EV movement

The following table shows the movement of the EV and its components (VIF and ANAV) from the end of 2012 to the end of 2013, together with the movement of ANAV components (required capital and free surplus). Expected results are calculated using best estimate assumption.

The structure of the EV movement has been aligned with the template prescribed by the MCEV Principles, with the following main changes compared to previous years:

  • the expected existing business contribution (i.e. the unwinding of beginning of period amounts at the implied discount rate) has been split in two components ("reference rate" and "excess of reference rate");
  • the impact of model changes is now included in the EV earnings (specifically, reported in the "other operating variances" line) and no longer considered as an opening adjustment.
Movement of Embedded Value (€ mln)
  EV  VIF  ANAV  Required Capital Free  Surplus
Value at 31.12.2012 21,4009,35212,04711,263785
Change in perimeter -1,092-889-202-328125
Exchange rate fluctuation -174-104-69-21
-48
Adjusted Value at 31.12.2012 20,1358,35911,77610,914862
New business value 9371,798-860661
-1,521
Expected contribution (reference rate)
51649620020
Expected contribution (in excess of reference rate)
1,0001,000000
Transfers from VIF and req. cap. to free surplus 0-2,1832,183-7092,892
Operating experience variance -8413-970-91
Operating assumption changes
125250101-101
Other operating variances465494-2923-53
Operating EV earnings  2,9591,7421,217761,141
Economic variances  4,6894,544145-1,8031,948
Other non operating variances-185-185000
Total EV earnings 7,4636,1011,362-1,7273,089
Capital movement -1,4620-1,4620-1,462
Value at 31.12.2013 26,13614,46011,6769,1872,489
 
Total Normalised
EV earnings 7,4632,494
Return on EV 37.1% 12.4%

Value at 31/12/2012: this is the starting point of the movement, represented by the official value at 31/12/2012.

Change in perimeter: this is the effect of the difference between the Group companies’ interest in the covered business or the covered business itself at the end of 2012 and 2013. The negative impact on EV (-1,092mln) mainly reflects the sale of companies in the US and in Mexico (whose proceeds have been earned outside the covered perimeter), partly offset by the increased Group’s participation in Germany and in Central and Eastern Europe.

Exchange rate fluctuation: this is the effect of the difference between the exchange rates at the end of 2012 and 2013. The impact on EV is -174mln, as a consequence of the strengthening of Euro against all main currencies.

Adjusted value at 31/12/2012: this is the adjusted starting point of the movement, basis for the calculation of the return on EV.

New business value: this is the impact of the new business written in 2013. The impact on EV (+937mln) represents the new business value at point of sale, calculated as the sum of the NBV of each quarter. The impact on free surplus (-1,521mln) represents the total new business strain, which is the combined effect of the negative contribution to profit in the year of sale ( 860mln) and the additional capital required by the new business (-661mln), net of eligible items that can be used to support capital requirements.

Expected contribution (reference rate and in excess of reference rate): this is the effect of the roll forward of beginning of year amounts. The impact on EV (+1,516mln) is the sum of: 

  • +1,496mln coming from the roll forward of the beginning of year VIF and relevant required capital, calculated using the risk free component (496mln) and the risk premium component (1,000mln) of the 2012 implied discount rate;
  • +20mln referring to the expected after tax return on free surplus, calculated using risk free assumptions.

Transfers from VIF and required capital to free surplus: the neutral impact on EV comes from the release, from VIF to ANAV, of the 2013 after tax result (2,183mln), as expected at the end of 2012 and inclusive of the expected return on the assets backing the required capital. The impact on required capital (-709mln) represents the expected required capital release, net of the variation of eligible items that can be used to support it, from the in-force business. The release of profit and capital from the in-force business into the free surplus, in aggregate, amounts to +2,892mln.

Operating experience variances: this is the effect of actual versus expected 2013 experience on operating items. The impact on EV ( 84mln) comprises the following experience:-1mln on mortality;

  • -7mln on surrenders;
  • +23mln on level of premium increases;
  • -29mln on profit sharing levels;
  • -62mln on ordinary expenses;
  • -8mln on reinsurance.

The negative experience on expenses mainly arises in France. The negative experience on profit sharing levels mainly derives from the combined contribution of France (+46mln) and Germany ( 66mln).

Operating assumption changes: this is the effect of changes in future operating assumptions. The impact on VIF (+125mln) comes from the revision of the following assumptions:

  • -63mln on mortality;
  • +82mln on surrenders;
  • -74mln on level of premium increases;
  • +172mln on profit sharing levels;
  • +12mln on ordinary expenses;
  • -3mln on reinsurance.

The significant impact of the revision of profit sharing levels mainly derives from the update of crediting rates in France (+277mln) partly offset by the less favourable profits shareholder’s quota assumptions in Germany (-107mln), both in line with the experience of the year.

Changes in operating items underlying the calculation of the required capital (therefore affecting either the minimum regulatory capital or the risk capital) determine its increase of +101mln.

Other operating variances: this is the combined effect of other non recurrent operating items, such as model changes, extraordinary expenses and residual variances. The impact on EV (+465mln) is the sum of:

  • +488mln arising from various improvements and refinements of the actuarial models used locally for the projections of VIF (mainly coming from Italy and France);
  • -52mln due to the impact of the extraordinary expenses of the year;
  • +28mln due to other residual operating items.

Model changes and methodology refinements also impact the calculation of the risk capital and/or the eligible items that can be used to support it, with an aggregate effect of +23mln on the required capital.

Operating EV earnings are equal to the sum of the new business value, the expected existing business contribution (at reference rate and in excess of reference rate), the transfers from VIF and required capital to free surplus (neutral in terms of EV), the operating experience variances, the operating assumption changes and the other operating variances. Operating EV earnings amount to +2,959mln.

Economic variances: this is the effect of actual versus expected 2013 experience and changes in future assumptions for economic items such as yield curves, implied volatilities, investment returns and taxes.
The positive impact on EV (+4,689mln) corresponds to the sum of the variances on ANAV (+145mln, mainly coming from the revaluation of assets thanks to the more favourable economic conditions, and from actual returns which have exceeded the returns projected in the previous year) and of +4,544mln variances on VIF.
More specifically, the +4,544mln VIF variances can be split as follows:

  • +1,510mln: the impact of the swap curve increase (assuming the government and corporate return increase by the same amount, that is, keeping a constant spread with the swap rate); 
  • +1,107mln: the combined effect of the positive impact of the closure of the spread (versus the swap curve) of the government (+2,159mln) and corporate (+68mln) bonds, and the negative impact of the reduction of the liquidity premium (-1,121mln);
  • +1,129mln: the impact of the positive equity market performance;
  • +798mln: the impact of the reduction in interest rate volatilities and equity volatilities.

The more favourable economic environment, affecting the calculation of the risk capital and the amount of eligible items that can be used to support it, is the main cause of the significant decrease in the required capital (-1,803mln) in all main areas of operations.

Other non operating variances: this is the effect of local regulatory and legal changes and of other residual non operating items not included above.
The negative impact on EV (-185mln) is mainly due to the recent pension fund reform in Poland (i.e. transferral of the pension fund assets to the Polish Social Security Institution).

Total EV earnings are equal to the sum of operating EV earnings, economic variances and other non operating variances, and amount to +7,463mln. The corresponding return on EV (obtained dividing the EV earnings by the adjusted opening EV) is equal to +37.1%.

Capital movement: this amount (-1,462mln) comprises dividends paid in 2013 out of the consolidation perimeter by the covered companies (-659mln), together with net movements ( 803mln in aggregate) corresponding to dividends received from Group companies, capital injections and changes in covered companies’ interest in other Group companies and other consolidation differences.

Generali defines the normalised EV earnings as the operating EV earnings excluding the impact of other operating variances. According to this definition, normalised EV earnings amount to 2,494mln, with a 12.4% return on adjusted opening EV.

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Life EV roll-forward87.58 KB
Assicurazioni Generali S.p.A. - C.F. e P.IVA 00079760328