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Venice, November 26, 2010
Generali Investor Day 2010
Strategic Asset Allocation & Risk Management Strategy
Amerigo BorriniChief Risk Officer
Salvatore ColottiChief
Life Actuary
Assicurazioni Generali Group – Investor Day 2010 – Investment Management of Insurance Assets
Disclaimer
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.
2
Assicurazioni Generali Group – Investor Day 2010 – Investment Management of Insurance Assets
II. Strategic Asset Allocation & Risk Management Strategy
II. Asset and Liabilities integration
III. Final remarks
I. Introduction: How we managed and performed
3
Assicurazioni Generali Group – Investor Day 2010 – Investment Management of Insurance Assets
Agenda
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
4
Assicurazioni Generali Group – Investor Day 2010 – Investment Management of Insurance Assets
Asset Allocation
Strategic Asset Allocation & Risk Management
Insurance Liabilities
“Own Investments” including own use real estate(1)
Euro 331.1 bn
ALM Traditional
LifeReserves(4)
P&C
Reserves(4)30.5
258.1
(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
Other(2)
BV
4.0%
MV
3.8%
Equity BV
8.4%
MV
8.1%
Fixed income instruments BV
79.1%
MV
78.1%
Real Estate (3)
BV
5.5%
MV
7.1%
“Own Investments” including
own
use
real
estate(1)
Cash & equival.BV
3.0%
MV
2.9%
I. INTRODUCTION: HOW WE MANAGED AND PERFORMED
At 30.09.2010
5
Assicurazioni Generali Group – Investor Day 2010 – Investment Management of Insurance Assets
274.8 295.0 296.2 299.6 312.7 331.1
41.247.9 50.7 41.4 42.5
47.657.662.9 61.4 68.6
83.695.9
2005 2006 2007 2008 2009 9M10
We increased our investment portfolio
Strong growth trend of total Assets Under Management (Euro bn)
(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
(1) (2) (3) (4)
AUM net of
sale and acquisition
(∆% YoY)
AUM (∆% YoY)
I. INTRODUCTION: HOW WE MANAGED AND PERFORMED
+ 8.6%+ 0.6% + 0.3%
+ 7.1%+ 8.1%+ 6.2%
+ 1.2% - 7.2%+ 13.1%
+ 8.1%
Third
parties
AUM
Unit Linked
Own
Investments(including
own
use
real estate)
6
Assicurazioni Generali Group – Investor Day 2010 – Investment Management of Insurance Assets
Our investments – LifeI. INTRODUCTION: HOW WE MANAGED AND PERFORMED
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
Lengthened duration of bonds (from 6.0 at FY07 to 6.6 at 9M10)
Strategic decrease of equity exposure44.9%43.9%42.3%41.2%33.5% 34.4%
55.1%56.1%57.7%58.8%66.5% 65.6%
2005 2006 2007 2008 2009 9M10
8.5%9.1%7.7%12.3%12.2%10.9%
84.2%83.3%83.9%80.1%81.6%83.3%
3.7%2.6% 3.0% 3.8% 4.2% 4.0%1.7%2.0%1.7% 1.6%1.7%1.4% 2.0%1.8% 1.5% 2.1% 2.1% 1.9%
2005 2006 2007 2008 2009 9M10
CashOther
investmentInvestment properties
(incl. self-
used)
Fixed
Income Instruments
Equities
Government bonds
Corporate
Asset allocation (%) -
Eur
269.7 bn
at 9M10
Focus on bond portfolio (%) -
Eur 204.3 bn at 9M10
7
Assicurazioni Generali Group – Investor Day 2010 – Investment Management of Insurance Assets
Own investments – P&C
Asset allocation (%) -
Eur 38.6 bn at 9M10
I. INTRODUCTION: HOW WE MANAGED AND PERFORMED
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
Focus on bond portfolio (%) -
Eur 19.2 bn at 9M10
53.4%53.4%53.0%51.9%44.4%47.8%
46.6%46.6%47.0%48.1%55.6%52.5%
2005 2006 2007 2008 2009 9M10
11.4%12.1%13.3%17.3%17.7%18.8%
59.2%57.4%56.2%54.7%54.6%52.0%
20.9%20.3%20.7%17.8%20.3%22.6%2.8%2.4%3.8%3.3%2.7%2.5%
5.6%7.8%6.0%6.9%4.8%4.0%
2005 2006 2007 2008 2009 9M10
Government bonds
Corporate
CashOther
investmentInvestment properties
(incl. self-
used)
Fixed
Income Instruments
Equities
8
Assicurazioni Generali Group – Investor Day 2010 – Investment Management of Insurance Assets
Our track record on investment managementI. INTRODUCTION: HOW WE MANAGED AND PERFORMED
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
9
Assicurazioni Generali Group – Investor Day 2010 – Investment Management of Insurance Assets
I. INTRODUCTION: HOW WE MANAGED AND PERFORMED
Group risk capital before diversification
Group risk capitalafter diversification
within business units
Group risk capitalafter diversification
Diversificationwithin business units
Group diversification
17%
19%
€18.1bn
(Euro bn
/ Percentage) €26.7bn
(4.5)
(4.1)
(1) Not under Internal Model refers to entities currently based on previous top-down model
Not under IM(1) 1.9 / 7%
Operational 2.1/ 8%
Non-life U/W 2.8 / 11%
Life U/W 2.9 / 11%
Credit & Currency
3.9 (of which 3.1 on Life and 0.8 on Non-life)
/ 15%
Interest rate 3.2 (of which 2.9 on Life and 0.3 on Non-life)
/ 12%
Real estate 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%
Significant portion of Group risk capital related to financial risks (64%)
26.7 / 100%Total
Group risk capital and financial risks
At 31.12.2009
32%
10
Assicurazioni Generali Group – Investor Day 2010 – Investment Management of Insurance Assets
Agenda
II. Asset and Liabilities integrationCentralised strategic investment framework
Life Liabilities existing business / new business
P&C asset liability management
Asset allocation process and Solvency II
11
Assicurazioni Generali Group – Investor Day 2010 – Investment Management of Insurance Assets
OverviewII. ASSET AND LIABILITIES INTEGRATION
Current environment is characterised by the need for changes (Solvency II) at system level updating governance, processes, profitability metrics, products
Financial crisis has given an acceleration in renewing financial system processes
Local regulators are defining new set of rules aligned with this systemic change
12
Assicurazioni Generali Group – Investor Day 2010 – Investment Management of Insurance Assets
Centralised strategic investment framework
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,...)
II. ASSET AND LIABILITIES INTEGRATION
Corporate Centre coordination and control of strategic investment
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
13
Assicurazioni Generali Group – Investor Day 2010 – Investment Management of Insurance Assets
Life liabilities: Existing business(1)
By Product (%) By Premium type (%)
FY 2009 Total Reserves: Area/Product
By Area (Euro bn)
0102030405060708090
Italy Germany France CEE RoE RoW
Unit SavingUnit PensionTraditional SavingTraditional RiskTraditional Pension
Unit Saving
14%
Unit Pension 6%
Traditional Pension 10%
Traditional Risk
5%
Traditional Saving
65%
By Area (Euro bn)
0102030405060708090
Italy Germany France CEE RoE RoW
Single
Regular
Single
45%
Regular
55%
FY 2009 Total Reserves: Area/Premium type
(1) Perimeter life/health EV, net of minorities
II. ASSET AND LIABILITIES INTEGRATION
14
Assicurazioni Generali Group – Investor Day 2010 – Investment Management of Insurance Assets
Life liabilities existing business(1): Guarantees
2.20
2.40
2.60
2.80
3.00
3.20
31.12.03 31.12.05 31.12.07 31.12.09
Yearly basisAt maturity
Yearly basis (Cliquet) Guarantee
Profit sharing granted and consolidated every year
At Maturity GuaranteeProfit sharing granted only at event (maturity, death)
Yearly discretionary bonuses not guaranteed
2009 Average Guarantee: 2.37%Yearly basis (Cliquet): 2.4%
At maturity: 2.3%
Total Reserves by type of guarantee
NIL 22%
Matched
3%
At maturity
9%
Yearly
basis
66%
II. ASSET AND LIABILITIES INTEGRATION
(1) Perimeter life/health EV, net of minorities
15
Assicurazioni Generali Group – Investor Day 2010 – Investment Management of Insurance Assets
Life liabilities: new business(1)
By Product (%) By Premium type (%)
FY 2009 APE: Area/ProductBy Area (Euro m)
0200400600800
1,0001,2001,4001,6001,800
Italy Germany France CEE RoE RoW
Unit SavingUnit PensionTraditional SavingTraditional RiskTraditional Pension
Unit Saving
14%
Unit Pension 11%
Traditional Pension 10%
Traditional Risk
14%
Traditional Saving
51%
By Area (Euro m)
0200400600800
1,0001,2001,4001,6001,800
Italy Germany France CEE RoE RoW
Single
Regular
Single
42%
Regular
58%
FY 2009 APE: Area/Premium type
II. ASSET AND LIABILITIES INTEGRATION
(1) Perimeter life/health EV, net of minorities
16
Assicurazioni Generali Group – Investor Day 2010 – Investment Management of Insurance Assets
Life liabilities(1): new business guarantees
Total APE by type of guarantee
NIL 30%
Matched
3%
At maturity
11%
Yearly
basis
56%
FY 2008 2008 Average Guarantee: 1.56%
Yearly basis: 1.5%
At maturity: 1.9%
NIL 30%
Matched
2%
At maturity
19%
Yearly
basis
49%
FY 2009 2009 Average Guarantee: 1.56%
Yearly basis: 1.4%
At maturity: 2.0%
NIL 31%
Matched
1%
At maturity
20%
Yearly
basis
48%
9M 2010 2010 Average Guarantee: 1.54%
Yearly basis: 1.3%
At maturity: 2.0%
II. ASSET AND LIABILITIES INTEGRATION
(1) Perimeter life/health EV, net of minorities
17
Assicurazioni Generali Group – Investor Day 2010 – Investment Management of Insurance Assets
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 APEof “at maturity”
guarantees:From 31% at FY08to 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
Life liabilities: focus on Italian new productionII. ASSET AND LIABILITIES INTEGRATION
0%2%4%6%8%
10%12%14%16%
0% 1% 2%
CliquetMaturity
Cost of Guarantee: Cliquet vs. Maturity(1)
Cost of guarantee(in terms of NBM, expressed in % of APE)
Minimum guarantee
18
(1) Illustrative example based on FY09 financial assumptions
Assicurazioni Generali Group – Investor Day 2010 – Investment Management of Insurance Assets
1.50
1.75
2.00
2.25
2.50
Life liabilities: Portfolio guarantees development(1)
Expected guarantees development (%) Reserves composition (%)
0.00
20.00
40.00
60.00
80.00
100.00
2009 2011 2013 2015 2017 2019
New BusinessOld Business
Based on expected run off, future new production included
Strong reduction in the average guarantee thanks to back book run off and new production
II. ASSET AND LIABILITIES INTEGRATION
Higher cliquet guarantees developmentBreakdown cliquet guarantees at FY09weight on total reserves
(1) Perimeter life/health EV, net of minorities
By 2020:
Average guarantee at 1.7%
Portfolio with ≥ 2.75% guarantee ≤10% of total
12.6%
5.2%
15.0%
19.2%
13.1%
0.6%
0%-0.99%
1%-1.99%
2%-2.99%
3%-3.99%
4%-4.99%
>5% 0%10%20%30%40%50%60%70%80%90%
100%
2009 2011 2013 2015 2017 2019
>=4.5%
4%-4.49%
3.5%-3.99%
3%-3.49%
weight on total reserves
19
31.12.09 31.12.20
Assicurazioni Generali Group – Investor Day 2010 – Investment Management of Insurance Assets
P&C asset liability management
29.328.429.024.2
29.6
2005 2006 2007 2008 2009
Lengthened duration on bonds (from 2.9 at FY07 to 4.7 at 9M10)
P&C liabilities duration at 3.3
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
Net technical Reserves (Euro bn)
Reserving ratio (%)
145%145%175%157% 149%
2005 2006 2007 2008 2009
II. ASSET AND LIABILITIES INTEGRATION
20
Assicurazioni Generali Group – Investor Day 2010 – Investment Management of Insurance Assets
Asset allocation process in a Solvency II environment
Investment strategies defined coherently with capital allocation and risk profiles
New regulatory framework and the changing market environment are
strengthening the focus on a liability driven approach where asset liability management is the cornerstone
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
II. ASSET AND LIABILITIES INTEGRATION
21
Assicurazioni Generali Group – Investor Day 2010 – Investment Management of Insurance Assets
Corporate CentreLevel
Strategic Asset Allocation process
Asset allocation at portfolio/product level is coherent with Group Investment Strategy and is based on:
Liability profileFeatures of in-force and future productsRisk toleranceCapital efficiencyALM coherency
Financial assumptionsStrategic Plan targetsGuidelines and model definitionCapital allocationGroup Investment Strategy
Consolidation of bottom up strategiesCoherency with group targets and risk tolerance
Strong Corporate Centre Coordination and Enhancement of granularity improve efficiency in the investment process
Portfolio Level
II. ASSET AND LIABILITIES INTEGRATION
22
SAA Life ProcessII. ASSET AND LIABILITIES INTEGRATION
Strategic Allocation definition that maximizes investment contribution to value creation
Investment targetsMarket expected returnGroup/Company risk tolerance
Portfolio assets mapped into SAA categoriesRegulatory constraints and Group Risk Guidelines coherency
Analysis of reserves split by guarantee level and structureNew production volumesAnalysis of shareholder’s financial profit vs. fund returns
Cash flow matching analysisAsset & Liabilities projectionsAsset 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 scenariosImpact of liabilities risk mitigation in different loss scenarios
ALM Analysis Value and Risk Analysis MC PVFP sensitivity and liabilities migation
Strategic Plan coherency and market outlook
Portfolio analysis Liability portfolio structure
23
SAA Non-life Process II. ASSET AND LIABILITIES INTEGRATION
Define SAA portfolio targets with the optimal risk/return profile
Optimisation process based on risk / return target profileAnalysis of Economic Balance Sheet (EBS) indicators
Quantitative Analysis
Strategic Plan coherency and market outlook
Investment targetsMarket expected returnGroup/Company risk tolerance
Portfolio assets mapped into SAA categoriesRegulatory constraints and Group Risk Guidelines coherency
Portfolio analysis
24
Assicurazioni Generali Group – Investor Day 2010 – Investment Management of Insurance Assets
Return on capital optimisation: Life
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 thebetter return in respect to capital requirements.
Equity exposure will be cyclical.
Real Estate looks attractive based on long-term value creation capacity
Short / Long
Exposure Trend
Real EstateEquitiesCorporate BondsGovt Bonds
Optimise risk / return profile
Guaranteeexcess returnover minimum guaranteed level
Manage exposure to risky assets due to higher capital requirements
II. ASSET AND LIABILITIES INTEGRATION
25
Assicurazioni Generali Group – Investor Day 2010 – Investment Management of Insurance Assets
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
Liquidity is a key consideration
Reduce exposure to riskyasset classeswith high capital requirement
Maximise returnon capital
Begin a de-risking process in order to reduce risk capital
Short / Long
Exposure Trend
Real EstateEquitiesCorporate BondsGovt Bonds
II. ASSET AND LIABILITIES INTEGRATION
Return on capital optimisation: P&C 26
Assicurazioni Generali Group – Investor Day 2010 – Investment Management of Insurance Assets
Agenda
III. Final remarks
27
Assicurazioni Generali Group – Investor Day 2010 – Investment Management of Insurance Assets
Strong Corporate Centre coordination in the definition of asset allocation strategy
Liability driven management approach
More transparent and flexible investment process in a clear governance structure
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
Portfolio tailored asset allocation in order to increase capital
efficiency
III. FINAL REMARKS
Final remarks 28
Venice, November 26, 2010
Generali Investor Day 2010
Strategic Asset Allocation & Risk Management Strategy
Amerigo BorriniChief Risk Officer
Salvatore ColottiChief
Life Actuary