Risk Profile

Life Underwriting Risk

Life and health underwriting risks derive from the Group’s core insurance business in the life and health segment. The major part of the business and the related risks derive from direct portfolio underwritten by the Group. Health business represents a minor component of the portfolio.

Details on insurance and investment contracts in the Notes to the Consolidated Financial Statements for Group’s life underwriting business key figures

The life portfolio is given by traditional business, which mainly includes insurance with profit participation, and unit-linked products. The prevailing component of traditional savings business includes products with insurance coverages linked to the policyholders’ life and health. It also includes pure risk covers, with related mortality risk, and some annuity portfolios, with the presence of longevity risk. The vast majority of the insurance coverages include legal or contractual policyholder rights to fully or partly terminate, surrender, decrease, restrict or suspend insurance cover or permit the insurance policy to lapse, or to fully or partially establish, renew, increase, extend or resume the insurance or reinsurance cover. For this reason, the products are subject to lapse risk.

Life underwriting risks can be distinguished in biometric and operating risks embedded in the life and health insurance policies. Biometric risks derive from the uncertainty in the assumptions regarding mortality, longevity, health, morbidity and disability rates taken into account in the insurance liability valuations. Operating risks derive from the uncertainty regarding the amount of expenses and the adverse exercise of contractual options by policyholders. Policy lapse is the main contractual option held by the policyholders, together with the possibility to reduce, suspend or partially surrender the insurance coverage.

Life and health underwriting risks are:

• mortality risk, defined as the risk of loss, or of adverse change in the value of insurance liabilities, resulting from changes in mortality rates, where an increase in mortality rates leads to an increase in the value of insurance liabilities. Mortality risk also includes mortality catastrophe risk, resulting from the significant uncertainty of pricing and provisioning assumptions related to extreme or irregular events; 
• longevity risk that, similarly to mortality, is defined as the risk resulting from changes in mortality rates, where a decrease in mortality rates leads to an increase in the value of insurance liabilities; 
• disability and morbidity risks derive from changes in the disability, sickness, morbidity and recovery rates; 
• lapse risk is linked to the loss or adverse change in liabilities due to a change in the expected exercise rates of policyholder options. The relevant options are all legal or contractual policyholder rights to fully or partly terminate, surrender, decrease, restrict or suspend insurance cover or permit the insurance policy to lapse. Mass lapse events are also considered; 
• expense risk results from changes in the expenses incurred in servicing insurance or reinsurance contracts; 
• health risk results from changes in health claims and also includes catastrophe risk (for PIM entities).

In addition to the risks above, the Group Risk Map includes also the going concern reserve risk, a German business specific risk that refers to mis-estimation of new business assumptions.

The approach underlying the life underwriting risk measurement is based on the calculation of the loss resulting from unexpected changes in biometric and/or operating assumptions. Capital requirements for life underwriting risks are calculated on the basis of the difference between the insurance liabilities before and after the application of the stress.

Life underwriting risks are measured by means of the Group PIM¹³.

The SCR for life underwriting risk amounts to € 3,437 million before diversification (equal to 11% of total SCR before diversification). This is mainly given by expense¹⁴ risk, followed by lapse and longevity risks. In terms of contribution to the risk profile, it is to be noted that life underwriting risks are well diversified with other risk categories. The overall contribution to the risk profile therefore remains limited.

Life underwriting risk management is based on two main processes:

• accurate pricing; 
• ex-ante selection of risks through underwriting.

Product pricing consists in setting product features and assumptions regarding biometric, policyholders’ behaviour, financial and expenses assumptions to allow the Group Legal Entities to withstand any adverse development in the realization of these assumptions.

For savings business, this is mainly achieved through profit testing, while for protection business with a biometric component, it is achieved by setting prudent assumptions.

Lapse risk, related to voluntary withdrawal from the contract, and expense risk, related to the uncertainty around the expenses that the Group expects to incur in the future, are evaluated in a prudential manner in the pricing of new products. This evaluation is taken into account in the construction and profit testing of a new tariff, considering the underlying assumptions derived from the Group’s experience.

For insurance portfolios with a biometric risk component, comprehensive reviews of the mortality experience are compared with expected mortality of the portfolio, determined according to the most up-to-date mortality tables available in each market. To this end, mortality by sex, age, policy year, sum assured and other underwriting criteria are taken into consideration to ensure mortality assumptions remain adequate and avoid the risk of misestimating for the next underwriting years.

The same annual assessment of the adequacy of the mortality tables used in the pricing is performed for longevity risk. In this case, not only biometric risks are considered but also the financial risks related to the minimum interest rate guarantee and any potential mismatch between the liabilities and the corresponding assets.

As part of the underwriting process, Generali Group adopts underwriting guidelines. Risk Management Function reviews implications of new lines of business/ products on the Group risk profile.

Moreover, a particular emphasis is placed on the underwriting of new contracts with reference to medical, financial and moral hazard risks. The Group has defined clear underwriting standards through manuals, forms, medical and financial underwriting requirements. For insurance riders, which are most exposed to moral hazard, maximum insurability levels are also set, lower than those applied for death covers. In order to mitigate these risks, policy exclusions are also defined.

Regular risk exposure monitoring and adherence to the operative limits, reporting and escalation processes are also in place, allowing for potential remediation actions to be undertaken.

Finally, reinsurance represents the main risk mitigating technique. The Parent Company acts as core reinsurer for the Group Legal Entities and cedes part of the business to external reinsurers.

The definition of a reinsurance arrangement is based on the process managed by Reinsurance Function in constant interaction with Risk Management and Actuarial Functions.

Non-Life Underwriting Risk

Non-life underwriting risks arise from the Group’s insurance business in the P&C segment.

Property&Casualty segment in the Management Report for volumes of premiums and related geographic breakdown

Details on insurance and investment contracts in the Notes to the Consolidate Financial Statements for technical provisions

Non-life underwriting risks include the risk of underestimating the frequency and/or severity of the claims in defining pricing and reserves (respectively pricing risk and reserving risk), the risk of losses arising from extreme or exceptional events (catastrophe risk) and the risk of policyholder lapses from P&C insurance contracts. In particular:

• pricing and catastrophe risks derive from the possibility that premiums are not sufficient to cover future claims, also in connection with extremely volatile events and contract expenses; 
• reserving risk relates to the uncertainty of the claims reserves (in a one-year time horizon); 
• lapse risk arises from the uncertainty of the underwriting profits recognised in the premium provisions.

Non-life underwriting risks are measured by means of the Group PIM¹⁵. For the majority of risks assessed through the PIM, the assessments are based on in-house developed models and external models that are primarily used to assess the catastrophic events, for which broad market experience is considered beneficial.

The SCR for non-life underwriting risk amounts to € 4,071 million before diversification (equal to 13% of total SCR before diversification). This is mainly given by reserve and pricing risks, followed by CAT risk. Non-life lapse risk contributes only for a marginal amount to the risk profile.

Moreover, the Group uses additional indicators for risk concentrations. This is specifically the case for catastrophe risks and commercial risks, which are both coordinated at central level as they generally represent a key source of concentration.

In terms of CAT risk, the Group’s largest exposures are earthquakes in Italy, European floods and European windstorms. Less material catastrophe risks are also taken into account and assessed by means of additional scenario analysis.

At the same time, there is a constant on-going improvement to consider risk metrics within profitability metrics and to use risk adjusted KPIs in decision making processes.

Based on the Group RAF, P&C risk selection starts with an overall proposal in terms of underwriting strategy and corresponding business selection criteria. During the strategic planning process, targets are established and translated into underwriting limits to ensure business is underwritten according to the Plan. Underwriting limits define the maximum size of risks and classes of business that Group Legal Entities shall be allowed to write without seeking any additional or prior approval. The limits may be set based on value, risk type, product exposure or class of occupancy. The purpose of these limits is to attain a coherent and profitable book of business founded on the expertise of each Legal Entity.

Additional indicators such as relevant exposures, risk concentration and risk capital figures are used for the purpose of P&C underwriting risk monitoring. The indicators are calculated on a quarterly basis to ensure alignment with the Group RAF.

Reinsurance is the key mitigating technique for balancing the P&C portfolio. It aims to optimize the use of risk capital by ceding part of the underwriting risk to selected counterparties, whilst simultaneously minimizing the credit risk associated with such operations.

The P&C Group Reinsurance Strategy is developed consistently with the risk appetite and the risk preferences defined in the Group RAF on the one side and taking into account the reinsurance market on the other one.

The Group has historically preferred traditional reinsurance as a tool for mitigating catastrophe risk resulting from its P&C portfolio, adopting a centralized approach where the placement of reinsurance towards the market is managed through a central Group Reinsurance Function.

Generali aims at diversifying its cessions to reinsurers to avoid excessive concentrations, to optimize its reinsurance purchases, including from a pricing perspective, and to continuously develop know-how in the most innovative risk transfer techniques. For this reason, part of the Italian earthquake, European windstorm and European flood exposures were carved out from the traditional catastrophe reinsurance program and placed in the Insurance Linked Securities (ILS) market. This innovative issuance was completed successfully and at competitive terms.

Alternative risk transfer solutions are continuously analysed and implemented. As an example, in addition to traditional reinsurance, a protection is in place to reduce the impact of an unexpectedly high Loss Ratio for the Group Motor liability portfolio. Such transfer represents a partial transfer of pricing risk to the special purpose vehicle named Horse.

Financial Risk and Credit Risk

The Group invests collected premiums in a wide variety of financial assets, with the purpose of honouring future obligations to policyholders and generating value for its shareholders.

As a result, the Group is exposed to the financial risks driven by either:

• invested assets not performing as expected because of falling or volatile market prices; 
• reinvested proceeds of existing assets being exposed to unfavourable market conditions, such as lower interest rates.

Generali Group traditional life savings business is longterm in nature; therefore, the Group holds mostly longterm investments which have the ability to withstand short-term decreases and fluctuations in the market value of assets.

Nonetheless, the Group manages its investments in a prudent way according to the so-called “Prudent Person Principle”¹⁶, and strives to optimize the return of its assets while minimizing the negative impact of short-term market fluctuations on its solvency position.

Under Solvency II, the Group is also required to hold a capital buffer, with the purpose of maintaining a sound solvency position even in the circumstances of adverse market movements.

To ensure a comprehensive management of the impact of financial and credit risks on assets and liabilities, the Group Strategic Asset Allocation (SAA) process needs to be liability-driven and strongly interdependent with insurance- specific targets and constraints. For this reason, the Group has integrated the Strategic Asset Allocation (SAA) and the Asset Liability Management (ALM) within the same process.

The aim of the SAA&ALM process is to define the most efficient combination of asset classes which, according to the Prudent Person Principle, maximizes the investment contribution to value creation, taking into account solvency, actuarial and accounting indicators. The aim is not just to mitigate risks but also to define an optimal risk-return profile that satisfies both the return target and the risk appetite of the Group over the business planning period.

The assets’ selection is performed by taking into consideration the risk profile of the liabilities held in order to satisfy the need to have appropriate and sufficient assets to cover the liabilities. This selection process aims to guarantee the security, quality, profitability and liquidity of the overall portfolio, providing an adequate diversification of the investments.

The asset portfolio is then invested and rebalanced according to the asset class and duration weights. The main risk mitigation techniques used by the Group are liability- driven management of the assets and regular use of rebalancing.

The liability driven investment helps granting a comprehensive management of assets whilst taking into account the liability structure; while, at the same time, the regular rebalancing redefines target weights for the different asset classes and durations, alongside the related tolerance ranges defined as investment limits. This technique contributes to an appropriate mitigation of financial risks.

ALM&SAA activities aim at ensuring the Group holds sufficient and adequate assets to reach defined targets and meet liability obligations. For this purpose, analyses of the asset-liability relationship under a range of market scenarios and expected/stressed investment conditions are undertaken.

The Group works to ensure a close interaction between the Investment, Finance (incl. Treasury), Actuarial and Risk Management Functions to secure that the ALM&SAA process remains consistent with the Group Risk Appetite Framework (RAF), the strategic planning and the capital allocation mechanisms. The annual SAA proposal:

• defines target exposure and limits for each relevant asset class, in terms of minimum and maximum exposure allowed; 
• embeds the asset and liabilities duration mismatches permitted and potential mitigation actions that can be enabled on the investment side.

Regarding specific asset classes such as (i) private equity, (ii) alternative fixed income, (iii) hedge funds, (iv) derivatives and structured products, the Group has mainly centralized their management and monitoring. These kinds of investments are subject to accurate due diligence in order to assess their quality, the level of risk related to the investment and its consistency with the approved liability- driven SAA.

The Group also uses derivatives with the aim of mitigating the risk present in the asset and/or liability portfolios. The derivatives help the Group to improve the quality, liquidity and profitability of the portfolio, according to the business planning targets. Operations in derivatives are likewise subject to a regular monitoring and reporting process.

In addition to the risk tolerance limits set on the Group solvency position within the Group RAF, the current Group risk monitoring process is also integrated by the application of the Group Investments Risk Guidelines (GIRG). The GIRG include general principles, quantitative risk limits (with a strong focus on credit and market concentration), authorization processes and prohibitions that Group entities need to comply with.

Financial Risk

Within the life business, the Group assumes a considerable financial risk when it guarantees policyholders with a minimum return on the accumulated capital over a, potentially, long period. Should the yields generated by the financial investments be lower than the guaranteed return, then the Group shall compensate the shortfall for those contractual guarantees. In addition, independently on the achieved asset returns, the Group has to secure that the value of the financial investments backing the insurance contracts remains sufficient to meet the value of its obligations.

Unit-linked business typically does not represent a source of direct financial risk for insurers (except when there are guarantees embedded in the contracts), although market fluctuations typically have profitability implications.

Regarding P&C business, the Group has to ensure that the benefits can be paid on a timely basis when claims occur.

In more detail, the Group is exposed to the following generic financial risk types:

• equity risk deriving from the risk of adverse changes in the market value of the assets or in the value of liabilities due to changes in the level of equity market prices which can lead to financial losses; 
• equity volatility risk deriving from changes in the volatility of equity markets. Exposure to equity volatility is typically related to equity option contracts or to insurance products sold with embedded guarantees whose market consistent value is sensitive to the level of equity volatility; 
• interest rate risk, defined as the risk of adverse changes in the market value of the assets or in the value of liabilities due to changes in the level of interest rates in the market. The Group is mostly exposed to downward changes in interest rates as lower interest rates increase the present value of the promises made to policyholders more than the value of the assets backing those promises. As a result, it may become increasingly costly for the Group to maintain its promises, thereby leading to financial losses. Linked to that, interest rate volatility risk derives from changes in the level of interest rate implied volatilities. This comes, for example, from insurance products sold with embedded minimum interest rate guarantees whose market consistent value is sensitive to the level of interest rates volatility; 
• property risk deriving from changes in the level of property market prices. Exposure to property risk arises from property asset positions; 
• currency risk deriving from adverse changes in exchange rates; 
• concentration risk deriving from asset portfolio concentration to a small number of counterparties.

Investments in the Notes to the Consolidated Financial Statements for further details on the Group’s key figures and financial assets

Financial risks are measured by means of the Group PIM¹⁷. In particular, losses are modelled as follows:

• equity risk is modelled by associating each equity exposure to a market index representative of its industrial sector and/or geography. Potential changes in market value of the equities are then estimated based on past shocks observed for the selected indices; 
• equity volatility risk models the impact that changes in the equity implied volatility can have on the market values of derivatives; 
• interest rate risk models the changes in the term structure of the interest rates for various currencies and the impact of these changes on any interest rate sensitive asset and also on the value of future liability cash-flows alike; 
• interest rate volatility risk models the impact that the variability in interest rate curves can have on both the market value of derivatives and the value of liabilities sensitive to interest rate volatility assumptions (such as minimum pension guarantees); 
• property risk models the returns on a selection of published property investment indices and the associated impact on the value of the Group’s property assets. These are mapped to various indices based on property location and type of use; 
• for currency risk, the plausible movements in exchange rate of the reporting currency of the Group in respect to foreign currencies are modelled, as well as the consequent impact on the value of asset holdings not denominated in the domestic currency; 
• for concentration risk the extent of additional risk borne by the Group due to insufficient diversification in its equity, property and bond portfolios is assessed.

The SCR for financial risk amounts to € 13,437 million before diversification (equal to 42% of total SCR before diversification). This is mainly driven by equity risk, followed by interest rate, property and currency risk.

Credit Risk

The Group is exposed to credit risks related to invested assets and those arising from other counterparties (e.g. cash, reinsurance).

Credit risks include the following two categories:

• spread widening risk, defined as the risk of adverse changes in the market value of debt security assets. Spread widening can be linked either to the market’s assessment of the creditworthiness of the specific obligor (often implying also a decrease in rating) or to a market-wide systemic reduction in the price of credit assets; 
• default risk, defined as the risk of incurring in losses because of the inability of a counterparty to honour its financial obligations.

Investments in the Notes to the Consolidated Financial Statements for the overall volume of assets subject to credit risk

Credit risks are measured by means of the Group PIM¹⁸. In particular:

• credit spread risk models the possible movement of the credit spread levels for bond exposures of different rating, industrial sector and geography based on the historical analysis of a set of representative bond indices. Spread-sensitive assets held by the Group are associated with specific indices based on the characteristics of their issuer and currency; 
• default risk models the impact of default of bond issuers or counterparties to derivatives, reinsurance and other transactions on the value of the Group’s assets. Distinct modelling approaches have been implemented to model default risk for the bond portfolio (i.e. credit default risk) and the risk arising from the default of counterparties in cash deposits, risk mitigation contracts (such as reinsurance), and other types of exposures (i.e. counterparty default risk).

The Group PIM’s credit risk model evaluates spread risk and default risk also for sovereign bond exposures. This approach is more prudent than the standard formula, which treats bonds issued by EU Central Governments and denominated in domestic currency as exempt from credit risk.

The SCR for credit risk amounts to € 8,342 million before diversification (equal to 26% of total SCR before diversification). Credit risk is mostly driven by spread risk on fixed income securities, while the contribution to SCR of the counterparty risk (including reinsurance default) remains more limited.

The credit risk assessment is based on the credit rating assigned to counterparties and financial instruments. To limit the reliance on external rating assessments provided by rating agencies, an internal credit rating assignment framework has been set within the Risk Management Group Policy.

Within this framework additional rating assessments can be performed at counterparty and/or financial instrument level and ratings need to be renewed at least annually. This process applies even where an external rating is available. Moreover, additional assessments shall be performed each time the parties involved in the process possess any information, coming from reliable sources, that may affect the creditworthiness of the issuer/issues.

The most important strategy for the mitigation of credit risk used by the Group is the application of a liability- driven SAA, which can limit the impact of the market spread volatility. In addition, the Group is actively mitigating counterparty default risk by using a collateralisation strategy that strongly alleviates the losses that the Group might suffer as a result of the default of one or more of its counterparties.

Operational Risk

Operational risk is the risk of loss arising from inadequate or failed internal processes, personnel or systems, or from external events. The definition includes the compliance risk and financial reporting risk and excludes the strategic and reputational risks.

Although ultimate responsibility for managing the risk sits in the first line, the so-called risk owners, the Risk Management Function with its methodologies and processes ensures an early identification of the most severe threats across the Group. In doing so, it provides management at all levels with a holistic view of the broad operational risk spectrum that is essential for prioritizing actions and allocating resources in most risk related critical areas.
The target is achieved by adopting methodologies and tools in line with industry best practices and by establishing a strong dialogue with the first line of defence.

Furthermore, since 2015, the Group has been exchanging operational risk data, properly anonymized, through the “Operational Risk data eXchange Association (ORX)”, a global association of operational risk practitioners where main industry players also participate. The aim is to use the data to improve the risk management and to anticipate emerging trends. In addition, since losses are collected by the first line, the process contributes to create awareness among the risk owners upon risks that actually impact the Group. In this sense, a primary role is played by Group-wide forward-looking assessments that aim to estimate the evolution of the operational risk exposure in a given time horizon, supporting in the anticipation of potential threats, in the efficient allocation of resources and related initiatives.

Based on the last assessments, the most relevant scenarios at Group level are related to cyber-attacks and non-compliance risks, with respect to sectorial regulatory developments.

To further strengthen the risk management system and in addition to the usual risk owners’ responsibilities, the Group established specialised units within the first line of defence with the scope of dealing with specific threats (e.g. cyber risk, fraud, financial reporting risk) and that act as a key partner for the Risk Management Function.

Another benefit from this cooperation is constituted by a series of risk management measures triggered across the Group as a result of control testing, assessments and the collection of operational risk events.

An example is the creation of a dedicated unit for the management and coordination of the Group-wide IT Security that steers the evolution of the IT security strategy and operating model, ensuring a timely detection and fixing of the vulnerabilities that may affect the business. This initiative helps the Group to better cope with the growing threat represented by cyber risk.

The SCR for operational risk amounts to € 2,216 million before diversification (equal to 7% of total SCR before diversification). The SCR for operational risk is calculated based on standard formula.

Other Material Risks

Liquidity Risk

Liquidity risk is defined as the uncertainty, emanating from business operations, investment or financing activities, over the ability of the Group and its Legal Entities to meet payment obligations in a full and timely manner, in a current or stressed environment.

The Group is exposed to liquidity risk from its insurance operating activity, due to the potential mismatches between the cash inflows and the cash outflows deriving from the business.

Liquidity risk can also stem from investing activity, due to potential liquidity gaps deriving from the management of the asset portfolio as well as from a potentially insufficient level of liquidity in case of disposals (e.g. capacity to sell adequate amounts at a fair price and within a reasonable timeframe).

Liquidity risk from financing activity is related to the potential difficulties in accessing the primary market of debt or in paying excessive financing costs.

The Group can be also exposed to liquidity outflows related to issued guarantees, commitments, derivative contract margin calls or regulatory constraints.

The Group liquidity risk management framework relies on projecting cash obligations and available cash resources over defined time horizons, to monitor that available liquid resources are at all times sufficient to cover cash obligations that will become due in the same horizons.

A set of liquidity risk metrics (liquidity indicators) has been defined to monitor the liquidity situation of each Group insurance Legal Entity on a regular basis. All such metrics are forward-looking, i.e. they are calculated at a future date based on projections of cash flows, assets and liabilities and an assessment of the level of liquidity of the asset portfolio.

The metrics are calculated under both the so-called “base scenario”, in which the values of cash flows, assets and liabilities correspond to those projected according to each Legal Entity’s Strategic Plan scenario, and a set of so-called “stress scenarios”, in which the projected cash inflows and outflows, the market price of assets and the amount of technical provisions are calculated to take into account unlikely but plausible circumstances that would adversely impact the liquidity of each Legal Entity.

Liquidity risk limits have been defined in terms of value of the above-mentioned liquidity indicators. The limit framework is designed to ensure that each Group Legal Entity holds a “buffer” of liquidity in excess of the amount required to withstand the adverse circumstances described in the stress scenarios.

Generali has defined a set of metrics to measure liquidity risk at Group level, based on the liquidity metrics calculated at Legal Entity level. The Group manages expected cash inflows and outflows in order to maintain a sufficient available level of liquid resources to meet its medium-term needs. The Group metrics are forward-looking and are calculated under both the base and stress scenarios.

The Group has established clear governance for liquidity risk measurement, management, mitigation and reporting, including specific limit setting and the escalation process in case of limit breaches or other liquidity issues.

The annual assessment shows a solid liquidity profile for Generali Group, without substantial changes compared to the previous year.
The principles for liquidity risk management designed at Group level are fully embedded in strategic and business processes, including investments and product development.

Since Generali Group explicitly identifies liquidity risk as one of the main risks connected with investments, indicators as cash flow duration mismatch are embedded in the Strategic Asset Allocation process. Investment limits are set to ensure that the share of illiquid assets remains within the level that does not impair the Group’s asset liquidity.

The Group has defined in its Life and P&C Underwriting Policies the principles to be applied to mitigate the impact on liquidity from surrenders in life business and claims in non-life business.

Reputational and Emerging Risk

Although not included in the calculation of SCR, the following risks are also assessed:

• reputational risk referring to potential losses arising from deterioration or a negative perception of the Group among its customers and other stakeholders; 
• emerging risks arising from new trends or evolving risks which are difficult to perceive and quantify, although typically systemic. These typically refer to technological changes (such as big data), environmental trends (with a major focus on climate change) and geopolitical developments. For the assessment of these risks and to raise the awareness on the implications of the emerging trends, Risk Management Function engages with a dedicated network, including specialists from business functions (e.g. Insurance, Investment, Finance, Marketing and Sustainability and Social Responsibility, given the relevant interrelation with ESG¹⁹ factors). The Group also participates to the Emerging Risk Initiative (ERI), a dedicated working group of the CRO Forum. Within ERI emerging risks common to the insurance industry are discussed and specific studies are conducted.

Sensitivity Analysis

In addition to the calculation of the Solvency Capital Requirement, the Group regularly performs sensitivity analyses of the variability of its Solvency Ratio to changes in specific risk factors. The aim of these analyses is to assess the resilience of Generali Group capital position to the main risk drivers and evaluate the impact of a wide range of shocks.

For this purpose, several sensitivity analyses have been performed as at 31 December 2018, in particular:

• increase and decrease of interest rates by 50bps; 
• increase of Italian government bonds spread (Buoni del Tesoro Poliennali - BTP) by 100bps; 
• increase of corporate bonds spread by 50bps; 
• increase and decrease of equity values by 25%.

The changes in terms of percentage points in respect to baseline scenario as at 31 December 2018 (Solvency Ratio equal to 216%) are the following:

Sensitivity Analysis

During 2019, following EIOPA’s review of the Solvency II risk free rates term structure, the UFR (Ultimate Forward Rate) will be further modified (for Euro, the UFR will be decreased by 15bps): the anticipated impact of such change as at 31 December 2018 Solvency Ratio amounts to -1 p.p..

 

¹³ For the scope of the Group PIM please refer to section A. Executive Summary. Entities not included in the Group PIM scope calculate the capital requirement based on standard formula.
¹⁴ Including also the Going Concern reserve.
¹⁵ For the scope of the Group PIM please refer to section A. Executive Summary. Entities not included in the Group PIM scope calculate the capital requirement based on standard formula.
¹⁶ The “Prudent Person Principle” set out in Article 132 of Directive 2009/138/EC requires the company to only invest in assets and instruments whose risks can be identified, measured, monitored, controlled and reported as well as taken into account in the company overall solvency needs. The adoption of this principle is ruled in the Group Investment Governance Policy (GIGP).
¹⁷ For the scope of the Group PIM please refer to section A. Executive Summary. Entities not included in the Group PIM scope calculate the capital requirement based on standard formula.
¹⁸ For the scope of the Group PIM please refer to section A. Executive Summary. Entities not included in the Group PIM scope calculate the capital requirement based on standard formula.
¹⁹ ESG stands for Environmental, Social and Governance.