The purpose of the Risk Report is to provide an overview of the Group’s solvency position and risk profile, as well as its risk management framework.
To this end a brief introduction on economic and regulatory environment is hereby provided.
When addressing the Group’s risk profile, it is important to consider that the insurance sector is mostly vulnerable to financial markets and the economic environment. Generali has proven to be resilient to both financial risks and credit risks. Nevertheless, financial instability still represents the key challenge for the insurance sector.
At the same time, in addition to financial, underwriting risks and operational risks, emerging trends related to rapid growth of digitalization and big data, geopolitical instability, natural catastrophes and demographic changes represent a considerable challenge for the insurance market.
Challenges and opportunities of the market context, for more details on financial markets’ developments
In addition to the financial environment, regulatory developments represent a major external driver of threats and opportunities to insurance Legal Entities. These include developments in the area of prudential supervisory regimes, such as Solvency II, International Capital Standards (ICS), as well as regulations defining new principles in terms of distribution (Insurance Distribution Directive - IDD), new disclosure requirements for Packaged Retail and Insurance-based Investment Products (PRIIPs Regulation), personal data protection (General Data Protection Regulation - GDPR) and anti- money laundering (IV AML Directive).
Challenges and opportunities of the market context, for more details on financial markets’ developments
In terms of solvency position, the Group and all its European insurance subsidiaries comply with Solvency II regulation, which requires capital to be held for all quantifiable risks.
The Group uses its Partial Internal Model (PIM), approved by the Supervisory Authority, to calculate capital requirements to better reflect its risk profile. The Group PIM authorization was granted for all major Business Units (Italy, Germany, France, Austria, Switzerland and the major Czech company) while an extension plan is in progress to cover the Spanish companies and the operational risk.
The Solvency Ratio, estimated on the basis of preliminary data1, amounts to 216% as at 31 December 2018, confirming the strong capital position of the Group.
For the purpose of the Solvency Ratio calculation, the Group Legal Entities for which authorization has been granted apply the Group PIM, while other insurance entities adopt the standard formula. Other financial regulated entities contribute to the Group Solvency Ratio based on local sectorial regulatory requirements (e.g. mostly banks and pension funds).
For risks not included in Solvency Capital Requirement (SCR) calculation, additional assessment techniques are used. In particular, for liquidity risk, the Group has in place procedures and limits that ensure the adequate liquidity risk management and a sound liquidity position.
Generali Group risk management system is based on a clear risk governance and structured risk management processes, defined within a set of risk policies. Within the risk management system, the Own Risk and Solvency Assessment (ORSA) represents the main risk reporting tool, with the purpose of supporting risk strategy update (Risk Appetite Framework).
Generali Group also relies on a set of tools, such as the Recovery Plan, the Liquidity Risk Management Plan and the Systemic Risk Management Plan, defined following the Financial Stability Board (FSB) and the International Association of Insurance Supervisors (IAIS) standards2 as well as the most recent Supervisory Authority requirements.
The Risk Report is structured as follows:
- section B provides a brief description of the risk management system;
- section C presents the solvency position of the Group and the key elements of the Group’s Capital Management;
- section D provides an overview of the Group’s risk profile and main sensitivities to risk drivers.
More details on the solvency position and risk profile are then provided in the Solvency and Financial Condition Report, available on Generali Group website.
Finally, Group rating assessment by external rating agencies is provided on the Group website in the section www. generali.com/investors/debt-ratings/ratings.
1 On the basis of IVASS Provvedimento n. 53, 2016, the SCR and MCR calculations to be disclosed in the Annual Report can rely on a preliminary estimate. More details on the Solvency Ratio will be disclosed in the Solvency and Financial Condition Report.
2 Generali Group is not included in the list of Global Systemically Important Insurers (GSIIs), issued by FSB.