Other information

Exposure to Greece, Ireland, Italy, Portugal and Spain

(€ million)
Governement bonds
Corporate bonds
Covered
bonds
Financial
sector -
other
 Amortised
cost
Fair valueAmortised
cost
Fair valueBook value
Book value
  31.12.2013 31.12.2013 31.12.2013 31.12.2013 31.12.2013 31.12.2013
Greece
9 15 2 2 0 0
Ireland 787 858 731 706 119 505
Italy 55,949 57,719 13,316 13,705 1,621 4,929
Portugal 1,226 1,099 382 385 10 88
Spain 7,002 7,306 5,382 5,672 2,898 673
Total exposure to government bonds
issued by Greece, Ireland, Italy,
Portugal and Spain
64,972 66,998 19,812 20,469 4,648 6,194

Government bonds issued by Euro Area countries with high public debt (peripheral countries) were mainly classified as investments available for sale and therefore recorded at market value.

The exposure towards peripheral countries government bonds in nominal terms was mainly held by Italian (81%), German (6%) and French (5%) companies.

The fair value of corporate bonds issued by entities located in peripheral countries held by the Group amounted to € 20,469 million.
In terms of book value the exposure to covered bonds (corporate bonds issued under specific legislations that grant to the investor a dual recourse over the issuing entity assets as well as over a specific pool of high quality assets) amounted to € 4,648 million and the exposure to other bonds issued by entities operating in the financial sector amounted to € 6,194 million.

The following table shows the change of deferred tax assets and liabilities related to gains or losses recognized in shareholders’ equity or transferred from shareholders’ equity

(€ million)
31.12.2013 31.12.2012
Income taxes related to other comprehensive income 98 -1,627
Foreign currency translation differences -9 -1
Unrealized gains and losses on available for sale financial assets 197 -1,417
Net unrealized gains and losses on cash flows hedging derivatives -44 24
Net unrealized gains and losses on hedge of a net investment in foreign operations 0 0
Reserve on associates 0 0
Result of discontinued operations0 -36
Actuarial gains or losses arising from defined benefit plans -45 -198

Fair value measurement

With effect from 1st January 2013, the Generali Group has implemented IFRS 13 - Fair Value Measurement. This standard provides guidance on fair value measurement and requires disclosures about fair value measurements, including the classification of financial assets and liabilities in the levels of fair value hierarchy.

With reference to the investment, Generali Group measures financial assets and liability at fair value of in the financial statements, or discloses it in the notes.

Fair value is the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date (exit price). In particular, an orderly transaction takes place in the principal or most advantageous market at the measurement date under current market conditions.

A fair value measurement assumes that the transaction to sell the asset or transfer the liability takes place either:
(a) in the principal market for the asset or liability; or
(b) in the absence of a principal market, in the most advantageous market for the asset or liability.

The fair value is equal to market price if market information are available (i.e. relative trading levels of identical or similar
instruments) into an active market, which is defined as a market where the items traded within the market are homogeneous, willing buyers and sellers can normally be found at any time and prices are available to the public.

If there isn’t an active market, it should be used a valuation technique which however shall maximise the observable inputs.

If the fair value cannot be measured reliably, amortized cost is used as the best estimate in determining the fair value.

As for measurement and disclosure, the fair value depends on its unit of account, depending on whether the asset or liability is a stand-alone asset or liability, a group of assets, a group of liabilities or a group of assets and liabilities in accordance with the related IFRS. However when determining fair value, the valuation should reflect its use if in combination with other assets.

Following the introduction of IFRS 13, the Group has reviewed the valuation technique and levelling in terms of the fair value
hierarchy of some specific asset classes in terms of valuation of the fair value hierarchy. This process led to an higher
harmonization of the criteria for pricing and levelling in the different territories and companies belonging to the Group. This has led to the transfers between levels as reported in the specific paragraph.

The table below illustrates both the carrying amount and the fair value of financial assets and liabilities recognised in the balance sheet at 31 December 20136.


31.12.2013
(€ million)
Total book value
Total fair value
Available for sale financial assets
230,031 230,031
Financial assets at fair value through profit or loss
13,777 13,777
Held to maturity investments
4,115 4,095
Loans
63,371 67,366
Land and buildings (investment properties) 12,828 17,910
Own used land and buildings
2,879 3,370
Investments in subsidiaries, associated companies and joint ventures 1,407 1,407
Cash and cash equivalents
19,431 19,431
Investments back to unit and index-linked policies
59,116 59,116
Total investments
406,955 416,504
Financial liabilities at fair value through profit or loss
16,084 16,084
Other liabilities 16,264 17,880
Liabilities to banks or customers
24,008 24,008

6 With reference to investments in subsidiaries, assiociates and joint ventures, the book value, based on the fraction of equity for associates and interests in joint ventures or on  cost adjusted for any impairment losses for non-consolidated subsidiaries, was used as a reasonable proxy of their fair value.

Valuation technique

Valuation techniques are used when a quoted price is not available and shall be appropriate in the circumstances and for which sufficient data are available to measure fair value, maximising the use of relevant observable inputs and minimising the use of unobservable inputs.

Single or multiple valuation techniques valuation technique will be appropriate. If multiple valuation techniques are used to measure fair value, the results shall be evaluated considering the reasonableness of the range of values indicated by those results. A fair value measurement is the point within that range that is most representative of fair value in the circumstances.

Three widely used valuation techniques are:

  • market approach: uses prices and other relevant information generated by market transactions involving identical or
    comparable (ie similar) assets, liabilities or a group of assets and liabilities;
  • cost approach: reflects the amount that would be required currently to replace the service capacity of an asset; end
  • income approach: converts future amounts to a single current (i.e. discounted) amount.

Application to assets and liabilities

  • Debt securities

Generally, if available and if the market is defined as active, fair value is equal to the market price.

In the opposite case, the fair value is determined using the market and income approach. Primary inputs to the market approach are quoted prices for identical or comparable assets in active markets where the comparability between security and benchmark defines the fair value level. The income approach in most cases means a discounted cash flow method where either the cash flow or the discount curve is adjusted to reflect credit risk and liquidity risk, using interest rates and yield curves commonly observable at frequent intervals. Depending on the observability of these parameters, the security is classified in level 2 or level 3.

  • Equity securities

Generally, if available and if the market is defined as active, fair value is equal to the market price.

In the opposite case, the fair value is determined using the market and income approach. Primary inputs to the market approach are quoted prices for identical or comparable assets in active markets where the comparability between security and benchmark defines the fair value level. The income approach in most cases means a discounted cash flow method estimating the present value of future dividends. Depending on the observability of these parameters, the security is classified in level 2 or level 3.

  • Investment fund units

Generally, if available and if the market is defined as active, fair value is equal to the market price.

In the opposite case, the fair value of IFU is mainly determined using net asset values (NAV) provided by the fund’s managers provided by the subjects responsible for the NAV calculation. This value is based on the valuation of the underlying assets carried out through the use of the most appropriate approach and inputs and is eventually adjusted for illiquidity of the underlying asset.
Moreover, depending on how the share value is collected, directly from public providers or through counterparts, the appropriate hierarchy level is assigned. If this NAV equals the price at which the quote can be effectively traded on the market in any moment, the Group considers this value equiparable to the market price.

  • Private equity funds ed Hedge funds

Generally, if available and if the market is defined as active, fair value is equal to the market price.

In the opposite case, the fair value of private equity funds and hedge funds is generally expressed as the net asset value at the balance sheet date, determined using periodical net asset value and audited financial statements provided by fund administrators eventually adjusted for illiquidity of the underlying asset. If at the balance sheet date, such information is not available, the latest official net asset value is used. The fair value of these investments is also closely monitored by a team of professionals within the Group.

  • Derivatives

Generally, if available and if the market is defined as active, fair value is equal to the market price.

In the opposite case, the fair value of derivatives is determined using internal valuation models or provided by third parties. In particular, the fair value is determined primarily on the basis of income approach using deterministic or stochastic models of discounted cash flows commonly shared and used by the market.

The main input used in the valuation include volatility, interest rates, yield curves, credit spreads, dividend estimates and exchange rates observed at frequent intervals.

With reference to the fair value adjustment for credit and debt risk of derivatives (credit and debt valuation adjustment CVA / DVA), this adjustment is not material for the Group for the valuation of its positive and negative derivatives, as almost entirely of them is collateralized. Their evaluation does not take into account for these adjustments.

  • Financial assets where the investment risk is borne by the policyholders and related to pension funds

Generally, if available and if the market is defined as active, fair value is equal to the market price. On the contrary, valuation methodologies listed above for the different asset classes shall be used.

  • Financial liabilities

Generally, if available and if the market is defined as active, fair value is equal to the market price.

The fair value is determined primarily on the basis of the income approach using discounting techniques.

In particular, the fair value of debt instruments issued by the Group are valued using discounted cash flow models based on the current marginal rates of funding of the Group for similar types of loans, with maturities consistent with the maturity of the debt instruments subject to valuation.

The fair value of other liabilities relating to investment contracts is determined using discounted cash flow models that incorporate several factors, including the credit risk embedded derivatives, volatility, servicing costs and redemptions. In general, however, are subject to the same valuation techniques used for financial assets linked policies.

Transfers of financial instruments measured at fair value between Level 1 and Level 2

Generally transfers between levels are attributable to changes in market activities and observability of the inputs used in valuation techniques to determine the fair value of certain instruments.

Financial assets and financial liabilities are mainly transferred from level 1 to level 2 when the liquidity and the frequency of
transactions are no longer indicative of an active market. Conversely, for transfers from level 2 to level 1.

In addition, as described above, during 2013 analyses were carried out in order to better harmonize the criteria for pricing and levelling in the different territories and companies belonging to the Group as a result of which there are transfers between levels of the hierarchy. In particular, the transfers from level 1 to level 2 was substantially attributable to the change of certain valuations due to the lack of liquidity required by the principle for the classification in level 1.

The transfers were as follows:

  • from level 2 to level 1: € 788 million of government securities, € 1,283 million of corporate bonds, € 514 million of IFU and € 611 million of financial assets where the investment risk is borne by the policyholders and related to pension funds;
  • from level 1 to level 2: € 2,142 million of government bonds and € 1,969 million of corporate bonds;
  • from level 3 to level 2 of € 390 million of corporate bonds and € 281 million of financial assets where the investment risk is borne by the policyholders and related to pension funds.

Additional information on level 3

The amount of financial instruments classified in Level 3 represents 2.4% of total financial assets and liabilities at fair value,
increasing as described above compared to 31 December 2012.

Generally, the main inputs used in valuation techniques are volatility, interest rates, yield curves, credit spreads, dividend estimates and exchange rates.

The more significant assets classified within Level 3 are the following:

  • Unquoted equities

It includes unquoted equity securities, mainly classified into available for sale. Their fair value is determined using the valuation methods described above or based on the net asset value of the company. These contracts are valued individually using appropriate input depending on the security and therefore neither a sensitivity analysis nor an aggregate of unobservable inputs used would be indicative of the valuation.

In addition, for certain securities the amortized cost is considered to be a reasonable proxy for fair value, and does not therefore apply a sensitivity analysis.

  • IFU funds, private equity and hedge funds

It includes unquoted IFU funds, private equity and hedge funds, which are classified into available for sale and fair value through profit or loss. Their fair value is substantially provided by the fund administrators on the basis of the net asset value of the company.

With reference to the inputs on which the assessment is based, Generali Group might have, in some circumstances, limited details and therefore it is not possible to provide a sensitivity analysis.

Also, for some IFU funds the cost is considered to be a reasonable proxy of fair value, and is therefore not applicable, a sensitivity analysis.

  • Financial assets where the investment risk is borne by the policyholders and related to pension funds

Their fair value is determined using the valuation methods and observations on sensitivity analysis and input described above.

  • Bonds

Are corporate bonds, classified into available for sale and fair value through profit or loss. Their fair value is mainly determined based on the market or income approach. In terms of sensitivity analysis any changes in the inputs used in the valuation do not cause a significant impact on the fair value at the Group level considering the lack of materiality of these securities classified in level 3.

In addition to the analyses described above, the Group has decided to classify all asset-backed securities in Level 3 since their evaluation is not generally supported by market inputs. Regarding prices from providers or counterparties have been classified inLevel 3 all those titles for which you cannot replicate the price through market inputs.

The following table shows a reconciliation of financial instruments measured at fair value and classified as level 3. In particular, as mentioned above, the transfers highlighted with reference to Level 3 are attributable to a more precise allocation among levels due to a better analysis of the inputs used in the valuation primarily of unquoted equities.

(€ million)Carrying amount at the beginning of the periodPurchases and issuesNet transfers in (out of) Level 3Disposals through sales and settlements
Available for sale financial assets 2,439 1,549 2,586 −806
Equities 916 568 233 −211
Bonds 34 724 1,349 −193
Investment fund units 929 242 888 −297
Other assets available for sale 559 15 116 −105
Financial assets at fair value through profit or loss 844 105 884 −103
Equities 1 1 0 −1
Bonds 15 13 293 −13
Investment fund units 115 9 −61 −9
Derivatives 0 1 0 0
Hedging derivaties 0 0 0 0
Investments back to policies where the investment riks is borne by the policyholders 259 81 656 −22
Other assets at fair value through profit or loss 453 0 −5 −57
Total assets at fair value
3,282 1,654 3,470 −909
Financial liabilities at fair value through profit or loss 25 0 0 41
Financial liabilities related to investment contracts issued by insurance companies 0 0 0 0
Derivatives 0 0 0 0
Hedging derivaties 25 0 0 41
Other financial liabilities 0 0 0 0
Total liabilities at fair value 25 0 0 41
(€ million)
31.12.2013
Net unrealised gains
and losses
recognized in P&L
Net unrealised gains
and losses
recognized in OCI
Other changes
Carrying amount at
the end of the period
Net impariment loss
of the period
recognised in P&L
Net realised gains of
the period
recognised in P&L
Available for sale financial assets
21
-19
0
5,770 -7
41
Equities0 16
-2
1,520 6
30
Bonds
21 36
1
1,971 -21
0
Investment fund units
0 -81
3
1,685 6
4
Other assets available for sale 0 0 -2
595 2
7
Financial assets at fair value through profit or loss
31 0
2
1,763 0
-6
Equities 0 0
01 0
0
Bonds -1 0
1
308 0
-2
Investment fund units -2
0
1
53 0
0
Derivatives 0 0
0
1 0
0
Hedging derivaties 0 0
0
0 0
0
Investments back to policies where the investment
riks is borne by the policyholders
35
0
0
1,009 0
-3
Other assets at fair value through profit or loss 0
0 0
391 0
-1
Totale assets at fair value
52 -19
2
7,533 -734
Financial liabilities at fair value through profit or loss
-12 0 25
78 0
 0
Financial liabilities related to investment contracts
issued by insurance companies
0
0 0
0 0
 0
Derivatives 0
0 0
0 0
 0
Hedging derivaties -12 0 25
78 0
 0
Other financial liabilities 0 0 0
0 0
 0
Totale liabilities at fair value
-12 0 25
78 0
 0

Information on fair value hierarchy of assets and liabilities not measured at fair value

(€ million)
31.12.2013
Level 1 Level 2 Level 3 Total
Held to maturity investments
3,297 746 53 4,095
Loans 7,377 40,187 8,496 56,060
Debt securities 7,352 33,690 517 41,559
Other loans 25 6,496 7,979 14,501
Receivables from banks and customers 0 829 7,264 8,093
Investments in subsidiaries, associated companies and joint ventures 0 0 1,407 1,407
Land and buildings (investment properties) 0 0 17,910 17,910
Own used land and buildings 0 0 3,370 3,370
Total assets 10,674 41,762 38,500 90,935
Other liabilities 12,329 1,513 3,806 17,648
Subordinated liabilities 6,407 0 1,646 8,053
Senior debt 4,701 0 464 5,165
Other debt 1,221 1,513 1,697 4,431
Liabilities to banks or banking customers 0 4,667 25,459 30,126
Total liabilities 12,329 6,180 29,265 47,774
  • Held to maturity investments

The category includes primarily bonds, which valuation is above described. If the fair value cannot be reliably determined, the amortized cost is used as the best estimate for the determination of fair value.

  • Loans

The category includes bonds, which valuation is above described, mortgages, term deposits and other loans .

In particular, mortgages and other loans are valued on the basis of future payments of principal and interest discounted at the interest rates for similar investments by incorporating the expected future losses or alternatively discounting (with risk-free rate) to the probable future cash flows considering market or entity- specific data ( ie probability of default). These assets are classified as level 2 or 3 depending on whether or not the inputs are corroborated by market data.
For term deposits, generally, the amortized cost is considered as a good approximation of fair value and therefore classified within level 3 . If appropriate, they are valued at market value, considering observable inputs, and therefore classified within level 2.

If the fair value cannot be reliably determined, the amortized cost is used as the best estimate for the determination of fair value.

  • Receivables from banks or customers

Considering their nature, the amortized cost is generally considered a good approximation of fair value and therefore classified within level 3. If appropriate, they are valued at market value, considering observable inputs, and therefore classified within level 2.

  • Land and buildings (investment and self-used properties)

These assets are mainly valuated on the basis of inputs of similar assets in active markets or of discounted cash flows of future income and expenses of the rental considered as part of the higher and best use by a market participant.

Based on the analysis of inputs used for valuation, considering the limited cases where the inputs would be observable in active markets, the Group proceeded to classify the whole category at level 3.

Information on employees

Number of employees
  31.12.2013 31.12.2012
Managers 1,987 2,111
Employees 56,267 57,582
Sales attendants 18,743 19,517
Others 188 244
Total 77,185 79,454

The decrease observed in the number of employees was mainly attributable to the change in scope of consolidation, in particular with reference to the sale of reinsurance activities in the life segment in US, interests in Mexican companies and the insurance activities in Russia and other countries of Community of Independent States, for a total of 2,398 employees.

Share-based compensation plans

At 31 December 2013 incentive plans based on equity instruments granted by the Parent Company and other Group companies are outstanding.

Share-based compensation plans granted by the Parent Company

The Assicurazioni Generali Shareholders’ Meeting held on 30 April 2013 approved a new long term incentive plan (LTI) which
interrupts the precedent plans approved by Shareholders’ Meeting in dates 28 April 2012, 30 April 2011 e 24 April 2010 respectively. These plans stay in force until their original maturity.

In order to improve the correlation between company performance and the contribution to the generation of value for shareholders, the new incentive plan is aimed at strengthening the bond between the remuneration of management and expected performance in accordance with the Group strategic plan (so-called absolute performance), as well as the bond between remuneration and the generation of value in comparison with a peer group (so-called relative performance).
The Plan is also aimed at inducing loyalty in management at Group level.

The Plan is based on the following fundamental aspects:

  • the plan is a rolling plan, with each year triggering a new cycle with three years duration and vesting period;
  • the incentive for reaching the targets is provided through the allocation of Assicurazioni Generali S.p.A. ordinary shares;
  • the targets to which the provision of the incentive are subject are defined at the beginning of the three-year period of each cycle;
  • the number of shares to be granted is also determined at the start of each three-year period;
  • malus and claw back clauses and a minimum access threshold for every tranche are in place with

The objectives that drive the incentive payment for the cycle 2013-2015 are Return on Equity (RoE) and relative Total Shareholders’ Return (rTSR) compared to a group of peers. As far as the heads of the control functions are concerned, also qualitative objectives are defined.

In detail, the maximum number of target shares that can be assigned at the end of each cycle is calculated based on the ratio between the maximum bonus (calculated as a percentage of gross annual recurring remuneration) and the value of the share, calculated as its average value over the 3 months prior to the Board of Directors meeting which approves the draft balance sheet and the consolidated balance sheet referred to the exercise prior to the one in which the cycle starts.

The number of shares can go down to a minimum level (also calculated as a percentage of the gross annual recurring
remuneration), below which no shares are granted.

The maximum number of shares to be granted will be divided into three tranches, each relating to one of the three years of the  cycle, and considered to represent 30%, 30% and 40% respectively. Each year the level of achievement of the targets set for the three-year period will be monitored to determine the number of shares to be set aside for each tranche. The actual provision of the shares set aside is also subject to the annual verification of whether the individual in question has exceeded the minimum access threshold, which, for the cycle which starts in the current financial year, has been identified in the Group Solvency Ratio calculated using Solvency I criteria. In order to allow the actual provision of the first tranche, the Solvency Ratio level should not be lower than 140%. For the second tranche, in 2014, this level should not be lower than the higher value between 140% and the level reached in the previous year. Finally, for the provision of the third tranche, in 2015, this level should not be lower than 160%. The total of the shares set aside in each of the three years will only be definitively granted at the end of the three-year period, after verifying that the targets for the third year have been reached.

The targets to which the provision of the shares should be related are the relative Total Shareholders’ Return (rTSR, compared with a peer group identified in the STOXX Euro Insurance Index) and the Return on Equity (RoE). The expected levels of achievement for these targets will be identified at the start of each cycle and will remain as such for the entire duration of the three-year period.
The performance level and the corresponding incentive level are determined by the evaluation of the simultaneous achievement of the two targets described above. The level of performance is represented in a matrix which identifies the RoE ranges and the relative rTSR quadrants and, according to the intersection of the respective results, defines the percentage of shares in relation to the maximum value. According to the reference matrix, no incentive is provided if at least one of the targets is reached at a level below the minimum (threshold). If the RoE result is between the maximum band and the minimum band, the value of the incentive follows a progressive trend equal to ±25%. If the rTSR result is between the maximum quadrant and the threshold, the incentive follows a progressive trend equal to ±25%. The effective incentive levels are determined by the corresponding percentage with reference to the RoE achievement bands and simultaneous achievement of the related TSR quadrant. For levels above the RoE target, an over-performance cap of 175% of gross annual recurring remuneration is imposed.

After the end of the third year, the shares set aside are definitively granted to the recipients in a single instalment, as long as the employment relationship with the Company or with another Group company has not ceased as at the assignment date. 50% of the total shares granted will be available immediately, 25% will be subject to a lock-up period of one year, and the remaining 25% to a lock-up period of two years, without prejudice to the fact that directors who participate in the Plan shall keep an appropriate number of shares granted until the end of their term of office.

For additional information related to incentive plans refer to remuneration report.

The new plan, granting the right to receive a free allocation of a certain number of Assicurazioni Generali shares subject to the abovementioned conditioning has been treated as an equity-settled share-based payment falling under IFRS 2 scope.

The condition related to rTSR configures as a market condition, other conditions mentioned above are considered whether as
performance or as service condition.

The fair value of the right to receive free shares related to the market condition is estimated at grant date using statistic model which estimates the statistically probable positioning of Group TSR respect to peer group identified in the STOXX Euro Insurance Index.

For each tranche was calculated a fair value for each of the possible RoE intervals according to the reference matrix described
above. The table below shows fair values for each RoE interval and for each tranche:

(in euro)Tranche
2013
Tranche
2014
Tranche
2015
Return on Equity      
< 10% 0 0 0
10%<= x <= 11% 1,42 1,43 1,91
11%< x <= 12% 1,97 1,99 2,65
12%< x <= 13% 2,52 2,54 3,40
> 13 % 3,08 3,10 4,14

In order to assess the cumulative cost of the entire plan, for each tranche, the fair value related to the most probable RoE outcome was multiplied by the number of shares that can be assigned based on satisfaction of the vesting conditions. This cost is allocated over a period of maturity of 3 years (vesting period), with a corresponding increase in equity.
The cost of the above mentioned plan recognized within this year’s result was € 7 million.

Precedent plans 2010-2012, interrupted by the new one, were based on fundamental aspects listed below:

  • the plans were rolling, in other words each year triggers a new cycle lasting six years, with the power of the Board of Directors to terminate the renewal cycles of the Plan;
  • there was a direct link for each cycle with the objectives of the Generali Group three-year strategic plan;
  • they involved the concept of joint investments, in other words the obligation of the recipients of the LTIP to invest part ofthe gross monetary incentive at the end of the first three-year period in Assicurazioni Generali shares.

For additional information related to former incentive plans refer to remuneration report.

The cost of the above mentioned plans recognized within this year’s result was of € 11 million. This amount includes both the cost related to cash bonus linked to performance objectives of the first three-year periods of these plans (considered as benefit under the IAS 19 scope) and the cost related to share bonus linked to Generali share performance objectives of the second three-year periods of these plans (considered as equity settled share-based payments falling under IFRS 2 scope).

Facing a period of change in terms of strategy and governance, to attract and persuade the best talents in the market and to build an international management team, the Group has put in place an entry bonus plan in order to convince these people leave their current job and to compensate the loss upon resignation of retention packages with their former employers. The bonus was structured in form of share grant, with minimum holding clauses on the granted shares in order to better align the managers to the interest of shareholders. The same situation applies to the Group CEO, whose entry bonus has been defined and quantified in order to neutralise the loss of shares due to his resignation from his previous employer

The number of shares granted subject to this plan was of 763,237 shares, equal to a monetary cost of € 10.7 million, entirely recognised within this year’s result.

The following table shows the development of the options given by the Parent company to personnel, chairman, managing directors and general managers and their weighted average exercise price.

 PersonnelChairman, managing directors
and general managers
 Number of
options
Weighted
average exercise
price
Number of
options
Weighted
average exercise
price
Options outstanding as at 31 December previous year 1,806,075 29.6 0 0
granted 0 0 0 0
forfeited 0 0 0 0
exercised 0 0 0 0
expired 1,130,750 30.1 0 0
Options outstanding as at 31 December current year 675,325 28.9 0 0
of which exercisable 675,325 28.9 0 0

The weighted average expiry date of the stock options granted to managers and employees and outstanding at the balance sheet date is on 13 May 2015. The stock options granted to the Parent Company Chairman and Managing Directors have expired.

Share-based compensation plans granted by the other Group companies

The main share-based payments granted by the other Group companies are detailed here below.

Share-based compensation plans granted by Banca Generali

At 31 December 2013, the share-based compensation plans granted by Banca Generali are as follows:

  • two stock option plans, respectively reserved to the financial advisors and some managers of the group approved in theShareholders’ Meeting of Banca Generali of 18th July 2006;
  • two stock option plan reserved for networks distribution - financial advisors and private bankers - and relationshipmanagers approved in the Shareholders’ Meeting of Banca Generali of 21st April 2010.

At 31 December 2013, the options related to the stock option plan granted and exercisable referring to the plans approved in 2006 amounted to 461 thousand, of which 119 thousand granted to employees and 642 thousand million granted to financial advisor. The reduction in respect of the previous year is mainly due to the exercise carried out by financial advisor and employees in the first half of the year and, to a lesser extent, to the termination of the relationships with some beneficiaries. For these plans, the exercise period of the assigned options, following the three-year extension approved in 2010, ends between 31 March 2014 and 31 December 2015.

Moreover, with reference to the plans approved in 2010, at 31 December 2013 the options granted amounted to 1.6 million, of which 139 thousand reserved to relationship managers, while the options effectively exercisable amounted to 376 thousand, of which about 39 thousand reserved to relationship managers. The reduction of option granted, in comparison with the previous year, is mainly attributable to exercises actuated by relationship managers and, to a lower extent, to the cessation of relationships with some financial advisors.

  Number of options exercise price
Options outstanding as at 31 December previous year 3,960,268 10.0
granted 19,999 9.0
forfeited 38,817 10.0
exercised 1,901,229 9.7
expired - -
Options outstanding as at 31 December current year 2,040,221 10.3
of which exercisable 837,494 -

As for the stock option plans approved in 2006, with reference to the plan granted to the employees, following the three-year extension of the exercise period approved in 2011, the fair value at measurement date is € 2.5, while the fair value of stock options granted to the financial advisors is between € 2.4 and € 2.5 depending on the exercise date foreseen. At 31 December 2012 these plans completed the vesting period, resulting as a consequence in only exercisable stage.

As for the stock option plans approved in 2010, reserved for networks distribution - financial advisors and private bankers - and relationship managers of Banca Generali, the economic effects started since 7th June 2011 – option granting date – and the fair value is between € 1.01 and € 0.65 depending on the exercise date foreseen.

The costs charged in the profit or loss account of the period from stock option plans 2010, reserved for networks distribution-
financial advisors and private bankers - and relationship managers of Banca Generali amount to € 0.5 million.

Share-based compensation plans granted by Generali France

At the balance sheet date there are the following share-based compensation plans granted by Generali France to the employees of Generali France group: seven stock grant plans approved on 21st December 2006, 20th December 2007, 4th December 2008, 10th December 2009, 9th December 2010, 14th March 2012 and 25th June 2013 by the board and a stock granting plan as part of the celebrations for the 175th anniversary of the Parent Company foundation, reserved to the employees of the Generali France group.

At 31 December 2013, the number of shares granted amounted to 7,343,923 ordinary shares, of which 419,079 related to the plan granted for 175th anniversary of foundation of Parent Company.

With reference to the stock granting plans assigned by Generali France within the scope of IFRS 2, the charge recognised effect in profit or loss amounted to € 15.8 million. The plans are considered as cash-settled and so a € 79.3 million liability was accounted for them.

Earnings per share

  31.12.2013 31.12.2012
Result of the period (€ million) 1,915 94
-from continuing operations 1,379 59
-from discontinued operations 536 35
Weighted average number of ordinary shares outstanding 1,548,056,710 1,540,876,249
Basic earnings per share (€) 1.24 0.06
-from continuing operations 0.89 0.04
-from discontinued operations 0.35 0.02

Basic earnings per share are calculated by dividing the result of the period attributable to the Group by the weighted average
number of ordinary shares outstanding during the period, adjusted for the Parent Company’s average number of shares owned by itself or by other Group companies during the period.

Diluted earnings per share reflect the eventual dilution effect of potential ordinary shares.

  31.12.2013 31.12.2012
Result of the period (€ million) 1,915 94
-from continuing operations 1,379 59
-from discontinued operations 536 35
Weighted average number of ordinary shares outstanding 1,548,056,710 1,540,790,961
Adjustments for stock option 0 0
Weighted average number of ordinary shares outstanding for diluted earnings per share 1,548,056,710 1,540,790,961
Diluted earnings per share (€) 1.24 0.06
-from continuing operations 0.89 0.04
-from discontinued operations 0.35 0.02

Related parties disclosure

With regard to transactions with related parties, the main intra-group activities, conducted at market prices or at cost, were
undertaken through relations of insurance, reinsurance and co-insurance, administration and management of securities and real estate assets, leasing, loans and guarantees, IT and administrative services, personnel secondment and claim settlement.

These services substantially aim at guaranteeing the streamlining of operational functions, greater economies in overall
management, appropriate levels of service and an exploitation of Group-wide synergies.

For further information regarding related parties transactions - and in particular regarding the procedures adopted by the Group to ensure that these transactions are performed in accordance with the principles of transparency and substantive and procedural correctness - please refer to the paragraph ‘Related Party Transaction Procedures’ included in ‘Corporate governance and share ownership report’.

The most significant economic and financial transactions with Group companies that are not included in the consolidation area and other related parties are listed below.

As shown in the table below, the impact of such transactions, if compared to the Group extent, is not material.

(€ million)Subsidiaries
with
significant
control not
consolidated
Associated
companies
Other related
parties
Total% on balance
- sheet item
Loans 6 462 608 1,076 0.3
Loans issued -9 -20 -684 -713 1.1
Interest income
3 28 24 55 0.5
Interest expense
0 0 -31 -31 2.3

In further detail, the loans towards associated companies mainly refer to bonds issued by Telco S.p.a. which totally amount to € 249.9 million.

As far as other related parties are concerned, the most significant transactions are with Mediobanca Group regarding investment bonds for € 582 million, and financial liabilities amounting to € 684 million, of which € 500 million referring to hybrid instruments. For further information please refer to chapter Significant events after 31 december 2013.

With reference to the PPF Group, following the presentation on 28 March 2013 of his resignation from the company’s Board of Directors, Petr Kellner and his related entities are no longer considered as related parties for Generali Group.
Further information on the completion of the first tranche for the acquisition of 25% of GPH are reported in Section 8 Significant nonrecurring events and transactions of this Notes.

With reference to the paragraph 18 of Related Party Transactions Procedures adopted by the Board of Directors in November 2010, excluding the aforementioned operation with PPF Group, there were no (i) Operations of major importance concluded during the reporting period (ii) Related Party Transactions, concluded during the reference period, which influenced the Group’s financial statements or profit to a significant extent.

Reinsurance policy of the Group

Information on the reinsurance policy of the Group is provided in the Risk Report of the consolidated annual financial statements 2013.

Significant non-recurring events and transactions

Below a description of non-recurring transactions carried out by the Group during the 2013.

  • Generali PPF Holding

As part of its strategy of geographical footprint optimization, on 8 January the Generali Group concluded an agreement to purchase 25% of Generali PPF Holding, representing the first tranche of the acquisition of the entire company from PPF Group. Accordingly, the Group holds 76% of Generali PPF Holding. At the same time, Generali PPF Holding transferred to PPF Group insurance operations in Russia and other countries of the Commonwealth of Independent States. Due to the exercise of options summarized below, the Group in 2014 will have the possibility to acquire the second tranche, equal to the remaining 24% of Generali PPF Holding from PPF Group.

Below a summary of the agreements and an update of the main effects on balance sheet, income statement and financial situation.

Agreement’s summary

Generali PPF Holding B.V. transaction

Under the new agreements, the total consideration definitively agreed for the purchase of 49% of Generali PPF Holding is
2,520,560,000 euro (subject to possible changes due to the acquisition of the second tranche as further described). Consequently, the previously agreed right of PPF to the higher price between the fair market value of its interest and the minimum price is no longer applicable.

The transaction has been structured as follows:

  1. As expected, at the end of March 2013, Generali acquired 25% of the shares in GPH from PPF Group, for a price of
    1,286,000,000 euro, partially funded by € 1.25 billion subordinated bond issued on 5 December 2012. The transaction was finalized thanks to both own resources and the reimburse of 48% of the 400 million euro bond underwritten by the Generali Group and issued by PPF Co3 B.V., a subsidiary of PPF Group
  2. For the remaining part, representing 24% of Generali PPF Holding share capital, a new put option exercisable by PPF
    and, in turn, its lender banks has been underwritten, or, otherwise, a new call option exercisable by Generali’s has been underwritten. It is being understood that, upon exercise of any of said options by PPF, Generali reserves the rights to opt for an alternative exit entailing the sale to a third party selected pursuant to a competitive bidding procedure without prejudice, in any event, to Generali’s obligation to ensure payment of a minimum sale price as set out subsequently. It is being understood that, upon exercise of any of said options and Generali will not opt for the alternative exit, the second tranche shall be sold around the end of December 2014 for the price of € 1,234,560,000, further increased by the difference, if any, between: the interests accrued or accruing on the bank loan and the notes starting from 1 January 2013 to the date of the sale of the second tranche to Generali; and the sum of any and all dividends paid by Generali PPF Holding to PPF CO1 starting from the date on which the agreements of the transaction were executed (i.e. 8 January 2013) to the date of the sale of the second tranche to Generali (save for PPF’s
    49% share of declared dividends amounting to € 352 million on the overall aggregated basis).

It has also been agreed that, at the same time as Generali acquired the first tranche, PPF Group bought from Generali PPF Holding certain of the latter’s participating interests in insurance companies operating in Russia, Belarus, Ukraine and Kazakhstan, for the overall price of € 80,000,000.

PPF Partners and PPF Beta transaction

In the context of the transaction it was also defined a participations swap with no involvement of cash: in June 2013 Generali Group acquired from PPF Investments the full ownership and corporate control of the corporation known as PPF Beta, which indirectly holds 38.46% of the share capital of the Russian insurance company Ingosstrakh, while PPF Investments acquired the minority interest of 27.5% held by Generali in the investment fund PPF Partners.

Overview of the transaction’s effects on balance sheet, income statement and financial situation

The main economic and financial effects are summarized as follows:

Acquisition of the first tranche for € 1,286 million

  1. As set out above, the purchase price has been paid by use of Generali’s own financial resources, without prejudice to the set off, if applicable, of an amount corresponding to about 48% of the overall amount of the bond issued by PPF Co3 B.V. (i.e. up to a maximum amount of about € 196 million);
  2. At the same time, dividends amounting to € 352 million have been distributed to shareholders (of which about 172 million euro to the PPF Group). This dividend pay-out accordingly entailed a reduction in the cash balances and shareholders’ equity pertaining to third parties, in the amount of € 172 million.
  3. The acquisition of the PPF Shareholding entailed a reduction in the shareholders’ equity pertaining to third parties in the amount of € 808.5 million, and, by reason of the difference payable by way of the purchase price, a reduction in the Generali Group’s shareholders’ equity of € 477,5 million.

Transaction entailing the exchange of equity shares in PPF Beta, on the one hand, for interests in PPF Partners and PPF Partners Fund, on the other hand

This transaction had no effect for the Generali Group’s financial position at six months 2013. The impacts of this transaction have already been accounted for in the 2012 closing.

Sale of Generali PPH Holding’s business assets in Russia, Ukraine, Belarus and Kazakhstan, for € 80 million

  1. The sale of the business assets in Russia, Ukraine, Belarus and Kazakhstan entailed a reduction in consolidated assets of about € 730 million, with a related reduction in technical reserves in the amount of € 566 million;
  2. The sale also gave rise to a realized loss for Generali Group of € 71.7 million (of which € 69.1 million already booked in 2012) and a negative result pertaining to third parties in the amount of € 21.1 million (of which € 18.6 million already booked in 2012);
  3. The impact on the Group’s liquidity is basically neutral since, against inflows of € 80 million, the assets sold include cash balances of € 47.9 million.

Acquisition of the second tranche

With reference to the second tranche, as described beforehand, given the alternative exit mechanism, as at the date of approval of the transaction, Generali bore no obligation whatsoever to acquire the remaining 24% shareholding, given that such eventuality is linked to the exercise of the options described above. As a result, at present there are no consequences on the balance sheet, income statement or financial situation of the Generali Group to be pointed out in connection with the second tranche.

Furthermore, there is no need for Generali to allocate a risk provision, because at the time being there aren’t any possibilities of future losses linked to transaction, given that the predetermined value of the second tranche is not higher than its fair market value of the remaining stake in Generali PPF Holding.

  • Generali U.S. Holdings, Seguros Banorte Generali e Pensiones Banorte Generali

In June the Group reached an agreement for the sale of the Life segment reinsurance business in U.S.A. The agreement foresees the sale of 100%, for an equivalent amount of around € 680 million and a realized gain of € 40 million, of Generali U.S. Holdings and its subsidiaries as well as the recapture of the business currently retroceded to Assicurazioni Generali. Always in June, Generali Group has reached an agreement with the Group Financiero Banorte for the sale of minority interests of 49%, for an equivalent amount of around € 633 million and a realized gain of € 450 million, in Mexican companies Seguros Banorte Generali and Pensiones Banorte Generali. As a result, these companies exited from the scope.

  • Fata Assicurazioni Danni S.p.A.

At 20 November 2013, Generali Group concluded an agreement for the sale of 100% of Fata Assicurazioni Danni S.p.A.
Pending the release of the necessary regulatory authorization, in accordance with IFRS 5, starting from 31 December 2013 Fata Assicurazioni Danni S.p.A. was classified in the balance sheet as a disposal group held for sale. Consequently, this participation has not been excluded from consolidation but the total of the related assets and liabilities have been recorded in two separate lines in the balance sheet and the related profit or loss, net of tax effects, is recognized separately under the appropriate heading of the income statement net in the consolidated profit (loss) from discontinued operations.
Further information is available in the section 10 - Non-current assets or disposal group classified as held for sale.

  • Banca Generali

In accordance with its strategy of optimizing its capital strength, in April 2013 the Group successfully concluded the  placement of 12% of Banca Generali. The gain realized as the difference between placement price and book value, amounting to € 136 million, was credited to equity in accordance to international accounting standards.

Atypical and/or unusual transactions

During the year, there were no atypical and/or unusual transactions, which — because of materiality, nature of counterparties, subject of the transaction, transfer price determination method and occurrence close to the balance sheet date — might give raise to any doubts about the correctness and exhaustiveness of this report, conflict of interests, preservation of equity and protection of minorities.

Non-current assets or disposal group classified as held for sale

With reference to policy of divestment of non-core and not strategic assets, as abovementioned, at 20 November 2013, Generali Group concluded an agreement for the sale of 100% of Fata Assicurazioni Danni S.p.A. Pending the release of the necessary regulatory authorization, in accordance with IFRS 5, starting from 31 December 2013 Fata Assicurazioni Danni S.p.A. was classified in the balance sheet as a disposal group held for sale. Consequently, this participation has not been excluded from consolidation but both the total of the related assets and liabilities and the related profit or loss, net of tax effects, have been recorded separately in the specific lines in the financial statements.
Moreover, with reference to 31 December 2012 the reinsurance business of the life segment in U.S.A. and the sale of interests in Mexican companies resulted as disposal groups held for sale. The sale agreement of these interests has been reached in June 2013.
The following tables show a condensed indication of the balance sheet ant the income statement of the discontinued operations at 31 December 2013 and 2012.

Condensed balance sheet and profit and loss for discontinued operations
(€ million) 31.12.2013 31.12.2012
1 INTANGIBLE ASSETS 8 13
2 TANGIBLE ASSETS 16 29
3 AMOUNTS CEDED TO REINSURERS FROM INSURANCE PROVISIONS 15 337
4 INVESTMENTS 427 4,672
5 RECEIVABLES 87 437
6 OTHER ASSETS 75 541
7 CASH AND CASH EQUIVALENTS 17 114
TOTAL ASSETS 644 6,142
(€ million)
31.12.2013 31.12.2012
2 OTHER PROVISIONS
6 9
3 INSURANCE PROVISIONS
523 5,081
4 FINANCIAL LIABILITIES
2 2
5 PAYABLES
70 244
6 OTHER LIABILITIES
48 350
TOTAL LIABILITIES
649 5,686
(in € million)
31.12.2013 31.12.2012
Revenues
1,751 5,039
Expenses
-1,616 -4,845
Profit before tax of discountinued operations
136 194
Tax -64 -92
Profit of the year from discontinued operations
72 103

With reference to the statement of cash flows, the above information will not be considered for the purposes of the cash flow for the year. In particular, with reference to 31 December 2013 these activities generated cash for € 29 million (€ 19 million from operating activities, € +14 million euro from investing activities and € -5 from financing activities).

Finally, the following table shows the fair value hierarchy of assets and liabilities at fair value held by discontinued operations at 31 December 2013.

(€ million)
31.12.2013
Level 1 Level 2 Level 3 Total
Available for sale financial assets 286 35 14 335
Equities 19 - 0 20
Bonds 251 33 13 298
Investment fund units 15 2 0 18
Financial assets at fair value through profit or loss
- - 1 1
Bonds - - 1 1
Totale assets at fair value
286 35 15 336

Audit and other service fees for the fiscal year

In table below, filled under the article 149-duodecis of Consob Regulation, are reported the 2013 fees for auditing services from auditing company of Parent company and companies within audit company’s network.

(€ thousands)
E&Y ItalyE&Y Network
 31.12.201331.12.2013
Parent Company
6,114 464
Audit fee 2,476 464
Attestation service fees 847 0
Other service fees 2,790 0
Subsidiaries
4,344 16,522
Audit fee
2,683 15,583
Attest service fees
673 17
Other service fees
988 922
of which Tax service fees 0 227
of which Other services 988 695
Total 10,457 16,986

 

 

Assicurazioni Generali S.p.A. - C.F. e P.IVA 00079760328