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Generali2015 Life Embedded Value

Supplementary Information

Assicurazioni Generali 2015 Life EV Supplementary Information

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INDEX 1 INTRODUCTION ...................................................................................................................... 2

2 COVERED BUSINESS............................................................................................................. 4

3 RESULTS ................................................................................................................................ 5 3.1 OVERVIEW OF 2015 RESULTS ............................................................................................ 5 3.2 MOVEMENT OF EMBEDDED VALUE ...................................................................................... 6 3.3 VALUE IN-FORCE .............................................................................................................. 9 3.4 RECONCILIATION OF ANAV TO IFRS EQUITY ....................................................................... 10 3.5 NEW BUSINESS ............................................................................................................... 10 3.6 DISTRIBUTABLE PROFITS GENERATION ............................................................................. 12

4 RESULTS BY GEOGRAPHIC AREA ..................................................................................... 13 4.1 OVERVIEW OF RESULTS BY GEOGRAPHIC AREA ................................................................. 13 4.2 ITALY ............................................................................................................................. 14 4.3 FRANCE ......................................................................................................................... 16 4.4 GERMANY ...................................................................................................................... 18 4.5 CENTRAL AND EASTERN EUROPE .................................................................................... 20 4.6 EUROPE MIDDLE EAST AND AFRICA ................................................................................. 22 4.7 LATIN AMERICA AND ASIA ................................................................................................ 24

5 SENSITIVITY ANALYSIS ....................................................................................................... 26

6 ASSUMPTIONS ..................................................................................................................... 28 6.1 ECONOMIC ASSUMPTIONS ................................................................................................ 28 6.2 OPERATING ASSUMPTIONS............................................................................................... 31

ANNEX A: METHODOLOGY ....................................................................................................... 32 A1. ADJUSTED NET ASSET VALUE ................................................................................................ 32 A2. VALUE IN-FORCE .................................................................................................................. 32 A3. NEW BUSINESS VALUE .......................................................................................................... 34

ANNEX B: “REAL-WORLD” PROJECTIONS AND IMPLIED DISCOUNT RATES ..................... 35 B1. “REAL-WORLD” BEST ESTIMATE PROJECTIONS ........................................................................ 35 B2. IMPLIED DISCOUNT RATES ..................................................................................................... 35

ANNEX C: DEFINITIONS ............................................................................................................. 37

INDEPENDENT AUDITOR’S REPORT ........................................................................................ 38

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ASSICURAZIONI GENERALI 2015 LIFE EMBEDDED VALUE

SUPPLEMENTARY INFORMATION

1 Introduction Assicurazioni Generali S.p.A. (Generali) reports the profits from its life and health insurance business in its published financial statements according to IFRS reporting bases. An alternative method of reporting the value and determining the performance of life and health insurance business is to use Embedded Value accounting. This method is used by a number of European insurance groups to provide supplementary information to that shown in their published accounts. Embedded Value (EV) is an actuarially determined estimate of the value of a company from a shareholder’s perspective, excluding any value attributable to future new business. Since the year-end 2005 EV valuation, Generali has been compliant with the CFO Forum’s European Embedded Value (EEV) Principles and, starting from the year-end 2007 EV valuation, has adopted a “bottom-up” market consistent approach with allowances for the time value of financial options and guarantees, for the frictional cost of required capital and for the cost of non hedgeable risks. Effective from the year-end 2013 EV valuation, Generali has decided to formally report under the Market Consistent Embedded Value (MCEV) Principles©, published by the CFO Forum in June 2008 and subsequently amended (in October 2009) to reflect the possibility to include a liquidity premium in the reference rate. During 2015, in advance of the effective date of Solvency II (1st of January 2016), surveys have been performed by the CFO Forum in order to identify which members are expected to move towards Solvency II framework for embedded value reporting. In October 2015 the CFO Forum announced additional guidance for embedded value reporting replacing the previous interim rules; in this additional guidance CFO Forum permits but does not require an allowance for Solvency II and its associated consequences when complying with the MCEV Principles©, or the EEV Principles© for reporting periods ending before 30th of June 2016. Consequently, Generali’s market consistent methodology for the year-end 2015 valuation (as set out in Annex A and Section 6 of the Supplementary Information), has been amended to include additional changes on the definition of reference rates and required capital, in order to move a step closer to the Solvency II framework. The reference rate is, from year-end 2015 on, derived by defining, for each currency:

! the basic risk-free interest rate (adjusted for credit risk); ! the appropriate adjustment to be applied on top of the basic risk free interest rate term structure (i.e.

volatility or matching adjustment); ! the appropriate method of yield curve extrapolation (“entry point” of extrapolation, ultimate forward

rate, convergence period and extrapolation method). The required capital is based on Regulatory capital requirement: Solvency II for EEA companies and Local Regulatory approach for non EEA companies. As the effective date of Solvency II is 1st of January 2016, Generali has decided to apply the Solvency II adjustment for only year-end 2015 figures, not restating 2015 EV earnings. Consequently Solvency II change has been applied only to the inforce business at year-end 2015 and not to new business valued on a quarterly basis during 2015. Generali has engaged Ernst & Young to provide an external opinion on the methodology, assumptions and results according to the MCEV Principles (with the exception of the Group MCEV which, because of the non

© Copyright © Stichting CFO Forum Foundation 2008


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economic representation of the value of its non covered segment, is excluded from this Supplementary Information), as described in Section Independent Auditor’s report. The members of the board of directors of Assicurazioni Generali S.p.A. acknowledge their responsibility for the preparation of the Supplementary Information in accordance with the MCEV Principles. The directors confirm that the Embedded Value as at 31 December 2014 and 31 December 2015, and the Embedded Value earnings including the value added by new business in 2015, have been determined using methodology and assumptions that are compliant with the MCEV Principles as stated in Annex A. The EV disclosure should not be considered as a substitute for Generali's primary financial statements. With reference to the covered business, this Supplementary Information document provides the MCEV results as at 31 December 2015, together with details of the methodology and the assumptions used.


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2 Covered business The Life EV results cover all of the Group’s direct and indirect life business, as well as the long-term health business written in Germany and Austria (which has characteristics closely related to life insurance business). For the purpose of determining the Life net asset value, the perimeter includes all the operating life and health companies, considered net of any held participations in Group companies included in the IFRS financial and non-life segments, with the exception of those companies and vehicles that offer services directly supporting the covered business. In particular, therefore, asset gathering companies, pension funds, other financial companies and holding companies have not been included in the perimeter. In addition to the values emerging in the life and health companies, value is also attributed to the stream of profits that are expected to be generated in Head Office and in holding companies with respect to direct life insurance and intra-group life reinsurance, and to the stream of profits generated in the Group’s asset management companies, which are directly associated with life insurance business. All related expenses are taken into account on a look-through basis. Values include inwards reinsurance written, and are net of the impact of reinsurance ceded out of the Group. No value is attributed in respect of future new business. The EV refers to contracts in force at the valuation date. Automatic premium increases, characterised by reliable acceptance ratios, are included in the projection of the future cash flows according to historical experience. Correspondingly, new business refers only to new contracts written in the year and excludes other automatic premium increases relating to prior years’ business. Generali’s “bottom-up” market consistent methodology covers 99% of life and health business of the Group in terms of technical reserves. The residual business is valued using a traditional deterministic valuation based on the financial assumptions described in Annex B1. All the values shown in this disclosure are in Euro millions, after tax and after minorities. The approach to consolidation adopted in the Life EV produces results that are consistent with the consolidated primary financial statements. Percentage variations of amounts from 2014 to 2015 always refer to changes on a comparable basis, obtained neutralising the impact of changes in the covered perimeter and foreign exchange rates.


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3 Results 3.1 OVERVIEW OF 2015 RESULTS

The following table shows the main results of the life and health perimeter, in terms of EV and NBV.

Main results at 31 December 2015 and 2014 (€ mln)2015 2014

EV 30,133 25,082EV earnings 6,375 204Return on EV 25.2% 0.8%Normalised return on EV 10.7% 8.2%

2015 2014 ChangeNBV 1,097 1,239 -13.0%APE 5,210 5,163 -0.2%Profitability on APE 21.0% 24.0% -3.1 ptsIRR 12.1% 13.0% -0.9 ptschanges are on a comparable basis

From year-end 2014 to year-end 2015 EV moves from 25,082mln to 30,133mln. The operating EV earnings are equal to 3,637mln (leading to a solid 10.7% normalised return on EV). Total EV earnings amount to 6.375mln (corresponding to an overall 25.2% return on EV) and are mainly boosted by positive economic variances (2,749mln) linked to the improved financial situation at year-end 2015. The positive economic variances have impacted the Value In-Force, which in 2015 mainly benefits from the increase of reference rates (with the Euro 10-year swap par yield moving from 0.81% to 1.00%) and from the narrowing of government bond spreads (in Italy the 10-year spread over swap has dropped by 47bps). APE confirmed a quite stable and solid trend (-0.2%, on a comparable basis), with a positive change in the business mix recording an increased weights of unit linked business and of protection business. The new business Profitability in 2015 amounted to 21.0% with a drop of 3.1% explained by the overall unfavourable economic scenarios in respect of 2014. Being the full year new business value calculated as the sum of each quarter value (based on beginning of period economic assumptions), the averaged 2015 scenario, compared with the corresponding 2014, is characterized by the reduction of interest rates and the sharp increase in volatility, especially in the second quarter of 2015. Anyway the negative economic impact has been mitigated by the reduction in the level of guarantees and by the steering of the production towards more favourable business mix.


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3.2 MOVEMENT OF EMBEDDED VALUE The following table shows the movement of the EV and its components (VIF and ANAV) from the end of 2014 to the end of 2015, together with the movement of ANAV components (Required Capital and Free Surplus). Expected results are calculated using “real world” best estimate assumptions (see Annex B1). The impact of the Solvency II adjustment on year-end 2015 figures, in terms of reference rate and required capital, is shown as last step of the movement and not included in the earnings. Movement of Embedded Value (€ mln)

Required FreeEV VIF ANAV Capital Surplus

Value at 31/12/2014 25,082 12,969 12,113 11,478 635 Change in perimeter 4 3 0 1 -1 Exchange rate fluctuation 206 167 39 43 -5Adjusted Value at 31/12/2014 25,291 13,140 12,152 11,522 630 New business value 1,097 2,067 -970 673 -1,643 Expected contribution (reference rate) 387 340 47 0 47 Expected contribution (in excess of reference rate) 610 610 0 0 0 Transfers from VIF and req. cap. to free surplus 0 -2,318 2,318 -727 3,045 Operating experience variances 566 532 34 0 34 Operating assumption changes 48 48 0 0 0 Other operating variances 930 996 -66 -649 583Operating EV earnings 3,637 2,274 1,363 -702 2,065 Economic variances 2,749 2,784 -35 -636 602 Other non operating variances -10 -4 -6 0 -6Total EV earnings 6,375 5,053 1,322 -1,339 2,661 Capital movement -946 0 -946 0 -946Value at 31/12/2015 before Solvency II adj. 30,721 18,193 12,528 10,183 2,345 Solvency II Risk Free Rate & Req. Capital -588 -588 0 -4,475 4,475Value at 31/12/2015 30,133 17,605 12,528 5,708 6,820

Total NormalisedEV earnings 6,375 2,706Return on EV 25.2% 10.7% Value at 31/12/2014: this is the starting point of the movement, represented by the official value at 31/12/2014.

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 2014 and 2015. Exchange rate fluctuation: this is the effect of the difference between the exchange rates at the end of 2014 and 2015. The impact on EV is +206mln, mainly as a consequence of the strengthening of local currencies against Euro in Switzerland (+205mln), in Czech Republic, in Asia and of some currencies in Latin America.

Adjusted value at 31/12/2014: 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 2015. The impact on EV (+1,097mln) represents the new business value at point of sale, calculated as the sum of the NBV of each quarter. The impact on free surplus (-1,643mln) represents the total new business strain, which is the combined effect of the negative contribution to profit in the year of sale (-970mln) and the additional capital required by the new business (-673mln), 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 (+996mln) is the sum of:


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• +949mln coming from the roll forward of the beginning of year VIF and relevant required capital, calculated using the risk free component (+340mln) and the risk premium component (+610mln) of the 2014 implied discount rate (see Annex B2);

• +47mln 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 2015 after tax result (2,318mln), as expected at the end of 2014 and inclusive of the expected return on the assets backing the required capital. The impact on required capital (-727mln) 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 +3,045mln. Operating experience variances: this is the effect of actual versus expected 2015 experience on operating items. The impact on EV (+566mln) is mainly explained by the positive surrenders and paid-ups experience (+190mln, mostly in Germany) and by the restructuring of Group Pension portfolio in France (+303mln). Operating assumption changes: this is the effect of changes in future operating assumptions. The impact on VIF (+48mln) mainly comes from the revision of the mortality (mostly in France) and surrender and paid-ups (mostly in Italy and in Germany) largely offset by the review of ordinary expenses assumptions (mostly in France and in Germany). Other operating variances: this is the combined effect of other non-recurrent operating items, such as actuarial platform enhancements, extraordinary expenses and residual variances. The significant impact on EV (+930mln) is mainly due to various improvements and refinements of the actuarial models also implemented to grant consistency to Solvency II framework (+996mln mainly coming from France, Germany and Italy).

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 +3,637mln.

Economic variances: this is the effect of actual versus expected 2015 experience and changes in future assumptions for economic items such as yield curves, implied volatilities, investment returns and taxes. The positive impact on EV (+2,749mln) corresponds to the sum of positive 2,784mln variances on VIF and the negative 35mln variances on ANAV. More specifically, the +2.8bln VIF variances can be split as follows:

• +0.4bln: the impact of the recovery of the swap curve; • +0.5bln: the combined effect of the positive impact of the reduction of the spread versus the

swap curve of the government bonds (+0.7bln) and the widening of corporate bonds spread (-0.2bln)

• +1.1bln: the positive impact of the increase of the liquidity premium; • +0.6bln: the impact of the positive equity market performance; • +0.2bln: the impact of the change in Italian taxation starting from 2017.

The improved 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 driver of the decrease of the required capital (-636mln), mainly affecting Germany (-615mln) and France (-402mln).

Other non operating variances: this is the effect of local regulatory and legal changes and of other residual non operating items not included above.

Total EV earnings are equal to the sum of operating EV earnings, economic variances and other non operating variances, and amount to +6,375mln. The corresponding return on EV (obtained dividing the EV earnings by the adjusted opening EV) is equal to +25.2%.

Capital movement: this amount (-946mln) comprises dividends paid in 2015 out of the consolidation perimeter by the covered companies (-979mln), together with net movements (+33mln 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.


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Value at 31/12/2015 before Solvency II adj. is equal to the sum of Adjusted value at 31/12/2014 (25,291mln), Total EV earnings (+6,375mln) and Capital movement (-946mln), and amounts to 30,721mln.

Solvency II Risk Free Rate & Req. Capital: this negative impact on VIF (-588mln) comprises the impact on cost of capital (+462mln), due to the change in required capital definition and the adoption of Solvency II reference rate (-1,050 mln), due to the change from liquidity premium to volatility adjustment (e.g. euro area from 29 bps, ILP 75% bucket, to 12 bps, VA net of CRA). The change in required capital definition caused a required capital reduction of 4,475mln.

Value at 31/12/2015 after Solvency II adj. is obtained adding the Solvency II adjustment (-588mln) to the Value at 31/12/2015 before Solvency II adjustment (30,721mln), and amounts to 30,133mln. 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 2,706mln, with a solid 10.7% return on adjusted opening EV.


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3.3 VALUE IN-FORCE The table below reports the breakdown of VIF for 2015 and 2014 into its components.

Breakdown of Value in-force as at 31 December 2015 and 2014 (€ mln)2015 2014

PVFP before Time Value of FG&O 21,567 18,693Time Value of FG&O -2,039 -3,302PVFP after Time Value of FG&O 19,528 15,391Cost of capital -257 -878Cost of NHR -1,666 -1,544Value in-force 17,605 12,969

Compared with 2014, the PVFP before the cost of financial guarantees and options benefits from the recovery of reference rates in the Eurozone. This improved financial situation together with the decrease in interest rates volatilities and the reduction of the average portfolio minimum guarantees (from 2,02% to 1,80%) determines a significantly decrease of time value of the financial guarantees and options. As a consequence, the PVFP after Time Value of FG&O increases from 15,391mln to 19,528mln (+25,3% on a comparable basis). The cost of capital reduced by 651mln due to the decrease of required capital underlying its calculation mainly on account of the Solvency II adjustment. The cost of non hedgeable risks is based on a fixed charge applied to risk capital (see Annex A2): in this case the increase (+7,0% on a comparable basis) is mostly impacted by the higher risk capital necessary to meet non headgeble risks due to business growth partially offset by the increasing discounting effect. In aggregate, the VIF increases from 12,969mln to 17,605mln (+34,0% on a comparable basis). The following table shows the expected run-off pattern of VIF emergence across future projection years, grouping discounted distributable profits into 5 year buckets. In particular, the table reports the contribution of each time-bucket’s profits to the total VIF at year-end 2015. The calculation has been performed considering distributable profits (i.e. including the release of required capital) generated by the value in-force and calculated according to a deterministic projection based on “real-world” best estimate assumptions (see Annex B1). Contribution of future years to VIF as at 31 December 2015

Percentage Cumulatedof VIF distribution

Years 1-5 46% 46%Years 6-10 25% 71%Years 11-15 13% 83%Years 16-20 7% 90%Years 21-25 3% 93%Years 26-30 2% 94%Years 31 onwards 6% 100%

The profits emerging within the first 20 years of projection account for 90% of the overall VIF.


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3.4 RECONCILIATION OF ANAV TO IFRS EQUITY With reference to the covered business, the following table shows the reconciliation of ANAV to the IFRS Equity in respect of the Life EV consolidation perimeter (see Annex A1). 2015 ANAV reported in the table refers to the value at 31 December 2015, before the distribution of dividends in 2015 on 2015 profits. The corresponding definition also applies to 2014 ANAV.

ANAV reconciliation to IFRS equity (€ mln)2015 2014

IFRS equity 19,474 18,359Goodwill, DAC, VoBA and other intangibles -5,873 -5,563Mark to market of assets not backing 2,053 2,071Double counting on life AFS reserves and on other investments -3,233 -3,039Other adjustments 106 284ANAV 12,528 12,113

In line with last year disclosure, in the reconciliation table above: • the goodwill pertaining to operating life companies is reported in the Life IFRS equity, in order to better

represent the contribution by segment to the consolidated Group NAV; • the mark to market for assets not considered on a fair value basis under IFRS is reported with reference

only to assets not backing the technical provisions; • the unrealised gain/loss included in the IFRS shareholder’s equity which is already captured in the VIF is

eliminated to avoid a double counting.

3.5 NEW BUSINESS The table below shows the development of NBV from 2014 to 2015, together with the main profitability indicators.

New Business Value 2015 and 2014 (€ mln)2015 2014 Change

APE 5,210 5,163 -0.2%Annual premiums 2,753 2,902 -6.8%Single premiums 24,568 22,618 8.3%PVNBP 48,295 46,215 3.6%NBV 1,097 1,239 -13.0%Profitability on APE 21.0% 24.0% -3.1 ptsProfitability on PVNBP 2.3% 2.7% -0.4 ptschanges are on a comparable basis

On a comparable basis, APE remains quite stable -0.2%, thanks to the single premiums development (+8.3%, registered in particular in Italy, in France and in Asia) that offsets the regular premiums decrease (-6.8%, mainly in Italy). Regular premiums are decreasing but still represent the predominant part of APE production (52.8%). Saving business decreases (-9.8%) as a consequence of the slowdown experienced in Italy (-14.0%), Germany (-20.9%) and France (-4.0%), only partially mitigated by the increase in LatAm&Asia (+87.5%) and Central and Eastern Europe (+23.6%). Protection business boosted (+22.4%) by the expansion observed in all areas (in particular France +46.1%, Central and Eastern Europe +32.6%, Europe Middle East and Africa +11.9% and LatAm&Asia +56.5%). Unit linked business increases by +14.6%, thanks to the good developments in Italy (+45.7%, boosted by hybrid products), France (+41.7%) and Germany (18.5%) despite the negative developments in Central and Eastern Europe (-35.9%) and Europe Middle East and Africa (-13.3%) where the slowdown is essentially explained by Ireland (-21.5%). Despite the strong recovery in the second half of the year, the NBM in 2015 is penalized by the averaged unfavourable economic scenarios in respect of 2014, mainly on account of the average reduction of interest rates (on average 72 bps) and the sharp increase in volatility in the second quarter of 2015. The new


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business profitability decreases by 3.1 percentage points on a comparable basis (i.e. neutralising the impacts of changes in perimeter and exchange rates), leading to a margin on APE of 21.0%, as illustrated in the table below. Movement of New Business Value (€ mln) and NBM (%)

NBV NBMNew business value 2014 1,239 24.0%Change in perimeter 14 0.1%Exchange rate fluctuation 8 0.0%Products mix/volume 93 1.8%Profitability -257 -4.9%New business value 2015 1,097 21.0%

The profitability decrease is softened by the positive development of unit linked business that improves both its profitability (margin on APE from 24.7% in 2014, to 27.5% in 2015) and its weight on APE (from 21.7% in 2014, to 25.0% in 2015), by the higher weight of the protection business (from 12.9% in 2014, to 16.1% in 2015), with a margin on APE equal to 53.5%, and by the lower weight of saving business (from 65.3% to 58.9%) impacted by average reduction of the interest rate in respect of 2014 despite the strongly decrease of the financial guarantees offered to policyholders (decreased, in aggregate, from 1.00% at YE14 to 0.76% at YE15). The 2015 NBV decreases by 13.0% on a comparable basis and amounts to 1,097mln.

Breakdown of New Business Value 2015 and 2014 (€ mln)2015 2014

PVFP before Time Value of FG&O 1,801 1,765Time Value of FG&O -443 -293PVFP after Time Value of FG&O 1,358 1,472Cost of capital -97 -92Cost of NHR -165 -142New Business Value 1,097 1,239

Finally, the table below shows the development from 2014 to 2015 of the main additional new business profitability indicators, obtained using “real-world” best estimate financial assumptions (see Annex B1).

New Business Value 2015 and 2014 (€ mln)2015 2014

1st year NB strain -1,643 -1,526 o/w industrial strain -970 -926 o/w capital strain -673 -6001st year NB strain on PVNBP -3.4% -3.3% o/w industrial strain -2.0% -2.0% o/w capital strain -1.4% -1.3%IRR 12.1% 13.0%Payback period (yrs) 6.9 6.7

The 2015 new business strain amounts to -1,643mln, corresponding to the sum of the negative contribution to profit in the year of sale (-970mln) and the capital absorbed by the new business (-673mln). As a consequence of the reduced profitability (mainly due to the worse real world economic scenario of second quarter 2015) and the higher strain, the internal rate of return and payback period both deteriorate.


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3.6 DISTRIBUTABLE PROFITS GENERATION Distributable profits are defined as the sum of the profit released by the business and the release of the required capital set aside to support it. The following table (extract from the EV movement table in Section 3.2) shows the generation of distributable profits during 2015, stemming from the new business written during the year and the portfolio already in force at the end of 2014. The table reports both the expected amount of 2015 distributable profit (calculated at the beginning of the year using “real-world” best estimate financial assumptions – see Annex B1) and its actual realisation, where variances on required capital are mainly related to the more favourable economic conditions. Generation of distributable profit during 2015 (€ mln)

Profit Req. Capital Distributablerelease Profit

New business -970 -673 -1,643In-force business 2,364 727 3,091Total expected distributable profit 1,394 54 1,448Operating and economic variances -72 1,285 1,213Total actual distributable profit 1,322 1,339 2,661

The following table shows the expected future emergence of undiscounted distributable profits stemming from the portfolio in force at year-end 2015 (i.e. excluding future new business) and from the new business written in 2015, again estimated using “real-world” best estimate assumptions. Expected undiscounted distributable profits (€ mln)

In-force business New businessYear 0 n/m -1,643Years 1-5 12,102 1,388Years 6-10 7,370 905Years 11-15 4,338 665Years 16-20 2,559 471Years 21-25 1,110 295Years 26-30 670 207Years 31 onwards 2,190 424

It has to be noted that the In-force business, based at year-end 2015 values, takes into account the Solvency II adjustment on required capital, while new business, produced across 2015, is not taking it into consideration.


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4 Results by geographic area 4.1 OVERVIEW OF RESULTS BY GEOGRAPHIC AREA

The table below shows the development of EV (and its components) and the return on EV in the main areas (represented for reporting purposes by Italy, France, Germany, Central and Eastern Europe, Europe Middle East and Africa, Latin America and Asia).

Breakdown of Embedded Value results by geographic area (€ mln)Return on EV EV VIF ANAV

2015 2014 Change 2015 2014 Change 2015 2014 ChangeItaly 30.4% 10,341 8,716 18.6% 6,917 4,905 41.0% 3,424 3,811 -10.2%France 49.4% 6,499 4,323 50.4% 2,521 770 227.5% 3,978 3,553 12.0%Germany 23.5% 5,439 4,613 17.9% 4,237 3,461 22.4% 1,202 1,152 4.3%Central Eastern Europe 13.7% 1,644 1,527 5.8% 1,135 1,079 3.4% 509 448 11.5%EMEA 3.6% 5,439 5,077 2.9% 2,551 2,546 -5.2% 2,889 2,531 11.2%Lat.Am.&Asia 13.3% 772 825 -3.5% 245 208 11.8% 527 617 -9.2%Total 25.2% 30,133 25,082 19.1% 17,605 12,969 34.0% 12,528 12,113 3.1%changes are on a comparable basis

In general we observe an excellent return on EV:

! Italy (+30.4%) mostly on account of the positive economic variance following the further narrowing of Italian government bonds spread and the good performance of equities;

! France (+49.4%) correlated to operating variances, particularly due to refinements of the actuarial models also implemented to grant consistency to Solvency II framework (+1,128mln); without these adjustments the return of EV would have been 23.3%;

! Germany (+23.5%) due to recovery of interest rate; ! Central Eastern Europe (+13.7%) due to the recovery of the interest rates and the further narrowing

of Czech Republic government bonds spread; ! EMEA (+3.6%) is strongly impacted by the negative economic variances associated to lower interest

rates and higher volatilities despite the good positive impact from operating experience variance of the year;

! Latin America and Asia (+13.3%) is driven by the good contribution of new business during the year.

The following table shows the development of APE, NBV and new business profitability.

Breakdown of New Business Value results by geographic area (€ mln)APE NBV Profitability on APE

2015 2014 Change 2015 2014 Change 2015 2014 ChangeItaly 2,322 2,492 -6.8% 589 641 -8.0% 25.4% 25.7% -0.3 ptsFrance 944 817 16.0% 62 89 -30.1% 6.5% 10.9% -4.3 ptsGermany 826 862 -5.0% 191 265 -28.7% 23.1% 30.7% -7.7 ptsCentral Eastern Europe 165 148 -3.2% 39 49 -30.2% 23.7% 32.8% -9.2 ptsEMEA 645 684 -7.2% 174 177 -6.4% 27.0% 25.9% +0.2 ptsLat.Am.&Asia 308 159 71.2% 42 19 88.6% 13.5% 11.8% +1.3 ptsTotal 5,210 5,163 -0.2% 1,097 1,239 -13.0% 21.0% 24.0% -3.1 ptschanges are on a comparable basis

On a comparable basis, APE remarkably increases in Latin America and Asia (+71.2%) and France (+16.0%), whereas the new production declines in Italy (-6.8%), Germany (-5.0%), Central Eastern Europe (-3.2%) and in EMEA (-7.2%). In aggregate, APE reports a slight decline of 0.2%.

The slight decrease of new business margin in Italy is explained by the deterioration of economic assumptions during the year partially compensated by the reduced guarantees and the higher weight of unit linked products. The decrease of profitability in France and Germany mainly due to the negative impact of the average reduction of the reference rates and high volatility, in particular on saving business with high level of guarantees. Central Eastern Europe profitability decreases mainly on account of the profitability decline observed for the protection business. Profitability increases in EMEA as a consequence of the higher weight in terms of APE of the protection business with improved profitability. The profitability increases in Latin America and Asia mainly thanks to the profitability improvement on protection business.


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4.2 ITALY Movement of Embedded Value (€ mln) - Italy

EV VIF ANAVValue at 31/12/2014 8,716 4,905 3,811 Change in perimeter -1 -1 0 Exchange rate fluctuation 0 0 0Adjusted Value at 31/12/2014 8,716 4,904 3,811 New business value 589 1,052 -463 Expected contribution (reference rate) 107 117 -10 Expected contribution (in excess of reference rate) 414 414 0 Transfers from VIF and req. cap. to free surplus 0 -998 998 Operating experience variances -40 -14 -26 Operating assumption changes 77 77 0 Other operating variances -265 -262 -4Operating EV earnings 882 387 495 Economic variances 1,765 1,645 119 Other non operating variances 0 0 0Total EV earnings 2,647 2,033 614 Capital movement -1,001 0 -1,001Value at 31/12/2015 before Solvency II adj. 10,361 6,937 3,424 Solvency II Risk Free Rate & Req. Capital -20 -20 0Value at 31/12/2015 10,341 6,917 3,424

Total NormalisedEV earnings 2,647 1,148Return on EV 30.4% 13.2% In Italy, the EV moves from 8,716mln to 10,341mln. The operating experience variance included in the operating EV earnings amounts to -40mln, affected by the unfavourable deviations on mortality and morbidity (-22mln) and higher than expected expenses (-26mln), slightly compensated by the favourable deviation of surrenders (+7mln). The changes in future operating assumptions amount to +77mln and mainly come from the revision of surrender and paid-up assumptions (+120mln), followed by other more conservative assumptions changes regarding mortality (-9mln) and expenses (-33mln). Other operating variances amount to -265mln, they mainly include some refinements into the actuarial platform (-280mln). As a result, operating EV earnings amount to 882mln, while normalised earnings (which exclude the other operating variances) equal to 1,148mln and lead to a normalised return on EV of 13.2%. The economic variances amount to +1,765mln, with both ANAV (+119mln) and VIF (+1,645mln) benefiting from the further sharp narrowing of the spread between the Italian government bond rates and the swap rates. Such effect is also driven by the recovery of reference rates and a reduction of the local ordinary taxation starting from January 2017, with an impact of +242mln. The following table shows in detail the development of VIF from 2014 to 2015:

Breakdown of value in-force as at 31 December 2015 and 2014 (€ mln)2015 2014

PVFP before Time Value of FG&O 8,371 6,102Time Value of FG&O -1,138 -708PVFP after Time Value of FG&O 7,233 5,394Cost of Capital -9 -153Cost of NHR -308 -336Value In-Force 6,917 4,905 As a result, total EV earnings amount to 2,647mln, with an overall return on EV equal to 30.4%.


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The capital movement (-1,001mln) refers to dividends paid in 2015 by the covered business out of the consolidation perimeter (-645mln), and to capital injections and changes in covered companies’ interest in other Group companies (-357mln), leading the total EV at year-end 2015 before Solvency II adjustment of 10,361mln. The Solvency II Risk Free Rate and Required Capital adjustment (-20mln) refers to the adoption of lower reference rate and lower cost of capital as a consequence of reduced required capital, leading the total EV at year-end 2015 to 10,341mln. New Business (€ mln) - Italy

2015 2014 Change 2015 2014APE 2,322 2,492 -6.8% 1st year NB strain -774 -718Annual premiums 1,066 1,425 -25.2% o/w industrial strain -463 -471Single premiums 12,557 10,672 17.7% o/w capital strain -311 -246PVNBP 21,381 20,656 3.5% 1st year NB strain on PVNBP -3.6% -3.5%NBV 589 641 -8.0% o/w industrial strain on PVNBP -2.2% -2.3%Profitability on APE 25.4% 25.7% -0.3 pts o/w capital strain on PVNBP -1.5% -1.2%Profitability on PVNBP 2.8% 3.1% -0.3 pts IRR 15.6% 14.6%changes are on a comparable basis Payback period (yrs) 5.6 6.3

Movement of NBV (€ mln) and NBM (%) Breakdown of New Business Value (€ mln)NBV NBM 2015 2014

New Business Value 2014 641 25.7% PVFP before Time Value of FG&O 921 925Change in perimeter -1 0.0% Time Value of FG&O -256 -200Exchange rate fluctuation 0 0.0% PVFP after Time Value of FG&O 665 725Products mix/volume 67 4.8% Cost of Capital -25 -34Profitability -118 -5.1% Cost of NHR -51 -50New Business Value 2015 589 25.4% New Business Value 589 641

APE decreases by -6.8%, as a combined result of the decrease of annual premiums (-25.2%, mainly explained by one-off Group pension contract written in the first quarter of 2014) and the increase of single premiums (+17.7%). As a result of this decrease, annual premiums lose their dominant weight on APE dropping from 57.2% to 45.9%. In terms of lines of business, saving production decreases by -14.0% and represents 80.2% of total APE of the area. In addition, unit linked business reports a growth of +45.7% on account of the sales of the new and most profitable hybrid products: the weight of unit linked business on APE increases from 11.5% at year-end 2014 to 18.1% at year-end 2015. The new business profitability slightly reduces, with the margin on APE moving from 25.7% in 2014 to 25.4% in 2015. The reduction of the guarantees offered to the policyholder (from 0.86% at YE14 to 0.42% at YE15) and the effect of steering the business mix into more profitable unit linked business (margin on APE 47.1%) as almost smoothed the deterioration of economic assumptions of the first half of the year. The total new business strain amounts to -774mln, corresponding to the sum of the negative contribution to profit in the year of sale (-463mln) and the capital absorbed by the new production (-311mln). The higher financial profits coming from the 2015 business mix is more than offset by the slight increase of new business strain (from -3.5% in 2014 to -3.6% in 2015, in terms of ratio over the present value of future premiums) contributing to the improvement of the internal rate of return (from 14.6% in 2014 to 15.6% in 2015).


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4.3 FRANCE Movement of Embedded Value (€ mln) - France

EV VIF ANAVValue at 31/12/2014 4,323 770 3,553 Change in perimeter -1 0 -1 Exchange rate fluctuation 0 0 0Adjusted Value at 31/12/2014 4,322 770 3,553 New business value 62 200 -139 Expected contribution (reference rate) 73 62 11 Expected contribution (in excess of reference rate) 87 87 0 Transfers from VIF and req. cap. to free surplus 0 -372 372 Operating experience variances 290 303 -12 Operating assumption changes 80 80 0 Other operating variances 1,076 1,167 -90Operating EV earnings 1,669 1,527 143 Economic variances 465 445 20 Other non operating variances 0 0 0Total EV earnings 2,134 1,972 162 Capital movement 263 0 263Value at 31/12/2015 before Solvency II adj. 6,720 2,742 3,978 Solvency II Risk Free Rate & Req. Capital -221 -221 0Value at 31/12/2015 6,499 2,521 3,978

Total NormalisedEV earnings 2,134 593Return on EV 49.4% 13.7% In France, the EV moves from 4,323mln to 6,499mln. The operating experience variance included in the operating EV earnings amounts to +290mln, largely driven by contract changes on Group pension with a reduction of guarantees (+303mln). The changes in the future operating assumptions amount to +80mln: the more favourable assumptions on mortality and morbidity, due to revised Loss Ratio assumptions used for Protection Business projection (+264mln) and on lapses (+9mln) is offset by more conservative assumptions on future expenses (-193mln), appropriately revised to take in consideration the above mentioned variation of expenses. Other operating variances on EV amount to +1,076mln, and include the impact (+1,128mln) of refinements of the actuarial projection models and the treatment of the economic value of Resèrve de Capitalisation to grant consistency with the Solvency II framework. As a result, operating EV earnings amount to 1,669mln, while normalised earnings (which exclude the other operating variances) amount to 593mln, with a corresponding normalised return on EV of 13.7%. The economic variances amount to positive 465mln and are driven by the strong impact on VIF (+445mln) of higher interest rates that, combined with the model changes, causes a huge decrease of the cost of financial guarantees and options on the long-tailed pension business, as reported in the following table:


PVFP before Time Value of FG&O 3,388 2,883Time Value of FG&O -281 -1,477PVFP after Time Value of FG&O 3,107 1,406Cost of Capital -130 -232Cost of NHR -456 -404Value In-Force 2,521 770 Total EV earnings amount to +2,134mln, with an overall return on EV equal to +49.4%.


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The capital movement (+263mln) refers to changes in covered companies’ interest in other Group companies, leading the total EV at year-end 2015 before Solvency II adjustment to 6,720mln. The Solvency II Risk Free Rate and Required Capital adjustment (-221mln) refers to the adoption of lower reference rate impacting negatively the VIF more than the positive impact due to lower cost of capital as a consequence of reduced required capital, leading the total EV at year-end 2015 to 6,499mln. New Business (€ mln) - France

2015 2014 Change 2015 2014APE 944 817 16.0% 1st year NB strain -359 -374Annual premiums 404 299 35.8% o/w industrial strain -139 -147Single premiums 5,403 5,185 4.6% o/w capital strain -220 -228PVNBP 7,963 7,628 4.8% 1st year NB strain on PVNBP -4.5% -4.9%NBV 62 89 -30.1% o/w industrial strain on PVNBP -1.7% -1.9%Profitability on APE 6.5% 10.9% -4.3 pts o/w capital strain on PVNBP -2.8% -3.0%Profitability on PVNBP 0.8% 1.2% -0.4 pts IRR 4.9% 6.6%changes are on a comparable basis Payback period (yrs) 12.9 9.9


New Business Value 2014 89 10.9% PVFP before Time Value of FG&O 192 196Change in perimeter 0 0.0% Time Value of FG&O -81 -54Exchange rate fluctuation 0 0.0% PVFP after Time Value of FG&O 111 142Products mix/volume 23 1.0% Cost of Capital -18 -26Profitability -50 -5.3% Cost of NHR -31 -27New Business Value 2015 62 6.5% New Business Value 62 89

APE increases (+16.0%) on account of the excellent progression of regular premium production (+35.8%, representing 42.8% of APE), also helped by a more contained progression of single premiums (4.6%). In terms of main business lines, protection business and unit linked business show an increase (+46.1% and +41.7%, respectively), whereas saving business slightly reduces (-4.0%, with a weight on APE of 48.3%). The new business profitability declines from 10.9% in 2014 to 6.5% in 2015, mainly due to the adverse economic conditions during this year. This is partially compensated by the steering towards unit linked business (margin on APE 26,5%) and Protection business (margin on APE 13,2%) and a decrease in saving business (margin on APE -6,5%). The 2015 new business value reduces by 30.1% and amounts to 62mln. The 2015 new business strain amounts to -359mln, corresponding to the sum of the negative contribution to profit in the year of sale (-139mln) and the capital absorbed by the new business (-220mln). In terms of ratio over the present value of new business premiums, from 2014 to 2015 the first year strain decreases from -4.9% to -4.5%. The lower best estimate real-world financial assumptions lead the IRR to deteriorate from 6.6% in 2014 to 4.9% 2015 and the pay-back to increase from 9.9 years to 12.9 years.


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4.4 GERMANY Movement of Embedded Value (€ mln) - Germany

EV VIF ANAVValue at 31/12/2014 4,613 3,461 1,152 Change in perimeter 0 0 0 Exchange rate fluctuation 0 0 0Adjusted Value at 31/12/2014 4,613 3,461 1,152 New business value 191 244 -54 Expected contribution (reference rate) 87 87 0 Expected contribution (in excess of reference rate) -89 -89 0 Transfers from VIF and req. cap. to free surplus 0 -140 140 Operating experience variances 143 108 35 Operating assumption changes -68 -68 0 Other operating variances 165 166 -2Operating EV earnings 428 308 119 Economic variances 655 599 56 Other non operating variances 0 0 0Total EV earnings 1,082 907 175 Capital movement -125 0 -125Value at 31/12/2015 before Solvency II adj. 5,570 4,368 1,202 Solvency II Risk Free Rate & Req. Capital -132 -132 0Value at 31/12/2015 5,439 4,237 1,202

Total NormalisedEV earnings 1,082 263Return on EV 23.5% 5.7% In Germany, the EV moves from 4,613mln to 5,439mln. The operating experience variance included in the operating EV earnings amounts to +143mln, driven mostly by the positive impact on surrender (+123mln). The changes in the operating assumptions amount to -68mln and mainly come from a revision of projected expenses (-111mln), assumptions on mortality (-96mln) only partially offset by modifications of assumptions on surrenders (+120mln). Other operating variances amount to +165mln, almost entirely represented by the impact on VIF and explained by various refinements in the actuarial projection models, where the most sizable is the Zinszusatzreserve (ZZR) recalibration according to the actual change in accounting rules during the 2015. As a result, operating EV earnings amount to 428mln, while normalised earnings (which exclude the other operating variances) amount to 263mln and lead to a normalised return on EV of 5.7%. The economic variances amount to 655mln and mainly come from the impact on VIF (599mln) of the recovery of reference rates that, combined with the mitigation of interest rate volatilities and the impact of model changes, determine an important decrease of the cost of options and guarantees, as reported in the table below. The split of VIF is reported in the table below:


PVFP before Time Value of FG&O 4,749 4,693Time Value of FG&O -58 -474PVFP after Time Value of FG&O 4,691 4,219Cost of Capital -42 -317Cost of NHR -412 -441Value In-Force 4,237 3,461


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Total EV earnings amount to 1,082mln, with an overall return on EV equal to 23.5%. The capital movement (-125mln) refers to dividends paid in 2015 by the covered business out of the consolidation perimeter (-158mln), and to capital injections and changes in covered companies’ interest in other Group companies (+33mln), leading the total EV at year-end 2015 before Solvency II adjustment to 5,570mln. The Solvency II Risk Free Rate and Required Capital adjustment (-132mln) refers to the adoption of lower reference rate impacting negatively the VIF more than the positive impact due to lower cost of capital as a consequence of reduced required capital, leading the total EV at year-end 2015 to 5,439mln. New Business (€ mln) - Germany

2015 2014 Change 2015 2014APE 826 862 -5.0% 1st year NB strain -89 -59Annual premiums 532 560 -5.8% o/w industrial strain -54 -28Single premiums 2,940 3,021 -3.5% o/w capital strain -35 -31PVNBP 10,522 10,411 0.1% 1st year NB strain on PVNBP -0.8% -0.6%NBV 191 265 -28.7% o/w industrial strain on PVNBP -0.5% -0.3%Profitability on APE 23.1% 30.7% -7.7 pts o/w capital strain on PVNBP -0.3% -0.3%Profitability on PVNBP 1.8% 2.5% -0.7 pts IRR 9.7% 23.6%changes are on a comparable basis Payback period (yrs) 10.2 4.8


New Business Value 2014 265 30.7% PVFP before Time Value of FG&O 294 312Change in perimeter 3 0.1% Time Value of FG&O -58 -14Exchange rate fluctuation 0 0.0% PVFP after Time Value of FG&O 236 298Products mix/volume -7 0.7% Cost of Capital -18 -12Profitability -69 -8.4% Cost of NHR -28 -22New Business Value 2015 191 23.1% New Business Value 191 265

APE declines (-5.0%), as a consequence of the decrease of both life business (-5.0%) and health production (-6.0%). In aggregate, regular premiums (-5.8%) maintain quite stable their weight on total APE from 65.0% in 2014 to 64.4% in 2015, associated with a reduction in saving business (-20.9%) and with a progress for unit linked business of 18.5%, whilst protection remains stable (+0.8%). The deterioration in financial conditions lead to a decrease of the new business profitability, with the margin on APE moving from 30.7% in 2014 to 23.1% in 2015, despite the improved business mix (more unit linked business with a margin on APE of 16,7% and protection business with a margin on APE of 57,9% in respect of saving business with a margin on APE of 2,2%) and the reduction of the level of guarantees (from 1.44% in 2014 to 1.28% in 2015). Lower volumes and margins explain the decrease of NBV (-28.7% on a comparable basis), amounting to 191mln. The total new business strain (lower than in other countries thanks to the use of Zillmerised reserves) amounts to -89mln, corresponding to the sum of the negative contribution to profit in the year of sale (-54mln) and the capital absorbed by the new business (-35mln). The increased strain (from -0.6% in 2014 to -0.8% in 2015, in terms of ratio over the present value of new business premiums) and the lower profitability explain the internal rate of return decrease from 23.6% in 2014 to 9.7% in 2015, and the increase of the pay-back period from 4.8 years to 10.2 years.


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4.5 CENTRAL AND EASTERN EUROPE Movement of Embedded Value (€ mln) - Central and Eastern Europe

EV VIF ANAVValue at 31/12/2014 1,527 1,079 448 Change in perimeter 0 0 0 Exchange rate fluctuation 27 19 8Adjusted Value at 31/12/2014 1,554 1,098 456 New business value 39 141 -102 Expected contribution (reference rate) 20 17 3 Expected contribution (in excess of reference rate) 19 19 0 Transfers from VIF and req. cap. to free surplus 0 -236 236 Operating experience variances 32 24 8 Operating assumption changes -4 -4 0 Other operating variances -14 -4 -10Operating EV earnings 91 -43 134 Economic variances 122 86 36 Other non operating variances 0 0 0Total EV earnings 213 43 171 Capital movement -118 0 -118Value at 31/12/2015 before Solvency II adj. 1,650 1,141 509 Solvency II Risk Free Rate & Req. Capital -6 -6 0Value at 31/12/2015 1,644 1,135 509

Total NormalisedEV earnings 213 105Return on EV 13.7% 6.7% In Central and Eastern Europe, the EV moves from 1,527mln to 1,644mln. Opening adjustments on EV (+27mln) reflect the strengthening of the currencies of the region (mostly Czech Koruna) against Euro. The operating experience variances included in the operating EV earnings amount to 32mln, as a combined effect of surrenders (+30mln), mortality and morbidity (+11mln) partially offset by higher expenses (-9mln) basically in Czech Republic. The changes in the operating assumptions amount to -4mln and mainly come from Czech Republic revision of future assumptions on expenses, surrenders and mortality. Other operating variances amount to -14mln and include the impact of extraordinary expenses (-9mln) and minor residual variances (-4mln). As a result, operating EV earnings amount to 91mln, while normalised earnings (which exclude the other operating variances) equal to 105mln and lead to a normalised return on EV of 6.7%. The economic variances amount to +122mln, principally coming from the impact on VIF (+86mln) of the recovery of reference rates and narrowing of corporate bond spread. The split of VIF is reported in the table below:




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As a result, total EV earnings amount to +213mln, with an overall return on EV equal to 13.7%. The capital movement (-118mln) refers to dividends paid in 2015 by the covered business out of the consolidation perimeter (-91mln), and to capital injections and changes in covered companies’ interest in other Group companies (-27mln), leading the total EV at year-end 2015 before Solvency II adjustment to 1,650mln. The Solvency II Risk Free Rate and Required Capital adjustment (-6mln) refers to the adoption of lower reference rate and lower cost of capital as a consequence of reduced required capital, leading the total EV at year-end 2015 to 1,644mln. New Business (€ mln) - Central and Eastern Europe

2015 2014 Change 2015 2014APE 165 148 -3.2% 1st year NB strain -120 -120Annual premiums 140 139 -11.9% o/w industrial strain -102 -105Single premiums 246 96 125.3% o/w capital strain -17 -15PVNBP 897 739 6.1% 1st year NB strain on PVNBP -13.3% -16.2%NBV 39 49 -30.2% o/w industrial strain on PVNBP -11.4% -14.3%Profitability on APE 23.7% 32.8% -9.2 pts o/w capital strain on PVNBP -1.9% -2.0%Profitability on PVNBP 4.3% 6.6% -2.2 pts IRR 8.0% 9.8%changes are on a comparable basis Payback period (yrs) 6.7 6.4


New Business Value 2014 49 32.8% PVFP before Time Value of FG&O 50 59Change in perimeter 7 0.0% Time Value of FG&O 0 0Exchange rate fluctuation 0 0.2% PVFP after Time Value of FG&O 49 59Products mix/volume -4 -1.1% Cost of Capital -2 -2Profitability -13 -8.1% Cost of NHR -9 -9New Business Value 2015 39 23.7% New Business Value 39 49

APE decreases (-3.2%) on a comparable basis (i.e. neutralizing the minority buyout and the FX effects), as a consequence of the decrease of Unit Linked business (-35.9%) only partially offset by the good production of protection business (+32.6%), mainly in Czech Republic (+32.8%), Poland (+63.8%) and Slovakia (+42.2%). Regular premiums decline (-11.9%) but continue to represent the vast majority of APE production of the Area, whereas single premiums remarkably increase (+125.3%). The profitability reduces from 32.8% at YE14 to 23.7% at YE15 mainly on account of the profitability decline observed on protection business (NBM from 59.3% at YE14 to 36.3% at YE15), representing 49.2% of APE, due to fall in accident/disability line of business. The reduced volume and profitability lead the NBV to decrease by 30.2%. The total new business strain amounts to -120mln, corresponding to the sum of the negative contribution to profit in the year of sale (-102mln) and the capital absorbed by the new business (-17mln). Despite the positive effect of a lower strain (from -16.2% to -13.3%, in terms of present value of new business premiums) the drop in the profitability lead the internal rate of return to decrease from 9.8% in 2014 to 8.0% in 2015, whilst the payback period increases from 6.4 years to 6.7 years.


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4.6 EUROPE MIDDLE EAST AND AFRICA Movement of Embedded Value (€ mln) - EMEA

EV VIF ANAVValue at 31/12/2014 5,077 2,546 2,531 Change in perimeter 5 4 0 Exchange rate fluctuation 206 139 67Adjusted Value at 31/12/2014 5,288 2,689 2,599 New business value 174 302 -128 Expected contribution (reference rate) 50 38 13 Expected contribution (in excess of reference rate) 167 167 0 Transfers from VIF and req. cap. to free surplus 0 -536 536 Operating experience variances 141 113 28 Operating assumption changes -40 -40 0 Other operating variances -39 -77 38Operating EV earnings 453 -34 487 Economic variances -248 61 -309 Other non operating variances -12 0 -12Total EV earnings 192 27 165 Capital movement 125 0 125Value at 31/12/2015 before Solvency II adj. 5,605 2,716 2,889 Solvency II Risk Free Rate & Req. Capital -165 -165 0Value at 31/12/2015 5,439 2,551 2,889

Total NormalisedEV earnings 192 492Return on EV 3.6% 9.3% In Europe Middle East and Africa, the EV moves from 5,077mln to 5,439mln.

Opening adjustments on EV (+211mln) reflect minor movements in the Life EV perimeter and the strengthening of Swiss Franc against Euro.

The operating experience variance included in the operating EV earnings amounts to +141mln. Positive deviations come from the repricing of a part of health business portfolio in Austria (+46mln), mortality (+27mln, mainly in Spain, Netherlands and Switzerland), surrenders (+27mln, mainly in Netherlands) and from profit sharing (+21mln, mainly in Austria and Belgium); whilst negative deviation regards expenses (-11mln, mostly in Belgium).

The changes in the future operating assumptions amount to -40mln, with the effect of the strengthening of surrender assumptions (-65mln, mainly in Guernsey and in Netherlands) and mortality (-33mln, mainly in Spain) only partially offset by the more favourable assumptions on expenses (+45mln, mainly in Austria).

Other operating variances amount to -39mln and include the impact of extraordinary expenses and model refinements.

As a result, operating EV earnings amount to 453mln, while normalised earnings (which exclude the other operating variances) equal to 492mln and lead to a normalised return on EV of 9.3%.

The economic variances amount to -248mln and come from the impact on ANAV (-309mln) partially offset by the positive impact on VIF (+61mln) of the recovery of interest rates. Such negative impact on EV is particularly evident in Switzerland, characterized by high level of guarantees, where interest rates and volatility have worsened. The negative impact on ANAV mainly comes from unrealized losses due to interest rate increase and from reserve strengthening in some countries due to the low interest rate environment. The split of VIF is reported in the following table:


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Other non operating variances (-12mln) lead to total EV earnings amounting to 192mln, with an overall return on EV equal to 3.6%. The capital movement (+125mln) refers to dividends paid in 2015 by the covered business out of the consolidation perimeter (-71mln), and to capital injections and changes in covered companies’ interest in other Group companies (+196mln), leading the total EV at year-end 2015 before Solvency II adjustment to 5,605mln. The Solvency II Risk Free Rate and Required Capital adjustment (-165mln) refers to the adoption of lower reference rate and lower cost of capital as a consequence of reduced required capital, leading the total EV at year-end 2015 to 5,439mln. New Business (€ mln) - EMEA

2015 2014 Change 2015 2014APE 645 684 -7.2% 1st year NB strain -178 -189Annual premiums 358 345 1.1% o/w industrial strain -128 -127Single premiums 2,875 3,395 -15.7% o/w capital strain -50 -62PVNBP 6,200 6,129 -0.7% 1st year NB strain on PVNBP -2.9% -3.1%NBV 174 177 -6.4% o/w industrial strain on PVNBP -2.1% -2.1%Profitability on APE 27.0% 25.9% +0.2 pts o/w capital strain on PVNBP -0.8% -1.0%Profitability on PVNBP 2.8% 2.9% -0.1 pts IRR 14.7% 16.1%changes are on a comparable basis Payback period (yrs) 5.3 4.9


New Business Value 2014 177 25.9% PVFP before Time Value of FG&O 274 243Change in perimeter 4 0.5% Time Value of FG&O -48 -25Exchange rate fluctuation 4 0.3% PVFP after Time Value of FG&O 227 218Products mix/volume 5 2.8% Cost of Capital -7 -7Profitability -17 -2.6% Cost of NHR -46 -34New Business Value 2015 174 27.0% New Business Value 174 177

On a comparable basis APE declines by 7.2 mainly on account of the fall observed in Ireland (-21.5%) and Guernsey (-22.0%) that directly impact the unit linked business. On the other hand, it should be noted the progressions of Switzerland (+2.6%), Netherlands (+121.7%) and UK Branch (+52.3%). Single premiums significantly decrease mainly in Ireland (-23.5%), in Austria (-34.4%) and in Spain (-3.0%), whereas regular premiums slightly increase (+1.1%) mainly thanks to the good performance in Austria (+17.7%) and Netherlands (+125.2%). In terms of main business lines, it should be noted the good progress of the protection business (+11.9%) mostly driven by the increase in Spain (+16.1%) and Austria (+26.6%) that offsets the fall in Ireland (-22.2%). The profitability increases from 25.9% in 2014 to 27.0% in 2015, as a consequence of the higher weight of the profitable protection business (weight on APE from 13.7% to 16.8%) with increased profitability (margin on APE from 136.8% in 2014 to 146.6% in 2015). Higher margins but lower volume explain the decrease of NBV (-6.4% on a comparable basis), amounting to 174mln. The total new business strain amounts to -178mln, corresponding to the sum of the negative contribution to profit in the year of sale (-128mln) and the capital absorbed by the new business (-50mln). The slightly better new business strain (in terms of present value of new business premiums, from -3.1% to -2.9%) is not sufficient to improve the internal rate of return (from 16.1% to 14.7%) and of the pay-back (from 4.9 years to 5.3 years) due to deteriorated financial environments.


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4.7 LATIN AMERICA AND ASIA Movement of Embedded Value (€ mln) - Lat.Am.&Asia

EV VIF ANAVValue at 31/12/2014 825 208 617 Change in perimeter 0 0 0 Exchange rate fluctuation -27 9 -36Adjusted Value at 31/12/2014 799 217 581 New business value 42 126 -85 Expected contribution (reference rate) 49 19 30 Expected contribution (in excess of reference rate) 12 12 0 Transfers from VIF and req. cap. to free surplus 0 -36 36 Operating experience variances 1 -1 1 Operating assumption changes 3 3 0 Other operating variances 7 5 2Operating EV earnings 113 128 -15 Economic variances -9 -53 44 Other non operating variances 2 -4 6Total EV earnings 106 71 35 Capital movement -89 0 -89Value at 31/12/2015 before Solvency II adj. 815 289 527 Solvency II Risk Free Rate & Req. Capital -44 -44 0Value at 31/12/2015 772 245 527

Total NormalisedEV earnings 106 106Return on EV 13.3% 13.3% In Latin America and Asia, the EV moves from 825mln to 772mln. Opening adjustments on EV (-27mln) reflect the impact of the weakening of most currencies of the region against Euro. The operating experience variance included in the operating EV earnings amounts to 1mln, as a combined effect of the unfavourable deviations on expenses (-23mln) offset by favourable deviations on profit sharing (+19mln), mortality (+3mln) and surrenders (+2mln). The changes in the future operating assumptions amount to 3mln, has a combined effect of minor changes on expenses, mortality, surrender and profit sharing. Other operating variances (+7mln) lead to operating EV earnings amounting to 113mln, while normalised earnings (which exclude the other operating variances) equal to 106mln lead to a normalised return on EV of 13.3%. The economic variances amount to -9mln, with the positive impact on ANAV (+44mln) that only partially offset the negative impact of lower interest rates on VIF (-53mln), whose details are reported below (noting that the valuation in Asia, with only the exception of China, has been conducted according to a traditional EV methodology, whereas in Latin America no VIF is calculated because of the small size of the business). The split of VIF is reported in the following table:


PVFP before Time Value of FG&O 311 242Time Value of FG&O -16 0PVFP after Time Value of FG&O 294 242Cost of Capital -20 -34Cost of NHR -29 0Value In-Force 245 208


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Total EV earnings amount to 106mln, with an overall return on EV equal to 13.3%. The capital movement (-89mln) refers to dividend paid in 2015 by the covered business out of the consolidation perimeter (-15mln), and capital injections and changes in covered companies’ interest in other Group companies (-75mln), leading the total EV at year-end 2015 before Solvency II adjustment to 815mln. The Solvency II Risk Free Rate and Required Capital adjustment (-44mln) refers to the adoption of lower reference rate and lower cost of capital as a consequence of reduced required capital, leading the total EV at year-end 2015 to 772mln. New Business (€ mln) - Lat.Am.&Asia

2015 2014 Change 2015 2014APE 308 159 71.2% 1st year NB strain -124 -66Annual premiums 253 134 67.0% o/w industrial strain -85 -48Single premiums 548 249 93.7% o/w capital strain -40 -18PVNBP 1,332 652 78.6% 1st year NB strain on PVNBP -9.3% -10.1%NBV 42 19 88.6% o/w industrial strain on PVNBP -6.3% -7.3%Profitability on APE 13.5% 11.8% +1.3 pts o/w capital strain on PVNBP -3.0% -2.8%Profitability on PVNBP 3.1% 2.9% +0.3 pts IRR 12.3% 12.8%changes are on a comparable basis Payback period (yrs) 7.3 7.1


New Business Value 2014 19 11.8% PVFP before Time Value of FG&O 70 31Change in perimeter 0 0.0% Time Value of FG&O 0 0Exchange rate fluctuation 3 0.5% PVFP after Time Value of FG&O 70 31Products mix/volume 9 -2.2% Cost of Capital -28 -12Profitability 10 3.4% Cost of NHR 0 0New Business Value 2015 42 13.5% New Business Value 42 19

APE shows positive developments in all countries of the Area and in particular in China (+86.7%). All main business lines registered a good progression. At area level the weight of protection business slight decreases from 29.9% at YE14 to 27.0% at YE15 mainly explained by the strong of increase of saving products in China (+102.2%). The new business profitability moves from 11.8% in 2014 to 13.5% in 2015. This highlights the improvement of profitability during 2015 thanks to the protection business where the profitability is equal to 18,9%. As a consequence of the higher volumes (APE +71.2%) and the improved profitability the NBV increases on a comparable basis by 88.6%, and amounts to 42mln. The total new business strain amounts to -124mln, corresponding to the sum of the negative contribution to profit in the year of sale (-85mln) and the capital absorbed by the new business (-40mln). The internal rate of return slightly decreases form 12.8% to 12.3% and the pay-back increases from 7.1 years to 7.3 years at YE15.


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5 Sensitivity analysis The following tables show the sensitivities of the EV to changes in key assumptions using the parameters indicated by the CFO Forum. • Yield curve +0.5%: sensitivity to an upward shift of 50 basis points in the underlying reference rates,

accompanied by an upward shift of 50 basis points in all other dependent economic assumptions. Volatility adjustment added to swap rates until the extrapolation “entry-point” remains the same as in the central scenario1.

• Yield curve -0.5%: sensitivity to a downward parallel shift of 50 basis points in the underlying reference rates, accompanied by a downward shift of 50 basis points in all other dependent economic assumptions. Volatility adjustment added to swap rates until the extrapolation “entry-point” remains the same as in the central scenario1. Interest rates are not floored to zero.

• Equity Value +10%: sensitivity to a 10% market value increase at valuation date for equity investments.

• Equity Value -10%: sensitivity to a 10% market value reduction at valuation date for equity investments.

• Property Value -10%: sensitivity to a 10% market value reduction at valuation date for property investments.

• Equity Implied Volatilities +25%: sensitivity to a 25% increase of the equity implied volatility across all maturities, resulting in a change of the time value of financial options and guarantees.

• Swaption Implied Volatilities +25%: sensitivity to a 25% increase of the swaption implied volatility across all option maturities and swap tenors, resulting in a change of the time value of financial options and guarantees.

• Reference rates without volatility adjustment (VA): sensitivity to the adoption of swap rates without any additional adjustment as reference rates.

• Reference rates with volatility adjustment (VA) +10bps: sensitivity to a 10bps increase to the volatility adjustment added on top of the underlying reference rates.

• Administrative & Investment Management expenses -10%: sensitivity to a 10% decrease of administrative and investment management expenses.

• Lapse Rate -10%: sensitivity to a 10% decrease of lapse rates (multiplicative, i.e. 90% of best estimate lapse rates).

• Lapse Rate +10%: sensitivity to a 10% increase of lapse rates (multiplicative, i.e. 110% of best estimate lapse rates).

• Mortality/morbidity for risk business -5%: sensitivity to a 5% decrease of mortality/morbidity (multiplicative, i.e. 95% of best estimate mortality/morbidity rates), including the effect of possible related re-pricing, for all product lines subject to mortality risk, i.e. where the present value of future profits decreases when the mortality rates increase (e.g. term assurance, whole life, annuity during the accumulation period).

• Mortality for annuity business -5%: sensitivity to a 5% decrease of mortality (multiplicative, i.e. 95% of best estimate mortality rates) for business subject to longevity risk, i.e. where the present value of future profits decreases when the mortality rates decrease (e.g. annuities in payment).

• 130% Solvency Capital Requirement: sensitivity to a modification of the required capital, which is set equal to the 130% of the Risk adjusted capital net of the admitted free coverage.

Each sensitivity test is performed in isolation, i.e. all other assumptions remain unchanged except where they are directly impacted by the changed assumptions.

1 As the ultimate forward rate used in this sensitivity remains the same as in the central scenario, the shift is parallel only up to the extrapolation entry-point.


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EV sensitivity analysisTotal Italy France Germany CEE EMEA Lat.Am.&Asia

Base EV (€ mln) 30,133 10,341 6,499 5,439 1,644 5,439 772Yield Curve +0,5% 1.8% -0.8% 4.6% 3.1% -0.9% 2.7% 2.4%Yield Curve -0,5% -4.4% 0.9% -11.7% -5.0% 1.7% -6.8% -2.4%Equity Value +10% 2.4% 2.5% 3.6% 1.2% 1.2% 2.1% 5.5%Equity Value -10% -2.7% -2.3% -3.7% -1.3% -1.2% -3.9% -5.7%Property Value -10% -1.8% -1.3% -2.5% -1.2% -1.0% -3.3% -0.4%Equity Implied Volatilities +25% -1.6% -0.7% -4.2% -0.9% -0.2% -1.6% 0.0%Swaption Implied Volatilities +25% -1.8% -2.3% -1.6% -0.6% -0.4% -2.8% 0.0%Reference rates without volatility adjustment -6.9% -3.6% -13.5% -7.7% -0.2% -6.2% -8.6%Reference rates with volatility adjustment +10bps 2.3% 1.7% 2.2% 2.9% 0.3% 3.6% 0.9%Administrative & Invest.Manag. expenses -10% 2.3% 1.8% 2.5% 2.5% 2.2% 2.6% 2.1%Lapse rate -10% 1.5% 0.2% 1.5% 3.4% 3.3% 1.8% 0.2%Lapse rate +10% -1.4% -0.2% -1.4% -3.2% -3.0% -1.4% 0.0%Mortality/Morbidity for Risk Business -5% 2.0% 0.3% 4.7% 2.1% 1.4% 2.0% 0.9%Mortality for Annuity Business -5% -0.8% -0.1% -2.2% -1.1% 0.0% -0.8% -0.1%130% Solvency Capital Requirement -0.4% -0.4% -1.0% 0.0% 0.0% -0.5% -0.7%

The impact of the sensitivity to a 0.5% increase in the yield curve is generally positive, with different magnitudes on account of different weights of businesses with prevalent financial profits proportionally shared with policyholders (which benefit from an increase of interest rates) and businesses with prevalent fixed components of profits (“fee-based” financial margins or technical margins) which are penalised by the corresponding increase in the discount factors. The impact of the sensitivity to a 0.5% decrease in the yield curve is generally greater than the corresponding opposite variation due to the presence of financial guarantees and options, which are more likely to bite when interest rates are lower and create asymmetries in shareholders’ results. Compared to previous year, the impacts of most economic sensitivities are showing a lower impact due to the improved financial situation, higher projected returns and lower volatilities smooth the sensitivity of results. The following table, reporting the sensitivities applied to NBV, has to be read noting that, for practical reasons, the variation percentages have been exported to the official NBV (sum of the NBV of four quarters, each of them calculated with beginning of period assumptions) from an additional NBV run based on year end assumptions. NBV sensitivity analysis

Total Italy France Germany CEE EMEA Lat.Am.&AsiaBase NBV (€ mln) 1,097 589 62 191 39 174 42Yield Curve +0,5% 1.6% -1.1% 6.3% 1.3% -2.3% 1.8% 37.6%Yield Curve -0,5% -2.6% -0.7% -6.3% -1.8% 2.6% -3.2% -29.3%Equity Value +10% 1.7% 1.9% 5.5% 0.6% 0.4% 1.3% 0.0%Equity Value -10% -1.9% -2.5% -5.5% -0.6% -0.5% -0.8% 0.0%Property Value -10% -2.2% -3.4% -2.0% -0.6% 0.0% -0.7% 0.0%Equity Implied Volatilities +25% -5.0% -2.0% -5.8% -20.6% -0.1% -0.2% 0.0%Swaption Implied Volatilities +25% -4.7% -5.7% -4.0% -4.4% -0.1% -3.9% 0.0%Reference rates without volatility adjustment -6.0% -5.5% -1.6% -3.5% 0.3% -2.1% -53.3%Reference rates with volatility adjustment +10bps 1.9% 1.5% 1.6% 1.1% -0.7% 3.4% 6.1%Administrative & Invest.Manag. expenses -10% 5.0% 2.9% 17.3% 3.7% 10.6% 5.6% 13.5%Lapse rate -10% 7.4% 0.9% 17.8% 15.8% 22.1% 13.4% 7.3%Lapse rate +10% -6.7% -1.6% -10.6% -14.0% -19.3% -12.1% -5.6%Mortality/Morbidity for Risk Business -5% 2.7% 0.3% 6.4% 3.8% 12.5% 5.4% 5.4%Mortality for Annuity Business -5% -0.5% -0.2% -2.9% -1.2% 0.0% 0.0% -0.1%


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6 Assumptions The calculation of EV makes use of various assumptions with respect to economic conditions, operating conditions, and other factors, many of which are beyond Generali’s control. Although all the assumptions represent estimates that Generali regards as reasonable, future developments may vary from those assumed in the calculations and such variations could have a significant impact on future profits. Economic assumptions have been set consistently with observable market data. Taxation assumptions are based on current tax legislation. Operating assumptions (including profit sharing mechanisms) are based on each company’s current experience and practice, where available and otherwise credible.

6.1 ECONOMIC ASSUMPTIONS 6.1.1 Financial Assumptions Generali has adopted a market consistent methodology based on a risk-neutral approach for the vast majority of its business (see Annex B for the assumptions used for minor companies). The Time Value of FG&O is modelled by means of a set of 1,000 stochastic simulations, calibrated reflecting observable market data as at the valuation date and generated centrally by an application tool provided by Moody’s Analytics UK Limited. At year-end 2015 valuation, consistently with year-end 2014, the nominal yield curves for each considered economy are generated using the Libor Market Model plus (LMM+) economic scenario generator, which allows for scenarios with negative interest rates. Real yield curves are generated with a two-factor Vasicek model. To reduce Monte-Carlo error, antithetic variables are used. Corporate credit spreads are modelled stochastically. The key economic assumptions for the risk-neutral 2015 valuation (modifying 2014 approach based on Liquidity Premium) are, for each economy: • the reference rates (swap curve adjusted for credit risk (CRA) as defined by EIOPA); • the volatility (VA) adjustment; • the implied volatilities for each asset class; • the correlations between different asset classes. Reference rates (before application of volatility adjustment) The reference rates are based on EIOPA curve in all countries: swap rates adjusted for CRA with the exception of Hungary and Poland, where the local swap curve is not considered by EIOPA a robust basis for producing reference rates and the government bond adjusted for CRA rates have been used. For maturities beyond the last term where the market is deemed to be fully deep, liquid and transparent (the extrapolation “last liquid point”), reference rates have been extrapolated. Generali’s approach to extrapolation for the year-end 2015 EV valuation is unchanged from previous year. In particular, starting from the extrapolation “last liquid point” (“LLP”), slightly changed for some currencies in accordance with EIOPA, reference rates are assumed to gradually converge to a certain ultimate long-term forward rate (“UFR”) in a certain number of years (the “convergence period”). The following table summarises Generali’s reference rates assumptions for its main currencies. Reference rates before volatility adjustment at 31 December 2015 - definition

Extrapolation

Base LLP UFR Convergence period Method

EUR Swap (net CRA) 20 yrs 4.20% 40 yrs Smith-WilsonCHF Swap (net CRA) 25 yrs 3.20% 40 yrs Smith-WilsonGBP Swap (net CRA) 50 yrs 4.20% 40 yrs Smith-WilsonCZK Swap (net CRA) 15 yrs 4.20% 45 yrs Smith-WilsonHUF Govt (net CRA) 15 yrs 4.20% 45 yrs Smith-Wilson


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According to the assumptions illustrated above, the par reference rates (unadjusted for the CRA) used in the valuation as at 31 December 2015 are shown in the following tables for the main currencies. Par reference rates at 31 December 2015 - before application of volatility adjustment

1 year 2 year 5 year 10 year 20 year 30 year

EUR (swap) -0.06% -0.03% 0.33% 1.00% 1.56% 1.99%CHF (swap) -0.70% -0.65% -0.31% 0.25% 0.74% 1.00%GBP (swap) 0.85% 1.10% 1.59% 2.01% 2.21% 2.16%CZK (swap) 0.28% 0.41% 0.64% 1.00% 1.66% 2.16%HUF (govt) 1.13% 1.85% 2.68% 3.42% 4.18% 4.29% Volatility adjustment and Credit Risk adjustment The Volatility adjustment (VA) and Credit Risk adjustment (CRA) used at year-end 2015 valuation has been taken from the official EIOPA publication for each relevant currency/country. The following table summarizes the appropriate adjustment adopted at YE15 valuation on top of the risk free rate for the main currencies. Volatility & Credit Risk adjustment at 31 December 2015

VA CRA

EUR 22 bps -10 bpsCHF 9 bps -10 bpsGBP 31 bps -12 bpsCZK 6 bps -10 bps Implied volatilities To model equity and property, a range of equity indices is considered, and a log excess return above short rate model is used to generate returns from fixed income dynamics of the economy. A time-varying volatility model is adopted for modelling the equity index. Equity volatilities are taken from implied volatilities of at the money forward equity index quoted options. Concerning property, a constant volatility model is used, with volatilities taken mainly from historic returns also reflecting other available data sources. Fixed income volatilities are taken from implied volatilities of at the money swaptions. Swaption implied volatility and equity option implied volatility used for year-end 2015 EV valuation have been based on the following market data as at 31 December 2015. All available market data have been used, without any smoothing or anchoring techniques except for Germany where anchoring techniques are adopted with a Long term target level equal to 9,34%. The following tables compare 2014 and 2015 volatilities, highlighting the sharp increase for medium-long term of interest rates volatilities across their whole surface. Valuation at 31 December 2015

Swaption implied volatilities Equity option implied volatilities1 year 2 year 5 year 10 year 20 year 1 year 2 year 5 year 7 year 10 year

EUR 52.5% 47.9% 38.4% 33.8% 42.4% 20.8% 20.6% 21.5% 21.5% 21.5%CHF 146.7% 122.3% 90.9% 75.6% 39.2% 16.8% 16.5% 16.2% 16.3% 16.4%CZK 80.2% 78.4% 58.7% 37.0% 21.5% 17.4% 17.8% 18.1% 18.7% 19.2%

Valuation at 31 December 2014Swaption implied volatilities Equity option implied volatilities

1 year 2 year 5 year 10 year 20 year 1 year 2 year 5 year 7 year 10 year

EUR 57.9% 53.4% 43.6% 38.4% 35.6% 20.2% 19.9% 20.3% 20.6% 20.7%CHF 60.8% 58.3% 56.8% 48.5% 43.6% 15.7% 15.6% 15.7% 16.8% 17.8%CZK 53.6% 56.0% 42.5% 37.8% n/a 19.9% 19.6% 19.5% 19.3% 19.1%

The swaption volatilities illustrated above refer to volatilities implied in options on 10-year swap at the money; where market data were not available, model output has been used. The equity indices used in the


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calibration are the Euro Stoxx 50 for the EUR economy, SMI for the CHF economy and PX for the CZK economy. Correlations Correlations between asset returns, being not directly observable metrics, are inferred using an analysis of historical data, expert opinions and expectations implied by market prices. For each considered economy, the excess return correlation target between 10-year bond and equity is 15% (17% in 2014). 6.1.2 Other Economic Assumptions Future taxation The assumptions for future taxation are based on the prevailing local tax rates as at the respective valuation dates. Where applicable, account has been taken of the specific tax treatment of income on certain asset classes backing both technical reserves and required capital, including tax credits or exemptions on dividend income, tax credits on investment returns and tax exemptions on certain qualifying participations. In Italy, allowance has also been made for loss of interest that is associated to the taxes payable in advance on reserves according to DL. 168/2004 and subsequent amendments and the “Legge di stabilità 2016” that allowed for reduction of IRES from 27.5% to 24% starting from 1th of January 2017. The following table shows the ordinary average taxation rates at 31 December 2015 and 2014.

Taxation as at 31 December 2015 and 20142015 2014

Italy 32.7% 34.3%France 34.4% 34.3%Germany 32.0% 32.0%Central Eastern Europe 19.1% 19.2%EMEA 22.4% 21.7%Lat.Am.&Asia 23.1% 23.4%

Exchange rates All the EV-related values have been calculated using local currencies, converted to EUR using year-end exchange rates. Within the full year NBV, each quarterly NBV has been converted to EUR using the exchange rates valid at the end of the quarter. The following table shows the assumed year-end exchange rates (foreign currency against 1 EUR) for selected currencies. Exchange rates as at 31 December 2015 and 2014

2015 2014GBP United Kingdom Pound 0.74 0.78CHF Switzerland Franc 1.09 1.20CZK Czech Republic Koruny 27.02 27.72HUF Hungary Forint 316.01 315.75PLN Poland Zloty 4.29 4.30CNY China Yuan Renminbi 7.05 7.51

Inflation rates Inflation rates have been derived from the market implied inflation rate in the scenarios’ calibration process described above. To inflate expenses, specific allowance has also been made for the additional inflation related to salaries and medical costs.


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6.2 OPERATING ASSUMPTIONS Operating assumptions such as expenses and commissions, mortality, morbidity, lapses and annuity take-up rates, have been determined by each company on the base of their best estimates as of the valuation date, referring to the current experience when available or to appropriate industry benchmarks. Regarding the expenses, full allowance has been made for all expenses within the life and health business in the Group, with the exclusion of 94mln of non-recurrent expenses (after tax) treated as extraordinary expenses. The value of new business at point of sale is shown after the deduction of all acquisition costs. Maintenance expenses, generally expressed as per-policy amounts, are assumed to increase at the inflation rate, with specific allowance for the inflation of salaries and medical costs. Commissions and other payments to distribution channels have been projected based on the agreements in-force at the valuation date. Life insurance and asset management contract charges, terms and conditions, including surrender value bases, management fees and other charges, have been assumed to remain unaltered at the levels prevailing at the valuation date, as have all infra-group arrangements. Management actions included in the actuarial platforms (mainly consisting in decisions regarding asset investment and disinvestment, payments to and withdrawals from profit sharing funds, and the determination of crediting rates – see also Annex A2) are in line with the regulatory requirements and with actual strategies as executed in recent years and as expected in agreed business plans.


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Annex A: METHODOLOGY

Generali has adopted a “bottom-up” market consistent stochastic approach, which is compliant with the Market Consistent Embedded Value (MCEV) Principles published by the European Insurance CFO Forum in October 2009, with the exception of Principles 14 (reference rate) and from 17.3.37 to 17.3.45 (disclosure of Group MCEV). In line with the MCEV Principles, the Embedded Value is defined as the sum of the Adjusted Net Asset Value and the Value In-Force.

A1. ADJUSTED NET ASSET VALUE With reference to the consolidation perimeter of the covered business, the Adjusted Net Asset Value (ANAV) corresponds to the consolidated market value of the assets backing the shareholders’ funds, net of taxes and policyholder interests on unrealised capital gains and losses, and net of other adjustments required to maintain consistency with the methodology underlying Value In Force. In particular, ANAV is derived from corresponding IFRS shareholder’s equity, adjusted to reflect the after tax impact of the following main items:

• elimination of the value included in the IFRS Equity for Goodwill, DAC, Value of Business Acquired and other intangibles;

• adjustment to fair value for assets not backing technical provisions that are not considered on a fair value basis under IFRS (in particular property and loans);

• elimination of any unrealised gain/loss included in the IFRS shareholder’s equity which is already captured in the VIF;

• other adjustments to reflect the economic valuation of items already captured in IFRS NAV but not considered at their fair value.

ANAV can be broken down into required capital and free surplus. Required capital Required capital represents the market value of assets that are needed to support the covered business in addition to those required to back technical reserves and other policyholder liabilities, taking into account both local regulatory solvency requirements and internal objectives. In the year-end 2014 valuation, Generali defined the level of required capital for each business unit as the greatest between the local regulatory minimum capital requirement and the risk capital arising from the Group’s Economic Balance Sheet methodology. It was presented net of the impact of relevant eligible items that can be used to support capital requirements with no associated cost to shareholders. Starting from year-end 2015 Generali defines the level of required capital for each EEA business unit as the Regulatory Solvency II risk adjusted capital. It is presented net of the impact of relevant eligible items that can be used to support capital requirements with no associated cost to shareholders. For non EEA it is defined as the 100% of the local regulatory required capital, net of the relevant free coverage. In case of local restrictions on distribution of free assets, no free coverage has been applied. Free surplus Free surplus represents the market value of assets allocated to the Life perimeter that are not required to support the covered business at the valuation date and is defined as the excess of ANAV over the required capital.

A2. VALUE IN-FORCE The Value In-Force is defined as the present value of the projected stream of after tax industrial profits that are expected to be generated by the covered business in force at the valuation date, assuming assets at local statutory book values (segregated fund values for Italian revaluable business) equal to the technical reserves, net of the cost of financial guarantees and options granted to policyholders, the frictional costs of holding required capital and the cost of non hedgeable risks. Calculations are performed at local company level, based on local statutory reserving regulations.


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Taxes are applied taking into account prevailing fiscal regimes. In case of projected tax credits, Generali allows for the consideration of existing consolidation effects at Country level and for the use of possible management actions which can be carried out at Group level to ensure their full recoverability. For participating business, the profit sharing and the allocation of profits between shareholders and policyholders have been based on local company practice, taking account of regulatory constraints. VIF can be broken down into the components illustrated below. Present Value of Future Profits before Time Value of Financial Guarantees and Options It is equal to the present value of future after tax industrial profits calculated according to a certainty-equivalent approach, i.e. projecting cash flows in a scenario in which the market return of all assets is set equal to the reference rate and discounting at the same reference rate. It represents the value of the business without taking credit at valuation date for any future asset risk premium over the reference rate and it captures the intrinsic value of financial guarantees and options. Time Value of Financial Guarantees and Options (Time Value of FG&O) It represents the additional cost to shareholders associated with financial guarantees and options, including dynamic policyholder behaviour, over and above the intrinsic value that is already reflected in the PVFP defined above; it is calculated on a market consistent basis. For the vast majority of business with financial guarantees and options, stochastic models are used to project future industrial profits over a range of risk-neutral economic scenarios, appropriately allowing for the impact of financial guarantees and options. The mean of the PVFPs arising in the different economic scenarios represents the value of the business allowing for the market consistent value of the financial guarantees and options, determined in line with the way cash flows with similar optionality would be valued in the financial markets. The Time Value of Financial Guarantees and Options is then calculated as the difference between the PVFP before the Time Value of FG&O defined above and the mean of the stochastic PVFPs. Stochastic models are set up appropriately allowing for the business-specific structure of financial guarantees and of profit sharing, and also allowing for management actions and for the corresponding behaviour of policyholders. Management actions mainly consist in decisions regarding asset investment and disinvestment according to scenario specific cash flow positions, payments to and withdrawals from profit sharing funds, and the determination of crediting rates. The target asset allocation is consistent with the asset mix at the valuation date and the principles underlying management actions are in line with the regulatory requirements and with actual strategies as executed in recent years. The stochastic models also allow for policyholder behaviour linked to the development of the capital markets, so that the propensity for lapses increases when market yield is more competitive than the crediting rate offered by the insurer. The most material financial guarantees and options offered by the covered business are guaranteed interest rates, minimum maturity values, guaranteed minimum surrender values and, where appropriate, inflation guarantees and guaranteed take-up rates on traditional business, and guaranteed maturity values on unit-linked business. Frictional costs of required capital Frictional costs of required capital reflect the economic costs incurred by shareholders through investing the required capital in an insurance company rather than directly. They are mainly represented by taxation and any policyholders’ interests on the investment income of assets backing the required capital plus the investment expenses incurred for the management of these assets (where these have not been already allowed for in the PVFP). Frictional costs of required capital are independent of the cost of non hedgeable risks. Frictional costs are calculated by projecting the future levels of required capital over the lifetime of the business. Where the required capital is based on the internal risk capital, the projection is performed using appropriate risk drivers.


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Cost of non hedgeable risks (Cost of NHR) The cost of non hedgeable risks is an explicit, additional and separate allowance that covers non hedgeable risks not already allowed for in the PVFP and the Time Value of FG&O. As a general principle, non hedgeable risks refer to both financial and non-financial risks. Since the assumptions for non hedgeable risks used in calculating the PVFP and the Time Value of FG&O are best estimate and company specific, the cost of NHR reflects the fact that:

• experience may vary from projection assumptions and hence a charge for uncertainty in the setting of the best estimate assumptions could be needed;

• the single best estimate assumptions may not fully capture the asymmetry in shareholder’s results; • allowance should be made for any risks that are not included in the PVFP and the Time Value of

FG&O (e.g. operational risks). The cost of non hedgeable risks is calculated using a “cost of capital” approach, based on Solvency II Capital for non hedgeable risks projected across all projection years with appropriate drivers. The annual charge applied is equal to 4%, before the application of taxes at the local ordinary taxation level.

A3. NEW BUSINESS VALUE New business refers only to new contracts written in the year and excludes other automatic premium increases relating to prior years’ business. NBV is determined as the present value, at the point of sale (i.e. taking account of the first year new business strain) of the projected stream of after tax industrial profits that are expected to be generated by the covered new business written in the year, net of the cost of financial guarantees and options granted to policyholders, the frictional costs of setting up and holding required capital and the cost of non hedgeable risks. The full-year NBV is defined as the algebraic sum of the NBV of each quarter, calculated with beginning of period operating and economic assumptions. Each quarterly NBV is consolidated after consideration of end of quarter minorities, and converted to Euro using end of quarter foreign exchange rates.


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Annex B: “REAL-WORLD” PROJECTIONS AND IMPLIED DISCOUNT RATES

B1. “REAL-WORLD” BEST ESTIMATE PROJECTIONS “Real-world” best estimate financial assumptions are used by companies performing market consistent valuations, to derive:

! the best estimate expected results and the unwinding rate (implied discount rate, see Section B2) within the analysis of movement;

! the internal rate of return and payback period of the new business. The structure of the economic assumptions used in “real-world” projections is unchanged in respect of prior years and it is based on country-specific benchmark rates set equal to the 10-year par yield of local government bonds. The returns of the other asset classes are then set by adding pre-determined risk premia to the country-specific benchmark rates. The assumptions used are summarised in the following tables with reference to 31 December 2014 and 2015.

Best-estimate economic assumptions as at 31 December 2015Italy France Germany CEE EMEA Lat.Am.&Asia

10 y Government Bond 1.61% 1.00% 0.66% 1.66% 1.06% 3.90%Equity Total Return 3.56% 3.56% 3.56% 3.47% 3.32% 6.25%Property Total Return 1.81% 1.81% 1.81% 1.71% 1.40% 4.50%

Best-estimate economic assumptions as at 31 December 2014Italy France Germany CEE EMEA Lat.Am.&Asia

10 y Government Bond 1.91% 0.84% 0.57% 1.61% 0.94% 4.53%Equity Total Return 3.47% 3.47% 3.47% 3.50% 3.37% 7.11%Property Total Return 1.72% 1.72% 1.72% 1.88% 1.58% 5.36%

B2. IMPLIED DISCOUNT RATES Generali’s market consistent approach provides a direct calculation of VIF and NBV, and does not require the calculation of traditional deterministic risk discount rates. However, even under this valuation framework, it is possible to derive implied discount rates (IDRs), defined as the discount rates that, when used in a traditional EV model, produce the same value as that arising from the market consistent valuation. In contrast to a traditional EV valuation, IDRs are outputs of the valuation rather than assumptions for the EV model. Changing the assumptions used to project future profits in the best estimate scenario can have an impact on the resulting IDR, but the value (VIF/NBV) would remain unchanged. The calculation of IDRs requires a deterministic projection of future profits in a “real-world” best estimate scenario, exactly as in the traditional deterministic EV framework. The set of deterministic “real-world” best estimate assumptions used for the calculation of IDRs is the same as that used by companies calculating a traditional deterministic EV, using Generali’s definition of required capital. IDRs enable comparison with the traditional EV valuation and represent a meaningful measure of the risk profile of the business, as reflected in the market consistent value, providing an estimation of what return might be expected if actual future investment returns were consistent with the best estimate assumptions. According to Generali’s approach, IDRs are not only a useful measure of the risks embedded in the business, but they are also the basis used for the unwinding in the movement analysis. The tables below report the IDRs for the main geographic areas, broken down into the two following components: the “risk-free” rate, which reflects the yield on local government bonds (in the local currency) based on the average duration of profits, and the risk premium, which neutralises the “real-world” best estimate assumptions and allows for the cost of financial guarantees, including dynamic policyholder behaviour, and for the cost of non hedgeable risks.


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At year-end, both the risk free and the risk premium components of the IDR reports a significant reduction, which reflects the general decrease of interest rates and the reduced gap between the “real world” assumptions used for illustrative purposes and the “risk neutral” market consistent assumptions used for valuation purposes.

Breakdown of Embedded Value IDR per geographical areas as at 31 December 2015 and 2014VIF - IDR 2015 VIF - IDR 2014

Risk Free Risk Premium IDR Risk Free Risk Premium IDRItaly 1.49% 4.32% 5.81% 2.32% 2.79% 5.11%France 1.22% -0.68% 0.53% 1.53% 2.12% 3.65%Germany 1.23% -1.10% 0.14% 1.47% -0.40% 1.07%Central Eastern Europe 1.27% 1.36% 2.63% 1.43% 1.54% 2.97%EMEA 0.56% 4.28% 4.85% 0.98% 4.21% 5.19%Lat.Am.&Asia 5.04% 5.32% 10.36% 4.89% 2.97% 7.86%Total 1.25% 1.55% 2.81% 1.72% 1.88% 3.60%

Breakdown of New Business Value IDR per geographical areas 2015 and 2014NBV - IDR 2015 NBV - IDR 2014

Risk Free Risk Premium IDR Risk Free Risk Premium IDRItaly 1.90% 3.67% 5.57% 2.44% 2.34% 4.78%France 1.47% 1.63% 3.10% 1.28% 2.42% 3.71%Germany 1.33% -0.50% 0.84% 1.13% 0.63% 1.76%Central Eastern Europe 1.27% 0.30% 1.57% 1.51% 0.87% 2.38%EMEA 1.33% 1.61% 2.94% 1.63% 1.64% 3.28%Lat.Am.&Asia 4.07% 3.79% 7.86% 3.63% 5.31% 8.94%Total 1.74% 2.51% 4.25% 1.94% 2.08% 4.03%

Finally, the following tables provide the sensitivity for VIF and NBV to an increase of 100bps of IDR in the “real-world” best estimate projections. VIF and NBV Sensitivity to +100bps in IDR as at 31 December 2015

VIF NBVIDR IDR +1% Change IDR IDR +1% Change

Italy 6,917 6,507 -5.9% 589 480 -18.6%France 2,521 2,083 -17.4% 62 24 -61.1%Germany 4,237 3,489 -17.7% 191 137 -28.1%Central Eastern Europe 1,135 1,086 -4.3% 39 31 -21.7%EMEA 2,551 2,248 -11.9% 174 138 -20.9%Lat.Am.&Asia 245 225 -8.3% 42 27 -34.6%Total 17,605 15,637 -11.2% 1,097 837 -23.7%


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Annex C: Definitions Embedded Value (EV) is an actuarially determined estimate of the value of a company, excluding any value attributable to future new business. With reference to the covered business, and to the relevant consolidation perimeter (i.e. the operating life and health companies of the Group), the EV is equal to the sum of the Adjusted Net Asset Value and the Value In-Force. Adjusted Net Asset Value (ANAV) corresponds to the consolidated market value of the assets backing the shareholders’ funds, net of taxes and policyholder interests on any unrealised capital gains and losses, after the elimination of goodwill and DAC, net of other adjustments required to maintain consistency with the valuation of the in-force business, and before the payment of dividends from profits of the year. Value In-Force (VIF) is the present value of the projected stream of after tax industrial profits that are expected to be generated by the covered business in force at the valuation date, after allowance for:

! the cost of financial guarantees and options granted to policyholders; ! the frictional costs of holding the required capital; ! the cost of non hedgeable risks.

Embedded Value Earnings correspond to the difference between the closing and the opening EV, excluding adjustments to opening EV and capital movements. Operating Embedded Value Earnings correspond to Embedded Value Earnings, net of economic variances and other non operating variances. Normalised Embedded Value Earnings correspond to Operating Embedded Value Earnings, net of other operating variances. Required Capital is the market value of assets that are needed to support the covered business in addition to those required to back technical reserves and other policyholder liabilities, taking into account local regulatory solvency requirements and internal objectives. New Business Value (NBV) is the present value, at the point of sale, of the projected stream of after tax industrial profits expected to be generated by the new business written in the year, after allowance for:

! the cost of financial guarantees and options granted to policyholders; ! the frictional costs of setting up and holding the required capital; ! the cost of non hedgeable risks.

Full year NBV is calculated as the algebraic sum of the NBV of each quarter, each of them calculated with beginning of period operating and economic assumptions. Annual Premium Equivalent (APE) is defined as new business annualised regular premiums plus 10% of single premiums. Present Value of New Business Premiums (PVNBP) is defined as the present value of the expected future new business premiums, allowing for lapses and other exits, discounted to point of sale using the reference rates. Internal Rate of Return (IRR) is defined as the rate that makes equal to zero the present value of new business distributable profits (therefore allowing for new business first year industrial strain and required capital absorption) calculated using “real-world” best estimate assumptions (see Annex B1). Payback Period is the period of time (in years, from issue date) required to recover the cost of the initial investment in new business (i.e. new business first year industrial strain and required capital absorption) calculated by means of a deterministic projection of distributable profits based on “real-world” best estimate assumptions (see Annex B1). Implied Discount Rate (IDR) is the discount rate that, when applied to a deterministic projection of future distributable profits based on “real-world” best estimate assumptions (see Annex B1), produces the same value as that arising from the market consistent valuation.

______________________________________________________________________________ Disclaimer To the extent that this paper includes prognoses or expectations or forward-looking statements, these statements may involve known and unknown risk and uncertainties. The actual results and developments may, therefore, differ materially from the stated prognoses or expectations. Besides other reasons not specified here, deviations may be the result of changes in the overall economy or the competitive situation, especially in core activities and core markets. Deviations may also result from lapse ratios, mortality and morbidity rates or tendencies. The development of financial markets and foreign currency exchange rates as well as amendments of national and international law, particularly in respect of tax rules, may have an influence. The company is under no obligation to update the statements made in this paper.

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Generali 2015 Life Embedded Value - Assicurazioni Generaliintegratedreport2015.generali.com/sites/generali15fin/files/... · Assicurazioni Generali 2015 Life EV Supplementary Information