mentioned that the Federal Reserve, after a playing for time approach, raised the reference interests rates in December by 25 base points, also opening up to possible further increases during In Europe, economic growth data confirmed a recovery phase, although at modest levels. In order to boost the economy and inflation, having reached all time lows, during the first quarter the European Central Bank increased the securities repurchasing programme (Quantitative Easing) extending it, not only by duration and quantity, also to corporate securities with additional reduction of the returns on bonds. Furthermore, during the December conference the desire to extend the purchase plan until December 2017 was communicated, although reducing the monthly amount from 80 to 60 billion a month, as from April At the end of June, the outcome of the referendum in the UK captured the attention of the operators and the markets, leading to violent fluctuations in the stock market prices at the time of the announcement. The abundant liquidity present and the activities of the central banks however contained the effects. In Italy, economic recovery remained weak, essentially driven by internal consumption and industrial production, both on the up albeit always at contained levels. With regard to employment, there were no significant signs of a pick-up. The confidence indexes remained expansive, also in the presence of global political risks which marginally reduced the future growth prospects. The final part of the year was characterised by the Constitutional Referendum, whose negative outcome lead to the installation of a new government. This event lead to strong volatility on the market and increased the perception of the country risk. In Japan, for the purpose of stabilising the economy characterised by a considerable deflationary spiral, the Bank of Japan continued to implement expansive manoeuvres. In detail, it extended purchases not only to government securities but also stock market instruments. The emerging markets mainly suffered due to the Chinese slowdown and the feared risk of a rise in the rates in the United States. The ongoing reduction in domestic inflation in any event allowed a majority of the central banks to maintain more accommodating monetary policies, supporting the economic scenario. In China, the production surplus together with the reduction in the investments due to the heavy structural indebtedness, meant that the GDP grew less than in the previous year, despite remaining in line with the expectations of the Central Government. Brazil and Russia once again drew attention to the need to bring about profound structural reforms. 15

16 Bond markets The first part of the year was characterised by a strong risk appetite on bonds, with the return minimums achieved during the Summer months. The fears on the growth of the global economy and then with regard to the UK referendum however rendered the periods of appreciation volatile, characterised by sudden phases of momentary risk-off, with the involvement of both core and peripheral securities. Repositioning took place in the last quarter on the European bond segment, with returns showing decisive recovery due to fear of a more restrictive approach of the ECB and, limited to Italy, the risk deriving from the referendum result. In the US, government securities underwent considerable depreciation further to the presidential election and the rise in the December reference rates. On an annual basis, 10-year US government securities closed with a return of 2.5% (+ 20 basis points from the start of the year), while 2-year securities closed at 1.2% (+15 basis points from the start of the year). Corresponding German securities by contrast disclosed returns of 0.2% and -0.8%, with a decrease of 35 and 44 basis points respectively. Stock markets The structure of the stock markets was particularly negative at global level in the first half, with the exclusion of the US. In fact, the start of the year was characterised by downwards trends guided by the collapse of the prices of raw materials and the prospects of recession for the global economy. During the second part of the year, a mainly lateral trend was registered, in which periods of growth alternated with consistent profit taking, mainly due to the fears linked to the UK referendum. During the latter months of the year, the heavy losses at the beginning of the year were recovered in part. In the US, in particular, the trend was more positive, supported by positive macro-economic figures and the ambitious Trump political plan, with prices which reached all-time highs. On an annual basis, the U.S. S&P 500 index closed at +11%, while in Europe the Dax closed at +11%, the Eurostoxx50 at +4% and the FTSE MIB at -7%. In Asia, the Hang Seng index fell 4%, while the Nikkei closed with +3%. Foreign exchange markets The foreign exchange markets were marked by high volatility following the monetary policy manoeuvres undertaken by the various global central banks and political tensions. The Euro ended the year at 1.05 against the dollar, with a devaluation of 3% with respect to the values at the beginning of the year. With respect to the Yen, there was depreciation of 6.5% to By contrast, the dollar experienced a decrease in value of 3% vis-à-vis the Japanese currency, to 117. Real estate market The markets continued to disclose satisfactory performances which confirm how the property sector has definitively set itself along a route of moderate growth. Given the abundance of risk capital, the availability of debt and the permanent context of low interest rates, the property investment volumes should continue to rise. In fact, in the Italian market, with the exclusion of the residential segment, during the third quarter just under 1.7 billion was invested, up by 17% compared with the same period in the previous year and the total of the investments reached 8.4 billion in the last 12 months, exceeding the peak of the two-year period 16

17 2005/2006. Also the portion of capital held by Italian business in the Italian market saw a sharp increase in the third quarter of the previous year reaching 48% of the total. The volume of transactions in the first 9 months of the year rose to 5.4 billion (+5% compared with the same period last year) and also this figure confirms the pick-up in the cycle of property investments which started after the negative record of The rental market by contrast will still have to await the recovery of the economy having overall reported in the year essential stability in prime market rents and a drop in vacancy rates which continues but to a slow extent (Source: BNP Paribas, Jones Lang Lassalle, CBRE). Insurance industry The graphs below show certain summary figures published by ANIA 1 industry for the period for the insurance Key economic indicators of the insurance sector euro/millions Direct and indirect Life premiums Direct and indirect non Life premiums 1 Source ANIA - L Assicurazione italiana , publication dated July 4th,

18 Key indicators Insurance sector % 12.0% 10.0% 9.4% 8.0% 6.0% 4.0% 5.6% 5.9% 4.5% 4.7% 4.2% 4.5% 3.9% 2.0% 0.0% -2.0% -4.0% -3.0% -3.4% -6.0% Technical result/direct and indirect premiums Net income/direct and indirect premiums According to ANIA in 2016 total premiums written (life and non-life) for the Italian direct portfolio should amount to just over 136 billion, down 7.1% with respect to the year just ended, after premiums having grown significantly (+21%) in 2014 and to a much lower extent (+2.5%) in Thus due to both a drop in life premiums, in relation to which a decrease of 9% is estimated in 2016, and to a further slight decrease in non-life premiums (-0.5%). Premiums written for the direct Italian portfolio in the non-life sector during 2016 should reach 32 billion and would once again be down slightly (-0.5%) for the fifth year running. This would however exclusively depend on the decrease in TPL motor and maritime premiums since all the other non-life classes differing from TPL motor should be up. In the TPL motor class, despite the technical margins falling, the insurance companies might find themselves operating in an increasingly competitive market therefore it is estimated that the premiums should fall by 4.5%. This would be the fifth consecutive year of decrease; between 2012 and 2016 the premiums volume of this class should disclose a total decrease of nearly 25%, returning to the values of 1999 (without considering the effects of inflation). The expansive phase of the non-life classes other than the TPL motor class would be confirmed, positively influenced by the pick-up in the general economic cycle. In fact, an increase is estimated for 2016 of 2.7%, after the more contained increase in 2015 (+1.1%). The classes which would contribute the most to this growth are the land vehicle hulls which should rise by 5% (after +2.9% in 2015). This would be the result of a considerable increase in the number of vehicles registered, brand new which in 2015 rose by 15% (they were already up 5.4% in 2014); the growth trend is confirmed in the first five month of 2016 what is more at a more sustained rate (+21%). Also the premiums of the other classes should report positive changes. In detail, mention is made of the growth of the health class (4%), the fire class (+3%) and the other damage to assets class (+2%). In 2016, non-life premiums as a percentage of GDP would drop slightly with respect to 2015, passing from 2% to 1.9%. 18

19 In the life sector a change in trend should been seen in 2016: after record growth in 2014 (+30%) and that albeit more contained in 2015 (+4%), the premiums written in 2016 should disclose a drop of 9%, to an amount which would touch 105 billion. After strong growth having been registered in 2015 for unit-linked life policies (which alone had contributed towards the growth of the total premiums of the entire life sector), in 2016 a brusque slowdown might be seen in the marketing of these policies: -35% for an estimated volume of premiums written of almost 21 billion. Nearly the same premiums would by contrast be confirmed for the traditional life policies (class I) which would collect almost 80 billion premiums written in 2016 with a slight increase of +2.5%. Since, in fact, these are policies with a mainly bond-based content and with guaranteed minimum returns (both very contained and in some cases also close to zero), this type of life product would have difficulty in expanding further due to the continuing context of low interest rates. On the basis of the market figures for gross premiums written as of September 30th, 2016, of Italian companies and non-eu representative agencies, (Ania Trends, No. 1, January 2017) total life and non-life premiums were down 8.4%, the non-life classes were down 1.5% and the life classes were down 10.3%. The non-life classes fell 4.3% in the motor classes and rose 1.9% in the non-motor classes. On the basis of the ANIA annual forecasts, the Group s market share in the non-life sector would rise from 5.5% to 6.2% and in the life sector would pass from 3% to 2.6%. Total Group market share % Non life Life Total 19

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21 Management Report

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23 Management Report The Group in 2016 Business performance for the period Risk management Headcount and sales network Significant events and other information

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25 Management Report The Group in 2016 The Cattolica Group closed the year with consolidated profit of 93.4 million compared with 81.6 million in the previous year (+14.4%). The Group s net result came to 76.3 million, compared with 60.9 million as of December 31st, 2015 (+25.2%). On a consistent basis with Cattolica s strategic choice to strengthen itself in the agricultural and foodstuffs sector also further to the finalisation of strategic agreements with associations of primary importance, at the end of December the merger via incorporation of FATA Assicurazioni Danni (hereinafter FATA) within the Parent Company was finalised. Within the same sphere, Cattolica acquired an investment of 51% in the agent company Agenzia Generale Agrifides s.r.l. with headquarters in Rome, with the aim of establishing new sales outlets care of the territorial headquarters of Coldiretti, thereby developing a new sales network for the non-life and life insurance products, which as of December 31st were already 19. Investment action continued in the real estate sector, with participation in the Mercury fund to which 66 properties of three territorial co-operatives forming part of the CONAD Group were assigned, for an overall value of around 300 million. The Parent Company subscribed units equal to 51% in each of the three segments of the Fund for a total of around 69 million. Furthermore, an agreement was reached with Cassa Depositi e Prestiti for a property development transaction, in which H-Farm will also participate, which envisaged the establishment of an organic complex of buildings and infrastructures intended for digital school and university education, on the land of Tenuta Ca Tron, known as H-Campus. The consolidated profit was penalised by non-recurrent expense for 57 million attributable for 39 million to the writedown of the equity investment and the bond in Cassa di Risparmio di San Miniato, and, respectively for 6 million and 2 million, to the alignment of the value of the equity investment in Banca Popolare di Vicenza (BPVi) and Veneto Banca with the subscription price of the Atlante Fund, in addition to 4 million for the writedown of the Atlante Fund and 6 million for that of other private equity funds. Having taken this into account, the consolidated profit, normalised by the non-recurrent effects, came to 150 million and the Group profit came to 132 million. The combined ratio of retained business was 93.2%, steadfast with respect to September 30th, 2016 and up slightly with respect to December 31st, 2015 (91.5%). The increase during 2016 is the result of the drop in profitability of the motor class in the presence of a prolonging of the decrease in the average premium which is affecting the entire market, and the effects of the earthquake in central Italy on the non-motor classes. The quality of the Motor TPL portfolio and the expertise within the sphere of claims settlement permit the Group to maintain the technical balance also in a market context of heavy competition and a pick-up in the frequency of claims. Total premiums written amounted to 4,758.8 million, down with respect to the previous year (-15.2%). In the non-life classes, direct premiums written amounted to 1,972.6 million (-2.8%). The motor segment disclosed premiums written of 1,085.8 million, down 3.3% compared with Non-motor classes reported premiums written for million, down 2.1% on 2015, mainly due to the undertaking decisions. 25

26 In the life sector, direct business premiums came to 2,771.1 million. The drop (-22.3%) is due to a significant extent to the weakness of the distribution channels linked to Banca Popolare di Vicenza ( -349 million with respect to December 31st, 2015; -64.5%). With regard to the other distribution channels, premiums written were in line with the expectations for traditional products, slowing down, but in line with the market trends for class III products. Financial operations 2 closed with a result, gross of the tax effects, amounting to million as against million in the previous year. With reference to net income from other financial instruments and investment property, this aggregate was characterised by the decrease in net income from interest and other net proceeds, which fell from to million, in net profits realised which fell from million to 66.8 and net losses from valuation on financial assets which decreased from 81 million to 54.5 million, plus net charges deriving from equity investments in associated companies for 34 million. With reference to net income deriving from financial assets held for trading, the result from financial operations was characterised by income from net interest and other net proceeds for 2 million compared with 2.7 million in 2015, by net profits on disposal for 1.2 million with respect to 2.5 million in 2015 and losses from valuation for 855 thousand compared with net income for 477 thousand in As of December 31st, investments - including properties classified in the item tangible assets and cash and cash equivalents - amounted to 21,590.9 million ( 21,390.9 million as of December 31st, 2015). Gross technical provisions for non-life business amounted to 3,566.7 million ( 3,589 million as of December 31st, 2015). Provisions for life business, inclusive of financial liabilities, amounted to 16,991.7 million ( 16,606.4 million as of December 31st, 2015). Consolidated shareholders equity amounted to 2,113.7 million ( 2,158.7 million as of December 31st, 2015). The Group Solvency II margin 3 came to 1.92 times the regulatory minimum. 2 With the exclusion of investments whose risk is borne by the policyholders and the change in other financial liabilities. 3 Ratio prior to distribution of the Parent Company dividend, calculated according to the Standard Formula with the use of the Undertaking Specific Parameters (USP); the Parent Company s BoD resolved on March 16th, 2017 to present to the Supervisory Authority the application for authorisation to use the USPs as from December 31st, The figures, besides being subject to this authorisation, have not yet been subject to the checks in accordance with the matters envisaged by the IVASS letter to the market dated December 7th, Net of the dividend proposal, the solvency margin would be 1.86 times the regulatory minimum. 26

27 Management Report KEY INDICATORS OF CATTOLICA GROUP BUSINESS PERFORMANCE The tables which follow show the most significant performance indicators, the figures concerning the sales network and the headcount, the reclassified consolidated statement of financial position and income statement, the consolidated income statement reclassified by segment of activities and the key indicators as compared to those of the previous year, in accordance with the international accounting standards. In these consolidated financial statements, the term premiums written means the sum total of the insurance premiums (as defined by IFRS 4) and the amounts relating to investment contracts (as defined by IFRS 4 which refers the related discipline to IAS 39). Table 1 - Key economic indicators Change ( thousands) Amount % Total premiums written 4,758,833 5,611, , of which Gross premiums written 4,531,334 5,172, , Direct business - non-life 1,972,521 2,028,648-56, Direct business - life 2,543,636 3,127, , Indirect business - non-life 15,129 15, Indirect business - life of which Investment contracts 227, , , Consolidated net profit for the period 93,368 81,636 11, Group net profit for the period 76,254 60,914 15, Table 2- Key equity indicators Change ( thousands) Amount % Investments 21,590,939 21,390, , Technical provisions net of reinsurance amount 18,796,480 18,169, , Financial liabilities relating to investment contracts 1,353,045 1,622, , Consolidated shareholders equity 2,113,726 2,158,699-44,

28 Table 3 - Headcount and sales network Change (number) Amount % Total headcount 1,568 (1) 1, % Full time equivalent headcount 1,508 (1) 1, % Direct network: Agencies 1,514 1, % Partner networks: Bank branches 5,649 5, % Financial advisors 906 1, % Welfare and pension product advisors 318 (2) % (1) Having taken into account the exit as of December 31st, 2016 of 9 co-workers of which 8 members of the Intersectorial Solidarity Fund. (2) Includes 299 sub-agents of C.P. Servizi Consulenziali and 19 sub-agents of Agenzia Generale Agrifides. 28

29 Management Report Table 4- Reclassified consolidated statement of financial position Change ( thousands) Amount % Items from obligatory statements (*) Assets Investment property 493, , , Property 163, ,054 26, Investments in subsidiaries, associated companies and joint ventures 70,522 35,112 35,410 n.s. 4.2 Loans and receivables 847, ,402-28, Held to maturity investments 242, ,567-4, Available for sale financial assets 16,471,924 15,841, , Financial assets at fair value through profit or loss 3,128,960 3,365, , Cash and cash equivalents 172, , , Total investments 21,590,939 21,390, , Intangible assets 325, ,011 4, Technical provisions - reinsurance amount 689, ,920-40, Sundry receivables, other tangible assets and other asset items 1,627,207 1,601,628 25, (**) TOTAL ASSETS 24,232,586 24,043, , Liabilities and shareholders equity Group capital and reserves 1,778,642 1,850,909-72, Group profit (loss) for the year 76,254 60,914 15, Shareholders equity pertaining to the Group 1,854,896 1,911,823-56, Capital and reserves pertaining to minority interests 241, ,154 15, Profit (loss) for the year pertaining to minority interests 17,114 20,722-3, Shareholders equity pertaining to minority interests 258, ,876 11, Total capital and reserves 2,113,726 2,158,699-44, Premium provision 747, ,032-21, Provision for outstanding claims 2,818,954 2,819,969-1, Gross technical provisions - non-life 3,566,687 3,589,001-22, Gross technical provisions - life 15,638,645 14,983, , Other gross non-life technical provisions 1,960 2, Other gross life technical provisions 278, ,570-46, Financial liabilities 1,634,455 1,904, , of which deposits from policyholders 1,353,045 1,622, , Allowances, payables and other liability items 998,609 1,080,281-81, (***) TOTAL LIABILITIES AND SHAREHOLDERS EQUITY 24,232,586 24,043, , (*) Indicates the items of the statements in the consolidated financial statements as per ISVAP Regulation No. 7 dated July 13th, 2007 (**) Sundry receivables, other asset items, and other tangible assets (statement of financial position items under assets = ) (***) Allowances, payables and other liability items (statement of financial position items under liabilities = ) 29

30 Table 5 - Reclassified consolidated income statement Change ( thousands) Amount % Items from obligatory statements (*) Net premiums 4,238,801 4,850, , Net charges relating to claims -3,887,292-4,520, , Operating expenses -553, ,072 8, of which commission and other acquisition costs -408, , of which other administrative expenses -144, ,952 7, Other revenues net of other costs (other technical income and charges) -59,308-54,089-5, Net income from financial instruments at fair value through profit or loss 37,905 48,024-10, Of which result from class D financial operations (**) 36,047 41,885-5, Net income from investments in subsidiaries, associated companies and joint ventures -34,029-50,110 16, Net income from other financial instruments and investment property 525, ,684-76, of which net interest 446, ,684-16, of which other income net of other charges 66,946 70,613-3, of which net profits realised 66, ,339-82, of which net valuation profits on financial assets -54,508-80,970 26, of which changes in other financial liabilities Commissions income net of commissions expense 5,980 5, Operating expenses relating to investments (***) -27,799-27, RESULT OF INSURANCE BUSINESS AND FINANCIAL OPERATIONS Other revenues net of other costs (excluding other technical income and charges included under insurance operations) 246, ,366-45, ,917-68,060 6, PROFIT (LOSS) BEFORE TAXATION FOR THE YEAR 184, ,306-39, Taxation -91, ,670 51, NET PROFIT (LOSS) FOR THE YEAR 93,368 81,636 11, PROFIT (LOSS) FROM DISCONTINUED OPERATIONS n.a. 4 CONSOLIDATED PROFIT (LOSS) FOR THE YEAR 93,368 81,636 11, Profit (loss) for the year pertaining to minority interests 17,114 20,722-3, PROFIT (LOSS) FOR THE YEAR PERTAINING TO THE GROUP 76,254 60,914 15, (*) Indicates the items of the statements in the consolidated financial statements as per ISVAP Regulation No. 7 dated July 13th, 2007 (**) Includes the Class D profits recognised in the operating expenses relating to investments amounting to less than million, other revenues amounting to million and interest on liquidity for 109 thousand. (***) Includes operating expenses relating to class D investments amounting to less than million. n.a. = not applicable 30

31 Management Report Table 6 - Reclassified consolidated income statement by segment of activities NON-LIFE LIFE OTHER TOTAL ( thousands) Net premiums 1,721,300 1,766,865 2,517,501 3,083, ,238,801 4,850,632 Net charges relating to claims -1,134,824-1,138,244-2,752,468-3,382, ,887,292-4,520,699 Operating expenses -444, , , , , ,072 of which commission and other acquisition costs -329, ,027-78,319-78, , ,120 of which other administrative expenses -114, ,855-30,510-32, , ,952 Other revenues net of other costs (other technical income and charges) -26,102-28,309-33,206-25, ,308-54,089 Net income from financial instruments at fair value through profit or loss ,419 47, ,905 48,024 Result from class D financial operations (*) ,047 41, ,047 41,885 Net income from investments in subsidiaries, associated companies and joint ventures Net income from other financial instruments and investment property ,647-50, ,029-50,110 91, , , , , ,684 Commissions income net of commissions expense ,980 5, ,980 5,223 Operating expenses relating to investments (**) -6,979-7,065-18,886-18,715-1,934-1,447-27,799-27,227 RESULT OF INSURANCE BUSINESS AND FINANCIAL OPERATIONS 201, ,025 47,582 25,273-2,421-1, , ,366 Other revenues net of other costs (excluding other technical income and charges included under insurance operations) -45,852-57,633-15,656-9, ,055-61,917-68,060 PROFIT (LOSS) BEFORE TAXATION FOR THE YEAR 155, ,392 31,926 15,901-2,830-2, , ,306 Taxation -66, ,600-27,525-29,361 2, , ,670 NET PROFIT (LOSS) FOR THE YEAR 89,631 97,792 4,401-13, ,696 93,368 81,636 PROFIT (LOSS) FROM DISCONTINUED OPERATIONS CONSOLIDATED PROFIT (LOSS) FOR THE YEAR 89,631 97,792 4,401-13, ,696 93,368 81,636 (*) Includes the Class D profits recognised in the operating expenses relating to investments amounting to less than million, other revenues amounting to million and interest on liquidity for 109 thousand. (**) Includes operating expenses relating to class D investments amounting to less than million. 31

32 Table 7 - Key indicators Non-life ratios for retained business Claims ratio (Net charges relating to claims / Net premiums) 65.9% 64.4% G&A ratio (Other administrative expenses / Net premiums) 6.6% 6.8% Commission ratio (Acquisition costs / Net premiums) 19.2% 18.7% Total Expense ratio (Operating expenses / Net premiums) 25.8% 25.5% Combined ratio (1 - (Technical balance / Net premiums)) 93.2% 91.5% Non-life ratios for direct business Claims ratio (Net charges relating to claims / Premiums for the year) 64.3% 64.3% G&A ratio (Other administrative expenses / Premiums for the year) 5.7% 5.9% Commission ratio (Acquisition costs / Premiums for the year) 19.8% 19.8% Total Expense ratio (Operating expenses / Premiums for the year) 25.5% 25.7% Combined ratio (1 - (Technical balance / Premiums for the year)) 91.4% 91.6% Life ratios G&A ratio (Other administrative expenses / Premiums written) 1.1% 0.9% Commission ratio (Acquisition costs / Premiums written) 2.8% 2.2% Total Expense ratio (Operating expenses/ Premiums written) 3.9% 3.1% Total ratios G&A ratio (Other administrative expenses / Premiums written) 3.0% 2.7% Note: premiums written in the life business refer to the amount of gross insurance premiums and of the investment contracts BUSINESS PLAN The Group also continued during 2016 with its operational and project-related process following the guidelines outlined in the Business Plan, presented to the financial community in September 2014 and characterised by challenging objectives in terms of profitable growth and expected results, as well as exacting internal reorganisation and corporate rationalisation projects. The efforts made in the direction of an on-going improvement of the internal efficiency in the production and management processes supporting the business, as well as the strategic overhaul of the Group s overall structure for further focusing its distinctive positioning on the market, represented the underlying theme which has always guided the corporate choices over the last few years. However, the persistence of the economic crisis, the slowdown in global economic growth and a number of specific events inside and outside the Group made it necessary to launch a review of the economic targets fixed for

33 Management Report On November 11th, 2016 the Managing Director informed the Board of Directors that, on the basis of the forecast operating results available at the time, a consolidated profit of around 150 million was envisaged for The reason for the difference with respect to the figures communicated in April 2016 (consolidated profit of around 200 million) were to be found in certain significant factors which came about during the subsequent months of the year, such as: the persistence, beyond the forecasts at the start of the year, of a generalised market drop in the average premium for motor TPL policies, what is more accompanied by signs of deterioration in the frequency of claims; the trend of the life and non-life premiums of the companies in partnership with Banca Popolare di Vicenza, also as a consequence of the withdrawal from the partnership agreements; the persistent phase of low interest rates, lasting longer than envisaged; the premiums of the non-life classes curbed by the laboured pick-up of the Italian economy. The afore-mentioned difficulties did not however divert the Group s attention from the pursuit of the strategic and developmental lines established at the end of The first few months of the year underway confirmed the overall negative trend due to the factors indicated above and, in particular, the drop in sales volumes relating to the collaboration with Banca Popolare di Vicenza. The projects of strategic importance in particular include that relating to the merger via incorporation of FATA within the Parent Company, the last step in a process of rapid and effective integration of the insurance company within the Group which, besides the unification of the main company functions, has also launched the complete sharing of the IT platform of the systems of the agencies and management of the portfolio By means of this additional and important transaction, it is easier to broadly define the development policies in the agricultural and food sector, both with regard to the supply model and innovative services in favour of the agricultural industry, which Cattolica has always been particularly heedful of, and for the efficient handling of the channels supporting distribution, partly further to the agreement with Coldiretti. The Group s commitment continued once again throughout the whole of 2016, so as to make its processes increasingly more digital, in the information systems and in the relational approaches vis-à-vis the customer, with a global project launched last year which sees the involvement of not only Management but also the Agents, constantly aligned and involved in the choices of the new back office operating formalities and in the overhaul of the operations within the agency. The main projects and activities completed/launched during 2016 for each of the six strategic lines identified to support the attainment of the goals of the long-term Business Plan are illustrated below: Profitable growth of the Non-life Business In a market featuring heavy tension on prices and pronounced competition, the Group s efforts for defending the technical excellence in its motor business continued in 2016 as well, with 33

34 action targeted at the containment of the costs of the claims (e.g. push towards the use of contracted body repair shops, as well as experimentation throughout Italy of Immediate Medical Claim Settlement Centres) and the development of a more targeted and selected range, via the use of new databases during the tariff rating and risk selection phase. Activities continued on the corporate segment aimed at rebalancing the portfolio mix towards target products and the containment of the exposures on highly volatile risks. With regard to innovation in the undertaking and pricing phase, mention is made of the launch of the new Small Business product for SMEs, as well as the evolution of the range in the agricultural risks sector, inclusive of services for the farmer. The efforts made with regard to an on-going strengthening of the Group settlement model led to the launch of a project for the enhancement of the anti-fraud activities, with the development of a new information system which will be fully up and running in the first few months of Leadership in the agricultural and foodstuffs sector Development of the insurance potential of the agricultural and foodstuffs sector, playing on the leadership position obtained further to the acquisition of FATA in 2014, represents one of the fundamental strategic lines on which the Business Plan is based. The need to handle the Group strategy in a centralised manner in this segment, also aiming for a greater governance and execution capability of the agreement entered into with Coldiretti, is the main reason which led the Group to deem the unification of the two entities (Cattolica and FATA) more efficient, as a natural completion of an operational and systems-related integration process already successfully carried out in the first few months of On December 22nd, 2016, as already reported, the deed for the merger via incorporation of FATA in Cattolica was entered into and became effective as from December 31st, 2016, with accounting and tax effects as from January 1st, The corporate unification will maximise the benefits obtained with the operational integration already achieved in the last few months and will permit a synergic handling of the innovation initiatives put together by the Group, with the development of non-life products for the coverage of the risks both in the agricultural and foodstuffs sector and in the insurance of the crops, endowed with evolved contents supporting the settlement activities and customer service (e.g. use of drones and satellite images during the settlement stage, development of specific apps serving the farms to be used also for foreseeing damaging events, biotic risks or for on-going monitoring of the state of the crops). The complete valorisation and integration of the FATA and Cattolica networks will be achieved during 2017 with the sharing of the advantages of the business dimension, the skills, the life/non-life product range and the investments in innovation made for the two companies. Life, Pension and Welfare development During the first half of the year, activities were completed, for all the insurance companies and distribution networks, inherent to the rationalisation of the product catalogue and the simultaneous alignment with the capital absorption and profitability standards defined at Group level. At the same time, steps have been taken to periodically up-date the Information 34

35 Management Report Files of the various types of product according to the rules laid down by COVIP, CONSOB and IVASS. In November, during the Dottrina Sociale della Chiesa Festival held in Verona, the new life product Cattolica & Protezione - Dopo di Noi was presented, representing the Company s answer to the needs of families of individuals affected by serious disabilities. The Cattolica solution is the result of profitable collaboration with the National Chair of ANFFAS (Association of Families of Individuals with intellectual and relational disabilities) and is an additional sign of the social responsibility of the Parent Company. The features of the new Dopo di Noi product permit those concerned to fully avail of the tax-related benefits originating from recent legislation. With regard to management operations, the plan for the simplification of the processes and the transversal review of a series of IT mechanisms indispensable for improving the response times to brokers and customers, as well as for ensuring a more accurate coverage of the legislative compliance rules, was accomplished, according to the original schedule defined. The afore-mentioned IT and procedural measures represented the necessary starting point of a much broader project, launched last May, which regards the complete renewal of the IT platform and the life systems for all the Group companies. Distribution excellence and Digital Transformation The Group s commitment continued throughout the year in the realisation of the objectives defined in the digital transformation programme, to equip the distribution networks and head office structures with instruments indispensable for continuing to compete and grow in the changed market context, which sees new and more evolved customer purchasing behaviours establish themselves. The Group is taking action to achieve three fundamental goals: operating efficiency, understood as the optimisation of the head office and agency processes, so as to obtain not only a saving in costs, but also to free up time and resources to be dedicated to the handling of the relationships with the customers and the commercial development in the broadest sense; commercial efficiency, understood as the improvement of the ability to reach the customers also thanks to the use of innovative work methods and instruments, with solutions, services and a range increasingly in line with their needs; innovation, understood as the process of fully comprehending its business and positioning on the market, aimed at the identification of the new spheres of development according to the developmental trends underway (technological, business and legislative). The digital transformation project continues in observance of the timescales planned and agreed with the networks and is developed and implemented by an interfunctional team which includes the Distribution and Marketing Division, the Operations Division and the Technical Divisions by means of a process of conception, realisation and activation of the development projects identified. The fundamental communication-related role, via the Group s distribution channels, of the direction undertaken is carried out by the Distribution and Marketing Division together with 58 Agents selected as implementers and facilitators of the change process launched (so-called 35

36 Digital Ambassadors ), who have been involved in an intense programme for the development of their skills launched on December 14th, The Digital Ambassador is involved in all the phases of the model with different depths: in the conception stage, within the Workshop of Ideas, the same represent a source of feedback and discussion for the Insurance Company with regard to any new initiatives with impact on the «method of working» in the agency and/or on assessments of innovation of the range and the sales models; in the realisation stage, within the Digital Factory, the same takes part in the evaluation or possible streamlining of the contents of the instruments developed and to be implemented on the networks; in the activation stage, the same represents one of the main implementers of the change underway by means of activities for the communication and promotion of the Digital Transformation Programme on the entire network. In observance of the timescales proposed and agreed on with the distribution networks, on October 15th, 2016 the presentation was launched of the results scheduled on three phases of change of the digital transformation programme which over a period of one year will be made available to all the Group s agencies. Among the other activities launched during 2016, it is also necessary to mention the strong and rising commitments of the Group in the development of the expertise of its distribution networks, pursued by means of the realisation of new dedicated training courses: for the agency network, for the secondary networks and for the agency employee/co-workers. A great boost was given to the enhancement of training, with the planning and provision of: new masters courses dedicated to Cattolica and FATA agents (Agents Executive Master) and the Agents Profession Master dedicated to young talent in the network; new on-line training courses for newly recruited workers; new on-line training courses for agents; new courses provided both virtually and frontally for agents, sub-agents and agency coworkers. Operating efficiency and productivity This area of focus includes a series of activities aimed at simplifying the processes and the internal organisation, as well as developing new methods for managing the staff with regard more to merit, with the aim of increasing efficiency and productivity. In this connection, mention is made of the introduction of a Performance Management system for the employees, the definition of new processes for the identification of the high potential resources, and for the creation of customised career paths also via job rotation. The merger of FATA in the Parent Company represented an important occasion for the overhaul of the Group s organisation with a view to efficiency as well as greater focusing of the head office units supporting the growth of the business and the distribution networks. Activities continued aimed at the control and rationalisation of the expenditure vis-à-vis third parties via renegotiation and consolidation, where possible, of contracts with the main suppliers of the Group, the evolution of the passive cycle processes/instruments, the 36

37 Management Report operational inspiration (which can translate into new procedures or new IT functions) emerging from interfunctional work groups which have been set up for optimisation on particular types of expenditure. Within the IT sphere, various projects have been completed for the consolidation of the systems within the non-life area, both for the agency channel and for the bank-assurance one, and a programme has been launched for the evolution of the management of the infrastructures. New approaches to the management of capital and finance During the year, the Group achieved the process for the consolidation and bringing onto stream of advanced approaches for the management of the investments, which made it possible to optimise its profitability per risk unit. The implementation of the new ALM (Asset Liability Management) management model was in fact completed, consistent with the new Solvency II legislative requirements, already at the time of definition of the 2016 Asset Allocation. Furthermore, the Capital Management Plan for the three-year period was approved for all the Group companies. The target allocation of the capital and the business areas on which to calculate the expected returns adjusted for the risk has been defined within this framework. Said implementation was carried out completely in line with the internal assessment of the risk and solvency profile, with a view to Solvency II; this metric started to be used also for the development and monitoring of the individual product classes. To support the development, investment and solidity initiatives of the Plan - of the overall 500 million in share capital increase achieved at the end of to-date investments have been made for: innovation and technology for 46 million; adaptations of the organisational model in line with the new Solvency II European directives for around 13 million; the Change Management programme for around 16 million; the launch of the activities for extending and developing the sales network and the agency co-workers, with the use of still limited resources with respect to that scheduled plus other minor items, for 8 million. Within the context of the implementation of the Business Plan, the Parent Company has been and still is involved in the working out and search for growth initiatives, also by external lines, compatibly with the market scenarios and the best opportunities, with a view to a stable creation of value. 37

38 WAYS IN WHICH THE GROUP IMAGE AND INFORMATION ARE DISCLOSED The Investor Relations Division The Investor Relations Division maintained on-going dialogue with the financial community, involving relations marked by clarity and transparency, in order to ensure the market visibility on the results and on the strategies of the Group. During the year, five banks published analysis and comments on Cattolica stock. Individual meetings are periodically organised with the analysts so as to look in-depth at the business trend and meetings were intensified with Italian and international institutional investors. Public conference calls were organised at the time of the publication of the 2015 financial statements, the 2016 interim report and the interim reports as of March 31st, 2016 and September 30th, Rating In August 2016, Standard & Poor s confirmed Cattolica s rating as BBB- and the outlook as stable. The rating remains limited by that of the Italian Republic, in accordance with the matters envisaged by the standards of the agency. Standard & Poor s also confirmed the Stand-Alone Credit Profile (SACP) of Cattolica as bbb+, duly noting both the Group s financial risk profile, which stands at a more than adequate level, and the reconfirmed stability of the risk profile of the business, which remains satisfactory also thanks to a strong competitive positioning on the Italian market and a well diversified distribution network. 38

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41 Management Report The Group in 2016 Business performance for the period Risk management Headcount and sales network Significant events and other information

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43 Management Report Business performance for the period A BRIEF OUTLINE OF THE BUSINESS PERFORMANCE The Group by main financial statement aggregates Sectors of business The Group s activities are divided up into three business segments: life, non-life and other. The core business of the Group, headed up by Cattolica Assicurazioni, a company which is involved in both life and non-life business, is divided between the non-life business (ABC Assicura, BCC Assicurazioni, TUA Assicurazioni, C.P. Servizi Consulenziali for the Cattolica danni mandate and TUA Assicurazioni and the closed-end property funds allocated to the nonlife portfolio), and the life business (BCC Vita, Berica Vita, Cattolica Life, Lombarda Vita, C.P. Servizi Consulenziali for the Cattolica Vita mandate and the closed-end property funds allocated to the life portfolio). The other activities include the agricultural-real estate sector of Cattolica Agricola and Cattolica Beni Immobili and the operating services of Cattolica Services, Cattolica Immobiliare and Agenzia Generale Agrifides, instrumental in the performance of the Group s activities. For an analysis of the result by segment of business, reference should be made to Table 6, where each segment is represented net of the eliminations between sectors. The notes to the accounts contain tables relating to the operating segments envisaged by ISVAP Regulation No. 7 dated July 13th, 2007 (gross of eliminations between sectors). Profit for the year The year closed with a consolidated net result of 93.4 million, of which 89.6 million related to the non-life business ( 97.8 million as of December 31st, 2015), 4.4 million related to the life business ( million as of December 31st, 2015), while the other segment reported a loss of -664 thousand (loss of -2.7 million as of December 31st, 2015). The Group s net profit came to 76.3 million ( 60.9 million as of December 31st, 2015). Premiums Gross consolidated premiums (which therefore comply with the definition of insurance policy as per IFRS 4) at the end of the accounting period amounted to 4,531.3 million. Also taking into account investment contracts, total premiums written came to 4,758.8 million, disclosing a decrease of million (-15.2%) compared with the previous year. 4,400 4,000 3,600 3,567 Direct life and non life premiums, indirect premiums euro/millions Gross direct non-life premiums totalled 1,972.6 million, down 2.8% and account for 43.7% of total direct premium business (39.3% as of December 31st, 2015). 3,200 2,800 2,400 2,000 1,600 1, ,028 2,771 1, Direct non life premiums Direct life premiums Indirect premiums (life and non life) Gross direct life premiums totalled 2,543.6 million ( 3,127.6 million as of December 31st, 2015); total life premiums written amounted to 2,771.1 million (-22.3%). Life premiums represented the majority share 43

44 of total direct business (56.3% as of December 31st, 2016 compared with 60.7% as of December 31st, 2015). Direct premiums written are divided up as follows by sales channel: agencies 48.4%, banks 42.9%, brokers 2.8%, advisors 0.5% and other channels 5.4% Direct premiums by channel euro/million 2,295 2,037 Agencies Banks Brokers Financial Advisors Other channels Other administrative expenses Other administrative expenses amounted to million, compared to 152 million as of December 31st, 2015, a decrease of 4.8%. With reference to direct business, the ratio of other non-life administration expenses to premiums written for the period fell from 5.9% to 5.7%, while the ratio of other life administration expenses to life premiums rose from 0.9% to 1.1%. The Group by segments Non-life business The non-life business ended the year with a profit of 89.6 million, compared with 97.8 million as of December 31st, 2015 (-8.4%). Net premiums of the non-life business amounted to 1,721.3 million compared with 1,766.9 million in 2015 (-2.6%). The combined ratio of direct business came to 91.4%, compared with 91.6% in 2015 and was characterised by a claims ratio (claims to premiums ratio) of 64.3%, in line with 2015 while the incidence of other administrative expenses fell from 5.9% to 5.7%. Financial operations, which ended the year with a result of 85.4 million ( million as of December 31st, 2015), were mainly characterised by net income deriving from other financial instruments and investment property for 91.3 million, compared with million as of December 31st, 2015, with net interest and other net income, which fell from 88.2 million to 77.2 million, net realised gains, which fell from 85.7 million to 38.5 million, and net losses from valuation, which dropped from 48 million to 24.4 million. Life business The life business ended the year with a profit of 4.4 million, compared with a loss of 13.5 million as of December 31st, Net life premiums fell from 3,083.8 million to 2,517.5 million (-18.4%), and financial operations 4 closed with a result of million compared with 420 million in 2015, with 4 With the exclusion of investments whose risk is borne by the policyholders and the change in other financial liabilities. 44

45 Management Report net income from other financial instruments and investment property for million, compared to million as of December 31st, 2015, with interest and other net income falling from million to million, realised net gains dropping from 63.6 million to 28.3 million, and net losses from valuation decreasing from 32.7 million to 29.4 million. Other business Sectors by geographic area Investments The result relating to the other segment at the end of the year was a loss of 664 thousand, compared with a loss of 2.7 million in Premiums written, which are taken in Italy, are mainly concentrated in Central-Northern Italy, an area similar in terms of risk and return and therefore not significant for the purposes of the secondary segmentation envisaged by IFRS 8. Investments (which include investment property, investments in subsidiary, associated companies and joint ventures, loans and receivables, held to maturity investments, available for sale financial assets, financial assets at fair value, cash and cash equivalents and property used for operating purposes) at the end of the year amounted to 21,590.9 million, compared with 21,390.9 million as of December 31st, 2015 (+0.9%). Specifically, investment property and property used for operating purposes amounted to million compared with million as of December 31st, 2015 (+30.3%), the investments in Group companies rose from 35.1 million to 70.5 million, mainly as a result of the acquisition of the multi-segment property fund Mercury and the writedown of Cassa di Risparmio di San Miniato, loans and receivables fell from million to million (- 3.3%), held to maturity investments amounted to million compared with million as of December 31st, 2015 (-1.8%), available for sale financial assets rose from 15,841.4 million to 16,471.9 million (+4%) and financial assets at fair value through profit or loss fell from 3,365.4 million to 3,129 million (-7%). The result of financial operations, with the exclusion of investments whose risk is borne by the policyholders and gross of the tax effects and the change in other financial liabilities, came - as already mentioned - to million, compared with million as of December 31st, Technical provisions Non-life technical provisions (premiums and claims) amounted to 3,566.7 million, compared with 3,589 million at the end of the previous year (-0.6%). 5,000 4,500 Non life technical provisions euro/millions 4,000 3,500 3,589 3,567 3,000 2,500 2,000 1,500 1,

46 Life technical provisions (actuarial provisions inclusive of shadow accounting) amounted to 15,638.6 million, compared with 14,983.9 million at the end of the previous period (+4.4%). Also taking into account Financial liabilities relating to investment contracts, the technical provisions and deposits relating to life business amounted to 16,991.7 million, an increase of 2.3% compared with December 31st, ,607 16,991 Life technical provisions and financial liabilities euro/millions Life technical provisions Financial liabilities Life technical provisions include the shadow accounting provision which takes into account the share of unrealised gains and losses on assets in segregated funds ascribable to policyholders. Shareholders equity Consolidated shareholders equity at the end of the accounting period came to 2,113.7 million as against 2,158.7 million in 2015 (-2.1%). Summary of the activities carried out by the Group companies The Group s shareholders equity amounts to 1,854.9 million compared with 1,911.8 million as of December 31st, 2015 (-3%) and includes gains on available for sale financial assets amounting to 64 million, compared with million at the end of the previous year. Portions of shareholders equity pertaining to minority interests amounted to million ( million as of December 31st, 2015, +4.8%) and include gains on available for sale financial assets amounting to 10 million, compared with 11.1 million at the end of the previous year. INSURANCE BUSINESS AND OTHER SECTORS OF ACTIVITIES At December 31st, the consolidation area comprised the insurance Parent Company, seven insurance companies, four service companies, two companies in the agricultural-real estate sector and three real estate property investment funds. Società Cattolica di Assicurazione - Società Cooperativa, which operates throughout Italy in the life and non-life businesses, ideally targeting the medium/high range of the personal segment. It is the Parent Company of the following companies: 46

47 Management Report Non-life companies ABC Assicura, with headquarters in Verona, share capital of 8.9 million, is authorized to carry out non-life business and distributes its products using the network of branches of the Banca Popolare di Vicenza Group. The Parent Company holds 60% of the share capital; BCC Assicurazioni, with headquarters in Milan, share capital of 14.4 million, is authorised to carry out non-life business and distributes its products using the network of branches of the ICCREA Group. The Parent Company holds 51% of the share capital; TUA Assicurazioni, with headquarters in Milan, share capital 23.2 million, carries out insurance activities in the non-life business, offering the market a specialist range of insurance and financial products/services able to meet the needs of personal line customers. The Parent Company holds 99.99% of the share capital; C.P. Servizi Consulenziali, with headquarters in Verona, share capital of 120 thousand. It carries out non-life premium business activities (with TUA and Cattolica products) as well as in the life classes (Cattolica) using sub-agents. It is wholly-owned by Cattolica; Fondo Euripide, is a closed-end real estate property mutual investment fund managed by Finanziaria Internazionale Investments SGR. The interests held in the fund are as follows: Cattolica 62.96%, Lombarda Vita 29.9%, Berica Vita 6.69% and TUA Assicurazioni 0.45%. Part of said interests are allocated to the non-life portfolios of Cattolica and TUA Assicurazioni; Fondo Macquarie Office Italy, is a closed-end real estate property mutual investment fund, managed by CB Richard Ellis, which was wholly acquired by the Group companies. The interests held in the fund are as follows: Cattolica 72.02%, Lombarda Vita 17.66% and BCC Vita 10.32%. Part of said interests are allocated to Cattolica s non-life portfolio; Fondo Perseide, is a real estate property mutual fund dedicated to investment in renewable energies, managed by Finanziaria Internazionale Investments SGR. The interests held in the fund are as follows: Cattolica 66.99%, Lombarda Vita 12.95%, Berica Vita 8.47%, BCC Vita 5.52% and TUA Assicurazioni 6.07%. Part of said interests is allocated to Cattolica and TUA Assicurazioni s non-life portfolio. Life companies BCC Vita, with headquarters in Milan, share capital of 62 million, is authorized to carry out life insurance activities and distributes its products via the branches of the ICCREA Group. It is a subsidiary of Cattolica which holds an investment of 51% in the same; Berica Vita, with headquarters in Vicenza, share capital of 31 million, is authorised to carry out life insurance activities and distributes its products using the network of branches of the Banca Popolare di Vicenza Group. The Parent Company holds 60% of the share capital; 47

48 Cattolica Life DAC, is a life insurance company with headquarters in Dublin, Ireland, share capital of 635 thousand, specialising in the structuring of index and unit linked contracts for customer segments. The Parent Company holds 60% of the share capital; Lombarda Vita, with headquarters in Brescia, share capital of million; it is authorised to carry out life insurance activities, distributing them via the network of branches of the UBI Banca Group. The Parent Company holds 60% of the share capital; C.P. Servizi Consulenziali, with headquarters in Verona, share capital of 120 thousand. It carries out non-life premium business activities (with TUA and Cattolica products) as well as in the life classes (Cattolica) using sub-agents. It is wholly-owned by Cattolica; Fondo Euripide, is a closed-end real estate property mutual investment fund managed by Finanziaria Internazionale Investments SGR. The interests held in the fund are as follows: Cattolica 62.96%, Lombarda Vita 29.9%, Berica Vita 6.69% and TUA Assicurazioni 0.45%. Part of said interests are allocated to the life portfolios of Lombarda Vita, Cattolica and Berica Vita; Fondo Macquarie Office Italy, is a closed-end real estate property mutual investment fund, managed by CB Richard Ellis, which was wholly acquired by the Group companies. The interests held in the fund are as follows: Cattolica 72.02%, Lombarda Vita 17.66% and BCC Vita 10.32%. Part of said interests are allocated to the life portfolio of Cattolica, Lombarda Vita and BCC Vita; Fondo Perseide, is a real estate property mutual fund dedicated to investment in renewable energies, managed by Finanziaria Internazionale Investments SGR. The interests held in the fund are as follows: Cattolica 66.99%, Lombarda Vita 12.95%, Berica Vita 8.47%, BCC Vita 5.52% and TUA Assicurazioni 6.07%. Part of said interests is allocated to the life portfolios of Cattolica, Berica Vita, Lombarda Vita and BCC Vita. Other companies Agricultural-real estate property sector Cattolica Agricola was established on September 28th, 2012 by Cattolica, the singlemember company within the sphere of the purchase of the property complex known as Tenuta Ca Tron. It has headquarters in Verona and share capital of 35.5 million. It is a single-member limited liability company which has the exclusive purpose of carrying out agricultural activities pursuant to Article 2135 of the Italian Civil Code; Cattolica Beni Immobili was established on September 28th, 2012 by Cattolica, the single-member company within the sphere of the purchase of the property complex known as Tenuta Ca Tron. It is a limited liability company with single member. It has headquarters in Verona and share capital of 7 million. It manages, amongst other aspects, the properties not instrumental to the agricultural activities related to said estate, as well as the Cattolica Center property complex, located in Via Germania, Verona. Service companies Cattolica Immobiliare, with headquarters in Verona, share capital of 400 thousand, carries out activities for developing and leveraging the real estate assets and those typical of property services. It is wholly-owned by the Parent Company; 48

49 Management Report Cattolica Services, a consortium company which carries out service activities for the Group, with headquarters in Verona and share capital of 21 million. The services and activities provided are: planning, implementation and management of IT applications and operating processes, along with the services relating to telecommunications systems; supervision of the digital innovation of the Group with regard to IT and organisational aspects; handling of the settlement of Group claims with the exception of the security, hail and transport areas; teaching and training services for the Group resources; the life and welfare technical area; non-life operations and accounting and financial statements of the Group companies. Cattolica Services is % owned by the Parent Company Cattolica, while the remaining investment is held by other Group companies (ABC Assicura, BCC Assicurazioni, BCC Vita, Berica Vita, C.P. Servizi Consulenziali and Lombarda Vita to an equal extent of 0.005%) and by TUA Assicurazioni, which owns 0.01%. Agenzia Generale Agrifides, with headquarters in Rome, share capital of 10 thousand. On June 27th, Coldiretti transferred an equity investment to the Parent Company corresponding to 51% of the share capital of the Agency, which started to establish new sales outlets care of the territorial headquarters of Coldiretti; as of December 31st these numbered

50 Insurance business Insurance premiums are shown in the table below, with indication of the percentage in relation to total direct business and changes as compared with the previous year, together with investment contracts. Table 8 - Total premiums written Classes Change ( thousands) 2016 % of total 2015 % of total Amount % Accident and injury 197, , , Health 62, , , Land vehicle hulls 133, , , Goods in transit 6, , , Fire & natural forces 123, , , Other damage to assets 221, , , TPL - Land motor vehicles 951, , , TPL - General 173, , , Credit 612 n.s. 867 n.s Suretyship 19, , Sundry financial losses 23, , , Legal protection 15, , Assistance 37, , , Other classes (1) 5,469 n.s. 4,303 n.s. 1, Total non-life classes 1,972, ,028, , Insurance on the duration of human life - class I 1,904, ,473, , Insurance on the duration of human life linked to investment funds - class III 393, , , Health insurance - class IV 1,128 n.s. 931 n.s Capitalisation transactions - class V 228, , , Pension funds - class VI 15, , , Total life classes 2,543, ,127, , Total direct business 4,516, ,156, , Indirect business 15,177 15, Total insurance premiums 4,531,334 5,172, , Insurance on the duration of human life linked to investment funds - class III 93, , , Pension funds - class VI 133, , Total investment contracts 227, , , TOTAL PREMIUMS WRITTEN 4,758,833 5,611, , (1) includes railway rolling stock, aircraft, sea and inland water vessels/hulls and TPL aircraft and sea and inland water vessels. n.s. = not significant 50

51 Management Report Table 9 - Life premiums written In particular, life premiums written are divided by insurance class (taking account of both insurance premiums and investment contracts) as follows: Life business Change ( thousands) 2016 % of total 2015 % of total Amount % Insurance on the duration of human life - class I 1,904, ,473, , Insurance on the duration of human life linked to investment funds - class III 487, , , Health insurance - class IV 1,128 n.s. 931 n.s Capitalisation transactions - class V 228, , , Pension funds - class VI 149, , , Total direct business 2,771, ,566, , Indirect business Total life premiums written 2,771,183 3,567, , n.s. = not significant Non-life business - Premiums written Direct non-life premiums written dropped from 2,028.6 million to 1,972.6 million, disclosing a decrease of 2.8%. Indirect premiums fell from 15.8 million to 15.1 million. As already mentioned, the motor segment reported premiums of 1,085.8 million, down 3.3% compared with Non-motor classes reported premiums written for million, down 2.1% on 2015, and were increasingly focused on products intended for retail customers. In particular, with reference to the main non-life classes, premiums relating to land vehicle hulls rose to million (+1.4%), along with those relating to the fire and natural forces class amounting to million (+1.2%) and the other damage to assets class which amounted to million (+0.9%). Classes which saw a decrease in premiums included the accident and injury class which amounts to million (-2.6%), the health class which amounted to 62.1 million (-8.8%), the TPL motor class equal to 952 million (-4%) and the TPL general class amounting to million (-2.6%). 1, Main non life classes, direct premiums euro/millions Accident and injury TPL - Land motor vehicles Land vehicle hulls TPL General Other damage to assets

52 Direct non-life premiums written were generated as follows: the agency channel with 1,819.4 million (-2.5%), the banking channel with 56.2 million (-11.5%), brokers with 73.1 million (+35.9%) and other channels with 23.9 million (-47.2%). Direct business non-life premiums are attributable to the Parent Company for 1,657.1 million, ABC Assicura for 18 million, BCC Assicurazioni for 34.5 million and TUA Assicurazioni for 263 million. Non-life business - Research and development activities: new products For all the Group companies which market the policies combined with loans (PPI - Payment Protection Insurance), in light of the changes requested by the Joint IVASS-Bank of Italy letter dated August 26th, 2015, steps were taken to re-think the product portfolio so as to comply with the requests of the regulator and at the same time streamline and rationalise the range of available products. The Parent Company With regard to the product catalogue, activities continued for the study and realisation of new insurance solutions with the objective of keeping competitiveness high in particular in those sectors deemed strategic for the Parent Company. The first half of the year saw the launch on the agency network of the new range of insurance solutions for protecting groups of individuals in the event of accident or injury: Cattolica&Salute - INFORTUNI CUMULATIVA. The new range is made up of six different products, each of which for a specific target: non-professional sports people, volunteers, excursionists, children who attend summer camps or summer schools, students and guides. With reference to the corporate sector, activities continued for the overhaul of the range dedicated to businesses, making the Cattolica&Impresa-SMALL BUSINESS product available to the network, the new insurance solution for protecting industrial and artisan micro-activities, with up to 9 employees and 10 million in turnover, with innovations relating to the coverage of cyber risk to protect the activities from the main threats deriving from the net not only in the cases of damages suffered but also in the case of damages to third parties and to the emergency response service so as to get the production activities back up and running as soon as possible and minimise the economic losses. Within the sphere of the specific solutions dedicated to agricultural circles, Pocket Farm was launched, an innovative app created by the active collaboration between Cattolica, its customers and Milan University. The new solution allows agricultural entrepreneurs to monitor the vegetative energy of their crops, replacing costly instruments difficult to use with free and intuitive support within everyone s reach. The study of innovative policies based on climatic indicators such as temperature, rainfall and wind (Index Based) also continued. The new policies, today in the experimental phase, will start to be marketed during the next year. 52

53 Management Report ABC Assicura The company s catalogue products relating to policies combined with loans (PPI) have been replaced by the new products Nuova Protezione Prestiti Banca, Nuova Protezione Mutui and Nuova Protezione Prestiti Compass. Furthermore, a new product - Nuova Protezione Mutui Light - has been developed, to replace CPI Mutui Light, marketed as from July 2016 as an alternative option to Nuova Protezione Mutui. The light version was specifically studied to permit the customer greater flexibility in the coverage solutions in terms of amount and premium. As from December 1st, 2016 the PPI product line was extended by two new policies dedicated to businesses: Nuova Protezione Mutuo Impresa and Nuova Protezione Prestiti Impresa. BCC Assicurazioni The company s catalogue products relating to policies combined with loans (PPI) have been replaced by the new products PROTEZIONE PRESTITO NEW, PROTEZIONE MUTUO NEW and CPI PRESTITI PERSONALI NEW with the inclusion of sales formulas dedicated to the individual professional targets and the overhaul of the essential features of the coverage (benefits, excesses, limitations). In July, the products in question were overhauled further to improve the competitive positioning both with regard to the supply and the pricing, by means of a review of the guarantees offered. A new product has been studied and implemented, FORMULA REDDITO ANNUALE NEW, stand alone marketed, which guarantees capital and a monthly instalment, in the case of events defined as demise and permanent total disability and temporary events such as loss of employment, temporary total disability or serious illness. As from June, the multi-channel product FORMULA FAMILY was extended to the entire BCC network, dedicated to households and conceived for the global protection of the home and domestic accidents. TUA Assicurazioni The global buildings policy TUA Condominio (previously TUA Casa ) was overhauled in January. This up-date concerned the guarantees and the limits of liability and in particular the electrical phenomenon guarantee and that relating to coverage for earthquakes was added. By contrast, in November the evolution of the TUA Famiglia product was presented which, besides turning to account the electrical phenomenon guarantee, now also envisages the possibility of activating, at the discretion of Management, flood coverage. 53

54 Life business Premiums written Insurance premiums in the life business totalled 2,543.6 million (-18.7%). Premiums written relating to investment contracts amounted to million (-48.2%). Total direct life premiums written, amounting to 2,771.1 million, were down by 22.3% when compared with 3,567 million as of December 31st, Even if down considerably, the Group s life premiums disclosed a sharp inclination towards traditional type saving and investment solutions, represented by the class I and class V products linked to segregated schemes. Aided by the still sustained volatility seen on the stock markets and the uncertainty of the overall economic context, a sharp slowdown in the development of the products with a higher financial component was witnessed throughout Nevertheless, the class III segment (fully attributable to unit-linked type policies, associated with Internal Funds, external UCIT units or SICAV segments) generated a premium performance for the Group of around 18% of total premiums, with a decidedly lower drop than that reported in total by the insurance industry on the Italian market. Group life premiums written continued to be drawn along by the bank-assurance channel, which however registered a considerable drop essentially due to the distribution via the branches of the Banca Popolare di Vicenza Group. This also had an impact on class I (insurance on the duration of human life) with a decrease of 23% in insurance premiums, from 2,473.1 million to 1,904.7 million. The performance of the agency channels of all the Group networks reported an increase greater than 9% compared with the previous year. The drop in premiums which flow to the segregated schemes is constantly monitored, with a view to ensuring the sustainability over time of the returns offered, which could be partly compromised by the diluting effect deriving from the significant decrease in the interest rates on the investments linked to the new incoming assets, partly counterbalanced by a reduction in the outflows. Total class III premiums written (insurance on the duration of human life linked to investment funds) amounted to million, compared with million as of December 31st, 2015 (-31.9%), and consist of unit linked contracts. Investment contracts amounted to 93.6 million, 54

55 Management Report compared with million as of December 31st, 2015 (-69.4%). Total class V premiums written (capitalisation) amounted to million, compared with million as of December 31st, 2015 (-0.5%). Class VI premiums written (pension funds) amounted to million, compared with million as of December 31st, 2015 and are due primarily to investment contracts. Direct life premiums written were generated as follows: the agency channel with million (+9.4%), the banking channel with 1,980.4 million (-25.1%), brokers with 59.2 million (-73.4%), financial advisors with 24.1 million compared with 10.5 million in 2015 and other channels with million (-8.8%). The contribution made to the consolidated amount on life premiums attributable to the Parent Company totalled million, BCC Vita 318 million, Berica Vita million, Cattolica Life 45.4 million and Lombarda Vita 1,400.8 million. Life business - Research and development activities: new products During the year the range dedicated to the banking channel was extended further with the intention of focusing the business mix on products with minor capital absorption (such as unit linked and multi-class solutions), also so as to be able to offer the customers greater possibilities of choice with regard to the type of allocation of the investment. Nevertheless, keen attention was maintained with regard to the more traditional range of class I products, characterised by the investment of the capital in a segregated management scheme, which offers the guarantee of the amount invested and, in some cases, the possibility of receiving the accrued returns under the form of a periodic coupon. From the standpoint of the proprietary networks, the product catalogue has been overhauled following the criteria of consistency and rationalisation of the range for all the sales networks, with the aim of further improving the correspondence between product and customer requirements. The Parent Company With regard to the banking network of the Parent Company, the insurance range saw the development of two new products: a mixed insurance product with single premium and annual revaluation of capital, additional benefit in the event of death and the option of an annual coupon; a mixed insurance product with single premium and annual revaluation of capital and additional benefits in the event of demise, dedicated to customers in the private segment; With regard to the proprietary networks, an insurance solution was developed dedicated to the parents of disabled children, which makes it possible to set aside resources in favour of someone affected by disabilities intended to guarantee them economic support in the future, when the direct support of the family has ceased. A new solution has also been created dedicated to the accumulation of savings for youngsters, for the purpose of a future project. The product involves a tariff with constant annual premium 55

56 and the possibility of making impromptu additional payments; the capital on maturity may be disbursed to the beneficiary in a single solution, or diluted over time, by means of a monthly decrease plan. Various capitalisation products have been developed dedicated to institutional contractinginvesting parties, which make it possible to establish capital which can be revalued annually in relation to the return obtained by the segregated fund, which guarantees the consolidation of the revalued capital. Some of these insurance solutions have been specifically created to manage the resources of welfare funds. During the year, the Company was awarded, via tender, the contracts for the insurance coverage for employees of the Bank of Italy and the Italian Agency for Development Co-operation of the Foreign Office. Lombarda Vita With regard to class III products, the following was achieved for Lombarda Vita: a consistent expansion of the number of external funds linked to the single premium and additional single premium unit-linked products; two new single premium unit-linked products with defined placement period, linked to a single internal fund. Furthermore, various capitalisation products have been developed dedicated to institutional contracting-investing parties, which make it possible to establish capital which can be revalued annually in relation to the return obtained by the segregated fund. BCC Vita A number of insurance products were created linked to the disbursement of loans and other financing agreements with related insurance coverage in the event of demise and other events; for such purposes, temporary insurance in the event of demise with decreasing capital was developed. In February, these products were adapted in line with the matters envisaged by the IVASS- Bank of Italy letter dated August 26th, Berica Vita During the year steps were taken to extend and up-date the Berica Vita range by means of: a new multi-class product (in which a maximum portion of investments in a segregated fund is established), which takes on the form of a single premium and single additional premium tariff product in which the class III component is represented by three internal funds; new products dedicated to businesses linked to the disbursement of loans and other financing agreements with related insurance coverage in the event of demise and other events; an innovative solution covering demise linked to the disbursement of mortgage loans, which combines the payment of an initial single premium with subsequent constant annual premiums. 56

57 Management Report In February, these products were adapted in line with the matters envisaged by the IVASS- Bank of Italy letter dated August 26th, Cattolica Life The company focused research and development activities mainly on the Open Architecture product line, placed on the Banca Popolare di Vicenza Group s sales networks and soon to be introduced also on the Cassa di Risparmio di San Miniato network. This product family includes Cattolica Life s unit linked policy with single premium, known as Free Selection. The open architecture structure makes it possible for customers to build their own investment portfolio selecting a maximum of 20 UCITs from a list of funds managed by leading investment firms. The company recently developed and introduced a safeguarding mechanism known as stop-loss. The customer who selects this option will specify the maximum level of loss they intend to bear; on reaching this level, the portfolio risk will be eliminated by means of a reallocation on monetary products. Reinsurance Non-life business The Parent Company s reinsurance programme maintained a standardised structure in line with that last year, making reference to a programme of proportional transfers with the complementarity of optional transfers. The residual retained portion of each class was further protected by claim excess coverage against the occurrence of both individual insured events of a significant amount as well as catastrophic events. On the basis of the actuarial analysis carried out to determine an efficient reinsurance programme according to the Value Based method, steps were taken to lower the transfer portion of the fire class from 16% to 10% and the transfer portions of the theft, accident and injury and land vehicle hull classes from 15% to 10%. With regard to the other classes the transfers maturing were confirmed. With regard to the policies combined with loans (PPI), in light of the changes requested by the Joint IVASS-Bank of Italy letter dated August 26th, 2015, as already mentioned, steps were taken to re-think the product portfolio so as to comply with the requests of the regulator and at the same time streamline and rationalise the range of available products. All this took place by means of the identification of just a few standard products, which the entire business currently existing was directed to. With regard to the catastrophe coverage with combined claim excess for the fire and land vehicle hulls classes, confirming the extreme level of prudence in the definition of the coverage, the decision was made for 2016 to acquire a total capacity of 300 million, corresponding to a period of return of around 293 years (RMS model), greater than the risk aversion measure defined by the Outline reinsurance resolution and equal to 250 years. For the Parent Company and the companies ABC Assicura and BCC Assicurazioni, a specific agreement was activated to cover earthquake guarantees for residential risks, with a transfer percentage of 80%. The 20% retention was protected by the catastrophe agreement in the aforementioned Group claim excess. 57

58 With regard to the hail class, for 2016 the reinsurance structures expiring were renewed, envisaging a proportional transfer equal to 50% for Cattolica and 60% for FATA (merged via incorporation within Cattolica at the end of 2016) with an increase in the commission level from 20% to 20.5%. The retention (respectively 50% for Cattolica and 40% for FATA) was protected by a stop loss agreement with priority per individual company equal to 110% (the coverage is activated when the claims/premiums ratio exceeds this threshold) and combined extent for the two companies equal to 70%. With regard to the Parent Company, BCC Assicurazioni and FATA a specific excess agreement was envisaged to cover D&O (Directors and Officers) policies. With regard to the main specificities of the transfer programmes of the subsidiary insurance companies, it is hereby revealed that, in consideration of the sizes of the respective portfolios, TUA Assicurazioni, ABC Assicura, BCC Assicurazioni and FATA have transferred a multiclass basket to the Parent Company, which in turn carries out retrocession to the reinsurance market, via its reinsurance programmes (the Parent Company accepts the risks in the capacity of reinsurer and subsequently retrocedes them in the capacity of transferor). In detail, with regard to 2016, for the purpose of further diversifying the risk and guaranteeing the market conditions, the proportional and non-proportional agreements of BCC Assicurazioni, ABC Assicura and TUA Assicurazioni were transferred for the most part to the Parent Company (70% of the transferred agreements) and the remainder (30%) was transferred directly to the reinsurance market. With regard to FATA, the placement of the non-proportional coverage was carried out mainly with the Parent Company (70% of that transferred) and the remaining portion (30%) with the reinsurance market, while for the proportional coverage the contrary took place: the Cattolica percentage was 30% of that transferred, while the remaining portion was placed on the reinsurance market. The suretyship proportional agreement is the only exception to the above, which was entirely placed on the open market. For all infragroup agreements, the corporate resolutions related to ISVAP Regulation No. 25 dated May 27th, 2008 were followed (now repealed and replaced by IVASS regulation No. 30 dated October 26th, 2016), with observance of transaction limits for each reinsurance transaction indicated therein. Life business With regard to the portfolio of the individual and collective policies, steps were taken to renew the non-proportional agreements by risk and by event, as per maturity. With regard to the claim excess programme for risk, with regard to just the Parent Company, an increase of the priority became necessary from 250 thousand to 350 thousand. With regard to the business associated with the disbursement of loans (PPI), the matters already indicated in the section relating to the non-life classes is applicable. The renewal, under the same conditions, of the proportional agreements relating to the coverage of the following completes the life reinsurance programme: 58

59 Management Report risk of non-self sufficiency (long-term care) with a transfer percentage of 60%; salary-backed loans for employees and pensioners with a transfer percentage of 70%. ***** Dealings with reinsurance companies which present the best prospects of continuity over the long-term have been preferred for all the Group companies. When selecting the partners, particular attention was paid to the solidity and reliability of the same, directing the choice towards those with the best rating or those less exposed, in the composition of the portfolio, to risk categories liable to technical-economic imbalances. When defining the reinsurance programme, all Group companies followed the provisions of the Outline Resolution concerning outgoing reinsurance in pursuance of Article 3 of the ISVAP circular No. 574/D dated December 23rd, In February, the boards of directors of all the companies approved the structure and the transfer plan for FINANCIAL AND ASSET MANAGEMENT 18,000 16,000 14,000 12,000 10,000 8,000 6,000 4,000 15,841 16,472 3,365 3,129 Investments euro/millions 2, Investment property and property Investments in subsidiaries, associates and joint ventures Loans and receivable, cash and cash equivalents Held to maturity investments Available for sale financial assets Financial assets at fair value through profit or loss Cash and cash equivalents 172 Investment property and properties During the year, a number of important investment transactions were finalised for the Group: the purchase, in March, of units in the Immobiliare Agris Fund on the books for a total of 14 million, the purchase, in April, via the Euripide property fund, of the NHOW hotel complex in Via Tortona, Milan, managed by the NH Hotel group and the purchase, at the end of May, of the RSA (nursing home) Villa Fiorita di Spinea (VE), for a total value of around 74 million for the two transactions. In December, as already mentioned, an initial tranche of the units of the Agris Fund obtained by FATA as a result of the contribution to the fund of the usufruct, with a duration of four years, for 955 thousand, was assigned to the participants of the Agrarian Consortium, by way of contribution linked to the distribution agreements. On August 4th, the closing for the establishment of the multi-segment property investment fund known as Mercury was finalised, by means of the inflow of 66 properties by the three area cooperatives belonging to the CONAD group; this fund is equipped with a property portfolio 59

60 worth around 300 million and a twenty-year duration. The Parent Company subscribed units equal to around 51% in each of the three segments for a total of around 69 million. The fund s objective is to hold the property assets for its entire duration ensuring stable and foreseeable flows of income with a limited risk profile. The management of the fund is entrusted to Savills Investment Management SGR. In August and October Fondo Perseide, managed by Finint sgr, finalised the purchase of eight photovoltaic plants for an overall value of around 39.6 million. In November, a letter of intent was signed by the Parent Company, Cattolica Beni Immobili, Cattolica Agricola, H-Farm and Cassa Depositi e Prestiti, so as to outline the content and the structuring of the property transaction known as H-Campus comprising an organic complex of buildings and infrastructures intended to be used for school and university digital education. The Programme Agreement with the Veneto Regional Authority was signed in January 2017, as described further on. Within the sphere of the initiative described above, during November Cattolica Beni Immobili entered into a preliminary agreement with Cattolica Agricola for the purchase of land and areas for a total of around 8.7 million. Securities investments The investment activities took place in a market context characterised by a period of volatility and low returns, essentially influenced by still expansive monetary policies and by a series of crucial events of a political nature. Operations were characterised by the maintenance of adequate liquidity levels; there were no significant movements between the various investment sectors, while rotations within the same sector took place on a consistent basis with the financial duration objectives of the portfolios expressed by asset & liability management. During the year investments were made in Italian fixed-rate government issues, the prices of which were supported for the majority of the period by the heavy demand from the domestic market, partly from the foreign market, and the European Central Bank. With regard to bonds, the company took advantage of interesting opportunities offered by the subscription, both on the primary and secondary market, of bank securities and securities of industrial issuers. Capital gains were also generated, exploiting the volatility of the related financial markets, animating both the floating rate component and the fixed rate one. The exposure to the share-based component was gradually reduced, on achievement of certain interesting technical thresholds and given the recovery of the prices which characterised the end of the year. The positions maintained in the portfolio were mostly attributable to issues capable of paying the shareholders stable and sustainable dividends over the mid-term, as well as characterised by solid performance from an economic-equity standpoint. The portfolio is denominated principally in Euro, with marginal exposures in US dollars and GBP. Issuers place products primarily in Europe, and to a lesser extent in the United States. However, many issuers presented spheres of operations highly diversified in geographic terms, for the purpose of reducing recession risks as far as possible. 60

61 Management Report Performance in the 4th quarter The Group result as of December 31st, benefited from the positive contribution of the fourth quarter for 31 million, while that on the consolidated result was positive for 37 million. Unrealised capital gains and losses At year end, unrealised capital gains net of tax effects were recorded on held to maturity investments for 33.9 million, along with unrealised capital gains net of tax effects on loans and receivables for 79.2 million, relating to bonds and other fixed-income securities. The overall fair value of the held to maturity investments and loans and receivables as of December 31st, amounted to 1,253.4 million. Net of the tax effects on properties and on investment property, unrealised capital gains - on the basis of estimates made by appointed outside experts - totalled 65.9 million. The overall fair value of property and investment property came to million. SOLVENCY II RATIO The Parent Company s Board of Directors resolved on March 16th, 2017 to present to the Supervisory Authority the application for authorisation to use the USPs as from December 31st, The own funds admissible, calculated having taken into account the Undertaking Specific Parameters (USP), amounted to 1.86 times the Solvency II capital requirement, after the distribution of the Parent Company s dividend, proposed by the Board of Directors, which will be subject to approval by the shareholders meeting held on April 22nd, Table 10 - Solvency II ratio USPs ( thousands) 2016 Solvency Capital Requirement (SCR) 1,088,657 Minimum Capital Requirement (MCR) 572,711 TOTAL OWN FUNDS ADMISSIBLE 2,028,219 of which TIER 1 1,746,844 of which TIER 1 restricted 80,549 of which TIER 2 110,414 of which TIER 3 90,412 Figures not yet subject to the checks envisaged by the IVASS letter to the market dated December 7th, 2016; the figures will be checked and communicated to the Supervisory Body and the market once authorisation has been obtained from IVASS to use the USPs as from December 31st, The table with indication of the admissible own funds calculated using the Standard Formula is presented below, along with the amount of the solvency capital requirement, as per Article 216 ter of the Insurance Code, the minimum capital requirements and the amount, classified by levels, of the own funds admissible to cover the afore-mentioned requirement classified by levels. The own funds admissible, calculated using the Standard Formula, amounted to 1.69 times the Solvency II capital requirement, after the distribution of the Parent Company s dividend, proposed by the Board of Directors, which will be subject to approval by the shareholders meeting held on April 22nd,

62 Table 11 - Solvency II ratio Standard Formula ( thousands) 2016 Solvency Capital Requirement (SCR) 1,188,027 Minimum Capital Requirement (MCR) 616,039 TOTAL OWN FUNDS ADMISSIBLE 2,009,829 of which TIER 1 1,719,301 of which TIER 1 restricted 80,549 of which TIER 2 110,414 of which TIER 3 99,565 Figures not yet subject to the checks envisaged by the IVASS letter to the market dated December 7th, 2016; the figures will be communicated to the Supervisory Body and the market according to the timescales envisaged by current legislation by July 3rd,

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65 Management Report The Group in 2016 Business performance for the period Risk management Headcount and sales network Significant events and other information

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67 Management Report Risk Management RISK MANAGEMENT PROCEDURES Risk management process The Group has established a risk management process with a view to Enterprise Risk Management (ERM) having taken into account the objectives of the business plan and the annual budget on the basis of the following macro-phases: analysis of the risk mapping (identification and assessment of the risks); definition of the Propensity level to risk; definition of the policies for the undertaking and handling of the risks; definition and assignment of the operating limits (monitoring and mitigation of the risks); methods for measuring the risks. Within the sphere of this process, the Risk Management unit has the task of facilitating the implementation of the risk management system. The main activities carried out by the Risk Management unit within this process - which sees the Board of Directors, Senior Management and the operating functions heavily involved - are described below. The Risk Management unit is organised in centralised manner on the Group companies as a specialised unit. Therefore, unless specified otherwise, the units referred to are those of the Parent Company which operate for the insurance companies by virtue of service agreements. Analysis of the risk map The insurance companies collect information on an on-going basis on the risks to which they are exposed. These activities are carried out by the Risk Management Unit, in collaboration with the heads of the operational areas who are responsible for the management of the risks pertaining to the area they are responsible for (Risk Owner), by means of the analysis of the processes which present significant risks, as well as the identification of the individual events which are sources of risk and the related controls set up to oversee the same. During 2016, on a consistent basis with the cataloguing of the risks envisaged by the regulations and appropriately adjusted on the basis of the Solvency II regulations, the Risk Management Unit monitored the risk map on a six-monthly basis and, what is more, the risks relating to the non-insurance companies of the Group were monitored, these being understood to be those attributable to the Group operating companies not disciplined by the insurance sector legislation. In conclusion, the study and analysis of the emerging risks was launched, understood as new risks or those which are starting to manifest, difficult to quantify in terms of frequency and impact and whose impact is potentially significant for the company and/or the entire insurance industry. Definition of the Propensity level to Risk Having taken into account the results of the assessment of the risks and the solvency (ORSA) and on a consistent basis with the risk management objectives, the Boards of Directors have defined the medium/long-term Risk Propensity understood to be the level of risk which the Group and each Group insurance company intends to undertake for the pursuit of their strategic objectives. The Risk Propensity, monitored quarterly by the Risk Management Unit, is specified by means of the fixing of thresholds and related monitoring and escalation procedures, as envisaged by the Resolution on the Risk Propensity System. Even if this 67

68 approach is considered consistent with the objectives of the Group s Risk Propensity, it was studied and perfected during 2016; the results obtained were taken into consideration for defining the 2017 Propensity level to risk. Definition of the policies for the undertaking and handling of the risks The strategies and policies for undertaking and managing the Group s risks are based on the values and the priorities which inspire the Group mission, first and foremost the central nature of the insured party and their needs and the generation of stable and long-lasting value of the partners and the shareholders. The risk management strategy is based on three fundamental principles: responsibility vis-à-vis the customers and understanding of their needs; clear understanding of the various risks which affect the Group and awareness of the related undertaking limits; consistency with the aspiring principles of Cattolica and with its co-operative model. The Group therefore intends to fulfil the commitments vis-à-vis the customers and, on a more general note, the various stakeholders of the companies, maintaining a suitable and conservative risk profile, preserving its equity soundness and a satisfactory level of profitability. Specifically, the Group undertakes the life technical risks, the non-life technical risks and the accident, injury and health technical risks also on a consistent basis with the objectives of growing the insurance business envisaged within the Business Plan. The Group has established an average preference for the markets and counterparty risks, which are undertaken to the extent that these risks are instrumental to the insurance business and make it possible to meet the customers needs, maintaining a suitable level of profitability. The Group has also defined a low preference towards catastrophic risk, both life and non-life, and for health technical risks for which it adopts suitable containment action; also with regard operating risks and risks of non-compliance with legislation, the preference for the risk is low and suitable organisational safeguards are envisaged. In conclusion, the Group means to avoid any risk not associated with insurance activities, with particular reference to reputational risks by means of ethically and morally correct conduct. Definition and assignment of operating limits The Risk Management Unit supports Senior Management in the definition of the operating limits to be assigned to the operating structures and prepares the procedures for the prompt verification of said limits. During 2016 and on a consistent basis with the Risk Propensity System, these limits were monitored: quarterly with the support of the Administration Division; on an on-going basis by means of operational proxies provided by Management Control. Methods for measuring the risks Within the sphere of the risk management process, methods are defined to be adopted for the measuring and assessment of the risks. Accordingly, the Risk Management unit avails itself of various types of analysis: 68

69 Management Report metrics for calculating the Solvency II capital requirement; assessment of the impacts generated by adverse market changes (sensitivities) on the solvency ratio according to the Solvency II rules and having taken into account the risk tolerance thresholds fixed; scenario analysis; stress tests. In line with the Group s risk profile, the stress scenarios for 2016 were gauged on the basis of the risks pertaining to the same. Specifically, stress scenarios on the market risks and the nonlife and health insurance technical risks were considered. INSURANCE RISK - NON-LIFE BUSINESS Risk concerning tariff rating, proposal selection and the estimate process for provisions and allowances The motor and elementary classes tariff divisions, located within the Group s Life, Non-Life and Technical Control Actuarial service, put together tariffs on technical bases referable to company or market data and appropriate safety loads in line with the levels of capital absorption and combined ratio target. The needs for a review of the existing tariffs and the suitability of the new tariffs envisaged by the product plan are monitored by management reports and subject to quarterly monitoring by the Risk Management unit which checks the observance also in relation to the hypotheses underlying the forecast valuation (ORSA). When achieving their mission, each Group company must guarantee its own stability and soundness, ensuring a satisfactory risk/return ratio. So as to limit the volatility of the risk undertaken in favour of equity soundness, the Group uses common risk selection and assumption policies, and defines a re-insurance structure so as to reduce the variable nature of the portfolio results within set limits. Within the sphere of the assumptive subscription policies, particular attention is paid to the risk concentrations relating to acquired portfolios; specifically, with reference to natural disaster risks (earthquakes, hail and floods), the risk plurality is monitored, divided up by territorial area and measured by means of the amounts insured and the compensation limits, so as to quantify the overall exposure. This monitoring is also carried out for the fire risk and the suretyship risk. So as to determine the foreseeable charges for claims, the results of the inventory for the classes with slow settlement are flanked by statistical-actuarial type methods, based on the analysis of the historic data. The latter represents the information flow necessary for the definition of the hypothesis on which the method structures used are based, with particular reference to the development of the average cost and the rate of inflation endogenous to the claims. Simulations are periodically carried out on these variables in order to estimate the effect of the same on the reserve, also checking the consistency with the choices adopted for the annual financial statements. In order to optimise the process for the correct reservation at last cost of the claims, particular attention was paid to the analysis and monitoring of the claims pointer. Also the reservation and concentration risks are subject to quarterly monitoring by the Risk Management unit which checks the observance also in relation to the hypotheses underlying the forecast valuation (ORSA). 69

70 Credit risk The Group has adopted a prudent re-insurance and joint-insurance policy in the non-life business with third-party delegation, showing preference for re-insurers and delegates with an adequate rating. No significant losses due to insolvency have been reported. Steps are taken quarterly to monitor the concentration by individual counterparty. Table 12 - Group exposure to re-insurers by rating category Rating ( thousands) exposure % of total AAA AA 329, A 258, BBB BBB * 63, BB Not rated 3, TOTAL 655, * Associated with a public body Mismatching risk Due to the singularity of its process which sees the payment of the premiums (revenues) prior to the sustaining of the claims (costs), the non-life insurance business is characterised by a necessary correlation between assets and liabilities. The investments covering the non-life business technical provisions have the purpose of optimising the risk/return profile, taking into account the timing profile of the obligations visà-vis the policyholders, within a context of joint management of the assets and the liabilities. Steps are taken quarterly to monitor the active/passive mismatch and established corrective action should it be necessary for this risk as well. INSURANCE RISK - LIFE BUSINESS Risk concerning tariff rating, proposal selection, mortality/ longevity/ invalidity and the estimation process for provisions and allowances For the determination of the pure premiums of the life assurance tariff rates, the Group insurance companies adopt prudent hypotheses in terms of population tables and financial guarantees given. The tariffs are periodically updated in order to take account of changes in the mortality of the Italian population or that of the outstanding portfolio and the change in the interest rates. This permits on-going adaptation to the demographic and financial evolution, as well as any timely adjustments to sudden changes in said factors. If appropriate, additional provisions are provided for the pre-existing portfolio, which cover any changes for the worse in the hypotheses adopted at the time of tariff rating. The products placed by the Group s insurance companies, in particular those where the pure risk component is significant, envisage assumptive methods structured on the basis of the personal characteristics of the policyholders and the guarantees given. This limits any antiselection phenomena. The life business insurance risks are demographic type risks (risk of mortality, longevity and invalidity), risk of insufficiency of first-order bases with respect to the costs of portfolio management (expense risk) and risk of early cancellation of the policy portfolio (redemption 70

71 Management Report risk). The actuarial provisions are determined by using the first-order technical bases, in other words those used for the calculation of the pure premiums, in compliance with Italian accounting standards. So as to deal with any insufficiency (estimated on the basis of simulations of scenarios relating to the dismantling of the reference portfolios due to deaths or redemptions and to the propensity towards exercising the life annuity options on maturity) of the population and technical bases with respect to the guarantees given and commitments, additional provisions are provided, if necessary. On a yearly basis, the effective deaths are compared with those anticipated by the population bases adopted for the calculation of the pure premiums of the tariffs placed. Over the last few accounting periods, the effective mortality - with reference to portfolios with prevailing mortality risk - was overall lower than that envisaged, estimated using updated population bases, with possible mortality peaks due to non-recurrent and statistically insignificant events. The technical hypotheses, such as the propensities to exercise the contractual options (e.g.: maturity and return), the mortality incidences, the exercise of early redemptions, are adopted on the basis of the time series detected on the portfolios of the insurance companies and by means of a comparison with the available market data. Such hypotheses are subsequently corrected as a result of qualitative valuations, such as the analysis of the commercial agreements with the placers, the legislative amendments and the type of the new products being placed. The international accounting standards envisage that the insurance companies assess the adequacy of their insurance liabilities, recording any deficit in the income statement. Accordingly, the liability adequacy test verifies whether the provisions are adequate for covering future cash flows relating to financial insurance contracts with Discretionary Participation Features, according to hypotheses which define the scenario considered to be the best and most consistent for the representation of the corporate situation. The analysis carried out revealed the adequacy of the Group s insurance liabilities as of December 31st, This result is confirmed both at individual insurance company level and at aggregate level. Therefore, no integration of the provisions was necessary according to the liability adequacy test. Credit risk Mismatching risk The Group has adopted a prudent re-insurance and joint-insurance policy, showing preference for re-insurers and delegates with an adequate rating. No significant losses due to insolvency have been reported. Due to the singularity of its process which sees the payment of the premiums (revenues) prior to the sustaining of the services (costs), the life insurance business is characterised by a necessary correlation between assets and liabilities. This implies a potential mismatching risk which is dealt with by means of Asset and Liability Management (ALM) techniques, thanks to which the Group adopts policies for the investment of the assets covering the provisions linked to the duration and the return. The technical provisions are influenced by the interest rate trends. In order to manage the risk of insufficiency of interest rates, additional provisions are made in accordance with Italian legislation, which requires simulations of performance scenarios of interest rates and hypotheses on the strategies of re-investment or sale of the assets covering the mathematical 71

72 provisions. Financial hypotheses, such as interest rate curves or strategies adopted for reinvestment purposes, are adopted on the basis of interest rates published by leading financial providers and the comparison between the durations of assets and liabilities within an ALM context. By means of the latter process, in its various forms, the Group controls the liquidity and mismatching risk, in relation to residual contractual obligations. Sensitivity / disclosure risk analysis The hypotheses adopted in the various assessments and estimates are usually modified so as to check the impact on the valorisations and eventually gain indications for subsequent strategies. In particular, scenarios concerning positive and negative shocks regarding the interest rates, change in the propensity towards the exercise of the options on maturity, change in the recourse to early redemptions, changes in the mortality of the policyholders and change in the spending hypotheses for the management of the policy portfolio, are adopted. In detail, within the context of the liability adequacy test, sensitivity analysis is performed on the main risk factors with an impact on the valuation of the liabilities. The scenario of best estimate hypotheses, adopted as the basis for the determination of any deficit to be recorded in the income statement, is changed by adopting a second scenario of worst case hypothesis for all the risk factors considered potentially significant. With reference to market risks, a variation of the risk free curve plus volatility adjustment used for the discounting of future cash flows is simulated. In relation to the analysis of the population risks, fundamentally the mortality and longevity risk, mortality tables adjusted to the extent of 15% and -20% on products providing returns are adopted. The hypotheses of propensity towards redemption are modified by 50%, up or down on a differentiated basis for sub-portfolios with a view to prudence. Lastly, a deterioration hypothesis of 10% of the annual operating costs for the policy portfolio is adopted. The valuation of the liabilities obtained in this second prudent scenario makes it possible to estimate the reduction in the adequacy margin of the liabilities, or the eventual deficit which should be recognized in the income statement, if the extreme shock hypotheses simulated on all the significant risk factors were to be achieved at the same time. MARKET AND CREDIT RISKS Risk Management activities relating to investments are aimed at identifying, assessing and controlling market risks, or the probability of suffering losses due to: changes in financial market conditions (interest rates, share prices, credit spreads, exchange rates, etc.); misalignments between the timing profiles of assets and liabilities; unforeseen liquidity requirements that call for the liquidation of portfolios of assets, in order to preserve the solvency of the Parent Company and companies in the Group. The basis of the control system is outlined in the Resolution of Propensity to Risk and in the system of the company policies, in particular the Risk Management Policy and the outline resolutions by means of which the Boards of Directors approve the Investment, assets and liability management, and liquidity risk management Policies, disciplining the investment 72

73 Management Report activities of the individual Group insurance companies. The system of the Policies contains a definition of the qualitative and quantitative limits of the investments for each type of financial instrument, having taken into account the specific risk and the regulatory provisions. The management of the securities portfolio is carried out in part within the Group and in part by professional outside managers. In the latter case, the management appointments are granted in line with the investment limits established by the Boards of Directors in the policies, in order to guarantee consistency, correctness, prudence and observance of the legislation in the asset management policies. The close collaboration between the divisions tasked with managing the assets and liabilities of each insurance company, guarantees continual attention towards the objectives of optimising and stabilising the operating results and represents the basis for the adoption of the financial and commercial management strategies. Interest rate risk The policies within the sphere of the Group s investments are focused on the optimisation of the management results and on the reduction of the volatility of the same, taking into account the Asset and Liability Management requirements. In particular, within the life sector the time mismatching is monitored between the liabilities due to policyholders (provisions) and the covering assets, having taken into account the features of the policies portfolio held and the related stratification on terms of level of guarantee. The Group has established a structured interest rate risk management and assessment process, by means of the formation of a unit dedicated to ALM (Asset Liability Management) analysis. The results of the analysis carried out, any points of attention noted and the action proposals are discussed periodically. The interest rate risk is actively handled by means of the assignment to the operating structures of a specific limit relating to the maximum misalignment permitted between the duration of the asset and the liability. The value of this indicator is monitored periodically and any violations are brought to the attention of the Board of Directors in accordance with the matters envisaged by the IVASS regulation No. 24 dated June 6th, The exposure to the risk is also measured quarterly by means of analysis on the solvency position, both in accordance with the matters envisaged by the Solvency II standard formula and by means of the valuation of scenarios defined internally. Scenario analysis is in conclusion carried out at least annually within the sphere of the assessment of the risks and the solvency (so-called ORSA) and in accordance with the provisions of ISVAP regulation No. 20 dated March 26th, 2008 and subsequent amendments and additions and the Asset and liability management policy. Sensitivity analysis The sensitivity analysis on the interest rate was carried out by hypothesising parallel shocks on the rates curve. Two scenarios were considered, a negative one, with hypothesis of an increase in the rates of 75 bp, and a positive one, featuring a decrease of an equal extent. The extent of the duration was used as modified in order to quantify, security by security, the amount of the deviation in the market value prior and post shock. For particular types of securities, in a prudential light, the residual duration data item of the security was considered more 73

74 representative in this estimate. The results obtained reveal that the effect of the negative shock hypothesised, net of tax effects and without considering the effects deriving from the retrocession to the insured parties, would come to around million on shareholders equity and around 0.9 million on the result. With reference to loans and receivables, the effect would have been 16.7 million in unrealised capital losses and with reference to investments held until maturity, the effect would have been 7.7 million. The effect would be perfectly symmetrical in the case of positive rate shocks. The sensitivity analysis indicates a concentration of exposure to rate risk, for an ample portion of investments held by the Company in the bond segment, both at fixed and floating rate. Share risk Sensitivity analysis Credit risk With a view to a medium/long-term investment policy, a limited exposure to share risk was maintained, on shares with solid fundamentals and reasonable prospects of dividends, splitting the investment during the year, especially in periods of greater weakness of the markets. The sensitivity analysis on the share component was carried out by hypothesising a first shock of 5% and a second shock of 25% on share market indicators. The results obtained show that the impact, net of the tax component and without considering the effects deriving from the retrocession to the insured parties, of the first shock would come to 14.5 million on shareholders equity and around 120 thousand on the income statement; that of the second shock would come to around 72.6 million on shareholders equity and around 604 thousand on the income statement. Again in this case, the greater volatility in shareholders equity derives from the classification of securities, for which reference should be made to the notes to the accounts. With reference to total Group investments, the reduced component of investments in shares and UCITs referable to the share segment leads to a low exposure to this risk. The credit risk divides up into the risk linked to the investment portfolio - typically measured within the macro-category of the market risk - and in the default risk of the issuer. This second category concerns the credit and similar exposures, mainly vis-à-vis parties such as reinsurers, banks for exposure in current accounts, insured parties and brokers. The summary extent of the exposure of the bond portfolio to credit risk is expressed by the stratification by rating which follows, determined on the basis of the classification of the credit worthiness envisaged by solvency legislation With regard to information on activities carried out on securities of governments in EU nations, reference should be made to the notes to the accounts and the tables contained therein. The Group has adopted a prudent re-insurance and joint-insurance policy, showing preference for re-insurers and delegates with an adequate rating. No significant losses due to insolvency have been reported. Furthermore, no significant losses due to insolvency have been reported linked to the credit and current account exposures. 74

75 Management Report Table 13 - Stratification of the bond portfolio by rating ( thousands) Loans and receivables Held to maturity investments Available for sale financial assets Financial assets at fair value through profit or loss Total % of total AAA ,701 3,249 33, AA , , A 9, , , BBB 652, ,934 14,229, ,258 15,347, BB 108,421 3, , , B 9, , , CCC , , Without rating , , In default TOTAL 780, ,241 15,802, ,678 17,055, Sensitivity analysis In order to assess the credit risk, the application of a margin to the corporate bond portfolio, equal to the deviation between the returns of a reference curve and a rating curve lower by two notches was hypothesised. The BBB curve was taken as the reference curve, since it is representative of the average rating level of our corporate bond investment portfolio. In this analysis, only the negative scenario was taken into consideration, which envisages an adjustment from the BBB curve to the BB one; the positive scenario was not hypothesised, with adjustment from the BBB curve to the higher one. The results obtained reveal that the effect of the negative shock hypothesised, net of tax effects and without considering the effects deriving from the retrocession to the insured parties, would come to around million on shareholders equity and around 219 thousand on the income statement. With reference to loans and receivables, the effect - net of income taxes - would have come to around 5.2 million in unrealised capital losses and with reference to investments held until maturity, the effect would have come to around 796 thousand. Liquidity risk The liquidity risk is associated with the possibility that the portfolio assets are difficult to disinvest or that said difficulty translates into a capital loss. The Group handles this type of risk by means of an informed handling of the assets in consideration of the profile of the cash flows expected from the liabilities, in accordance with the matters envisaged by the Asset and liability management policy and via accurate financial planning, in accordance with the provisions of the Liquidity Management Policy. All these policies represent a framework protecting a prudent management of the liquidity risk, therefore the misalignments in the estimated flows are handled actively in the investment activities. Derivatives The use of derivative products within the Group complies with the needs to optimise the return and risk profile of the assets covering the provisions, taking into account the restrictions placed by the liability structure. These are mainly call options linked to index-linked contracts. 75

76 OTHER RISKS Operating risk The operating risk measures the potential exposure of the Group to suffering economic losses caused by involuntary or intentional human action, inefficiencies in the information systems or external events such as natural catastrophes or accidental events. The operational risk management system which the Group has adopted aims to prevent and reduce any losses by means of their correct identification, gauging and mitigation and the systematic disclosure of the risk based culture in daily operations. This approach makes it possible to enhance the internal audit system, improve the efficiency and efficacy of the management processes and encourage dialogue with the Board of Directors, Senior Management, the Board of Statutory Auditors and the Supervisory Authority. With regard to 2016 as well, the Group continued to adopt a three-dimensional approach for managing operating risks: the identification, assessment of the risks and the associated controls is carried out by the company process heads with the method-based support of the Risk Management Unit; the processes considered core for the Group s business are subject to in-depth assessment by the Risk Management Unit, which after having shared its analysis with the heads of the company processes, the Human Resources Unit and the Operations/IT Unit, takes steps to monitor over time the mitigation action identified for the most significant risks; the capital to satisfy the regulatory solvency requirements (OpSCR) is calculated quarterly applying the standard formula of the Solvency II legislation. The Italian scenario disclosed growing attention to the cyber risk and business interruption, aligning itself with the international one and manifesting the need for the implementation of safety measures for the information technology systems. The main mitigation action undertaken by the Group during 2016 was focused precisely in this direction. The qualitative assessment of the risk for the Group comes to a 3 exposure value, low on a scale which ranges from 1 very low to 10 very high, in line with the operating risk preference defined by the Group. Risk of noncompliance with legislation With regard to the compliance risk (legal and non-compliance risk), the Compliance Assessment Unit, sharing the method-based approach with the Risk Management Unit, divides up the compliance risks into 11 categories, for the purpose of a more effective handling of the same. The most significant categories, by way of example, include: risks of violation of the legislation regarding consumer protection and correct market practices; risks of violation of the legislation regarding correct representation of the economic, equity and financial situation of the company; risks of violation of the legislation regarding prevention, safety and hygiene in the workplace; fraud and corruption risks; 76

77 Management Report risks of violation of internal regulations: failure to observe the group code of conduct, the prevention protocols adopted as per Italian Legislative Decree No. 231 dated June 8th, 2001, etc. The non-compliance risks are identified and handled by means of a process which is structured in different moments: besides the preventive initiatives (promotion of the culture of compliance, assistance for the various company units at the time of legislation and regulatory, organisational and operational changes to ensure compliance), mention is made of the ongoing monitoring (via analysis of the specific risk indicators and performance of the evolution of the risks, as well as via the assessments expressed by operational contacts in their quarterly reports and the subsequent prevention, mitigation and remedial action possibly launched) and the checks carried out with reference to certain specific aspects and areas deemed particularly sensitive, with the aim of checking the status of certain specific non-compliance risks and the efficacy and suitability of the related safeguards adopted, as well as the effective adoption of adaptation methods suggested to the various company areas. 77

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79 Management Report The Group in 2016 Business performance for the period Risk management Headcount and sales network Significant events and other information

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81 Management Report Headcount and sales network HUMAN RESOURCES Human Resource Management The projects and the activities of the Human Resources division have been oriented towards increasing the efficiency and productivity, improving and supporting the individual and group performances, constantly monitoring and containing the personnel costs in line with the Plan objectives and increasing the competitiveness, extending and renewing the skills and the professional qualities present in-house. The Human Resources and Organisational Development division implemented a new human resources management and development strategy in The extension of know-how of the individual has been strengthened by the institute of internal mobility, which supplements the training in a synergic manner and responds, at the same time, to the changing workforce needs. Again with a view to development, the Group has constantly striven to discover and grow future talent, offering internship opportunities in many company divisions, to students and recent graduates. As of December 31st, the Group headcount included 1,568 staff, compared with 1,580 in the previous year (-12). The staff is broken down as follows: 41 executives (-4 with respect to 2015), 299 officials (+4 with respect to 2015) and 1,228 office workers (-12 with respect to 2015). Account was taken of the exit of 9 co-workers, of which 8 members of the Intersectorial Solidarity Fund. The number of full time equivalent Group employees came to 1,508 (compared with 1,522 as of December 31st, 2015). Account was taken of the exit of 9 co-workers, of which 8 members of the Intersectorial Solidarity Fund. Temporary employment relationships, excluding maternity replacement, were 2. Part-time employment relationships came to ,000 1,800 1,600 1,400 1,200 1,580 1, Headcount number 1, ,240 1, Employees Officers Executives 81

82 Table 14- Group headcount Group companies (*) Registered offices 2015 Increases Decreases Change 2016 Leavers as of Dec. 31st, 2016 (**) 2016, net of leavers as of Dec. 31st, 2016 ABC Assicura Verona BCC Assicurazioni Milan FATA Assicurazioni Danni Rome (1) TUA Assicurazioni Milan BCC Vita Milan Berica Vita Vicenza Cattolica Life Dublin (Ireland) Lombarda Vita Brescia Cattolica Assicurazioni Verona (2) 29 (3) Agenzia Generale Agrifides Rome Cattolica Agricola Verona Cattolica Beni Immobili Verona Cattolica Immobiliare Verona Cattolica Services (CS) Verona (4) 36 (5) Cattolica Services Sinistri Verona (6) C.P. Servizi Consulenziali Verona (7) Group total 1, , ,568 (*) Number of employees relating to companies consolidated line-by-line excluding the resources covering maternity leave. (**) Due to 8 employees joining the Intersectorial Solidarity Fund and another 1 leaving. 1) of which 130 for the merger via incorporation in Cattolica, 13 in Cattolica for intercompany transfers during the year, 44 in CS due to intercompany transfer, 1 in Cattolica Immobiliare due to intercompany transfer and 4 leavers 2) of which 130 for the merger via incorporation of FATA, 13 for intercompany transfers from FATA during the year, 24 from CS due to intercompany transfer, 13 from CPSC due to intercompany transfer and 19 recruits. 3) of which 14 due to intercompany transfers, 14 for leavers and 1 joining the Intersectorial Solidarity Fund with effect as at June 30th, ) of which 54 intercompany transfers and 4 due to merger via incorporation of Cattolica Services Sinistri. 5) of which 24 due to intercompany transfers, 7 for leavers and 5 joining the Intersectorial Solidarity Fund with effect as at June 30th, ) for the merger via incorporation in Cattolica Services. 7) of which 13 intercompany transfers and 2 leavers. Development and Training The Development and Training Unit, with its contents, methods and instruments, confirmed itself to be one of the strategic levers of the company, whose activities are targeted at supporting the development of each individual worker. Training of human resources In line with the turning point which characterised 2015, the active and participative involvement of the workers of the Group, specifically that of the managers, was consolidated. The change was effectively launched with the assessment of the 2015 performances which involved all the company staff and guided the activities of each worker and their development path via the assessment of the objectives assigned by each manager. Supporting the Performance Management Process (PMP), the managers of resources have 82

83 Management Report been coached as from the start in the comprehension of each stage of the process by means of the activation of targeted measures (individual training and coaching) aimed at enhancing the managerial skills and preparing for the assessment of the services of workers. During the second half of the year, new models for developing skills were set up and designed, aimed at permitting each resource and the structures to increase their flexibility and speed, characteristics which make it possible to tackle the challenges of the market. In order to increase the professionalism of the individual and at the same time the efficiency of the system, a project was implemented which involved around 400 resources for the purpose of assessing the possession of skills consistent with the current and future role and which will make it possible in the coming months to more fully orient the management decisions and the investments in training and development. Furthermore, measures meeting with the real business needs were achieved to support the corporate reorganisations. Here are a number of examples: for the Claims division, courses regarding property, general civil liability and up-dating on Business Object; for the IT Division s Non-life System department, the process, launched in 2014 and still underway, on the Agile method, a new work system aimed at simplifying the issue of the projects of the Division; for the colleagues of the FATA Network Governance, the course on the functions of the Pass application, in particular for the estimation process and the issue of motor and elementary class policies; the Group Passive Cycle Evolution course, which saw the attendance in the classroom, within the sphere of the project for extension to the insurance companies of the Cattolica Services Passive Cycle, of the contact individuals actively involved in the input of the purchase request; a number of training measures dedicated to the Risk Management unit aimed at the use of advanced methods for the analysis of the quantitative data, in line with the strategic profitability objectives and the applicability of Solvency II; for the Retail division, subject to internal reorganisation, the technical course for strengthening the skills within the front end, legislative, business products and IT data sphere. Furthermore, the project aimed at developing the personal skills was accomplished, with six themes including Self effectiveness, Team of excellence and Valuable dialogue. As occurred last year, the Work Life Balance course was re-proposed and which dealt with the aspects of Corporate Social Responsibility, company welfare, diversity management and smart working, along with the Reinsurance course which made it possible to gain awareness of the types, principles and logics underlying reinsurance. The launch of the new Group Chiedimi 2.0 CRM platform was supported by a training plan addressing co-workers of the Group structured in two phases: Key User training and user training. 83

84 In conclusion, encounters were organised on Digital Transformation, addressing co-workers of the Group aimed at sharing the key themes of the digital evolution programme undertaken by the Group. With regard to sector-related legislative training, the training sessions dedicated to the Group s workers on the subject of safety continued. On a parallel with the activities achieved within the company, participation in training events organised outside the company by universities, associations and sector institutes was considerable, including CUOA Foundation, Verona University, Sacro Cuore University in Milan (Cetif, Altis), Bocconi University in Milan (Business Management School). During 2016, 3,870 man training days were held for the Group. Training for the Board of Directors On the basis of the long-term training plan addressing the members of the Boards of Directors and the training plan for 2016, three training sessions were held which involved the members of the Boards of Directors and the Executives of all the Group companies, on aspects of the monitoring of the risks which the Board is obliged to achieve and the labour reform in Italy (Jobs Act). Industrial relations and disputes During the year, several trade union meetings were held to better understand issues related to personnel. Specifically, agreements were signed to obtain loans from Fondo Banche Assicurazioni (FBA) to provide training for employees. The training plan presented was entitled Presidiare ed evolvere. The value of the plan which can be financed amounts to over 500 thousand in total. In March, an agreement was entered into with all the trade union organisations which introduced an additional date of access (July 1st, 2016) to the Intersectorial Solidarity Fund signed in July 2015, for those who will accrue the pension access requisites as of December 31st, During May and September, in relation to the reorganisations which affected the Retail division, the Life and Welfare division and Bank-assurance, three agreements were entered into with the trade union organisations concerning the afore-mentioned transactions. These organisational changes, aimed at a rationalisation of the current structures for the achievement of the objectives of the Group s strategic plan, involved a total of 85 individuals. At the same time as the afore-mentioned agreements, two agreements were entered into which will permit the individuals, subject to the aforesaid procedures, a suitable training course, by means of recourse to loans (over 50 thousand in total) from the Intersectorial Solidarity Fund, aimed at a profitable professional development and induction in the new role. Again in May, the Joint Training Committee was set up, by means of a specific trade union agreement, with the task of analysing the results of the training plans, in relation to the training needs and requirements. In December, the agreement was entered into relating to the merger via incorporation of 84

85 Management Report Cattolica Services Sinistri within Cattolica Services and the agreement relating to the reorganisation which involved the entire Group consequent to the merger of FATA in Cattolica which involved 154 resources. Again in December, a trade union agreement was entered into in accordance with the matters envisaged by the law concerning installation of video-surveillance systems for the purpose of the security and protection of individuals and the protection of the company assets. A number of legal disputes are ongoing, the estimated liability for which was prudently provided for. SALES NETWORK 7,000 6,000 5,744 5,649 Sales channels number 5,000 4,000 3,000 2,000 1, ,516 1,514 1, Agencies Bank branches Financial advisors Pension advisors Agency and welfare and pension product advisor distribution Agent network and welfare and pension product advisor training The Group closed the year with a total of 1,514 agencies, distributed as follows: 50.9% in Northern Italy, 26.9% in Central Italy and 22.2% in Southern Italy and the islands. Welfare and pension product advisors came to 318: C.P. Servizi Consulenziali sub-agents numbered 299 and Agenzia Generale Agrifides sub-agents, whose activities started in the latter part of the year, came to 19. By virtue of the new technological trends and the new purchasing conduct of the customers, the Group - in order to remain highly competitive within the market and on a consistent basis with the Business Plan - continued throughout the year with the commitments in the realisation of the objectives defined in the digital transformation programme, to equip the distribution networks and head office structures with instruments indispensable for continuing to compete and grow in the changed market context, which sees new and more evolved customer purchasing behaviour establish itself. The Group continues to move in order to achieve three fundamental objectives: the operating efficiency, commercial effectiveness and innovation. As already mentioned, in observance of the timescales proposed and agreed on with the distribution networks, on October 15th, 2016 the roll out was launched of the programme 85

86 structured on three areas of change which envisages an important training plan provided: in situ, with the support of the Digital Coaches; on-line with the aid of infographics, video tutorials and Web Based Training (WBT) courses; with the holding of virtual classrooms which in the first phase saw the participation of around 500 agents. Development of the skills and training Development and digitalisation pass, among other things, via project activities and initiatives whose priority objective is that of stimulating in the agents and their co-workers the acceptance of the culture of on-going change, the growth of all the specific skills: technical, operational, commercial, managerial, relational and digital. The Group s training programme was therefore enhanced thanks to the inclusion of new development courses, detailed as follows: the new training course for the induction of RUI Section E workers (first training 60 hours), available in e-learning mode, dedicated to all the sub-agents and first appointed workers; the new refresher course Il ciclo di vita e i bisogni dei clienti, aimed at analysing and increasing the know-how, skills and professional ability, with an highly consultancyrelated tenor; the profession agent master course (MPA), launched in January and concluded in October 2016, created by a leading firm of consultants, which is a specialist training course highly oriented towards managerial and operational preparation attended by 28 masters students; the new Executive Agent Master course (MEA), aimed exclusively at Cattolica and FATA agents, for the consolidation of the skills fundamental to the profession and so as to create highly professional and competitive networks. Around 800 Cattolica agencies and more than 100 FATA agencies have applied for the MEA. More than 230 agents were involved in 2016, both belonging to Cattolica and FATA, for more than 650 man days of classroom training; the specific Change Management & Leadership training course, launched in January 2016 and dedicated to young Cattolica agents and sub-agents with high potential. Furthermore, with a view to development of the skills of the networks, a training course was launched in the second half of the year aimed at developing the technical and commercial skills of the II level agents and networks. The Group s training courses were therefore enhanced by an additional series of courses: three within the legislative sphere and three in the commercial sphere, up-front classroom based, with different beneficiaries, and two virtual classroom based on supply aspects. This specific campaign of courses saw the attendance of more than 1,400 participants in 85 editions for around 1,200 man days of training. Naturally, in addition to the above, steps were taken to ensure a training programme on transversal themes including training on life products; courses were held for New Agencies and constant refreshers with on-line training and training and certification of Welfare/Pension Advisors. With reference to the training of the FATA network, the first quarter commenced with training 86

87 Management Report dedicated to the new IT management system PASS and the Accident & Injury Product. In June, the agents and administrative staff were invited to take part in a training day during which they looked in-depth at the legal protection coverage present in FATA policies and the functions of the SFV application (Sales Force System). During the second half of 2016, activities were achieved aimed at the presentation of the innovations of the livestock product. Remote training activities also continued. With reference to TUA Assicurazioni, several classroom-based refresher courses were held, amongst which one on the new release of the product Tua Condominio, one addressing the sales assistants of the TUA Agencies, one entitled Agente Digitale 3.0 aimed at the effective use of social media for developing one s business, and as usual, the Benvenuti in Tua, a course for new Agents and Co-workers. Mention is also made of the Tua Scuola on the Road project which envisaged that the professional refresher training reserved for co-workers and subagents is entrusted to trainer agents with several years of experience gained in the teaching field and the thematic areas subject to professional refresher training. With regard to professional refresher training in the classroom during 2016, 21 courses were held, for a total of 141 editions and 2,482 participants (1,743 man days). Bank coverage The bank-assurance channel is overseen by the Parent Company by means of a partnership strategy with banking operators based on both commercial agreements with numerous institutions for the sale of insurance policies via bank branches, and through the insurance companies in which the Parent Company, thereby obtaining control, and banking partners invest. The number of branches distributing Pension Planning products amount to 5,649, compared with 5,744 at the end of the previous year. The bank branches of the UBI Group numbered 580 (-5 with respect to December 31st, 2015). The alliance with ICCREA HOLDING launched in the second half of 2009 makes it possible to distribute products via 3,940 branches (+83 with respect to December 31st, 2015) of the cooperative lending banks, while that with Banca Popolare di Vicenza, underway since 2007, permits the Cattolica Group to access a network of 502 branches (-77 with respect to December 31st, 2015). The leading banks operating as Cattolica s partner, in addition to those already indicated, include Banca Carim, Banca Popolare Pugliese, Banca di Credito Popolare di Torre del Greco, Nuova Cassa di Risparmio di Ferrara and Cassa di Risparmio di San Miniato. Bank-assurance partner training IVASS Regulation No. 6 dated December 2nd, 2014, introduced a series of important innovations within the sphere of the up-dating and training of the broker network which the insurance companies avail themselves of, with the intention of harmonising the related regulations and encouraging the enhancement of the professional requisites of the insurance brokers laying down specific organisational, technological and professional standards with reference to the products, the requirements of the trainers and the training formalities. In accordance with the matters envisaged by the afore-mentioned regulation, the network of insurance brokers was involved during the year in refresher courses and professional courses. The insurance companies supported the brokers in these activities, in accordance with the matters envisaged by the agreements outstanding with the banking partner. 87

88 Financial advisor distribution The Group s financial advisors fell to 906, compared with 1,039 at the end of the previous year. 88

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91 Management Report The Group in 2016 Business performance for the period Risk management Headcount and sales network Significant events and other information

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93 Management Report Significant events and other information SIGNIFICANT TRANSACTIONS CARRIED OUT DURING THE YEAR The significant events that occurred during the year as part of managing the investments in Group companies, the corporate reorganisation and the consequent rationalisation of activities are set out below, in addition to other significant events during the year. You are hereby reminded that the Parent Company s Board of Directors resolved to comply, with effect as from December 13th, 2012, with the opt-out regime as per Articles 70, paragraph 8 and 71, paragraph 1 bis, of the Issuers Regulations, therefore availing itself of the faculty to depart from the obligations to publish the disclosure documents laid down at the time of significant merger, spin-off, share capital increase via conferral of assets in kind transactions, acquisitions and transfers. Cattolica and the Group The merger of FATA in the Parent Company On April 5th, the Parent Company s Board of Directors approved the project for merger via incorporation of FATA, as a further initiative to support the achievement of the Business Plan which considers the growth in the agricultural and foodstuffs sectors to be one of its strong points. By means of resolution No. 119/2016 dated September 20th, 2016 IVASS authorised the merger via incorporation of FATA Assicurazioni within the Parent Company. On October 4th, the respective Boards of Directors resolved the merger. The procedure envisaged by current legislation having concluded, on December 22nd, 2016 the deed for the merger was entered into and, once the legal registration had taken place, became effective as from p.m. on December 31st, 2016, with accounting and tax effects as from January 1st, In April, a memorandum of understanding was entered into with Coldiretti and a number of Agrarian Consortiums in relation to which in June the final details of the dealings between the Parent Company and FATA with the Coldiretti National Confederation were agreed on. On June 27th, in accordance with the above, Coldiretti transferred to Cattolica, by means of deed filed on the following July 4th care of the Companies Register, an equity investment corresponding to 51% of the share capital of the agent company Agenzia Generale Agrifides s.r.l. (formerly Agenzia Generale Coldiretti s.r.l. ) with headquarters in Rome, with the objective of establishing new sales outlets care of the territorial headquarters of Coldiretti, in this way developing a new sales network for the life and non-life insurance products. Within this sphere at the end of 2016, according to the agreements entered into originally, an initial tranche of the units obtained by FATA from the conferral to Fondo Agris of the usufruct for four years of certain properties, were assigned to the participants of the Agrarian Consortiums. Banca Popolare di Vicenza The corporate relationships at the beginning of the year were as follows: Banca Popolare di Vicenza (hereinafter also BPVi) held an equity investment in Cattolica equal to 15.07% of the related share capital; Cattolica held an equity investment in Banca Popolare di Vicenza equal to 0.89% of the 93

94 related share capital. Furthermore, in correlation with the partnership existing between Cattolica and BPVi, the jointholding in the companies Berica Vita, Cattolica Life and ABC Assicura emerged, with equity investments respectively of 60%, in relation to Cattolica, 40% in relation to BPVi, in each of the afore-mentioned companies. The salient facts which concerned the relationships with BPVi during the year are summarised below. On March 5th, Banca Popolare di Vicenza s extraordinary shareholders meeting resolved its transformation into an Italian joint-stock company. The bank also launched, in April, an offer to the capital market for 1.5 billion in accordance with the authorisation granted during the afore-mentioned shareholders meeting. On April 29th, the global offering for subscription of the shares of BPVi concluded within the sphere of which applications were presented for 7.66% of the total equivalent value of the offering of 1.5 billion; Cattolica had, in this context, resolved to take part in this share capital increase for an amount of 2,686, On May 2nd, Borsa Italiana, having duly noted the results of the global offering and the insufficient diffusion of the subscribed shares between the general public, did not authorise the launch of trading for the Bank s shares. Therefore, the Global Offering of BPVi and, therefore the subscriptions to the same ceased and the Atlante Fund, by virtue of the agreements entered into between BPVi and Unicredit and between the latter and Quaestio Capital Management SGR, subscribed the entire share capital increase so that it now holds 99.33% of the bank s share capital. On conclusion of the matters described, the Parent Company s holding in BPVi was diluted from 0.89% to 0.006% of the share capital. The equity investment of 40% in the following Group companies is therefore referable - indirectly - to Quaestio Capital Management SGR via the Bank: ABC Assicura, Berica Vita and Cattolica Life plus the holdings held by BPVi in Cattolica. The Parent Company s Board of Directors therefore from time to time examined the situation which had come about in the partnership dealing with BPVi, in light of the outcome of the global offering for the subscription of shares of the bank, which led, as just indicated, to the integral subscription of the share capital increase by the Atlante fund. Specifically, the Board examined the right to unilateral withdrawal which the partnership agreements acknowledge to Cattolica after the transformation of BPVi from a co-operative company to a joint- stock concern. The Outline Agreement which disciplines the partnership, renewed on December 14th, 2012, envisaged that Cattolica may at any time and stage of the partnership unilaterally withdraw in the event that BPVI should resolve the transformation of its co-operative legal status or go ahead with a merger for its incorporation in another bank or financial company which does not have a co-operative form. This right to withdraw could have been exercised within the 180 days after the transformation resolution, effective 180 days after the exercise of this right. This latter deadline having expired, a sale option can be exercised by Cattolica, as specified herein, as a result of which BPVi is obliged to repurchase the entire ownership of the three product companies Berica Vita, ABC Assicura and Cattolica Life, in which BPVi and Cattolica respectively hold 40% and 60% of the related share capital, according to the terms and conditions disciplined in said Outline Agreement; accordingly, BPVi 94

95 Management Report will obviously be free to proceed with the negotiation of new bank-assurance agreements with third party partners. On August 4th, the Board of Directors therefore resolved to exercise the right to unilaterally withdraw from the partnership agreements with BPVi. The withdrawal, whose full effectiveness takes place on expiry of the sixth month after the receipt by BPVi of the related communication and therefore February 10th, 2017, involves a structured series of immediate or deferred effects under the terms identified under agreement mainly including: (i) (ii) the immediate termination, as of the date of communication of the withdrawal, of all the representation and safeguards of BPVi in the management and corporate set-up of Cattolica; as from the date of communication of withdrawal, BPVi s commitment to provide, in each corporate venue, including meeting venues, consent to the elimination of modification of each and every clause of Cattolica s articles of association, deriving from the ceased agreements, if deemed unquestionably appropriate by Cattolica; (iii) the termination of the lock-up commitment on 4,120,976 Cattolica shares held by BPVi; (iv) the effectiveness of specific commitments of BPVi, after the termination of the partnership, in relation to any disposal, full or part, of the related equity investment in Cattolica, provided that it is greater than 3% of its share capital. BPVI will amongst other aspects be obliged, in the event of disposals on the market also of blocks, to adopt formalities which do not involve a negative impact for the listing of the Cattolica shares; (v) the regulation of the premium and penalty mechanisms conventionally envisaged in relation to the performance of the corporate joint ventures (Berica Vita, Cattolica Life, ABC Assicura); (vi) Cattolica s right, to be exercised within 60 business days of the date of effectiveness of the withdrawal (i.e. as from the expiry of the sixth month after receipt by BPVi of the related communication), to sell (and the mirror right-obligation of BPVI to purchase) the 60% equity investments in Berica Vita, Cattolica Life and ABC Assicura; (vii) the termination, as from the date of exercise of the purchase option as per the previous point (vi) and in any event in the case of failure to exercise as of the date of the related expiry, of all the agreements, including commercial, covered by the partnership. You are hereby informed that the decisions relating to said withdrawal led to the activation of the procedure on the related party transactions. On August 11th, 2016 a specific Disclosure Document was published, pursuant to Article 5 of the Regulation adopted by CONSOB by means of Resolution No /10 and subsequent amendments. On February 10th, 2017, further to the matters communicated on August 4th, 2016, since six months had elapsed as from receipt by BPVi of the communication relating to the unilateral withdrawal of Cattolica from the partnership agreements with the bank, the lock-up restriction on 4,120,976 Cattolica shares owned by BPVi ceased, without prejudice to anything else envisaged in the agreements. Furthermore, as from February 10th, 2017 the period for the exercise of the purchase option which will terminate on May 10th, 2017, will start. With regard to the equity investment held by BPVi in Cattolica s share capital, it is hereby formally acknowledged that on January 7th, 2016 the Bank received a communication relating 95

96 to the affording under pledge of 26,267,793 Cattolica shares to guarantee a loan transaction, which was not followed by further communications by the Bank. Furthermore, you are hereby informed that further to the acquisition of elements of information during 2016, with regard to the various transactions entered into by BPVi between 2014 and 2016, the Parent Company decided to check any requirements and conditions for the eventual protection of its claims as investor in BPVi, with particular reference to the share capital increase transactions of the same bank in Spring 2014 and the content of the related prospectus. A specific opinion was requested on the matter from qualified legal advisors, who concluded, on the one hand, for the theoretical existence of said compensatory claims of Cattolica and, on the other hand, for the appropriateness of awaiting, due to the launch of the related action, the outcome of the assessments and the sanction procedures vis-à-vis the former exponents of BPVI launched by CONSOB with regard to the same subject. Other events On July 28th the management bodies of Cattolica Services and Cattolica Services Sinistri resolved the merger of Cattolica Services Sinistri in Cattolica Services, in accordance with the Merger project dated June 28th, On December 7th, the Merger deed was entered into and, once the legal registrations have taken place, became effective as from p.m. on December 31st, 2016, with accounting and tax effects as from January 1st, In July, on the basis of the new provisions of Irish legislation (Company Act 2014), the name of Cattolica Life ltd was changed to Cattolica Life designated activity company. On August 4th, as already mentioned, the closing for the establishment of the multi-segment property investment fund known as Mercury was finalised, by means of the inflow of 66 properties by the three area co-operatives belonging to the CONAD group; this fund is equipped with a property portfolio worth around 300 million and a twenty-year duration. The Parent Company subscribed units equal to around 51% in each of the three segments of the Fund for a total of around 69 million. Other investee companies On January 7th, the Parent Company informed Veneto Banca of the exercise of the right to withdraw, made further to the decision to transform the bank into an Italian joint-stock company, with regard to the entire investment held in the bank (277,777 shares) also contesting the delimitations; these contestations were repeated after the recent verdicts on the matter delivered by the Council of State. This investment, held since 2014, had been acquired within the sphere of the transaction for the early exercise of the option agreed in 2014 relating to Cassa di Risparmio di Fabriano e Cupramontana shares, which subsequently became Veneto Banca shares, after the absorption of the former in the latter. On March 18th, the Company received the settlement of 3,567 shares subject to withdrawal for a total of 26,039.1 ( 7.3 per share). On June 22nd, the global offering of ordinary Veneto Banca shares concluded with applications presented for 2.23% of the total equivalent value of the offering. Borsa Italiana, having duly noted the results of the global offering, did not authorise the launch of trading for the bank s shares and therefore, on closure of the period envisaged for the exercise of the right to revoke 96

97 Management Report the initial applications, only 1.14% of the overall offering had been effectively subscribed. In accordance with the matters envisaged by the agreement between Veneto Banca and the underwriting syndicate organised and managed by Banca IMI, as well as the sub-guarantee agreement between the latter and Quaestio Capital Management SGR, on June 30th the Atlante Fund subscribed the residual unplaced portion of the global offering (98.86%) thus obtaining 97.64% of the bank s share capital. On conclusion of the matters described, the Parent Company s holding in Veneto Banca was diluted from 0.22% to 0.003% of the share capital. On February 17th, a Shareholders agreement was established between some of UBI Banca s shareholders. The shareholders represented conferred, at the time of establishment of the Agreement, 107,765,134 ordinary shares equal to 11.95% of UBI Banca s share capital. On its part, the Company complied with the Agreement conferring 4,850,000 ordinary shares of the bank. Among the terms of the agreement it is contemplated that the participants in said Agreement meet also to discuss the choice of the most suitable candidates to cover the role of members of the Supervisory Board presenting their own list for the shareholders meeting, held on April 2nd, 2016, called to renew the offices with the consequent commitment to vote for the same. The afore-mentioned Agreement, during the shareholders meeting, then expressed a sole list with another aggregation of shareholders (the so-called Patto dei Mille ) and the Cassa di Risparmio di Cuneo Foundation. On April 20th, the Parent Company s Board of Directors resolved the binding commitment to subscribe units of the alternative investment fund Atlante, set up and managed by Quaestio Capital Management SGR, for a total Group amount of 40 million, for the purpose of recapitalisation transactions requested from a number of Institutes by the Supervisory Authority and investments in non-performing receivables of Italian banks. In light of the results achieved by the fund and the press release dated January 31st, 2017 of Quaestio Capital Management, manager of the Atlante Fund, the Group took steps to write down its holding in the fund for a total of 16.7 million (gross of the tax effects and the retrocession to the insured parties) equal to 41.7% of the commitments, which comes to 40 million. The extraordinary shareholders meeting of Cassa di Risparmio di San Miniato held on April 29th, 2016 following the negative results reported by the bank at the end of 2015, the consequent insufficient assets indicated and the requests for an equity strengthening transaction expressed by the Bank of Italy, resolved to authorise the Board of Directors to proceed with a share capital increase, in tranches, and against payment up to a maximum of 55 million. The Supervisory Authority also requested the Bank to proceed with a review of the /2020 Strategic Plan which, on a consistent basis with the equity strengthening initiatives, should encourage an aggregating outlook. On May 31st, Intermonte Holding and Cattolica renewed the agreement entered into in 2010 until June 30th, 2017, with a number of amendments and additions. In September, the Parent Company acquired 10.8% of Nummus.Info, with headquarters in Trento, a company which offers investment portfolio analysis services. The transaction concerned 62,500 shares of the company and was finalised for a total price of around 78 thousand. 97

98 In December, Cattolica together with other shareholders holding 72.13% of Vegagest SGR s share capital in total, accepted the purchase proposal for the investment made by Europa Investimenti. What is more, the offer is subject to certain conditions including the authorisation of the Bank of Italy. Recapitalisations During the year, the Parent Company made the following payments towards share capital: in favour of Cattolica Beni Immobili: three payments towards capital for an overall sum of 10 million for the purpose of permitting the completion of the safety and requalification measures for the properties of the Cattolica Center, care of which Cattolica s shareholders meeting was held on April 16th. Furthermore, in relation to the purchase, which took place in July, of a property located in Verona, a payment was made towards share capital for 9.3 million and on December 2nd a further payment was made for 7.1 million; in favour of Cattolica Agricola: three payments towards share capital respectively for 11 million, 18 million and 8 million with reference to the purchase of land, equipment and properties adjoining the Cà Tron estate in the municipalities of Quarto d Altino and Venice; in favour of BCC Vita: in December BCC Vita requested the shareholders, also in relation to the development of said insurance company, for a recapitalisation measure totalling 40 million which Cattolica took part in pro rata with a payment towards capital of 15.3 million made in December. The payment of the additional tranche was made in February 2017; in favour of TUA Assicurazioni, for solvency requirements, a payment was made towards share capital for 25 million with the conferral of Government securities; for the purpose of supporting the investments in the IT area envisaged for 2016, the allocation to the share capital of Cattolica Services of the 5 million loan outstanding was agreed, a loan agreed with the Parent Company by means of contract dated December 2015, together with a payment towards share capital of 4 million. Subsequently, additional payments were made towards share capital in August and December, 10 and 11 million respectively. Italian Revenue Agency On conclusion of the tax inspection carried out by the Italian Revenue Agency in relation to 2011, in December the Parent Company signed a proposal for the facilitated definition for IRES (company earnings tax) and IRAP (regional business tax) purposes, avoiding the issue of a notice of assessment and consequent dispute. Supervisory Authority (IVASS) With reference to the Parent Company s shareholders meeting, held on April 25th, 2015, and the questions posed by a number of shareholders in accordance with Article 2408 of the Italian Civil Code during said meeting, CONSOB subsequently requested, with regard to the aspects as per the aforesaid complaint pursuant to Article 2408 of the Italian Civil Code, additional explanations as well as acquired documents for inspection, which were provided by Cattolica during

99 Management Report As things stand it emerges that the Supervisory Authority has disputed a case of failure to activate, by the Company, the Related Parties Committee, indicating the lack of control measures, in the case in question by the Board of Statutory Auditors in office until April The Parent Company and the Board of Statutory Auditors in office during that period, having acquired qualified independent legal opinions, formulated their counter-deductions deeming the dispute unjustified. The proceedings are underway, while - again as things stand - there do not seem to be any disputes or irregularities with regard to the corporate bodies currently in office. In July, IVASS launched inspection activities on BCC Vita and BCC Assicurazioni with regard to underwriting and settlement of insurance coverage combined with mortgages, loans and funding (PPI), which concluded in October. In January, as indicated in the section Events subsequent to the end of the accounting period, the inspection report referring to the inspections carried out was delivered by IVASS. With reference to the notification made by IVASS and received during 2012, for violation of Article 132, paragraph 1, of the Private Insurance Code, in relation to the avoidance of the obligation to contract, with respect to certain categories of insured parties and for specific geographic areas, and to the subsequent order No. 4666/12, received in November 2012, which inflicted a fine of 2 million, and against which the Parent Company has appealed before the competent Regional Tax Tribunal, in September 2016 this appeal was upheld cancelling said measure. The procedures for the reimbursement of the fines originally paid are underway. With reference to the inspection activities on Lombarda Vita started in April by IVASS with regard to governance, the management and control of the investments and the financial risks and the observance of the anti-money laundering legislation, which ended on July 1st, 2016, on October 12th IVASS presented the Board of Directors of the company with the inspection report on the checks carried out. On December 15th, 2016 several of the leading insurance companies operative in Italy in the Motor TPL class, and among these the Parent Company, FATA and TUA Assicurazioni were notified of the opening of a procedure of the Anti-trust Authority for a possible restrictive understanding of the competition in violation of the pertinent legislation. This procedure, according to the matters declared by the Authority, originates from a number of public declarations of representatives of the Generali Group and the Unipol Group referring to the market as a whole; these declarations could, according to the theories of the Authority, cancel out the uncertainty on the future price strategy in the Motor TPL class and fuel the expectation that any increases, being generalised among the main players, will not be followed by the risk of losing customers, or in other words there may have been the manifestation of a restrictive agreement of the competition among the main players. At the time of notification, inspections took place care of a number of insurance companies, not forming part of the Cattolica Group. The procedure is still in the preliminary stages at present. CORPORATE GOVERNANCE AND INTERNAL CONTROL SYSTEM The corporate governance system is proportionate to the nature, the capacity and complexity of the activities of the company, as illustrated in greater detail in the Report on corporate governance and the ownership structures for 2016, pursuant to Article 123-bis of the 99

100 Consolidated Finance Law available in the Parent Company s website at the following address in the Governance section. The Group s Internal Control System is also illustrated within the same. It is hereby mentioned that during the year the Actuarial Unit, established by means of resolution of the Board of Directors dated November 11th, 2015 and set up care of the Parent Company and serving the subsidiaries, achieved full operations with the drafting of the reports on the annual results as of December 31st, Similar to the other second level control units, the Actuarial Unit is hierarchically dependent on the Chief Risk Officer (C.R.O.) of the Group. The Actuarial Unit has the task of overseeing the adequacy of the calculation of the technical provisions and providing an opinion on the sufficiency and fairness of the same. It is also required to issue opinions relating to the underwriting and reinsurance policies and contributes towards effectively applying the risk management system with reference to the modelling of the risks and the assessment of the solvency. Even if not yet strictly obligatory in accordance with the reference legislation, it is envisaged that the Actuarial Unit reports to the corporate bodies at the time of each quarterly closure in relation to its duties within the Solvency II sphere, in concurrence with the monitoring of the Solvency II Ratio. PREVENTION AND COUNTERING FRAUD The Parent Company and its subsidiaries have adopted a specific fraud prevention and countering policy, in which the objectives, the organisational models and the functioning of the company safeguards are defined, also in accordance with the legislative provisions on the subject of countering fraud in the Motor TPL sector. By means of this choice, the Group highlights how the containment of the exposure of the company to the risk of fraud, understood as the risk of suffering economic losses due to the undue conduct of employees or third parties, with possible consequences also in terms of reputation, is a key element in the internal control system. The responsibility model is pervasive and widespread throughout the corporate organisation and is integrated within the internal control system. In compliance with the matters established by Article 30 of Italian Law No. 27 dated March 24th, 2012 and the IVASS Protocol No dated March 11th, 2014, the estimate of the reduction of the charges for motor TPL claims deriving from the assessment of fraud, consequent to control and fraud suppression activities, for the Group, was quantified as 18.2 million ( 13.6 million as of December 31st, 2015). GROUP COMPLAINTS MANAGEMENT The handling of the complaints is entrusted to a specific unit within the Legal Affairs and Corporate Transactions division of the Parent Company, the Complaints group service, appointed as per ISVAP Regulation No. 24 dated May 19th, 2008; it sees to the handling of the complaints made by those who avail of the insurance activities (customers, injured parties, legal advisors, consumer associations). The Unit also contributes towards monitoring the service levels and the company areas in view 100

101 Management Report of possible improvements. On May 31st, 2016 IVASS Provision No. 46 dated May 3rd, 2016 came into force, containing amendments and additions to the ISVAP Regulation No. 24 dated May 19th, 2008, which disciplines the complaints presentation procedure, introducing a specific discipline for the handling of the complaints relating to the insurance brokers, which the Group companies have implemented within the timescales envisaged by the legislation. During the year, with reference to the Group, a total of 3,068 written complaints were registered, of which 1,153 were upheld. The complaints were dealt with, on average, in 14.8 days. DISCLOSURE ON SOLVENCY II FULFILMENTS As from January 1st, 2016, the new Solvency II Directive came into force. For the purpose of implementing the new regulations of the insurance sector effectively, the Group has involved the Board of Directors and Senior Management in a structured manner. In December 2014, the Parent Company s Board of Directors resolved on the request to use specific parameters (USPs) for the determination of the capital requirement, without prejudice to the possibility of achieving the validation of the internal model with the aim of representing and handling the company profile in a more consistent manner. The sphere of application of the use of the specific parameters concerns the Group and the following insurance companies: Cattolica Assicurazioni 5 and TUA Assicurazioni. For the purpose of complying with the indications of the Supervisory Body, the Parent Company has drawn up the documentation necessary for the formal request for approval to use the specific business parameters. On March 16th, 2017 the Board of Directors approved the presentation of the request to the Supervisory Body. During 2016, the company policies were reviewed as envisaged by current legislation, drafted in 2015, along with the related operating procedures. Furthermore, on the basis of recently issued regulations, the new policies for the Parent Company and the subsidiaries were formalised. The Group is currently dealing with a developmental process with regard to IT for the purpose of creating a skill centre so as to ensure the governance of the data quality and the integrated rationalisation of the information systems. The Group has taken steps to send IVASS the results of the internal assessment of the risk and solvency profile (ORSA) on May 31st, 2016, further to the approval of the Board of Directors on May 13th, With regard to the Solvency II Reporting, in accordance with the matters envisaged by the EU 2015/35 regulation and the IVASS letter to the market dated March 31st, 2016 regarding instructions for the forwarding to the Authority of the Solvency II information, in May the quantitative (Quantitative Reporting Templates) and qualitative (Regular Supervisory Report) 5 Consequent to the merger of FATA Assicurazioni Danni within Cattolica Assicurazioni at the end of 2016, Cattolica s specific parameters are gauged on the business volumes of both the insurance companies. 101

102 reporting pertaining to the so-called Day 1 (opening figures as of January 1st, 2016) approved by the respective Boards of Directors, was sent to IVASS for all the Group companies and for the Group. The quantitative information relating to the 1st, 2nd, 3rd and 4th quarters of 2016 was produced and sent for the individual companies in accordance with the legal deadlines. The quantitative information relating to the 1st, 2nd and 3rd quarters has been sent for the Group; the 4th quarter will be sent by April 10th, Furthermore, the Group is subject to the reporting obligations in quantitative terms for the purposes of financial stability, so-called Financial Stability reporting which envisages the forwarding of a set of partial figures within 10 weeks of the end of the reference period for 2016 and which were forwarded on March 10th with regard to the 4th quarter and The annual quantitative reporting relating to 2016, in addition to the qualitative information addressing the Authority and the General Public (Periodic report to IVASS and Report on the solvency and financial condition) will be sent, after the approval of the respective Boards of Directors, by May 20th, 2017 for the company and by July 3rd, 2017 for the Group. INFORMATION SYSTEMS The most important action taken by the IT Division of Cattolica Services is presented below. Applicative measures During the year, the IT division worked on two main lines: the continuation of the realisation of the projects supporting the Business Plan and the control of the quality of the IT services provided to the insurance companies. The integration of FATA in the Group systems and the convergence of the BCC Assicurazioni and Cattolica Divisione Online portfolio on the new non-life platform for multi-channel sales (bank-assurance) were completed during the year. On the basis of the results of a study concluded at the end of 2015, a programme of evolved measures was completed on the systems of the life area aimed at improving the level of service to the sales network and the customers, increasing the automation of the processes with greater incidence of manual functions and improving the control and the overall quality of the data handled. The project for the creation of a new Group life system was also launched. The project for the evolution of the applications supporting the accounts closing, prices/securities catalogue and security sales transaction handling processes was launched. This project was launched in the latter part of 2016 and will be completed in stages in the two-year period The definition of the requisites for the evolution of the risk management systems was completed and a new business intelligence solution was created for the implementation of the new antifraud system. Digital insurance company model The programme of initiatives for a digital transformation of the distribution channel support processes continues for the purpose of implementing an increase in operational efficiency and furthering the commercial effectiveness of the Networks. The main lines of development which will be completed during 2017 are the following: evolved management of the customers (CRM system); 102

103 Management Report mobile sales (quoter, electronic signature, mobile payments); agency ecosystem (marketing portal to render the agency autonomous in the promotional activities, new agency portal, sales force management system, hybrid customer management with multi-channel interaction); dematerialisation of documents. New approaches for the management of capital and finance In this context, the following fulfilments were completed in the Solvency II sphere: the QRT Day 1 and quarterly Full Phase production activities; measures for integration of the historical databases supporting the USP model; activities for the review of the data quality architecture. The certification of the new QRT Full Phase Annual is being completed. The realisation of the ALM (Asset Liability Management) system has been completed. Infrastructures and quality of the IT services The programme for the modernisation of the infrastructures has been launched which, amongst other aspects, extended the timeframe of disbursement of the infrastructural services to 24 hours. The evolution of the disaster recovery solution has been completed and tests have been carried out with the direct involvement of head office users and a number of agents under the supervision of the control units, automated test procedures have been implemented for some of the Group information systems and a project is underway for the extension of the same to all the main applications. MANAGEMENT AND CO-ORDINATION ACTIVITIES ACCORDING TO ARTICLE 2497 ET SEQ. OF THE ITALIAN CIVIL CODE The Parent Company has exercised its management and co-ordination powers in observance of the principles of correct corporate and business management and on a consistent basis with the roles assigned to the individual Group companies. With specific reference to the transactions expressly influenced by the Parent Company, in addition to the transactions indicated in other parts of this report, it should be noted that said transactions concerned, among other things: the resolutions and subsequent activities for adaptation to ISVAP Regulation No. 20 dated March 26th, 2008; the approval of the guidelines for the handling of the risks at Group level, as well as the forecast assessment of the risk and solvency profile within the sphere of the ORSA process; the approval of the risk propensity systems, setting the risk tolerance levels; the adoption of the guidelines for intercompany transactions; the adoption of governance and management approaches and controls which are standard at Group level; the implementation of co-ordinated operating policies; the adoption and the review of the company policies in accordance with the current legislation applicable; the choices concerning the composition, formation and the remuneration of the corporate bodies, management and other significant roles with respect to the governance set up; 103

104 the adoption of safeguards and procedures concerning market abuse, as per EU Regulation No. 596/2014. So as to ensure an evolution of the Group consistent with the lines identified at Parent Company level, the management and co-ordination activities concerned the implementation of coordinated management policies and the definition of a number of development lines of the Group s strategic layout. A number of extraordinary transactions were executed during the year, as already fully described under significant events during the year. The Parent Company also intervened with the recapitalisation transactions necessary for ensuring observance by the subsidiaries of the individual capital ratios envisaged by legislation and by internal regulations concerning the risk tolerance. With regard to financial, tax and administration matters, the central role of Cattolica is highlighted in the definition of the operating lines in which the Group s companies are involved. TAX CONSOLIDATION The subsidiaries which comply with the national tax consolidation system are: ABC Assicura, Berica Vita, BCC Assicurazioni, BCC Vita, Cattolica Agricola, Cattolica Beni Immobili, Cattolica Immobiliare, Cattolica Services, C.P. Servizi Consulenziali, Lombarda Vita, TUA Assicurazioni and TUA Retail. The reasons why the option has been exercised lie in the appropriateness of offsetting the tax positions with an opposite sign between the Group companies, consequently optimising the financial aspects. For the purposes of the regulation of the economic transactions deriving from the compliance with the tax consolidation regime, an agreement was entered into with the Parent Company by each investee company. With reference to the allocations of the economic effects associated with the exercise of the option, the subsidiaries transfer the amounts corresponding to the taxes and advances deriving from their taxable position to the Parent Company; by contrast, they receive from Cattolica the amount corresponding to lower tax paid by the same due to the effects of the use of tax losses transferred by subsidiaries. OWN SHARES HELD BY THE PARENT COMPANY AND BY ITS SUBSIDIARIES The Parent Company s shareholders meeting held on April 16th, upon the proposal of the Board of Directors, approved the plan for the purchase and sale of own shares pursuant to the law: the plan concerns a maximum number of shares equal to 5% of the share capital, for a maximum total equivalent book value of the own shares of 60 million for a period of 18 months from the date of the shareholders meeting resolution. During the year, 2,724,299 shares were purchased and 324,657 sold, for a total price of 15.2 million for purchases and 2.4 million for sales. As of December 31st, the Parent Company held 5,695,187 own shares, equal to 3.3% of the share capital, recorded for an equivalent book value of 39.9 million. 104

105 Management Report TRANSACTIONS WITH RELATED PARTIES Pursuant to CONSOB Regulation No dated March 12th, 2010, and subsequent amendments and additions, as from January 1st, 2011 the Procedure for the management of related party transactions approved by the Board of Directors with last up-date by means of resolution dated December 20th, 2016, applies to the situations envisaged by the regulations. The document relating to this procedure - which should be referred to for details - is published on the website in the Governance section. With reference to disclosure on transactions with related parties, please see Part D - Other information in the notes to the accounts. ATYPICAL OR UNUSUAL TRANSACTIONS AND NON-RECURRENT SIGNIFICANT OPERATIONS AND EVENTS Pursuant to CONSOB DEM/ dated July 28th, 2006, you are hereby informed that no atypical and/or unusual transactions were entered into during the year nor are any non-recurrent significant events or operations with important effects on the Parent Company s accounts indicated. PERFORMANCE OF CATTOLICA STOCK During the year, Cattolica shares recorded a minimum price of 4.98 and a maximum price of The capitalisation of the stock on the market as of December 31st came to 971 million. The stock performance showed a decrease of 24.1%, with respect to a decrease of 10.2% in the FTSE Mib index and a decrease of 16.3% in the FTSE Italia All-Share Insurance Index. Average volumes traded in 2016 were 526,025 transactions. On May 25th 2016, with coupon detachment date on the 23rd of said month, the Parent Company distributed a sole dividend of 0.35 per share. Ratios per share A summary of the main ratios per share is presented below as of December 31st: Table 15 - Ratios per share (in ) Number of outstanding shares (*) 169,820, ,774,210 Premiums written per share (insurance premiums and investment contracts) Group profit per share Group shareholders equity per share (*) The number of shares in circulation is calculated in pursuance of IAS

106 SIGNIFICANT EVENTS DURING THE FIRST FEW MONTHS OF 2017 In January 2017, a Programme Agreement was signed care of the Veneto Regional Authority for the creation of the H-Campus, in relation to which the Parent Company, Cattolica Beni Immobili, Cattolica Agricola, H-Farm and Cassa Depositi e Prestiti, so as to outline the content and the structuring of the property transaction, had signed a letter of intent in November. On January 26th, 2017, IVASS took part in the Board Meeting of BCC Assicurazioni and BCC Vita; in this meeting, the inspection report was handed over with reference to the inspections carried out in the period July - October 2016 regarding the checking of the compliance with the activities carried out in relation to the undertaking and settlement of insurance coverage combined with mortgage loans, loans and finance and, in particular, the observance of the indications provided by means of the IVASS/Bank of Italy letter to the market dated August 26th, On February 24th, 2017 the companies took steps, in line with the required deadlines, to respond to the Supervisory Body, subject to approval by the Boards of Directors meetings held in February 21st, On January 31st, 2017, the Parent Company made a payment towards share capital in favour of Cattolica Beni Immobili for 4.9 million, within the sphere of the plan for dealing with the commitments envisaged for the restructuring and safety measures for the premises used for events care of the Cattolica Center. OUTLOOK FOR BUSINESS ACTIVITIES With regard to the year underway, the trends seen in the last few months are confirmed, at present and without prejudice to extraordinary events, still presenting heavy competition on prices in the non-life classes and the persistent reduction of the life premiums written consequent to the dealings with BPVi, in addition to the elevated volatility on financial markets and low interest rates. THE BOARD OF DIRECTORS Verona, Italy, March 16th,

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109 Consolidated Financial Statements

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111 Statement of financial position CONSOLIDATED FINANCIAL STATEMENTS AS OF DECEMBER 31st 2016 Company: CATTOLICA ASSICURAZIONI GROUP ASSETS ( thousands) INTANGIBLE ASSETS 325, , Goodwill 203, , Other intangible assets 121, ,860 2 TANGIBLE ASSETS 180, , Property 163, , Other tangible assets 17,055 13,870 3 TECHNICAL PROVISIONS - REINSURANCE AMOUNT 689, ,920 4 INVESTMENTS 21,255,230 20,732, Investment property 493, , Investments in subsidiaries, associated companies and joint ventures 70,522 35, Held to maturity investments 242, , Loans and receivables 847, , Available for sale financial assets 16,471,924 15,841, Financial assets at fair value through profit or loss 3,128,960 3,365,426 5 SUNDRY RECEIVABLES 521, , Receivables deriving from direct insurance transactions 394, , Receivables deriving from reinsurance transactions 60,250 62, Other receivables 67,338 49,370 6 OTHER ASSET ITEMS 1,088,257 1,072, Non-current assets or disposal group held for sale Deferred acquisition costs 13,537 12, Deferred tax assets 496, , Current tax assets 391, , Other assets 187, ,439 7 CASH AND CASH EQUIVALENTS 172, ,461 TOTAL ASSETS 24,232,586 24,043,

112 CONSOLIDATED FINANCIAL STATEMENTS AS OF DECEMBER 31st 2016 SHAREHOLDERS EQUITY AND LIABILITIES Company: CATTOLICA ASSICURAZIONI GROUP ( thousands) SHAREHOLDERS EQUITY 2,113,726 2,158, pertaining to the Group 1,854,896 1,911, Share capital 522, , Other equity instruments Capital reserves 780, , Revenue reserves and other equity reserves 453, , (Own shares) -39,907-27, Reserve for net exchange differences Gains or losses on available for sale financial assets 63, , Other gains or losses recognised directly in equity -2,813-1, Profit (loss) for the year pertaining to the Group 76,254 60, pertaining to minority interests 258, , Capital and reserves pertaining to minority interests 231, , Profits or losses recognised directly in equity 10,036 11, Profit (loss) for the year pertaining to minority interests 17,114 20,722 2 PROVISIONS AND ALLOWANCES 54,361 55,321 3 TECHNICAL PROVISIONS 19,485,796 18,899,621 4 FINANCIAL LIABILITIES 1,634,455 1,904, Financial liabilities at fair value through profit or loss 1,353,033 1,622, Other financial liabilities 281, ,381 5 PAYABLES 285, , Payables deriving from direct insurance transactions 66,450 82, Payables deriving from reinsurance transactions 42,604 49, Other payables 176, ,634 6 OTHER LIABILITY ITEMS 658, , Liabilities of disposal group held for sale Deferred tax liabilities 394, , Current tax liabilities 144, , Other liabilities 118,907 60,374 TOTAL SHAREHOLDERS EQUITY AND LIABILITIES 24,232,586 24,043,

113 Income statement CONSOLIDATED FINANCIAL STATEMENTS AS OF DECEMBER 31st 2016 Company: CATTOLICA ASSICURAZIONI GROUP INCOME STATEMENT ( thousands) Net premiums 4,238,801 4,850, Gross premiums written 4,552,328 5,176, Ceded premiums -313, , Commissions income 7,257 5, Income and charges from financial instruments at fair value through profit or loss 37,905 48, Income from investments in subsidiaries, associated companies and joint ventures Income from other financial instruments and investment property 664, , Interest income 486, , Other income 69,445 76, Realised gains 107, , Valuation gains 1,140 6, Other revenues 97,298 94,231 1 TOTAL REVENUES AND INCOME 5,046,998 5,804, Net charges relating to claims -3,887,292-4,520, Amounts paid and change in technical provisions -4,061,827-4,716, Reinsurance amount 174, , Commissions expense -1, Charges from investments in subsidiaries, associated companies and joint ventures -34,881-50, Charges from other financial instruments and investment property -139, , Interest expense -39,960-36, Other charges -2,499-6, Realised losses -41,230-74, Valuation losses -55,648-87, Operating expenses -580, , Commission and other acquisition costs -408, , Operating expenses relating to investments -27,799-27, Other administrative expenses -144, , Other costs -218, ,380 2 TOTAL COSTS AND CHARGES -4,862,127-5,580,465 PROFIT (LOSS) FOR THE YEAR BEFORE TAXATION 184, ,306 3 Taxation -91, ,670 PROFIT (LOSS) FOR THE YEAR NET OF TAXATION 93,368 81,636 4 PROFIT (LOSS) FROM DISCONTINUED OPERATIONS 0 0 CONSOLIDATED PROFIT (LOSS) 93,368 81,636 pertaining to the Group 76,254 60,914 pertaining to minority interests 17,114 20,

114 Statement of comprehensive income CONSOLIDATED FINANCIAL STATEMENTS AS OF DECEMBER 31st 2016 STATEMENT OF COMPREHENSIVE INCOME - Net amounts Company: CATTOLICA ASSICURAZIONI GROUP ( thousands) CONSOLIDATED PROFIT (LOSS) 93,368 81,636 Other income components net of income taxes without reclassification in the income statement -1, Change in the equity of investee companies 0 0 Change in intangible assets revaluation reserve 0 0 Change in tangible assets revaluation reserve 0 0 Income and charges relating to non-current assets or disposal group held for sale 0 0 Actuarial gains and losses and adjustments related to defined-benefit plans -1, Other items 0 0 Other income components net of income taxes with reclassification in the income statement -58,603-32,027 Change in reserve for net exchange differences 0 0 Gains or losses on available for sale financial assets -58,987-29,515 Profits or losses on cash flow hedging instruments 0 0 Profits or losses on instruments hedging a net investment in foreign operations 0 0 Change in the equity of investee companies 384-2,512 Income and charges relating to non-current assets or disposal group held for sale 0 0 Other items 0 0 TOTAL OF THE OTHER COMPONENTS OF THE STATEMENT OF COMPREHENSIVE INCOME -59,969-31,893 TOTAL OF THE CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME 33,399 49,743 pertaining to the Group 17,356 33,117 pertaining to minority interests 16,043 16,

115 The undersigned declare that these financial statements are true and consistent with the underlying accounting records The legal representatives of the company (*) The Chairman PAOLO BEDONI (**) (**) (**) (*) For foreign companies, the signature must be that of the general representative for Italy. (**) Indicate the office covered by the signee. 115

116 Cash flow statement CONSOLIDATED FINANCIAL STATEMENTS AS OF DECEMBER 31st 2016 Company: CATTOLICA ASSICURAZIONI GROUP ( thousands) Profit (loss) for the year before taxation 184, ,306 Changes in non-monetary items 968,329 1,163,912 Change in non-life premiums provision -9,861-16,748 Change in provision for outstanding claims and other non-life technical provisions 22,750 20,680 Change in mathematical provisions and other life technical provisions 804,169 1,019,198 Change in deferred acquisition costs 780-3,323 Change in provisions and allowances ,547 Non-monetary income and charges from financial instruments, investment property and equity investments 101, ,205 Other changes 49,535-13,647 Change in receivables and payables generated by operating activities -119, ,296 Change in receivables and payables deriving from direct insurance and reinsurance transactions -16, ,814 Change in other receivables/payables, other assets/liabilities -102,404 9,482 Taxes paid -69, ,018 Net liquidity generated/absorbed by monetary items pertaining to investments and financing activities -293, ,467 Liabilities from financial contracts issued by insurance companies -293, ,467 Payables due to banking and interbank customers 0 0 Loans and receivables due from banking and interbank customers 0 0 Other financial instruments at fair value through profit or loss 0 0 TOTAL NET LIQUIDITY DERIVING FROM OPERATIONS 671,189 1,701,963 Net liquidity generated/absorbed by investment property -135,601-25,717 Net liquidity generated/absorbed by investments in subsidiaries, associated companies and joint ventures -69,055 0 Net liquidity generated/absorbed by loans and receivables 32,352 95,942 Net liquidity generated/absorbed by held to maturity investments 5,000 7,628 Net liquidity generated/absorbed by available for sale financial assets -941,022-1,374,338 Net liquidity generated/absorbed by tangible and intangible assets -80,593-51,814 Other net liquidity flows generated/absorbed by investment activities 247, ,372 TOTAL NET LIQUIDITY DERIVING FROM INVESTMENT ACTIVITIES -941,648-1,498,671 Net liquidity generated/absorbed by capital instruments pertaining to the Group 0 0 Net liquidity generated/absorbed by own shares -12,763-15,121 Distribution of dividends pertaining to the Group -59,554-60,164 Net liquidity generated/absorbed by capital and reserves pertaining to minority interests -5,630 5,390 Net liquidity generated/absorbed by subordinated liabilities and by participative financial instruments 0 0 Net liquidity generated/absorbed by sundry financial liabilities ,630 TOTAL NET LIQUIDITY DERIVING FROM FINANCING ACTIVITIES -78, ,525 Effect of the exchange differences on cash and cash equivalents 0 0 CASH AND CASH EQUIVALENTS AT THE BEGINNING OF THE YEAR 521, ,694 INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS -349, ,767 CASH AND CASH EQUIVALENTS AT THE END OF THE YEAR 172, ,

117 Statement of changes in shareholders equity CONSOLIDATED FINANCIAL STATEMENTS AS OF DECEMBER 31st 2016 Company: CATTOLICA ASSICURAZIONI GROUP ( thousands) Balance December 31st, 2014 Change in closing balances Charges Adjustments from reclassification to income statement Transfers Changes in investment holdings Balance December 31st, 2015 Share capital 522, ,882 Other equity instruments Shareholders equity Capital reserves 791, ,877 pertaining to Revenue reserves and other equity reserves 422, ,342-60, ,233 the Group (Own shares) -12, ,121-27,144 Profit (loss) for the year 90, , ,914 Other components of the statement of comprehensive income 147, ,225-15, ,061 Total pertaining to the Group 1,962, ,982-15,572-75, ,911,823 Shareholders equity Capital and reserves pertaining to minority interests 193, ,691-10, ,047 pertaining to Profit (loss) for the year 16, , ,722 minority interests Other components of the statement of comprehensive income 15, , ,107 Total pertaining to minority interests 225, , , ,876 TOTAL 2,188, ,642-16,322-85, ,158,699 ( thousands) Balance December 31st, 2015 Change in closing balances Charges Adjustments from reclassification to income statement Transfers Changes in investment holdings Balance December 31st, 2016 Share capital 522, ,882 Other equity instruments Shareholders equity Capital reserves 790, , ,835 pertaining to Revenue reserves and other equity reserves 444, ,990-59, ,669 the Group (Own shares) -27, ,763-39,907 Profit (loss) for the year 60, , ,254 Other components of the statement of comprehensive income 120, ,440-28, ,163 Shareholders equity Total pertaining to the Group 1,911, ,848-28,458-72, ,854,896 Capital and reserves pertaining to minority interests 215, ,963-20, ,680 pertaining to Profit (loss) for the year 20, , ,114 minority interests Other components of the statement of comprehensive income 11, , ,036 Total pertaining to minority interests 246, , , ,830 TOTAL 2,158, ,152-28,478-92, ,113,

118 The undersigned declare that these financial statements are true and consistent with the underlying accounting records The legal representatives of the company (*) The Chairman PAOLO BEDONI (**) (**) (**) (*) For foreign companies, the signature must be that of the general representative for Italy. (**) Indicate the office covered by the signee. 118

119

120

121 Reconciliation statement of the result of the period and shareholders equity of the Group and the Parent Company

122

123 Reconciliation statement of the result of the period and shareholders equity of the Group and the Parent Company CONSOLIDATED FINANCIAL STATEMENTS AS OF DECEMBER 31st 2016 Company: CATTOLICA ASSICURAZIONI GROUP ( thousands) Capital and reserves Profit (loss) for the year Shareholders equity Parent Company amounts It Gaap 1,812,038 63,708 1,875,746 Adjustment Ias/Ifrs - Parent Company 231,225 19, ,243 Parent Company amounts IAS/IFRS 2,043,263 82,726 2,125,989 Netting of the book values of the equity investments included in the consolidation area: - difference between the book value and the pro-quota value of the shareholders equity -192, ,986 - pro-quota results of investee companies 0 49,187 49,187 - capital gains from sale of equity investments recorded in the consolidated fin. stat goodwill 184, ,479 - value of portfolio 9,874-1,394 8,480 Netting of infra-group transactions: - dividends from consolidated companies 56,506-56, write-back of effects of equity investment transfers reversal of infra-group real estate transactions reversal of effects of mergers/disposals of business segments among Group companies -319, ,077 - writebacks of writedowns -3,207 3, shadow accounting on writedowns Tax effects of above-mentioned consolidation adjustments -1, ,661 Effects associated with non-consolidated companies: Effects associated with the valuation of non-consolidated companies Dividends from associated companies 1,881-1,881 0 Shareholders equity and net profit pertaining to the Group 1,778,642 76,254 1,854,896 Shareholders equity and net profit pertaining to minority interests 241,716 17, ,830 CONSOLIDATED SHAREHOLDERS EQUITY AND NET PROFIT 2,020,358 93,368 2,113,

124 The undersigned declare that these financial statements are true and consistent with the underlying accounting records The legal representatives of the company (*) The Chairman PAOLO BEDONI (**) (**) (**) (*) For foreign companies, the signature must be that of the general representative for Italy. (**) Indicate the office covered by the signee. 124

125

126

127 Notes to the accounts

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129 Notes to the accounts Part A - Basis of presentation and consolidation area

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131 Part A Basis of presentation and consolidation area Notes to the accounts Applicable legislation The consolidated financial statements have been drawn up by the Parent Company Cattolica di Assicurazione Soc. Coop. pursuant to Article 154-ter, section 1 of Italian Legislative Decree No. 58 dated February 24th, 1998 Regulations concerning financial brokers and Article 95 of Italian Legislative Decree No. 209 dated September 7th, 2005, in compliance with the provisions of the IAS/IFRS international accounting standards and the SIC/IFRIC interpretations, taking as reference those approved by the European Commission by December 31st, 2016; they are compliant with the ISVAP Regulation No. 7 dated July 13th, 2007, relating to the technical forms of the consolidated financial statements drawn up on the basis of the international accounting standards (IAS/IFRS) and their subsequent amendments made under ISVAP Provision No dated March 8th, 2010, IVASS Provision No. 14 dated January 28th, 2014, IVASS Provision No. 21 dated October 21st, 2014, IVASS Provision No. 29 dated January 27th, 2015 and IVASS Provision No. 53 dated December 6th, The provisions set forth by Consob Regulation No dated May 14th, 1999 and subsequent additions and amendments, and Consob recommendations, have also been followed. Recommendations contained in the joint Bank of Italy/CONSOB/ISVASS Documents regarding the application of the IAS/IFRS and the Consob communications regarding the areas deemed to be of greatest relevance indicated by ESMA were also taken into consideration. Accounting reference date The consolidated financial statements closed as of December 31st, 2016, a date which coincides with that of the financial statements of all the companies included within the consolidation area. The statements drawn up according to the international accounting standards (IAS/IFRS) as approved by the Boards of Directors of the respective companies who are not obliged to adopt the afore-mentioned international accounting standards for the purpose of drawing up the annual financial statements have been used for the preparation of the consolidated financial statements. Cattolica Life and Cassa di Risparmio di San Miniato prepared their financial statements in compliance with the international accounting standards. The statements drawn up by the management companies have been used for the funds. CONSOLIDATION METHODS a) Line-by-line consolidation Pursuant to IFRS 10, the line-by-line method was used to consolidate all subsidiaries in relation to which the Parent Company is exposed to variable returns, or holds rights on these returns, deriving from its relationship with the same, and at the same time has the ability to affect said returns by exercising its power over the subsidiaries. When using the line-by-line consolidation method, the book value of the investments is eliminated against the related shareholders equity and all the assets and liabilities of the subsidiary company, including potential liabilities, are included. The positive difference which is generated between the purchase cost and the fair value of the net shareholdings acquired, independently identifiable, with reference to the date of acquisition of control over the investment, is recorded under the items Goodwill or Other intangible assets. This value is subject to an annual impairment test as governed by IAS

132 In the periods subsequent to the acquisition of control, the difference between the book value of the investment and the portion of shareholders equity pertaining to the Group is recorded, for the part exceeding the above described allocation referring to the acquisition date, in the item revenue reserves and other reserves. The portions of shareholders equity, inclusive of the fair value as of the date of acquisition of the equity investment, and of the net result for the period pertaining to minority interests, are recorded in specific statement of financial position liability and income statement accounts. b) Equity method In accordance with IAS 28, the equity method is applied to investments in associated companies. The equity method was also applied for the companies subject to significant influence and consolidated as per IFRS 10. By means of this method, the book value of the investment is adjusted in the consolidated financial statements in order to reflect the book value of the shareholders equity pertaining to the Group, which can be taken from the last set of financial statements of the investee company and adjusted by the sum total of the dividends distributed by said company. If the cost is greater than the pertinent portion of shareholders equity, the difference remaining from the recognition to amortisable/depreciable assets is identified as goodwill implicitly recognised in the item Investments in subsidiaries, associated companies and joint ventures, and subject to impairment testing as governed by IAS 36. The effects of the equity method on the Group s shareholders equity and consolidated result for the period are identical to those produced by line-by-line consolidation. c) Companies carried at cost d) Main consolidation adjustments The cost method is used to value investments in subsidiaries which, due to their size, are considered not to be significant and whose exclusion from the consolidation area does not prejudice the reliability of the representation of the equity and financial standing, the economic result and the financial flows of the Group. The main consolidation adjustments are: the elimination of balances and of infragroup transactions, including revenues, costs and dividends collected; the elimination of gains and losses deriving from infragroup transactions included in the book value of the assets and liabilities; the determination of the deferred taxation, in accordance with the methods envisaged by IAS 12, on the temporary differences deriving from the elimination of gains or losses originating from infragroup transactions; the adjustment of the effects recorded in individual financial statements, generated by extraordinary infragroup transactions. The decreases in value emerging subsequent to infragroup transactions are maintained in the consolidated financial statements. 132

133 Notes to the accounts CONSOLIDATION AREA The consolidation area includes the financial statements of the Parent Company and those of the subsidiaries, in accordance with IFRS 10. During the year, the consolidation area changed from that as of December 31st, 2015 due to: the completion in March of the liquidation of Prisma s.r.l. in liquidazione ; the acquisition, as from June 27th, 2016 of 51% of the share capital of the agent company Agenzia Generale Agrifides s.r.l. (formerly Agenzia Generale Coldiretti s.r.l. ); the finalisation of the merger deed for Cattolica Services Sinistri within Cattolica Services on December 7th, The deed became effective as from p.m. on December 31st, 2016, with accounting and tax effects as from January 1st, 2016; the finalisation of the merger deed for FATA within Cattolica on December 22nd, The deed became effective as from p.m. on December 31st, 2016, with accounting and tax effects as from January 1st, As of December 31st, 2016, the consolidation area comprised eight insurance companies, two companies which carry out agricultural-real estate activities, four service companies and three real estate property mutual funds. In addition to the companies in the consolidation area, the Group includes a banking company, two service companies and, as from August, 51% of Fondo Immobiliare Mercury, structured in three segments, which is valued using the equity method since it is subject to joint control. Significant assumptions and assessments for establishing the consolidation area The reason why the Cattolica Group believes it does not control the internal insurance funds (in relation to which it holds 100% of the units in circulation), the equity and real estate funds and the SPV segments held, lies in the failure to jointly observe all the conditions envisaged for control as per IFRS 10. In detail, in relation to these investments, the Cattolica Group believes that the following conditions are not satisfied: exercise of power over the entity subject to investment; being subject in a significant manner to the variable returns of the entity subject to investment; being able to exercise its power over the entity subject to investment so as to affect the amount of the returns of the same. The analysis carried out by the Cattolica Group, also by means of the aid of independent experts, concerned the following non-consolidated structured entities in particular: the open-end mutual investment fund Leadersel Dynamic; the closed-end mutual investment fund Vegagest Networth; the notes issued by special purpose vehicles (SPVs). These activities, having taken into account that the conditions envisaged for the control by IFRS 10 are not satisfied, are classified in the consolidated financial statements in the category 133

134 Available for sale in item 4.5 of the statement of financial position - available for sale financial assets (AFS) and in the category Loans and receivables (LOANS) in item 4.4 of the statement of financial position, on a consistent basis with the characteristics and the provisions of IAS 39. The valuation of these entities recognised in the Available for sale category is at fair value; the amortised cost for the entities recognised under LOANS. The following table lists the companies included in the consolidated financial statements on a consolidated line-by-line basis, in accordance with IFRS 10. Table 16 - Consolidation area (ISVAP Regulation No. 7 dated July 13th, 2007) Name Registered offices and operating headquarte rs Method (1) Activity (2) % direct investment % total holding (3) % of votes available during ordinary shareholders meetings (4) % consolidati on Società Cattolica di Assicurazione - Soc. Coop. 086 G 1 ABC Assicura s.p.a. 086 G % 60.00% 100% BCC Assicurazioni s.p.a. 086 G % 51.00% 100% BCC Vita s.p.a. 086 G % 51.00% 100% Berica Vita s.p.a. 086 G % 60.00% 100% C. P. Servizi Consulenziali s.p.a. 086 G % % 100% Cattolica Agricola s.a.r.l. 086 G % % 100% Cattolica Beni Immobili s.r.l. 086 G % % 100% Cattolica Immobiliare s.p.a. 086 G % % 100% Cattolica Life d.a.c. 040 G % 60.00% 100% Cattolica Services s.c.p.a. 086 G % 99.96% 100% Fondo Euripide 086 G % 85.36% 100% Fondo Macquarie Office Italy 086 G % 87.88% 100% Fondo Perseide 086 G % 88.73% 100% Lombarda Vita s.p.a. 086 G % 60.00% 100% TUA Assicurazioni s.p.a. 086 G % 99.99% 100% Agenzia Generale Agrifides s.r.l. 086 G % 51.00% 100% (1) Method of consolidation: Line-by-line=G, Proportional=P, Line-by-line by single HQ=U. (2) 1=Italian insurance; 2=EU insurance; 3=non-EU insurance; 4=insurance holding company; 4.1 = mixed financial holding company; 5=EU reinsurance; 6=non-EU reinsurance; 7=banks; 8=SGR; 9=other holding; 10=property 11=other (3) This is the product of the investment relationships relating to all the companies which, placed along the investment chain, may be interposed between the company that draws up the consolidated financial statements and the company in question. If the latter is directly invested in by several subsidiariess, it is necessary to add together the individual products. (4) Overall percentage available of the votes at ordinary shareholders meeting if different from direct or indirect shareholding. The subsidiaries invested in linked to bankassurance agreements are as follows: Berica Vita, Cattolica Life and ABC Assicura with the banking partner Banca Popolare di Vicenza; Lombarda Vita with the banking partner UBI; BCC Vita and BCC Assicurazioni with the partner ICCREA. These agreements contain rights of protection of the minority interests which cannot significantly limit Cattolica s ability to access the assets, or use them, or discharge the liabilities of the Group (IFRS 12, section 13, letter b). 134

135 Notes to the accounts The Cattolica Group in fact controls all the significant activities, with the exception of the sale of the product, carried out by the banking partner. The agreements also envisage that the Cattolica Group and the banking partners must operate in favour of the investee companies making sure that in the same the protective rights of the minorities are recognised, in particular within the sphere of extraordinary transactions and/or the undertaking of strategic policies inconsistent with the shared objectives of the partnerships. Mention is also made of the possibility for the party which has control (Cattolica) to recover the value of the assets in the event the partnership ceases. The agreements have the purpose of protecting both the parties from the risk of any conduct not consistent with the pacts. In conclusion, these protection rights relate to qualified majorities envisaged for deeds of transfer of assets or rights in bulk, deeds of transfer of businesses or business segments, as well as equity investments, provided that the fee for the individual transaction is higher than a pre-established threshold, as well as to financial transactions of any kind when the related fee of the individual transaction is higher than pre-established thresholds of the shareholders equity. The table which follows includes the information pursuant to IFRS 12 on Group subsidiaries with significant minority controlling interest. In detail, all the minority interests relating to bank-assurance agreements outstanding with reference to Berica Vita, Cattolica Life, ABC Assicura, Lombarda Vita, BCC Vita and BCC Assicurazioni are considered significant. Furthermore, so as to provide complete disclosure, also the minority interests over 10% relating to consolidated funds are represented. 135

136 Table 17 - Consolidation area: equity investments in companies with significant minority interests (ISVAP Regulation No. 7 dated July 13th, 2007) Summary income statement-financial figures ( thousands) Name % minority interests % of votes available during ordinary shareholders meetings to minority interests (1) Consolidated profit (loss) pertaining to minority interests Shareholders equity pertaining to minority interests TOTAL ASSETS Investments Technical provisions Financial liabilities Shareholders equity Net profit (loss) for the year Dividends distributed to minority interests Gross premiums written ABC Assicura s.p.a % 127 6,486 61,236 27,933 37, , ,958 BCC Assicurazioni s.p.a % -1,127 6,617 79,471 26,500 49,989 2,222 13,504-2, ,685 BCC Vita s.p.a % 4,201 81,225 2,868,689 2,749,277 2,632, ,766 8,573 3, ,024 Berica Vita s.p.a % 3,592 33,532 1,394,334 1,308,816 1,267, ,829 8,979 3, ,568 Cattolica Life d.a.c % 178 9, , , , ,221 22, ,505 Fondo Euripide 14.64% 1,108 32, , , , ,944 7,566 1,389 0 Fondo Macquarie Office Italy 12.12% , , , ,724 3, Fondo Perseide 11.27% , ,560 93, ,781 5, Lombarda Vita s.p.a % 10, ,747 7,399,474 7,074,458 6,666, , ,367 27,081 12,600 1,351,514 (1) Overall percentage available of the votes at ordinary shareholders meeting if different from direct or indirect shareholding Table 18 - Interest holdings in non-consolidated structured entities (ISVAP Regulation No. 7 dated July 13th, 2007) ( thousands) Name of the structured entity Revenues received from the structured entity during the reference period Book value (as of the transfer date) of the assets transferred to the structured entity during the reference period Book value of the assets recognised in the financial statements and related to the structured entity Corresponding item of the statement of financial position assets Book value of the liabilities recognised in the financial statements and related to the structured entity Corresponding item of the statement of financial position liabilities Maximum exposure to impairment risk Boats Investment (NL) B.V. 1,785 31, Investments 31,631 Dunia Capital B.V. 4, , Investments 131,909 Elm B.V. 1,623 74, Investments 74,210 Novus Capital (LU) S.A. 7, , Investments 140,221 Transalp One Securities P.l.c. 3,268 59, Investments 59,081 Novus Capital (IE) P.l.c. 3,434 50, Investments 50,954 Lunar Funding V P.l.c. 1,650 25, Investments 25,454 Vegagest Networth A 0 2, Investments 2,676 Leadersel Dynamic 4, , Investments 106,860 The structured entities identified by the Group include million represented by special purpose vehicle (SPVs) with underlying securities issued by the Italian government and swaps and million represented by investment funds. 136

137 Notes to the accounts There are no circumstances which might compromise the recovery of the initial investment for reasons not attributable to the deterioration of the credit of the issuer or the assets of the structured entity, as well as for any other financial instrument. The companies valued using the equity or cost method follow: 1) The following companies are accounted for using the equity method in accordance with IAS 28 and IFRS 11: Associated companies and Joint ventures Cassa di Risparmio di San Miniato s.p.a. with registered offices in San Miniato (PI), share capital of million; it carries out banking activities. The Parent Company holds a direct investment of 25.12%; All Risk Solutions s.r.l. with registered offices in Rome, share capital 10 thousand, carries out insurance agency activities. The Parent Company holds a direct investment of 20.00%; Multi-segment real estate investment fund known as Mercury. The Parent Company subscribed units equal to around 51% in each of the three segments for a total of million. 2) The following company is carried in the consolidated financial statements at cost, since it is not significant and its exclusion from the consolidation area does not prejudice the reliability of the representation of the financial and equity standing, the economic result and the financial flows of the Group: Subsidiary company TUA Retail s.r.l. with headquarters in Milan, share capital of 50 thousand. It is whollyowned by TUA Assicurazioni. It carries out the general agency activities of TUA Assicurazioni. A schedule of the Group companies with indication of the consolidation method adopted is shown below. 137

138

139

140

141 Notes to the accounts Part B - Accounting principles

142

143 Part B Accounting principles Notes to the accounts Format Accounting standards New standards and interpretations acknowledged by the EU The statement of financial position, income statement, statement of comprehensive income, statement of changes in equity, cash flow statement and these notes to the accounts have been drawn up in accordance with the formats laid down by the instructions in ISVAP Regulation No. 7 dated July 13th, 2007, amended by means of IVASS Instruction No. 53 dated December 6th, The accounting standards adopted for the preparation of the consolidated financial statements are consistent with the provisions of each IAS/IFRS standard and each SIC/IFRIC taking as reference those ratified by the European Commission. Applicable since 2016 The following amendments came into force as from January 1st, 2016: IAS 19 Defined Benefit Plans: Employee Contributions. The amendment refers to the recognition in the financial statements of the contributions made by the employees or by third parties to defined benefit plans; IFRS 11 Joint Arrangements - Accounting for acquisitions of interests in joint operations. The amendment refers to the recording in the accounts of the acquisition of interests in a joint operation, whose assets represent a business; IAS 16 Property, plant and Equipment and IAS 38 Intangibles Assets - Clarification of acceptable methods of depreciation and amortisation. The amendments made disclose how an amortisation/depreciation criteria based on the revenues should as a rule be considered inappropriate, since the revenues generated by an asset, which includes the use of the assets subject to amortisation/depreciation, generally reflect factors differing from just consumption of the economic benefits of said asset, a requirement which by contrast is required for the amortisation/depreciation. IAS 1 Disclosure Initiative. The objective of the amendments is to provide clarifications with regard to disclosure elements which can be perceived as impediments to a clear and intelligible drafting of the financial statements. The adoption of these amendments has not had any effect on the Group s consolidated financial statements. Approved, applicable after 2016 The following accounting standards were approved by the IASB and may be applied to the financial statements which start as from January 1st, 2018: IFRS 9 Financial Instruments introduces new criteria for the classification and recognition of the financial assets and liabilities, for the estimate of the losses on receivables and introduces a new hedge accounting model; in September 2016, the IASB published an amendment (Applying IFRS 9 Financial Instruments with IFRS 4 Insurance Contracts Amendments to IFRS 4) which provides insurance companies with the faculty to postpone (in any event not after 2021) the application of the standard (so-called deferral approach ) or suspend the greater volatility introduced by the new standard on the individual securities to equity (so-called overlay approach ). IFRS 15 Revenue from Contracts with Customers envisages a new method for recognising the revenues, excluding those disciplined by other IAS/IFRS standards 143

144 such as insurance agreements and financial instruments. Reporting currency used in the financial statements Foreign currency items Section 1 The reporting currency for the consolidated financial statements is the Euro. The report has been drawn up in thousands of Euro without decimals, duly rounded off as per the applicable legislation. The amounts have been rounded up or down to the closest unit. The rounded off amount of totals and subtotals in the balance sheet and income statement is the sum of the rounded off amounts of the individual items. In accordance with IAS 21 the monetary assets and liabilities in foreign currency, with the exception of financial instruments, are recorded using the spot exchange rate ruling as of the period end date and the related exchange gains and losses are recognized to the income statement. Illustration of the accounting principles The accounting principles used to draw up the consolidated financial statements are the same as those used to prepare the IAS/IFRS statements of the Parent Company and the other Group companies who are not obliged to adopt the afore-mentioned international accounting standards for the purpose of drawing up the statutory financial statements. Cattolica Life prepared its financial statements in compliance with the international accounting standards. No significant consolidation adjustments were necessary in order to adapt the consolidated companies accounting standards and policies to those of the Parent Company, with the exception of investment property held by the real estate property funds which in their accounts value said properties at fair value and therefore, for the purpose of the consolidated financial statements, are stated at historic cost net of the related accumulated depreciation. The preparation of the Group s financial statements requires the directors to make discretional evaluations, estimates and hypotheses which influence the revenue, cost, asset and liability values, and the indication of potential liabilities at the date of the financial statement. These estimates were carried out with particular attention to the impact of the market conditions on the disclosure made in the financial statements and mainly concerning: the impact deriving from the application of the new accounting standards on the financial statements in the year of initial application, which could lead to significant changes with regard to the recognition, measurement and presentation of assets, liabilities, revenues, costs and cash flows; the technical provisions; the fair value of the assets and liabilities if not directly observable on active markets; the disclosure of the fair value of non-financial assets and liabilities; the analysis for the purpose of the impairment test on intangible assets; the recoverable nature of the prepaid taxes; the defined-benefit plans; the provisions and allowance for risks and charges. The uncertainty regarding these hypotheses and estimates could lead to results which in the future require a significant adjustment in the book value of these assets and/or liabilities. 144

145 Notes to the accounts Going concern According to the provisions of Bank of Italy/CONSOB/ISVAP document No. 2 dated February 6th, 2009, it should be noted that the economic outlook is positive, even though there are uncertainties linked to the performance of the markets and rates in particular, taking account of the timescales and ways in which the current situation is developing. The Group s solid fundamentals do not generate or leave any doubts regarding the company as a going concern. INTANGIBLE ASSETS STATEMENT OF FINANCIAL POSITION Goodwill The item comprises the goodwill acquired in the business combinations as established by IFRS 3. The goodwill deriving from consolidation represents the additional value of the purchase cost when compared with the value of the assets, liabilities and potential liabilities, valued at fair value, of the subsidiary company. The goodwill is stated as an asset and recorded at cost less the accumulated impairment losses. As prescribed by IAS 36, an impairment test is carried out at least once a year, the procedure having been approved by the Board of Directors. On the basis of the provisions of IAS 36, it is analysed whether any trigger events have taken place such as stock market capitalisation lower than the Group s shareholders equity or whether the flows of the cash generating units to which the goodwill is allocated have registered significant negative deviations; if this occurs, the value of the goodwill is subjected to a specific impairment test, based on discounted cash flow techniques. A permanent loss in value is recorded if the book value of the cash generating unit to which the goodwill refers is greater than its recoverable value, or the greater value between the value in use and the fair value net of the sales costs; this loss in value reduces the book value of the goodwill and residually that of the other assets of the cash generating unit in proportion to their book value. Other intangible assets In the event of the disposal of a subsidiary company, the residual amount of the goodwill ascribable to the same is included in the disposal value and therefore in the determination of the capital gain or loss on the disposal. The item comprises the assets defined and disciplined by IAS 38. It also includes the value of the insurance portfolio acquired as part of the business combination transaction and by contrast, excludes deferred purchase costs. An intangible asset is recorded among the assets, and therefore capitalised, only when it is subject to the control of the company, it is identifiable and it is probable that it will generate future economic benefits and when the cost can be reliably determined. These assets are valued at cost net of accumulated amortisation and write-downs against impairment losses. There are no intangible assets present in the financial statements with an unspecified useful life as established in IAS 38. The depreciable value is systematically allocated to the accounting periods which make up the useful life of the asset, starting off from the moment that said asset becomes available for use, 145

146 TANGIBLE ASSETS or finds itself in the position and under the conditions necessary for being used according to the intentions of the Company. In general, except in specific cases, the useful life is established as 5 years with an amortisation rate of 20% per annum for all the intangible assets with the exclusion of insurance portfolios whose period of amortisation ranges from six to twelve years. Intangible assets are periodically subject to the impairment test. Property This item includes the property intended to be used for business activities. These assets are valued at cost net of related accumulated depreciation and any impairment losses. Cost comprises the related charges directly ascribable to the purchase and the putting into operation of the asset. For entire premises, the value of the land is separated from the value of the building; the latter is depreciated. The depreciation of the buildings is calculated, on a straight-line basis, in relation to the useful life estimated as thirty-three years. Ordinary maintenance costs are charged to the income statement; those which by contrast lead to an increase in value, or the functionality or useful life of the assets, are allocated to the assets and depreciated. Property intended to be used for business activities is periodically subject to verification of whether the book value is recoverable or not, and is eliminated from the financial statements following disposal or in the event of the depletion of the expected economic benefits. Other tangible assets This category includes movable assets, furnishings, office machines, means of transport, plant and equipment. These assets are valued at cost net of accumulated depreciation and any impairment losses. The depreciation is calculated, on a straight-line basis, in relation to the estimated useful life of the related assets using economic-technical rates. The book value of the tangible assets is subject to verification so as to reveal any impairment losses. INVESTMENTS Investment property This item includes the property held for investment purposes (IAS 40); the purpose of the ownership of said property is so that the Company receives rental payments, or so as to increase the value of the investments, or both. This category also includes property intended to be sold, which in any event does not comply with the requisites anticipated by IFRS 5, since these are assets originally held so as to gain profit from the appreciation of the capital. For entire premises, the value of the land is separated from the value of the building; the latter is depreciated. 146

147 Notes to the accounts These assets are valued at cost net of related accumulated depreciation and any impairment losses. The depreciation of the buildings is calculated, on a straight-line basis, in relation to the useful life. Ordinary maintenance costs are charged to the income statement in the year that they are incurred; those which by contrast lead to an increase in value, or the functionality or useful life of the assets, are allocated to the assets and depreciated. Investment property is periodically subject to verification of whether the book value is recoverable or not, and are eliminated from the financial statements following disposal or in the event of the depletion of the expected economic benefits. Investments in subsidiaries, associated companies and joint ventures When determining the investment relationship, the definitions of control, significant influence and joint control anticipated by IFRS 10 and 11 have been used. This item also includes equity investments in subsidiaries considered to be of an insignificant entity with respect to the Group. Equity investments in subsidiaries are stated by adopting the line-by-line consolidation method in pursuance of IFRS 10. Equity investments in associated companies and joint ventures are accounted for in the financial statements using the equity method. The book value is subject to assessment so as to reveal any losses due to permanent reductions in value. Equity investments in subsidiary and associated companies and in joint ventures are eliminated from the financial statements when, following disposal or other events, the requisites envisaged by IFRS 10 and 11 for their recording cease to exist. FINANCIAL ASSETS The definition of financial assets includes the receivables from financing activities, debt securities and equities, units in mutual investment funds, loans on policies, reinsurance deposits and other assets. Financial assets are eliminated from the financial statements when, subsequent to maturity, disposal or another event, the contractual rights on the related financial flows are transferred, in addition to the associated risks and benefits. The purchases and sales of a financial asset are recorded as at the settlement date. The main accounting principle with regard to financial assets is the fair value which is determined by means of the use of prices acquired from public listings, in the event of instruments listed on active markets, or by means of the use of valuation models. An instrument is considered as listed on an active market if the listed prices are promptly and duly available via stock markets, brokers, intermediaries, companies specialized in the sector, listing services or regulatory bodies and represent effective and regular market transactions 147

148 which have taken place within an adequate reference interval promptly adapting to market changes. In the absence of an active market or a market which does not have a sufficient or permanent number of transactions, the fair value is determined by means of the use of valuation models, generally applied and accepted by the market, with the aim of determining the exchange price of a hypothetical transaction which has taken place under market conditions which can be defined as normal and independent. Recourse to the valuation techniques aims to minimise the use of the inputs not observable on the market, favouring the use of observable data. The main techniques used are as follows: market approach: prices and other significant information are used generated by market transactions carried out on identical or similar instruments; cost approach: this reflects the approach which would be requested at the time of the valuation to replace the service capacity of an asset; income approach: the future cash flows are converted to their current value. Essentially for the financial assets and liabilities in the portfolio as of the valuation date, the market approach and income approach type techniques are used. The fair value hierarchical levels are based on the nature and the degree of observability of the inputs used in the valuation techniques employed: level 1: these are listed prices (not adjusted) observed on active markets; level 2: these are inputs other than the prices listed on active markets as per level 1 and which can be observed for the asset or liability both directly and indirectly (for example prices listed on active markets for similar assets and liabilities, prices listed for identical assets and liabilities on non-active markets, input other than listed prices which can be observed on the market, input corroborated by the market); level 3: these are input which cannot be observed for the asset or liability, which reflect the assumptions that the market participants should use in the recognition of the assets and liabilities, including the risk hypotheses. The identification of the hierarchical level to be assigned to a financial instrument is carried out on the basis of the hierarchical level corresponding to that of the lowest significant input used. Suitable controls are carried out on all the valuations used, including those deriving from third parties. The instruments for which the inputs used are not corroborated by the market are considered at level 3 of the fair value hierarchy. Unlisted securities or those listed on non-active markets, such as corporate and government bonds securities issued by Special Purpose Vehicles and unlisted derivatives valued using models which use inputs which can be observed on the market, mortgage debt securities, unlisted UCITS and SICAV units, are classified as level 2 in the fair value hierarchy. Corporate and government bonds, securities issued by Special Purpose Vehicles and unlisted derivatives valued using models which use inputs which cannot be observed on the market, instruments unlisted or listed on inactive and illiquid markets such as unlisted real estate funds, 148

149 Notes to the accounts unlisted hedge funds, private equity, are classified as level 3 in the fair value hierarchy. This level also includes debt securities and equities in default if valued at the recovery value on the basis of non-observable input and Enel Ania notes. With regard to financial liabilities valued at fair value, the estimate of the fair value is carried out with reference to the level of the corresponding asset. Held to maturity investments (HTM) Financial assets considered to be of long-term use, excluding financial derivative instruments, with a pre-established maturity and payments which are fixed or can be determined, which the individual Group companies intend to and have the ability to hold until maturity, are classified in this category. The initial recording takes place at cost inclusive of the charges and income directly attributable thereto. Subsequently, the investments are valued at amortised cost, net of any impairment losses, using the effective interest rate. The amortisation rate thus calculated is recorded in the income statement. On the closure of each set of financial statements, it is assessed if objective proof exists of any impairment losses. In accordance with the provisions of IAS 39, it is possible to make a reversal of impairment, if the reasons for the impairment losses have been removed, up to the limit of the previous writedown. In the event of early disposal or transfer to another category, of a significant amount not justified by particular events, the entire category is reclassified among the assets available for sale. Loans and receivables Assets, excluding financial derivative instruments, with a pre-established maturity and payments which are fixed or can be determined, not listed on active markets, which are not recorded in any of the other categories, are classified in this category. Specifically, the category includes all the loans and financing, the deposits from re-insurers with ceding companies and bonds not listed on active markets considered to be of long-term use. Loans and receivables are valued at amortised cost, net of any impairment losses, using the effective interest rate. The amortisation rate thus calculated is recorded in the income statement. On the closure of each set of financial statements, it is assessed if objective proof exists of any impairment losses. Available for sale financial assets (AFS) On a residual basis, this category includes all the equities, debt securities which are not classified as loans and receivables, held to maturity investments, and financial assets at fair value through profit or loss. As a rule, equities classified as available for sale are valued at fair value with a matching balance represented by a net equity reserve. In the event that the equities do not have a market price listed on an active market and whose fair value cannot be reliably determined, they are valued at cost, as are any related derivatives. By contrast, the mixed accounting method is used for debt securities, characterised by the joint existence of the amortised cost method and the 149

150 valuation at fair value (with a matching balance represented by the same net equity reserve anticipated for equities). The net equity reserve remains recorded until the assets are disposed of or undergo a permanent loss in value. On occurrence of such events, the gains and losses recorded in the reserve are freed up and recorded in the income statement. On the closure of each set of financial statements, it is assessed if proof exists of a reduction in value of the financial assets. Indicators of a possible reduction in value of the financial assets are for example: significant financial difficulties of the issuer; defaults or lack of payment of interest and principal; the disappearance of an active market. The process for recognising any impairment in particular envisages the identification of the assets which have lost value by checking of the presence: for equities, of a performance of the fair value under more than 40% with respect to the initial value recorded or a price lower than the initial value recorded for a continuous period of more 24 months; for debt securities, factors originating inside the company subject to the evaluation; for example, significant difficulties of the issuer with deviations from budget targets, announcement of restructuring plans, downward review of the rating assigned by specialised companies greater than class C. Financial assets at fair value through profit or loss This category comprises the classification of all the financial assets included under trading activities, including derivatives, and all those which, despite not having been acquired in order to be sold over the short term, are included therein due to the Group s decision as from their initial statement. Specifically, the designated assets include the financial assets covering insurance or investment polices whose investment risk is borne by the policyholders and those relating to the management of pension funds. Initial recording takes place at cost, understood to be the fair value of the instrument net of costs or income directly or indirectly ascribable. Valuation gains and losses emerging subsequently from the changes in the fair value, are recorded directly in the income statement. SUNDRY RECEIVABLES This category comprises the classification of the amounts receivable for premiums relating to policyholders not yet received, amounts receivable from insurance agents and brokers and distributing banks, and co-insurance and reinsurance companies, amounts receivable for liability excesses and other receivables. The receivables are recorded at face value; since they are short-term, discounting back methods are not used. On the closure of each set of financial statements, an assessment is carried out on whether 150

151 Notes to the accounts there is objective proof of any impairment losses and, following the implementation of the impairment test, steps may be taken to effect a write-down. OTHER ASSET ITEMS Non-current assets or disposal group held for sale All the non-current assets or those undergoing disposal whose sale is highly probable in accordance with the provisions established by IFRS 5, are recorded in this item. The non-current assets or disposal group held for sale are recorded at their book value or the fair value, whichever is the lower, net of the sales costs (discounted back in the event of sales which will conclude beyond 12 months). Deferred acquisition costs This category includes the acquisition commissions relating to life insurance contracts. Life acquisition commissions is divided up, net of the portions pertaining to re-insurers, for a period of no longer than the duration of the contracts and in any event within the limit of the premium loadings present in the tariff. Acquisition commissions relating to non-life insurance contracts are not amortised as a result of the so-called Decreto Bersani bis which introduced the faculty - for the policyholders - of withdrawing annually from long-term policies, without charges and by giving notice of sixty days. Deferred tax assets Deferred tax assets are recorded - except in the cases expressly anticipated by IAS 12 - for all the temporary differences, to the extent that it is probable that taxable income against which they can be used will be generated. In the presence of tax losses which can be carried forward or tax credits not utilised, deferred tax assets are recorded to the extent that it is probable that future taxable income will be available against which the afore-mentioned tax losses or unused tax credits can be used. The deferred tax assets are calculated on the basis of the tax rates and tax legislation in force or effectively in force since the date of the financial statement, and are subject to verification with regards to the recoverable nature if changes in the applicable tax legislation have occurred. Current tax assets Other assets Current tax assets include the assets relating to current taxes as established and disciplined by IAS 12. These assets are recorded on the basis of the tax rates in force. The other assets comprise deferred acquisition costs relating to investment contracts. The deferred acquisition costs are spread out over the estimated life of said policies according to a constant percentage of the current value of the income generated by the investment contracts for the entire period of their permanence in the portfolio. The income margin determined at the time of the issue of policies is checked on a periodic basis and any discrepancies are recorded directly in the income statement as additional amortisation of capitalised acquisition costs. 151

152 CASH AND CASH EQUIVALENTS SHAREHOLDERS EQUITY Cash and cash equivalents and on-demand deposits recorded at face value are classified in this category. Shareholders equity pertaining to the Group Share capital This account group includes the instruments representative of the share capital, the components representative of capital included in compound financial instruments and the associated equity reserves pertaining to the Group. The ordinary shares are stated at their nominal value as share capital. Capital reserves Revenue reserves and other equity reserves Own shares In particular, the item includes the share premium reserve of the Parent Company. The item includes: the gains and losses deriving from the initial application of the international accounting standards in accordance with the matters envisaged by IFRS 1; the disaster reserves and the equalisation reserves not permitted among the technical liabilities in accordance with IFRS 4; the reserves anticipated prior to the adoption of the international accounting standards; the consolidation reserves. In accordance with the provisions of IAS 32, this item includes any instruments representative of the share capital of the company which draws up the consolidated financial statements, held by the company itself and the other consolidated companies. Reserve for net exchange differences Gains or losses on available for sale financial assets This item includes the exchange differences to be charged against the shareholders equity, in accordance with IAS 21, deriving from foreign currency transactions. The item includes the gains and losses deriving from the valuation of available for sale financial assets, as previously described in the corresponding item of the financial investments. The amounts are stated net of the corresponding deferred taxation and the portions pertaining to the policyholders. Other gains or losses recognised directly in equity The item includes the reserve deriving from changes in the shareholders equity of the investee companies in accordance with IAS 28, the gains and losses on instruments hedging a cash flow and the actuarial gains and losses and adjustments relating to defined-benefit plans as per IAS

153 Notes to the accounts Shareholders equity pertaining to minority interests This account group comprises the instruments and components representative of the share capital which make up the shareholders equity pertaining to minority interests. Specifically, the account group includes gains or losses on available for sale financial assets referable to shareholders equity pertaining to minority interests. PROVISIONS AND ALLOWANCES The provisions are recorded when it is believed that steps will have to be taken to meet an obligation (legal or implied) deriving from a past event or in relation to which deployment of resources is possible whose amount can be reliably calculated. TECHNICAL PROVISIONS LIFE PROVISIONS This item includes the technical provisions associated with insurance contracts, insurance policies involving discretionary participation features and investment contracts involving discretionary participation features. Annually, at year end, an assessment is made of the adequacy of these provisions by means of the liability adequacy test. This test is carried out by comparing the mathematical provisions, net of the deferred acquisition costs and the value of any other related intangible assets, with the current value of the future cash flows expected by the portfolio. These flows are obtained by projecting the expected flows as of the valuation date on the basis of hypothesis, considered reasonable, relating to the trend in reversals, expenses, redemption and the mortality. With regards to investment contracts not involving discretional profit-sharing, the separation of the component relating to the insurance risk is carried out if present. The technical provisions, for the exercise of private life assurance, have been valued on the basis of the Actuarial Standards set forth by attachment 14 of the ISVAP Regulation No. 22 dated April 4th, 2008, introduced by the IVASS instruction No. 53 dated December 6th, The additional provisions provided to cover mortality or other risks, such as guaranteed benefits on maturity or guaranteed redemption values, are included among the mathematical provisions. The provisions as per Articles 21 et seq. of the afore-mentioned attachment, have been applied, regarding the determination of the foreseeable return of the additional provisions for financial risk, along with those of Articles 36 et. seq., regarding the establishment and calculation of an additional provision for demographic risk. Furthermore, Article 41 of said attachment has been applied, envisaging the coverage of the credit risk of index-linked agreements with benefits falling due guaranteed by the companies. The provisions relating to acceptances are calculated in relation to the criteria envisaged in title I, chapter II, section I of the IIIrd part of the ISVAP Regulation No. 33 dated March 10th, The provisions relating to reinsurers include the gross amounts pertaining to the same and are 153

154 determined in compliance with the contractual reinsurance agreements, on the basis of the gross amounts of the technical provisions. Provision for outstanding claims Technical provisions for contracts where the investment risk is borne by the policyholders and provisions deriving from the management of pension funds Shadow accounting Provision for risk of insolvency (default) and liquidity The provisions for outstanding claims are made up of the amounts necessary for covering the payment of capital and accrued returns, redemptions and claims to be settled. The provisions relating to index-linked and unit-linked contracts and pension funds have been calculated taking into account both the contractual commitments and the financial assets linked to said contracts. They are formed in accordance with Articles 39 et seq. of attachment 14 of the ISVAP Regulation No. 22 dated April 4th, 2008, as amended by IVASS Instruction No. 53 dated December 6th, 2016, and cover the commitments deriving from the insurance of the life classes whose return is determined in relation to investments for which the policyholder bears the risk or in relation to an index. The application of the IAS/IFRS standards involves misalignments between the methods for valuing the assets and those for the related liabilities, the only exception being in relation to index-linked type contracts. The misalignments can be traced back to the recording in the accounts of both the capital losses and capital gains from the valuation of the assets valued at fair value against liabilities which are not affected by these changes. In relation to life contracts linked to separate management arrangements, by means of an accounting technique known as shadow accounting, IFRS 4 makes it possible to limit the effects of these misalignments. This technique makes it possible to allocate part of the fair value changes in the related hedging assets to the technical provisions associated with segregated funds. The need for an additional provision has been assessed, based on Article 41 of ISVAP Regulation No. 22, for the hedging of the risk of insolvency which constitutes an allocation aimed at protecting the company against the risk of insolvency of issuers of securities provided to cover the technical provisions of policies with guarantee on maturity given by the company. On the basis of said article of the afore-mentioned regulation, the need for a provision against the liquidity risk of the assets hedging the reserves of index-linked contracts has also been ascertained. NON-LIFE PROVISIONS Premium provision This item includes the technical provisions associated with insurance contracts. The provision for non-life insurance premiums comprises both the provision for unearned premiums and the provision for current risks. The provision for unearned premiums is calculated analytically using the pro-rata accruals method (Article 2, paragraph 2, of attachment 15 of the ISVAP Regulation No. 22, dated April 4th, 2008, introduced by Instruction No. 53 dated December 6th, 2016) on the basis of the 154

155 Notes to the accounts gross premiums recorded, as established by Article 45 of Italian Legislative Decree No. 173 dated May 26th, 1997, having deducted the acquisition commissions and the other acquisition costs, limited to the directly chargeable costs, for the portion ascribable to the accounting period. The book value thus obtained has been supplemented by the provisions for security, calculated according to the criteria envisaged by Article 9 of attachments 15 of the ISVAP Regulation No. 22, dated April 4th, The provision for current risks is calculated by class and represents the value to make provision for, covering the risks threatening individual companies after the end of the accounting period, so as to cover all the compensation and costs deriving from insurance policies stipulated by the end of the accounting period, if their amount exceeds that of the provision for unearned premiums and the premiums which will be collectable by virtue of these policies, according to Article 6, paragraph 1, of attachment 15 of the ISVAP Regulation No. 22, dated April 4th, The premiums provisions relating to transfers to re-insurers have been determined on the basis of methods consistent with those for direct business and, in any event, in accordance with reinsurance contractual agreements. Provision for outstanding claims The provisions relating to acceptances are calculated in relation to the criteria envisaged in title I, chapter III, section I of the IIIrd part of ISVAP Regulation No. 33 dated March 10th, The provision for outstanding claims is determined on the basis of a prudent evaluation of the claims which occurred during that accounting period or in previous ones which have not yet been settled, based on objective elements, as well as of the related settlement costs. The companies make reference, when defining the claims provisions, to the concept of last estimated cost, identifying this value in accordance with the mixed assessment system, in compliance with the provisions present in Articles 23 et seq. of attachment 15 of the ISVAP Regulation No. 22 dated April 4th, Specifically, for the calculation of the charge relating to the claims, the companies adopted a two-stage procedure: during the first stage, which is applied for all the business classes, steps are taken to separately evaluate each claim (inventory method), based on the analysis of the documentation relating to each individual damage case, carried out by the staff tasked with settling the claims. During the second stage, adopted where the requisites for significance and consistency from a method point of view are present, an additional check is made carried out through statistical-actuarial procedures. With regard to the assessment of the cost of the current generation, the companies avail themselves, as envisaged by Article 25, paragraph 1, of attachment 15 of the ISVAP Regulation No. 22 dated April 4th, 2008, of the average cost approach (with the exception of the credit and security classes) for the classes which due to technical features lend themselves to the application of the same criteria. With regard to the claims for the current generation, which do not present sufficient numerousness and quantitative and qualitative standardisation, the inventory method is applied. With reference to the credit and security classes, the provision for outstanding claims is 155

156 established on the basis of the provisions laid down by Articles 32, 33 and 34 of attachment 15 of the ISVAP Regulation No. 22 dated April 4th, The provision for outstanding claims also includes the evaluation of the claims which have occurred but have not been reported as of the year end date, determined on the basis of the provisions present in Article 27 et seq. of attachment 15 of the ISVAP Regulation No. 22 dated April 4th, The provision for outstanding claims regarding Card and No Card claims of the land vehicle TPL class is established on the basis of Article 30 of attachment 15 of the ISVAP Regulation No. 22 dated April 4th, 2008; the overall amount of the provision is calculated in relation to the matters laid down by Article 31 of the same attachment. The portions of the claims provisions pertaining to re-insurers are determined adopting the same criteria used for the direct business provisions and taking into account the contractual clauses of the agreements. The claims provisions relating to acceptances are calculated in relation to the criteria envisaged in title I, chapter III, section II of the IIIrd part of ISVAP Regulation No. 33 dated March 10th, The criteria used for the determination of the non-life technical provisions, the premiums provisions (supplemented by a possible allocation to the current risk provisions) and provisions for outstanding claims are in line with the matters envisaged by the LAT former IFRS 4. Other technical provisions They include the senescence provision of the health class for the rise in the age of the policyholders, in accordance with Article 42 et seq. of attachment 15 of the ISVAP Regulation No. 22, dated April 4th, 2008, and title I, chapter III, section IV of the IIIrd part of ISVAP Regulation No. 33 dated March 10th, FINANCIAL LIABILITIES This account group includes the financial liabilities valued at fair value with effects on the income statement and the financial liabilities valued at amortised cost. Financial liabilities at fair value through profit or loss Other financial liabilities This item includes the financial liabilities falling within the sphere of trading activities, and the liabilities relating to index and unit-linked investment contracts and pension funds, where the risk of the investments is borne by the policyholders. The valuation is made at fair value and the gains or losses which emerge are booked to the income statement. The item includes the financial liabilities defined and disciplined by IAS 39 not included in the category financial liabilities at fair value through profit or loss, but valued at amortised cost. Subordinated liabilities, for which the right to reimbursement by the creditor - in the event of winding up of the company - may only be exercised after all the other creditors and bonds have been satisfied, are classified in this item. The item also includes deposits received from reinsurers, other loans obtained and provisions linked to agreements with specific provision of 156

157 Notes to the accounts assets. PAYABLES The item includes the payables deriving from insurance and other transactions. In particular, the account group includes the payables from direct and indirect insurance transactions. The account group also includes the liabilities associated with defined benefit plans in favour of the employees, which involve disbursements subsequent to the termination of the employment relationship and the other long-term benefits (including therein the employee severance indemnity) which, in compliance with IAS 19R, are subject to an actuarial assessment by means of use of the so-called Project Unit Credit Method. According to this method, the liability is determined by taking into account a series of variables (such as the mortality rate, the forecast of future salary changes, the estimated rate of inflation, the foreseeable return on the investments, etc.). The liability recorded in the financial statements represents the effective value of the foreseeable obligation, net of any assets serving the plans, adjusted to reflect any actuarial losses or gains not amortised. The discounting back of the future cash flows is carried out on the basis of the interest rate of high quality corporate securities. The actuarial hypotheses used for the purposes of the calculation are periodically reviewed so as to confirm their validity. The other long-term benefits concern the health premiums for retired staff and length-ofservice premiums which mature in the 25th and 35th year of service with some companies as anticipated by the related CCNL (National Collective Labour Agreement). The frequency of the evaluations and the method of accounting are similar to those used for the defined benefit pension plans. Following the reform of the employee severance indemnity (TFR), culminating in the implementing decrees of the law Finanziaria 2007 concerning the transfer of employee severance indemnities (TFR) and Supplementary welfare (Italian Official Gazette No. 26 dated February 1st, 2007), the application of the afore-mentioned method differs according to whether the company being assessed has a number of employees less than or at least equal to 50. On the basis of Italian Law No. 296/06, for companies with at least 50 employees, the transfer of the portions of employee severance indemnities (TFR) to a specific Treasury Fund set up with INPS (national social security institute) is envisaged. In line with the matters indicated by the OIC (Italian Accounting Organisation) in the attachment to Operating Guide No. 1 for the transition to the international accounting standards (section 13), steps were not taken to make the actuarial calculation relating to the employee severance indemnity (TFR) accruing as from January 1st, 2007 for companies with at least 50 employees. This is equivalent to considering the employee severance indemnity accrued up until December 31st, 2006 to be a defined benefit plan (and therefore subject to actuarial calculation) and the severance indemnity as from January 1st, 2007 to the Treasury Fund set up with INPS to be a fixed contribution plan (and therefore not subject to actuarial calculation). With reference to the employee severance indemnity accrued up until December 31st, 2006, since the contribution period has fully matured, the weighting of the outlays no longer applies. With regards to companies with less than 50 employees, in the absence of transfer of the contributions subsequent to December 31st, 2007 to the Treasury Fund set up with INPS, the 157

158 entire liability has been considered to be a defined benefit plan. Actuarial gains and losses realised during the year have been recorded in the financial statements for all companies in the Group. OTHER LIABILITY ITEMS Liabilities of disposal group held for sale Current and deferred tax liabilities This item contains all the non-current liabilities or liabilities of disposal group whose sale is highly probable. The non-current liabilities or liabilities of disposal group held for sale are stated at their book value or the fair value, whichever is lower, net of the sales costs (discounted back in the event of sales which will be finalised beyond 12 months). Current taxes are calculated on the basis of the taxable income for the period. The liabilities for current taxes are stated at the value which is expected to be paid, applying the rates and tax legislation in force. Deferred taxes are included which have arisen from taxable temporary differences due to the deferral in the taxability of positive income elements realised and recorded in the income statement, which will be settled in subsequent accounting periods when the afore-mentioned revenues will be taxed. When the results of the transactions are booked directly to the shareholders equity, the current taxes and liabilities for deferred taxes are also booked to shareholders equity. Other liabilities The other liabilities include deferred revenues (DIR - deferred income reserve) relating to investment contracts. The IAS/IFRS standards envisage a different method of determination and representation of the provision for management costs; specifically, the component referring to contracts no longer classified as insurance but as investment (DIR - deferred income reserve) is classified among the other liabilities and is assigned to the income statement on the basis of the timing of the costs incurred for the management of the contracts. REVENUES INCOME STATEMENT Net premiums Income and charges from financial instruments at fair value through profit or loss This item includes the net premiums relating to insurance policies and investment contracts featuring discretional profit-sharing, net of transfers under reinsurance. This item comprises realised gains and losses, interest, dividends and positive and negative changes in the value of the financial assets and liabilities at fair value through profit or loss. The item also includes the charges on the financial liabilities linked to investment contracts without discretional profit-sharing. 158

159 Notes to the accounts Income from investments in subsidiaries, associated companies and joint ventures This account group includes the income generated by investments in subsidiaries, associated companies and joint ventures recorded in the corresponding asset item. Income from other financial instruments and investment property The income from financial instruments and other investments includes the income deriving from financial instruments not valued at fair value through profit or loss and from investment property. In particular, the following are included: interest income on financial instruments valued using the effective interest method, other income from investments, including dividends and revenues which derive from the use, by third parties, of the properties intended for investment purposes; the gains realised following the sale of a financial asset or liability or investment property, and the positive changes deriving from the write-back of a permanent loss in value (reversal of impairment). Other revenues Other revenues include the commissions income for financial services provided, revenues deriving from the sale of assets, from the provision of services other than those of a financial nature and from the use by third parties of the tangible assets and the other assets of the Company. Also included are realised gains and reversal of impairment losses relating to intangible assets and other assets, the exchange differences to be charged to the income statement in accordance with IAS 21 and other net technical income associated with insurance contracts. Specifically, the account group includes commissions income associated with investment contracts. COSTS Net charges relating to claims Charges from investments in subsidiaries, associated companies and joint ventures The charges relating to claims include the amounts paid out during the period for claims, maturities and redemptions as well as the amount relating to the changes in the technical provisions, net of the recoveries and the transfers under reinsurance. This account also includes the component to be booked to the income statement concerning the change in the deferred liabilities due to policyholders and the change in the provision for the risk of insolvency. This item includes the charges deriving from investments in subsidiaries, associated companies and joint ventures recorded in the corresponding asset item. Charges from other financial instruments and investment property The item includes the charges deriving from financial instruments not valued at fair value with effects on the income statement and charges deriving from investment property. Specifically, the costs relating to investment property include condominium fees and maintenance and repair expenses not increasing the value of the investment property, the 159

160 losses realised following the elimination of an investment property, amortisation and depreciation and impairment. Charges deriving from financial instruments include interest expenses stated using the criteria of the effective interest rate, the losses realised following the derecognition of a financial asset or liability and impairment. Operating expenses Other costs Current taxes Deferred taxes Profit (loss) from discontinued operations For the insurance companies, operating expenses mainly include commissions, other acquisition costs and the administrative costs relating to contracts falling within the sphere of IFRS 4 and to investment contracts without discretional profit-sharing. The account also includes the administrative costs of the companies who do not carry out insurance activities. This account also includes administrative costs, comprising general expenses and staff costs, as well as those relating to the management of financial instruments, investment property and equity investments. The item includes commissions expense for financial services received, the other net technical charges associated with insurance contracts, the exchange differences to be charged to the income statement in accordance with IAS 21, the portions of provisions for the year, the losses generated, the impairment losses and the amortisation/depreciation relating to both the tangible assets, not otherwise allocated to other cost items, and intangible assets. The income taxes calculated in accordance with current legislation are recorded in this item. Compliance with the tax consolidation scheme does not lead to exceptions or changes to the standards illustrated above. The item includes income taxes due in future accounting periods, relating to taxable or deductible temporary differences This item contains the non-current profits (losses) or those belonging to disposal group whose sale is highly probable. 160

161

162

163 Notes to the accounts Part C Information on the consolidated statement of financial position and income statement

164

165 Part C Statement of financial position - Assets Notes to the accounts In accordance with ISVAP Regulation No. 7 dated July 13th, 2007, the statement of financial position by sector of activities is presented below. Table 19 - Statement of financial position by sector of activities (ISVAP Regulation No. 7 dated July 13th, 2007) Non-life business Life business Other Eliminations between sectors Total ( thousands) INTANGIBLE ASSETS 233, , , , ,716 99, ,244-72, , ,011 2 TANGIBLE ASSETS 54,783 55, ,396 94, , ,924 3 TECHNICAL PROVISIONS - REINSURANCE AMOUNT 631, , , , ,982-38, , ,920 4 INVESTMENTS 4,426,784 4,398,576 18,123,341 17,602,290 39,075 20,713-1,333,970-1,289,157 21,255,230 20,732, Investment property 200, , , ,726 36,154 18, , , Investments in subsidiaries, associated companies and joint ventures 703, , , , , , ,923 70,522 35, Held to maturity investments 109, , , , , , Loans and receivables 305, , , , , , , , Available for sale financial assets 4.6 Financial assets at fair value through profit or loss 2,976,474 2,833,791 14,030,709 13,336, , ,475 16,471,924 15,841, , ,618 2,994,919 3,056,808 2, ,128,960 3,365,426 5 SUNDRY RECEIVABLES 463, , , ,052 35,018 18,086-90, , , ,196 6 OTHER ASSET ITEMS 348, , , ,730 10,515 7, ,088,257 1,072, Deferred acquisition costs ,537 12, ,537 12, Other assets 348, , , ,839 10,515 7, ,074,720 1,059,671 7 CASH AND CASH EQUIVALENTS 24, , , ,969 10,147 14, , ,461 TOTAL ASSETS 6,182,932 6,328,612 19,312,301 18,993, , ,010-1,592,514-1,533,393 24,232,586 24,043,496 1 SHAREHOLDERS EQUITY 2,113,726 2,158,699 PROVISIONS AND 2 ALLOWANCES 33,865 38,964 14,111 11,122 6,385 5, ,361 55,321 3 TECHNICAL PROVISIONS 3,610,628 3,629,334 15,932,002 15,304, ,834-34,337 19,485,796 18,899,621 4 FINANCIAL LIABILITIES 177, ,931 1,436,071 1,695,433 21,065 40, ,001 1,634,455 1,904, Financial liabilities at fair value through profit or loss 0 0 1,353,033 1,622, ,353,033 1,622, Other financial liabilities 177, ,931 83,038 72,919 21,065 40, , , ,381 5 PAYABLES 212, , , ,440 52,290 52,996-79, , , ,987 6 OTHER LIABILITY ITEMS 227, , , ,353 2,337-1, , ,973 TOTAL SHAREHOLDERS EQUITY AND LIABILITIES 24,232,586 24,043,

166 1. INTANGIBLE ASSETS Table 20 - Intangible assets Changes ( thousands) Amount % Goodwill 203, , Other intangible assets: 121, ,860 4, insurance portfolios 7,888 10,275-2, software 87,569 79,381 8, models and projects 6,796 4,718 2, patent rights, trademarks and similar rights 3,409 3, assets in process of formation 16,311 19,922-3, Total 325, ,011 4, Goodwill The item goodwill did not undergo any change with respect to last year. Table 21 - Goodwill - changes during the year ( thousands) Goodwill Gross balance as of December 31st, ,648 Accumulated amortisation 23,194 Cumulative impairment losses 31,303 Net balance as of December 31st, ,151 Increases due to: 0 Other 0 Decreases due to: 0 Other 0 Gross balance as of December 31st, ,648 Accumulated amortisation 23,194 Impairment losses 0 Other 0 Cumulative impairment losses 31,303 Net balance as of December 31st, ,151 The goodwill, as illustrated in the accounting principles is recorded at the related cost, net of any impairment losses in accordance with the provisions of IFRS 3. The accumulated amortisation in the above table refers to depreciation prior to the application of the international accounting standards. In order to ascertain any impairment losses, goodwill has been allocated to cash generating units (CGUs) or to groups of units in observance of the maximum aggregation restriction which cannot exceed the individual operating sector (non-life, life and other). 166

167 Notes to the accounts Therefore, when assigning goodwill to cash generating units, the minimum level at which goodwill is monitored for internal management control purposes was considered, or rather the Cattolica Danni CGU, Cattolica Vita CGU and legal entities included within the consolidation area, taking into account the corporate restructuring operations that took place over the years which do not make it possible in the future to map out the value of the individual goodwill amounts which were allocated previously to the cash generating units identified in C.I.R.A., Duomo Previdenza, Duomo Uni One Assicurazioni, Eurosav, Persona Life, San Miniato Previdenza, Risparmio & Previdenza and Cattolica Previdenza. The goodwill was assigned to the following business units: 136,453 million concerning the cash generating unit known as Cattolica Danni, represented by the goodwill relating to the purchase transactions of Duomo Assicurazioni, Uni One Assicurazioni and FATA Assicurazioni (on conclusion of the authorisation procedure for the merger via incorporation of FATA Assicurazioni in Cattolica which took place during the year) which are now included in the Cattolica Danni CGU; 28,705 million concerning the Cattolica Vita CGU, represented by the goodwill relating to the purchase transactions of Duomo Previdenza, Persona Life and Eurosav and the acquisition of a further 50% of Cattolica Previdenza; 13,087 million in BCC Vita, relating to the purchase of 51% of the company; 3,257 million in Cattolica Life, relating to the initial purchase of 50% of the company; 2,977 million in Berica Vita, relating to the initial purchase of 50% of the company; The following goodwill, consolidated by line from the individual IAS financial statements, was also recognised: 14,186 million in Cattolica, relating to the partial spin-off of B.P.Vi. Fondi SGR within the same; 4,486 million in TUA Assicurazioni, relating to the purchase of the UBI business segment. The recoverable value of the CGUs is defined as the fair value less cost to sell, or the value in use, whichever is higher. It should be noted that due to the drop in Cattolica stock prices, the test based on fair value - which associated the goodwill with the listed prices of the entity under review - fails to express the real value of the CGUs in question. In order to establish the recoverable value and subsequently compare with the book value of the CGUs, the value in use was therefore used, since it provides an impairment opinion guided by principles of economic rationality. The value in use of all the insurance CGUs is estimated on the basis of a two or three-stage accounting approach of the economic capital. In the application of the economic capital method, the first stage is represented by the discounting back of economic profit (calculated on the basis of the RoEV - Return on Embedded Value - for life insurance companies, or the profitability of the Embedded Value and on the basis of the RoNAV - Return on Net Asset Value - for the non-life insurance companies, or the profitability of the adjusted shareholders equity, net of intangible assets). The second stage is obtained by hypothesising the linear convergence of the economic profit of the last plan year towards the perpetually sustainable level. The third stage derives from the terminal value of the business unit, obtained by capitalising the perpetually sustainable economic profit by means of an appropriate capitalisation rate. The Group s impairment test is carried out along with the approval of the annual financial statements and only in the presence of trigger events is the test updated at the time of the interim report. The impairment tests carried out as of December 31st, 2016 are based on the projections of the economic results relating to the period, approved during the Board of Directors Meeting. Prior to the impairment test, the reconstructability of these projections was assessed on the basis of external disclosure, including therein the consolidated Group estimates made by the equity analysts who follow Cattolica stock and the estimates produced by the equity analysts relating to comparable companies. 167

168 With reference to the Berica Vita, Cattolica Life and ABC Assicura CGUs, account was taken of the matters as envisaged by the outstanding agreements; with reference to the Vita CGU, a 5-year plan was used since the threeyear time span is too brief to be able to represent the future income-earnings prospects. For the calculation of the terminal values, long-term estimates of two key variables were used: the book rate of return on the Economic capital (RoEC) and the long-term nominal growth rate. The underlying hypotheses to which the value in use of each group of units is most sensitive are: the combined ratio for the cash generating units falling within the non-life business and the new business for cash generating units falling within the life business; the cost of own capital (Rs); the long-term RoEC (ratio between economic profit and economic capital); the long-term growth rate (g). The cost of capital has been estimated using the CAPM - Capital Asset Pricing Model. The parameters used for the purposes of the estimate of the value in use are: the beta ratio by class of activities, formulated on the basis of market betas of European insurance companies; the equity risk premium, in line with the consensus value disclosed in market analysts reports; the risk free rate. The cost of own capital (Rs) for each business unit has been estimated on the basis of these elements, equal to 9.29% for life insurance companies (the corresponding estimate was equal to 8.92% as of December 31st, 2015) and 8.46% for non-life companies (the corresponding estimate was 7.90% as of December 31st, 2015). The longterm growth rate ( g ) was 2% for all CGUs, unchanged with respect to the growth rate used in the previous impairment tests. These basic assumptions, besides being in line with the long-term nominal growth rate of Italian GDP, are also consistent with the values used by financial analysts of the insurance sector. The tests carried out on December 31st, 2016 did not indicate any impairment losses. An analysis by scenarios on the level of the Rs cost of capital and the growth rate in the terminal value (g) was conducted for purposes of sensitivity analyses. The table below shows the excess of the recoverable value (ViU) with respect to the pro rata book value (C) and the estimates of the cost of capital and the long-term g growth rate necessary for rendering the recoverable value of each CGU equal to their book value. 168

169 Notes to the accounts Table 22 - Changes in the cost of own capital and the long-term growth rate necessary for rendering the recoverable amount equal to the book value NON-LIFE LIFE Excess/Impairment Loss in the consolidated financial statements [ViU vs C] Rate which renders ViU = C Rate g which renders ViU = C Cattolica Danni % 1.86% TUA Assicurazioni % 0.97% BCC Assicurazioni (*) -0.8 n.s. n.s. ABC Assicura % n.s. BCC Vita % 1.77% Lombarda Vita % -3.85% Berica Vita % n.s. Cattolica Life % n.s. Cattolica Vita % 1.83% (*) BCC Assicurazioni does not have any goodwill recorded in the consolidated financial statements, therefore no steps have been taken to write down the equity investment. n.s. = not significant 1.2 Other intangible assets As per IAS 38, the item other intangible assets includes assets which can be autonomously identified and which will generate future economic benefits in terms of cost savings or future income. Table 23 - Other intangible assets - changes during the year ( thousands) Insurance portfolios Software Models and projects Patent rights, trademarks and similar rights Assets in process of formation Total Gross balance as of December 31st, , ,525 9,017 5,737 20, ,669 Accumulated amortisation 33, ,504 4,299 2, ,109 Cumulative impairment losses 0 1, ,700 Net balance as of December 31st, ,275 79,381 4,718 3,564 19, ,860 Increases due to: 0 48,677 3, ,890 67,812 purchase 0 26,369 3, ,890 45,504 internal development 0 2, ,908 Other 0 19, ,400 Decreases due to: 0 10, ,400 30,254 sale 0 3, ,374 Other 0 7, ,400 26,880 Gross balance as of December 31st, , ,348 12,262 5,737 17, ,227 Amortisation 2,387 38,758 1, ,568 Other changes in acc. amortisation 0-9, ,123 Accumulated amortisation 35, ,139 5,466 2, ,554 impairment losses Cumulative impairment losses 0 1, ,700 Net balance as of December 31st, ,888 87,569 6,796 3,409 16, ,

170 The other intangible assets held by the Group are characterised by a finite useful life and as such these are subjected, as indicated in the accounting principles, to a systematic amortisation process whose period: varies between 6 and 12 years for the insurance portfolios, on the basis of the average residual duration of the underlying contracts; is on average 5 years for software, models and projects, patent rights, trademarks and similar, except in specific cases. There were no significant changes in the amortisation methods used during the accounting period. Pursuant to section 31 of IFRS 4, other intangible assets specifically include the following values of insurance contracts and brands portfolios acquired as a result of business combinations: 8.48 million relating to the cash generating unit known as Cattolica Danni, deriving from the incorporation of FATA, which took place in December In particular, the following intangible assets have been recorded: agency and customer relationship network (recorded under insurance portfolios), for a total of million and an amortisation period of 12 years, brand (recorded under patent, trademarks and similar rights), for a total of million and an amortisation period of 22 years. The following values of the insurance contracts portfolio recorded in the individual financial statements are also present: million in relation to the matters envisaged in the non-life agreement entered into with ICCREA Holding for the acquisition of 51% of BCC Vita which became effective due to the transfer of 49% of BCC Assicurazioni, in October The related amortisation period is 10 years; 150 thousand for the conclusion of a business transaction with the banking partner Banco di Credito Popolare di Torre del Greco by Cattolica. The transaction implemented in two instalments envisages amortisation plans of 6 years for the first instalment and 7 years for the second. The other intangible assets held by the Group are represented by software in use and by software being created or being developed held mainly by Cattolica Services; software already operative is present used in previous years, along with software which during the year has been subject to development processes and adaptation to legal provisions, as well as software under construction referring to projects launched but not yet concluded and therefore not yet used during the year. The item software changed during the year by million, with an increase of million for the purchase of licences, completion of projects underway and capitalisation of personnel costs for those dedicated to the projects and a decrease of million for disposal of obsolete software. The impairment tests on other intangible assets, as governed by IAS 36 and carried out during the year, did not reveal any impairment losses. The cumulative impairment losses during previous years were justified by the obsolescence of certain software. 2. TANGIBLE ASSETS Tangible assets, disciplined by IAS 16, showed the following changes during the year: 170

171 Notes to the accounts Table 24 - Tangible assets Changes ( thousands) Amount % Property 163, ,054 26, Other tangible assets: 17,055 13,870 3, furniture, office machines and internal means of transport 5,495 9,323-3, movable assets recorded in public registers 1,539 1, plant and equipment 9,727 2,710 7,017 n.s. inventories and miscellaneous assets Total 180, ,924 29, n.s. = not significant 2.1 Property The item includes property used for the performance of the Group companies activities; in particular it includes the property belonging to the Parent Company (inclusive of the properties of the FATA division) and Cattolica Agricola. The increase is mainly generated by the purchase of land and other incremental costs incurred by Cattolica Agricola and other incremental costs incurred by Cattolica. 2.2 Other tangible assets The item comprises the assets disciplined by IAS 16, not included under the property category. Table 25 - Property and other tangible assets - changes during the year ( thousands) Property Property under construction and advance payments Furniture, office machines and internal means of transport Movable assets recorded in public registers Plant and equipment Inventories and miscellaneo us assets Total Gross balance as of December 31st, , ,395 2,809 4, ,089 Accumulated depreciation 12, ,072 1,150 1, ,165 Cumulative impairment losses Net balance as of December 31st, , ,323 1,659 2, ,924 Increases due to: 28, , , ,608 purchase 27, , , ,321 Other 1, ,287 Decreases due to: , ,490 sale , ,845 Other Gross balance as of December 31st, , ,831 2,638 11, ,207 Depreciation 1, , ,062 Other changes in acc. depreciation 0 0-5, ,793 Accumulated depreciation 13, ,336 1,099 2, ,434 impairment losses Cumulative impairment losses Net balance as of December 31st, , ,495 1,539 9, ,

172 The increases in the item Furniture, office machines and internal means of transport mainly include million in purchases of hardware made by Cattolica Services. The decreases in the item Furniture, office machines and internal means of transport mainly include million for sales of assets by Cattolica Services, including obsolete hardware more or less fully depreciated, telephone systems and furnishings completely depreciated. The fair value of the properties held by the Group, at the end of the year, came to million. As indicated in the accounting principles, total property and other tangible assets held by the Group are subject to a systematic depreciation process using a rate of 3% for properties used for the Group s business activities and, except in specific cases, using a rate: of 12% for ordinary office furniture and machines; of 20% for electronic machines and hardware; of 25% for movable assets recorded in public registers; of 15% for plant and equipment; between 9% and 20% for other agricultural assets. No significant changes took place during the year, either in the accounting estimates or the depreciation methods used. The current value of the properties was up-dated on the basis of the market value as of December As a result of this valuation, the need to proceed with the adjustment of the book value of the properties for 95 thousand emerged. 3. TECHNICAL PROVISIONS - REINSURANCE AMOUNT Table 26 - Analysis of technical provisions - reinsurance amount (ISVAP Regulation No. 7 dated July 13th, 2007) Direct business Indirect business Total book value ( thousands) Non-life provisions 580, ,333 8,388 10, , ,500 Premium provision 131, ,976 3,339 4, , ,759 Provision for outstanding claims 447, ,902 5,049 5, , ,286 Other provisions 1,230 1, ,230 1,455 Life provisions 100, , , ,420 Provision for outstanding claims 7,388 8, ,388 8,325 Mathematical provisions 92,794 97, ,794 97,083 Technical provisions for contracts where the investment risk is borne by the policyholders and provisions deriving from the management of pension funds Other provisions Total technical provisions - reinsurance amount 680, ,753 8,388 10, , ,920 The reinsurance amount of technical provisions is calculated using the method adopted for provisions pertaining to direct business. 172

173 Notes to the accounts 4. INVESTMENTS Table 27 - Investments Changes ( thousands) Amount % Investment property 493, , , Investments in subsidiaries, associated companies and joint ventures 70,522 35,112 35,410 n.s. Held to maturity investments 242, ,567-4, Loans and receivables 847, ,402-28, Available for sale financial assets 16,471,924 15,841, , Financial assets at fair value through profit and loss 3,128,960 3,365, , Total 21,255,230 20,732, , n.s. = not significant 4.1 Investment property Investment property is represented by the properties not occupied by Group companies. The item includes land and buildings belonging to the Euripide, Macquarie Office Italy and Perseide funds, Cattolica Agricola, Cattolica Beni Immobili and the Parent Company (inclusive of the investment property of the FATA division). Table 28 - Investment property - changes during the year ( thousands) Investment property Property under construction and advance payments Total Gross balance as of December 31st, , ,428 Accumulated depreciation 20, ,903 Cumulative impairment losses Net balance as of December 31st, , ,525 Increases due to: 135, ,741 purchase 124, ,995 Other 10, ,746 Decreases due to: Other Gross balance as of December 31st, , ,029 Depreciation 7, ,866 Accumulated depreciation 28, ,769 impairment losses 1, ,346 Cumulative impairment losses 1, ,346 Net balance as of December 31st, , ,

174 The increases mainly include million for the purchase of new photovoltaic installations by Fondo Perseide, million for the purchase of new properties by Cattolica Beni Immobili, million for the purchase of a hotel and nursing home by Fondo Euripide and other incremental costs incurred by Cattolica Beni Immobili and Fondo Moi. Decreases are mainly attributable to the depreciation charged during the year for million. Revenues for rents generated during the year amounted to million ( million as of December 31st, 2015). As indicated in the accounting principles, buildings included under investment property are subject to a systematic depreciation process calculated in relation to the useful life, generally equal to 50 years (2% depreciation rate), with the exception of the properties owned by the Perseide Fund for which the useful life is estimated in relation to the duration of the related surface rights. No significant changes took place during the year, either in the accounting estimates or the depreciation methods used. The fair value of the investment property held by the Group, estimated by an external and independent expert, at the end of the year, amounted to million. The Cattolica Group adopts three main procedures for estimating the value of the properties: Market Approach: this provides an indication of the value comparing the asset subject to assessment with identical or similar assets for which information on prices is available. The comparison between the assets subject to estimation and similar assets takes place on the basis of the technical parameter represented by the measurement of the land registry surface areas for the agricultural land and the uncovered appurtenances of the buildings and the commercial surface areas for the buildings, structured differently in relation to the intended uses of the same. If the asset being estimated presents differences with respect to the comparable assets and the reference types of the sources, weighting (or differentiation) factors are resorted to, which permit a correct comparison procedure. The estimate of these factors is carried out with reference to the indications of specialised literature in the sector. Cost Approach: based on the depreciated replacement cost used for certain properties, with particular characteristics. The estimate of the fair value of the assets by means of the depreciated replacement cost is broken down into three phases and is carried out on the basis of the technical parameter of the gross surface area: o o o the estimate of the current value of the land referring to the purchase cost of similar land in terms of location and intended use; the estimate of the depreciation reconstruction cost obtained from the estimate of the reconstruction cost as new of the building appropriately depreciated in relation to the useful and residual life of the buildings; the estimate of the market value of the assets as the sum of the market value of the area and the depreciated replacement cost of the constructions. Financial Profit Method based on two approaches: 174

175 Notes to the accounts o o direct capitalisation: this is based on the capitalisation at a rate taken from the property market, of the net future income generated; discounted cash flow, based on the determination: for a period of n years of the future income deriving from the lease; on the market value of the property by means of perpetual capitalisation, at the end of this period, of the net income and in conclusion on the discounting, as of the date of assessment, of the net income (cash flows). Following impairment testing, as disciplined by IAS 36, impairment losses were reported for million. As explained in the accounting principles and the table presented below, the Group has applied the cost criteria, net of accumulated depreciation and any impairment losses, to total assets disciplined by IAS 40, IAS 16 and IAS 38. Table 29 - Analysis of tangible and intangible assets (ISVAP Regulation No. 7 dated July 13th, 2007) ( thousands) At cost At re-determined value or at fair value Total book value Investment property 493, ,914 Other property 163, ,623 Other tangible assets 17,055 17,055 Other intangible assets 121, , Investments in subsidiaries, associated companies and joint ventures Table 30 - Investments in subsidiaries, associated companies and joint ventures Changes ( thousands) Amount % Subsidiaries Associated companies 70,472 35,062 35,410 n.s. Total 70,522 35,112 35,410 n.s. n.s. = not significant The item includes investments in subsidiaries excluded from the consolidation area, associated companies and joint ventures over which the Group exercises significant influence, which are accounted for using the equity method, including the multi-segment property investment fund Mercury and Cassa di Risparmio di San Miniato (liaison investment for Cattolica Assicurazioni). Cassa di Risparmio di San Miniato reported a significant loss in 2015, due to the deterioration of the loan portfolio, which led to the need for recapitalisation aimed at restoring the supervisory ratios. In June the company had drawn up a new plan, which envisaged the recapitalisation of the bank, on the basis of which the valuations as of June 30th, 2016 were based. The accounting standards used for the purposes of the impairment test are structured in the two following steps: first of all the fundamental value was estimated moving from the plan flows and then comparing the implicit Price to Tangible Book Value multiple with those of transactions aimed at control, at withdrawal 175

176 and regarding minority investments. The analysis made it possible to check the alignment of the implicit multiple which reflects the value of the equity investment based on the balance sheet balances and the income-earning prospects; the value estimated in the previous point was then adjusted downwards so as to incorporate the potential diluting effect deriving from the proposed share capital increase. The potential diluting effect was obtained on the basis of the implicit discount in the multiples of listed European banks subject to share capital increases with respect to those of European listed banks not subject to share capital increases. The analysis highlighted how in the current market context, on the basis of the most recent share capital increase transactions achieved during the last quarter, there is a scarcity of investors willing to participate in share capital increase transactions, unless at prices (and implicit multiples) which are extremely contained and which disclose significant discounts with respect to the fundamental values. For the purposes of an overall check of the values obtained for Cassa di Risparmio di San Miniato, as of June 30th, 2016 steps were also taken to carry out a comparison between the Price to Tangible Book Value multiples implicit in the final price for transactions aimed at the achievement of share capital increases of unlisted Italian banks during the first half of the year. As of December 31st, 2016 the valuation of Cassa di Risparmio di San Miniato was up-dated on the basis of the available information; the analysis disclosed an overall impairment loss of million. Investments in subsidiaries The item mainly comprises the cost of the equity investment in TUA Retail, a company which is not significant for consolidation purposes. Investments in associated companies and Joint ventures The item includes equity investments accounted for using the equity method, in companies over which the Group exercises a significant influence or joint control. Table 31 - Analysis of non-consolidated equity investments (ISVAP Regulation No. 7 dated July 13th, 2007) ( thousands) Name Registered offices and operating headquarters Assets (1) Type (2) % direct investment % total holding (3) % of votes available during ordinary shareholders meetings (4) Book value Cassa di Risparmio di San Miniato s.p.a b 25.12% 25.12% 556 All Risks Solutions s.r.l b 20.00% 20.00% 14 TUA Retail s.r.l a 0.00% 99.99% 50 Fondo Mercury Centronord c 51.10% 51.10% 20,014 Fondo Mercury Adriatico c 51.08% 51.08% 18,034 Fondo Mercury Tirreno c 51.01% 51.01% 31,854 (1) 1=Italian insurance; 2=EU insurance; 3=non-EU insurance; 4=insurance holding companies; 4.1=mixed financial holding companies; 5=EU reinsurance; 6=non-EU reinsurance; 7=banks; 8=SGR; 9=other holding; 10=property 11=other. (2) a= subsidiaries (IFRS 10); b=associated companies (IAS 28); c=joint ventures (IFRS 11). (3) this is the product of the equity investment relationships relating to all the companies which, placed along the equity investment chain, may be interposed between the company that draws up the consolidated financial statements and the company in question. If the latter is directly invested in by several subsidiaries companies, it is necessary to add together the individual products. (4) Overall percentage available of the votes at ordinary shareholders meeting if different from direct or indirect shareholding. 176

177 Notes to the accounts A summary of the most significant equity and income highlights of the companies not included within the consolidation area is presented below. Table 32 - Summary data of non-consolidated subsidiaries, associated companies and joint ventures ( thousands) Registered Name or business name offices Share capital Total assets Total liabilities Shareho lders equity of which profit (+) or loss (-) for the year Revenu es Dividends received in the period Subsidiaries TUA Retail s.r.l. Milan Associated companies Cassa di Risparmio di San Miniato s.p.a.(*) (**) S. Miniato (PI) 177,215 3,269,695 3,086, ,874-68, ,028 0 All Risks Solutions s.r.l. Rome Fondo Mercury Centronord Milan 37,707 88,409 49,054 39,355 1,648 2, Fondo Mercury Adriatico Milan 33,887 79,522 44,123 35,399 1,512 2, Fondo Mercury Tirreno Milan 59, ,263 78,751 61,512 1,542 3, (*) The revenues include interest and commissions income. (**) Consolidated financial statement data as of December 31st, Financial Investments Financial investments included the financial instruments disciplined by IAS 39: held to maturity investments, loans and receivables, available for sale financial assets and financial assets at fair value through profit or loss. The reduction in shareholders equity deriving from reclassification carried out in 2008 amounts in total to 25 thousand (net of tax effects); during the year, greater income of 885 thousand would have been recognised in the income statement. The reclassifications carried out in 2008 concern: securities transferred from the category financial assets at fair value through profit or loss to the category available for sale financial assets for a book value of 6 million as of December 31st; securities transferred from the category available for sale financial assets to the category loans and receivables for a book value of 498 thousand, with a fair value of 534 thousand. No significant category reclassifications have taken place during the year and in previous periods, therefore compilation of the analysis of reclassified financial assets and the effects on the income statement and on comprehensive profitability pursuant ISVAP Regulation No. 7 dated July 13th, 2007 was not carried out. 177

178 Table 33 - Financial Investments Changes ( thousands) 2016 % 2015 % Amount % Held to maturity investments 242, , , Loans and receivables 847, , , Available for sale financial assets 16,471, ,841, , Financial assets at fair value through profit or loss 3,128, ,365, , Total 20,690, ,329, , Table 34 - Analysis of financial assets (ISVAP Regulation No. 7 dated July 13th, 2007) Financial assets at fair value through profit or loss Financial investments (disciplined by IAS 39) Held to maturity investments Loans and receivables Available for sale financial assets Financial assets held for trading Financial assets at fair value through profit or loss Total book value ( thousands) Equities and derivatives carried at cost , ,148 Equities at fair value , , ,019 30, , ,070 of which listed securities , , ,019 30, , ,202 Debt securities 242, , , ,043 15,802,393 14,979, , ,712 1,202,935 1,347,237 18,258,537 17,962,737 of which listed securities 242, , ,748,871 14,892, , ,672 1,081,235 1,166,653 17,300,013 16,896,217 UCIT units , , ,651,466 1,357,579 2,175,076 1,902,118 Loans and receivables due from banking customers Interbank loans and receivables Deposits with ceding companies ,721 11, ,721 11,072 Receivable financial components of insurance contracts Other loans and receivables ,658 60, ,658 60,179 Non-hedging derivatives ,453 1,625 17,632 32,584 21,085 34,209 Hedging derivatives Other financial investments , ,252 Total 242, , , ,402 16,471,924 15,841, , ,231 2,894,052 2,768,195 20,690,794 20,329,785 Reference should be made to the related table in the comments on the income statement for an analysis of the financial income and charges from investments. 4.3 Held to maturity investments All financial assets, excluding derivatives, with a pre-established maturity and payments which are fixed or can be determined, which the Group intends to or has the ability to hold until maturity, are classified in this category. In detail, the item mainly includes Italian government securities. 178

179 Notes to the accounts 4.4 Loans and receivables Assets with a pre-established maturity and payments which are fixed or can be determined, not listed on active markets, which are not recorded in any of the other categories, are classified in this category. Specifically, the category includes all the loans and financing, amounts receivable for agent compensation, deposits from re-insurers with ceding companies and bonds not listed on active markets. 4.5 Available for sale financial assets This category includes all the financial assets, valued at fair value, other than derivative instruments, both debt instruments and equities, which are not classified in the other categories and are disciplined by IAS 39. Specifically, this category comprises the equity investments deemed to be strategic in companies which are not subsidiary or associated companies, whose fair value derives from prices taken from active markets, or, in the case of securities not listed on active markets, from commonly applied valuation methods. In particular, the valuation methods adopted were chosen taking into account the pertinent sector. Following the performance of the impairment test on all the financial instruments included in the loans and receivables, held to maturity investments, and available for sale financial assets categories, as disciplined by IAS 39, permanent losses in value were revealed (impairment losses), before tax effects, on shares totalling million (mainly due to the write-downs, already made during the first half of the year, on the equity investments in Banca Popolare di Vicenza for million and Veneto Banca for million, further to the adjustment as per Article 2437 of the Italian Civil Code of the withdrawal price to the price defined for the share capital increase established as 0.1 per share), on bonds for million and on mutual investment funds for million (mainly due to the write-downs of Atlante Fund for 16.7 million). 4.6 Financial assets at fair value through profit or loss This category comprises the classification of financial assets, including derivatives, held for trading and those designated by the Group as valued at fair value through profit or loss. Specifically, besides assets held for trading purposes, the item also includes the financial assets designated at fair value through profit or loss related to: insurance or investment contracts issued by the Group whose investment risk is borne by the policyholders; the management of pension funds. Derivatives The Group does not have any hedging derivatives. With regard to non-hedging derivatives, those classified as for trading amount to million and essentially comprise options, while those at fair value through profit or loss come to million and are represented by options (Class D). *** The tables below provide a breakdown of the Cattolica Group s residual exposures as of December 31st, 2016, in government debt securities issued or guaranteed by European Union nations. As of December 31st, 2016 the Group did not have any exposures in Greek Government debt securities. 179

180 Table 35 - Exposure in government debt securities issued or guaranteed by EU zone countries - Available for sale financial assets Country Maturing Maturing between Maturing Total Gross AFS ( thousands) up to 5 years 6 and 10 years beyond 10 years fair value provision Italy 6,402,417 4,491,511 1,654,385 12,548, ,601 Spain 18, ,788 48, ,531 5,699 Portugal 0 43, ,999-1,778 Ireland 44,565 4, ,142 6,521 Other EU countries 10,424 24,876 10,166 45, TOTAL 6,475,998 4,678,751 1,712,702 12,867, ,298 Table 36 - Exposure in government debt securities issued or guaranteed by EU zone countries - Financial assets at fair value through profit or loss Country Maturing Maturing between Maturing Total ( thousands) up to 5 years 6 and 10 years beyond 10 years fair value* Italy 792, ,516 13,675 1,146,182 Spain 47,497 3, ,091 Portugal 2, ,295 Ireland 0 1, ,780 Other EU countries 12,238 18,490 5,309 36,037 TOTAL 854, ,142 19,478 1,237,385 * of which the value of financial assets at fair value through profit or loss amounts to 1, million. Table 37 - Exposure in government debt securities issued or guaranteed by EU zone countries - Held to maturity investments Country Maturing Maturing Maturing Total value Total ( thousands) up to 5 years between 6 and 10 beyond 10 years book value fair value Italy 104, ,600 1, , ,222 Spain 15, ,509 16,721 Portugal Ireland Other EU countries TOTAL 119, ,600 1, , ,943 *** 180

181 Notes to the accounts Table 38 - Assets and liabilities valued at fair value on a recurrent and non-recurrent basis: breakdown by fair value hierarchy (ISVAP Regulation No. 7 dated July 13th, 2007) Level 1 Level 2 Level 3 Total ( thousands) Assets and liabilities valued at fair value on a recurrent basis Available for sale financial assets Financial assets at fair value through profit or loss Financial assets held for trading Financial assets at fair value through profit or loss 15,522,690 14,901, , , , ,205 16,471,924 15,831, , ,399 9,649 5,914 2,739 2, , ,231 1,529,486 1,440,970 1,363,292 1,324,055 1,274 3,170 2,894,052 2,768,195 Investment property Tangible assets Intangible assets Total assets at fair value on a recurrent basis 17,274,696 16,931,035 1,879,143 1,801, , ,293 19,600,884 19,196,668 Financial liabilities at fair value through profit or loss Financial liabilities held for trading Financial liabilities at fair value through profit or loss ,353,033 1,622, ,353,033 1,622,514 Total liabilities at fair value on a recurrent basis 0 0 1,353,033 1,622, ,353,033 1,622,514 Assets and liabilities valued at fair value on a nonrecurrent basis Non-current assets or disposal group held for sale Liabilities of disposal group held for sale Fair value valuation techniques for financial investments The valuation techniques are used when a listed price is not available. Generally, for the measuring of the fair value the use of observable data collected is maximised and the use of non-observable data is reduced. Debt securities If available and if the market is defined as active, the fair value is equal to the market price. Otherwise, the fair value is determined using the market approach and the income approach. The main input for the market approach are prices listed for identical or comparable assets on active markets, where the comparability between the security and the benchmark determines the fair value level. Depending on the possibility of observing these parameters, the security is classified in level 2 or level 3. They are valued by making reference respectively: to the price provided by the counterparty, if binding (executable) for the counterparty; at the price recalculated by means of internal valuation instruments or provided by third parties and corroborated by suitable disclosure on the model and on the input data used. 181

182 In the event that the use of a valuation model is necessary, the plain vanilla debt securities are valued applying the discounted cash flow model technique, while structured securities are valued by splitting the security into a portfolio of elementary instruments; the fair value of the structured product can thus be obtained by adding together the individual valuations of the elementary instruments into which it has been split. Debt securities and equities in default are recognised at the recovery value based on information originating from the appointed law firm. Equities If available and if the market is defined as active, the fair value is equal to the market price. Otherwise, the fair value is determined using the market approach and the income approach. The main input for the market approach are prices listed for identical or comparable assets on active markets, where the comparability between the security and the benchmark determines the fair value level; depending on the possibility of observing these parameters, the security is classified in level 2 or level 3. UCIT UNITS With regard to undertakings for collective investment (UCITs), the reference value, for the purposes of the determination of the fair value, is represented by the official NAV communicated by the asset management company (SGR) or the fund administrator or obtained from information providers. Derivatives The fair value of the over the counter (OTC) derivatives is determined by making reference to the price provided by external counterparties (if binding executable ), to the price provided by the central counterparties (CCP) for the derivatives which fall within the sphere of the EMIR procedures or to the price recalculated by means of internal valuation instruments or provided by third parties and corroborated by suitable disclosure on the model and on the input data used. Financial assets where the risk is borne by the insured party and related to the management of pension funds If available and if the market is defined as active, the fair value is equal to the market price. Otherwise, the valuation methods listed above for the various classes of assets are used. Level 3 financial assets and liabilities at fair value on a recurrent basis Securities present in the portfolio at fair value hierarchy level 3 are measured based primarily on valuations and analysis by the issuer or third parties, which cannot be directly found on the market but only monitored by dynamics observed indirectly on market factors and on the basis of objective elements communicated by said counterparties. Based on the securities in the portfolio, the parameters that cannot be observed, but are capable of influencing the valuation of Level 3 instruments are represented specifically by: estimates and assumptions used to value unlisted hedge funds, private equity, unlisted real estate property funds: with regard to these investments, it is very difficult to estimate the fair value s sensitivity to changes in various, non-observable inputs, which together could have off-setting effects, therefore the reasonableness of the effects caused by the stated changes on the objective elements considered in the valuations are verified; increase or decrease in the rate of recovery of securities in default; given the scant materiality of the securities, the sensitivity analysis in the event of an increase or decrease, even significant, in the recovery value does not bring about significant results in quantitative terms; 182

183 Notes to the accounts estimates and assumptions used for the valuation of investments in unlisted companies via the complex equity model based on ratios for measuring goodwill and models based on warranted multiples, which use the cost of capital and historical standardised profitability as inputs. The ratios for measuring goodwill used for the estimate of the fair value of bank investments varies between 1% and 5%, according to the type of funding (direct, in particular: current accounts, bonds, certificates of deposit, repurchase agreements, and indirect divided between managed and administrated); the cost of capital used is around 6%. Table 39 - Analysis of changes in level 3 financial assets and liabilities valued at fair value on a recurrent basis (ISVAP Regulation No. 7 dated July 13th, 2007) Financial assets at fair value through profit or loss Financial liabilities at fair value through profit or loss Available for sale financial assets Financial assets held for trading Financial assets at fair value through profit or loss Investment property Tangible assets Intangible assets Financial liabilities held for trading Financial liabilities at fair value through profit or loss ( thousands) Opening balance 458,205 2,918 3, Purchases/Issues 67, Sales/Repurchases -56, Reimbursements Gain or loss through profit or loss -27, of which valuation profits/losses Gain or loss recorded in other components of the statement of comprehensive income -27, , Transfers in level 3 4, Transfers to other levels , Other changes 7, Closing balance 443,032 2,739 1, The transfers mainly concerned the changeover: from level 1 to 3 for bonds classified under Financial assets held for trading, for an equivalent value of 425 thousand; from level 2 to 3 for funds amounting to million, for unlisted shares for 117 thousand and bonds for 67 thousand classified as Available for sale financial assets ; from level 3 to 2 for bonds amounting to 149 thousand classified under Available for sale financial assets and for derivatives amounting to million classified as Financial assets at fair value through profit or loss and amounting to 165 thousand classified as Financial assets held for trading ; the item Other changes includes the change in the recognition method from cost to level 3 fair value of the equity investment in Ente Fiere Verona. The transfers from level 1 to 2, mainly due to minor liquidity on the listing markets, for a total of million, concerned: 183

184 Available for sale financial assets : bonds for an equivalent value of million; Financial assets held for trading : bonds for a total of million. Financial assets at fair value through profit or loss : bonds for a value of 817 thousand and funds for a value of 47 thousand. In conclusion, the transfers from level 2 to 1, mainly due to greater liquidity on the listing markets, for a total of million, concerned: Available for sale financial assets : bonds for an equivalent value of million; Financial assets at fair value through profit or loss : UCITS units for a value of million and bonds for an equivalent value of million; Financial assets held for trading : bonds for a total of million. Table 40 - Assets and liabilities not valued at fair value: breakdown by fair value hierarchy (ISVAP Regulation No. 7 dated July 13th, 2007) Book value Fair value Level 1 Level 2 Level 3 Total ( thousands) Assets Held to maturity investments 242, , , , , ,428 Loans and receivables 847, , , , , , ,185 1,033,426 Investments in subsidiaries, associated companies and joint 70,522 35, ,054 70, ,522 35,124 ventures Investment property 493, , , , , ,379 Tangible assets 180, , , , , ,209 Total assets 1,835,024 1,676, , , , ,690 1,522,575 1,310,448 2,093,735 1,954,566 Liabilities 281, , , ,141 51,183 53, , ,403 Other financial liabilities 281, , , ,141 51,183 53, , ,403 Loans and receivables include the deposits with re-insurers and receivables for right of offset whose book value is considered to be a good approximation of the fair value. The fair value of investment properties is estimated on the basis of the methods described previously. The equity investment in the associated company Cassa di Risparmio di San Miniato (liaison investment) was valued using the mixed equity method which estimates the value on the basis of the shareholders equity adjusted for the goodwill on funding inferred by factors and on the current value of the extra-income with respect to the shareholders equity calculated with respect to the plan income, then adjusted for the purpose of incorporating the potential diluting effect deriving from the proposed share capital increase. The fair value level assigned is 3. It should be recalled that as of December 31st, 2015 there was no new plan and in light of the loss which meant that the previous plan could not up-dated, for valuation purposes a method based on comparable transactions was preferred (input observable on the market). For the purposes of ensuring the method continuity, the method had 184

185 Notes to the accounts been applied once a back-test of the method was made to the value estimates made as of December 31st, 2013 and December 31st, 2014, reconciling the values obtained by means of the application of the criteria of the comparable transactions and those obtained on the basis of the plan for the purpose of the impairment test. The fair value level assigned was 2. Investments in subsidiaries, associated companies and joint ventures also include the multi-segment investment property fund Mercury whose reference value, for the purposes of the determination of the fair value, is represented by the official NAV communicated by the asset management company. The fair value level assigned is 3. The fair value of the other financial liabilities is recognised using the income approach technique. Table 41 - Analysis of assets and liabilities relating to contracts issued by insurance companies where the investment risk is borne by the policyholder and deriving from pension fund management (ISVAP Regulation No. 7 dated July 13th, 2007) Benefits associated with investment funds and stock market indices Benefits associated with the management of pension funds Total ( thousands) Assets in the financial statements 2,080,810 1,918, ,236 1,088,982 2,954,046 3,007,125 Intercompany assets* Total assets 2,080,810 1,918, ,236 1,088,982 2,954,046 3,007,125 Financial liabilities in the financial statements 597, , , ,978 1,352,916 1,622,384 Technical provisions in the financial statements 1,482,837 1,276, , ,004 1,601,130 1,384,741 Intercompany liabilities * Total liabilities 2,080,810 1,918, ,236 1,088,982 2,954,046 3,007,125 * Assets and liabilities eliminated during the consolidation process 185

186 5. SUNDRY RECEIVABLES Table 42 - Sundry receivables Changes ( thousands) Amount % Receivables deriving from direct insurance transactions 394, ,590-9, Policyholders 148, ,670-44, Insurance brokers 178, ,036 34, Insurance companies - current accounts 32,784 36,807-4, Policyholders and third parties for claims to be settled 34,260 29,077 5, Receivables deriving from reinsurance transactions 60,250 62,236-1, Insurance and reinsurance companies 60,250 62,236-1, Reinsurance brokers n.a. Other receivables 67,338 49,370 17, Total 521, ,196 6, n.a. = not applicable On the basis of the experience of previous accounting periods, the item was adjusted for a total of million for write-downs due to doubtful collection. The item Other receivables mainly includes amounts due for management fees deriving from the management of internal and external funds of unit-linked products, as well as amounts receivable for advances to suppliers, amounts due from employees, amounts due from tenants, amounts due from guarantee funds and guarantee deposits. 6. OTHER ASSET ITEMS Other asset items are made up as follows: Table 43 - Other asset items Changes ( thousands) Amount % Deferred acquisition costs 13,537 12, Deferred tax assets 496, ,954-69, Current tax assets 391, ,278 26, Other assets 187, ,439 57, Total 1,088,257 1,072,562 15, Deferred acquisition costs The deferred acquisition costs relate to insurance contracts, as agreed upon by IFRS

187 Notes to the accounts Deferred and current tax assets 6.3 Deferred tax assets In accordance with the definition contained in IAS 12, these comprise the amounts of income taxes recoverable in future accounting periods. Amounts receivable for deferred tax assets, recorded under Deferred tax assets derive from the deductible timing differences, such as the write-down of receivables, the deductible portion of the change in the provision for outstanding non-life business claims, the capital losses on shares, the amortisation of the insurance portfolio, the allowances to provisions for risks and charges, as well as from the carrying forward of tax losses not used and the freeing up as per Italian Decree Law No. 185/2008, for million, of the prepaid taxes recorded on goodwill and on other intangible assets, having taken into account the effect of the decrease in the IRES rate as from They also comprise deferred tax assets which have arisen from the temporary misalignment between accrual-basis accounting laid down by the international accounting standards and Italian tax legislation. This misalignment is mainly due to the representation in the income statement and under shareholders equity of capital gains and losses from valuation generated on financial assets at fair value through profit or loss and on available for sale financial assets, recalculation of the employee severance indemnity in accordance with revised IAS 19, calculation of deferred income revenue (DIR) associated with investment contracts held by the Group, recalculation of depreciation plans for properties and investment properties in accordance with IAS 16 and 40, recalculation of the supplementary provisions and the recording of the shadow accounting provision. Deferred tax assets were determined according to the rate established by Article 1, paragraph 33 (with reference to IRES) and Article 1, paragraph 50 (with reference to IRAP) of Italian Law No. 244 dated December 24th, 2007, 2008 Finance Law, taking into account the amendments introduced by Article 23, paragraph 5 of Italian Decree Law No. 98 dated July 6th, 2011, containing Urgent provisions for financial stabilisation (so-called corrective manoeuvre ). They were also determined taking into consideration Italian Law No. 208 dated December 28th, Stability Law, on the basis of which the reduction of the IRES rate from 27.5% to 24% is envisaged as from January 1st, Current tax assets This item is represented by amounts due from tax authorities and mainly derives from the surplus emerging from the tax returns submitted, withholdings made on bank interest, tax credits on income deriving from equity investments in mutual investment funds, the advance tax on employee severance indemnities as per Article of Italian Law No. 662 dated December 23rd, 1996 and from amounts due from tax authorities transferred to the Parent Company by the subsidiaries who have complied with the tax consolidation system. Amounts due from tax authorities also comprise prepaid taxes pursuant to Italian Law No. 265 dated November 22nd, 2002, concerning the taxation of the life provisions, and amounts due from tax authorities for the payment of the annual advance of tax on premiums envisaged by Article 9, paragraph 1 bis, of Italian Law No Other assets This item includes transitory reinsurance accounts, deferred commissions expense (DAC - deferred acquisition cost), and other assets. 187

188 Table 44 Other assets Changes ( thousands) Amount % Transitory reinsurance accounts Deferred commissions expense associated with investment contracts 6,074 7,712-1, Accruals and deferrals 5,325 3,762 1, Sundry assets 175, ,936 57, Total 187, ,439 57, The item deferred commissions expense associated with investment contracts refers to deferred acquisition costs associated with investment contracts or contracts not complying with the definition of insurance contract as per IFRS 4. The accruals and deferrals item mainly refers to usage licences and software maintenance. Sundry assets include the amount relating to taxation on the mathematical provisions of the life classes accrued during the year for million and the balance of the liaison account between the life and non-life sectors of the Group insurance companies for million, which has a matching balance under other liabilities, and the balances of transactions to be settled for million. 7. CASH AND CASH EQUIVALENTS The item Cash and cash equivalents represents the balance as of the end of the accounting period of the current accounts held with various banks. Cash and cash equivalents amount to million. During the year, the item reported a decrease of million. The book value of these assets significantly approximates their fair value. Deposits and bank current accounts are remunerated at both fixed and floating rates. 188

189 Part C Statement of financial position - Liabilities Notes to the accounts 1. SHAREHOLDERS EQUITY As of December 31st, 2016, this item was made up as follows: Table 45 - Shareholders equity Changes ( thousands) Amount % Shareholders equity pertaining to the Group 1,854,896 1,911,823-56, Share capital 522, , Other equity instruments n.a. Capital reserves 780, ,877-10, Revenue reserves and other equity reserves 453, ,233 9, (Own shares) -39,907-27,144-12, Reserve for net exchange differences n.a. Gains or losses on available for sale financial assets 63, ,909-57, Other gains or losses recognised directly in equity -2,813-1, Profit (loss) for the period pertaining to the Group 76,254 60,914 15, pertaining to minority interests 258, ,876 11, Capital and reserves pertaining to minority interests 231, ,047 16, Gains and losses recognised directly in equity 10,036 11,107-1, Profit (loss) for the period pertaining to minority interests 17,114 20,722-3, Total 2,113,726 2,158,699-44, n.a. = not applicable 1.1 Shareholders equity pertaining to the Group This item totals 1, million and comprises the following items: Share capital The fully subscribed share capital amounts to million and is made up of 174,293,926 ordinary shares lacking par value, further to the amendment of Article 6 of the Articles of Association approved by the extraordinary shareholders meeting held on April 25th, Capital reserves This item includes the share premium reserve of the Parent Company. The change of million with respect to last year is essentially linked to the coverage of the loss of the life classes by means of use of reserves Revenue reserves and other equity reserves This item comprises the gains and losses deriving from initial application of international accounting standards (IFRS 1) and the reserves envisaged by the Italian Civil Code (consolidation reserve, legal reserve and extraordinary reserve) and by special laws prior to the adoption of international accounting standards. The change is attributable to the allocation of profit for the previous year and the performance of consolidation reserves. During the year, the Parent Company paid out dividends, net of own shares, for million. 189

190 1.1.5 Own shares As of December 31st, 2016 the Parent Company held 5,695,187 own shares Gains or losses on available for sale financial assets The changes, net of related deferred taxation, recorded during the year are mainly attributable to: the transfer of net capital gains to the income statement following disposals for million, and net capital losses from impairment for million; net negative fair value changes in financial instruments included in the corresponding asset item for million Other gains or losses recorded directly under equity The change is attributable to the decrease of 384 thousand in the reserve from valuation of the associated companies and the increase of million in actuarial gains and losses from valuation of the employee benefits as per the matters envisaged by revised IAS Shareholders equity pertaining to minority interests This account comprises the values pertaining to minority interests regarding the companies included in the consolidation area. With reference to the item gains or losses recognised directly in equity, changes during the year, net of the related deferred taxation, are due to: net negative fair value changes in financial instruments included in the corresponding asset item for million; the transfer of net capital gains from realisation for 20 thousand. 2. PROVISIONS AND ALLOWANCES Table 46 - Provisions and allowances - changes during the year ( thousands) 2015 Increases Decreases 2016 Provisions and allowances 55,321 18,360 19,320 54,361 As of December 31st, the item mainly comprised amounts set aside for: legal disputes and costs for million ( million was provided and 4.11 million used during the year); formal notices or reports on findings which can be served for the violations of Italian Law No. 57/01 or for other findings for 957 thousand ( 650 thousand was provided and million used during the year); sums which will be paid for the acceptance of any requests by beneficiaries for services depending on life assurance policies in relation to which prescription has taken place in favour of the Group for 664 thousand ( 35 thousand was used during the year); disputes open relating to employment matters or tax aspects for million ( 117 thousand was provided and million used during the year); the defence expense provision for 557 thousand ( 305 thousand used during the year), 190

191 Notes to the accounts the provision for the agents leaving indemnity for million (in the year 1.65 million was provided and 960 thousand used); intersectorial solidarity fund for million ( million was provided and million used during the year); claims division funds for 4.25 million ( 1.12 million was provided and 300 thousand used during the year). The outlays are envisaged over the short-term and therefore are not subject to any discounting. With regard to the legal and tax-related disputes, account is taken of the advice of legal/tax advisors with regard to the outcome of the same. With regard to the IVASS sanctions has taken into account those already communicated as well as the time series in the past registered by the insurance companies in the Group. 3. TECHNICAL PROVISIONS This item includes, as mentioned in the accounting principles, provisions associated with insurance contracts, and those deriving from investment contracts involving discretionary profit sharing (DPF), gross of reinsurance. The fairness of the liabilities as of December 31st, 2016, was ascertained by means of the method envisaged by section 15 et seq. of IFRS 4 (liability adequacy test). The assessment was carried out on liabilities relating to portfolios classified as insurance contracts or financial contracts with Discretionary Participation Features (DPF). The test was carried out by comparing the technical provisions, decreased by the acquisition costs still to be amortised and the value of any other related intangible assets, with the current value of the expected cash flows generated by the policy, including the liquidation and management costs. In the event of insufficiency of the provisions, the difference is booked to the income statement with an increase in liabilities. With regard to non-life classes, for the purpose of checking the fairness of the insurance liabilities, in replacement of the LAT, a control was used at individual ministerial class level by testing the calculation of the supplementary provision for risks underway with the simplified method as envisaged by Article 8 of attachment 15 of the ISVAP regulation No. 22 dated April 4th, 2008, amended by means of IVASS instruction No. 53 dated December 6th, Since the claims for the year were valued at ultimate cost, and not discounted back, it is possible to consider the future flows of the payments as implicitly checked. The current estimates have confirmed that the provisions as of December 31st, 2016 are adequate and therefore no supplementary provision is required. 191

192 Table 47 - Analysis of technical provisions (ISVAP Regulation No. 7 dated July 13th, 2007) Direct business Indirect business Total book value ( thousands) Non-life provisions 3,549,631 3,572,296 19,016 18,833 3,568,647 3,591,129 Premium provision 740, ,240 7,520 6, , ,032 Provision for outstanding claims 2,807,464 2,807,934 11,490 12,035 2,818,954 2,819,969 Other provisions 1,954 2, ,960 2,128 of which provisions provided following the assessment of fairness of the liabilities Life provisions 15,913,408 15,304,293 3,741 4,199 15,917,149 15,308,492 Provision for outstanding claims 200, , , ,420 Mathematical provisions 13,185,462 12,550,678 3,669 4,105 13,189,131 12,554,783 Technical provisions for contracts where the investment risk is borne by the policyholders and provisions deriving from the management of 1,601,130 1,384, ,601,130 1,384,742 pension funds Other provisions 926,590 1,114, ,660 1,114,547 of which provisions provided following the assessment of fairness of the liabilities of which deferred liabilities due from policyholders 848,384 1,044, ,384 1,044,397 Total technical provisions 19,463,039 18,876,589 22,757 23,032 19,485,796 18,899,621 NON-LIFE BUSINESS Premium provision In accordance with Italian legislation, the item comprises both the provision for unearned premiums, supplemented by the premium provision, calculated for certain classes as per specific ministerial requirements, and the provision for unexpired risks. LIFE BUSINESS Mathematical provisions The mathematical provisions include those envisaged by attachment 14 of the ISVAP Regulation No. 22 dated April 4th, 2008, amended by the IVASS instruction No. 53 dated December 6th, Technical provisions for contracts where the investment risk is borne by the policyholders and provisions deriving from the management of pension funds. This item exclusively comprises the provisions relating to index-linked and unit-linked polices and the provisions relating to pension funds. Other provisions Other provisions mainly comprise provisions for future costs associated with insurance contracts for million ( million as of December 31st, 2015) and the shadow accounting provision totalling million ( 1, million as of December 31st, 2015). 192

193 Notes to the accounts 4. FINANCIAL LIABILITIES 4.1 Financial liabilities at fair value through profit or loss The item includes the financial liabilities at fair value through profit or loss, defined and disciplined by IAS 39, relating to: investment contracts, not falling within the scope of IFRS 4, issued by Group insurance companies, where the risk of the investment is borne by the policyholders, management of pension funds, not falling within the scope of IFRS 4. The item represents 82.8% of total financial liabilities. In detail, the technical provisions relating to investment contracts, which mainly comprise the provisions against index and unit-linked policies, amount to million ( at the end of the previous year) and the technical provisions for pension funds amount to million ( at the end of the previous year). 4.2 Other financial liabilities The item represents 17.2% of total financial liabilities. The item includes the financial liabilities defined and disciplined by IAS 39 not included in the category Financial liabilities at fair value through profit or loss, and therefore subordinated liabilities for million, the deposits received from reinsurers which amount to million and loans for million. In detail, the features of the subordinated liabilities and loans are as follows: a subordinated loan of 80 million granted by UBI Banca on September 30th, 2010 with the following specifications: - duration: unspecified; - early repayment: as from September 30th, 2020; - interest rate: 6-month Euribor basis points; - subordination: with respect to all the unsubordinated creditors including the policyholders; - classification on the basis of the SII directive: Basic Own Funds Tier 1-restricted, on the basis of the matters envisaged by Article 308 ter section 9 of the 2009/138 Solvency II Directive (socalled grandfathering ). The amount of interest pertaining to the period amounted to million; a subordinated bond issue for 100 million, issued on December 17th, 2013 with the following specifications: - duration: 30 years; - early repayment: faculty to repay early as from tenth year (call option); - interest rate: 7.25% until the end of the tenth year. In case of failure to exercise the call option, the rate becomes floating and is equal to the 3-month Euribor basis points; - subordination: with respect to other non-subordinated securities; - classification on the basis of the SII directive: Basic Own Funds Tier 2, since this is compliant with the requisites envisaged by Article 73 of the Delegated Decree (EU) 2015/35 of the European Commission dated October 10th, The amount of interest pertaining to the period amounted to 7.25 million; mortgage loan of 3.16 million taken out with the Banca Intesa Group on March 24th, 2004 pertaining to Fondo Euripide. The loan is repayable in quarterly instalments and matures in December 2019; loan of million taken out with Banca Popolare di Sondrio in December 2015 and pertaining to Cattolica Services. The loan is repayable in quarterly instalments and matures in January 2019; 193

194 loan of 5.5 million taken out with Banca di Verona in December 2016 and pertaining to Cattolica Services. The loan is repayable in quarterly instalments and matures in March 2018; loan of 228 thousand taken out with Banca di Verona on May 28th, 2013 and pertaining to Cattolica Agricola. The loan is repayable in six-monthly instalments and matures in May 2018; loan of 286 thousand taken out with Banca di Verona in November 2013 and pertaining to Cattolica Beni Immobili. The loan is repayable in monthly instalments and matures in November 2018; debt balance of million on the current account open care of Banca di Brescia for the credit facility granted to Lombarda Vita; debt balance of million on the current account open care of Banca Popolare di Sondrio for the credit facility granted to Cattolica; debt balance of million on the current account open care of Banca di Brescia for the credit facility granted to Cattolica; debt balance of million on the current account open care of Banca di Verona for the credit facility granted to Cattolica; debt balance of 5 thousand on the current account open care of Unicredit pertaining to Cattolica for settlement of fees, etc. The table below provides an analysis of the financial liabilities undertaken by the Group, expressed according to nature and in accordance with the IAS classification criteria. 194

195 Notes to the accounts Table 48 - Analysis of financial liabilities (ISVAP Regulation No. 7 dated July 13th 2007) Financial liabilities at fair value through profit or loss Financial liabilities held for trading Financial liabilities at fair value through profit or loss Other financial liabilities Total value for the period ( thousands) Participative financial instruments Subordinated liabilities , , , ,067 Liabilities from investment contracts issued by insurance companies deriving 0 0 1,353,033 1,622, ,353,045 1,622,526 from contracts where the investment risk is borne by the policyholders , , , ,406 from the management of pension funds , , , ,978 from other policies Deposits received from re-insurers ,171 53,250 51,171 53,250 Financial liability components of insurance contracts Debt securities issued Payables due to banking customers Interbanking payables Other loans received Non-hedging derivatives Hedging derivatives Sundry financial liabilities ,976 50,052 50,976 50,052 Total 0 0 1,353,033 1,622, , ,381 1,634,455 1,904,

196 5. PAYABLES The account group comprises trade payables disciplined by IAS 39, mainly represented by payables deriving from direct insurance transactions, reinsurance payables and other payables. Table 49 - Payables Changes ( thousands) Amount % Payables deriving from direct insurance transactions 66,450 82,978-16, Insurance brokers 37,344 50,787-13, Insurance companies - current accounts 5,894 6, Policyholders for guarantee deposits and premiums 22,650 25,210-2, Guarantee funds in favour of policyholders Payables deriving from reinsurance transactions 42,604 49,375-6, Insurance and reinsurance companies 42,604 49,375-6, Insurance brokers n.a. Other payables 176, ,634-13, For taxes payable by policyholders 32,451 31, Amounts due to social security and welfare institutions 4,516 4, Sundry payables 139, ,865-14, Total 285, ,987-37, n.a. = not applicable 5.1 Payables deriving from direct insurance transactions Payables deriving from direct insurance transactions mainly comprise the amounts due to insurance brokers. In detail, amounts due to insurance brokers take into account the supplementary year-end registrations pertaining to the assessment of the production premiums and the timing mismatch registered in the settlement of the commissions with the bank-assurance channel. 5.2 Payables deriving from reinsurance transactions Payables deriving from reinsurance transactions include the items with debt balances associated with reinsurance. 5.3 Other payables These include payables for taxes payable by insurers, amounts due to welfare and social security institutions and other sundry payables. In detail, the item sundry payables included amounts due to suppliers, due to employees and for employee benefits as per revised IAS 19. The employee benefits as per revised IAS 19 include the employee severance indemnity for million, seniority bonuses for million and health bonuses for retired staff for million. 196

197 Notes to the accounts The employee severance indemnity is subject to actuarial calculation which takes into account the future developments of the employment relationship. The future flows of the employee severance indemnity have been discounted back as of the reference date on the basis of the method expressly requested by section 68 of IAS 19, known as the Projected Unit Credit Method. The projected benefits which can be disbursed in the event of death, incapacity, resignation or retirement based on the applicable actuarial bases have been determined for all the employees active as of the date of assessment and distributed uniformly over all the years of service for each employee as from the date of employment until the date the events take place. As stated in the accounting principles, with regard to Group companies with at least 50 employees, the employee severance indemnity accrued up to December 31st, 2006 is treated like a defined benefit plan and is therefore subject to actuarial calculation, while the employee severance indemnity allocated as from January 1st, 2007 to a specific Treasury Fund set up with INPS (national social security institute) is treated as a defined contribution plan. For the companies with less than 50 employees, the entire liability has been treated as a defined benefit plan. The employee severance indemnity represents the effective value of the foreseeable obligation, net of any assets serving the plans, adjusted to reflect any actuarial losses or gains not amortised. The discounting back of the future cash flows is carried out on the basis of the interest rate of high quality corporate securities. The main hypotheses used are: discount rate of 1.3%, inflation rate of 1.5%, revaluation rate of 2.16% (already net of the tax of 17%, in force as from January 1st, 2015), salary increases of 2.9%, mortality based on the most recent ANIA A62 mortality tables broken down by gender and the disability/invalidity, adopted in the INPS model for 2010 projections. For the retirement age of the generic asset, it was assumed that the pension requirements valid for Compulsory General Insurance (AGO, 67 years of age for males and females) were met. In relation to the resignation frequency, a table has been used in line with the expected value of the resignation rate over the long-term for the Parent Company. The categories of employee benefits which are disciplined by revised IAS 19 include the indemnities represented by length-of-service bonuses. In compliance with the international accounting standard revised IAS 19, the actuarial valuations were carried out on the basis of the method of the benefits accrued using the Projected Unit Credit Method. This method makes it possible to calculate the length-of-service bonuses at their date of maturity in an actuarial sense, distributing the liability for all the years of residual permanence of the outstanding workers. No longer as a liability to be settled in the event the company ceases its business activities as of the financial statements date, but gradually providing for this liability in relation to the residual duration of the workers in service. The method makes it possible to calculate certain amounts in a demographic - financial sense as of the reference date of the valuation, including in particular the liability pertaining to the service already provided by the workers represented by the DBO Defined Benefit Obligation (also known as the Past Service Liability). It is obtained by calculating the current value of the services due to the workers deriving from the length-of-service already accrued as of the valuation date. The demographic and financial hypotheses used are identical to those used for the valuation of the severance indemnity described previously. The categories of benefits, identified by revised IAS 19 as other long term benefits, for which an actuarial-type valuation is required, include the indemnities represented by health bonuses provided to retired staff. 197

198 With reference to the health bonuses for retired employees, revised IAS 19 confirms the needs to make valuations taking into due consideration the period in which the afore-mentioned benefits will presumably be provided with the consequent need to quantify them in terms of average current values. The provisions which discipline the afore-mentioned benefits are presented in the National Collective Labour Agreement for employees and executives and in the in-house collective contract of the Cattolica Assicurazioni Group companies. Explicit reference was made to these provisions and rules for the creation of the technical valuation model. The actuarial valuations of the health bonuses were carried out, in compliance with the international accounting standard revised IAS 19, on the basis of the method of the benefits accrued using the projected unit credit method. With reference to the demographic hypotheses, the recent ANIA A62 mortality tables were used. For the retirement age of the generic asset (officer or executive), it was assumed that the pension requirements valid for Compulsory General Insurance (AGO, 67 years of age for males and females) were met. With regard to the probability of leaving work activities, for reasons other than death, the turn-over probabilities detected in the companies were used, equal to 7% both for active officials and active executives. The financial hypotheses used are identical to those used for the valuation of the severance indemnity described previously. In accordance with revised IAS 19, sensitivity analysis has been carried out on the value of the obligation for defined benefits (DBO) based on changes in the main valuation hypotheses. In detail, the change in the value of the DBO has been gauged consequent to a change in the amount of the discount rate, a change in retirement age, a change in the inflation rate, a change in the mortality table and a change in the frequency of voluntary resignations. In light of these changes, also the parameters associated with the figure amended in accordance with the matters indicated in the following table have been changed, again in observance of the central hypothesis. Table 50 - Sensitivity test hypotheses Central hypotheses Hypothesis 1 Hypothesis 2 Hypothesi s 3 Hypothesis 4 Hypothesis 5 Hypothesis 6 Hypothesis 7 Hypothesis 8 Hypothesis 9 Hypothesis 10 Discount rate +1% Discount rate -1% Retirement age + 2 years Retirement age - 2 years Inflation rate +1% Inflation rate -1% Mortality table increase of 10% Mortality table decrease of 10% Resignation frequency increase of 10% Resignation frequency decrease of 10% Discount rate 1.3% 1.8% 0.8% 1.3% 1.3% 1.3% 1.3% 1.3% 1.3% 1.3% 1.3% Retirement age Inflation rate 1.5% 1.5% 1.5% 1.5% 1.5% 2.0% 1.0% 1.5% 1.5% 1.5% 1.5% Salary increase rate 2.9% 2.9% 2.9% 2.9% 2.9% 2.9% 2.9% 2.9% 2.9% 2.9% 2.9% Severance indemnity revaluation rate 2.6% 2.6% 2.6% 2.6% 2.6% 3.0% 2.3% 2.6% 2.6% 2.6% 2.6% Mortality table A 62 A 62 A 62 A 62 A 62 A 62 A 62 A % A 62-10% A 62 A 62 Voluntary resignation frequency 2.0% 2.0% 2.0% 2.0% 2.0% 2.0% 2.0% 2.0% 2.0% 2.2% 1.8% The results of the sensitivity test on the value of the DBO as of December 31st, 2016 are shown in the table below. 198

199 Notes to the accounts Table 51 - Sensitivity test results ( thousands) Value of the obligation for defined benefits as of December 31st, 2016 Sensitivity % Central hypotheses 28,212 Hypothesis 1 27, % Hypothesis 2 29, % Hypothesis 3 28, % Hypothesis 4 28, % Hypothesis 5 28, % Hypothesis 6 26, % Hypothesis 7 27, % Hypothesis 8 28, % Hypothesis 9 27, % Hypothesis 10 28, % Table 52 - Employee severance indemnity, length-of-service bonus and premiums on health contracts ( thousands) Employee benefits as per IAS 19R Balance as of December 31st, ,201 Interest cost 564 Service cost 891 Change in the demographic actuarial component 321 Change in the rate actuarial component 1,664 Disbursements and transfers -3,429 Other changes 0 Balance as of December 31st, , OTHER LIABILITY ITEMS Table 53 - Other liability items Changes ( thousands) Amount % Deferred tax liabilities 394, ,376-59, Current tax liabilities 144, ,223-42, Other liabilities 118,907 60,374 58, Total 658, ,973-43,

200 6.2 Deferred tax liabilities This item comprises the deferred tax liabilities defined and disciplined by IAS 12. As of December 31st, 2016, deferred tax liabilities included: deferred taxes which have arisen from taxable timing differences due to the deferral of the taxability of positive income elements realised and recorded through profit or loss, which will be settled when the aforementioned revenues are taxed; the deferred taxes which have arisen from the temporary misalignment between the principle of economic competence laid down by the international accounting standards and tax legislation, due mainly to the statement in the income statement and under shareholders equity of the capital gains on valuations recorded respectively on the financial assets at fair value through profit or loss and on the available for sale financial assets. Deferred tax liabilities were determined according to the IRES and IRAP rates in force. 6.3 Current tax liabilities This item comprises the current tax liabilities defined and disciplined under IAS 12. The item essentially comprises the current residual liability for income taxes for the year, the liability deriving from the tax assessment on the life business mathematical provisions pertaining to the period, liabilities for withholding taxes made, and VAT to be paid. 6.4 Other liabilities Table 54 - Other liabilities Changes ( thousands) Amount % Deferred income revenue (DIR) Transitory reinsurance accounts - payable n.s. Liaison account 70,347 26,411 43,936 n.s. Other liabilities 38,010 26,500 11, Accrued expenses and deferred income 9,897 6,886 3, of which for interest 5,539 6, Total 118,907 60,374 58, n.s. = not significant The deferred income revenue was mainly chargeable to index and unit-linked type investment contracts, where the risk of the investments is borne by the policyholders. Other liabilities include the liaison account between the life and non-life businesses for Group companies that provide both life and non-life insurance. The amount of million is recorded for an equal balance under Other assets. The balances for premiums collected on policies being issued as of December 31st are also included, for million along with commission on premiums being collected for million. 200

201 Notes to the accounts Deferred income includes the Parent Company s portion of the extraordinary coupon relating to bonds acquired for the restructuring transactions of the main segregated fund entered into in 2005 and deferred to subsequent years on the basis of the residual duration of the securities. 201

202 Part C Income statement The income statement closed with a consolidated profit of million ( million as of December 31st, 2015). INSURANCE BUSINESS With reference to insurance business, in addition to the matters illustrated below, reference should be made to the table in the management report Reclassified consolidated income statement by segment of activities. The table below shows the breakdown of the gross premiums written relating to direct and indirect business. Table 55 - Breakdown of direct and indirect gross premiums written Classes Direct business Indirect business % ( thousands) Italy Italy Abroad Total business of total Accident and injury 197, , Health 62, , Land vehicle hulls 133, , Goods in transit 6, , Fire & natural forces 123, , , Other damage to assets 221, , TPL - Land motor vehicles 951, , TPL - General 173, , Credit n.s. Suretyship 19, , Sundry financial losses 23, , Legal protection 15, , Assistance 37, , Other classes (1) 5, , Total non-life classes 1,972, ,607 1,987, Class I 1,904, ,904, Class III 393, , Class IV 1, ,128 n.s. Class V 228, , Class VI 15, , Total life classes 2,543, ,543, Total insurance premiums 4,516, ,607 4,531, Class III 93, , Class VI 133, , Total investment contracts 227, , TOTAL PREMIUMS WRITTEN 4,743, ,607 4,758, (1) includes railway rolling stock, aircraft, sea and inland water vessels/hulls and TPL aircraft and sea and inland water vessels. n.s. = not significant Analysis is presented below relating to the technical insurance items and the insurance operating expenses net of eliminations between sectors. 202

203 Notes to the accounts Table 56 - Insurance business ( thousands) Gross balance Reinsurance amount Net balance Gross balance Reinsurance amount Net balance Non-life business NET PREMIUMS 2,008, ,344 1,721,300 2,048, ,761 1,766,865 a Premiums written 1,987, ,741 1,708,909 2,044, ,847 1,740,592 b Change in premium provision 20,994-8,603 12,391 4,187 22,086 26,273 NET CHARGES RELATING TO CLAIMS -1,292, ,372-1,134,824-1,313, ,699-1,138,244 a Claims paid -1,318, ,151-1,139,357-1,324, ,770-1,140,535 b Change in provision for outstanding claims ,554-20,559-9,876-8,101-17,977 c Change in recoveries 25, ,844 20, ,838 d Change in other technical provisions Life business NET PREMIUMS 2,543,684-26,183 2,517,501 3,127,653-43,886 3,083,767 NET CHARGES RELATING TO CLAIMS -2,769,631 17,163-2,752,468-3,402,221 19,766-3,382,455 a Claims paid -1,969,485 22,396-1,947,089-2,381,588 19,449-2,362,139 b Change in provision for outstanding claims 54, ,254-27, ,529 c Change in mathematical provisions -634,882-4, , , ,243 d Change in technical provisions related to contracts where the investment risk is borne by the policyholders and derive from the management of pension funds -216, , , ,199 e Change in other technical provisions -3, ,074-29, ,345 Table 57 - Analysis of insurance operating expenses Non-life business Life business ( thousands) Commissions and other acquisition costs, net of commissions and profit-sharing received from re-insurers -329, ,027-78,319-78,093 Acquisition commission -314, ,438-49,726-59,916 Other acquisition costs -70,734-68,814-24,275-25,832 Change in deferred acquisition costs Collection commission -15,005-12,907-9,672-9,929 Commissions and profit-sharing received from re-insurers 70,307 77,132 4,708 17,472 Operating expenses relating to investments -6,979-7,065-18,886-18,715 Other administrative expenses -114, ,855-30,510-32,086 Total -451, , , ,

204 In addition to the matters observed in the above table, operating expenses relating to the investments, recorded during the year, comprise general expenses and expenses for employees relating to the management of investment property and equity investments. Commissions and other acquisition costs, net of commissions and profit sharing received from re-insurers, include acquisition costs relating to insurance contracts and investment contracts with discretionary participation features. FINANCIAL OPERATIONS The table which follows discloses the income and charges deriving from financial operations as presented in the income statement for the year. Table 58 - Financial operations Changes ( thousands) Amount % Net income from financial instruments at fair value through profit or loss 37,905 48,024-10, Income from investments in subsidiaries, associated companies and joint ventures n.s. Charges from investments in subsidiaries, associated companies and joint ventures -34,881-50,114 15, Result deriving from equity investment in subsidiaries, associated companies and joint ventures -34,029-50,110 16, Income from other financial instruments and investment property 664, , , Charges from other financial instruments and investment property -139, ,474 65, Result deriving from other financial instruments and investment property 525, ,684-76, n.s. = not significant 204

205 Notes to the accounts Table 59 - Financial and investment income and charges (ISVAP Regulation No. 7 dated July 13th, 2007) ( thousands) Interest Other income Other charges Realised gains Realised losses Total income and charges realised Result of investments 476,067 80,018-13, ,999-59, ,882 a Deriving from investment property 0 33,157-2, ,934 b Deriving from investments in subsidiaries, associated companies and joint ventures c Deriving from held to maturity investments 11, ,529 d Deriving from loans and receivables 43,007 3, ,441 42,613 e Deriving from available for sale financial assets 402,534 33, ,985-37, ,704 f Deriving from financial assets held for trading 1, , ,174 g Deriving from financial assets at fair value through profit or loss 17,168 9,448-10,725 50,875-17,690 49,076 Result of sundry receivables 1, ,264 Result of cash and cash equivalents Result of financial liabilities -10, ,450 a Deriving from financial liabilities held for trading b Deriving from financial liabilities at fair value through profit or loss c Deriving from other financial liabilities -10, ,450 Result of payables -1, ,133 Total 465,343 80,018-13, ,999-59, ,

206 Valuation gains Valuation losses Valuation capital gains Value writeback Valuation capital losses Writedown Total unrealised income and charges Total income and charges 2016 Total income and charges , ,262-78,640-79, , , , ,212 21,722 17, ,881-34,881-34,029-50, ,529 12, ,613 46,906 1, ,677-43,759-45, , , , ,319 5,705 61, , ,698 59,774 72, ,264 1, , ,188-34,638-40, , ,188-24,188-29, ,450-10, , , ,450-78, , , ,

207 Notes to the accounts Commissions income Commissions income mainly comprises the commission relating to investment contracts issued by the Group s insurance companies (DIR); specifically, the item includes the explicit and implicit premium loading encumbering the investment contracts issued. Commissions expense The item comprises the acquisition costs associated with investments policies (DAC) recorded during the year. OTHER REVENUES AND OTHER COSTS Other revenues The item amounts to million, of which million in other net technical income associated with insurance contracts. Other revenues amount to million of which million relating to recoveries from provisions for risks and charges and million relating to withdrawals from the writedown allowance. Other costs The item, which amounts to million, comprises other net technical charges associated with insurance contracts for million and other charges for million, the latter mainly represented by amortisation on intangible assets for million, provisions for risks and charges for million and loan adjustments totalling million. TAXATION Table 60 - Income taxes for the year Changes ( thousands) Amount % Current taxes -69, ,018 44, Change in prepaid taxes -16,223-39,185 22, Change in deferred taxes -6,219 10,533-16,752 n.s. Balance of deferred taxes -22,442-28,652 6, TOTAL -91, ,670 51, n.s. = not significant This item records current taxes (IRES - company earnings tax and IRAP - regional business tax), deferred taxes of individual Group companies recorded in observance of accounting standard No. 25 on income taxes, and deferred taxes which have arisen from the temporary misalignment between accrual-basis accounting as laid down by the international accounting standards (IAS 12) and tax legislation. The reconciliation between the effective average tax rate and the applicable tax rate is illustrated below. 207

208 Table 61 - Reconciliation of the tax rate - analysis (Balances as %) Rate applicable 34.32% 34.32% Effect of increases/decreases 15.18% 29.28% Tax rate on pre-tax profit 49.50% 63.60% The change in the tax rate on profit before taxation for 2016 with respect to 2015 is essentially attributable to the adjustment of the prepaid and deferred tax due to the decrease in the IRES (company earnings tax) rate from 27.5% to 24%, as from STATEMENT OF COMPREHENSIVE INCOME The statement of comprehensive income for the year 2016 amounted to million, of which million pertaining to the Group. The analysis of other components in the statement of comprehensive income pursuant to ISVAP Regulation No. 7 dated July 13th, 2007, is presented below. The balances are stated net of income taxes, which is in any event indicated in the specific column. 208

209 Notes to the accounts Table 62 - Analysis of the statement of other comprehensive income - net amounts (ISVAP Regulation No. 7 dated July 13th, 2007) Charges Adjustments from reclassification to income statement Other changes Total changes Taxation Balance ( thousands) Other income components net of income taxes without reclassification in the income statement Provisions deriving from changes in the shareholders equity of investee companies Intangible assets revaluation reserve -1, , , Tangible assets revaluation reserve Income and charges relating to non-current assets or disposal group held for sale Actuarial gains and losses and adjustments related to definedbenefit plans , , , Other items Other income components net of income taxes with reclassification in the income statement Reserve for net exchange differences Gains or losses on available for sale financial assets -30,125-15,705-28,478-16, ,603-32,027-26,108-16,736 72, , ,509-13,193-28,478-16, ,987-29,515-26,279-15,423 73, ,979 Profits or losses on cash flow hedging instruments Profits or losses on instruments hedging a net investment in foreign operations Provisions deriving from changes in the shareholders equity of investee companies Income and charges relating to non-current assets or disposal group held for sale , , ,313-1,507-1, Other items TOTAL OF THE OTHER COMPONENTS OF THE STATEMENT OF COMPREHENSIVE INCOME -31,491-15,571-28,478-16, ,969-31,893-26,717-16,666 71, ,

210 OTHER IVASS TABLES Pursuant to ISVAP Regulation No. 7 dated July 13th, 2007, the income statement by sector of activities, the analysis of the technical insurance items and the analysis of the insurance operating expenses, gross of eliminations within sectors, are presented as follows. Table 63 - Income statement by sector of activities (ISVAP Regulation No. 7 dated July 13th, 2007) Non-life Business Life Business Other Eliminations between sectors Total ( thousands) Net premiums 1,722,535 1,768,093 2,518,236 3,085, ,970-2,584 4,238,801 4,850, Gross premiums written 2,039,021 2,078,648 2,544,419 3,129, ,112-31,378 4,552,328 5,176, Ceded premiums -316, ,555-26,183-43, ,142 28, , , Commissions income 0 0 7,257 5, ,257 5, Income and charges from financial instruments at fair value through profit or loss ,419 47, ,905 48, Income from investments in subsidiaries, associated companies and 33,313 30,574 9,199 9, ,660-39, joint ventures 1.5 Income from other financial instruments and investment property 151, , , , ,583-14, , , Other revenues 190, ,143 66,184 65,155 6,265 3, , ,477 97,298 94,231 1 TOTAL REVENUES AND INCOME 2,097,846 2,204,898 3,169,766 3,827,194 7,062 3, , ,049 5,046,998 5,804, Net charges relating to claims -1,177,974-1,182,737-2,755,868-3,380, ,550 43,035-3,887,292-4,520, Amounts paid and change in technical provisions -1,351,480-1,374,241-2,773,031-3,400, ,684 58,841-4,061,827-4,716, Reinsurance amount 173, ,504 17,163 19, ,134-15, , , Commissions expense , , Charges from investments in subsidiaries, associated companies and -34,498-50,774-3,207-4, ,824 5,450-34,881-50,114 joint ventures 2.4 Charges from other financial instruments and investment property -53,136-77,365-84, ,828-1, , , , Operating expenses -514, , , ,954-2,752-2,022 96,694 97, , , Other costs -154, ,520-81,844-68,396-4,712-3,464 22,922 30, , ,380 2 TOTAL COSTS AND CHARGES -1,935,155-2,008,980-3,087,243-3,746,348-8,736-6, , ,146-4,862,127-5,580,465 PROFIT (LOSS) FOR THE YEAR BEFORE INCOME TAXES 162, ,918 82,523 80,846-1,674-2,555-58,669-49, , ,

211 Notes to the accounts Table 64 - Analysis of technical insurance items (ISVAP Regulation No. 7 dated July 13th, 2007) ( thousands) Gross balance Reinsurance amount Net balance Gross balance Reinsurance amount Net balance Non-life business NET PREMIUMS 2,039, ,486 1,722,535 2,078, ,555 1,768,093 a Premiums written 2,020, ,536 1,710,144 2,079, ,254 1,741,820 b Change in premium provision 18,341-5,950 12, ,699 26,273 NET CHARGES RELATING TO CLAIMS -1,351, ,506-1,177,974-1,374, ,504-1,182,737 a Claims paid -1,372, ,782-1,182,507-1,379, ,997-1,185,028 b Change in provision for outstanding claims -4,508-16,051-20,559-15,454-2,523-17,977 c Change in recoveries 25, ,844 20, ,838 d Change in other technical provisions Life business NET PREMIUMS 2,544,419-26,183 2,518,236 3,129,009-43,886 3,085,123 NET CHARGES RELATING TO CLAIMS -2,773,031 17,163-2,755,868-3,400,764 19,767-3,380,997 a Claims paid -1,972,885 22,396-1,950,489-2,384,832 19,449-2,365,383 b Change in provision for outstanding claims 54, ,254-27, ,528 c Change in mathematical provisions -634,882-4, , , ,243 d Change in technical provisions related to contracts where the investment risk is borne by the policyholders and derive from the management of pension funds -216, , , ,199 e Change in other technical provisions -3, ,074-25, ,644 Table 65 - Analysis of insurance operating expenses (ISVAP Regulation No. 7 dated July 13th, 2007) Non-life business Life business ( thousands) Gross commissions and other acquisition costs -424, ,421-93, ,298 a Acquisition commissions -325, ,058-56,056-66,443 b Other acquisition costs -84,080-83,457-27,937-29,708 c Change in deferred acquisition costs d Collection commissions -15,005-12,906-10,047-10,259 Commissions and profit-sharing received from re-insurers 81,035 87,689 4,708 17,472 Operating expenses relating to investments -7,980-8,394-24,969-23,167 Other administrative expenses -163, ,342-46,446-47,961 Total -514, , , ,

212

213 Notes to the accounts Part D Other information

214

215 Part D Other information Notes to the accounts Group headcount Directors, Statutory Auditors and strategic directors fees Group employees calculated as per FTE, amounted to 1,508, compared with 1,522 as of December 31st, Account was taken in the calculation of the exit of 9 co-workers at year end, of which 8 members of the Intersectorial Solidarity Fund. CONSOB resolution No , published in 2011, implemented the provisions concerning remuneration contained in Article 123 ter of the Testo unico della finanza and envisages the drawing up and subsequent resolution by the 2017 shareholders meeting of the report on remuneration for the companies, to be made public in accordance with the deadlines as per the formalities envisaged by current legislation, which in Section II includes the analytical indication of the fees paid during the year for any reason by the Parent Company and the subsidiary and associated companies. Atypical and unusual transactions and non-recurrent significant events and operations With reference to non-recurrent significant events and transactions and positions or transactions deriving from atypical and/or unusual operations, reference should be made to the section Other information in the Management Report. Earnings for shares in circulation Information on risks Transactions with related parties With reference to earnings per share in circulation, reference should be made to the section Significant events and other information in the Management Report. With regard to the disclosure required by IFRS 13 concerning outstanding risks, reference should be made to the section Risk management in the Management Report. As already disclosed in the Management Report, pursuant to CONSOB Regulation No dated March 12th, 2010, and subsequent amendments and additions, as from January 1st, 2011 the Procedure for the management of related party transactions approved by the Board of Directors with last up-date by means of resolution dated December 20th, 2016, applies to the situations envisaged by the regulations. Note that Cattolica Group has entered into several extraordinary transactions with related parties, not atypical and/or unusual, aimed at rationalising and reorganising the corporate structure of the same, or growth by external lines. These transactions, some of which directly involved the Parent Company, are illustrated in another section of the Management Report. With reference to the dealings with Banca Popolare di Vicenza s.p.a. (BPVi) as already described in detail in the management report, on August 4th, the Board of Directors resolved to exercise the right to unilaterally withdraw from the partnership agreements with Banca Popolare di Vicenza. The withdrawal, whose full effectiveness takes place on expiry of the sixth month after the receipt by BPVi of the related communication and therefore February 10th, 2017, led to a structured series of immediate or deferred effects under the terms identified under agreement and cancelled out the connotation of related party. You are hereby informed that the decisions relating to the withdrawal from the agreement with BPVi led to the activation of the procedure on the related party transactions. In relation to said resolutions, qualified as a transaction of greater significance with related 215

216 parties, a specific Disclosure Document was published on August 11th, 2016, pursuant to Article 5 of the Regulations adopted by Consob by means of Resolution No /10 and subsequent amendments, made available to the general public care of the Parent Company s registered offices, on the website and on the authorised storage mechanism emarket STORAGE, a Document to which reference is made herein for the matters required in accordance with Article 5, paragraph 9, of said Regulations. In detail, the following dealings with Banca Popolare di Vicenza and its subsidiaries as of December 31st, 2016 are indicated, having taken into account the writedowns made, for 89 thousand; unsubordinated bonds for million, of which 82 million Class D; current accounts for million and other payables, mainly relating to commissions, totalling million. Commissions were paid during the year for a total of million, under market conditions. The financial charges came to 57 thousand and the capital losses realised financially amounted to 98 thousand; other costs, mainly for seconded staff, came to 288 thousand. The ordinary financial income deriving from the afore-mentioned investments comes to million and the realised capital gains amounted to million. Units of Atlante Fund were also recognised, having taken into account the writedown made for million. With regard to transactions with related parties, without prejudice to the approval procedures described in the Parent Company s Report on Corporate Governance on the website shareholders are hereby informed that, for reporting purposes, a procedure has been set up for detecting outstanding transactions, via the prior acquisition of the necessary information to identify related parties in relation to international accounting standard IAS 24 and subsequent extrapolation of the transactions relating to the same. The table below shows the equity transactions and relationships resulting from the aforementioned related party transactions as of December 31st, The balance presented in the column associated companies and their subsidiaries represent the dealings with the Cassa di Risparmio di San Miniato Group and its direct and indirect subsidiaries. In particular, the following are indicated: the class C and D investments (shares and bonds) and current accounts which are subscribed under market conditions. The related financial income is also indicated (including the income of class D zero coupons); other receivables, payables, costs and revenues linked to the ordinary insurance business (mainly payables for commission); commissions paid to the sales network which is under market conditions. The column Other related parties includes all the dealings with the directors, the statutory auditors as well as the General Managers and the executives with strategic responsibilities of the Parent Company and related parties. The column also includes compensation paid for activities performed in the Parent Company and in the Group companies. 216

217 Notes to the accounts Table 66 - Transactions with related parties Statement of financial position transactions ( thousands) Joint Ventures, associated companies and their subsidiaries Other related parties Total 2016 Assets Equity investments 70, ,522 Loans granted Subordinated bonds Unsubordinated bonds Provisions 0 1,437 1,437 Derivatives Other receivables Current account transactions Total 71,995 1,437 73,432 Liabilities Loans received Other payables 4 1,741 1,745 Total 4 1,741 1,745 Economic transactions and relationships ( thousands) Joint Ventures, associated companies and their subsidiaries Other related parties Total 2016 Revenues and income Premiums Financial income Capital gains for financial disposals Other revenues Total Costs and charges Claims Financial charges Capital losses for financial disposals Commissions 1, ,565 Other costs 0 10,311 10,311 Total 1,565 10,311 11,

218 The undersigned declare that these financial statements are true and consistent with the underlying accounting records The legal representatives of the company (*) The Chairman PAOLO BEDONI (**) (**) (**) (*) For foreign companies, the signature must be that of the general representative for Italy. (**) Indicate the office covered by the signee. 218

219 Attestation of the consolidated financial statements pursuant to Article 81 ter of Consob Regulation No dated May 14th, 1999 and subsequent amendments and additions 1. The undersigned, Giovan Battista Mazzucchelli, as Managing Director, and Giuseppe Milone, as Executive in charge of preparing the financial reports of Cattolica Assicurazioni Soc. Coop., hereby certify, taking into account the provisions of Article 154 bis, paragraphs 3 and 4 of Italian Legislative Decree No. 58 dated February 24th, 1998: - The adequacy with respect to the Company s structure and - the effective application, of the administrative and accounting procedures in place for preparing the consolidated financial statements as of financial year The adequacy of the administrative and accounting procedures in place for preparing the consolidated financial statements as at December 31st, 2016, has been assessed through a process established by Cattolica Assicurazioni Soc. Coop. on a consistent basis with the Internal Control Integrated Framework model issued by the Committee of Sponsoring Organizations of the Treadway Commission which represents the reference framework generally accepted at international level. 3. It is also hereby certified that: 3.1 the consolidated financial statements as at December 31st, 2016: a) are prepared in compliance with applicable international accounting standards recognized by the European Community pursuant to EC Regulation No. 1606/2002 of the European Parliament and of the Council dated July 19th, 2002, as well as the provisions pursuant to Italian Legislative Decree No. 38 dated February 28th, 2005, the Italian Civil Code, Italian Legislative Decree No. 209 dated September 7th, 2005 and subsequent amendments and applicable provisions, regulations and circular letters issued by IVASS; b) correspond to the related books and accounting records; c) provide a true and correct representation of the balance sheet, income statement and financial position of the issuer and of all the companies included in the scope of consolidation. 3.2 The management report includes a reliable analysis of the performance and of the management result, as well as of the position of the issuer and all the companies included in the scope of consolidation, together with the description of the main risks and uncertain situations to which they are exposed. Verona, March 16 th, 2017 Signature of Chief Executive Officer Giovan Battista Mazzucchelli Signature of Corporate Financial Reporting Manager Giuseppe Milone

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221 Independent Auditors Report