We are an international player of the insurance sector and the centre of interest and expectations for a large number of stakeholders. The factors of the context in which we operate represent challenges and opportunities that we continuously assess in order to guarantee adequate monitoring of the risks that can arise from them. We manage our business in an integrated manner, taking it into account in our strategy and pursuing the value creation over time.
Uncertain financial and macro-economic landscape
In 2018, global GDP is expected to increase to 3.6%. The global macro-economic and political landscape was affected by topics that aroused significant concern also on the markets during the year, such as the budget law in Italy, the escalation of trade friction (especially between the USA and China), the worsening of the crisis in the more fragile emerging markets and the protests of the Yellow Vests in France.
Growth of real GDP of the Eurozone in 2018 is forecast to be 1.9%, down compared to 2017 (2.5%). The unemployment rate dropped to the minimum low of the last decade, with an acceleration of wages in spite of the inflation rate being low. The European Central Bank (ECB) ended the quantitative easing during the year, but will continue to reinvest bonds on maturity; the ECB’s first increase in rates will be subordinate to the changes in inflation. The major important topics for the financial markets during 2018 within the Eurozone were Brexit and developments on the Italian political scene. As regards concern for the latter, the rating agencies Fitch and Moody’s lowered their creditworthiness opinion while alarm on Italy’s public finance pushed the tenyear BTP-Bund spread up, and it closed 2018 at 253 bps.
In the USA, the tax reform kept up the confidence level; growth of real GDP in 2018 should settle at 2.9%, up by 2.2% over 2017, while the unemployment rate fell to the lowest level of the last 50 years. The Federal Reserve raised the reference rates four times during 2018, and additional increases are forecast for 2019 as well.
With reference to the insurance sector, the Life business in Italy, France and Germany registered an upswing following a difficult period, thanks not only to the sale of unit-linked products, but also to recovery in traditional policies that increased to rates higher than those of the unit-linked ones. Income in the P&C market in the major Eurozone countries improved, with particularly good performance recorded in the health business.
and our management
Market expectations, the Group’s profitability targets and the expectations of policyholders’ returns are the main factors influencing the formulation of the investment allocation strategy, in line with the Solvency II principles. The regulatory system and the continued low interest in a global context of growing uncertainty render it essential to manage assets in a rigorous and careful manner that is consistent with liabilities. Geographical diversification and selective focus on alternative investments (private equity and private debt) and real assets (real estate assets and/or infrastructural assets, both direct and indirect) are important factors in current investment activities which aim to contain portfolio risks and sustain current profitability. The creation of a multi-boutique insurance asset manager platform is part of the strategy to enhance the investment capacity in these market sectors.
We are exposed to the market risks arising from the value fluctuations of the investments and to the credit risks linked to the risk of counterparties’ non-fulfilment as well as to expansion of the credit spread. We are handling these risks by following principles of sound and prudent management, in line with the Prudent Person Principle and with the Group Investment Governance Policy and risk guidelines. We measure financial and credit risks using the Group’s internal model, which offers us a better representation of our risk profile.
The insurance sector continues to be affected by continuous changes in the national and international regulatory system.
IVASS Regulation, no. 38 was issued in 2018, and it entails an in-depth revision of the Group’s corporate system and a few important corporate processes.
The IDD, the insurance intermediation directive, was also applied in 2018.
Other important Regulation proposals completing the regulatory framework introduced by the General Personal Data Protection Regulation (GDPR) are presently being discussed. They touch on themes such as the protection of electronic communications (ePrivacy) and the free circulation of non-personal data.
In a perspective of growth and creation of a true single European market, discussions focused on defining rules governing the PEPPs, the European voluntary pension products that will join the already existing national pension instruments, continue. The European Commission also launched several packages of measures:
the sustainable finance action plan (including the obligation for asset managers to take into account sustainability factors in the investment processes),
the one on opportunities that technological innovation in the financial services (Fintech) offers and lastly, a number of measures aimed at bolstering consumer protection (New Deal for Consumers).
The revision of the Solvency II Directive and the Key Information Document (KID) for the PRIIPS, the insurance investment products, is currently in progress.
At the global level, the Common Framework (ComFrame) works launched by the International Association of Insurance Supervisors (IAIS) in order to develop standard capital requirements for insurance groups operating globally are continuing.
Lastly, as regards the new international accounting standards, the International Accounting Standards Board (IASB) has decided to postpone the entry into force of the new accounting standard IFRS 17 (insurance contracts) by one year, from 2021 to 2022, and to postpone also exemption from applying the standard IFRS 9 (financial instruments) for insurance companies until 2022.
and our management
We run our business in compliance with the law, internal regulations and codes and professional ethics, and we closely monitor the evolution of the regulatory environment, dialoguing with legislators and institutions. We regularly evaluate our exposure to the risk of noncompliance and assume prompt measures to adequately manage it.
We are implementing the requirements set out in the new IVASS Regulation, no. 38, on the subject of corporate governance, and we have adapted our business model to the IDD and GDPR rules.
We are closing following developments in the proposals put forward by the various institutions in order to assess their possible risks and impacts, and also the opening of new business scenarios and opportunities.
After having implemented the Solvency II requirements and those concerning transparency of investment products, we are closely monitoring the revision of these two important regulations for the sector.
We are engaged in the various tests carried out by the International Association of Insurance Supervisors (IAIS) to determine the final architecture and calibrations of the supervisory requirement.
We are also following the developments of the new international accounting standards entailing sizeable operational impacts for the companies. As regards these topics, we have developed an integrated Group programme called Finance NEXT (Navigate to Excellence Transformation) with the goal of optimally coordinating the plans to implement the new IFRS accounting standards (specifically, IFRS 9 on investments and IFRS 17 on insurance contracts) and of speeding up the reporting processes in line with the new regulatory deadlines. This will allow the Group to manage the new regulatory obligations that will have a very sizeable impact over the years to come in an integrated manner.
We are facing a profound change caused by the interaction and the cumulative effects of various developments in technology: Internet of Things, cloud services, cognitive computing, advanced analytics, Robotic Process Automation (RPA), artificial intelligence and the development of mobile networks are elements that contribute to creating a renewed environment in which to operate in order to optimise efficiency, operations and proximity with our customers. The spread of public and context data, the progressive digitalisation of customers, the growing appetite for personalised products, the computing power available at low prices that doubles one year after the next allow insurance companies to transform their way of doing business and to step into the so-called world of ecosystems, where the borderlines between businesses at one time different and distinct are becoming fainter and fainter in order to offer customers a service in addition to a product.
Technological evolution also involves exponential growth in cyber threats, such as attacks aimed at stealing information or blocking operational processes. Adequate management of this risk is therefore fundamental in order to limit potential effects of economic and operational nature but also to preserve, in particular, the confidence of customers in the processing of their data which are frequently sensitive. The issue is also increasingly relevant for regulators which have introduced specific safety measures as well as reporting processes in the case of violation of the personal data (General Personal Data Protection Regulation).
and our management
Data analysis is increasingly part of the DNA of the Group’s production processes, from the systems for improving fraud identification to personalisation of the offer, from the automation of processes to anticipating customers’ needs.
The formulations and analyses necessary for this new era of customer relations are carried out - while guaranteeing anonymity - both by the single business units on their own and with the Group’s support through an analytical platform. Consolidated in 2018, the platform now lets us leverage synergies coming from the RPA and the cognitive technologies, thus allowing increasingly complex processes to be automated which increases quality and efficiency. Nevertheless, in the perspective of ongoing improvement we are continuing to scout platforms both based on traditional integration technologies (API) and the Blockchain/Distributed Ledger type that lead the way to new digital ecosystems.
We are in step with the new technologies and are protecting ourselves from the new threats. We are continuing to enhance our ability to prevent, detect and respond to potential cyber attacks while implementing the most innovative security solutions and constantly improving our response processes. More specifically, we have set up a Security Operation Center (SOC) to monitor all events recorded by our security solutions 24/7, detect potential incidents and step in with containment and restoration actions. SOC’s performance are monitored in a structured manner through specific indicators, that are not reported due to security reasons. In agreement with the operational risk management model, we have introduced an intervention assessment and prioritisation framework supported by an IT tool available to our countries. The Group governance model has also been reinforced by defining a regulatory corpus concerning the security of the information, in line with the major reference standards (NIST, ISO 27001, etc.) and with the sector’s best practices. Lastly, we are busy consolidating the security ethos in the Group via many communication and training initiatives, such as the publication of practical advice for managing information security during one’s work activity.
We are measuring operational risk following the regulatory standards and with qualitative and quantitative models that allow us to grasp our most important exposures and to define the adequacy of the existing controls.
New customer needs
In this currently uncertain economic environment, consumer attitudes to insurance products and services are changing in light of two global trends: digitalization, which has introduced new selling options and more diverse insurance product management, and economic uncertainty, which has changed spending on savings and other insurance products.
Customers currently place greater focus on service quality: they have a more independent approach to the decision-making process, which includes visiting the websites of insurance companies, reading customer reviews on social media and checking comparison websites. However, the role of the agent is still crucial in the purchase of an insurance product.
and our management
Our ambition is to be a life-time partner to our customers by combining simplicity and innovation with empathy and care along the entire customer journey, at all touchpoints and channels. We strive to be proactive and focused on customer relationships and integrate protection, prevention and assistance, creating tailor-made products and services that meet our clients’ needs.
We will therefore focus on 5 transformation actions:
- we will digitally enable our advisory distribution network: through the Agent Hub, we will provide distributors with adequate digital tools, training and the mindset to become true life-time partners, and we will provide our agents with a commercial dashboard that will include:
- 360° view of the customer, including all of their products and the past interactions;
- needs-based assessment tools to advice clients based on their stage of life;
- the possibility to personally involve the customer through the digital and social channels;
- campaign management tools that allow Generali to manage new solution launches;
- we will offer the best in class proposition and service innovations with the benefit of digital and data analytics;
- we will seamlessly connect Generali, our agents and customers together on mobile and web (Mobile and Web Hub);
- we will continue to listen to our customers and to act based on their feedback in order to improve the service offered across all touchpoints;
Customer T-NPS rolled-out
in 58 business unit
Distribution NPS rolled-out
in 35 business unit
- we will strengthen our brand19 to become 1st choice in the Relationship Net Promoter Score among our European international peers by 2021.
16 The number of customers refers to all entities with core insurance business, banks and pension funds (line-by-line consolidated entities, few insurance entities in Asia measured with the equity method where Generali has relevant shareholdings and specific Europ Assistance entities with relevant direct BTC business in Belgium, Italy, France, Spain and USA).
17 The number of distributors refers to all entities with core insurance business with relevant traditional distribution networks (line by line consolidated entities and few insurance entities in Asia measured with the equity method where Generali has relevant shareholdings).
18 The methodology to calculate the KPI has been improved including country split for the following business units: Generali Corporate & Commercial and Europ Assistance.
19 Scope: Generali in Europa, Asia, Argentina and Turkey.
Agent Hub is an initiative focused on supporting the digitalisation of our distribution network, strengthening the advisory activity addressed to the customer and digital interaction with the customers.
Mobile & Web Hub is an initiative focused on supporting relationships with our customers, on making management of the key insurance operations easier (e.g. claims management) and on making good use of the many platforms. It offers customers a simple and quick consultation of their policies using different devices, it emphasises the centrality of the relationship with the network of agents and exploits the connectivity and geolocation potentials in order to offer personalised services.
Germany, France, Switzerland, Spain, Italy, Austria, Argentina, Turkey, Portugal and India have joined the initiative.
The first markets have launched the My Generali application in the stores and soon also the versions of the remaining countries will be developed and published. The platform, which is continuously evolving with the collaboration provided by the member countries, will also be extended to other business units.
Climate changes, a consequence of the global warming caused by the anthropic emissions of greenhouse gases, will produce direct or indirect effects that will become increasingly evident as time goes by. This will lead to increased risks. On the one hand, it is a question of physical risks that involve not only increased volatility of the weather events, but also ecological consequences, which without adequate countermeasures might become irreversible and have incalculable economic and social effects. The insurance sector as well would be impacted, with increased claims in coverage tied to the phenomena influenced by the climate and, as a result, costs for the related products. On the other hand, there will also be transition risks for coping with the change. They include new financial risks (e.g. creation of stranded assets), lower revenues if leaving the segments tied to fossil fuels were not to be offset by new flows, for example those arriving from the production of sustainable energy or carbon capture and storage. The environmental challenges also pose reputational risks for those players that do not manage them in the best way possible.
and our management
Considering our social role as insurer and institutional investor and the underwriting risks to which we are exposed, climate change is one of the major trends under way for us, and is singled out as one of the emerging risks for the insurance sector. In order to cope with this situation, we constantly monitor the main perils and territories to which the Group is exposed, using actuarial models to estimate the damage that could result from natural phenomena and thereby optimize our underwriting strategy. We also measure the underwriting risks and the risk arising from catastrophes using the Group’s internal model, which allows us to better capture our risk profile.
We also adopt sustainability criteria for selecting our investments and for the underwriting of new insurance policies that are in line with the best and universally recognized standards, even through the use of specific third-party tools while analysing in detail and potentially excluding business opportunities that are not consistent with principles of environmental, social and governance sustainability. We then utilize internal and external monitoring processes of greenhouse gas emissions associated with the activities in our investment portfolios and of the insurance exposure to high carbon intensity sectors.
We have published our climate change strategy that includes concrete actions on our core business and that explains our stance on coal and identifies ‘green’ opportunities in the investment and insurance activities. We also take part in multi-stakeholder initiatives and in technical round table discussions that facilitates the analysis of the climate change’s impact in the insurance sector and that undertake to promote the transition to a low environmental impact society.
Demographic and social change
Modern communities continue to be influenced by distinct demographic and social phenomena with a strong impact on their socio-economic balances.
In Europe, we are witnessing a continual process of population aging, driven by an increase in life expectancy and a decrease in birth rates. The international migration phenomena only partially counter-balance this trend, which is in any case otherwise influenced by sociopolitical initiatives adopted locally. Outside of Europe, we are noticing similar phenomena, though of a lower scope compared to the European situation and in any case significant on a broader time horizon.
In the more mature economies, the younger age groups are affected by a reduced and often discontinuous capacity to generate average income; this is strongly influenced by a flexible but precarious labour market that does not ensure reasonable certainty for financing the public welfare system. The result is increasingly unbalanced communities where higher post-retirement pension and healthcare requirements are no longer properly financed and covered by the public system, in addition, the limited economic and financial resources produced by the younger categories of the population, or from private savings in general, have to be directed and valued more carefully.
In this context of profound changes, the matter of human rights grows in importance, especially in the less mature economies, where labour law is under development.
and our management
We actively engage in creating more stable communities while monitoring and tackling the effects of a changing society. This is why we develop and offer flexible and modular pension and welfare solutions for the coverage of healthcare costs and other potential current and future needs for individuals, families and communities. In particular, we are focusing on the senior customers segment with modular solutions that combine savings, protection and services in a welfare perspective. We also undertake to strengthen dialogue with individuals during their entire period of interaction with our companies through services accessible 24/7.
We provide customers with complete and easily accessible information on products and services while helping them to understand the primary factors that may affect their income capacity and aiding them in accurately assessing their capacity to save as well as identifying their current and future needs. We believe that insurance coverage is the most appropriate tool to forecast and meet potential needs of both younger and older individuals with the required advance notice; we therefore formulate and present offers even in the case of market contexts with little knowledge and low individual propensity for insurance solutions.
Life products, including pension and welfare products, imply Generali’s acceptance of biometric underwriting risks, typically mortality, longevity and health. We therefore need to manage them through the underwriting processes that currently exist, which are based on an updated assessment of the socio-demographic conditions of the population whose purpose is to understand their relative trends. We also have pricing and product approval processes that offer a preliminary analysis of the cases regarding the biometric factors and a structured governance defined in the Life underwriting policy, which is applied at Group level. Lastly, we measure the mortality, longevity and health risks using the Group’s internal risk model. We also commit ourselves to and monitor the respect of human rights thanks to the Group's guidelines and policies, including the Code of Conduct, the Responsible Investment Guideline and the Responsible Underwriting Guideline.