Generali 2021 Results Slide Commentary
Generali 2021 Results Slide Commentary
(The notes represent a commentary to FY 2021 results presentation and need to be read jointly with it)
15/03/2022
STRATEGY OVERVIEW
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unprecedented global scenario due to the Covid-19 pandemic, we were able to execute the
plan successfully, as demonstrated by the delivery of the three key financial targets we
committed to.
First of all, we promised an Earnings per Share Compound Annual Growth Rate (CAGR) of
6-8% between 2018 and 2021, and we delivered 7.6% at the upper end of the target range.
We also distributed 4.52 billion Euro of cumulated dividends to our shareholders, which is
consistent with the 4.5-5 billion Euro range we had announced. Lastly, we aimed for an
average Return on Equity greater than 11.5% between 2019 and 2021: this was over-
achieved both in 2019 and 2021, when our RoE was of 12.4% and 12.1% respectively, while
the result in 2020 was negatively impacted by Covid-19 and some one-offs and stood at 7.7%.
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economy, and the NZIA will allow us to bring on board many other institutions and peers that
share our same vision and commitment.
Also, we continued to strengthen the reach and impact of The Human Safety Net, our Group
initiative for the communities, which is today active in 23 countries and has 61 partners actively
working on its initiatives.
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Slide 10 – Lifetime Partner 24: Driving Growth
After the successful conclusion of “Generali 2021”, we are now focused on our new strategic
plan “Lifetime Partner 24: Driving Growth”, whose execution is fully underway.
This plan, which we presented to the financial community on December 15, has sustainability
as its true originator and is built around an even stronger commitment to be a Lifetime Partner
to our 67 million customers worldwide. We will pursue further sustainable growth, earnings
profile enhancement and value creation for all our stakeholders. To achieve this, we will
leverage our disciplined approach to capital management, the full integration of sustainability
into our business and significant investments in our digital and technological transformation.
As we do it, we will continue to be guided by our Purpose: to enable people to shape a safer
and more sustainable future by caring for their lives and dreams. In conclusion, our Lifetime
Partner 24 plan will drive sustainable growth, enhance our earnings profile and confirm our
place as an innovative leader and deliver ambitious financial targets.
These targets include: Earnings per share growth with a target CAGR of 6-8% between 2021
and 2024, increased cash generation with a target of cumulative Net Holding cash Flows in
excess of 8.5 billion Euro and higher dividends with a target of cumulative dividends of
between 5.2 and 5.6 billion Euro to be paid over 2022-2024 with a ratchet policy on DPS.
Finally, it is impossible not to mention the crisis in Ukraine. As with the Covid-19 pandemic,
Generali and its employees have taken immediate action. Our Group has historic ties with
Central and Eastern Europe and will continue to be close to the communities that have been
impacted by the conflict.
In line with Generali’s purpose and commitment, we have decided to create an emergency
fund as well as a donation to the UNHCR to support the refugee programs at the forefront of
the response efforts.
Further, by leveraging the network of “The Human Safety Net”, we also launched a global
employee fundraising campaign to support UNICEF in their work in the coming weeks and
months to assist impacted families. All of the funds collected through the campaign will be
matched by Generali.
To show our solidarity and in line with actions taken worldwide, Generali has decided to close
its Moscow representative office. Further, the Group will resign from positions held on the
board of the Russian insurer Ingosstrakh, in which it holds a minority investment stake of
38.5% and therefore will have no influence on its operations. And finally, Europ Assistance
will wind down its business in Russia.
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GROUP FINANCIALS
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to Shareholders’ approval at our Annual General Meeting in April.
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Slide 16 - Growth in technical result driving life operating result
The life operating result posted a 7.2 percent increase to 2.8 billion Euro.
The 595 million Euro increase of the technical margin is mostly explained by the continuing
shift in our mix towards Protection and Unit Linked businesses. Please note that Covid-19
related claims impacted technical results by 119 million Euro in 2021 compared to 63 million
Euro in 2020.
The investment result increased by Euro 96 million vs. previous year, which was heavily
impacted by negative financial markets developments and a higher allocation to guarantee
reserve in Switzerland. Please note that in a managerial look-through representation
(available in the back up to FY 2021 presentation), Private Equity earnings are allocated
directly to participating companies segments and show an important and growing contribution
to the life investment result.
Expenses were up by Euro 502 million, due to higher acquisition costs in Italy, France and
Germany to support the strong new production already mentioned.
New business is now made up of more than 90 percent of capital light premiums, with the
remaining traditional business having no or very low guarantees. As further evidence of the
Group’s strict underwriting criteria, over 80 percent of new business premiums can be defined
as ultra-light. This means business without guarantees or negative guarantees, being
Protection with zero guarantee and Savings / Unit Linked products with zero guarantees at
maturity. It also includes our focus for new production in Italy on whole life products with death
guarantee only.
In Italy, net inflows decreased from 6.8 to 4.3 billion Euro or 37 percent. Net inflows would
have decreased by 19 percent without the Cometa group contract. In-line with Group’s
strategic steering there was a strong decline in the Savings segment of 2.7 billion Euro (-80.3
percent), mainly due to higher surrenders and lower new sales in-line with Group’s strategic
steering. Unit Linked net inflows contribution almost doubled, ignoring the Cometa contract.
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Protection performed very well, up 13.1 percent. These results show the success of Generali
Italia’s proprietary networks in pursuing growth in our preferred business lines.
France saw a very strong reversal in net inflows, from negative 0.1 to positive 2.4 billion Euro.
All business lines contributed: The Protection business grew at a remarkable 86.6 percent,
the Unit Linked business showed a very strong performance, up 62.8 percent and the Savings
component net flows improved by 825 million Euro or 32 percent whilst remaining negative in-
line with our strategic goals.
In Germany, there was a 2.4 percent increase in net inflows, driven by Protection, up 4
percent, which more than compensated for Unit-Linked business down 4.8 percent. Savings
business improved by over 60 million Euro or 38.3 percent. Even in this challenging
environment, Generali Deutschland’s partner DVAG was able to guide and service existing
and new customers effectively.
In Austria and CEE, net inflows almost doubled to 340 million Euro. This was driven by higher
volumes, lower maturities, coupled with decreased Unit Linked surrenders.
The International business experienced a solid 11.7 percent increase, thanks mainly to Asia,
in particular driven by growth in Savings & Pension and Protection businesses in China.
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Without Cometa, the increase would have been 27.3 percent.
In terms of business mix, Savings business volumes remained flat. In line with our strategy,
almost 85 percent of FY 2021 Savings new business premiums are considered capital light
given their product features and the weight of products offering guarantees only in case of
death. The latter increased from 33% to 38%, mainly thanks to Italy. Protection grew 10.4
percent, with a positive development in all regions. Unit Linked increased 19.4 percent, mainly
thanks to France. Unit Linked new business grew a remarkable 45.6 percent excluding
Cometa.
In terms of margins, Savings remained resilient at 2.32 percent, thanks to Asia, which offset
the decrease related to an unfavorable country mix in Continental Europe. Protection
experienced a margin increase, like-for-like, to 7.82 percent thanks to the higher weight of
more profitable Italian products and the solid performance of health business in Germany. The
margin on Unit Linked new business experienced a strong increase to 4.75 percent, mainly
driven by Italy and France.
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Slide 21 - Resilient life investment return
General account investments reached 360 billion Euro, up 0.5 percent from year-end 2020.
In terms of asset mix, there was a rates-driven decrease of government and corporate bonds,
partially compensated by an increase of equities and real estate.
Our exposure to Italian government bonds in the life segment remained broadly unchanged
at 55 billion Euro at year-end 2021. Please note that on a stand-alone basis the acquisition of
Cattolica increased this exposure in the life segment by around 6 billion Euro. At Group level
(life, P&C and other segments combined) our exposure to Italian government bonds totaled
63 Euro billion, 2 billion higher than at year-end 2020 with an impact of almost 8 billion Euro
coming from the Cattolica consolidation. It is important to remind that almost the entire
exposure is based in Italy and mostly within our Life books.
Current income in absolute terms increased by 117 million Euro gross of policyholder share,
with current investment returns decreasing by 3 basis points to 2.6 percent. This decrease is
explained by lower return from bonds, mainly on corporates, affected by reinvestments
performed in a persisting lower yields environment, partially counterbalanced by higher return
on equity instruments and the relevant contribution in terms of dividends coming from Lion
River and Banca Generali. As you can see from the managerial look through representation
of the private equity contribution on slide 45, on an underlying basis the investment margin is
even marginally growing. Please note that current returns are calculated on investments at
IFRS book value.
The new money reinvestment rate in the Life fixed income portfolio increased to around 1.5
percent, on a 12 months basis, compared to 1.3 percent during the same period of last year.
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Slide 23 - Strong growth in P&C volumes with excellent technical profitability
Gross written premiums saw a strong 7 percent growth to 24.1 billion Euro on a like-for-like
basis. Primary motor premiums grew 4.9 percent thanks to Italy, ACEER, France and
Argentina. Primary Non-Motor premiums were up 7.5 percent reflecting widespread growth in
various countries, in particular Italy, France and ACEER.
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impact from an increased attritional loss ratio compensated by lower acquisition costs.
Group Holding and other entities experienced a 13.7 percent growth. This reflected the
positive development in Europ Assistance, which was up 31.1 percent and benefitting from
new partnerships, having previously been strongly impacted by the pandemic. Combined ratio
increased by 0.8 p.p. due to higher claims for Europ Assistance following the progressive
reduction of lockdown restrictions compared to 2020 and partially compensated by benefit
related to Group’s reinsurance aggregate cover.
Slide 27 - Higher current return thanks to Banca Generali, Cattolica and private equity
P&C investments increased 8.1 percent to 43.6 billion Euro.
In terms of asset mix, there has been a slight increase in the weight of corporate bonds and
government bonds. Moreover, there was an increase also in the weight of equity and real
estate investments as we re-aligned with our medium term strategic asset allocation after the
de-risking implemented in 2020.
Total P&C current investment returns increased by 50 basis points, to almost 3.05 percent,
on investments at IFRS book value. This increase is explained by the relevant contribution in
terms of dividends coming from Banca Generali, equity accounting of Cattolica (as already
said, for the first ten months) and dividends from Lion River, partially counterbalanced by lower
return from bonds. As mentioned previously for the life investment result, please note that in
a managerial look-through representation (available in the back up to FY 2021 presentation),
Private Equity earnings are allocated directly to participating companies segments and show
an important and growing contribution to the P&C investment result.
The average reinvestment rate in P&C was 1.5 percent during 2021, versus 1.2 percent
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recorded last year.
This amount is better than what presented at our recent Investor Day, mainly because of the
last two drivers listed here above together with higher performance fees.
Operating expenses increased by 4 percent, largely driven by non-compensation costs related
to digitalization and IT projects to strengthen distribution capability.
Overall, the operating result grew by 23 percent to 672 million Euro.
The net result, after non-operating items and taxes and before minorities, increased by 30
percent on a year-on-year basis to 504 million Euro, as already mentioned.
In terms of geographical breakdown, Europe has grown to 423 million Euro. The Rest of the
World is showing an even higher increase in profits, driven by the aforementioned good
performance of our Chinese Asset Managers.
Assets Under Management of the segment increased by 2.5 percent, reaching 575 billion
Euro. This was due to good market performance and positive net flows from 3rd party
business.
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Slide 30 - Solid growth in external client AUM
Starting from the chart on the left-hand side: 36.2 percent of the operating revenues are
generated by the insurance, LDI business. This has proven highly resilient during these
challenging times, supported by the Fixed Income investment component.
38.4 percent of the revenues are generated by active management strategies, driven mostly
by the external Third-Party Retail and Institutional Client business.
The Real Assets business, including real estate, private debt and private equity, accounts for
the remaining 25.4 percent of the revenues.
Moving to the chart on the right hand side, we look at the development in external client assets.
Flows were positive by 8.5 billion Euro, while market effects had a positive impact of 0.4 billion
Euro.
Slide 32 - Pro-forma of the New Asset & Wealth Management segment reporting
From 1Q22 Banca Generali will be included in the new Asset & Wealth Management reporting
segment, moving from Holding & Other Businesses: we report the related impact on this slide.
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Non-operating holding expenses increased by 11 million Euro to 590 million Euro. Interest
expenses on financial debt decreased by 15 million Euro due to our debt optimization strategy,
partially offsetting higher costs related to M&A transactions and long-term incentive plans.
Net Other non-operating expenses increased to 832 million Euro. The components are: the
VOBA amortization, equal to 91 million Euro; restructuring costs of 387 million Euro, of which
333 million Euro linked to projects in Italy (212 million Euro were related specifically to
Cattolica integration). Other Net Non-operating Expenses amounted to 353 million Euro, with
main items being the positive impact stemming from the acquisition of Cattolica for 198 million
Euro (including the badwill impact), more than compensated by the negative impact from
IAS29 hyperinflationary accounting in Argentina, costs for strategic initiatives in France and
Switzerland, a provision in France in anticipation of a potential reform of the pension system,
and other one-offs including some initiatives in Italy linked to Covid-19. In 2020, Net Other
Non-operating Expenses mainly included the contribution to the Covid-19 Fund, other local
pandemic-related initiatives, the compulsory contribution to the public health system
requested from health insurers in France and CTAs related to local projects.
The overall effective tax rate for the Group reduced to 30.2 percent from 34.7 percent in 2020,
due to the absence of non tax-deductible cost items impacting last year’s results (namely a
large portion of the impairments and the accelerated strengthening in the Swiss guarantee
reserve), the reduction of nominal tax rate in France during 2021 and some one-off effects
related to the positive impact stemming from Cattolica’s badwill.
In 2021 there was no impact from the discontinued operations line.
Minority interests were up to 348 million Euro, due to the good performance of Banca Generali
and China.
All the above took us to a net result for 2021 of 2,847 million Euro, up a very satisfactory 63.3
percent year on year.
The adjusted net result, net of gains and losses on disposals and acquisitions, stood at 2,795
million Euro, up 45.1 percent from the previous year. The adjusted net profit would have been
up 34.7 percent, excluding from 2020 net result the expenses for the Extraordinary Covid-19
Fund and the impact of our Liability Management transaction.
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Unit Investments, Assets and Wealth Management and the consolidation effects on dividends
reflecting our Group structure.
Please note that the strong earnings growth achieved in 2021 will be reflected in 2022
remittances as this is a cash based indicator.
The remittance ratio on distributable business units' IFRS net result moved from around 135
to 105 percent. As mentioned, in 2020 there was a strong contribution from Capital
Management initiatives mainly in ACEER and Italy of around 40 p.p., whilst in 2021 such
impact reduced significantly to around 10 p.p. and mainly driven by Italy and Spain. In
accordance with the target to maximize cash and capital centralization, the aim for
subsidiaries is to keep an appropriate solvency level commensurate to their risk profile and
profitable growth targets and transferring excess capital to the Parent Company.
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The decrease in 4Q21 was mainly due to the impact of the acquisition of Cattolica (-7 p.p.),
the negative impact of financial risk modelling and minor actuarial model changes in Germany
and France, partially compensated by strong capital generation net of dividend accrual.
On the right-hand side of the slide, you can see our updated sensitivities. As you can observe,
the sensitivities to lower interest rates reduced versus previous year thanks to the further
actions carried out in terms of asset-liability matching, the continuous work on reshaping and
decreasing of guarantees in our Life portfolio, and improved market conditions. In particular,
the sensitivity to BTP-swap spread narrowed thanks to the successful management actions
taken both on the asset side (with the overall exposure to BTPs increasing only modestly
despite the increased exposure following the acquisition of Cattolica, and with a reduced
duration) and on the liability side (with in-force management actions and the natural run-off of
the old portfolio leading to lower and reshaped guarantees, and hence to a higher loss
absorption capacity).
As additional information, please note that we estimate our Solvency Ratio at March 11 th to
be above 230% after dividend accrual: the negative impacts stemming from the
Russian/Ukraine crisis (especially in terms of equity market performance) and from beginning
of year regulatory changes have been more than offset by the higher interest rates and by the
contribution of our capital generation.
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Starting with Life, we had normalized capital generation of 2.8 billion Euro, mainly reflecting
the own funds generating 2.7 billion Euro, with the usual significant contribution of the value
of new business at 1.7 billion Euro.
The in-force generation, worth 1 billion Euro, is basically the expected release of risk margin
and the prudence in financial assumptions embedded in the market consistent approach, plus
the unwinding.
For the Solvency Capital Requirement, you can see that writing new business consumed 1.5
billion Euro of Solvency II capital, but this was more than offset by 1.6 billion Euro released
from the run off of the in-force portfolio, leading to a net benefit of 0.1 billion Euro.
In P&C, own funds generation was 1.3 billion Euro, mainly stemming from current year
technical profitability at best estimate.
Holding and Other contributed with a negative amount of 0.3 billion Euro, which reflects the
lower interest costs paid and holding expenses, partially compensated by the strong result of
financial and asset management entities which follow their sectorial regulatory regimes.
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