Reinsurance credit risk

In addition to debt and derivative financial instruments, the Group is exposed to credit risk through the exposure to reinsurance counterparties to which part of the business is ceded. In particular, the ability by reinsurers to fulfill contractual obligations towards the Group is monitored.

The Group centrally sets the main reliability and solvency criteria, which take into account the risk exposure and the probability of default of each reinsurance counterparty.

The main criterion consists in the definition of a maximum exposure transferable to each reinsurer. In principle, the maximum liability transferable to an individual reinsurer for each reinsurance program should not exceed a given percentage of its shareholder’s
equity. Generally, such exposure is further reduced according to the rating provided by the rating agencies and to the line of business being considered. Based on the features of risk being transferred, a maximum amount threshold has been established.
For long-tail business more restrictive criteria are adopted.

Rating of insurance provisions ceded to reinsurers
(€ million)
31.12.2013 31.12.2012
AAA 6 6
AA 2,622
2,947
A 1,214
1,539
BBB 169
325
Non investment grade 0
5
Not Rated 864
802
Total 4,875
5,624

The table demonstrates that the careful criteria for the selection of reinsurers adopted by the Group over the past allowed Generali to have a significant presence of counterparties in rating classes of higher quality. The small percentage of AAA counterparties reflects the the almost total absence of market players that have kept these characteristics. Our policy in selection of counterparties is stable over time, as well as prudent, and changes from year to year normally depend on rating variations occurred during the year relating to certain reinsurers.

In particular, the effects of the changed business model of the Group impacted the 2013 figures which, considering the transfer of 100% of reinsurance treaties to Assicurazioni Generali, showed a significant reduction in ceded reinsurance outside the Group and,consequently, the total reserves of reinsurers.

"Not rated" counterparties remained. As in the past, they also include captive insurance companies of large industrial companies that do not qualify for any rating while showing a good financial strength, companies that are no longer active in the reinsurance market and not valued by the rating agencies, but not necessarily less solid, companies that are part of major insurance groups which benefit from high rating but who have abandoned their reinsurance activities, or, finally, of mutual and reinsurance pool.

Under some circumstances, local regulations, market practice or specific types of business allow the Group to benefit from mitigation of the related reinsurance credit risk through deposits from reinsurers and/or letters of credit as a guarantee on ceded reserves.

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