1. INTRODUCTION COVERED BUSINESS DEFINITIONS... 4

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3 1. INTRODUCTION COVERED BUSINESS DEFINITIONS RESULTS OVERVIEW OF 2012 RESULTS MOVEMENT OF EMBEDDED VALUE VALUE IN-FORCE RECONCILIATION OF ANAV TO IFRS EQUITY NEW BUSINESS DISTRIBUTABLE PROFITS GENERATION RESULTS BY GEOGRAPHIC AREA OVERVIEW OF RESULTS BY GEOGRAPHIC AREA ITALY GERMANY FRANCE CENTRAL AND EASTERN EUROPE REST OF EUROPE REST OF WORLD SENSITIVITY ANALYSIS ASSUMPTIONS ECONOMIC ASSUMPTIONS OPERATING ASSUMPTIONS ANNEX A: METHODOLOGY A1. ADJUSTED NET ASSET VALUE A2. VALUE IN-FORCE A3. NEW BUSINESS VALUE ANNEX B: REAL-WORLD PROJECTIONS AND IMPLIED DISCOUNT RATES B1. REAL-WORLD BEST ESTIMATE PROJECTIONS B2. IMPLIED DISCOUNT RATES INDEPENDENT AUDITOR S REPORT.40 1

4 ASSICURAZIONI GENERALI 2012 LIFE EMBEDDED VALUE SUPPLEMENTARY INFORMATION 1. INTRODUCTION Assicurazioni Generali S.p.A. (Generali) reports the profits from its life, pension and health insurance business in its published financial statements according to IFRS reporting bases. An alternative method of reporting the value and determining the performance of life, pension and health insurance business is to use Embedded Value accounting. This method is used by a number of European insurance groups to provide supplementary information to that shown in their published accounts. Embedded Value (EV) is an actuarially determined estimate of the value of a company from a shareholder s perspective, excluding any value attributable to future new business. Since the year-end 2005 EV valuation, Generali has been compliant with the CFO Forum s European Embedded Value (EEV) Principles and, starting from the year-end 2007 EV valuation, has adopted a bottom-up market consistent approach with allowances for the time value of financial options and guarantees, for the frictional cost of required capital and for the cost of non hedgeable risks. In June 2008, the CFO Forum published the Market Consistent Embedded Value (MCEV) Principles, which were subsequently amended (in October 2009) to reflect the possibility to include a liquidity premium in the reference rate. In December 2011, on account of the extreme financial market environment in the Euro area, the CFO Forum made a further public statement to allow for the inclusion of an allowance for the current sovereign debt market conditions as a component of the reference rate in embedded value reporting. During 2012, also under the wider Solvency II framework and in view of the persisting tensions in the Euro sovereign debt market, further progress has been made in the definition of such allowance, identifying specific measures to be included in the reference rate (such as the countercyclical premium and the matching adjustment) to provide for a more appropriate and less volatile representation of the value of insurance companies offering long term guarantees. Nevertheless, waiting for more specific guidance on such anti-cyclical mechanisms (currently under formal testing within the Long Term Guarantees Assessment) and for the sake of continuity and ease of comparison with its peers, for the year-end 2012 valuation Generali has decided not to use any of those mechanisms in its base results. Consequently, Generali s market consistent methodology for the year-end 2012 valuation (as set out in Annex A and Section 7 of the Supplementary Information) is based on the following main assumptions, unchanged from previous year: reference rates definition: reference rates are based on swap rates in all main countries, with the addition of liquidity premia, where appropriate; liquidity premium quantification: in line with consolidated market practice, the liquidity premium is calibrated using external financial indices; liquidity premium application to products: the amount of liquidity premium to be added to swap rates is determined with regard to liabilities, i.e. products are grouped into three main buckets (entitled to have access to 100%, 75% and 50% of the full liquidity premium respectively) according to the level of predictability of the relative insurance cash flows. In view of the ongoing discussions within the Solvency II framework on the extrapolation of the reference rates, instead, Generali has modified its approach, allowing for an earlier entry-point in the extrapolated part of the curve for Euro area (from 30 to 20 years) and for a shorter Copyright Stichting CFO Forum Foundation 2008

5 convergence to the ultimate forward rate (from 60 to 40 years) for all currencies. This change is shown as an opening adjustment to year-end 2011 EV, and hence does not impact the reported EV earnings. On account of the mentioned developments under the Solvency II framework (which have also led to the deferral of the mandatory reporting under the MCEV Principles), Generali has decided to continue to formally report under the EEV Principles and has engaged Ernst & Young to provide an external opinion on the methodology, assumptions and results under this basis (as described in section Independent Auditor s report). The members of the board of directors of Assicurazioni Generali S.p.A. acknowledge their responsibility for the preparation of the Supplementary Information in accordance with the EEV Principles. The directors confirm that the Embedded Value as at 31 December 2011 and 31 December 2012, and the Embedded Value earnings including the value added by new business in 2012, have been determined using methodology and assumptions that are compliant with EEV Principles. The EV disclosure should not be considered as a substitute for Generali's primary financial statements. With reference to the covered business, this Supplementary Information document provides the EV market consistent results as at 31 December 2012, together with details of the methodology and the assumptions used. 2. COVERED BUSINESS The Life EV results cover all of the Group s direct and indirect life and pension business, as well as the long-term health business written in Germany and Austria (which has characteristics closely related to life insurance business). For the purpose of determining the Life net asset value, the perimeter includes all the operating life, health and pension companies, considered net of any held participations in Group companies included in the IFRS financial and non-life segments, with the exception of those companies that offer services directly supporting the covered business. In particular, therefore, asset gathering companies, other financial companies and holding companies have not been included in the perimeter. In addition to the values emerging in the life, health and pension companies, value is also attributed to the stream of profits that are expected to be generated in Head Office and in holding companies with respect to direct life insurance and intra-group life reinsurance, and to the stream of profits generated in the Group s asset management companies, which are directly associated with life insurance business. All related expenses are taken into account on a look-through basis. Values include inwards reinsurance written, and are net of the impact of reinsurance ceded out of the Group. No value is attributed in respect of future new business. The EV refers to contracts in force at the valuation date. Automatic premium increases, characterised by reliable acceptance ratios, are included in the projection of the future cash flows according to historical experience. Correspondingly, new business refers only to new contracts written in the year and excludes other automatic premium increases relating to prior years business. Generali s bottom-up market consistent methodology covers 98% of life, health and pension business of the Group in terms of technical reserves. The residual business is valued using a traditional deterministic valuation approach as described in Annex B1. All the values shown in this disclosure are in Euro millions, after tax and after minorities. The approach to consolidation adopted in the Life EV produces results that are consistent with the consolidated primary financial statements. Percentage variations of amounts from 2011 to 2012 always refer to changes on a comparable basis, obtained neutralising the impact of changes in the covered perimeter and foreign exchange rates. 3

6 3. DEFINITIONS Embedded Value (EV) is an actuarially determined estimate of the value of a company, excluding any value attributable to future new business. With reference to the covered business, and to the relevant consolidation perimeter (i.e. the operating life, health and pension companies of the Group), the EV is equal to the sum of the Adjusted Net Asset Value and the Value In-Force. Adjusted Net Asset Value (ANAV) corresponds to the consolidated market value of the assets backing the shareholders funds, net of taxes and policyholder interests on any unrealised capital gains and losses, after the elimination of goodwill and DAC, net of other adjustments required to maintain consistency with the valuation of the in-force business, and before the payment of dividends from profits of the year. Value In-Force (VIF) is the present value of the projected stream of after tax industrial profits that are expected to be generated by the covered business in force at the valuation date, after allowance for: the cost of financial guarantees and options granted to policyholders; the frictional costs of holding the required capital; the cost of non hedgeable risks. Embedded Value Earnings correspond to the difference between the closing and the opening EV, excluding adjustments to opening EV and capital movements. Operating Embedded Value Earnings correspond to Embedded Value Earnings, net of economic variances. Normalised Embedded Value Earnings correspond to Operating Embedded Value Earnings, net of extraordinary expenses. New Business Value (NBV) is the present value, at the point of sale, of the projected stream of after tax industrial profits expected to be generated by the new business written in the year, after allowance for: the cost of financial guarantees and options granted to policyholders; the frictional costs of setting up and holding the required capital; the cost of non hedgeable risks. Full year NBV is calculated as the algebraic sum of the NBV of each quarter, each of them calculated with beginning of period operating and economic assumptions. Annual Premium Equivalent (APE) is defined as new business annualised regular premiums plus 10% of single premiums. Present Value of New Business Premiums (PVNBP) is defined as the present value of the expected future new business premiums, allowing for lapses and other exits, discounted to point of sale using the reference rates. Internal Rate of Return (IRR) is defined as the rate that makes equal to zero the present value of new business distributable profits (therefore allowing for new business first year strain and required capital absorption) calculated using real-world best estimate assumptions (see Annex B1). Payback Period is the period of time (in years, from issue date) required to recover the cost of the initial investment in new business (i.e. new business first year strain and required capital absorption) calculated by means of a deterministic projection of distributable profits based on realworld best estimate assumptions (see Annex B1). Implied Discount Rate (IDR) is the discount rate that, when applied to a deterministic projection of future distributable profits based on real-world best estimate assumptions (see Annex B1), produces the same value as that arising from the market consistent valuation. 4

7 4. RESULTS 4.1. OVERVIEW OF 2012 RESULTS The following table shows the main results of the life, health and pension perimeter, in terms of EV and NBV. Main results at 31 December 2012 and 2011 ( mln) EV 21,400 19,372 EV earnings 3,774-4,408 Return on EV 20.4% -18.1% Normalised return on EV 14.7% 11.7% Change NBV % APE 4,508 4, % Profitability on APE 19.2% 20.4% -1.2 pts IRR 12.3% 12.6% -0.3 pts % changes are on a comparable basis From year-end 2011 to year-end 2012 EV moves from 19,372mln to 21,400mln. Total EV earnings (3,774mln, corresponding to 20.4% overall return on EV) comprise solid operating EV earnings (2,690mln, leading to 14.7% normalised return on EV) and positive economic variances (1,084mln). The positive economic variances mainly result from the narrowing of the spread between Italian government bonds and swap rates, which together with the good equity market performance and the reduction in market volatility has, in aggregate, offset the negative impact arising from lower risk free reference rates. The volatility of the EV valuation to the movements of government spreads is due to the current market consistent methodology, which creates a gap between the valuation of assets (highly dependant on government bond rates) and the valuation of liabilities (based on swap rates). In case the Euro reference rates, instead of being based on the swap rates plus the liquidity premium, were based on an average government bond return in the Euro area (i.e. using the government spread premium adjustment defined in section 6) the EV would increase from 21.4bln to 27.2bln. The 2012 NBV, calculated as the sum of the NBV of each quarter (evaluated with beginning of period operating and economic assumptions), though suffering from risk free reference rates lowering throughout the year, still reports a solid margin on APE (19.2%, down 1.2pts from 2011) and a positive 12.3% internal rate of return. 5

8 4.2. MOVEMENT OF EMBEDDED VALUE The following table shows the movement of the EV and its components (VIF and ANAV) from the end of 2011 to the end of 2012, together with the movement of ANAV components (required capital and free surplus). Expected results are calculated using best estimate assumptions (see Annex B1). Movement of Embedded Value ( mln) Required Free EV VIF ANAV Capital Surplus Value at 31/12/ ,372 8,233 11,138 10, Change in perimeter -1, Exchange rate fluctuation Model change Adjusted Value at 31/12/ ,536 7,715 10,821 10, New business value 863 1, ,624 Expected existing business contribution 1,733 1, Transfers from VIF and req. cap. to free surplus - -1,901 1, ,763 Operating experience variance Change in operating assumptions Operating EV earnings 2,690 1, Economic variances 1, , Total EV earnings 3,774 1,637 2, ,623 Capital movement Value at 31/12/ ,400 9,352 12,047 11, Total Normalised EV earnings 3,774 2,731 Return on EV 20.4% 14.7% Value at 31/12/2011: the starting point of the movement, represented by the official value at 31/12/2011. Change in perimeter: the impact due to the difference between the Group companies interest in the covered business or the covered business itself at the end of 2011 and The impact on EV (-1,046mln) mainly reflects the sale of Migdal in Israel. Exchange rate fluctuation: the impact due to the difference between the exchange rates at the end of 2011 and The impact on EV is negligible (+6mln), mainly as a consequence of the weakening of Euro against most currencies in Central and Eastern Europe, offset by its strengthening against the US Dollar. Model change: the combined impact on EV (+205mln) is the sum of +378mln arising from the modified assumptions on risk free reference rates extrapolation, which now allows for an anticipated entry-point for Euro (from 30 to 20 years) and a shorter convergence period to the ultimate forward rate (see section 7.1); -173mln arising from various improvements and refinements of the actuarial models used locally for the projections of VIF (with negative impacts in France and Italy, only partially offset by the positive impact in Germany and US) and from minor opening adjustments to ANAV. Model changes also affect the calculation of the required capital (+302mln). The limited impact of the changes in the extrapolation method is due to the fact that these changes relate to projection years beyond year 20, and the contribution of profits after year 20 to the overall VIF is marginal (12%, see section 4.3). Adjusted value at 31/12/2011: the adjusted starting point of the movement, basis for the calculation of the return on EV. 6

9 New business value: the impact of the new business written in The impact on EV (+863mln) represents the new business value at point of sale, calculated as the sum of the NBV of each quarter (evaluated with beginning of period operating and economic assumptions see Annex A3). The impact on free surplus (-1,624mln) represents the total new business strain, which is the combined effect of the negative contribution to profit in the year of sale (-945mln) and the additional capital required by the new business (-678mln), net of eligible items that can be used to support capital requirements. Expected existing business contribution: the impact on EV (+1,733mln) is the sum of +1,749mln coming from the roll forward, at the 2011 implied discount rate (see Annex B2), of the beginning of year VIF and relevant required capital; -15mln referring to the expected after tax return on free surplus. Transfers from VIF and required capital to free surplus: the neutral impact on EV comes from the release, from VIF to ANAV, of the 2012 after tax result (1,901mln), as expected at the end of 2011 and inclusive of the expected return on the assets backing the required capital. The impact on required capital represents the expected required capital release (862mln) from the in-force business, which is shown net of the variation of eligible items that can be used to support the required capital. The release of profit and capital from the in-force business into the free surplus, in aggregate, amounts to +2,763mln. Operating experience variance: the impact of actual versus expected 2012 experience for operational items such as mortality, persistency, profit sharing levels and expenses. The negative impact on EV (-158mln) comprises the following items: +37mln on mortality; -128mln on surrenders; +7mln on levels of premiums; -14mln on profit sharing levels; -11mln on ordinary expenses; -41mln on extraordinary expenses; -8mln on residual operating items. The negative experience on surrenders mainly arises from one-off events occurred in France (high lapses in the first quarter of the year due to fiscal uncertainties) and in German health business (where the high lapses were triggered by specific premium adjustments on certain business segments). Change in operating assumptions: the impact of changes in future assumptions for operational items such as mortality, persistency, profit sharing levels and expenses. The positive impact on VIF (+251mln) is the sum of the following items: +291mln on mortality; -22mln on surrenders; -32mln on levels of premiums; -6mln on profit sharing levels; +33mln on ordinary expenses; -13mln on residual operating items. The significant impact of the revision of mortality assumptions, in line with the positive experience, affects all areas of operation (and, in particular, France, Germany, Switzerland and the US). Changes in operating items underlying the calculation of the required capital (therefore affecting either the minimum regulatory capital or the economic capital see Annex A1) determine its increase of +229mln. Operating EV earnings are equal to the sum of the new business value, the expected existing business contribution, the transfers from VIF and required capital to free surplus, the operating experience variance and the change in operating assumptions. Operating EV earnings amount to +2,690mln. 7

10 Economic variances: the impact of actual versus expected 2012 experience and changes in future assumptions for economic items such as yield curves, implied volatilities, investment returns and taxes. The positive impact on EV (+1,084mln) corresponds to the sum of the variances on ANAV (+1,204mln, arising from the revaluation of fixed income assets due to lower interest rates, and from actual returns which have exceeded the returns projected in the previous year) and of -120mln variances on VIF. More specifically, the -120mln VIF variances can be split as follows: -1,920mln: the impact of the swap curve decrease (assuming the government and corporate return decrease by the same amount, that is, keeping a constant spread with the swap rate); +400mln: the combined effect of the positive impact of the closure of the spread (versus the swap curve) of the government (+2,460mln) and corporate (+1,000mln) bonds, and the negative impact of the reduction of the liquidity premium (-3,060mln); +730mln: the impact of the positive equity market performance; +670mln: the impact of the reduction in interest rate volatilities and equity volatilities. The low interest rate environment is the main cause of the increase in the required capital (+468mln), particularly evident in Germany. Total EV earnings are equal to the sum of operating EV earnings and economic variances, and amount to +3,774mln. The corresponding return on EV (obtained dividing the EV earnings by the adjusted opening EV) is equal to +20.4%. Capital movement: this amount (-910mln) comprises dividends paid in 2012 out of the consolidation perimeter by the covered companies (-614mln), together with net movements (-297mln in aggregate) corresponding to dividends received from Group companies, capital injections and changes in covered companies interest in other Group companies and other consolidation differences. Generali defines the normalised EV earnings as the operating EV earnings excluding the impact of the extraordinary expenses included in the operating variance (-41mln). According to this definition, normalised EV earnings amount to 2,731mln, with a 14.7% return on adjusted opening EV (3.0 percentage points up from 11.7% in 2011). 8

11 4.3. VALUE IN-FORCE The table below reports the breakdown of VIF for 2012 and 2011 into its components. Breakdown of Value in-force as at 31 December 2012 and 2011 ( mln) PVFP before Time Value of FG&O 15,605 14,502 Time Value of FG&O -3,224-3,311 PVFP after Time Value of FG&O 12,381 11,191 Cost of capital -1,253-1,402 Cost of NHR -1,775-1,556 Value in-force 9,352 8,233 Compared with 2011, the significant increase in the present value of future profits (PVFP) after Time Value of FG&O is mainly explained by the strong recovery in Italy, due to the positive impact on future projected returns following the recovery of the market value of Italian government bonds. After the allowance for the cost of required capital (impacted by lower risk free reference rates) and the cost of non hedgeable risks (where the increase is driven by higher risk capital for underwriting risks), the VIF increases to 9,352mln (+24.7% on comparable basis). The following table shows the expected run-off pattern of VIF emergence across future projection years, grouping discounted distributable profits into 5 year buckets. In particular, the table reports the contribution of each time-bucket s profits to the total VIF at year-end The calculation has been performed considering distributable profits (i.e. including the release of required capital) generated by the value in-force and calculated according to a deterministic projection based on real-world best estimate assumptions (see Annex B1). Contribution of future years to VIF as at 31 December 2012 Percentage Cumulated of VIF distribution Years % 36% Years % 63% Years % 79% Years % 88% Years % 92% Years % 95% Years 31 onwards 5% 100% The profits emerging within the first 20 years of projection account for 88% of the overall VIF RECONCILIATION OF ANAV TO IFRS EQUITY With reference to the covered business, the following table shows the reconciliation of ANAV to the IFRS Equity in respect of the Life EV consolidation perimeter (see Annex A1). ANAV reconciliation to IFRS equity ( mln) IFRS equity 13,551 11,107 Mark to market of Assets 6,136 3,386 Goodwill DAC, VoBA and other adjustments -2,525-2,652 Mark to market of debt and Employee Benefits Plans Unrealised gains included in VIF -4, ANAV 12,047 11, ANAV reported in the table refers to the value at 31 December 2012, before the distribution of dividends in 2013 on 2012 profits. The corresponding definition also applies to 2011 ANAV. 9

12 4.5. NEW BUSINESS The table below shows the development of NBV from 2011 to 2012, together with the usual main profitability indicators. New Business Value 2012 and 2011 ( mln) Change APE 4,508 4, % Annual premiums 2,745 3, % Single premiums 17,628 16, % PVNBP 42,572 43, % NBV % Profitability on APE 19.2% 20.4% -1.2 pts Profitability on PVNBP 2.0% 2.3% -0.2 pts % changes are on a comparable basis Despite the negative economic environment, on a comparable basis (i.e. neutralising the effect of minorities and foreign exchange rate variations) APE remains broadly stable (-1.4%). Annual premiums show a moderate decline (-5.1%), but still represent the predominant part (60.9%) of total APE production (64.6% in 2011). The increase in single premiums (+5.0%) is driven by the production recorded in Germany in the second half of Saving business increases by 5.2%, whereas protection business slightly decreases (-2.0%) mainly on account of the health business fall in Germany (-65.6%), where the production in less profitable product segments has been deliberately closed. The volatility of the financial markets has negatively impacted the unit linked business production, which declines by 23.4% NBV, calculated as the sum of the each quarter NBV evaluated with beginning of period operating and economic assumptions, amounts to 863mln decreasing by 9.5%, with a corresponding profitability (margin on APE) of 19.2% (20.4% in 2011). The profitability decrease is mainly explained by the negative impact of the lowering of the reference rates throughout the year, which has been only partially offset by the more favourable product mix, mitigating the effect of the lower volumes on NBV, as reported in the following table. Movement of New Business Value ( mln) and NBM (%) NBV NBM New business value % Change in perimeter % Exchange rate fluctuation 2 0.0% Products mix/volume % Profitability % New business value % The following table shows the breakdown of NBV into its components, highlighting the weight of both the allowance for cost of capital and non hedegable risks (which in aggregate reduce the profitability on APE by 6.5 percentage points). Breakdown of New Business Value 2012 and 2011 ( mln) PVFP before Time Value of FG&O 1,637 1,698 Time Value of FG&O PVFP after Time Value of FG&O 1,156 1,249 Cost of capital Cost of NHR New Business Value

13 Finally, the table below shows the development from 2011 to 2012 of the main additional new business profitability indicators, obtained using real-world best estimate assumptions (see Annex B1). New Business Value 2012 and 2011 ( mln) st year NB strain -1,624-1,746 o/w industrial strain o/w capital strain st year NB strain on PVNBP -3.8% -4.0% o/w industrial strain -2.2% -2.3% o/w capital strain -1.6% -1.8% IRR 12.3% 12.6% Payback period (yrs) The 2012 new business strain (i.e. the investment made by the shareholder into the new business in the first year) amounts to -1,624mln, corresponding to the sum of the negative contribution to profit in the year of sale (-945mln) and the capital absorbed by the new business (-678mln). In terms of ratio over the present value of new business premiums (PVNBP), from 2011 to 2012 the first year strain improves from -4.0% in 2011 to -3.8% in 2012, thanks to the improvement of both industrial and capital strain. The slight deterioration of the internal rate of return implicit in the new business sold in 2012 (from 12.6% to 12.3%) and of the payback period (from 7.4 to 7.6 years) is mainly explained by the lower real-world best estimate assumptions (with investment returns based on actual local government bond returns - see Annex B1) used in 2012 to project future profits. 11

14 4.6. DISTRIBUTABLE PROFITS GENERATION Distributable profits are defined as the sum of the profit released by the business and the release of the required capital set aside to support it. The following table (extract from the EV movement table in Section 4.2) shows the generation of distributable profits during 2012, stemming from the new business written during the year and the portfolio already in force at the end of The table reports both the expected amount of 2012 distributable profit (calculated at the beginning of the year using real-world best estimate assumptions see Annex B1) and its actual realisation, where the positive impact on the profit of the year is only partially offset by the lower than expected release of required capital from the existing business. Generation of distributable profit during 2012 ( mln) Profit Req. Capital Distributable release Profit New business contribution ,624 Expected existing business contribution 1, ,748 Total expected distributable profit ,124 Operating and economic variances 1, Total actual distributable profit 2, ,623 The following tables show the expected future emergence of undiscounted distributable profits stemming from the portfolio in force at year-end 2012 (i.e. excluding future new business) and from the new business written in 2012, again estimated using real-world best estimate assumptions. VIF - expected undiscounted distributable profits ( mln) Undiscounted distr.profits Years ,532 Years ,349 Years ,723 Years ,918 Years ,559 Years ,474 Years 31 onwards 3,292 NBV - expected undiscounted distributable profits ( mln) Undiscounted distr.profits Year 0-1,624 Years 1-5 1,183 Years ,040 Years Years Years Years Years 31 onwards

15 5. RESULTS BY GEOGRAPHIC AREA 5.1. OVERVIEW OF RESULTS BY GEOGRAPHIC AREA The table below shows the development of EV (and its components) and the return on EV in the main areas (represented for reporting purposes by Italy, Germany, France, Central and Eastern Europe, Rest of Europe and Rest of World). Breakdown of Embedded Value results by geographic area ( mln) Return on EV EV VIF ANAV Change Change Change Italy 74.1% 5,836 3, % % 4,976 4, % Germany 5.9% 4,178 3, % 3,104 2, % 1,074 1, % France 4.9% 3,730 3, % 812 1, % 2,918 2, % Central Eastern Europe 11.8% 1,160 1, % % % Rest of Europe 3.6% 4,234 4, % 2,203 2, % 2,031 1, % Rest of World 19.4% 2,262 2, % 1,474 1, % % Total 20.4% 21,400 19, % 9,352 8, % 12,047 11, % % changes are on a comparable basis In Italy, the excellent return on EV arises primarily from the strong narrowing of government bond spreads over swap, which contributes to the strong recovery of VIF (turning positive) and ANAV. The low aggregate return on EV in Germany, France and Rest of Europe is mainly due to the very low risk free reference rates in the Euro area, which determine negative economic variances on VIF and erode the positive EV operating earnings. The Central and Eastern Europe and the Rest of the World regions benefit from positive economic variances on EV, which added to positive operating earnings result in good returns on EV. The following table shows the development of APE, NBV and new business profitability. Breakdown of New Business Value results by geographic area ( mln) APE NBV Profitability on APE change change change Italy 1,637 1, % % 17.2% 21.8% -4.6 pts Germany % % 20.2% 18.3% +2.0 pts France % % 12.8% 13.7% -0.9 pts Central Eastern Europe % % 31.4% 35.8% -4.4 pts Rest of Europe % % 20.8% 20.4% +0.4 pts Rest of World % % 44.1% 28.8% pts Total 4,508 4, % % 19.2% 20.4% -1.2 pts % changes are on a comparable basis On a comparable basis, APE slightly increases in Germany (+1.0%, despite the drop in the health business), in France (+0.5%, with a positive development in pension business) and in the Rest of World region (+0.2%). The significant increase in Central and Eastern Europe (+23.6%) is mainly due to the increase of annual premiums (+37.1%), strongly affected by the one-off production correlated to regulatory changes affecting the pension funds in Czech Republic. APE decreases in Italy (-4.5%, on account of the annual premium contraction - which however still represent the predominant part of the APE of the country) and in the Rest of Europe area (-5.5%). In aggregate, APE reports a slight decrease (-1.4%). New business margin on APE reduces at Group level by 1.2 percentage points to 19.2%, mainly as a consequence of the drop in Italy, due to the greater proportion of traditional saving business suffering more from lower reference rates. The positive profitability development in Germany is driven by the reduction of the offered guarantees and by the inclusion of look-through profits emerging in the distribution network. The decrease of profitability in France is mainly due to the lower margins of the one-off traditional single premiums written to retain the portfolio after the peak of surrenders registered in the first part of the year. Central Eastern Europe maintains an excellent level of profitability, despite the slight decrease due to the greater weight of less remunerative pension business. The Rest of Europe area reports a stable profitability, and the Rest of World margins benefit from the perimeter variation and the positive impact of lower interest rates on the protection business. 13

16 5.2. ITALY Movement of Embedded Value ( mln) - Italy Required Free EV VIF ANAV Capital Surplus Value at 31/12/2011 3, ,517 5, Change in perimeter Exchange rate fluctuation Model change Adjusted Value at 31/12/2011 3, ,494 5, New business value Expected existing business contribution Transfers from VIF and req. cap. to free surplus ,245 Operating experience variance Change in operating assumptions Operating EV earnings 1, Economic variances 1, Total EV earnings 2,715 1,692 1, ,196 Capital movement Value at 31/12/2012 5, ,976 4, Total Normalised EV earnings 2,715 1,208 Return on EV 74.1% 33.0% Model changes included in the EV movement (but excluded from earnings) are composed of +62mln impact of the revised assumption on risk free rates extrapolation and of -128mln impact of various improvements and refinements of the actuarial models. The operating experience variances are slightly negative (-17mln), as a combined effect of the positive experience on mortality (+5mln) and surrenders (+7mln), offset by negative experience on the level of premiums (-15mln) and extraordinary expenses (-6mln). The change in operating assumptions (+63mln) mainly arises from more favourable assumptions regarding mortality (+25mln) and surrenders (+32mln), in line with the positive experience of the year. EV operating earnings (1,202mln), supported by the strong contribution of the new business of the year, lead to a normalised return on EV of 33.0%. Positive economic variances (+1,512mln) primarily arise from the narrowing of Italian government bond spreads, which has positive impacts on both ANAV (+688mln) and VIF (+824mln). Total EV earnings amount to 2,715mln, with a return on the opening adjusted EV (which was penalised by a negative VIF) equal to 74.1%. The capital movement (-541mln) refers to dividends paid in 2012 out of the consolidation perimeter by the covered business (-378mln), and to capital injections and changes in covered companies interest in other Group companies (-163mln). Finally, the following table reports the breakdown of VIF into its components. Breakdown of value in-force as at 31 December 2012 and 2011 ( mln) PVFP before Time Value of FG&O 2,650 1,045 Time Value of FG&O -1,196-1,292 PVFP after Time Value of FG&O 1, Cost of Capital Cost of NHR Value In-Force

17 New Business ( mln) - Italy Change APE 1,637 1, % 1st year NB strain Annual premiums 1,086 1, % o/w industrial strain Single premiums 5,516 5, % o/w capital strain PVNBP 14,049 14, % 1st year NB strain on PVNBP -5.1% -5.1% NBV % o/w industrial strain on PVNBP -3.2% -3.2% Profitability on APE 17.2% 21.8% -4.6 pts o/w capital strain on PVNBP -1.9% -1.8% Profitability on PVNBP 2.0% 2.6% -0.6 pts IRR 13.3% 14.2% % changes are on a comparable basis Payback period (yrs) Movement of NBV ( mln) and NBM (%) Breakdown of New Business Value ( mln) NBV NBM New Business Value % PVFP before Time Value of FG&O Change in perimeter 0 0.0% Time Value of FG&O Exchange rate fluctuation 0 0.0% PVFP after Time Value of FG&O Products mix/volume % Cost of Capital Profitability % Cost of NHR New Business Value % New Business Value APE decreases by 4.5% to 1,637mln, mainly on account of the contraction of annual premiums (-7.6%), which still represent the predominant part of Italian APE (66.3%). The decrease of annual premiums is partly offset by the increase of single premiums (+2.1%), supported by the higher contribution of traditional pension segment. The reduction of the new business profitability in terms of margins on APE (from 21.8% in 2011 to 17.2% in 2012) is mainly due to the progressive lowering of the reference rates throughout the year, which negatively impacts saving business. This negative impact has been partially offset by the reduction in the average guarantee offered to policyholders (from 1.63% in 2011 to 1.46% in 2012), primarily in single premium new products, and by an improvement of protection business profitability. As a consequence of lower profitability and volumes, the NBV decreases by 24.7% to 281mln. The total new business strain amounts to -718mln, corresponding to the sum of the negative contribution to profit in the year of sale (-448mln) and the capital absorbed by the new business (-269mln). In terms of ratio over the present value of new business premiums, from 2011 to 2012 the first year strain remains stable at -5.1%. The worsening of internal rate of return implicit in the new business sold in 2012 (from 14.2% to 13.3%) and of the payback period (from 6.7 to 7.3 years) is mainly explained by the lower best estimate assumptions used in 2012 to project future profits, and by an overall slower run-off of the required capital absorbed by annual premiums across the projection horizon. 15

18 5.3. GERMANY Movement of Embedded Value ( mln) - Germany Required Free EV VIF ANAV Capital Surplus Value at 31/12/2011 3,743 2,641 1,103 1, Change in perimeter Exchange rate fluctuation Model change Adjusted Value at 31/12/2011 4,092 2,990 1,101 1, New business value Expected existing business contribution Transfers from VIF and req. cap. to free surplus Operating experience variance Change in operating assumptions Operating EV earnings Economic variances Total EV earnings Capital movement Value at 31/12/2012 4,178 3,104 1,074 1, Total Normalised EV earnings Return on EV 5.9% 6.7% Model changes included in the EV movement (but excluded from earnings) amount to +349mln and are the sum of +160mln impact of the revised assumption on risk free rates extrapolation and +189mln impact of various improvements and refinements of the actuarial models (mainly in the area of assets modelling and shareholders management rules) and of the inclusion of look-through profits emerging in the distribution network. The operating experience variances amount to -112mln, and mainly relate to higher than expected profit sharing paid to policyholders (-38mln) and surrenders (-74mln). The surrender experience is the combined effect of the positive experience in the life segment (+10mln) and the one-off negative experience in the health segment (-83mln), due to extraordinary premium adjustments on less profitable lines of business. The change in operating assumptions (+79mln) mainly arises from better assumptions in the life segment, regarding mortality (+46mln), surrenders (+54mln) and long-term profit sharing levels (+25mln), only partially offset by worsened assumptions on expenses (-29mln). Change in assumptions regarding the health business are negative (-31mln), mainly related to expenses. EV operating earnings (275mln), supported by the good contribution of new business but adversely impacted by the poor experience in the health segment, lead to a normalised return on EV of 6.7%. Economic variances (-34mln) mainly arise from the VIF, which suffers from the lower interest rates. Total EV earnings amount to 242mln, with a return on EV equal to 5.9%. The capital movement (-155mln) refers to dividends paid in 2012 out of the consolidation perimeter by the covered business (-75mln), and to capital injections and changes in covered companies interest in other Group companies (-81mln). Finally, the following table shows the split of VIF between its different components. Breakdown of value in-force as at 31 December 2012 and 2011 ( mln) PVFP before Time Value of FG&O 4,400 3,747 Time Value of FG&O PVFP after Time Value of FG&O 4,090 3,389 Cost of Capital Cost of NHR Value In-Force 3,104 2,641 16

19 New Business ( mln) - Germany Change APE % 1st year NB strain Annual premiums % o/w industrial strain Single premiums 3,276 2, % o/w capital strain PVNBP 10,414 9, % 1st year NB strain on PVNBP -0.9% -1.2% NBV % o/w industrial strain on PVNBP -0.4% -0.4% Profitability on APE 20.2% 18.3% +2.0 pts o/w capital strain on PVNBP -0.5% -0.8% Profitability on PVNBP 1.8% 1.7% +0.1 pts IRR 19.8% 15.0% % changes are on a comparable basis Payback period (yrs) Movement of NBV ( mln) and NBM (%) Breakdown of New Business Value ( mln) NBV NBM New Business Value % PVFP before Time Value of FG&O Change in perimeter 0 0.0% Time Value of FG&O Exchange rate fluctuation 0 0.0% PVFP after Time Value of FG&O Products mix/volume 3 0.1% Cost of Capital Profitability % Cost of NHR New Business Value % New Business Value APE remains substantially stable (+1.0%), as a combined effect of the strong reduction in heath business (-65.6%) and a good increase in the life business (+10.7%). The reduction of health business is due to the decision to exit from less profitable business lines, whilst the increase in the life business is driven by the significant growth of single premiums (+41.0%) overcompensating the slight contraction of regular premiums (-1.9%). Life business is characterized by a drop of unit linked business (-28.1%) which continues to be penalized by the uncertainties in the financial markets, and a remarkable increase of traditional business (+28.6%) both in saving (+20.4%) and in protection (+49.9%). The new business profitability improves by 2.0 percentage points in terms of margin on APE (from 18.3% in 2011 to 20.2% in 2012). The improvement is mainly due to the new level of guarantee granted to policyholders (from 2.25% in 2011 to 1.75% in 2012) and to the inclusion of look-through profits emerging in the distribution network, partly offset by the increased weight of less profitable single premiums. As a consequence of higher volumes and higher profitability, the NBV increases by 11.9% to 186mln. Despite the significant share of annual premiums, the use of Zillmerised reserves produces, compared to other countries, a smaller negative contribution from new business to profit in the year of sale, which amounts to -40mln. Considering also the capital absorbed by the new business (-52mln), the total new business strain amounts to -92mln. In terms of ratio over the present value of new business premiums, from 2011 to 2012 the first year strain improves from -1.2% to -0.9%, mainly thanks to the reduced first year capital absorption, favoured by the lower guaranteed levels. The improvement of the internal rate of return (from 15.0% to 19.8%) and of the expected payback period (from 7.0 to 5.5 years) is mainly due to the reduced first year strain and to the inclusion of look-through profits. 17

20 5.4. FRANCE Movement of Embedded Value ( mln) - France Required Free EV VIF ANAV Capital Surplus Value at 31/12/2011 3,828 1,212 2,616 2, Change in perimeter Exchange rate fluctuation Model change Adjusted Value at 31/12/2011 3,703 1,087 2,616 2, New business value Expected existing business contribution Transfers from VIF and req. cap. to free surplus Operating experience variance Change in operating assumptions Operating EV earnings Economic variances Total EV earnings Capital movement Value at 31/12/2012 3, ,918 2,917 1 Total Normalised EV earnings Return on EV 4.9% 11.7% Model changes have an impact on EV of -125mln and are the sum of +125mln related to the modified assumptions on the Euro risk free rate extrapolation and -250mln related to a number of refinements of the actuarial model (mainly in the area of assets volatility modelling), which also leads to an increase in the required capital of 358mln. The operating experience variance is negative for -44mln, as a result of the negative experience on surrenders (-59mln) and extraordinary expenses (-21mln), partly offset by the positive variance on mortality (+17mln) and ordinary expenses (+13mln). The negative experience on surrenders is the result of the high lapses experienced in the first quarter of the year in view of fiscal uncertainties, although this was compensated by a targeted retention campaign which was able to convert most of these lapses into new products. The positive change in operating assumptions (+43mln) mainly arises from the positive impact deriving from the update of mortality tables (+110mln) and expenses (+114mln), in line with the experience of the year, partially offset by the unfavourable change in assumptions concerning surrenders (-119mln) and levels of premiums (-63mln). EV operating earnings amount to 411mln and lead to a normalised return on EV of 11.7%. The economic variances have a negative impact on EV (-228mln) as a result of the positive effect on ANAV (+270mln, mainly coming from the higher unrealised gains on fixed income assets) and the negative variances on VIF (-498mln, mostly due to the lower interest rates). Total EV earnings are positive for 183mln and the corresponding return on EV is equal to 4.9%. The capital movement (-156mln) refers to dividends paid in 2012 out of the consolidation perimeter by the covered business (-6mln), and to capital injections and changes in covered companies interest in other Group companies (-150mln). Finally, the following table shows the split of VIF between its different components. Breakdown of value in-force as at 31 December 2012 and 2011 ( mln) PVFP before Time Value of FG&O 2,651 2,853 Time Value of FG&O -1,167-1,023 PVFP after Time Value of FG&O 1,484 1,829 Cost of Capital Cost of NHR Value In-Force 812 1,212 18

21 New Business ( mln) - France Change APE % 1st year NB strain Annual premiums % o/w industrial strain Single premiums 6,246 6, % o/w capital strain PVNBP 9,051 8, % 1st year NB strain on PVNBP -4.0% -4.4% NBV % o/w industrial strain on PVNBP -1.6% -1.7% Profitability on APE 12.8% 13.7% -0.9 pts o/w capital strain on PVNBP -2.4% -2.7% Profitability on PVNBP 1.3% 1.4% -0.1 pts IRR 8.4% 9.9% % changes are on a comparable basis Payback period (yrs) Movement of NBV ( mln) and NBM (%) Breakdown of New Business Value ( mln) NBV NBM New Business Value % PVFP before Time Value of FG&O Change in perimeter 0 0.0% Time Value of FG&O Exchange rate fluctuation 0 0.0% PVFP after Time Value of FG&O Products mix/volume 8 0.8% Cost of Capital Profitability % Cost of NHR New Business Value % New Business Value APE remains substantially stable (+0.5%), with marginal movements of both annual (-0.3%) and single (+1.0%) premiums. The overall resiliency of the production is influenced by the extraordinary traditional single premium production registered at the beginning of the year, which was successfully aimed at retaining the portfolio after the one-off peak of surrenders experienced in the first months of 2012, mainly because of uncertainties on the tax treatment of life insurance investments. In terms of lines of business, the positive development of the saving segment (+11.4%) is also due to the important contribution of the profitable pension segment (+36.1%), whilst the unit linked business (-28.7%) was penalised by the uncertainties in the financial markets. The reduction of the new business profitability in terms of margins on APE (from 13.7% in 2011 to 12.8% in 2012) is mainly due to the decrease in the reference rates throughout the year, only partially compensated by a more favourable aggregate product mix (with the new profitable pension products compensating the less profitable traditional saving single premium products sold at the beginning of the year). As a consequence of lower profitability and stable volumes, the NBV decreases by 6.1% to 120mln. The total new business strain amounts to -364mln, corresponding to the sum of the negative contribution to profit in the year of sale (-149mln) and the capital absorbed by the new business (-215mln). In terms of ratio over the present value of new business premiums, from 2011 to 2012 the first year strain improves from -4.4% to -4.0%, mainly thanks to the reduced first year capital absorption. The deterioration of the internal rate of return (from 9.9% to 8.4%) and of the expected payback period (from 8.3 to 9.8 years) is mainly due to the less remunerative traditional saving single premiums sold at the beginning of the year. 19