Generali Investor Day 2010

Transcription

1 Generali Investor Day 2010 Strategic Asset Allocation & Risk Management Strategy Amerigo Borrini Chief Risk Officer Salvatore Colotti Chief Life Actuary Venice, November 26, 2010

2 Disclaimer 2 Certain of the statements contained herein are statements of future expectations and other forward-looking statements. These expectations are based on management's current views and assumptions and involve known and unknown risks and uncertainties. The user of such information should recognise that actual results, performance or events may differ materially from such expectations because they relate to future events and circumstances which are beyond our control including, among other things, general economic and sector conditions. Neither Assicurazioni Generali S.p.A. nor any of its affiliates, directors, officers employees or agents owe any duty of care towards any user of the information provided herein nor any obligation to update any forward-looking information contained in this document. The manager in charge of preparing the company s financial reports, Raffaele Agrusti, declares, pursuant to paragraph 2 of article 154-bis of the Consolidated Law on Financial Intermediation, that the accounting information contained in this presentation corresponds to document results, books and accounts records.

3 II. Strategic Asset Allocation & Risk Management Strategy 3 I. Introduction: How we managed and performed II. Asset and Liabilities integration III. Final remarks

4 Agenda 4 I. Introduction: How we managed and performed Strategic Asset Allocation & Risk Management Increased investment portfolio Our track record on investment management Group risk capital and financial risks

5 I. INTRODUCTION: HOW WE MANAGED AND PERFORMED Strategic Asset Allocation & Risk Management 5 At Asset Allocation Own Investments including own use real estate (1) Euro bn Insurance Liabilities Cash & equival. BV 3.0% MV 2.9% Fixed income instruments BV 79.1% MV 78.1% Equity BV 8.4% MV 8.1% Real Estate (3) BV 5.5% MV 7.1% ALM Traditional Life Reserves (4) Other (2) BV 4.0% MV 3.8% Own Investments including own use real estate (1) 30.5 P&C Reserves (4) (1) Including own use real estate within own investments. Own investments include own capital and insurance funds (i.e. unit linked excluded) (2) Including investments in subsidiaries, associated companies and JVs, derivatives, receivables from banks or customer (3) Including real estate mutual funds & own use real estate (4) Net technical reserves; life reserves including investment contracts

6 I. INTRODUCTION: HOW WE MANAGED AND PERFORMED We increased our investment portfolio 6 Strong growth trend of total Assets Under Management (Euro bn) + 6.2% + 8.6% % -7.2% + 0.6% + 0.3% % % + 8.1% + 7.1% AUM net of sale and acquisition ( % YoY) AUM ( % YoY) Third parties AUM Unit Linked Own Investments (including own use real estate) (1) (2) (3) (4) M10 (1) Acquisition of Toro Group impact Own Investment for Euro 8.4 bn and Unit Linked for Euro 587 m (2) Sale of Nuova Tirrena impact Own Investment for Euro 2.2 bn and Unit Linked for Euro 107m (3) Acquisition of Banca del Gottardo impact Own Investment for Euro 8.2 bn and Third parties AUM for Euro 14 bn Acquisition of PPF Group impact Own Investment for Euro 5.4 bn, Unit Linked for Euro 67m and Third parties AUM for Euro 2.4 bn (4) Sale of Intesa Vita impact Own Investment for Euro 13.5 bn and Unit Linked for Euro 8.6 bn

7 I. INTRODUCTION: HOW WE MANAGED AND PERFORMED Our investments Life 7 Asset allocation (%) - Eur bn at 9M10 1.4% 1.8% 1.5% 2.1% 2.1% 1.9% 2.0% 2.6% 1.7% 1.7% 2.0% 1.7% 1.6% Cash 3.0% 3.8% 4.2% 4.0% 3.7% Other investment 83.3% 10.9% 81.6% 12.2% 80.1% 12.3% 83.9% 7.7% 83.3% 9.1% 84.2% 8.5% M10 Focus on bond portfolio (%) - Eur bn at 9M10 Investment properties (incl. selfused) Fixed Income Instruments Equities Maintained an asset allocation consistent with the structure of our technical reserves Increase in corporate bonds exposure has allowed Generali to benefit from narrowing in spreads and to sustain current return Maintained high quality of corporate bond portfolio and improved portfolio diversification 66.5% 65.6% 58.8% 57.7% 56.1% 55.1% Government bonds Lengthened duration of bonds (from 6.0 at FY07 to 6.6 at 9M10) 33.5% 34.4% 41.2% 42.3% 43.9% 44.9% Corporate Strategic decrease of equity exposure M10

8 I. INTRODUCTION: HOW WE MANAGED AND PERFORMED Own investments P&C 8 Asset allocation (%) - Eur 38.6 bn at 9M10 4.0% 4.8% 6.9% 6.0% 7.8% 5.6% 2.5% 2.7% 3.3% 3.8% 2.4% 2.8% 22.6% 20.3% 17.8% 20.7% 20.3% 20.9% 52.0% 18.8% Focus on bond portfolio (%) - Eur 19.2 bn at 9M % 47.8% 54.6% 17.7% 55.6% 44.4% 54.7% 17.3% 48.1% 51.9% 56.2% 13.3% 47.0% 53.0% 57.4% 12.1% 46.6% 53.4% 59.2% 11.4% M % 53.4% M10 Cash Other investment Investment properties (incl. selfused) Fixed Income Instruments Equities Government bonds Corporate Increases in the share of corporate bonds within bond portfolio has allowed Generali to exploit the narrowing of spreads and to generate fixed income revenues Increased diversification in corporate bond portfolio Lengthened duration of bonds in P&C (from 2.9 at FY07 to 4.7 at 9M10), based on a ongoing portfolio approach, has allowed us to realise capital gains through a tactical reduction of duration started at the beginning of 4Q10 Active management of equity portfolio to cope with market volatility

9 I. INTRODUCTION: HOW WE MANAGED AND PERFORMED Our track record on investment management 9 Assets: diversification and prudent approach Limited net exposure to structured finance: Euro 1.5 bn No exposure to US subprime assets Negligible exposure to credit default swaps: only hedging and investment with no arbitrage activity Limited net exposure to Lehman: Euro 110 m Limited net exposure to Portugal, Ireland, Greece and Spain: Euro 2.0 bn No exposure to Dubai World

10 I. INTRODUCTION: HOW WE MANAGED AND PERFORMED Group risk capital and financial risks 10 At Significant portion of Group risk capital related to financial risks (64%) Not under IM (1) 1.9 / 7% Operational 2.1/ 8% (Euro bn / Percentage) Diversification within business units (4.5) Group diversification 26.7bn 32% Non-life U/W 2.8 / 11% Life U/W 2.9 / 11% 17% (4.1) 18.1bn Credit & Currency 3.9 (of which 3.1 on Life and 0.8 on Non-life) / 15% 19% Interest rate Real estate 3.2 (of which 2.9 on Life and 0.3 on Non-life) / 12% 3.3 (of which 1.5 on Life and 1.8 on Non-life) / 12% Equity 6.6 (of which 5.0 on Life and 1.6 on Non-life) / 25% Total 26.7 / 100% Group risk capital before diversification Group risk capital after diversification within business units Group risk capital after diversification (1) Not under Internal Model refers to entities currently based on previous top-down model

11 Agenda 11 II. Asset and Liabilities integration Centralised strategic investment framework Life Liabilities existing business / new business P&C asset liability management Asset allocation process and Solvency II

12 Overview 12 Financial crisis has given an acceleration in renewing financial system processes Current environment is characterised by the need for changes (Solvency II) at system level updating governance, processes, profitability metrics, products Local regulators are defining new set of rules aligned with this systemic change

13 Centralised strategic investment framework 13 Corporate Centre coordination and control of strategic investment Group Risk Guidelines (SAA, Credit, Market Risk Concentration, Derivative & Structured Products, Alternative Investments,...) Committees structure governance (Group Risk Committee, Group Investment committee, Company Investment committees,...) Strategic asset allocation activity Coordinate the deployment of the group strategic investment objectives to the companies Guarantee coherency of risk and performance metrics Centralise the distribution of the market financial scenarios Create a platform allowing for the enforcement of: Homogeneous asset classification Uniform definition of the investment objectives

14 Life liabilities: Existing business (1) 14 FY 2009 Total Reserves: Area/Product By Area (Euro bn) Unit Saving Unit Pension Traditional Saving Traditional Risk Traditional Pension Italy Germany France CEE RoE RoW FY 2009 Total Reserves: Area/Premium type By Area (Euro bn) 90 Single 80 Regular Italy Germany France CEE RoE RoW By Product (%) By Premium type (%) Unit Saving 14% Traditional Pension 10% Single 45% Regular 55% Traditional Risk 5% Unit Pension 6% Traditional Saving 65% (1) Perimeter life/health EV, net of minorities

15 Life liabilities existing business (1) : Guarantees 15 Total Reserves by type of guarantee NIL 22% At maturity 9% Yearly basis (Cliquet) Guarantee Profit sharing granted and consolidated every year Matched 3% Yearly basis 66% Yearly basis At maturity At Maturity Guarantee Profit sharing granted only at event (maturity, death) Yearly discretionary bonuses not guaranteed Average Guarantee: 2.37% Yearly basis (Cliquet): 2.4% At maturity: 2.3% (1) Perimeter life/health EV, net of minorities

16 Life liabilities: new business (1) 16 FY 2009 APE: Area/Product By Area (Euro m) 1,800 1,600 1,400 1,200 1,000 Unit Saving Unit Pension Traditional Saving Traditional Risk Traditional Pension Italy Germany France CEE RoE RoW FY 2009 APE: Area/Premium type By Area (Euro m) 1,800 Single 1,600 Regular 1,400 1,200 1, Italy Germany France CEE RoE RoW By Product (%) By Premium type (%) Unit Saving 14% Traditional Pension 10% Single 42% Regular 58% Traditional Risk 14% Unit Pension 11% Traditional Saving 51% (1) Perimeter life/health EV, net of minorities

17 Life liabilities (1) : new business guarantees 17 Total APE by type of guarantee FY Average Guarantee: 1.56% FY NIL 30% Matched 3% NIL 30% Matched 2% At maturity 11% Yearly basis 56% At maturity 19% Yearly basis 49% Yearly basis: 1.5% At maturity: 1.9% Average Guarantee: 1.56% Yearly basis: 1.4% At maturity: 2.0% 9M Average Guarantee: 1.54% NIL 31% Matched 1% At maturity 20% Yearly basis 48% Yearly basis: 1.3% At maturity: 2.0% (1) Perimeter life/health EV, net of minorities

18 Life liabilities: focus on Italian new production 18 Absence of volatility absorbers (beyond book accounting) in Italian traditional business, as opposed to Germany and France, that use policyholder/capital gains funds Penalised NBV computation due to widening of spread between Italian bonds and Swap rate The solution implemented: Higher portion in terms of APE of at maturity guarantees: From 31% at FY08 to 55% at 9M10 Cliquet guarantees reduction: From 1.99% at FY08 to 1.27% at 9M10 37% of APE with 0% guarantee Results: Improved profitability thanks to lower cost of guarantees Reduction in Solvency II capital strain (1) Illustrative example based on FY09 financial assumptions Cost of Guarantee: Cliquet vs. Maturity (1) Cost of guarantee (in terms of NBM, expressed in % of APE) 16% Cliquet 14% Maturity 12% 10% 8% 6% 4% 2% 0% 0% 1% 2% Minimum guarantee

19 Life liabilities: Portfolio guarantees development (1) 19 Expected guarantees development (%) Reserves composition (%) Based on expected run off, future new production included New Business Old Business Strong reduction in the average guarantee thanks to back book run off and new production Breakdown cliquet guarantees at FY % 0%- 0.99% 5.2% 1%- 1.99% 15.0% 2%- 2.99% 19.2% 3%- 3.99% (1) Perimeter life/health EV, net of minorities weight on total reserves 13.1% 4%- 4.99% Higher cliquet guarantees development weight on total reserves By 2020: 100% 90% Average 80% >=4.5% guarantee 70% 4%-4.49% 60% at 1.7% 50% 3.5%-3.99% 40% 3%-3.49% 30% 0.6% 20% 10% >5% 0% Portfolio with 2.75% guarantee 10% of total

20 P&C asset liability management 20 Net technical Reserves (Euro bn) Lengthened duration on bonds (from 2.9 at FY07 to 4.7 at 9M10) P&C liabilities duration at Reserving ratio (%) 175% 157% 145% 145% 149% Duration mismatch on P&C is based on a ongoing view of the business with net technical Reserves stable over years Dynamic management of portfolio s duration is implemented according to market expectations

21 Asset allocation process in a Solvency II environment 21 New regulatory framework and the changing market environment are strengthening the focus on a liability driven approach where asset liability management is the cornerstone Investment strategies defined coherently with capital allocation and risk profiles Group Risk guidelines enforced to align and control investments Stochastic approach in portfolio modeling in order to consider options embedded in the insurance products Centralisation of economic capital methodologies, financial assumptions and AM mandate structure

22 Strategic Asset Allocation process 22 Strong Corporate Centre Coordination and Enhancement of granularity improve efficiency in the investment process Corporate Centre Level Financial assumptions Strategic Plan targets Guidelines and model definition Capital allocation Group Investment Strategy Consolidation of bottom up strategies Coherency with group targets and risk tolerance Portfolio Level Asset allocation at portfolio/product level is coherent with Group Investment Strategy and is based on: Liability profile Features of in-force and future products Risk tolerance Capital efficiency ALM coherency

23 SAA Life Process 23 Strategic Plan coherency and market outlook Investment targets Market expected return Group/Company risk tolerance Portfolio analysis Portfolio assets mapped into SAA categories Regulatory constraints and Group Risk Guidelines coherency Liability portfolio structure Analysis of reserves split by guarantee level and structure New production volumes Analysis of shareholder s financial profit vs. fund returns ALM Analysis Value and Risk Analysis MC PVFP sensitivity and liabilities migation Cash flow matching analysis Asset & Liabilities projections Asset mix optimisation Analysis of the Market Consistent Present Value of Future Profit (MC PVFP) and Risk Adjusted Capital (RAC) at segregated fund level MC PVFP sensitivity analysis with respect to different allocation scenarios Impact of liabilities risk mitigation in different loss scenarios Strategic Allocation definition that maximizes investment contribution to value creation

24 SAA Non-life Process 24 Strategic Plan coherency and market outlook Investment targets Market expected return Group/Company risk tolerance Portfolio analysis Portfolio assets mapped into SAA categories Regulatory constraints and Group Risk Guidelines coherency Quantitative Analysis Optimisation process based on risk / return target profile Analysis of Economic Balance Sheet (EBS) indicators Define SAA portfolio targets with the optimal risk/return profile

25 Return on capital optimisation: Life 25 Manage exposure to risky assets due to higher capital requirements Govt Bonds Corporate Bonds Equities Real Estate Short / Long Exposure Trend Government bonds are a very attractive asset class in order to better manage duration mismatch. Short term and high quality corporate bonds look most interesting at the expense of long corporate bonds, owing to the better return in respect to capital requirements. Equity exposure will be cyclical. Optimise risk / return profile Guarantee excess return over minimum guaranteed level Real Estate looks attractive based on long-term value creation capacity

26 Return on capital optimisation: P&C 26 Begin a de-risking process in order to reduce risk capital Govt Bonds Corporate Bonds Equities Real Estate Short / Long Exposure Trend Preference for government bond and short / high quality corporate bond Equities look relatively unattractive due to the high capital requirement Real Estate exposure should decrease Reduce exposure to risky asset classes with high capital requirement Maximise return on capital Liquidity is a key consideration

27 Agenda 27 III. Final remarks

28 III. FINAL REMARKS Final remarks 28 More transparent and flexible investment process in a clear governance structure Liability driven management approach Portfolio tailored asset allocation in order to increase capital efficiency Strong Corporate Centre coordination in the definition of asset allocation strategy ALM as cornerstone in the definition of investment constraints related to profitability and capital SAA as function to integrate market outlook and ALM in order to define investment strategy optimising capital efficiency

29 Generali Investor Day 2010 Strategic Asset Allocation & Risk Management Strategy Amerigo Borrini Chief Risk Officer Salvatore Colotti Chief Life Actuary Venice, November 26, 2010