REPORTS AND ACCOUNTS 2017 - realemutua.it · 1.3 Reale Group Strategy 210 1.4 Sustainability Report 211 1.5 Summary of Results 212 1.6 Investment Management 229 1.7 Human resources

REPORTS AND ACCOUNTS 2017

REALE GROUP CELEBRATES REALE MUTUA'S 190TH ANNIVERSARY

BOARD OF DIRECTORS

Chairman Iti MIHALICH

Directors Maurizio BAUDI DI SELVE

Mario CARRARA

Giovanni FACCHINETTI PULAZZINI

Romano GIANOTTI

Edoardo GREPPI

Luigi GUIDOBONO CAVALCHINI

Luigi LANA

Enrico MARENCO DI MORIONDO

Carlo PAVESIO

Gian Savino PENE VIDARI

Vittorio Amedeo VIORA

Marco WEIGMANN

Secretary to the Board Massimo LUVIE'

BOARD OF STATUTORY AUDITORS

Chairman Edoardo ASCHIERI

Standing Auditors Mario BERALDI

Marco LEVIS

Substitute Auditors Giuseppe ALDE'

Barbara Maria BARRECA

GENERAL MANAGEMENT

General Manager Luca FILIPPONE

Joint General Manager Massimo LUVIE'

Deputy General Managers Maurizio CAPPIELLO (9 January to 18 June 2017)

Andrea BERTALOT (since 19 June 2017)

CONTENTS

STATUTORY FINANCIAL STATEMENTS

1. REPORT ON OPERATIONS 9

1.1 Macroeconomic Scenario and Markets 11 1.2 Regulatory Developments 15 1.3 Reale Group Strategy 19 1.4 Sustainability Report 20 1.5 Summary of Results 21 1.6 Investment Management 33 1.7 Risk Management 36 1.8 Human resources 40 1.9 Innovation Technology 43 1.10 Information Technology 44 1.11 Sales, Marketing and Communication 45 1.12 Litigation 48 1.13 Other Information 49 1.14 Relationships with Subsidiary and Associated Companies 50 1.15 Main events in early 2018 54 1.16 Business outlook 54 1.17 Audit 55 1.18 Motions on the Profit for the Year 55

2. BALANCE SHEET AND INCOME STATEMENT 57

Balance Sheet 58 Income Statement 70

3. NOTES TO THE FINANCIAL STATEMENTS 79

Part A: Valuation criteria 81 Part B: Commentary on the Balance Sheet and Income Statement 88 Part C: Other Information 121

4. ANNEXES TO THE NOTES 129

5. OTHER ANNEXES 187

CONSOLIDATED FINANCIAL STATEMENTS

THE GROUP 193

Consolidation area 195

1. REPORT ON OPERATIONS 197

1.1 Macroeconomic Scenario and Markets 199 1.2 Regulatory Developments 206 1.3 Reale Group Strategy 210 1.4 Sustainability Report 211 1.5 Summary of Results 212 1.6 Investment Management 229 1.7 Human resources 231 1.8 Innovation Technology 233 1.9 Distribution Network 234 1.10 Litigation 235 1.11 Other Information 236 1.12 Main events in early 2018 237 1.13 Business outlook 238 1.14 Audit 238

2. GENERAL ACCOUNTING SCHEDULES 239

Balance Sheet 240 Income Statement 242 Statement of comprehensive income 243 Statement of changes in Shareholders’ Equity 244 Cash Flow Statement 245

3. NOTES TO THE FINANCIAL STATEMENTS 247

General Accounting Principles 248 Consolidation Area 263 Information regarding the Consolidated Balance Sheet 266 Information on the Consolidated Income Statement 292 Segment reporting 299 Information regarding Risks 302 Information regarding business with related parties 315 Other Information 316

4. ANNEXES TO THE FINANCIAL STATEMENTS 319

2017 STATUTORY FINANCIAL STATEMENTS

Meeting of Delegates of 27 April 2018

REPORT ON OPERATIONS

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1.1 MACROECONOMIC SCENARIO AND MARKETS

1.1.1 MACROECONOMIC SCENARIO

The global economy strengthened in 2017. Abundant monetary and fiscal stimulus packages sustained a widespread and synchronised improvement in growth rates in the majority of advanced countries as well as in emerging economies. The expansion of world trade and internal demand also contributed to the positive growth momentum.

According to the latest estimates by the International Monetary Fund (IMF), world GDP grew by 3.7% in 2017, compared to 3.2% in 2016.

In the United States, IMF forecasts point to growth of 2.3%. The most significant contributions came from investments, the increase in inventories and net exports, whereas the contribution of consumption remained substantially unchanged.

The IMF's 2017 growth forecast for China's GDP stood at 6.8% (6.7% in the previous year), mainly as a consequence of the recovery of world trade. China's expansion, which is important for global economic growth, leaves scope for the authorities to reduce the very high level of debt. Growth continued to be driven by consumption, the foreign trade balance improved and industrial production grew thanks to increased investment.

In emerging markets, GDP is estimated to have increased by 4.7% in 2017, on the back of robust growth in industrialised countries, the revival of world trade and the strengthening of commodity prices.

In the euro area, again according to IMF estimates, growth stood at 2.4% in 2017, an improvement on most of the forecasts made at the beginning of the year. The cyclical situation remained strong and sustainable, internal demand was driven by improvements in labour market conditions and wage growth. There were signs of recovery in the construction industry and investment in machinery increased.

After getting off to a slow start, the Italian economy gathered momentum, buoyed both by domestic demand and a rise in exports, with GDP growth estimated at 1.6% at the end of the year: exports made a positive contribution, sustained by growth in global demand and private consumption, linked to the increase (albeit only slight) in income from work and financial wealth. The unemployment rate continued to fall and was 11% in November 2017. Inflation remained weak and stood at 1% in December 2017 as measured by the harmonised index of consumer prices (HICP).


1.1.2 FINANCIAL MARKETS

In 2017 the financial markets were affected by the economic climate outlined in the introduction.

The healthy global economic conditions led to gains on equity markets, but with monetary policy starting to normalise the bond component performed less well.

In the United States, confident in the soundness of economic growth and mindful of trends in the labour market, the Federal Reserve undertook three 25‐basis‐point increases in its benchmark rate and, importantly, began to reduce its securities holdings.

In Europe, the European Central Bank merely re‐tuned its monetary policy stance to the improving cyclical conditions and, starting in September, reduced its monthly asset purchases. On the whole, the ECB continued to pursue an expansionary monetary policy stance, which it expects will be necessary for a further extended period.

Solid global economic growth and the reduction in monetary policy accommodation both in the USA and, to a more limited extent, in Europe, are indications that the long period of falling bond yields could be drawing to an end. So far, however, the uncertainty surrounding inflation expectations has prevented any sudden jump in yields.

Short‐term yields fell and those with a maturity of more than one year were also in negative territory. Euribor 6 months moved from ‐0.22% at the beginning of the year to ‐0.27% at the end of December 2017.

In Italy, the outcome of the constitutional referendum triggered uncertainty over the government's future at the beginning of the year, and Italian ten‐year yield spreads over the equivalent German bund widened to more than 200 basis points. As stability was restored, spreads were able to reflect the improvement in fundamentals, especially with regard to growth and public finances.

Yields on ten‐year Italian government bonds rose from 1.82% at the end of December 2016 to 2.02% at the end of December 2017. The spread compared with ten‐year German bunds stood at 159 basis points at the end of 2017, substantially unchanged with respect to the 161 at the end of 2016.

During the same period, yields on ten‐year German bunds rose to 0.43%, an increase of 0.21% compared to the end of December 2016, although much of the increase took place in the second half of December.

In Spain robust economic growth contributed to lowering the credit risk on sovereign debt, which was only marginally affected by the Catalan crisis. Yields on ten‐year government bonds increased from 1.38% at the end of 2016 to 1.57% at the end of 2017, reflecting the increase in German bunds. After reaching 130 basis points in the immediate aftermath of the referendum in Catalonia, the spread compared with ten‐year German bunds stood at 114 basis points at the end of the year, practically unchanged with respect to the 118 recorded at the end of 2016.

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Ten‐year government bond yields GERMANY ‐ ITALY ‐ SPAIN (source: Bloomberg)

2017 was a positive year for corporate bonds, which benefited from the economic recovery and, above all, the central banks' asset purchase programmes. There was a further narrowing of spreads against government securities.

In 2017, equities were the best asset class in terms of returns, in line with improvements in the economy.

In the US, the Dow Jones appreciated by 25.08%.

The Euro Stoxx index ended the year up 6.49%, the German DAX moved up 12.51%, the French CAC by 9.26% and the Spanish IBEX index closed 7.40% higher. The Italian FTSE MIB index closed the year up 16.61%, one of the best performers in Europe, buoyed by an improved outlook for the bank sector and an increase in investment following the introduction of Individual savings plans (Piani Individuali di Risparmo ‐ PIR).

Prices on the Italian FTSE MIB index in 2017 (source: Bloomberg)

With the more stable political backdrop and improving economy, the euro strengthened and the EUR/USD rate reached 1.20 in December, its highest for the year.

Germany Spain

Jan JanMay June July Aug Sep Oct Dec Feb Mar Apr Nov

Italy

Jan May June July Aug Sep Oct Dec Feb Mar Apr Nov


1.1.3 THE INSURANCE MARKET

According to the data provided by ANIA for the last quarter of 2017, on the Italian insurance market (Italian companies and representative offices of non‐EU insurers) there was a 2.4% year‐on‐year decrease in premium income, reflecting negative performance in the Life sector (‐3.6%).

Non‐life insurance business

In the last quarter of 2017 there was a 1.2% year‐on‐year increase in Non‐life business. There was a 0.8% reduction in premium income in the Motor sector: premium income in the TPL land vehicles and TPL marine, lake and river craft businesses decreased by 2.2%, whereas Hulls land vehicles went in the opposite direction, with a 6.3% increase. These lines accounted for 49.6% of total Non‐life premiums (50.6% in 2016). Premium income in the Non‐motor sector increased by 3.2%: among the businesses with the highest premium income were Accident (+2.6%), Health (+9.5%), Fire and natural forces (+1.0%), Other property damage (+1.4%), Non‐motor TPL (+0.9%), Sundry pecuniary losses (+14.3%) and Assistance (+5.9%), whereas the Transport and Credit and surety businesses posted decreases of ‐2.0% and ‐1.5%, respectively, compared to the same period of the previous year. The premium income generated by Non‐motor classes accounted for 50.4% of total Non‐life premium income (49.4% in 2016).

Life insurance business

In the last quarter of 2017 there was a 3.6% year‐on‐year decrease in Life business. In detail, there was a decrease in premium income for class I (‐14.7%) and for class V products (‐7.0%), which accounted for 63.7% and 2.6%, respectively, of total Life premiums. There was significant growth in class III premiums (unit‐linked products), which increased by 30.1%, and in class VI premiums (Pension funds), which rose by 9.8%. These accounted for 31.7% and 2.0%, respectively, of total Life premiums.

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1.2 REGULATORY DEVELOPMENTS

Changes to tax regulations

Law No. 205 dated 27 December 2017, the “2018 Budget Law” was published on 29 December 2017. The Budget Law includes several important changes effective as of 1 January 2018. Some of the main points that will affect Group companies are outlined below:

‐ Extension of the extra depreciation deduction for capital goods, introduced by Law No. 208/2015 (2016 Stability Law) ‐ art 1, section 29.

‐ Extension of the so‐called "hyper depreciation" rate applicable to capital goods used for technological and/or digital transformation processes under an initiative known as the "Industry 4.0" plan, introduced by Law No. 232/2016 (2017 Stability Law) ‐ art. 1, sections 30‐36.

‐ Revaluation of company assets (art. 1, sections 997‐998). The possibility of recording the higher value of tangible assets and equity investments included in the financial statements as at 1 January 2018 has been extended for one year.

‐ Tax credit for Industry 4.0 training activities (art. 1, sections 46‐56). The Budget Law introduces a tax credit for companies that sustain costs for training activities related to the "Industry 4.0" technology development programme. The tax credit amounts to 40% of the costs incurred relating solely to the company's employees for the period in which they are engaged in training activities, up to a maximum of € 300,000 per year for each beneficiary company. It is subject to the condition that the training activities are agreed upon through corporate or regional collective agreements.

‐ Mandatory electronic invoicing (art. 1, sections 909‐917). The Law introduces the universal obligation to issue electronic invoices as from 1 January 2019. The obligation applies to sales of goods and supplies of services to entities liable to VAT and private individuals resident, established or identified in Italy.

‐ VAT grouping rules (article 1, sections 984‐985). Transactions between a member of a VAT group and the permanent establishment of another member of that same VAT group are liable to VAT.

‐ Future VAT rate increase (art. 1, section 2). From 1 January 2019 the standard VAT rate will increase from 22% to 24.2% and the reduced 10% rate will increase to 11.5%; from 1 January 2020 the reduced rate will be raised to 13% and the standard rate to 24.9%; from 1 January 2021 the ordinary rate will be increased to 25%. These VAT rate increases will apply unless other measures are implemented that would guarantee positive effects on public spending.

‐ Insurance premiums covering the risk of natural disasters (art. 1, sections 768‐770). Taxpayers will be able to deduct 19% of insurance premiums paid to cover the risk of natural disasters under policies relating to residential property units from IRPEF.

‐ Tax on insurance (art. 1, section 769). The Budget Law introduces a system of exemption on insurance for natural disaster policies with the inclusion of art. 11‐bis in Table C attached to Law No. 1216/1961 which defines the insurance policies and annuity contracts exempt from the tax.

‐ Web tax (art. 1, sections 1011‐1017). The Budget Law introduces a tax on online transactions to be levied on services supplied through electronic means, regardless of whether the transaction is concluded in Italy or abroad. The tax will be computed as 3% of the payment due and will apply as from 1 January 2019.

‐ Early retirement (art. 1, sections 162‐163). The Budget Law has extended the voluntary early retirement scheme (APE ‐ Anticipo pensionistico) until 31 December 2019 and amended the criteria to be met by those applying for the social APE scheme, introduced by the 2017 Stability Law.

‐ Structural incentive to employ young workers (art. 1, sections 100‐108 and 113‐115). The Law introduces an incentive for employers who hire young people under a new form of open‐ended employment contract with increasing protection with job tenure (contratto a tutele crescenti) instead of fixed‐term contracts. The incentive applies to young workers aged under 30 (or under 35 if hired in 2018) who have not previously been employed and amounts to a 50% reduction ‐ for a maximum period of 36 months ‐ on social security contributions paid by the employer, up to a maximum of € 3,000 per year.

‐ Tax allowances for companies in relation to renovation work on buildings used in the course of their business activities and for individuals (art. 1, sections 3 and 12‐15). The IRPEF/IRES deductions applicable to energy refurbishment, in general amounting to 65%, and the 50% IRPEF bonus for building renovation work have been extended until the end of 2018. The Budget Law introduces new


rules governing the granting of tax relief for work on common areas of apartment buildings located in seismic zones 1, 2 and 3. The deduction amounts to 80% if the works determine the transition to the next risk class down and 85% if the building moves down by two risk classes.

‐ Local taxes on real estate (art. 1, section 42). The possibility for municipal councils to apply the same increase in the TASI tax rate as in 2016 (up to 0.8 per thousand) and the suspension of any increases in regional and municipal taxes and surtaxes (except TARI) will continue to apply throughout 2018.

Regulatory measures issued by IVASS

In February 2017 IVASS issued two Regulations for the national implementation of the EIOPA guidelines on the financial requirements of the Solvency II Directive (Pillar I requirements). In detail, Regulation No. 34/2017 laying down provisions on governance concerning the valuation of assets and liabilities other than technical provisions and the criteria used for their valuation. Regulation No. 35/2017 reflecting EIOPA guidelines on the adjustment for the loss‐absorbing capacity of technical provisions and deferred taxes. Under these regulations, in determining the solvency capital requirement, companies will be able to take into consideration the risk mitigating effect deriving from the loss‐absorbing capacity of technical provisions and deferred taxes, that is, to reflect potential compensation of unexpected losses through a decrease in technical provisions or deferred taxes.

* * *

On 28 February 2017, IVASS published Regulation No. 36, which came into force on 1 March 2017, establishing the timing, procedures, content and terms for transmitting data and information to IVASS to enable it to conduct statistical surveys, studies and analyses of the insurance market. The introduction of these requirements is also envisaged under art. 159 of the Solvency II Directive. The regulation sets out a comprehensive set of rules for reporting data and information to IVASS to be used in statistical surveys, studies and analyses of the insurance market. It also provides the necessary link with the implementing regulations concerning accounting systems and reporting to supervisory authorities, as well as other changes in the rules on accounting and reporting to the supervisory authority and to the public (Pillar III), consequent to the implementation of the Solvency II Directive. The main points of this Regulation include the requirement for the Board of Directors to approve the "Statistical information policy" and to define a single contact person for reporting statistical information to IVASS.

* * *

In its Letter dated 8 February 2017, IVASS notified Life insurance companies operating in Italy that it had launched an investigation into "dormant" life insurance policies, meaning policies that have not been paid to the beneficiaries and are still held by the insurance undertakings as unclaimed or time‐barred benefits. These may be policies on the death of the policyholder, of which the beneficiaries were not aware, or "savings" policies which, upon maturity, have not been collected for a variety of reasons. According to current legislation, the rights arising from life policies are barred after ten years from the date of the event. After that deadline, insurance undertakings must assign the relative amounts to the Dormant Accounts Fund held by CONSAP as established by Law No. 266 of 23 December 2005. It is important to make sure that the sums arising from people's savings and pension assets are paid to the rightful beneficiaries.

In its Letter to the Market dated 5 June 2017, IVASS asked insurance undertakings to conduct a self‐assessment to estimate their exposure to the risks of money laundering and terrorist financing, in light of the entry into force of the "Fourth Anti‐Money Laundering Directive" (Directive EU 849/2015) and then to submit the results of that assessment to IVASS. In view of the need to adopt a risk‐based approach, article 8 of the Directive establishes the requirement for each intermediary to assess the risks of money laundering and terrorist financing on an annual basis, considering the various factors (customers/products/services/geographic areas or delivery channels) that characterise its business activities. IVASS sent insurers a letter with instructions about the information that must be submitted in two parts by the Anti‐money laundering function which may, if necessary, request the support of other functions. The Anti‐money laundering function must set out the results of the self‐assessment in the annual report required pursuant to IVASS Regulation 41/2012, and include a specific chapter describing the

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steps of the process, the functions involved, the data and information on which the assessments were based, the results obtained and any corrective measures required. In the case of insurance groups, the Italian parent must coordinate the assessments conducted by each group company and account for the results of the assessments of each individual company in its report, assessing the relevance of the residual risks for the entire group.

* * *

On 19 July 2017, IVASS published Consultation paper No. 2/2017 laying down provisions on corporate and group governance and implementing the EIOPA guidelines on that matter pursuant to the Solvency II Directive. The proposal sets out an organised framework covering the following macro‐areas:

‐ the system of corporate governance; ‐ the regulatory framework for reinsurance and other risk‐mitigation techniques; ‐ the management of company assets; ‐ the fundamental functions of corporate governance; ‐ regulations governing remuneration; ‐ regulations governing outsourcing; ‐ group corporate governance.

Other new regulations

After a lengthy process that began in 2015, Parliament finally approved the Annual Law on Competition (Law No. 124 of 4 August 2017), published in the Official Journal of the Italian Republic on 14 August 2017, No. 189 and which came into force on 29 August. The Competition Law, transposing recommendations submitted to Parliament by the Italian Antitrust Authority, introduces several measures that apply to the insurance sector, especially Motor TPL insurance. Some of these came into effect straight away, as from 29 August 2017, while others will be the subject of implementing regulations that will be issued in the coming months. Some notable measures introduced by the new law, which came into force on 29 August 2017, include the increase in the minimum liability amount for TPL cover for buses and coaches, the obligation to provide coverage, the requirement to indicate changes in premiums according to the no‐claims bonus scale, the prohibition of tacit renewal clauses in respect of ancillary Motor TPL insurance, provisions governing no‐claims bonus risk categories, exclusive authorised driver clauses, an extended reporting period for professional liability insurance and procedures for naming witnesses. The Law also includes a number of other provisions that will not come into effect until the respective implementing regulations have been adopted. In detail, art. 132‐ter of the Code of Private Insurance establishes the obligation for insurance undertakings to apply a discount to TPL land vehicle insurance premiums when the following conditions are met: policyholders agree to have their vehicle inspected beforehand; "black box" type devices are installed or are already in place; electronic mechanisms are installed that prevent the starting of the engine when the driver's blood‐alcohol level exceeds the legal limits permitted for driving. The Law also establishes the requirement for IVASS to identify the list of provinces with the highest claims rates, so that policyholders who live in those provinces and who install the black box and have not caused an accident in the last four years obtain an "additional" discount. Paragraph 14 introduces a further requirement whereby if a policyholder who has installed a black box is involved in an at‐fault accident, the penalty in terms of a reduction in the merit rating and increase in the premium (malus) must be less than would otherwise have been applied. Paragraph 14 also establishes that, if a claim is made, the same conditions must apply as well if the policyholder agrees to install a black box the next time the contract is renewed.


* * *

It should be noted that the purpose of Regulation (EU) No. 1286/2014 on key information documents for packaged retail and insurance‐based investment products (PRIIPs), subsequently supplemented by Regulation (EU) No. 653/2017, is to improve the transparency of information offered to investors. The Regulation in question, which came into effect on 1 January 2018, applies to all class I, III, V and multi‐risk Life products that offer savings/investment opportunities for retail investors. It does not apply to pure risk insurance products (e.g., term‐life and long‐term care insurance) or supplementary pension schemes (individual pension plans and pension funds). One important change introduced by the Regulation is the obligation to prepare a document containing key information about the product (KID, Key Information Document) which must be delivered to potential investors, describing the product's features in a brief, clear and easily understandable manner. In detail, the KID must facilitate comparison with other similar products on the market, include a summary risk indicator with a narrative explanation, contain appropriate performance scenarios and show the possible gains and losses, and present and explain the impact of the total costs the investor pays. Under the new rules the insurance broker must provide the KID in good time before the investor is bound by any contract or offer relating to that PRIIP, in order for the investor to be able to make an informed investment decision. This document must be provided together with the information booklet or prospectus. It is required for all investment products that will be placed on the market in future as well as those already on the market.

* * *

On 18 May 2017 the International Accounting Standards Board (IASB) published the final version of the new IFRS 17 on accounting for insurance contracts, which replaces IFRS 4. The new standard, which will take effect as from 1 January 2021, will have a significant and far‐reaching impact, not only in terms of accounting practices, but also on the business activities of insurers. The long time between the date of issue and the date of application of this standard reflects the complexities involved in its implementation. Insurance undertakings will be allowed to defer adoption of the new IFRS 9 for the accounting of financial instruments, to bring the first application date in line with that of IFRS 17 so that they can plan the adoption of the two standards together.

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1.3 REALE GROUP STRATEGY

In the market context outlined above, during the year Reale Group companies developed their strategies, all of which are based on a set of common guidelines:

‐ Identity and solidity: exemplify and accentuate our identity as a mutual insurance Group, develop the sustainability and corporate responsibility system and improve capital management models;

‐ People "at the centre": consolidate and enhance the centrality of individuals, with specific strategies addressing member‐policyholders, agents and employees;

‐ Profitable development: maintain a position consistent with the characteristics of the Group's business, pursuing innovation, profitability and with a special focus on welfare;

‐ Operational excellence: continue to pursue operational excellence through organisational models and processes aimed at fostering simplification, digitalisation and the improvement of services for customers;

‐ Growth and innovation: cultivate ambitions to develop external lines, also by furthering the Group's international expansion, and adopt a system‐based approach to innovation.


1.4 SUSTAINABILITY REPORT

Pursuant to Legislative Decree No. 254 of 30 December 2016 implementing Directive 2014/95/EU of the European Parliament and of the Council of 22 October 2014, as a public‐interest entity and parent undertaking of a large group, Reale Mutua is required to disclose non‐financial and diversity information.

Therefore, starting from 2017, the Parent is required to present a specific consolidated non‐financial statement containing details about its subsidiaries and information relating to environmental, social and employee‐related matters, respect for human rights, anti‐corruption and bribery matters deemed relevant in view of the activities and characteristics of the Group.

The report also provides all the information necessary to understand the business model for the organisation and control of Group activities, including in relation to the management of the above matters, the policies pursued by the Group, including due diligence processes implemented, the outcome of those policies and the relevant non‐financial key performance indicators, the principal risks, generated or sustained, related to those matters linked to the Group's activities, its products, services or business relationships, including supply and subcontracting chains.

The report must contain information relating to at least the following:

‐ the use of energy, specifying whether energy is from renewable and/or non‐renewable sources, and water use;

‐ greenhouse gas emissions and air pollution; ‐ details of current and foreseeable impacts of any risk factors associated with the Group's operations

on the environment and on health and safety or other relevant environmental or health risk factors; ‐ social and employee‐related matters, including the actions taken to ensure gender equality,

implementation of conventions of international and national organisations and procedures for establishing social dialogue;

‐ respect for human rights, measures put in place to prevent human rights abuse and actions taken to prevent discrimination;

‐ measures taken to prevent corruption and bribery, with details of the instruments in place to fight these.

In accordance with the provisions of article 5, paragraph 3(b) of Legislative Decree No. 254/2016, the Parent has prepared this consolidated report as a separate document called the Reale Group Sustainability Report. The report, prepared in accordance with “GRI Standards”, is available in the "Sustainability" section of the Group's website www.realegroup.eu/IT.

The report is accompanied by the attestation issued by the auditor pursuant to art. 3, paragraph 10 of Legislative Decree No. 254/2016.

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1.5 SUMMARY OF RESULTS

Financial 2017 closed with a net profit of € 70,717 thousand, an increase on the € 57,393 thousand of the previous year. Non‐life business posted a profit of € 76,710 thousand, whereas Life business recorded a loss of € 5,993 thousand, as a consequence of adjustments to the value of financial investments.

The Company's operating results for the year, with comparative figures for the previous year, are set out below.

(in € thousands)

2017 2016 Change

Balance on the technical account for Non‐life business 56,805 41,637 15,168

Balance on the technical account for Life business ‐19,167 ‐23,353 4,186

Total 37,638 18,284 19,354

Net income from investments in Non‐life business 50,266 65,862 ‐15,596

(minus allocated investment return transferred to the ‐30,506 ‐40,868 10,362

Allocated investment return transferred from the Life 7,806 14,412 ‐6,606

Balance of other income and charges 11,724 882 10,842

Income from ordinary operations 76,928 58,573 18,355

Balance of extraordinary income and charges 6,903 3,001 3,902

Profit before taxes 83,831 61,574 22,257

Income taxes for the year ‐13,114 ‐4,181 ‐8,933

Net Profit for the year 70,717 57,393 13,324

Further information is provided in the table below.

2017 2016 Change

Expenses ratio 30.3% 31.0% ‐0.7

Loss Ratio 67.8% 65.4% 2.4

Combined ratio for the year 98.1% 96.4% 1.7

Gross premiums written in 2017 totalled € 2,236,677thousand, increasing by € 1.6% compared with the previous year. Specifically, the Motor business generated premiums for € 552,168 thousand (‐0.7%), whereas Non‐motor business reported a 2.2% increase in the volume of premiums, which amounted to € 863,843 thousand.In the Life business, direct premium income increased by 2.6% for a total volume of € 817,997 thousand. A summary of production in 2017 is provided in the following table:

(in € thousands)

2017 2016 Change

Direct business ‐ Non‐Life 1,416,011 1,400,726 1.1%

Direct business ‐ Life 817,997 797,089 2.6%

Total direct business 2,234,008 2,197,815 1.6%

Inward reinsurance 2,669 2,960 ‐9.8%

Grand total 2,236,677 2,200,775 1.6%

of which:

Non‐life business 1,418,507 1,403,414 1.1%

Life business 818,170 797,361 2.6%

The balance on the Non‐life insurance technical account was positive for € 56,805 thousand (€ 41,637 thousand in the previous year). This reflects the good performance of core business in the Non‐life sector. Net of the allocated investment return, which contributed for € 30,506 thousand (€ 40,868 thousand in the previous year), the result of the technical account was € 26,298 thousand (compared to € 769 thousand at 31 December 2016).


The loss ratio for Non‐life business stood at 67.8%, 2.4 percentage points higher than in 2016. The worsening of this ratio was principally due to an increase in Non‐motor insurance claims as a consequence of significant weather‐related events that affected the Fire business. A large proportion of the cost incurred by direct business for serious claims was however transferred to the result of reinsurance business

The expenses ratio for Non‐life business was 30.3% (31.0% in 2016).

The combined ratio for Non‐life business (equal to the sum of the two previous ratios) increased from 94,4% in 2016 to 98,1% in 2017; the combined operating ratio (which includes the result of reinsurance and other technical items) decreased by 1.8 percentage points (98.1% compared to 99.9% in 2016).

The balance on the Life insurance technical account was negative for € 19,167 thousand, a slight improvement with respect to the loss of € 23,353 thousand in 2016.

Claims paid, including claim settlement costs, amounted to € 1,412,215 thousand, a decrease of 1.8% in relation to 2016, of which € 976,998 thousand for Non‐life business (+0.8%) and € 435,217 thousand referring to Life business (‐7.2%).

Total Non‐Life and Life production costs (which include acquisition and collection commissions and other acquisition costs) amounted to € 380,620 thousand (€ 382,569 thousand in 2016), with a ratio to premiums earned of 17.0% (17.4% in 2016). In particular, the ratio for Non‐life business was equal to 25.0% (25.4% in 2016) while, for Life business, it corresponded to 3.1% (3.3% in the previous year).

General expenses for Non‐life and Life business amounted to € 252,318 thousand (€ 250,633 thousand in 2016) and account for 11.3% of premiums written (11.4% in the previous year). In particular, at € 112,474 thousand, personnel costs increased by 2.9% in relation to the previous year with a ratio to premiums earned of 5.0%, the same as in the previous year. Other administrative expenses totalled € 136,361 thousand, compared with € 137,598 thousand for the previous year, with a ratio to premiums earned that fell from 6.3% to 6.1%, whereas amortisation amounted to € 3,482 thousand, decreasing by 7.9% compared with the previous year. General expenses for Non‐life and Life business totalled € 218,526 thousand, net of recoveries from third parties (+1.4% compared with 2016).

The balance of other income and charges was positive for € 11,724 thousand, compared to a balance of € 882 thousand in 2016. The change was mainly due to the decrease in provisions for future risks and charges in 2017 compared with the previous year.

Ordinary operations, Non‐life plus Life, returned a positive result of € 76,928 thousand, compared with € 58,573 thousand in 2016.

Extraordinary operations reflected a positive balance of € 6,903 thousand in relation to a balance of € 3,001 thousand in 2016.

Income taxes for the year amounted to € 13,114 thousand, compared with € 4,181 thousand in 2016.

* * *

23

The main balance sheet data with comparable data as at 31 December 2016 are set forth in the table below.

(in € thousands)

31.12.2017 31.12.2016 Change

Investments 8,012,132 7,651,449 4.7%

Technical provisions, net 6,758,813 6,449,123 4.8%

Shareholders’ equity 1,977,331 1,906,614 3.7%

Investments reached € 8,012,132 thousand (a 4,7% increase with respect to 31 December 2016). These comprised real estate investments for € 44,829 thousand, equity investments in subsidiaries, affiliates and joint ventures for € 1,973,301 thousand, other financial investments for € 5,990,518 thousand and investments in deposits with ceding companies for € 3,484 thousand.

Net technical provisions amounted to € 6,758,813 thousand compared with € 6,449,123thousand in the previous year (+4,8%).

Shareholders’ equity amounted to € 1,977,331 thousand compared with € 1,906,614 thousand at the end of 2016 (+3,7%).

* * *

Regarding the Pillar III disclosure requirements of the Solvency II Directive, during the year the Company submitted the required quarterly quantitative data to IVASS within the time limits specified. The Company will report its year‐end solvency position within the time limit specified (7 May 2018). As of the date of approval of these financial statements, the Company did not have information about the solvency capital requirement (SCR), the minimum capital requirement (MCR) or eligible own funds that could be considered as definitive. The disclosure requirements pursuant to IVASS Regulation No. 22 of 4 April 2008, as amended by IVASS Order No. 53 of 6 December 2016, have therefore been met, by applying the transitional rules set forth in the aforesaid Order, with the disclosure of a solvency position based on currently available preliminary data; in detail, the position, determined using the standard formula, is as follows:

‐ solvency capital requirement (SCR): € 1,024.4 million; ‐ minimum capital requirement (MCR): € 436.8 million; ‐ eligible own funds, all classified as Tier 1: € 3,043.0 million; ‐ solvency ratio: 297.0%

* * *

In 2017, members received mutuality benefits for € 8,097 thousand, of which € 5,797 thousand in the Non‐life business and € 2,300 thousand in the Life business.


1.5.1 NON‐LIFE INSURANCE OPERATIONS

Gross premiums written in the Non‐life business amounted to € 1,418,507 thousand; the percentage changes for each class of business in relation to the previous year are shown in the table below:

(in € thousands)

2017 composition 2016 composition Change

Accident 91,141 6.4% 91,320 6.5% ‐0.2%

Health 87,038 6.1% 91,364 6.5% ‐4.7%

Hulls land vehicles 110,452 7.8% 107,007 7.6% 3.2%

Hulls railway rolling stock 21 0.0% 6 0.0% 250.0%

Hulls aircraft 5 0.0% 5 0.0% 0.0%

Hulls marine, lake, river craft 2,163 0.2% 2,299 0.2% ‐5.9%

Goods transported 12,431 0.9% 5,168 0.4% 140.5%

Fire and other natural forces 174,475 12.3% 173,014 12.4% 0.8%

Other property damage 209,695 14.8% 206,375 14.7% 1.6%

TPL land vehicles 440,445 31.1% 447,569 32.0% ‐1.6%

TPL aircraft 61 0.0% 52 0.0% 17.3%

TPL marine, river, lake craft 1,271 0.1% 1,252 0.1% 1.5%

Non‐motor TPL 216,677 15.3% 211,221 15.1% 2.6%

Credit 1 0.0% 2 0.0% ‐50.0%

Surety 34,534 2.4% 32,914 2.3% 4.9%

Sundry pecuniary losses 3,681 0.3% 3,113 0.2% 18.2%

Legal fees 13,767 1.0% 12,616 0.9% 9.1%

Assistance 18,153 1.3% 15,429 1.1% 17.7%

Total direct business 1,416,011 100.0% 1,400,726 100.0% 1.1%

Inward reinsurance 2,496 2,688 ‐7.1%

Total Non‐life business 1,418,507 1,403,414 1.1%

Direct premium income increased by 1.1% in relation to the previous year, in line with the 1.2% increase in the Italian market as a whole. There was a 0.7% reduction in business in the Motor sector compared with 31 December 2016, and a 2.2% increase in the Non‐motor sector.

* * *

25

Referring to direct business only, the claims experience, in terms of sums paid, number of claims reported and the ratio of claims to premiums earned, is illustrated in the table below.

Claims paid (€ thousands) Claims reported (number) (*) Loss ratio

2017 2016 change 2017 2016 change 2017 2016

Accident 47,811 47,743 0.1% 14,485 15,213 ‐4.8% 49.2% 50.8%

Health 72,064 78,966 ‐8.7% 190,757 185,828 2.7% 83.8% 87.3%

Hulls land vehicles 61,997 62,773 ‐1.2% 42,089 41,703 0.9% 57.2% 55.8%

Hulls railway rolling stock 6 1 518.5% 0 0 0.0% 1520.7% 271.1%

Hulls aircraft 0 7 ‐100.0% 1 0 0.0% ‐298.1% 133.7%

Hulls marine, lake, river craft 2,236 2,544 ‐12.1% 235 250 ‐6.0% 76.4% 98.0%

Goods transported 5,796 1,152 403.2% 1,918 537 257.2% 60.2% 27.3%

Fire and other natural forces 124,181 103,452 20.0% 23,269 20,921 11.2% 94.8% 74.5%

Other property damage 154,900 142,871 8.4% 105,706 102,916 2.7% 78.7% 77.4%

TPL land vehicles 349,218 367,281 ‐4.9% 84,259 81,531 3.3% 71.7% 71.3%

TPL aircraft 22 54 ‐59.4% 0 0 0.0% ‐194.9% 70.2%

TPL marine, lake, river craft 1,229 1,011 21.6% 174 138 26.1% 75.8% 59.9%

Non‐motor TPL 126,149 130,508 ‐3.3% 29,244 28,551 2.4% 44.3% 42.0%

Credit 1 47 ‐97.0% 0 0 0.0% 526.3% n.a

Surety 16,562 14,928 10.9% 302 397 ‐23.9% 35.0% 37.3%

Sundry pecuniary losses 556 1,002 ‐44.5% 137 127 7.9% 4.9% 28.3%

Legal fees 2,987 3,230 ‐7.5% 2,116 2,007 5.4% 28.2% 28.6%

Assistance 9,421 8,922 5.6% 31,921 29,393 8.6% 56.0% 64.9%

Total 975,136 966,489 0.9% 526,613 509,512 3.4% 67.8% 65.4%

(*) late claims are included

For the main business lines, claim settlement times (by number) for claims generated in the current and previous years, net of claims without follow‐up, are shown in the table below.

Generated in current year Generated in previous years (*)

2017 2016 2017 2016

Accident 45.9% 46.8% 72.5% 71.8%

Health 86.9% 91.4% 92.8% 95.3%

Hulls land vehicles 90.2% 92.0% 88.3% 92.0%

Fire and other natural forces 70.5% 69.5% 81.6% 81.2%

Other property damage 78.0% 79.1% 88.7% 87.3%

TPL land vehicles (**) 73.3% 73.0% 60.4% 64.9%

Non‐motor TPL 55.3% 56.4% 43.3% 43.4%

Other business 77.0% 75.4% 45.0% 56.7%

(*) late claims are included in the claims generated in previous years

(**) claims as CDI agent/CARD manager are included and those as debtor are excluded

* * *

Provisions for unearned premiums and provisions for outstanding claims in Non‐life business, before the reinsurers’ share, amounted, respectively, to € 663,813 thousand, with a y/y increase of 0.8%, and € 1,761,353 thousand, with a y/y increase of 0.6%.

The ratio between technical provisions and premiums written moved from 171.4% in 2016 to 170.7% in 2017.

* * *

The main aspects of the underwriting performance of each business are discussed below.


Accident

Direct premium income amounted to € 91,141 thousand, with a y/y reduction of 0.2%. The decrease was attributable to the corporate sector (‐4.0%), whereas there was a notable increase in the retail sector (+1.5%). The drop in the number of claims reported (‐4.8%) was attributable to the corporate sector (‐9.3%) while the number of claims reported in the retail area remained more or less unchanged (+0.2%). The ratio of claims to premiums earned stood at 49.2%, an improvement on the previous year (50.8%) reflecting an extremely positive run‐off of reserves for prior year claims. The technical result, net of reinsurance, closed with a profit of € 9,952 thousand.

Health

In this business line direct premium income fell by 4.7% to € 87,038 thousand. There was an increase in premium income in the retail sector (+1.6%) and a decrease in the corporate area (‐8.1%) reflecting the loss of a number of major contracts. The number of claims reported rose (+2.7%), mainly in the corporate sector (+2.9%), whereas in the retail sector the number remained substantially unchanged (+0.3%). The ratio of claims to premiums earned stood at 83.8%, lower than in the previous year (87.3%), reflecting a slight improvement in the current year and a particularly positive run‐off of reserves for prior year claims. The technical result, net of reinsurance, was a loss of € 10,509 thousand.

Hulls land vehicles

This business line reported a 3.2% upswing in direct business income for a total of € 110,452 thousand. The increase, though lower than on the market as a whole, reflected the introduction of new products and the recovery of the car industry which led to renewed demand for insurance cover in the Motor sector. There was a particularly marked increase in demand for insurance to cover natural events, breakdowns and windscreen insurance. The ratio of claims to premiums earned corresponded to 57.2%, slightly worse than in 2016 (55.8%). The technical result, net of reinsurance, closed with a profit of € 17,224 thousand.

Goods transported

Direct premium income, equal to € 12,431 thousand, moved up 140,5% in relation to the previous year. The ratio of claims to premiums earned corresponded to 60.2%, compared with 27.3% in 2016. Performance in this business line was strongly influenced by a new policy (with Volkswagen) worth a very large amount. The technical result, net of reinsurance, closed with a profit of € 2,636 thousand.

Fire and other natural forces

Direct premium income amounted to € 174,475 thousand, with a y/y increase of 0.8%. This increase reflected positive performance in the retail sector (+2.9%), but a slight contraction in the corporate area (‐0.3%). The number of claims reported increased (11.2%). The ratio of claims to premiums earned corresponded to 94.8%, significantly higher than in 2016 (74.5%). This was due to a particularly large claim and significant losses caused by severe weather conditions. The technical result, net of reinsurance, was a loss of € 17,272 thousand.

27

Other property damage

Total direct business income amounted to € 209,695 thousand, with a y/y increase of 1.6%. The ratio of claims to premiums earned corresponded to 78.7%, compared with 77.4% in 2016. The Hail business reported a ratio of claims to premiums earned of 138.3%, a clear worsening in relation to the previous year (93.8%). The ratio of claims to premiums earned for the Theft portfolio, which corresponded to 36.3%, was a significant improvement on 2016 (52.3%). Lastly, the ratio of claims to premiums earned for risks other than Theft and Hail was 80.9%, lower than in the previous year (82.1%). The technical result, net of reinsurance, was a loss of € 28,249 thousand.

TPL land vehicles

TPL land vehicles business posted total direct business income of € 440,445 thousand, with a y/y decrease of 1.6%. The market continued to be increasingly competitive despite hints of a trend reversal; the technical and commercial initiatives undertaken by the Company limited the contraction in the average price of premiums although the risks covered increased in relation to the previous year. According to management indicators, the frequency of claims in the respective sectors has stabilised over the last two years. The average cost of attritional claims fell slightly (by around 1%) in relation to 2016 but the number and average cost of large claims increased. The current loss ratio stood at 81.9%, 4 percentage points higher than in 2016. The ratio of claims to premiums earned corresponded to 71.7%, and was substantially unchanged from the previous year (71.3%). As regards litigation, at year‐end 5,128 lawsuits were pending (10.6% of claims pending), rising by 0.3 percentage points compared with the 4,891 outstanding at year‐end 2016 (10.4% of claims pending). The number of summons received by the Company rose by 1.2%, from 5,973 to 6,046. The technical result, net of reinsurance, closed with a profit of € 25,787 thousand.

Non‐motor TPL

In financial 2017, total direct premium income amounted to € 216,677 thousand, with a y/y increase of 2.6%. This was a consequence of a good increase in both the corporate sector (+2.5%) and the retail area (+4.2%). Although the ratio of claims to premiums earned, at 44.3%, worsened slightly with respect to 2016 (42.0%), profitability remained high. A downturn in technical performance, essentially due to an increase in the average cost of large claims, was offset by the positive run‐off of reserves for prior year claims. The technical result, net of reinsurance, closed with a profit of € 50,869 thousand.

Surety

Premium income for 2017, equal to € 34,534 thousand, was up by 4.9% on the same period of the previous year, mainly due to a notable upswing in contracts linked to real estate development projects and to Legislative Decree No. 122/05. There was a clear improvement in the loss ratio of the current year, which fell from 57.1% in 2016 to 44.8% in 2017. The ratio of claims to premiums earned corresponded to 35.0%, a further improvement on 2016 (37.3%), reflecting a positive run‐off of reserves for prior year claims and a number of recoveries. The reserves still include a number of claims, for around € 17 million, in connection with the contributions under Law No. 488 on loans to business enterprises, pending a solution to the ongoing dispute between insurance companies and the Italian Ministry of Production Activities regarding the correct interpretation of policy conditions. The technical result, net of reinsurance, closed with a profit of € 855 thousand.


Sundry pecuniary losses

This business line, which comprises covers such as damage caused by interruption of business, withdrawal of products and of driving licence, reported total direct business income of € 3,681 thousand, an 18.2% increase compared with 2016. The ratio of claims to premiums earned stood at 4.9%, a further marked reduction on the 28.3% of the previous year, reflecting an improvement in performance for the current year (21.7% against 40.8% in 2016) and a positive run‐off of reserves for prior year claims. The technical result, net of reinsurance, closed with a profit of € 1,937 thousand.

Legal fees

Direct premium income moved up 9.1% in relation to the same period of the previous year, to € 13,767 thousand. In detail, the Motor business posted a 10.8% increase and the Non‐motor sector moved up by 8.1%. The ratio of claims to premiums earned, at 28.2%, was substantially in line with that of the previous year (28.6%) and profitability remained high. The technical result, net of reinsurance, closed with a profit of € 2,742 thousand.

Assistance

Direct premium income increased by an appreciable +17.7%, to € 18,153 thousand, spread equally across the Non‐motor sector (+18.0%) and the Motor sector (+17.7%). The ratio of claims to premiums earned, at 56%, was a marked improvement in relation to 2016 (64.9%) and was mainly due to a lower estimation of the provisions for late claims and a positive run‐off of reserves for prior year claims. The technical result, net of reinsurance, closed with a profit of € 1,363 thousand.

* * *

Research and development ‐ New products

Following on from previous years, further improvements were made to the product catalogue in 2017, aimed at preventing any loss of competitiveness and offering insurance solutions that will allow us to continue to grow more than the market, especially in areas of business that are most profitable and strategic for Reale Mutua.

The online version of the "Casamia 2016" product was launched at the beginning of the year, as part of the Multi‐channel project, and the Digital App version of the "Azienda Reale 2016" product also came on stream.

In the Welfare sector, two experimental projects were rolled out in the drive to renew the offering with innovative, technology‐based services.

In the corporate Welfare area the pilot project launched in the first half of 2017 to identify new corporate welfare models, develop a new range of products and a platform for flexible benefits, continued throughout the rest of the year. In the Retail area, a pilot project was conducted in 10 agencies to assess the opportunities created by combining the current "Casamia" offering with new electronic services available through the HomeBox device. This consists of a central unit and a number of sensors to detect risks inside the home (smoke, flooding, intrusion) and notify the user if the alarm is triggered.

For SMEs and professional categories, a new edition of the "Professionista Reale" product was placed on the market. In addition to numerous improvements for all professional categories, the new offering guarantees comprehensive cover for specific new regulatory requirements for legal and healthcare professionals.

In view of the new requirement for legal professionals to take out accident insurance cover for employees not covered by the INAIL mandatory national insurance scheme, pursuant to the Ministry of Justice Decree of 22 September 2016, the professional liability insurance cover for this category now includes accident

29

insurance with covers and policy limits that guarantee full compliance with the specific requirements introduced by the decree.

The Motor sector saw the following developments in 2017:

‐ Starting from 1 April, the inclusion of a "Formula Express" package in the "AutoMia Reale" product, with a set of clauses designed to limit the amount covered by the Motor TPL policy and thus reduce the premium. There are three clauses: specific form of compensation, expert driver and Motor TPL excess. The "Formula Express" is only available to policyholders who have installed the "Full Box Reale" black box.

‐ Also starting from 1 April, the inclusion of an additional clause called "GuideBene&Risparmi", based on a similar clause already included in the "Contachilometri" product, which rewards policyholders with a good driving record. This option is also only available if the "Full Box Reale" has been installed.

* * *

Fraud prevention activities

As envisaged under art. 30(2) of Law No. 27 of 24 March 2012 and in accordance with the instructions issued by IVASS in its letter to the market dated 11 March 2014 concerning fraud prevention activities, the Company estimates that the cost of claims was reduced by around € 4.3 million (€ 4.6 million in 2016) as a result of systematic monitoring and suppression. This estimation considers the savings achieved in respect of claims found to be the result of fraudulent activities that were closed without follow‐up during the year by the Company’s Anti‐Fraud and Special Investigations departments, with the support of the settlement network.

1.5.2 LIFE INSURANCE OPERATIONS

2017 gross premiums written in Life business are shown below, with 2016 comparables:

(in € thousands)

2017 Composition 2016 Composition Change

I ‐ Insurance on the duration of human life 451,413 55.2% 509,360 63.9% ‐11.4%

III ‐ Insurance linked to investment funds 196,223 24.0% 170,181 21.4% 15.3%

IV ‐ Health insurance 329 0.0% 144 0.0% 128.5%

V ‐ Operations of capital redemption 140,959 17.2% 90,326 11.3% 56.1%

VI ‐ Operations relating to administration of 29,073 3.6% 27,077 3.4% 7.4%

Total direct business 817,997 100.0% 797,088 100.0% 2.6%

Inward reinsurance 173 273 ‐36.6%

Total Life business 818,170 797,361 2.6%

Gross premiums written for direct business in 2017 amounted to € 817,997 thousand, with a y/y increase of 2.6%. Trends in the individual business classes reflect the Company's sales strategy which focused more on new multi‐risk and unit‐linked products in order to limit exposure to the financial risks associated with the performance of interest rates in the euro area and to guarantee the sustainability of the returns offered. Class V (operations of capital redemption) reported an increase of 56.1% in relation to 2016, mainly reflecting premium income on a number of contracts negotiated in the private area.


* * *

The breakdown of sums paid in 2017, referring to direct business only, is as follows:

(in € thousands)

2017 2016 Change

Claims 30,482 28,687 6.3%

Principle and annuities matured 145,220 200,234 ‐27.5%

Surrenders 257,220 237,947 8.1%

Claim settlement costs 1,269 1,047 21.2%

Total sums paid 434,191 467,915 ‐7.2%

Change in the provisions for claims to be paid 923 ‐26,819 ‐103.4%

Total charges for claims 435,114 441,096 ‐1.4%

of which:

I ‐ Insurance on the duration of human life 285,825 286,386 ‐0.2%

III ‐ Insurance linked to investment funds 67,484 81,454 ‐17.2%

IV ‐ Health insurance 34 20 67.5%

V ‐ Operations of capital redemption 72,954 65,064 12.1%

VI ‐ Operations relating to administration of pension 8,818 8,171 7.9%

Total sums paid decreased by ‐7.2% compared with the previous year.

Payments for principle and annuities matured fell by 27.5% compared with the same period of the previous year, with an absolute decrease of around € 55,014 thousand. Surrenders increased by 8.1% compared with the previous year. However, the incidence of surrenders paid on mathematical provisions at the beginning of the year was equal to 5.3%, in line with the figure for the previous year. Claims amounted to € 30,482 thousand with an upswing of 6.3% in relation to the previous year. Sums paid for claims under term life policies decreased by 27.4% compared with 2016.

The change in sums to be paid was positive for € 923 thousand. At the end of 2017, sums payable amounted to € 46,610 thousand.

* * *

Technical provisions, before the reinsurers’ share, amounted to € 5,459,123 thousand increasing by € 488,523 thousand, equal to 9.8% in relation to the end of 2016.

* * *


As regards the study and implementation of new products, in 2017 the Company continued with the work carried out in 2016, especially in the area of multi‐risk and new unit‐linked financial products. These products allow the Company to reduce its exposure to financial risks and to offer a range of investment solutions for members‐policyholders according to their specific characteristics and risk profile.

In detail, the following new products were launched in 2017:

‐ The specially developed "Reale Quota Controllata" product, an innovative single premium unit‐linked whole life investment solution, without any proportional load fee and with the possibility of additional payments. Returns are linked to the "Reale Linea Mercato Globale", "Reale Impresa Italia", "Reale Linea Bilanciata Attiva" and "Reale Linea Controllata" funds. To optimise overall returns on the invested portfolio, the product offers two innovative options for automatically switching from the "Reale Linea Mercato Globale", "Reale Impresa Italia" and "Reale Linea Bilanciata Attiva" funds to the "Reale Linea Controllata" fund: "Take Value": this option is activated when the equivalent value of the amount invested in the

fund exceeds 3% of the fund's reference capital, transferring the gain to the line with the lowest risk;

“Take Defence”: this option is activated when the equivalent value of the amount invested in the fund falls by at least 20% with respect to the fund's reference capital, transferring the entire

31

investment to the line with the lowest risk, until the market turns favourable again and options can be used to voluntarily switch again.

‐ The specially developed “Dual Plus Reale Limited Marzo 2017” multi‐risk product, a single‐premium savings product that allows member‐policyholders to diversify their investment: on the one hand, the separately managed "Fondo Reale" that guarantees repayment of the

premium invested upon occurrence of the event and so gives investors security and peace of mind;

on the other, unit‐linked lines that follow financial market trends, as per the respective Regulations, giving investors all the opportunities offered by the markets of reference.

The unit‐linked component is associated with five internal funds: "Reale Linea Obbligazionaria", "Reale Linea Controllata", "Reale Linea Bilanciata Attiva", "Reale Impresa Italia" and "Reale Linea Mercato Globale". Key features of the multi‐risk product include the automatic switch option and the creation of investment profiles that cater for customers' different risk appetites.

‐ "Reale PMI Italia", the individual savings plan (PIR) compliant product was launched on 22 May 2017. It is a limited recurrent premium unit‐linked policy with performance linked to that of the new internal insurance fund "Linea PMI Italia Free". The product envisages a reduction in the tax levied on returns for the duration of the contract, provided each premium is invested for at least 5 years.

‐ The specially developed "Reale Quota Progressiva" multi‐risk product was sold between 4 October and 7 December 2017. It is a single‐premium product that allows 80% of the invested capital to be allocated to the "Reale Uno" separately managed fund and the remainder to the internal unit‐linked fund "Reale Linea Mercato Globale". The product features a special mechanism that can be activated upon commencement of the contract for the first three years, that allows 5% of the initial capital to be transferred from the separately managed fund to the unit‐linked fund at the end of each six‐month period after the date on which the contract takes effect.

1.5.3 REINSURANCE

Outward reinsurance

Pursuant to IVASS Circular No. 574/D of 23 December 2005 regarding outward reinsurance, the Company drew up the plan of reinsurance cessions for financial 2017 which was approved by the Board of Directors at the meeting of 26 January 2017 and then sent to the Supervisory Authority within the established term and in accordance with the procedures laid down by the latter.

Some changes were made to the Group outline resolution on outward reinsurance following the acquisition of the Italian companies of the Uniqa Group.

In 2017, the reinsurance structure of the Non‐life business envisaged proportional forms of coverage for much of the business ceded. Non‐proportional forms of coverage are applied for risks retained by the organisation in Fire and Technological risks (including the risks of natural disasters), Suretyship and Hail business. Theft, Accident, Transport, TPL land vehicles, Hulls land vehicles, Health, Non‐motor TPL and Hulls aircraft business lines are protected exclusively with non‐proportional covers.

The Group treaty called "Aggregate XL" has been renewed to protect the retained portfolio of ceding companies in the Fire/Technological risk and Hulls land vehicles businesses.

As from 1 January 2017, the TPL land vehicles non‐proportional treaty was converted to a Group cover to protect the portfolio of Reale Mutua and Italiana Assicurazioni.

Life business reinsurance consists of proportional treaties for single risks, for group policies, for “directors, executives, employees and groups” conventions and for Accident complementary guarantees. The Life business retained portfolio is protected by excess of loss catastrophic claims coverage.

In 2017 reinsurance ceded generated total revenues for € 18,245 thousand. In detail, in the Non‐life business it generated revenues for € 20,084 thousand and in the Life business it generated a cost of € 1,840 thousand.


Inward reinsurance

Inward reinsurance of Reale Mutua consists in the discretionary acceptance of ad hoc risks, participation in various schemes of the Italiana Assicurazioni subsidiary (proportional treaties covering art exhibitions and collections, technological risks, transport and accidents relating to the production of an agency specialised in such sectors) and in market pools.

As regards inward reinsurance, risks retained generated a cost of € 787 thousand, distributed as follows: € 784 thousand in the Non‐life business and € 3 thousand in the Life business.

1.5.4 FOREIGN OPERATIONS

In 2017, premium income from activities carried out abroad in a regime of freedom of service amounted to € 1,533 thousand, in relation to € 2,182 thousand in the previous year, a decrease of 29.7%.

Activities were carried out in 22 member states of the European Economic Area.

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1.6 INVESTMENT MANAGEMENT

At the end of 2017, the carrying value of Class C investments on the Balance Sheet amounted to € 8,012,132 thousand, of which € 7,967,303 thousand of equities and € 44,829 thousand of real estate.

The overall situation of these investments, with 2016 comparables, is detailed below.

(in € thousands)

31.12.2017 Composition 31.12.2016 Composition Change

Real estate 44,829 0.6% 44,706 0.6% 0.3%

Bonds and other fixed‐income securities 5,588,948 69.8% 5,615,611 73.4% ‐0.5%

Equity investments 1,973,301 24.6% 1,660,680 21.7% 18.8%

Shares and interests 105,069 1.3% 62,923 0.8% 67.0%

Other financial investments 261,213 3.3% 226,803 3.0% 15.2%

Loans and mortgages 31,454 0.4% 31,633 0.4% ‐0.6%

Deposits with credit institutions 3,834 0.0% 4,563 0.1% ‐16.0%

Active reinsurance deposits 3,484 0.0% 4,530 0.1% ‐23.1%

Total class C investments 8,012,132 100.0% 7,651,449 100.0% 4.7%

As in the past, real estate transactions during the year were mainly directed towards management of Company‐owned real estate assets consisting of instrumental buildings used as offices and to house accessory parts of the corporate structure, and of buildings in Paris rented to third parties. Work continued on the design of a new Company social and recreational club facility at the site in Via Serpi/Corso Giovanni Agnelli in Turin and the building permit was submitted to the authorities in spring 2017. Work commenced in August 2017 and should be completed in October 2018. As at 31 December 2017, investments in real estate totalled € 44,829 thousand, against a market value of around € 110,486 thousand.

The Company managed its investment activities according to the usual criteria of prudence, adopting an approach that succeeded in achieving gains while limiting financial risks and bearing up to the volatility of the markets.

In the bonds compartment, the Company pursued a strategy aimed at achieving a balance between the soundness of investments and portfolio profitability, by ensuring adequate diversification of issuers. The portfolio risk level remained consistent with the Company’s overall risk profile. The percentage of Italian bonds in the portfolio was reduced to around 41% at the end of 2017 (around 50% at the end of 2016), in order to control risk exposure and diversify the portfolio. Exposure in corporate bonds amounted to 26.5% of the bond portfolio. The transactions entered into generated an increase, over the year, in the duration of the bond portfolio from 5.5 to 5.8. In the Non‐life segment, duration decreased from 2.6 to 2.5, in line with the risk profile of the liabilities held, while in the Life segment, where ALM techniques are used in order to match assets with commitments towards subscribers, duration stood at 6.6 (6.5 in 2016). The credit rating of debt security investments was maintained at investment grade.

As far as equities are concerned, the portfolio size continued to be limited but investments in capital securities increased with a view to exploiting opportunities offered by the markets.

The Company used derivative and structured financial instruments for hedging purposes, to limit the investment risk, and also to enhance its portfolio management and achieve its investment goals more quickly, more easily, more economically or more flexibly than would be possible using the underlying assets. The notional value of derivative instruments amounted to € 64,696 thousand (of which € 4,432 in Class D investments) and structured financial instruments had a carrying value of € 60,720 thousand (no exposure for Class D investments).


All investment activities, also with regard to structured securities and derivatives, are regulated by specific resolutions of the Board of Directors in accordance with the strategic guidelines and the financial situation of the Company. The competent bodies verify these activities at regular intervals, on the basis of financial risk measurement parameters, and submit periodical reports on their findings to the Board. Use of derivative and structured instruments did not generate any significant losses or potential risks in 2017.

* * *

Class D investments on the Balance Sheet (investments for the benefit of Life policyholders who bear the risk and those deriving from the administration of pension funds) amounted to € 922,941 thousand and, in 2017, generated a positive balance of € 16,060 thousand.

1.6.1 INCOME AND EXPENSE ON INVESTMENTS

Results for income on investments are set out in the table below:

(in € thousands)

2017 2016 Change

Net income on investments 155,835 187,436 ‐31,601

Net value re‐adjustments on investments ‐25,395 ‐23,673 ‐1,722

Net income from the disposal of investments 40,050 33,737 6,313

Total 170,490 197,500 ‐27,010

Overall, in 2017, the bonds portfolio, excluding Class D securities, generated average returns, in terms of flows of ordinary income, of 2.24% (2.51% in 2016). Also taking into account profits and losses on trading and write‐backs and value re‐adjustments, the portfolio generated returns of 2.69% (2.97% in 2016).

Value re‐adjustments on securities, for € 6,745 thousand, were due to fluctuations in prices. Gains on trading amounted to € 34,063 thousand.

As far as equities are concerned, the Company operated mainly on European markets but also exploited opportunities in countries outside the EU, always selecting securities with favourable earnings prospects and reduced volatility. Gains on trading amounted to € 3,198 thousand, while value re‐adjustments amounted to € 1,498 thousand.

Shares in common investment funds generated positive trading results for € 1,017 thousand, while value re‐adjustments amounted to € 16,495 thousand.

In detail, the value adjustment on the "Atlante" common investment fund, an alternative investment fund set up by the Italian government to bring stability to the country's banking sector, amounted to € 18,227 thousand. This measurement reflects the write‐off of the Fund's investment in two banks, Veneto Banca and Banca Popolare di Vicenza, for a total of € 3.4 billion, following the approval by the Council of Ministers of the text of the Decree Law dated 25 June 2017 putting the two banks into forced liquidation, confirmed on 26 June 2017 by the Meeting of investors.

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1.6.2 STRATEGIC INVESTMENTS

Strategic investment activities continued to be directed towards strengthening and expanding Reale Group in Italy and abroad

On 16 May 2017 Reale Mutua finalised the acquisition of a 99.72% stake in Uniqa Assicurazioni S.p.A. from Uniqa Internationale Beteilungs‐Verwaltungs GmbH, for a total price of € 294.1 million. Uniqa Assicurazioni S.p.A. owns 100% of the share capital of Uniqa Previdenza S.p.A. which, in turn, has a 90% stake in Uniqa Life S.p.A. and a 100% interest in Uniqa Intermediazioni S.r.l. On the same date, Reale Mutua made a contribution to the capital account of Uniqa Assicurazioni by way of repayment of existing subordinated loans, for a total of € 34.3 million. The price paid for the purchase was subject to a post‐closing adjustment on the basis of the actual financial situation of the companies that were acquired as at 31 March 2017. This adjustment, plus interest, was established at € 17.6 million in favour of Reale Mutua and paid by Uniqa Internationale Beteilungs‐Verwaltungs GmbH on 19 October. The final acquisition price, inclusive of additional charges, therefore amounted to € 313.3 million. In line with the strategy of increasing the Group's presence in the two markets of reference (Italy and Spain), this acquisition will enable Reale Mutua to strengthen its presence in the Italian market and contribute to its international expansion, that will be achieved through investments in the Spanish market and the commencement of business in South America.

The Group, and specifically the Spanish subsidiary Reale Seguros, continued to work on the project to start up the Reale Chile Seguros Non‐life insurance company in Chile. On 12 May 2017 the Chilean Supervisory Authority (Superintendencia Valores y Seguros) authorised the company to carry on insurance business. The company became operational in June, wholly funded by the Spanish subsidiary Reale Seguros through capital payments to the holding company Reale Group Latam, for a total of € 25.3 million (18.7 Chilean pesos), of which € 16.6 million (12.3 billion Chilean pesos) in 2017.

On 28 December 2017 Reale Mutua sold part of its interest in Cedacri S.p.A., a company specialised in IT outsourcing services, within the scope of a transaction whereby FSI SGR, through one of its investment funds, acquired an overall interest of 27% in the share capital of Cedacri. Reale Mutua sold 0.67% of the capital for approximately € 2.5 million, making a gross capital gain of around € 1.8 million, and continues to hold a 1.34% interest in the share capital. The price was paid on 24 January 2018.


1.7 RISK MANAGEMENT

Reale Mutua Assicurazioni’s risk management system is directed towards identifying, assessing and monitoring the most significant risks to which it is exposed, maintaining these at an acceptable level consistent with its assets.

Risk management roles and responsibilities involving corporate boards and functions have been defined for the Company.

In particular, the Board of Directors is responsible for issuing risk management directives, for defining the risk appetite and risk tolerance thresholds and for checking correct application of the risk management system. This is the responsibility of top management, which guarantees the safeguarding of company assets, including in the medium and long term. Within the framework of its responsibilities, on matters relating to the system of internal controls and risk management, the Board of Directors is assisted by the Group Control and Risk Committee.

The Chief Risk Officer (CRO) guarantees the soundness of overall risk management by the Company and by the Group, within the framework of the system of internal controls.

The Risk Management function carries out risk assessment, measurement and control analyses to assist the Board of Directors and top management in carrying out their duties.

The Actuarial function monitors technical provisions, reviews the underwriting policy, reinsurance agreements and contributes towards effective implementation of the risk management system.

The Compliance function is responsible for assessing the adequacy of corporate organisation and procedures with regard to preventing the risk of judicial or administrative sanctions, capital losses and reputation damage deriving from infringement of regulations.

The Anti‐money laundering function is responsible for controlling, preventing and countering money laundering and funding of terrorist activities.

The Internal Audit function is responsible for monitoring and appraising the efficacy, efficiency and adequacy of the system of internal controls and other aspects of the system of corporate governance.

Each competent function is responsible for operational risk management according to their area of responsibility in the business processes controlled.

The Board of Directors is assisted by specific internal bodies including the Committee, the Group Investments Commission and the Group Control and Risk Committee, responsible for verifying particular aspects of corporate performance, including those tied to risk management.

Within the framework of the risk management system and in accordance with regulatory provisions, the Board of Directors has formulated risk identification, measurement, management and control criteria in the "Risk management policies" document.

Some aspects of the main risks to which the Company is exposed are discussed below.

In assessing market risk, reference is made to all risks that result in downgrading of financial or real estate investments due to adverse changes in major market variables such as share prices, interest rates, the value of real estate assets, exchange rates, spreads and the concentration of investments. In managing such risks, the Company adopts policies that establish limits, guidelines and management strategies. The limits on investments are constantly verified and monitored by the competent corporate functions, and their findings are notified periodically to the Group Investment Commission.

The Company’s financial activities are managed according to a prudent approach based, as regards interest rate risk, on joint management of assets and liabilities on the basis of forecast cash flows by adopting ALM (Asset Liability Management) techniques. The total duration of the bond portfolio is around 6.6 years for Life business and 2.5 years for Non‐life business.

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With regard to share price risk, which refers to possible losses due to changes in share prices or investments in collective investment undertakings, the equity component is mainly directed towards the "finance and banking" and "industry" sectors. Average annual volatility of the equity component during 2017 was equal to 13.62%.

Investments in foreign currency amounted to around 0.96% of the entire portfolio. Exposure to the risk of exchange rate fluctuations is therefore marginal in view of the low percentage of investments in foreign currencies.

As far as spread risk is concerned, meaning the risk of loss due to changes in the credit rating of counterparties, restrictions and guidelines are in place to manage this risk factor which is constantly monitored and the results are regularly submitted to the Investments Commission.

The average rating of debt securities in the portfolio is BBB+, according to Fitch Ratings. Non‐investment grade instruments account for around 0.3% of the entire portfolio.

Use of derivatives is limited and restricted to hedging transactions and operations to ensure efficient management; the counterparties in such transactions are those envisaged by IVASS Regulation No. 24/2016 and are appropriately diversified.

Investment management policies are identified and defined on the basis of the Investment policy, Liquidity risk management policy and Policy on integrated management of assets and liabilities, pursuant to IVASS Regulation No. 24.

Exposure to liquidity risk, which is the risk of the Company not having sufficient financial resources to enable it to meet its contractual obligations as they fall due, is negligible as around 73.41% of the securities portfolio is made up of bonds issued or guaranteed by governments or supranational entities.

Liquidity risk is also constantly monitored according to run‐off of reserves for Non‐life business and the projected maturity commitments for Life business.

Bonds, according to maturity, are set forth in the table below

(data in € thousands)

Expiry Government Corporate Total

< = 1 year 716,726 118,742 835,467

>1 <=3 years 999,883 268,505 1,268,389

>3 <=5 years 527,927 222,430 750,357

>5 <=7 years 501,205 258,079 759,283

>7 <=10 years 509,404 369,665 879,069

>10 years 1,143,820 356,060 1,499,880

Total 4,398,964 1,593,481 5,992,445


Information regarding reserve flows according to contractual expiry referring to run‐off of the entire Life portfolio is provided in the table below.

(in € thousands)

Year Reserve by expiry

2018 231,016

2019 175,806

2020 244,089

2021 130,845

2022 301,168

2023 283,186

2024 280,208

2025 237,924

2026 198,563

2027 135,097

after 2028 3,103,452

Total 5,321,356

The expected run‐off coefficients of TPL land vehicles and Non‐motor TPL provisions are set forth in the table below.

Year TPL land vehicles Non‐motor TPL

2018 45.6% 23.7%

2019 19.8% 17.1%

2020 11.0% 13.9%

2021 7.5% 11.7%

2022 5.4% 9.3%

2023 3.7% 8.2%

2024 3.0% 6.1%

after 2024 4.0% 9.9%

Total 100.0% 100.0%

Default risk refers to the risk of insolvency of counterparties (reinsurers, banks, insureds, intermediaries and agents).

As far as reinsurance counterparties are concerned, the Group has defined policies for the management and control of this risk in terms of guidelines and restrictions. Exposure to reinsurance counterparties rated A or higher by Fitch Ratings is equal to 95.1%.

Life business underwriting risks are mainly tied to demographic factors such as mortality and longevity, surrender trends, costs and catastrophic risks. With reference to demographic risks, mortality statistics are updated periodically, while the evolution of other risk factors is monitored also through benchmarking with the corresponding market data. Catastrophic risks are covered by specific non‐proportional reinsurance treaties.

Non‐life underwriting risks are determined by the underwriting policies of the business and retention policies relating to the acquired portfolio and catastrophic risks. To address tariff risks, the Company has drawn up an Underwriting Rules Manual which provides technical guidance regarding underwriting policy, with particular reference to non‐standard products.

The Company adopts risk mitigation instruments in order to reduce its exposure to the risks underwritten, through recourse to reinsurance, and adopting hedge derivatives to restrict possible impairments of assets. Reinsurance strategies are selected on the basis of quantitative assessments intended to establish the estimated claims rate according to portfolio historic data.

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Risk assessments are performed to evaluate operational risks, legal and regulatory risks, strategic risks, reputational risk and Group membership risks. A qualitative approach is adopted based on self‐assessment of risks and controls tied to Company processes and on definition of the high level company risk profile.

Reale Mutua has drawn up a Contingency Plan to safeguard persons and assets and guarantee continuity of business; the plan includes a Disaster Recovery Plan designed to minimise loss of information and recovery times in particularly critical situations.

* * *

In 2017 the Group completed activities in connection with the Supervisory Authority's preliminary assessment of the internal model (pre‐application process). In view of the successful outcome, the Board of Directors resolved to proceed with the official application for permission to use the internal model for regulatory purposes to determine the solvency capital requirement of the Group, the Parent and the Italiana Assicurazioni subsidiary. IVASS officially acknowledged receipt of the application on 6 February 2018 and began the investigation procedure.

The Group's internal model only applies to risk exposure in the Non‐life business and is incomplete as operational and catastrophic risks are not included. The risks to which Life business is exposed and those excluded from the scope of the internal model are measured using the standard formula.


1.8 HUMAN RESOURCES

At 31 December 2017, the Company workforce consisted of 1,150 persons. The breakdown of personnel according to qualification with 2016 comparables is provided in the table below:

2017 2016

Top management 45 44

Middle management and Office staff 1,105 1,123

Total 1,150 1,167

On 22 February 2017, ANIA and the Italian Trade Union organisations came to an agreement over the renewal of the National Collective Labour Agreement for employees, which expired on 30 June 2013.

The new Agreement, which will expire on 31 December 2019, introduces some important changes to the contracts of employees in the insurance sector. The aim is to promote greater flexibility, especially in terms of working time, interchangeability of middle management roles and operational flexibility at contact centres.

The main changes introduced by the new Agreement regard:

‐ Working hours: the new contract envisages the possibility of employees being required to work on Friday afternoons, to meet organisational requirements and subject to agreement with the trade unions. If no agreement is reached, the undertaking may decide to spread the 37 weekly hours equally between Monday and Friday afternoon, or require employees to work on a Friday afternoon and then make up for the hours worked by granting them leave in subsequent months.

‐ Middle management: the form of the contract has been completely overhauled, with the elimination of the three hierarchical levels and the introduction of a single management level made up of two figures (Business manager and Senior manager).

‐ Contact centres: the Agreement establishes the requirement for maximum operational flexibility at contact centres, and the interchangeability of sales and operations roles (claims, assistance, back office).

From an economic perspective, the new Agreement provides for an overall 4.81% increase in the minimum sectoral wage tariffs over the period in question, starting from 2015 up until 1 July 2019. L’incremento a regime è pari a 103 € mensili per il livello di riferimento (4° liv./7° classe). Employees in service also received payment of the arrears accrued between the expiry of the previous agreement and its renewal.

* * *

On 23 February 2017 the Parent Società Reale Mutua di Assicurazioni and trade union representatives from Reale Mutua and Italiana Assicurazioni signed an agreement to establish an Administrative Hub within the Group Claims Handling department, with a view to improving settlement services for members and customers of Group companies. The project includes the centralisation of the majority of the administrative activities performed by the Settlement network and the Mass Claims department. The project will be completed by 31 December 2018 and will involve a total of 60 employees. It will not affect current employment levels and the employees concerned will not be required to move to a different office, although some may be reappointed to the role of adjuster. This will be done on a voluntary basis, taking into account organisational requirements and individual characteristics. It will be an opportunity for professional growth and specific courses will be held to train these new adjusters.

* * *

On 10 July 2017 Società Reale Mutua di Assicurazioni and trade union representatives reached an agreement for the renewal of the company‐level labour contract which expired on 31 December 2015. The new contract came into force on the date it was signed and will expire on 30 June 2019.

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The main change introduced by the new contract is the agile work approach, which envisages the performance of certain work activities off company premises, without having to use a fixed workstation and without rigidly defined working hours. Other changes regard sustainable mobility, granting of home mortgages and fuel card incentives. From an economic perspective, the main changes include an increase in the company production bonus, the introduction of a company welfare scheme under which, when the conditions for increments in the variable bonuses provided by law are met, employees will be able to request payment of the amounts due in cash and receive the applicable tax benefits or, starting from 2018, in lieu of cash, receive the services as set forth in art. 51, paragraphs 2 and 3 of the Consolidated Law on Income Tax (attached to the company‐level labour contract), and the payment of arrears accrued between the expiry of the previous agreement and its renewal.

* * *

On 26 October 2017, in its capacity as Parent, Società Reale Mutua di Assicurazioni notified trade union representatives from Reale Mutua, Italiana, Reale Ites, Uniqa Assicurazioni SpA, Uniqa Previdenza SpA and Uniqa Life SpA ‐ pursuant to articles 15 and 16 of the ANIA national collective labour agreement ‐ that on 19 October 2017 the Board of Directors had approved a Group restructuring and reorganisation plan following the acquisition of the three Uniqa companies. The aim is to improve the efficiency and efficacy of corporate functions in a market context characterised by a gradual aggregation of competitors and the rapid development of new technologies, which pose growing challenges for the Group in terms of economies of scale.

The plan will be implemented in steps and will be completed by the first half of 2020.

The project, parts of which will be subject to approval by IVASS as required by existing regulatory practice, includes an extensive review of the organisational model of the Group's insurance companies, in order to harness their skills and ensure that they continue to provide excellent service to members and policyholders, and to create operating synergies with a view to optimising the companies' cost structure.

The new model will be developed according to the principles laid down in the Group Regulations, and designed to allow the Parent to exercise guidance, governance and control, promote the efficient management and growth of individual companies and of the Group as a whole, and to enable Group companies to operate ‐ while maintaining their autonomy ‐ coherently and consistently with the model of governance defined. It will also ensure continuity with the principles underlying previous reorganisations which included the centralisation of many Group functions at Reale Mutua and individual companies specialising in certain activities.

As regards the ownership structure, the project envisages the merger of Uniqa Assicurazioni, Uniqa Previdenza and Uniqa Life into Italiana Assicurazioni. This operation will be submitted to the boards of directors of the companies concerned for their approval. Once the Supervisory Authority has granted its approval, it will be submitted to the respective Shareholders' Meetings within the terms established by law. The IT business unit that will become part of Italiana as a consequence of this merger will be transferred to Reale Ites EEIG after obtaining all the relevant approvals and completing all the necessary legal procedures.

The main effects of the plan will be to pool activities and processes within Group functions and redesign the companies' business functions. Group companies will keep their headquarters in Turin and Milan, and a new operations hub employing a significant number of staff will open in Udine.

As a result of the Group's restructuring and reorganisation plan some employees may be assigned to different duties and/or moved to a different place of work; employment levels will also be affected. Based on the analysis of the processes and activities in the new organisational model and the target workforce size, the plan will result in 151 redundancies at the Group companies concerned.

The Parent has already stated that it will seek non‐traumatic solutions, using instruments such as redundancy incentive plans and the industry's Solidarity Fund, to be agreed upon with the trade unions.

Negotiations with trade union representatives from the companies concerned have already started.


* * *

The Academy and Internal Communication division has always been alert to changes in professional roles and external scenarios; in 2017 it continued to focus on training, development and internal communication to keep employees up‐to‐date and informed of successful initiatives in other areas. It contributed to the change management process and helped to develop Reale Group projects, by making them known to employees and encouraging them to get involved. In addition to the traditional training courses on technical and behavioural aspects, new continuous learning schemes were also made available. These featured the use of informal methods and involved a very large number of employees.

A good example were the Innovation Bites, informal stand‐up meetings to promote understanding and dissemination of the culture of innovation and internal entrepreneurship by teaching employees about the tools and methods that can be used to develop projects in line with the most advanced external scenarios.

In the area of corporate wellness, training sessions addressed the workings of the brain, with a particular focus on mindfulness and mindshift, and a new workshop was held to offer advice on informed consumption and, thus, spending. Raising awareness also forms the basis for the Digital Factory format, the aim of which is to promote digital literacy within the company and provide employees with the tools they need in order to use technology, at different levels, in everyday life situations.

A Smart Leadership Journey training course was launched for senior managers and included studying successful projects undertaken by national and international firms.

As part of the Group's commitment to support the development and growth of Generation Y employees (aged under 31), four new editions of the VOS project (enhancement, guidance and development) and talent management activities were held with the focus on individual, collective and organisational responsibility.

Other projects worthy of note include the school‐work project, cited by EURAPCO as an example of best practice among its partner companies, the onboarding project for newly‐hired employees and gradual involvement of employees from Uniqa in various workshops and familiarisation with the workings of the corporate social network, Fabbrica Futuro.

* * *

Pursuant to art. 2428 of the Italian Civil Code, in 2017 there were no cases of death or serious injury at work among employees on the Company’s payroll; the Company did not receive any claims in connection with occupational diseases among its employees or former employees or episodes of mobbing.

Every company within the Group is committed to pursuing improvements in occupational health and safety, and to making sure they provide all the necessary human and financial resources and instruments to protect all aspects of the health and safety of all those who work for them. In accordance with Legislative Decree No. 81/08 e successive modifiche, dall’anno 2010 sono dotate di un Sistema di Gestione della sicurezza e salute dei lavoratori conforme ai requisiti della norma BS OHSAS.

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1.9 INNOVATION TECHNOLOGY

An increasingly competitive marketplace and rapidly evolving new technologies have had a significant effect on how customers purchase insurance cover. Now, more than ever before, it is essential to be able to adapt quickly to changes and anticipate trends that will influence the market.

To address this challenge, the Group has embarked on increasingly structured research into innovative projects, focusing in particular on new business models and tools that will allow it to remain competitive. The aim of the so‐called open innovation approach it has adopted is to combine internal resources and ideas with contributions from outside the Group. For that purpose the Company has decided to invest more in innovation, setting up an Innovation and Corporate Strategy unit and extending its areas of competence.

Through Academy, Reale Group launched a programme to develop specific skills and a widespread innovation programme, called Realize, to promote research into innovative processes and products.

These activities also involved foreign partners (especially other members of the EURAPCO network) with whom the Group developed projects and experiments to address the challenges of the market.

In 2017 work also got underway to explore possible partnerships with start‐up companies (by screening companies across sectors and not only in the insurance industry) for possible strategic investments in enterprises that could create value for Reale Group.


1.10 INFORMATION TECHNOLOGY

The role of Reale Ites EEIG within Reale Group is to guarantee the routine operation of IT services, gearing to changes in business requirements and those in connection with the design of new insurance products. It plans activities aimed at optimising and stabilising the IT system as a whole, in order to significantly improve the service provided, while reducing costs.

In 2017 Reale Ites oversaw the rolling out of projects launched in previous years:

‐ Multi‐channel sales platform (digitalisation, multi‐channel and web/mobile projects), ‐ aggregator website channels through the MEF platform (B2B platform for the Ministry of the

Economy and Finance), ConfAgricoltura (B2B website for agricultural products), Segugio.it (for the sale of motor insurance for Italiana Assicurazioni),

‐ discount calculation engine for motor insurance premiums, ‐ integration of the CRM (Customer Relationship Management) and CCW (Customer Contact Workflow)

systems.

Work also continued on projects launched in the previous year to develop the New Agency Architecture with the introduction of a Single Gateway to access agency back‐office systems and functions online. The new Business Intelligence (BI) platform ‐ for managing the company's main Key Performance Indicators (KPI) using a next‐generation solution integrated with the CRM system ‐ is now fully operational.

A number of major projects were also implemented or launched in 2017. These include:

‐ the Big Data project, to equip Reale Group with a modern platform for managing big data and developing advanced analysis techniques using special algorithms to offer solutions that are more consistent with the type of business, or for new business lines and, not least, to improve existing processes by making them more highly automated and closer to customers' needs;

‐ boosting the efficiency of external processes, including ISAAC for managing relations and communications with the agency network, and of internal processes, such as Digitalean that introduces a new platform for the digitalisation of internal company processes;

‐ in the field of information security, Reale Ites proposed a specific initiative which has, as its objectives, to harmonise approaches to information security at Group level, conduct a specific assessment according to the methodology set out in ISO 27001/ISO 22031 (international information security standards), develop a gap analysis and remediation plan, implement appropriate organisational procedures to guarantee continuous monitoring and updating, and implement the measures required by the new European General Data Protection Regulation (GDPR);

‐ with regard to regulatory compliance, activities to improve customer verification procedures and the 2017 CARD Convention and the GDPR assessment were completed.

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1.11 SALES, MARKETING AND COMMUNICATION

1.11.1 DISTRIBUTION CHANNELS

Reale Mutua has developed its distribution channels over the years to establish a network of agencies that, as at 31 December 2017, included 349 agencies under contract and 561 insurance agents/brokers. In addition to these, it has five subsidiary agencies and one for employees. As at 31 December 2017, the Company had 28 standing distribution agreements with banks, leasing firms and intermediaries included in the list of intermediaries of the European Union, for the sale of both Life and Non‐life policies.

1.11.2 COMMERCIAL/TRAINING ACTIVITIES

There were some important changes on the commercial front in 2017, made on the basis of market trends, to improve the Company's performance and in line with its commitment to innovative development.

As regards the Multi‐channel project, much of 2017 was spent on consolidating aspects of this and increasing awareness of the offering: e‐mail marketing campaigns generated 7,443 "qualified" leads (potential customers who qualified themselves) for the agencies and 78,887 "non‐qualified" leads" (potential customers who only qualified themselves with their e‐mail address), as a result of which 662 policies were sold directly online, 894 were finalised offline at agency offices after being channelled through lead management, and 3,298 new motor insurance policies were taken out following requests for online quotations. 67% of policies taken out online and offline were for Motor insurance, approximately 17% for Home insurance products and 15% for Travel insurance. Around 70% of these contracts were taken out by new members, demonstrating the effectiveness of the multi‐channel model, not only in terms of service and accessibility but also as a driver of expansion and growth.

The operational phase of the Digitalisation Project and the digitalisation of processes across the network continued in 2017. In addition to further improvements to the electronic hand‐written signature system and the new app for agents, the focus was on creating new opportunities for the best performing agencies to share information with those that are not yet fully digitised. As part of the drive to foster digitalisation, the Reale Community pilot scheme was set up in February 2017 as a space where agents, co‐workers and staff at the agencies can share information and best practices, study operational aspects and sales approaches, develop a new communication channel both within the Reale Mutua network and vis‐a‐vis contacts at the head office. In the second half of 2017 sessions were held at some agencies (about 40 agencies took part) to support the definition of digital sales processes and the necessary changes to the "Adesso" software, the tool developed during the "Polytechnic Project" to optimise organisational analyses and redesign operational processes. Almost 99.15% of the agencies have adhered to the Digitalisation Project so far: by 31 December 20.65% of all policies issued were e‐policies.

* * *

In 2017 the Business Training unit served both of the Group's Italian distribution channels, thus strengthening synergies between offices and standardising training methods.

The unit provided the following agency training activities for Reale Mutua:

‐ more than 40 traditional classroom lessons (approximately 300 editions), which play a crucial role and are mainly used for advanced managerial and technical training courses;

‐ almost 40 virtual classroom lessons (for a total of more than 300 editions), mainly for courses on operational aspects of company processes;

‐ over 100 online lessons, mainly dealing with specific products.

There were 130 online courses, followed by at least one intermediary. More than 10,000 people attended classroom courses, of whom over 5,000 in the virtual classroom environment. Over 48,000 courses were attended online. 4,221 intermediates benefited from the training schemes provided by the Group (and took at least one of the available courses).


In 2017 training continued to be provided through the Group's "Università Reale" platform, which is also available on tablet and smart phone, in line with the process of digitalisation of the agencies.

The role of the Trade Marketing office within the Network Management system was reinforced. This function is responsible for managing and coordinating communications between "Centre and Network" and during the year it concentrated on developing its "cornerstone": Punto Web. A web‐based service platform that has all the tools that agency staff need to perform their day‐to‐day work activities. The platform, which has become the "single agency desktop environment" was accessed more than 7,500 times a day.

2017 was also the first year of activity of the Recruiting Office, set up to provide a practical solution to the need to hire new employees to strengthen the Company's position. The function, mandated by the Group to capitalise on its synergies, focused on defining a new recruitment model for seeking and recruiting candidates, based on a centralised and industrialised approach.

1.11.3 MARKETING

In the area of digital marketing, specific online advertising campaigns were launched during the year to support the multi‐channel sales model by generating "qualified" leads for the agencies and sales of policies online. These campaigns were viewed more than 94 million times by internet users, especially those searching for information about insurance and protection, and generated more than 153,000 additional requests for quotes online. At the end of the year, work began on a new project that will make it possible for the online platform to adapt automatically to any device (PC, tablet, smart phone) used to interact with Reale Mutua. This will generate tangible benefits in 2018 in terms of delivering a coherent, integrated and effective customer experience.

The “Mynet”. preventive health care campaign came to an end in 2017. The promotion and distribution of this offer for members ended in 2016 and the deadline for requesting and using the services covered was 31 December 2017. The initiative was a success: almost 10% of the customer portfolio (individuals) took advantage of the Mynet offering, and all the agencies in Italy took part in the project.

In the field of Customer Relationship Management, work on implementing the new CRM system continued during the year. The flexible platform will be used to support strategic decisions concerning the management of relations with customers and policyholders. The aim of the system, for managing relationships through the various contact channels, is to guarantee a multi‐channel and multi‐centre customer experience.

The structured use of the statistical model for predicting the possibility of customers abandoning the Company (churn rate) continued to be used in the second half of 2017. This model was used to define the targets for certain sales campaigns, and is used to define the "suggested renewal price" for Motor insurance products.

1.11.4 COMMUNICATION

In the field of communication, following on from 2016, in 2017 Reale Mutua concentrated on positioning its Welfare brand. A new communication campaign was launched in April in the main media (traditional and digital) with which the Company stresses the importance of thinking ahead in terms of protection and prevention: only people who start protecting their standard of living early on are assured of a secure future. For the campaign Reale Mutua signed a three‐year contract with Gianluigi Buffon, captain of the Italian national football team, as an ambassador who 'bears positive messages like dedication and team spirit', values that Reale Group shares. This partnership also underlines the Togethermore philosophy, it boosts the brand's notoriety and gives credibility and sustainability to the commitment of the Group as a whole in the Welfare sector, especially in communications directed towards a specific target population sensitive to the issue of personal wellbeing and likely to buy financial products and those linked to the Realmente Welfare offering. Traditional media, online advertising and institutional means were the vehicles for a

47

structured and integrated communication plan that helped Reale Mutua to achieve a level of notoriety among the highest on the market.

Considerable effort was also put into developing the use of social media platforms, with the launching of the "Oggetti Cattivi" (Bad Things) project: another way of talking about prevention and thinking ahead, in which the endorser interacts with potentially hazardous everyday objects.

2017 also marked the start of a major new awareness‐raising project: the Reale Observatory. The purpose of the Observatory is to identify significant content, by researching issues deemed relevant to the Welfare sector, and disseminate this through the regional and national press. This action produced extremely satisfactory results and gave rise to several hundred press articles during the year.

In line with its recently adopted sustainability strategy, in 2017 Reale Mutua once again sponsored initiatives to foster social protection of individuals, safeguard the environment and the local community, and support sport and culture. Among its sports sponsorships, the Company renewed its long‐standing partnership with the Italian Rugby Federation, as well as its contract with Dinamo Sassari, the basketball team that plays in the Italian Basketball League A, and the Torino 81 water polo team in Turin. Another particularly important sponsorship was the Stratorino race within the context of events to mark the 150th anniversary of the "La Stampa" newspaper.

In the autumn of 2017 Reale Mutua launched the second edition of the Welfare Together competition on the theme of safety and security open to start‐up companies. The venue for the launch was the Wired Next Fest, a meeting held in Florence, dedicated to innovation, ideas and technology.

Prizes were awarded to the winners of the 2016 editions of the network incentive schemes: the "Cum Laude" programme for agents who have achieved outstanding results in the year, and the "Vinci con Reale" prize for the best agency co‐workers.

* * *

In 2017 corporate communication activities continued to be geared towards fostering relations with local and national cultural and social organisations and establishing new contacts.

Reale Mutua's partnerships and sponsorship schemes also reflected its support for the community. Among the local social organisations it continued to support were the "CasaOz" non‐profit organisation, the "Consulta per la Valorizzazione dei Beni Artistici e Culturali di Torino" (Association for the development of the artistic and cultural heritage of Turin), the "A Come Ambiente" Museum, the "Associazione Lingotto Musica", the "De Sono" Music Association, the Fondazione Teatro Regio di Torino, the Congress Centre of the Employers’ Association of Turin and the "Theodora" non‐profit foundation. The Company also entered into a partnership with the "Circolo dei Lettori" (Readers' Circle) in Turin for its annual programme and supported the 30th edition of the "Salone Internazionale del Libro" (International Book Fair) in Turin.

The Company also acted as technical sponsor for a number of cultural and art exhibitions and events promoted by organisations in and around the city of Turin, including for example, the Fondazione Torino Musei for Palazzo Madama and the Pinacoteca Accademia Albertina di Belle Arti di Torino (Albertina Picture Gallery at the Turin Academy of Fine Arts).

The activities organised by the Reale Mutua Historical Museum in previous years continued throughout 2017 and again proved extremely popular. The total number of visitors since it first opened in 2014 now stands at over 13,000. This is also thanks to the guided tours specifically designed for primary and middle school pupils, first launched in October 2014 and which have continued ever since.

To arouse children's interest in museums, the Company took part in the “National Family at the Museum Day – F@MU 2017”. Changes were made to the overall layout of the Museum tour, to accommodate young children's needs and there were a host of games and attractions to welcome them. The "La Notte degli Archivi" (Archives by Night) event, held in September at several archives in Turin, attracted large numbers of visitors who were able to admire the exhibition rooms at the Museum and the Historical Archives and listen to an unpublished story written especially for the occasion by local author Fabio Geda with jazz accompaniment by Giorgio Li Calzi.


Within the scope of a broader project aimed at preserving and enhancing its historical heritage, in 2017 Reale Mutua continued its membership of Museimpresa, the Italian association of museums and industrial archives that supports Italian companies committed to implementing communication strategies to promote their cultural heritage.

1.12 LITIGATION

The Company is involved in tax disputes following assessments relating to tax periods from 2003 to 2012.

These assessments regard VAT on coinsurance assignments. They merely regard the interpretation of tax regulations governing the application of VAT to coinsurance assignments, on which there is ample case law supporting the approach applied by insurance companies. In a few isolated cases the court has handed down an unfavourable ruling, two of which against Reale Mutua, which, however remains firmly convinced that the dispute will be settled in its favour. On this matter, decisions 22429/2016 and 5585/2017 issued by the Supreme Court of Cassation deal with the treatment, for the purposes of VAT, of coinsurance agreements pursuant to article 1911 of the Italian Civil Code, with specific reference to the services provided by the "leading" insurer appointed by the other insurance undertakings party to the coinsurance agreement to carry out a series of activities in connection with the stipulation, management and execution of the insurance contract, for which coinsurance commissions are payable. The decisions shed light on several important elements that confirm the exemption of coinsurance activities from VAT. No funds have been set aside in connection with this issue.

Previous assessments concerning provisions for outstanding claims have all been completed.

Lastly, on 7 July 2017 the Company received € 22,016 thousand by way of repayment of tax receivables pursuant to the application for reimbursement of taxes relating to tax year 2007 following the objections raised by the Tax Authority in its tax assessment for the 2006 tax year concerning the application of IRES and IRAP to the provision for outstanding claims.

49

1.13 OTHER INFORMATION

In accordance with art. 28.2 of ISVAP Regulation No. 20/2008, as subsequently amended by ISVAP Directive No. 3020/2012 and IVASS Order No. 17 of 15 April 2014, together with the financial statements, the Company sent IVASS the documentation requested thereby, referring to data as at 31 December 2016. This documentation consisted of a report on the system of internal controls and risk management, illustrating the actions undertaken in the previous year and any changes to the system during the year, the internal audits performed, any highlighted faults and the corrective measures adopted. It also contained information on the organisational structure of the undertaking, including the results of the annual assessment of the size, composition and functioning of the administrative body. Documents referring to the organisational chart and system of delegating powers were attached to the report. According to the same Regulation, the Board of Directors of the Company has approved the action plans drawn up for 2017 by the CRO, for the internal audit, risk management, actuarial and compliance functions and pursuant to ISVAP Regulation No. 41/2012 for the anti‐money laundering function.

As regards the handling of complaints, in accordance with ISVAP Regulation No. 24/2008 as subsequently amended, 1,534 complaints were filed with the Company in 2017, which is an increase on the 1,317 filed in the previous year. 93% of all complaints filed were resolved; the average response time was 16 days, slightly longer than in 2016 (15.21 days).

* * *

At the meeting of 30 November 2017, the Board of Directors of Reale Mutua approved the information security policy setting out a structured process for measuring the Company's exposure to the risk of breach of information security and for identifying the physical, logical and procedural security measures for protecting information. The policy defines the guidelines to be followed in order to establish, ensure and maintain an appropriate level of information security, it sets out the criteria to be used to assess the level of security, based on the methodologies and standards of reference, and describes the organisational structure of the information security management system of Reale Group. This policy applies to all Reale Group companies in Italy and Spain.

* * *

In October 2017 Fitch Ratings confirmed the IFS (Insurer Financial Strength) rating of "BBB+" for Reale Mutua and its subsidiary Reale Seguros Generales, with a stable outlook. This rating reflects the high level of capitalisation of Reale Mutua, the absence of financial obligations and its strong business profile in Italy. This rating is higher than Italy's sovereign rating by the same agency, also thanks to the Group's international diversification with around 24% of net premiums subscribed in Spain. Fitch Ratings pointed out that by acquiring Uniqa Assicurazioni and its subsidiaries the Group has strengthened its business profile in Italy, increased the diversification of its product mix and expanded its sales network.

* * *

In 2017, Reale Group decided to broaden the scope of activity of “Fundaciòn Reale”, which operates in Spain for Reale Seguros, to include all Group companies. Now renamed “Reale Foundation”, it is a cross‐company instrument with an international reach that will support projects to raise donations, creating value over time.

Embodying the principles of mutuality that have been guiding the actions of Reale Group companies for 190 years, its policy of sustainability and promoting community engagement, Reale Foundation will support initiatives in Italy, Spain and Chile, in line with the UN 2030 Agenda for sustainable development, with a specific focus on the following three areas: Health & Welfare, Social, Sustainable Environment and Communities.

Group companies will make an annual donation to the Foundation, for an amount that will be decided upon by each Board of Directors up to a maximum of 1% of the consolidated net profit at Group level.


1.14 RELATIONSHIPS WITH SUBSIDIARY AND ASSOCIATED COMPANIES

The Company is the Parent of the Reale Mutua Group, registered under number 006 in the Register of insurance companies set up by ISVAP with Regulation No. 15 of 20 February 2008.

The Company is not subject to the management and coordination of third parties pursuant to art. 2497 et seq. of the Italian Civil Code; it manages and coordinates its subsidiaries in accordance with the aforementioned provision.

A) Italian Subsidiaries

Activities and services common to the various Italian companies of Reale Group have been concentrated in accordance with a Group strategy based on synergy, coordination and control.

In particular, for the Italian subsidiaries, Reale Mutua has concentrated management of settlement activities, general services, services relating to administrative activities (such as general and financial accounting, preparation of the financial statements, payroll and contributions, legal, fiscal and labour law assistance and consulting), commercial services and various technical services within its own departments. The Parent also manages Risk Management, Compliance and Anti‐money laundering activities for the Italian subsidiaries. During 2017, these services generated total revenues for the Company of € 32,165 thousand.

At the same time, Reale Mutua received services relating mainly to ITC services, financial and asset management, real property and logistics, agency accounting and call centre activities for a total amount of € 106,488 thousand. The above services are furnished on an arm’s length basis and do not have any substantial effects on the operating and financial situation of the Company.

As regards the furnishing of Group services and coordination, as at 31 December 2017, 27 employees of Reale Mutua, including six senior managers, were seconded to subsidiary companies. On the same date, 239 employees of Group companies, including two senior managers, were seconded to the Company.

* * *

The main data for each Italian subsidiary at 31 December 2017 are set forth below.

Italiana Assicurazioni S.p.A. ‐ Milan

At 31 December 2017 this company reported premium income from direct business and inward reinsurance of € 780,639 thousand, in relation to € 787,914 thousand in 2016, with a decrease of 0.9%, of which € 541,939 thousand for Non‐life business, with an increase of 2.6%, and € 238,700 thousand for Life business, with a decrease of 8.1%. The year closed with a net profit of € 18,644 thousand in relation to € 27,822 thousand in 2016. In particular, Non‐life business recorded a profit of € 16,959 thousand, compared with € 28,170 thousand in 2016, and Life business recorded a profit of € 1,685 thousand, compared with a loss of € 348 thousand in 2016. The proposal to be submitted to the Meeting envisages the distribution of a dividend of € 11,223 thousand to the shareholder.

Uniqa Assicurazioni S.p.A. ‐ Milan

The Company posted direct business premium income related to Non‐life operations of € 241,957 thousand at 31 December 2017, in relation to € 239,941 thousand in 2016, with an increase of 0.8%: The year closed with a loss of € 15,866 thousand, compared with a net profit of € 3,620 thousand in the previous year. The proposal to be submitted to the Meeting envisages carrying the full amount of the loss forward.

51

Uniqa Previdenza S.p.A. ‐ Milan

The Company posted direct business premium income related to Life operations of € 715,583 thousand at 31 December 2017, in relation to € 918,298 thousand in 2016, with a decrease of 22.1%. The year closed with a loss of € 4,328 thousand, compared with a net profit of € 796 thousand in the previous year. The proposal to be submitted to the Meeting envisages carrying the full amount of the loss forward.

Uniqa Life S.p.A. ‐ Milan

The Company posted direct business premium income related to Life operations of € 100,910 thousand at 31 December 2017, in relation to € 180,521 thousand in 2016, with a decrease of 44.1%. The year closed with a net profit of € 6,075 thousand, compared with a net profit of € 8,820 thousand in the previous year. According to the proposal to be submitted to the Meeting, after making the required allocations to the legal reserve, the remaining amount of € 5,771 thousand will be carried forward.

Banca Reale S.p.A. ‐ Turin

Total customer deposits moved up 39.3% over the previous year to a total of € 14,955,161 thousand at 31 December 2017, while loans to customers amounted to € 306,965 thousand at the end of the year, an increase of 11.5% over 2016. The income statement for 2017 closed with a net profit of € 1,406 thousand compared with € 1,824 thousand in 2016. According to the proposal to be submitted to the Meeting, after making the required allocations to the legal reserve, the remaining amount of € 1,195 thousand will be carried forward.

Reale Immobili S.p.A. ‐ Turin

At 31 December 2017 rents from real estate amounted to € 67,778 thousand, down € 2,935 thousand compared with 31 December 2016. Gains arising from the sale of real estate amounted to € 14,906 thousand compared with € 15,936 thousand in the previous year. The year closed with a profit of € 16,604 thousand compared with € 20,829 thousand in 2016. The proposal to be submitted to the Meeting envisages the allocation of 5% of net income, equal to € 830 thousand, to the legal reserve, € 3,832 thousand to the extraordinary reserve and the distribution of dividends for the remaining € 11,942 thousand.

Blue Assistance S.p.A. ‐ Turin

Production revenues amounted to € 29,254 thousand in 2017, 6.7% up on 2016. The year closed with a net profit of € 1,032 thousand compared with a profit of € 922 thousand in 2016. As proposed to the Meeting, 5% of the profit will be allocated to the legal reserve and the remainder will be carried forward.

Reale Ites EEIG ‐ Turin

Reale Mutua's interest in the European Economic Interest Grouping amounted to € 76,390 thousand. Revenues from services amounted to € 110,231 thousand and referred to fees for IT services supplied to Group companies that are members of the Grouping. At year‐end investments in hardware and software amounted to € 96,901 thousand. Reale Ites broke even at the end of 2017.


ITALNEXT S.r.l.

Italnext is wholly owned by Italiana Assicurazioni. Revenues from sales and services amounted to a total of € 827 thousand. The Company reported a loss of € 368 thousand. As proposed to the Meeting, the loss will be covered through the use of shareholders' capital contributions.

Uniqa Intermediazioni S.r.l.

Revenues from sales and services amounted to a total of € 312 thousand. The Company reported a net profit of € 112 thousand. As proposed to the Meeting, the profit will be carried forward.

B) Foreign Subsidiaries

The main data concerning intra‐group relations with each foreign subsidiary at 31 December 2017 are set forth below. Reale Mutua manages services on behalf of its Spanish subsidiary Reale Seguros Generales for the administration and control of real estate investments, equity and finance services and risk management activities, as regards the development and management of the internal model. It manages services for the administration and control of real estate investments and equity and finance services on behalf of the Spanish subsidiary Reale Vida y Pensiones. During 2017, these services generated total revenues for the Company of € 466 thousand, and costs for € 198 thousand. At 31 December 2017 four employees from Reale Seguros Generales were partially seconded to Reale Mutua and one employee from Reale Mutua was partially seconded to Reale Seguros Generales.

Reale Seguros Generales S.A. – Madrid

In financial 2017, the Company reported a volume of premiums of € 853,748 thousand (€ 816,514 thousand in 2016), with a y/y increase of 4.6%. The year closed with a net profit of € 44,600 thousand, compared with € 22,099 thousand in the previous year. The proposal to be presented to the Meeting envisages allocation of the net profit to reserves for € 18,200 thousand and payment of dividends for € 26,400 thousand.

Reale Vida y Pensiones S.A. – Madrid

In 2017 the Spanish subsidiary of Reale Seguros Generales reported a volume of premiums of € 32,851 thousand, compared with € 45,851 thousand in 2016. The year closed with a net profit of € 914 thousand, compared with € 43 thousand in 2016.

Inmobiliaria Grupo Asegurador Reale S.A. – Madrid

In 2017 revenues generated by ordinary operations amounted to € 3,276 thousand, compared with € 3,429 thousand in 2016, with a year‐on‐year decrease of 4.5%. The year closed with a net profit of € 1,104 thousand, compared with € 1,299 thousand in 2016. According to the proposed allocation of the net profit for the year, a dividend of € 994 thousand will be distributed after making the required appropriations to the reserves.

53

Reale Group Latam S.p.A. – Santiago

The Company reported a loss of € 24 thousand.

Reale Group Chile S.p.A. – Santiago

The Company reported a loss of € 2,328 thousand.

Reale Chile Seguros S.A. – Santiago

In 2017 the Company reported a volume of premiums of € 11,993 thousand. At the end of the year it reported a loss of € 5,100 thousand.

C) Associated companies

The main data for each associated company at 31 December 2017 are set forth below.

Sara Assicurazioni S.p.A. ‐ Rome

Reale Mutua owns a 31.43% stake in the share capital of this Non‐life company. Total premiums for the year amounted to € 558,838 thousand, in relation to € 548,762 thousand in 2016, with a y/y increase of 1.8%. Financial 2017 closed with a positive result of € 60,847 thousand, compared with a profit of € 60,369 thousand in 2016. The positive result of 2017 was substantially in line with that of the previous year. According to the proposed allocation of the net profit for the year, a dividend of around € 24,354 thousand will be distributed after making the required appropriations to the reserves.

Credemassicurazioni S.p.A. ‐ Reggio Emilia

This Non‐life company is owned on an equal basis by Reale Mutua and the Credem banking group. In financial 2017 Credemassicurazioni garnered premium income for € 35,840 thousand, compared with € 32,126 thousand in 2016, increasing by 11.6% in relation to the previous year. Financial 2017 closed with a profit of € 7,061 thousand compared with € 5,359 thousand in the previous year. The proposal to be submitted to the Meeting does not envisage the distribution of a dividend, but for the entire amount to be allocated to reserves.


1.15 MAIN EVENTS IN EARLY 2018

On 7 March 2018 an agreement was reached with the trade unions on the restructuring and reorganisation plan following the acquisition by Reale Group of the former Uniqa Italia Group companies, which includes the merger by incorporation of these into Italiana Assicurazioni S.p.A., as set forth in the notification pursuant to articles 15 and 16 of the ANIA national collective labour agreement of 26 October 2017. The plan, which involves Reale Mutua, Italiana Assicurazioni, Reale Ites EEIG, Uniqa Assicurazioni S.p.A., Uniqa Previdenza S.p.A. and Uniqa Life S.p.A, will be implemented in steps starting from the date of signing the agreement and will be completed by the end of the first half of 2020. Under the plan, the Group will maintain its companies' headquarters in Turin and Milan, and will also open an operations hub in Udine employing a significant number of staff. The reorganisation also envisages mobility of staff on a voluntary basis and an improvement in the overall level of expertise to be achieved through the recruitment of new resources, also with a view to promoting generational turnover. Measures have also been agreed upon to safeguard jobs in view of the redundancies that will result from the project (151 employees); use will be made of redundancy incentive plans for employees who are already of retirement age and workers with less than five years to go until reaching retirement age will have access to payments from the industry's Solidarity Fund.

No further significant events have occurred after the closure of the accounts that could have a significant effect on the information provided in the balance sheet or income statement.

1.16 BUSINESS OUTLOOK

According to estimates by the International Monetary Fund, growth is forecast to stand at 2.2% in 2018. Foreign demand will continue to increase and difficult Brexit negotiations and a strong euro are not expected to pose significant risks. The ECB's adjustments to its monetary policy in response to improving cyclic conditions are not expected to have a dampening effect on growth and the labour market continues to improve with unemployment expected to fall further to 8.5%. Inflationary pressures remain low and the CPI could stand unchanged at 1.5%.

The results of the general election in Italy have so far done nothing to overcome the climate of uncertainty that preceded the vote. While the country tries to reach some kind of solution for a government, it will be important to keep an eye on market volatility and a widening of the spread with German bunds. According to the latest IMF estimates, growth in 2018 is forecast to stand at 1.4%. Economic recovery would lead to a drop in the rate of unemployment, which is on course to fall to 10.8% by the end of 2018.

* * *

In this context, indications regarding the Company’s insurance business confirm the projections of positive performance examined during the Meeting of Delegates of 11 December 2017.

* * *

In the Non‐motor Non‐life business, the guidelines for 2018 envisage the continued pursuit of profitable development and the implementation of measures to update and improve the product catalogue, to make the offering even more innovative and competitive.

In the Motor sector, the Company will continue to concentrate on protecting the portfolio in 2018 and on improving profitability through initiatives aimed at slowing down the decline in average Motor TPL premium prices and enhancing the level of tariff sophistication.

In the Life sector, the Company will continue to diversify its multi‐risk product offering in 2018.

55

1.17 AUDIT

Pursuant to art. 102 of Legislative Decree No. 209 of 7 September 2005, and art. 14‐16 of Legislative Decree No. 39 of 27 January 2010, the annual accounts at 31 December 2017 have been audited by EY S.p.A.

1.18 MOTIONS ON THE PROFIT FOR THE YEAR

To the Delegates,

We submit to your approval the accounts herewith presented which closed with a total profit of € 70,716,830.31, reflecting a profit of € 76,710,473.71 for Non‐life business and a loss of € 5,993,643.40 for Life business.

We propose that the result for the year be allocated as indicated below, with separate assignment to the Life and Non‐life segments according to the operating and financial performance of each type of business:

Net income for 2017 70,716,830.31 EUR

Life business:

Utilisation of the ordinary reserve ‐5,993,643.40 EUR

Non‐life business:

Allocation of 5% to the legal reserve 3,835,523.69 EUR

Allocation to the ordinary reserve 72,874,950.02 EUR

Remaining net income for the year 0 EUR

* * *

To conclude this Report and his three‐year term of office, which expires with this year, the President wishes to thank the Delegates, Directors, members of the Board of Statutory Auditors, Company management, all staff and agents for their unfailing cooperation and commitment.

* * *

To conclude this Report and his three‐year term of office, which expires with this year, the President wishes to thank the Delegates, Directors, members of the Board of Statutory Auditors, Company management, all staff and agents for their unfailing cooperation and commitment.

THE BOARD OF DIRECTORS


BALANCE SHEET AND INCOME STATEMENT


BALANCE SHEET

ASSETS

Values of the year

A. SUBSCRIBED CAPITAL UNPAID 1 0

of which called-up capital 2 0

B. INTANGIBLE ASSETS

1. Deferred acquisition commissions

a) Life business 3 0

b) Non-life business 4 0 5 0

2. Other acquisition costs 6 0

3. Start-up and expansion costs 7 0

4. Goodwill 8 0

5. Other multi-year costs 9 553,564 10 553,564

C. INVESTMENTS

I - Land and buildings

1. Property used in company operations 11 17,093,305

2. Property rented to third parties 12 27,241,790

3. Other properties 13 0

4. Other property rights 14 0

5. Construction in progress and advances 15 494,089 16 44,829,184

II - Investments in Group companies and other shareholdings

1. Shares and interests:

a) controlling companies 17 0

b) subsidiary companies 18 1,933,377,944

c) affiliated companies 19 0

d) associated companies 20 36,754,313

e) other companies 21 3,168,505 22 1,973,300,762

2. Bonds issued by:


b) subsidiary companies 24 0


d) associated companies 26 0

e) other companies 27 0 28 0

3. Loans to:





e) other companies 33 0 34 0 35 1,973,300,762

to be carried forward 553,564

Balance Sheet

59

Values of the previous year

181 0

182 0

183 0

184 0 185 0

186 0

187 0

188 0

189 632,691 190 632,691

191 15,250,581

192 29,426,197

193 0

194 0

195 29,158 196 44,705,936

197 0

198 1,620,110,278

199 0

200 36,754,313

201 3,815,305 202 1,660,679,896

203 0

204 0

205 0

206 0

207 0 208 0

209 0

210 0

211 0

212 0

213 0 214 0 215 1,660,679,896

to be carried forward 632,691


BALANCE SHEET

ASSETS

Values of the year

carried forward 553,564

C. INVESTMENTS (continued)

III - Other financial investments

1. Shares and interests

a) Listed shares 36 87,450,615

b) Unlisted shares 37 5,023,140

c) Interests 38 12,595,677 39 105,069,432

2. Shares in common investment funds 40 261,213,089

3. Bonds and other fixed-income securities

a) listed 41 5,563,901,209

b) unlisted 42 25,047,020

c) convertible debentures 43 0 44 5,588,948,229

4. Loans

a) loans secured by mortgage 45 28,602,132

b) loans on policies 46 1,508,984

c) other loans 47 1,342,760 48 31,453,876

5. Participation in investment pools 49 0

6. Deposits with credit institutions 50 3,833,643

7. Other financial investments 51 0 52 5,990,518,269

IV - Deposits with ceding undertakings 53 3,484,092 54 8,012,132,307

D. INVESTMENTS FOR THE BENEFIT OF LIFE POLICYHOLDERS WHO BEAR THE

INVESTMENT RISK AND RELATING TO THE ADMINISTRATION OF PENSION FUNDS

I - Investments relating to contracts linked to investment funds and market indices 55 700,558,483

II - Investments relating to the administration of pension funds 56 222,382,609 57 922,941,092

D bis. REINSURERS’ SHARE OF TECHNICAL PROVISIONS

I - NON-LIFE BUSINESS

1. Provision for unearned premiums 58 38,178,438

2. Provision for claims outstanding 59 171,410,351

3. Provisions for profit-sharing and premium refunds 60 0

4. Other technical provisions 61 0 62 209,588,789

II - LIFE BUSINESS

1. Provisions for policy liabilities 63 2,324,322

2. Unearned premium provision for supplementary coverage 64 0

3. Provision for sums to be paid 65 324,568

4. Provision for profit-sharing and premium refunds 66 0

5. Other technical provisions 67 0

6. Technical provisions for policies where the investment risk

is borne by the policyholders and relating to the

administration of pension funds 68 0 69 2,648,890 70 212,237,679

to be carried forward 9,147,864,642

61


carried forward 632,691

216 45,041,185

217 5,286,298

218 12,595,677 219 62,923,160

220 226,803,259

221 5,596,152,825

222 19,457,803

223 0 224 5,615,610,628

225 28,354,032

226 2,021,704

227 1,257,606 228 31,633,342

229 0

230 4,563,080

231 0 232 5,941,533,469

233 4,529,585 234 7,651,448,886

235 562,094,488

236 196,852,147 237 758,946,635

238 36,611,667

239 143,121,713

240 0

241 0 242 179,733,380

243 2,543,731

244 0

245 328,568

246 0

247 0

248 0 249 2,872,299 250 182,605,679



BALANCE SHEET

ASSETS

Values of the year

carried forward 9,147,864,642

E. RECEIVABLES

I - Receivables arising out of direct insurance operations:

1. Policyholders

a) for premiums current year 71 190,667,041

b) for premiums previous years 72 14,275,335 73 204,942,376

2. Insurance intermediaries 74 225,513,353

3. Current accounts with insurance i

75 18,560,049

4. Policyholders and third parties for recoveries 76 67,655,518 77 516,671,296

II - Receivables arising out of reinsurance operations:

- 1. Insurance and reinsurance companies 78 60,248,316

2. Reinsurance intermediaries 79 3,296,412 80 63,544,728

III - Other receivables 81 153,090,078 82 733,306,102

F. OTHER ASSETS

I - Tangible assets and inventories:

1. Furniture, office machines and internal transport vehicles 83 4,900,684

2. Vehicles listed in public registers 84 0

3. Machinery and equipment 85 6,530,742

4. Inventories and other goods 86 0 87 11,431,426

II - Cash and cash equivalents

1. Bank and Postal accounts 88 73,137,203

2. Cheques and cash on hand 89 2,482 90 73,139,685

III - Own shares or equity interests 91 0

IV - Other

1. Deferred reinsurance items 92 2,027

2. Miscellaneous assets 93 152,301,254 94 152,303,281 95 236,874,392

G. PREPAYMENTS AND ACCRUED INCOME

1. Accrued interest 96 47,709,451

2. Rents 97 0

3. Other prepayments and accrued income 98 973,119 99 48,682,570

TOTAL ASSETS 100 10,166,727,706

63



251 164,402,666

252 15,540,549 253 179,943,215

254 230,806,296

255 19,131,124

256 57,648,500 257 487,529,135

258 45,395,869

259 2,257,092 260 47,652,961

261 171,407,592 262 706,589,688

263 5,267,419

264 0

265 7,989,694

266 0 267 13,257,113

268 79,424,867

269 1,492 270 79,426,359

271 0

272 2,027

273 163,598,088 274 163,600,115 275 256,283,587

276 51,542,441

277 0

278 1,327,997 279 52,870,438

280 9,609,377,604


BALANCE SHEET

LIABILITIES AND SHAREHOLDERS' EQUITY

Values of the year

A. SHAREHOLDERS' EQUITY

I - Subscribed capital or equivalent fund 101 60,000,000

II - Share premium account 102 0

III - Revaluation reserves 103 136,222,768

IV - Legal reserve 104 213,597,135

V - Statutory reserves 105 0

VI - Reserves for own shares and shares of the controlling company 400 0

VII - Other reserves 107 1,496,793,900

VIII - Profit (loss) brought forward 108 0

IX - Net profit (loss) for the year 109 70,716,830

X Negative reserve for own shares held 401 0 110 1,977,330,633

B. SUBORDINATED LIABILITIES 111 0

C. TECHNICAL PROVISIONS


1. Provision for unearned premiums 112 663,813,368

2. Provision for claims outstanding 113 1,761,353,189


4. Other technical provisions 115 552,682

5. Equalisation provision 116 10,137,274 117 2,435,856,513

II - LIFE INSURANCE BUSINESS

1. Provisions for policy liabilities 118 4,471,888,429

2. Unearned premium provision for supplementary coverage 119 174,811

3. Provision for sums to be paid 120 46,610,169


5. Other technical provisions 122 16,520,995 123 4,535,194,404 124 6,971,050,917

D. TECHNICAL PROVISIONS WHERE THE INVESTMENT RISK IS BORNE

BY THE POLICYHOLDERS AND RELATING TO THE ADMINISTRATION OF PENSION FUNDS

I - Provisions relating to contracts linked to investment funds

and market indices 125 701,554,276

II - Provisions relating to the administration of pension funds 126 222,374,308 127 923,928,584


65


281 60,000,000

282 0

283 136,222,768

284 210,507,075

285 0

500 0

287 1,442,490,798

288 0

289 57,393,162

501 0 290 1,906,613,803

291 0

292 658,635,717

293 1,750,579,144

294 0

295 616,708

296 11,938,561 297 2,421,770,130

298 4,150,691,240

299 182,257

300 45,687,868

301 0

302 13,396,939 303 4,209,958,304 304 6,631,728,434

305 563,796,946

306 196,844,955 307 760,641,901



BALANCE SHEET


Values of the year


E. PROVISIONS FOR RISKS AND CHARGES

1. Provisions for pensions and similar obligations 128 29,105,246

2. Provisions for taxation 129 0

3. Other provisions 130 34,202,609 131 63,307,855

F. DEPOSITS RECEIVED FROM REINSURERS 132 3,078,103

G. PAYABLES AND OTHER LIABILITIES

I - Payables arising out of direct insurance operations:

1. Insurance intermediaries 133 47,701,330

2. Current accounts with insurance companies 134 225,419

3. Premium deposits and premiums due to policyholders 135 12,660,993

4. Guarantee funds in favour of policyholders 136 0 137 60,587,742

II - Payables arising out of reinsurance operations:

1. Insurance and reinsurance companies 138 1,227,758

2. Reinsurance intermediaries 139 3,681,494 140 4,909,252

III - Debenture loans 141 0

IV - Amounts owed to banks and credit institutions 142 0

V - Loans guaranteed by mortgages 143 0

VI - Miscellaneous loans and other financial liabilities 144 0

VII - Provision for employee termination indemnities 145 8,705,314

VIII - Other payables

1. Premium taxes 146 29,003,616

2. Other tax liabilities 147 7,563,785

3. Social security 148 4,406,488

4. Miscellaneous payables 149 62,465,806 150 103,439,695

IX - Other liabilities

1. Deferred reinsurance items 151 0

2. Commissions for premiums in course of collection 152 44,671,786

3. Miscellaneous liabilities 153 4,037,159 154 48,708,945 155 226,350,948


67



308 30,824,692

309 0

310 49,158,861 311 79,983,553

312 3,309,241

313 47,751,131

314 1,686,710

315 12,649,528

316 0 317 62,087,369

318 3,704,583

319 3,061,720 320 6,766,303

321 0

322 0

323 0

324 0

325 9,083,316

326 31,147,676

327 3,020,606

328 4,344,967

329 59,222,341 330 97,735,590

331 0

332 43,584,973

333 5,925,539 334 49,510,512 335 225,183,090



BALANCE SHEET


Values of the year


H. ACCRUALS AND DEFERRED INCOME

1. Accrued interest 156 991,175

2. Rents 157 689,491

3. Other prepayments and accrued income 158 0 159 1,680,666

TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY 160 10,166,727,706

69



336 1,138,808

337 778,774

338 0 339 1,917,582

340 9,609,377,604


INCOME STATEMENT

Values of the year

I. TECHNICAL ACCOUNT – NON-LIFE INSURANCE BUSINESS

1. PREMIUMS EARNED, NET OF REINSURANCE:

a) Gross premiums written 1 1,418,507,494

b) (-) Outward reinsurance premiums 2 133,474,553

c) Change in the gross provision for unearned premiums 3 5,158,967

d) Change in the provision for unearned premiums, reinsurers’ share 4 1,594,638 5 1,281,468,612

2. (+)ALLOCATED INVESTMENT RETURN TRANSFERRED FROM THE NON-TECHNICAL ACCOUNT (ITEM III. 6) 6 30,506,276

3. OTHER TECHNICAL INCOME, NET OF REINSURANCE 7 14,534,385

4. CLAIMS INCURRED, NET OF RECOVERIES AND REINSURANCE

a) Claims paid

aa) Gross amount 8 976,997,942

bb) (-) reinsurers’ share 9 98,561,729 10 878,436,213

b) Change in recoveries, net of reinsurers' share


bb) (-) reinsurers’ share 12 0 13 30,094,961

c) Change in the provisions for outstanding claims


bb) (-) reinsurers’ share 15 34,486,420 16 -23,711,635 17 824,629,617

5. CHANGE IN OTHER TECHNICAL PROVISIONS NET OF REINSURANCE 18 -64,026

6. PREMIUM REFUNDS AND PROFIT-SHARING, NET OF REINSURANCE 19 0

7. OPERATING EXPENSES:

a) Acquisition commissions 20 176,413,869

b) Other acquisition costs 21 72,598,154

c) Change in commissions and other acquisition costs

to be amortised 22 0

d) Collecting commissions 23 105,908,173

e) Other administrative expenses 24 73,826,129

(-) Reinsurance commissions and profit-sharing 25 22,521,476 26 406,224,849

8. OTHER TECHNICAL CHARGES, NET OF REINSURANCE 27 40,715,531

9. CHANGE IN THE EQUALISATION PROVISION 28 -1,801,287

10. BALANCE ON THE TECHNICAL ACCOUNT FOR NON-LIFE BUSINESS (Item III. 1) 29 56,804,589

Income Statement

71


111 1,403,413,827

112 130,267,922

113 13,473,478

114 4,997,496 115 1,264,669,923

116 40,867,638

117 21,907,631

118 969,381,138

119 72,696,463 120 896,684,675

121 33,440,273

122 0 123 33,440,273

124 -27,440,242

125 9,516,333 126 -36,956,575 127 826,287,827

128 -132,654

129 0

130 178,778,251

131 69,361,621

132 0

133 107,889,895

134 74,276,421

135 23,598,601 136 406,707,587

137 51,541,927

138 1,403,736

139 41,636,769


INCOME STATEMENT

Values of the year

II. TECHNICAL ACCOUNT - LIFE INSURANCE BUSINESS

1. PREMIUMS EARNED, NET OF REINSURANCE:

a) Gross premiums written 30 818,170,367

b) (-) Outward reinsurance premiums 31 4,106,424 32 814,063,943

2. INVESTMENT INCOME:

a) From shares and interests 33 7,403,224

(of which: from Group companies 34 2,571,278 )

b) From other investments:

aa) income from land and buildings 35 0

bb) income from other investments 36 122,432,367 37 122,432,367

(of which: from Group companies 38 0 )

c) Value re-adjustments on investments 39 5,525,335

d) Gains on the disposal of investments 40 23,919,148

(of which: from Group companies 41 0 ) 42 159,280,074

3. INCOME AND UNREALISED GAINS ON INVESTMENTS FOR THE BENEFIT OF POLICYHOLDERS

WHO BEAR THE INVESTMENT RISK AND RELATING TO THE ADMINISTRATION OF PENSION FUNDS 43 52,348,652

4. OTHER TECHNICAL INCOME, NET OF REINSURANCE 44 9,595,796

5. CLAIMS INCURRED, NET OF REINSURANCE:

a) Claims paid


bb) (-) Reinsurers' share 46 805,245 47 434,411,893

b) Change in the provisions for claims to be paid

aa) Gross amount 48 922,853

bb) (-) Reinsurers' share 49 931,408 50 -8,555 51 434,403,338

6. CHANGE IN PROVISIONS FOR POLICY LIABILITIES AND IN OTHER TECHNICAL PROVISIONS,

NET OF REINSURANCE

a) Provisions for policy liabilities:


bb) (-) Reinsurers' share 53 -219,362 54 322,942,177

b) Unearned premium provision for supplementary coverage:

aa) Gross amount 55 -7,446

bb) (-) Reinsurers' share 56 0 57 -7,446

c) Other technical provisions


bb) (-) Reinsurers' share 59 0 60 3,124,056

d) Provisions for policies where the investment risk is borne by the

and relating to the administration of pension funds


bb) (-) Reinsurers' share 62 0 63 163,286,684 64 489,345,471

73


140 797,361,316

141 4,229,944 142 793,131,372

143 13,314,674


145 0

146 130,335,062 147 130,335,062

(of which: from Group companies 148 2,189 )

149 6,837,018

150 18,896,625


153 39,550,342

154 8,026,769

155 468,989,541

156 2,276,832 157 466,712,709

158 -26,826,564

159 -443,371 160 -26,383,193 161 440,329,516

162 346,465,248

163 -439,417 164 346,904,665

165 11,348

166 0 167 11,348

168 2,663,381

169 0 170 2,663,381

171 109,541,789

172 0 173 109,541,789 174 459,121,183


INCOME STATEMENT

Values of the year

7. PREMIUM REFUNDS AND PROFIT-SHARING, NET OF REINSURANCE 65 0

8. OPERATING EXPENSES:

a) Acquisition commissions 66 14,753,822

b) Other acquisition costs 67 9,952,731

c) Change in commissions and other acquisition costs

to be amortised 68 0

d) Collecting commissions 69 993,518

e) Other administrative expenses 70 15,593,470

(-) Reinsurance commissions and profit-sharing 71 672,745 72 40,620,796

9. INVESTMENT MANAGEMENT AND FINANCIAL CHARGES:

a) Investment management charges, including interest 73 15,410,471

b) Value adjustments on investments 74 21,915,686

c) Losses on the disposal of investments 75 1,728,093 76 39,054,250

10. INVESTMENT MANAGEMENT AND FINANCIAL CHARGES AND UNREALISED LOSSES ON INVESTMENTS FOR THE BENEFIT OF POLICYHOLDERS

WHO BEAR THE INVESTMENT RISK AND INVESTMENTS DERIVING FROM THE ADMINISTRATION

OF PENSION FUNDS 77 36,288,514

11. OTHER TECHNICAL CHARGES, NET OF REINSURANCE 78 6,936,859

12. (-) ALLOCATED INVESTMENT RETURN TRANSFERRED TO THE NON-TECHNICAL ACCOUNT (Item III. 4) 79 7,806,012

13. BALANCE ON THE TECHNICAL ACCOUNT FOR LIFE BUSINESS (Item III. 2) 80 -19,166,775

III. NON TECHNICAL ACCOUNT

1. BALANCE ON THE TECHNICAL ACCOUNT FOR NON-LIFE BUSINESS (Item I.10) 81 56,804,589

2. BALANCE ON THE TECHNICAL ACCOUNT FOR LIFE BUSINESS (Item II. 13) 82 -19,166,775

3. NON-LIFE INVESTMENT INCOME:

a) From shares and interests 83 38,331,091


b) From other investments:

aa) income from land and buildings 85 3,416,877

bb) income from other investments 86 11,524,371 87 14,941,248


c) Value re-adjustments on investments 89 1,626,978

d) Gains on the disposal of investments 90 19,815,939


75


175 0

176 15,632,824

177 9,639,138

178 0

179 1,267,635

180 14,761,471

181 921,670 182 40,379,398

183 14,902,359

184 21,369,606

185 1,474,560 186 37,746,525

187 35,371,189

188 6,085,317

189 14,411,945

190 -23,353,211

191 41,636,769

192 -23,353,211

193 52,356,370


195 3,755,731

196 15,413,758 197 19,169,489


199 1,822,014

200 19,562,738



INCOME STATEMENT

Values of the year

4. (+) ALLOCATED INVESTMENT RETURN TRANSFERRED FROM THE

TECHNICAL ACCOUNT FOR LIFE BUSINESS (Item II. 12) 93 7,806,012

5. INVESTMENT MANAGEMENT AND FINANCIAL CHARGES NON-LIFE BUSINESS:

a) Investment management charges, including interest 94 11,861,533

b) Value adjustments on investments 95 10,630,778

c) Losses on the disposal of investments 96 1,957,208 97 24,449,519

6. (-) ALLOCATED INVESTMENT RETURN TRANSFERRED TO THE NON-LIFE INSURANCE BUSINESS TECHNICAL ACCOUNT (Item I.2) 98 30,506,276

7. OTHER INCOME 99 64,036,535

8. OTHER CHARGES 100 52,312,117

9. INCOME FROM ORDINARY OPERATIONS 101 76,927,705

10. EXTRAORDINARY INCOME 102 10,414,528

11. EXTRAORDINARY CHARGES 103 3,511,817

12. EXTRAORDINARY PROFIT OR LOSS 104 6,902,711

13. PROFIT BEFORE TAXES 105 83,830,416

14. INCOME TAXES 106 13,113,586

15. NET PROFIT (LOSS) FOR THE YEAR 107 70,716,830

77


203 14,411,945

204 12,838,304

205 10,961,565

206 3,248,314 207 27,048,183

208 40,867,638

209 57,243,624

210 56,361,320

211 58,572,597

212 7,276,545

213 4,275,325

214 3,001,220

215 61,573,817

216 4,180,655

217 57,393,162

NOTES TO THE FINANCIAL

STATEMENTS


FOREWORD

These Financial Statements, accompanied by the Directors' report, comprise the schedules of the Balance Sheet and Income Statement, the Explanatory Notes and related Annexes, as well as the Statement of Cash Flows, prepared in accordance with the provisions of Legislative Decree No. 209 of 7 September 2005, as amended (latterly by Legislative Decree No. 74/2015 transposing Directive 2009/138/EC), ISVAP Regulation No. 22 of 4 April 2008 (as amended by ISVAP Orders 2117/2010 and 2845/2010 and IVASS Order No. 53/2016), Legislative Decree No. 173 of 26 May 1997. For any matters not specifically covered by the laws applicable to the insurance sector, reference should be made to the general rules on financial statements as set forth in the Italian Civil Code and to the accounting principles issued by the Italian Accounting Board (IOC). The criteria adopted in preparing the 2017 financial statements are the same as those adopted in the previous year.

In compliance with art. 95 of Legislative Decree No. 209/2005 (Code of Private Insurance), as amended, and art. 19 of ISVAP Regulation No. 7 of 13 July 2007, as amended, the Company has prepared the consolidated Financial Statements at 31/12/2017 in compliance with the international accounting standards introduced by European Union Regulation No. 1606 of 19 July 2002.

The accounts have been prepared considering continuation of company business in the next twelve months, taking into account its high net worth, which amply exceeds the minimum solvency requirements established by current regulations, and its industrial plans that forecast positive results in the next few years.

The accounts have been prepared using the euro as presentation currency; all amounts stated in the schedules and in the related Notes are rounded to the nearest thousand.

Items denominated in a foreign currency have been translated into euros at the exchange rates prevailing at year‐end. The effects of such transactions, and also of those carried out on the basis of the exchange rates prevailing on the dates of the individual transactions, are recognised directly in the income statement.

The financial statements have been audited by EY S.p.A., appointed as auditors for the period from 2012 until 2020.

81

PART A: VALUATION CRITERIA

The main valuation criteria adopted in preparing the financial statements are set out below.

Intangible assets

Other multi‐year costs

These items are booked at purchase cost including any additional charges and are amortised systematically according to their remaining possibilities of use and in any case, in a maximum period of five years.

Investments

Land and buildings

These items are entered at purchase or construction cost plus any incidental and financial charges. In particular, the buildings include expenses incurred for restructuring and improvements that have effectively increased their value; the book values also include revaluations made according to the law. When the carrying amount of the assets as at the reporting date is permanently impaired with respect to the book value, the necessary write‐downs are performed. These write‐downs are maintained in subsequent financial years for as long as the reasons for the original write‐down still exist. Real estate rented to third parties is not depreciated in view of the Company’s policy of attentive, continuous upkeep which maintains the value of the property in time. Property used in business operations is valued using the depreciated cost model. Depreciation is charged on a straight‐line basis over the estimated residual useful life of the property at a fixed rate of 3% per year and is only applicable to the building, not to the land.

Long‐term financial investments

In accordance with art. 15 of Legislative Decree No. 173/97 and IVASS Regulation No. 24 of 6 June 2016, and as resolved by the Board of Directors, this category includes securities with the following characteristics:

‐ Strategic investments; ‐ Shares in other listed or unlisted companies (including convertible debentures), in the case of

investments useful to achieve or further Company purposes, regardless of the quota interest and/or which the Company intends to hold for the longer term in the case of written agreements or not;

‐ Euro‐denominated bonds, listed or unlisted, that will be held to maturity or which have been acquired for the purpose of long‐term investment, consistently with the operating‐financial performance of the undertaking, including securities purchased to cover specific insurance products;

‐ Securities or property funds, including closed‐end and reserved funds, acquired for the purpose of long‐term investment or that will be held to maturity.

These items are booked at purchase cost, including any incidental charges, calculated according to the continuous weighted average method. For bonds, the purchase cost is adjusted by the difference between the cost of the securities and their redemption value, amortised according to the straight‐line method in the period between the date of purchase and date of maturity. This value is written down in the case of permanent impairment of value. Any write‐downs are reversed in subsequent years if the underlying assumptions are no longer correct.


Short‐term investments

These items are carried at the lower of purchase cost, calculated according to the continuous weighted average method, and presumed realisable value according to market trends. The original cost is restored in subsequent years if the underlying reasons for the write‐downs are no longer correct. For bonds, the purchase cost is adjusted by the difference between the issue price and the redemption value, amortised according to the straight‐line method in the period between the date of purchase and date of maturity. The fair value of such investments coincides with the price recorded on the last day of trading of the year for instruments traded on an active market. In the absence of an active market, the fair value is represented by the price of recent transactions or of similar instruments or, alternatively, the values resulting from application of commonly used valuation models, that take into account the correlated risk factors and are based on market observables (e.g. cash flow discount).

Options on securities

Derivative contracts on hand at year‐end are entered consistently with the underlying asset. In particular, premiums on options referring to securities not held as long‐term investments are stated at the lower of purchase cost and the price that can be assumed according to market trends. Premiums collected or paid for options on securities of macro‐class C are stated respectively under items G.VI "Miscellaneous loans and other financial liabilities" and C.III.7 "Miscellaneous financial investments". Gains or losses on trading in options are recognised in the income statement of the year in which the related sales contracts are performed.

Deposits with ceding undertakings

This item comprises deposits with ceding companies, in relation to risks assumed in reinsurance, and are stated at their nominal value.

Investments for the benefit of Life policyholders who bear the investment risk and relating to the administration of pension funds

These items are stated at fair value, which is equal to the price recorded on the last day of trading of the year for instruments traded on an active market. In the absence of an active market, the fair value is represented by the price of recent transactions or of similar instruments or, alternatively, the values resulting from application of commonly used valuation models, that take into account the correlated risk factors and are based on market observables (e.g. cash flow discount).

Receivables

These items are booked at presumed realisable value in accordance with art. 16(9) of Legislative Decree No. 173 of 26 May 1997. This is determined by offsetting the nominal value against the write‐downs calculated using analytical methods for receivables deriving from dealings with agents, reinsurance undertakings and other technical receivables and using the lump sum method for those deriving from dealings with policyholders, taking into account past experience and previous trends in collections of receivables.

83

Other assets

Tangible assets and inventories

Tangible assets, stated at purchase cost, are written down according to their remaining possibility of use. For purchases during the year, the rates are reduced by half to take into account their coming on stream during the year. Inventories are expensed during the year.

Cash at bank and in hand

This item comprises demand deposits, bank cheques and bank drafts, cash and revenue stamps, which are stated at face value.

Miscellaneous assets

This item comprises those assets not included in the items described above. It also includes the connection account between Life and Non‐life business.

Technical provisions ‐ Non‐life business

Provision for unearned premiums

In the Italian direct insurance portfolio, the components of the provision for unearned premiums item are determined in accordance with the provisions and valued using the methods set forth in Annex 15 to ISVAP Regulation No. 22 of 4 April 2008.

The provision for unearned premiums comprises:

‐ The provision for premium instalments, calculated for all classes of business according to the pro‐rata temporis method, based on gross premiums booked less acquisition commissions and other directly ascribable acquisition costs. For the risks of suretyship, hail, damages caused by natural disasters such as earthquakes, seaquakes, volcanic eruptions and related phenomena, as well as damages caused by atomic energy, the provision for premium instalments has been integrated according to the criteria defined by ISVAP Regulation No. 22 of 4 April 2008, as amended.

‐ In accordance with the recent ISVAP clarification regarding the additional provision for insurance to cover damage caused by hail and other natural disasters issued on 21 February 2011, as from financial 2011 the Company only sets aside the additional provision with reference to Hail business products characterised by cover that does not expire on or before 31 December of that year.

‐ The provision for unexpired risks, to hedge risks arising after the end of the financial year, in order to provide for all claims in connection with insurance contracts that have originated the provision for premium instalments, to the extent that the amount exceeds that of the provision for premium instalments and the premiums that will be payable on the basis of such contracts. Such provision has been calculated according to the empirical method based on the projection of the forecast claims rate as established by Annex 15 to ISVAP Regulation No. 22 of 4 April 2008.

Provision for claims outstanding

The provision for outstanding claims is determined on the basis of a prudent estimation of loss based on objective and expected facts taking all foreseeable future charges into account but not correlated financial aspects. The provision is deemed adequate to cover payment of claims incurred and not yet reported at the end of the year and related claim settlement costs. The analytical provision for claims outstanding, taken as the basis for ultimate cost actuarial estimates, is determined by the Group Claims Handling departments referring to the investigation documents on hand at 31 December of the year, quantifying the presumable future cost of each claim through application of uniform criteria for assessment of the loss, including interest and revaluations accrued and legal expenses – in and out of court – and court‐appointed technical consultants.


Projections using different actuarial techniques have been made considering claims experience historical data (amounts and numbers) for each class of business and year of occurrence. In particular, the conditions of applicability of these and compliance with hypotheses regarding the business context of the company were verified beforehand. The methods adopted are well‐known and widely‐used in actuarial practice: Chain Ladder Paid, Chain Ladder Incurred, Inflation‐adjusted Chain Ladder Paid, Bornhuetter‐Ferguson Paid, Bornhuetter‐Ferguson Incurred and Average Paid. While the Chain Ladder and Bornhuetter‐Ferguson methods consider the process of inflation to be implicit in the historical evolution of claims data, those based on Average Paid and Inflation‐Adjusted Chain Ladder Paid refer to a claims database adjusted for inflation. For TPL land vehicles and Non‐motor TPL the inflation hypothesis is increased in relation to other ‘Short Tail’ classes. When such estimates indicate a value greater than the inventory value, the inventory provisions are increased accordingly. A provision has been made for claims incurred but not reported on the reporting date (IBNR) according to the claims experience of previous years, taking into account the frequency (measured by applying the Chain Ladder method to the number of claims) and the average costs of late claims and the average cost of claims reported during the year. This provision reflects the ultimate cost component due to this particular type of claim.

Other technical provisions

These consist exclusively of the provision for increasing age set aside for multi‐year or annual Health business contracts with the obligation of renewal on expiry, whose premiums are determined, for the entire period of coverage, according to the insured's age at the time of stipulating the contract. The provision for increasing age is determined analytically according to actuarial methods pursuant to Annex 15 to ISVAP Regulation No. 22 of 4 April 2008.

Equalisation provision

This provision includes amounts set aside to offset fluctuations in the rate of claims in future years or to cover specific risks such as credit risk, the risk of natural disasters and damages caused by atomic energy, in accordance with the provisions set forth in Annex 15 to ISVAP Regulation No. 22 of 4 April 2008.

Technical provisions ‐ Life business

Technical provisions have been determined according to Annex 14 to ISVAP Regulation No. 22 of 4 April 2008. Technical provisions for the Italian direct insurance business comprise: ‐ Mathematical provisions, which include the provision for premiums carried forward and the provision

for health and professional additional premiums; ‐ The unearned premium provision for supplementary coverage; ‐ The provision for sums to be paid, set aside in a measure equal to the total amount of the sums

necessary to pay principle and annuities matured, surrenders and claims to be paid at the end of the year;

‐ The provision for future charges. The mathematical provision relating to direct Life insurance is calculated separately for each contract according to pure premiums, without deducting any policy acquisition costs and referring to the actuarial assumptions (technical interest rates, demographic assumptions of termination due to death or disability) used to calculate the premiums of existing contracts and comprises all revaluations pursuant to contractual clauses. This provision is never less than the surrender value.

85

The provision for policy liabilities includes the additional provision for mortality risk related to Class III and VI contracts, which guarantees cover in the event of death of the insured during the term of the contract, the additional provision for financial risk and the provision for demographic basis alignment calculated separately using the most recent technical bases and annuity preference coefficients available at the reporting date.

Technical provisions where the investments risk is borne by the policyholders and provisions relating to the administration of pension funds

As set forth in Annex 14 to ISVAP Regulation No. 22 of 4 April 2008, for unit‐linked policies and for class VI contracts related to open‐ended pension funds, mathematical reserves have been calculated according to the number and value of the shares of the respective investment lines in force on the valuation date, or to the market value of the corresponding hedge assets.

Inward reinsurance technical provisions

Technical provisions for inward reinsurance are determined on the basis of information provided by the ceding companies and appropriate assessments by the Company to meet the commitments assumed.

Provisions for risks and charges

Reserves for risks and charges are intended to cover losses or specific liabilities, the existence of which is certain or probable but the amount or date of occurrence of which could not be determined at the end of the year.

Deposits received from reinsurers

This item reflects amounts payable to reinsurers, recognised at face value, for deposits held against reinsurance treaties.

Payables and other liabilities

Payables

These items are booked at face value.

Employee termination indemnities

Employee termination indemnities are calculated in accordance with the provisions of art. 2120 of the Italian Civil Code, Law No. 296 of 27 December 2006 and employment contracts. The provision, net of advances paid, covers the Company's liability towards its employees accrued at the end of the year.

Accruals and deferrals

Accruals and deferrals are stated on an accruals basis to reflect the correct apportionment of cost and revenue transactions covering more than one accounting period.


Gross premiums written

Pursuant to art. 45 of Legislative Decree No. 173/1997, this item includes amounts maturing during the year for insurance contracts, regardless of whether these amounts have been collected or refer entirely or in part to subsequent years. These are determined net of cancellations pursuant to the aforesaid law.

Portion of the investment return to be transferred

The allocated investment returns to be transferred to the Non‐life technical account and to the Life technical account have been quantified in accordance with articles 22 and 23 of ISVAP Regulation No. 22/2008, as amended.

Other income statement items

Costs and revenues have been recognised according to the principles of accrual‐based accounting. Specifically, for items typical of insurance business, reference has been made to the "rules applicable to the income statement" established by Legislative Decree No. 173/1997 and the instructions set forth in ISVAP Regulation No. 22/2008, as amended.

Taxes

Current taxes for the year are allocated on an accruals basis, in accordance with the law in force. Deferred tax assets and liabilities are stated on the temporary differences between the value attributed to assets or liabilities according to statutory criteria and the values attributed to the same assets and liabilities for tax purposes. Advance tax assets have been recognised, in line with the principle of prudence, if there is a reasonable certainty of a taxable income, in the years in which the respective temporary differences will be carried over, that exceeds the amount of the differences that will be cancelled out. Deferred tax liabilities have not been recorded when the related charge is unlikely to occur.

Allocation of common Non‐life and Life costs and revenues

Economic items common to both segments mainly regard personnel costs, general expenses and contributions paid to intermediaries not ascribed to a specific section. In accordance with ISVAP Regulation No. 17 of 11 March 2008, these costs are initially posted to suspense accounts, referring to the entire company management, which identify the type of cost incurred; they are then attributed, in accordance with the terms of art. 8 and art. 9 of said Regulation, to the respective Life or Non‐life operating expense items and the suspense accounts are reduced to zero. Costs common to the two types of business are allocated via the analytical accounting system which permits attribution of costs according to assets on the balance sheet and by individual type of Life or Non‐life business. Analytical accounting is based on associating each cost movement recorded in general accounting with a cost centre code indicating the entity that benefits from the expense and a “census” that records the activities carried out by such entity in relation to the Life and Non‐life segments and to the destinations established by the insurance plan of accounts (settlement, acquisition, management of securities, management of real estate and other administrative expenses). The costs are allocated to the two segments according to specific parameters for each asset on the balance sheet that reflect the measure to which each segment contributes to determining the various types of common cost and which can be summed up as follows:

‐ other acquisition costs: allocation based on the percentage ratio of premiums written in each class to total premiums written, by applying weighting to Life premiums;

87

‐ securities management: allocation based on the percentage ratio of technical provisions, Non‐life and

Life, to total technical provisions; ‐ other administrative costs: allocation based on the percentage ratio of premiums written in each class

to total premiums written, by applying weighting to Life premiums; ‐ claim settlement costs: allocation based on the percentage ratio of premiums written, with allocation

to the Non‐life segment based on the number of claims reported and allocation to the Life segment based on claims settled.

Any revenues common to the two segments are allocated according to the relationship with assets that have generated these or with the correlated costs.


PART B: COMMENTARY ON THE BALANCE SHEET AND INCOME STATEMENT

BALANCE SHEET ASSETS

Section 1 – Intangible assets (Item B)

Intangible assets amounted to € 554 thousand and decreased by € 79 thousand compared with 31 December 2016. These reflected costs for improvements to third party assets for € 32 thousand and accumulated amortisation for € 111 thousand. Changes in this item are reported in Annex 4.

Section 2 – Investments (Item C)

Land and buildings (Item C.I)

(in € thousands)

31.12.2017 31.12.2016 Change

Real estate used in company operations 17,093 15,251 1,842

Property rented to third parties 27,242 29,426 ‐2,184

Construction in progress and advances 494 29 465

Total 44,829 44,706 123

Current value 110,486 110,016 470

Changes during the year are set forth in the table below:

(in € thousands)

31.12.2017 31.12.2016

Gross initial balance (+) 57,637 56,759

Increases for purchases and upkeep expenses (+) 780 879

Gross final balance (a) 58,417 57,638

Accumulated depreciation:

Initial balance (+) 12,931 12,290

Depreciation for the year (+) 657 642

Final balance of accumulated depreciation (b) 13,588 12,932

Carrying value (a‐b) 44,829 44,706

The gross increases mainly refer to expenses on improvements to the Company HQ in Via Corte d'Appello 11 and to the property in Via Sarpi/Corso Giovanni Agnelli, both in Turin. As regards the latter, work continued on the design of a new Company social and recreational club facility and the building permit was submitted to the authorities in spring 2017. Work commenced in August 2017 and should be completed in October 2018.

89

The current value of land and buildings, set forth in Annex 4, in the amount of € 110,486 thousand, has been determined on the basis of appraisals of the buildings and land by independent professional experts in accordance with the criteria defined by art. 20 of ISVAP Regulation No. 22 as at 31 December 2013. Where for any reason the value was significantly different from that of the previous year, this was updated as at 31 December 2017. The market value was calculated using the equity method, based on the intrinsic and extrinsic features of the assets and their profitability. Company‐specific factors not economically relevant for the market are not taken into account. Overall, the current value of the buildings is €65,657 thousand higher than their book value.

Investments in Group companies and other shareholdings (Item C.II)

Shares and interests in Group companies and other shareholdings, all referring to the long‐term investment portfolio, amounted to € 1,973,300 thousand with a year‐on‐year increase of € 312,620 thousand. The main movements in the carrying value referred to the following: ‐ purchase of 1,500,000 shares of the strategic investment in Uniqa Assicurazioni S.p.A. for an

equivalent value of € 313,267 thousand; ‐ partial sale of the holding in Cedacri S.p.A. for a carrying value of € 647 thousand with gains for € 1,818

thousand.

Annexes 5, 6 and 7 provide information regarding the investee companies and the analytical statement of changes, respectively.

The highlights of subsidiary and associated companies and other companies in which an interest is held are set forth below.

(in € thousands)

Type Company name Registered

office Shareholders’ equity

of which profit (+) or loss (‐) for the year

Direct interest %

Pro‐quota shareholders’ equity

Book value

subsid. BANCA REALE SPA TURIN 60,253 1,406 95.00 57,240 40,119

subsid. BLUE ASSISTANCE SPA TURIN 5,838 1,032 100.00 5,838 2,511

subsid. IGAR S.A. MADRID 40,096 1,104 95.00 38,091 31,555

subsid. ITALIANA ASSICURAZIONI SPA MILAN 456,592 18,644 100.00 456,592 281,592

subsid. REALE IMMOBILI SPA TURIN 876,910 16,604 85.92 753,441 934,591

subsid. REALE ITES EEIG RMA TURIN 93,108 0 81.70 76,069 76,390

subsid. REALE SEGUROS GENERALES S.A. MADRID 440,507 34,943 95.00 418,482 252,743

subsid. REALE VIDA Y PENSIONES S.A. MADRID 9,885 914 5.00 494 610

subsid. UNIQA ASSICURAZIONI SPA MILAN 259,373 ‐15,866 99.72 258,647 313,267

assoc. CREDEMASSICURAZIONI SPA REGGIO EMILIA 34,097 7,061 50.00 17,049 22,136

assoc. SARA SPA ORD. ROME 595,226 60,847 27.94 166,306 12,370

assoc. SARA SPA PRIV. ROME 595,226 60,847 3.49 20,773 2,248

other CEDACRI SPA COLECCHIO 1.34 0 1,301

other EURAPCO AG ZURICH 12.50 0 1,151

other SYNKRONOS ITALIA S.r.l. MILAN 19.65 0 716

other Welfare Italia Servizi Srl MILAN 2.22 0 0

Total 1,973,300

Reale Mutua holds an 85.92% interest in Reale Immobili for a book value of € 935 million. The pro‐quota shareholders' equity amounts to € 753 million and is thus about € 182 million lower than the book value of the shareholding. The difference mainly arose in 2007, the year in which Reale Immobili adopted international accounting standards (IAS/IFRS) for the first time to prepare its financial statements.


The difference between the pro‐quota shareholders' equity and the book value did not generate a reduction in the value of the shareholding in the financial statements of Reale Mutua because it was lower than the overall value of the latent gains in the values of the property owned by the subsidiary.

As far as the interest in CredemAssicurazioni is concerned, the difference between the value of the investment and the pro‐quota shareholders' equity is due to the expected earnings on such investment, deriving from the industrial plan approved by the Company's Board of Directors.

Please see the Report on Operations for information about the book value of the interest in Uniqa

Assicurazioni acquired during the year.

Other financial investments (Item C.III)

(in € thousands)

31.12.2017 31.12.2016 Change

Shares and interests 105,070 62,923 42,147

Shares in common investment funds 261,213 226,803 34,410

Bonds and other fixed‐income securities 5,588,948 5,615,610 ‐26,662

Loans 31,454 31,634 ‐180

Deposits with credit institutions 3,834 4,563 ‐729

Total 5,990,519 5,941,533 48,986

The composition of other financial investments and also the breakdown into long‐term and short‐term investments are provided in Annex 8. Changes in the long‐term portfolio are set forth in Annex 9.

Shares and interests: these amounted to € 105,070 thousand with a y/y increase of € 42,147 thousand. The detail of this item is as follows:

(in € thousands)

31.12.2017 31.12.2016 Change

Listed shares 87,451 45,041 42,410

Unlisted shares 5,023 5,286 ‐263

Share 12,596 12,596 0

Total 105,070 62,923 42,147

of which:

Long‐term portfolio 8,610 8,610 0

Short‐term portfolio 96,460 54,313 42,147

Total 105,070 62,923 42,147

The change refers entirely to the short‐term portfolio and comprises write‐backs for € 477 thousand and value re‐adjustments for € 1,975 thousand. The current value at year‐end was € 107,199 thousand.

Shares in common investment funds: these amounted to € 261,213 thousand with a y/y increase of € 34,410 thousand, and comprised write‐backs for € 2,723 thousand and value re‐adjustments for € 19,217 thousand entirely due to transactions in the short‐term portfolio. In detail, value re‐adjustments comprise the write‐down of the share in the "Atlante" fund for € 18,227 thousand, as explained in the Report on Operations. The current value at year‐end was € 267,347 thousand.

91

Bonds and other fixed‐income securities: these amounted to € 5,588,948 thousand with a decrease of € 26,662 thousand in relation to the previous year.

(in € thousands)

31.12.2017 31.12.2016 Change

Listed 5,563,901 5,596,152 ‐32,251

Unlisted 25,047 19,458 5,589

Total 5,588,948 5,615,610 ‐26,662

of which:

Long‐term portfolio 244,555 244,555 0

Short‐term portfolio 5,344,393 5,371,055 ‐26,662

Total 5,588,948 5,615,610 ‐26,662

Changes during the year are detailed in the table below:

(in € thousands)

Long‐term portfolio Short‐term portfolio Total

Initial balance 244,555 5,371,055 5,615,610

Purchases and subscriptions 0 3,587,208 3,587,208

Sales 0 ‐3,085,963 ‐3,085,963

Repayments ‐1,698 ‐517,657 ‐519,355

Reversals of write‐downs 0 3,952 3,952

Value re‐adjustments 0 ‐10,697 ‐10,697

Positive issue spreads 3,453 3,123 6,576

Negative issue spreads ‐56 ‐2,513 ‐2,569

Positive trading differences 38 77 115

Negative trading differences ‐1,737 ‐2,347 ‐4,084

Other changes 0 ‐1,845 ‐1,845

Final balance 244,555 5,344,393 5,588,948

Current value 314,098 5,630,637 5,944,735

The most significant items according to issuer are as follows:

(in € thousands)

Issuing institute 31.12.2017

State ‐ Italy 2,121,437

State ‐ Germany 450,141

State ‐ France 419,983

State ‐ Spain 272,147

State ‐ Ireland 166,476

State ‐ Belgium 122,528

State ‐ The Netherlands 76,856

State ‐ Finland 68,622

Rep. of Republic 47,659

Rep. of Poland 44,741

BNP Paribas 40,015

Miscellaneous financial investments: for the breakdown and any changes in this item, reference should be made to the section entitled “Operations on derivatives and structured financial instruments”.


Loans: amounted to € 31,454 thousand and are detailed below.

(in € thousands)

31.12.2017 31.12.2016 Change

Loans secured by mortgages 28,602 28,354 248

Loans on policies 1,509 2,022 ‐513

Other loans 1,343 1,258 85

Total 31,454 31,634 ‐180

Loans secured by mortgages reflect loans to employees for the purchase of housing, while the other loans mainly refer to loans to employees The changes during the year are set forth in Annex 10.

Deposits with credit institutions: this item amounted to € 3,834 thousand and consists of a number of bank passbooks opened to settle claims awaiting legal definition.

Deposits with ceding undertakings (Item C.IV)

(in € thousands)

31.12.2017 31.12.2016 Change

Subsidiary companies 0 69 ‐69

Affiliates 20 20 0

Other companies 3,464 4,440 ‐976

Total 3,484 4,529 ‐1,045

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Section 3 ‐ Investments for the benefit of Life policyholders who bear the investment risk and relating to the administration of pension funds (Item D)

Investments for the benefit of Life policyholders who bear the investment risk amounted to € 700,558 thousand (€ 562,094 thousand at year‐end 2016). The detail of the assets can be found in Annex 11, while Annexes 11/1, 11/2, 11/3 provide a breakdown of the assets by each type of product.

Investments relating to the administration of pension funds amounted to € 222,381 thousand (€ 196,852 thousand at 31 December 2016). Details of these assets can be found in Annex 12 while Annexes 12/1, 12/2, 12/3 and 12/4 refer to the individual pension lines.

The changes during the year according to category of assets as regards the investments of points D‐I and D‐II are provided in the tables below.

(in € thousands)

D‐I Shares in common

i

Shares Bonds Other

financial inv.

Other assets/liabiliti Total

Initial balance 281,418 69,551 183,605 409 27,111 562,094

Increases during the year: 508,538 37,961 179,490 132 18,480 744,601

of which: purchases 493,567 32,604 176,405 0 0 702,576

write‐backs 13,249 5,254 587 33 0 19,123

other changes 1,722 103 2,498 99 18,480 22,902

Decreases during the year: 413,733 28,419 163,653 332 0 606,137

of which: sales and 407,174 27,778 156,694 255 0 591,901

write‐downs 341 450 4,436 67 0 5,294

other changes 6,218 191 2,523 10 0 8,942

Final balance 376,223 79,093 199,442 209 45,591 700,558

(in € thousands)

D‐II Shares Bonds Other

financial inv.

Other assets/liabiliti Total

Initial balance 58,305 132,876 11 5,660 196,852

Increases during the year: 31,643 142,670 53 4,712 179,078

of which: purchases 23,681 140,491 0 0 164,172

write‐backs 6,810 149 1 0 6,960

other changes 1,152 2,030 52 4,712 7,946

Decreases during the year: 19,028 134,469 52 0 153,549

of which: sales and 17,275 130,144 48 0 147,467

write‐downs 454 2,222 0 0 2,676

other changes 1,299 2,103 4 0 3,406

Final balance 70,920 141,077 12 10,372 222,381


The assets resulting from the administration of pension funds by business line are listed in the table below:

(in € thousands)

TESEO Pension Fund Business lines

Prudenziale

etica Bilanciata

etica Sviluppo etica

Garantita etica Total

Shares and interests 0 23,349 47,571 0 70,920

Bonds and fixed‐income securities 49,730 33,939 0 57,408 141,077

Other financial investments 0 4 8 0 12

Other Assets and Liabilities 2,182 1,326 4,536 2,328 10,372

Total 51,912 58,618 52,115 59,736 222,381

Section 4 – Reinsurers’ share of technical provisions (Item D bis)

(in € thousands)

31.12.2017 31.12.2016 Change

Non‐life business

Provision for unearned premiums 38,178 36,612 1,566

Provision for claims outstanding 171,410 143,122 28,288

Total 209,588 179,734 29,854

Life business:

Provisions for policy liabilities 2,324 2,544 ‐220

Provision for sums to be paid 325 329 ‐4

Total 2,649 2,873 ‐224

Total technical provisions 212,237 182,607 29,630

Section 5 – Receivables (Item E)

(in € thousands)

31.12.2017 31.12.2016 Change

Receivables arising out of direct insurance operations 516,672 487,530 29,142

Receivables arising out of reinsurance operations 63,544 47,653 15,891

Other receivables 153,090 171,407 ‐18,317

Total 733,306 706,590 26,716

95

Receivables arising out of direct insurance operations (Item E.I).

(in € thousands)

31.12.2017 31.12.2016 Change

Premiums receivable from policyholders 204,942 179,944 24,998

Insurance intermediaries 225,514 230,806 ‐5,292

C/a with companies 18,560 19,131 ‐571

Policyholders and third parties for recoveries 67,656 57,649 10,007

Total 516,672 487,530 29,142

Receivables from policyholders for premiums amounted to € 204,942 thousand (of which € 151,917 thousand relating to Non‐life business and € 53,025 thousand to Life business). These items are shown net of the allowance for doubtful accounts of € 16,828 thousand (€ 16,631 thousand relating to Non‐life business and € 197 thousand relating to Life operations). The write‐down was determined according to the ratio of cancellations for non‐collection recorded during the year to total receivables and represents estimated future losses for cancellations of receivables from policyholders. The allowance for doubtful accounts mainly refers to Accident business for € 1,171 thousand, Health for € 549 thousand, Hulls land vehicles for € 536 thousand, Fire for € 2,081 thousand, Other property damage for € 1,403 thousand, TPL land vehicles for € 2,444 thousand, Non‐motor TPL for € 2,236 thousand and Suretyship for € 6,000 thousand. Receivables collected in the first two months of the current year amounted to € 124,568 thousand.

The Insurance intermediaries item amounted to € 225.514 thousand, with a y/y decrease of € 5.292 thousand.

Current accounts with insurance companies, net of the allowance for doubtful accounts, amounted to € 18,560 thousand, with a y/y decrease of € 571thousand. This entry mainly comprises receivables linked to co‐insurance contracts, positive entries relating to the CARD convention and invoices for amounts due for services rendered. The allowance for doubtful accounts amounted to € 1,715 thousand and is stated as adjusting receivables from companies in compulsory receivership deriving from co‐insurance relationships.

Insured and third parties for recoveries amounted to € 67,656 thousand (referring entirely to Non‐life business) compared with € 57,649 thousand in the previous year.

Receivables arising out of reinsurance operations (Item E.II)

(in € thousands)

31.12.2017 31.12.2016 Change

Insurance and reinsurance companies 60,248 45,395 14,853

Reinsurance intermediaries 3,296 2,257 1,039

Total 63,544 47,652 15,892

The gross value of receivables arising out of reinsurance operations, equal to € 63,616 thousand, has been adjusted by the amount of € 72 thousand, taken from the allowance for doubtful accounts to cover losses relating to certain reinsurers.


Other receivables (Item E.III)

The detail of other receivables is set forth in the table below:

(in € thousands)

31.12.2017 31.12.2016 Change

Receivables from Tax Authorities 125,503 144,700 ‐19,197

Receivables from claims paid in the name and on behalf 5,633 8,647 ‐3,014

Receivables from personnel management 1,092 997 95

Subsidiaries 4,506 6,164 ‐1,658

Miscellaneous receivables 16,356 10,900 5,456

Total 153,090 171,408 ‐18,318

Receivables from Tax Authorities include receivables for withholding tax, advances paid on premium taxes in the Non‐life business and tax credits for which reimbursement has been requested with the related interest. The decrease in this item primarily reflected the collection of the amount due that was the subject of the claim for repayment of taxes relating to tax year 2007, for € 22,016 thousand.

Section 6 – Other assets (Item F)

(in € thousands)

31.12.2017 31.12.2016 Change

Tangible assets and inventories 11,431 13,257 ‐1,826

Cash and cash equivalents 73,140 79,427 ‐6,287

Other assets 152,303 163,600 ‐11,297

Total 236,874 256,284 ‐19,410

Tangible assets and inventories (Item F.I)

This item amounted to € 11,431 thousand, net of the related accumulated depreciation. A breakdown of movements on this item is provided in the table below.

(in € thousands)

Furniture, office machines and

internal transport vehicles

Machinery and equipment

Total

Gross initial balance (+) 33,942 47,627 81,569

Increases during the year (+) 699 957 1,656

Gross final balance (a) 34,641 48,584 83,225

Accumulated depreciation:

Initial balance (+) 28,674 39,638 68,312

Depreciation for the year (+) 1,066 2,416 3,482

Final balance of accumulated depreciation (b) 29,740 42,054 71,794

Carrying value (a‐b) 4,901 6,530 11,431

97

Cash and cash equivalents (Item F.II)

(in € thousands)

31.12.2017 31.12.2016 Change

Bank and Postal accounts 73,138 79,425 ‐6,287

Cheques and cash on hand 2 2 0

Total 73,140 79,427 ‐6,287

Bank and postal accounts of the Banca Reale subsidiary amounted to € 64,948 thousand.

Other assets (Item F.IV)

This item amounted to € 152,303 thousand and refers entirely to miscellaneous assets, the main items of which are shown in the table below:

(in € thousands)

31.12.2017 31.12.2016 Change

Payment of premiums to be collected in subsequent years 55,925 55,896 29

Non‐life/Life connection account 14 0 14

Advance tax assets 72,879 82,372 ‐9,493

Other assets 23,485 25,332 ‐1,847

Total 152,303 163,600 ‐11,297

Advance tax assets are stated considering the reasonable certainty of future recovery.

Other assets comprise payments to the financial counterparty by way of guarantee on value variations on interest rate swap contracts with the latter for € 12,720 thousand and mandate discontinuation indemnities paid while awaiting debiting to incoming agents for € 5,248 thousand.

Section 7 – Prepayments and accrued income (Item G)

(in € thousands)

31.12.2017 31.12.2016 Change

Accrued interest 47,709 51,543 ‐3,834

Other prepayments and accrued income 973 1,328 ‐355

Total 48,682 52,871 ‐4,189

Accrued interest refers mainly to interest matured on the coupons of debt securities. Prepayments refer mostly to increased advance payments into the Road Victims Fund at the beginning of the year. The duration of all prepayments and accrued income is less than one year.


BALANCE SHEET – LIABILITIES AND SHAREHOLDERS’ EQUITY

Section 8 – Shareholders’ equity (Item A)

(in € thousands)

31.12.2017 31.12.2016 Change

Share capital or Guarantee fund 60,000 60,000 0

Revaluation reserves 136,223 136,223 0

Legal reserve 213,597 210,507 3,090

Other reserves 1,496,794 1,442,491 54,303

Net profit (loss) for the year 70,717 57,393 13,324

Total 1,977,331 1,906,614 70,717

The schedule below illustrates the changes in shareholders' equity in the last two years.

(in € thousands)

Guarantee fund

Revaluation reserves

Legal reserve Other reserves Net profit

(loss) for the year

Total Shareholders'

equity

Balances at 01/01/2016 60,000 136,223 207,537 1,386,050 59,411 1,849,221

Allocation of 2015 net profit as resolved by the Meeting of 30/04/2016

0 0 2,970 56,441 ‐59,411 0

Result for the year 0 0 0 0 57,393 57,393

Balances at 31/12/2016 60,000 136,223 210,507 1,442,491 57,393 1,906,614

Allocation of 2016 net profit as resolved by the Meeting of 29/04/2017

0 0 3,090 54,303 ‐57,393 0

Result for the year 0 0 0 0 70,717 70,717

Balances at 31/12/2017 60,000 136,223 213,597 1,496,794 70,717 1,977,331

Guarantee fund (Item A.I)

The guarantee fund amounted to € 60,000 thousand.

99

Revaluation reserves (Item A.III)

(in € thousands)

31.12.2017 31.12.2016 Change

Revaluation reserve under Law No. 576 of 2 Dec. 1975 51,700 51,700 0

Revaluation reserve under Law No. 413 of 30 Dec. 1991 82,958 82,958 0

Integration Fund under art. 36 of Law No. 295 of 10 June 1978 1,565 1,565 0

Total 136,223 136,223 0

Other reserves (Item A.VII)

(in € thousands)

31.12.2017 31.12.2016 Change

Ordinary reserve fund 1,488,149 1,433,846 54,303

Extraordinary reserve 1,931 1,931 0

Money accounts adjustment fund 6,714 6,714 0

Total 1,496,794 1,442,491 54,303

Schedule of availability and utilisation of shareholders’ equity items pursuant to art. 2427 of the Italian Civil Code

(in € thousands)

Utilisations in the previous three years

31.12.2017 Possibility of utilisation

Available portion

to cover losses

for other reasons

Guarantee fund 60,000 0 0 0

Revaluation reserve 136,223 A,B 136,223 0 0

Legal reserve 213,597 B 0 0 0

Other reserves:

‐ Ordinary reserve fund 1,488,149 A,B 1,488,149 0 0

‐ Extraordinary reserve 1,931 A,B 1,931 0 0

‐ Reserve fund for alignment of numeric values 6,714 A,B 6,714 0 0

Total other reserves 1,496,794 1,496,794

Total 1,906,614 1,633,017

LEGEND: A: for share capital increase B: to cover losses C: for distribution to shareholders

Section 9 – Subordinated liabilities (Item B)

No liabilities have been stated in this section.


Section 10 – Technical provisions (Item C.I – Non‐life business and C.II – Life business)

(in € thousands)

31.12.2017 31.12.2016 Change

Provision for unearned premiums 663,813 658,636 5,177

Provision for claims outstanding 1,761,353 1,750,579 10,774

Other technical provisions 553 617 ‐64

Equalisation provision 10,137 11,939 ‐1,802

Total Non‐life business 2,435,856 2,421,771 14,085

Provisions for policy liabilities 4,471,890 4,150,691 321,199

Unearned premium prov. for suppl. coverage 174 182 ‐8

Provision for sums to be paid 46,610 45,688 922

Other technical provisions 16,520 13,397 3,123

Total Life business 4,535,194 4,209,958 325,236

Total technical provisions 6,971,050 6,631,729 339,321

Non‐life business (Item C.I)

Non‐life business technical provisions amounted to € 2,435,856 thousand with a y/y increase of € 14,085 thousand.

The breakdown of the provision for unearned premiums and provision for outstanding claims for direct business and inward reinsurance and for each line of business is provided in the table below.

(in € thousands)

Provision for unearned premiums Provision for claims

outstanding

Provision for premium instalments

Unexpired risks

Accident 66,368 0 53,197

Health 47,221 0 46,986

Hulls land vehicles 34,829 0 18,481

Hulls railway rolling stock 8 0 244

Hulls aircraft 2 10 101

Hulls marine, lake, river craft 916 105 3,654

Goods transported 1,432 0 6,220

Fire and natural forces 99,134 0 183,331

Other property damage 111,993 0 103,554

TPL land vehicles 147,736 0 542,460

TPL aircraft 29 0 0

TPL marine, lake, river craft 526 0 2,434

Non‐motor TPL 92,357 0 687,020

Credit 3 0 1,116

Suretyship 47,990 0 80,704

Sundry pecuniary losses 1,741 0 1,159

Legal fees 5,350 0 20,341

Assistance 5,840 0 3,404

Total direct business 663,475 115 1,754,406

Inward reinsurance 218 5 6,947

Grand total 663,693 120 1,761,353

Annex 13 shows the change in the provision for unearned premiums in relation to the previous year.

101

The provision for premium instalments has been calculated according to the pro‐rata temporis method and comprises the further provisions established by Annex 15 to ISVAP Regulation No. 22 of 4 April 2008 for the risks of suretyship, hail, damages caused by natural disasters such as earthquakes, seaquakes, volcanic eruptions and related phenomena and damages caused by atomic energy.

As described in the valuation criteria, an assessment has been made of the need to accrue provisions for risks in course, comparing the aggregate consisting of the provision for premium instalments and premiums that will fall due on contracts stipulated before the end of the year and the expected charge for reimbursements and expenses arising on such contracts. In quantifying this liability, reference was made to the calculation model based on the ratio of claims to premiums earned for the year of current generation only, adjusted if necessary in the case of exceptional and therefore statistically distorting events, according to the general approach suggested by the Supervisory Authority. According to the results of the model adjusted as above, the provision for claims outstanding has been integrated for a total amount of € 115 thousand, divided as follows: € 10 thousand for the Hulls aircraft business and € 105 thousand for the Hulls marine, river, lake craft businesses In the other sectors of Non‐life business, the positive trend of current generation claims confirms the adequacy of the provision made with the pro‐rata component only of the provision for unearned premiums.

In addition to the provision for reimbursements, the provision for outstanding claims also includes the provision for direct expenses, the provision for claim settlement costs and the IBNR provision. With regard to the methods used to determine the provision for outstanding claims, reference should be made to the valuation criteria illustrated in Part A of these Notes. A breakdown of the provision for unearned premiums and of the provision for outstanding claims and also of the changes in relation to 2016 is provided in Annex 13.

The values for each class of business are set forth below:

(in € thousands)

Forecast claims %*

Forecast claims amount

Provision for premium

instalments + instalments due

Surplus / insufficiency of

reserve

Accident 61,0% 26,273 43,056 16,782

Health 92,3% 48,152 52,186 4,034

Hulls land vehicles 67,3% 29,217 43,420 14,203

Hulls railway rolling stock 0,0% 0 8 8

Hulls aircraft 539,8% 13 2 ‐10

Hulls marine, lake, river craft 111,0% 1,056 951 ‐105

Goods transported 70,6% 1,378 1,953 575

Fire and natural forces 94,2% 93,733 99,471 5,738

Other property damage 80,4% 82,205 102,258 20,053

TPL land vehicles 92,5% 178,021 192,403 14,382

TPL aircraft 0,0% 0 29 29

TPL marine, lake, river craft 79,3% 418 527 109

Non‐motor TPL 84,3% 89,591 106,236 16,646

Suretyship 47,5% 13,250 27,889 14,639

Sundry pecuniary losses 24,5% 526 2,142 1,616

Legal fees 51,0% 3,152 6,183 3,031

Assistance 75,3% 5,438 7,224 1,786

Total 83,8% 572,424 685,940 113,516

* equal to the ratio of claims to premiums of the current year calculated net of acquisition costs

Other technical provisions amounted to € 553 thousand with a year‐on‐year decrease of € 64 thousand. These include only the Health business provision for increasing age set up in accordance with Annex 15 to ISVAP Regulation No. 22 of 4 April 2008.


Equalisation provisions amounted to € 10,137 thousand with a year‐on‐year decrease of € 1,802 thousand. These have been determined as set forth in Annex 15 to ISVAP Regulation No. 22 of 4 April 2008; the table below provides the detail by type of business of the provisions and related allocations/utilisations.

(in € thousands)

31.12.2017 31.12.2016 Change

Accident 1,044 993 51

Hulls land vehicles 2,938 2,691 247

Goods transported 333 297 36

Fire and natural forces 2,372 1,783 589

Other property damage 3,360 6,091 ‐2,731

Other business 90 84 6

Total 10,137 11,939 ‐1,802

Life business (Item C.II)

Life business technical provisions amounted to € 4,535,194 thousand with a y/y increase of € 325,236 thousand.

Provisions for policy liabilities, in the amount of € 4,471,890 thousand, comprise the provision for pure premiums of € 4,390,010 thousand, the fractions of premiums relating to contracts with annual payment of the premiums for € 11,247 thousand, integration provisions for € 65,689 thousand and the additional provisions for mortality risk relating to index‐linked or pension fund contracts of € 4,944 thousand. The integration provisions comprise provisions for demographic risk for € 31,595 thousand and additional provisions for financial risk for € 34,094 thousand. The latter comprise additional provisions for guaranteed interest rate risks for € 33,048 thousand, calculated in accordance with Annex 14bis to ISVAP Regulation No. 22 of 4 April 2008 using Method B “Additional provision for single level of financial guarantee – offsetting between annual periods” described in the Annex. The breakdown and changes in this item are detailed in Annex 14.

The unearned premium provision for supplementary coverage amounted to € 174 thousand.

The Provision for sums to be paid amounted to € 46,610 thousand with a y/y increase of € 922 thousand.

Other technical provisions amounted to € 16,520 thousand with an increase in relation to 2016 of € 3,123 thousand. These consist entirely of the provision for future charges, determined according to Annex 14 to ISVAP Regulation No. 22 of 4 April, 2008. The detail by class is set forth in the table below. (in € thousands)

31.12.2017 31.12.2016 Change

Class I 9,703 7,144 2,559

Class III 948 432 516

Class IV 4 3 1

Class V 5,865 5,818 47

Total 16,520 13,397 3,123

103

Section 11 – Technical provisions where the investment risk is borne by the policyholders and provisions relating to the administration of pension funds (Item D)

Provisions relating to contracts linked to investment funds and market indices (Item D.I)

(in € thousands)

Products 31.12.2017 31.12.2016 Change

Contracts linked to the value of shares of internal funds 700,532 562,063 138,469

Inward reinsurance 1,022 1,734 ‐712

Total 701,554 563,797 137,757

Provisions relating to the administration of pension funds (Item D.II)

This item amounted to € 222,374 thousand and refers to the Teseo open pension fund which comprises four investment lines.

(in € thousands)

Fund lines 31.12.2017 31.12.2016 Change

Linea prudenziale 51,910 46,064 5,846

Linea bilanciata 58,615 51,491 7,124

Linea sviluppo 52,113 46,193 5,920

Linea garantita 59,736 53,097 6,639

Total 222,374 196,845 25,529

With regard to the personal pension funds established pursuant to art. 13(1)(a) and (b) of Legislative Decree No. 252 of 5 December 2005, no new products were created during the year.

Section 12 – Provisions for risks and charges (Item E)

(in € thousands)

31.12.2017 31.12.2016 Change

Provisions for pensions and similar obligations 29,105 30,825 ‐1,720

Other provisions 34,203 49,159 ‐14,956

Total 63,308 79,984 ‐16,676

Changes during the year are detailed in Annex 15:

The provision for pensions and similar obligations consisted for € 14,392 thousand of the Office Staff and Executives Company Supplementary Pension Fund and for € 14,713 thousand of the provision for payment of indemnities on discontinuation of the agency relationship and for the part not subject to recoveries.

Other provisions amounted to € 34,203 thousand. The changes reflected utilisations for € 27,306 thousand and allocations for € 12,350 thousand. The funds in question mainly refer to expenses relating to employees for € 9,372 thousand, almost entirely in connection with expenses for the Company's incentive scheme and for € 2,195 thousand to costs in connection with prize competitions.


Deposits received from reinsurers (Item F)

These items amounted to € 3,078 thousand and represent liabilities for deposits held by the Company against outward reinsurance treaties. There was a decrease in this item during the year of € 231 thousand.

Section 13 – Payables and other liabilities (Item G)

(in € thousands)

31.12.2017 31.12.2016 Change

Payables arising out of direct insurance operations 60,587 62,087 ‐1,500

Payables arising out of reinsurance operations 4,909 6,767 ‐1,858

Provision for employee termination indemnities 8,706 9,083 ‐377

Other payables 103,440 97,736 5,704

Other liabilities 48,709 49,510 ‐801

Total 226,351 225,183 1,168

Payables arising out of direct insurance operations (Item G.I). (in € thousands)

31.12.2017 31.12.2016 Change

Insurance intermediaries 47,701 47,751 ‐50

Current accounts with insurance companies 225 1,687 ‐1,462

Premium deposits and premiums due to policyholders 12,661 12,649 12

Total 60,587 62,087 ‐1,500

Payables arising out of reinsurance operations (Item G.II) (in € thousands)

31.12.2017 31.12.2016 Change

Insurance and reinsurance companies 1,228 3,705 ‐2,477

Reinsurance intermediaries 3,681 3,062 619

Total 4,909 6,767 ‐1,858

Provision for employee termination indemnities (Item G.VII)

This item amounted to € 8,706 thousand at 31 December 2017. Changes during the year are detailed in Annex 15.

105

Other payables (Item G.VIII)

(in € thousands)

31.12.2017 31.12.2016 Change

Premium taxes 29,004 31,147 ‐2,143

Other tax liabilities 7,564 3,021 4,543

Social security 4,406 4,345 61

Miscellaneous payables 62,466 59,223 3,243

Total 103,440 97,736 5,704

Miscellaneous payables amounted to € 62,466 thousand and comprise:

(in € thousands)

31.12.2017 31.12.2016 Change

Payables to suppliers 14,377 17,845 ‐3,468

Payables relating to personnel management 8,130 10,591 ‐2,461

Payables to subsidiaries 12,701 8,778 3,923

VAT due to tax authorities 0 655 ‐655

Other payables 27,258 21,354 5,904

Total 62,466 59,223 3,243

The Subsidiaries item mainly reflects financial liabilities for intra‐group services.

Other liabilities (Item G.IX)

(in € thousands)

31.12.2017 31.12.2016 Change

Commissions for premiums in course of collection 44,672 43,585 1,087

Miscellaneous liabilities 4,023 5,925 ‐1,902

Non‐life/Life connection account 14 0 14

Total 48,709 49,510 ‐801

Miscellaneous liabilities include deferred tax liabilities for € 1,900 thousand.

Section 14 – Accruals and deferred income (Item H)

Accruals and deferred income amounted to € 1,681 thousand and mainly refer to cash flows on two interest rate swap contacts for a total amount of € 991 thousand and deferred income on lease fees.

Further details about interest rate swap contracts are provided in "Operations on derivative and structured financial instruments”.


Section 15 – Assets and liabilities relating to Group companies and other shareholdings

The main intra‐group relationships, excluding equity investments, are set forth in the table below. For more complete information, reference should be made to Annex 16 which illustrates assets and liabilities relating to Group companies and other shareholdings. (in € thousands)

Assets Subsidiaries

Associated companies

Other related parties

Total

Deposits with ceding undertakings 0 20 0 20

Investments relating to contracts linked to investment funds and market indices 42,721 0 0 42,721

Receivables arising out of direct insurance operations 188 658 0 846

Other receivables 4,506 0 0 4,506

Bank and Postal accounts 64,951 0 0 64,951

Total 112,366 678 0 113,044

Investments relating to contracts linked to investment funds and market indices mainly refer to current accounts at the Banca Reale S.p.A. subsidiary in Class D assets.

Other receivables, amounting to € 4,506 thousand, refer to receivables from Group companies for services provided.

(in € thousands)

Liabilities Subsidiaries


Other related parties

Total

Payables arising out of direct insurance operations 190 0 0 190

Payables arising out of reinsurance operations 262 0 0 262

Miscellaneous payables 12,701 0 168 12,869

Total 13,153 0 168 13,321

Miscellaneous liabilities, amounting to € 12,701 thousand, refer to payables under the fiscal consolidation scheme to the Italiana Assicurazioni S.p.A. subsidiary (€ 5,226 thousand), to Italnext (€€ 113 thousand), to Reale Immobili (€ 3,156 thousand), to Blue Assistance (€ 205 thousand) and to Banca Reale (€ 385 thousand), and to payables to Group companies for services for € 3,616 thousand.

In 2017 there were no assets relating to other related parties. Liabilities relating to other related parties regarded fees payable to Directors and Statutory Auditors for € 168 thousand.

107

Section 16 – Payables and receivables

These items are stated under items C and E of assets and under items F and G of liabilities and fall due as follows:

(in € thousands)

above 12 months of which above 5 years

Loans and mortgages 27,715 18,067

Receivables 71,617 40,189

Payables and other liabilities 2,466 2,288

Total 101,798 60,544

Receivables mainly consist of claims towards agents.

Payables and other liabilities mainly comprise liabilities for deferred taxes.

Section 17 ‐ Guarantees, commitments and other memorandum accounts

(in € thousands)

31.12.2017 31.12.2016 Change

Guarantees received:

‐ guarantees secured by mortgages 28,602 28,065 537

‐ sureties given by third parties 22,380 24,428 ‐2,048

Guarantees issued by third parties in the interest of the 0

‐ CARD/SISCO consortium and third party sureties 50,705 51,607 ‐902

Commitments: 0

‐ derivative products 64,695 92,702 ‐28,007

Securities deposited with third parties 6,887,962 6,703,474 184,488

Total 7,054,344 6,900,276 154,068

Guarantees received, for € 50,982 thousand, comprise bank guarantees given by agents and guarantees secured by mortgages on housing loans granted to employees.

Guarantees issued by third parties in the interest of the Company, for € 50,705 thousand, include bank guarantees issued to Consap and ANIA in relation to the interest of Reale Mutua in the CARD and SISCO Consortiums and bank guarantees issued to public authorities for participation in tenders.

Commitments, in the amount of € 64,695 thousand, refer to derivative contracts as discussed in more detail in the specific section on “Operations on derivatives and structured financial instruments”.


Company securities deposited with third parties totalled € 6,887,962 thousand compared with € 6,703,474 thousand in 2016, and are divided as follows according to the entity with which they are deposited:

(in € thousands)

31.12.2017 31.12.2016 Change

Subsidiary credit institutions 6,530,856 6,352,451 178,405

Other credit institutions 36,202 224,507 ‐188,305

Associated companies 36,754 36,754 0

Other companies 284,150 89,762 194,388

Total 6,887,962 6,703,474 184,488

As at the reporting date the Company had no contingent liabilities other than those disclosed in the

balance sheet.

109

INCOME STATEMENT

Section 18 – Information relating to the technical account of Non‐life insurance business (I)

Premiums earned, net of reinsurance (Item I.1)

(in € thousands)

2017 2016 Change

Direct business income 1,416,011 1,400,726 15,285

Inward reinsurance income 2,496 2,688 ‐192

Gross premiums written 1,418,507 1,403,414 15,093

Premiums ceded and retroceded in reinsurance ‐133,475 ‐130,268 ‐3,207

Change in the gross provision for unearned premiums ‐5,159 ‐13,473 8,314

Change in the provision for unearned premiums, reinsurers' 1,595 4,997 ‐3,402

Total premiums earned 1,281,468 1,264,670 16,798

The detail of gross premiums written by class of business is provided in the Report on Operations.

Allocated investment return transferred from the non‐technical account

The allocated investment return transferred from the non‐technical account, in the amount of € 30,506 thousand, has been calculated according to the method determined by ISVAP with a specific measure. The breakdown of the amount to be transferred is shown in the table below:

(in € thousands)

2017

Income from investments – Non‐life business 1 74,715

Investment management and financial charges – Non‐life business 2 24,450

NET PROFIT FROM INVESTMENTS 3=1‐2 50,265

Technical provisions of the Non‐life business year N‐1 4 2,421,770

Reinsurers' share of Non‐life technical provisions year N‐1 5 179,733

Technical provisions of the Non‐life business year N 6 2,435,857

Reinsurers' share of Non‐life technical provisions year N 7 209,589

HALF‐SUM OF THE TECHNICAL PROVISIONS 8=((4‐5)+(6‐7))/2 2,234,152

Shareholders’ equity year N‐1 9 1,408,756

Shareholders’ equity year N 10 1,485,466

HALF‐SUM OF SHAREHOLDERS’ EQUITIES 11=(9+10)/2 1,447,111

RATIO BETWEEN SHAREHOLDERS' EQUITIES AND HALF‐SUM OF TECHNICAL PROVISIONS + SHAREHOLDERS' EQUITIES 12=8/(8+11) 60,7%

ALLOCATED INVESTMENT RETURN TO BE TRANSFERRED TO THE TECHNICAL ACCOUNT

13=12*3 30,506

Other technical income net of reinsurance (Item I.3)

Other technical income of € 14,534 thousand (€ 21,908 thousand in 2016) reflects commissions and discounts relating to prior year premiums cancelled during the year for € 4,616 thousand, utilisation of the allowance for doubtful accounts receivable from policyholders for € 8,402 thousand, and miscellaneous technical items for € 1,516 thousand.


Claims incurred, net of recoveries and reinsurance (Item I.4)

(in € thousands)

2017 2016 Change

Gross claims paid 976,998 969,381 7,617

Reinsurers' share ‐98,562 ‐72,696 ‐25,866

Change in recoveries: gross amount ‐30,095 ‐33,440 3,345

Change in the gross provision for outstanding claims 10,775 ‐27,440 38,215

Reinsurers' share ‐34,486 ‐9,516 ‐24,970

Total 824,630 826,289 ‐1,659

Gross claims paid amounted to € 976,998 thousand and increased by 0.79%; the breakdown is shown in the table below:

(in € thousands)

2017 2016 Change

Compensation 851,366 844,915 6,451

Direct expenses 19,233 19,827 ‐594

Claim settlement costs 95,870 93,944 1,926

Road Victims Fund 10,529 10,695 ‐166

Total 976,998 969,381 7,617

The development of claims for previous years generated a positive balance of € 129,053 thousand, equal to around 7.4% of the initial reserves, as a result of the prudent quantification required by law. As regards performance of the individual classes of business, the Fire, TPL land vehicles and Non‐motor TPL lines posted a significant surplus, due to the particularly favourable run‐off of technical reserves during the year, to be ascribed to good savings on payments.

Change in other technical provisions net of reinsurance (Item I.5)

The change of € 64 thousand refers entirely to the provision for increasing age set aside pursuant to ISVAP Regulation No. 22 of 4 April 2008, Annex 15.

Operating expenses ‐ (Item I.7) (in € thousands)

2017 2016 Change

Acquisition commissions 176,414 178,778 ‐2,364

Other acquisition costs 72,598 69,362 3,236

Collection commissions 105,908 107,890 ‐1,982

Other administrative expenses 73,826 74,276 ‐450

Reinsurance commissions and profit‐sharing ‐22,521 ‐23,599 1,078

Total 406,225 406,707 ‐482

Other technical charges net of reinsurance (Item I.8)

Other technical charges amounted to € 40,716 thousand and reflect cancellations of prior year premiums for € 21,816 thousand, accrual to the allowance for doubtful accounts receivable from policyholders for € 9,985 thousand, and miscellaneous technical items for € 8,915 thousand.

111

Change in equalisation provisions (Item I.9)

The decrease, for € 1,801 thousand (€ 1,404 thousand in 2016), mainly reflects the utilisation of the additional provision for insurance to cover damage caused by hail and other natural disasters, for € 2,818 thousand. The components per business line of these provisions are set forth in section 10 Technical Provisions.

For information on the Non‐life business technical account, refer to Annexes 19, 25, 26 and 29.

Section 19 – Information regarding the technical account of Life insurance business (II)

Premium income, net of reinsurance (Item II.1)

(in € thousands)

2017 2016 Change

Direct business income 817,997 797,089 20,908

Inward reinsurance income 173 272 ‐99

Gross premiums written 818,170 797,361 20,809

Premiums ceded and retroceded in reinsurance ‐4,106 ‐4,230 124

Total premiums for the year 814,064 793,131 20,933

The amount of gross premiums by class of business is indicated in the Report on Operations.

The composition of direct business and inward reinsurance premium income is detailed in Annex 20.

Investment income (Items II.2 and II.3)

(in € thousands)

Ordinary income

Value re‐adjustme

nts

Gains on disposals

2017 2016 Change

Investments in Group companies and other h h ld

2,571 0 0 2,571 8,844 ‐6,273

Other financial investments:

of which: shares and interests 4,832 0 0 4,832 4,471 361

fixed‐income securities 122,280 3,866 23,887 150,033 155,843 ‐5,810

other financial investments 152 1,659 32 1,843 225 1,618

Income from class D investments 15,713 26,084 10,552 52,349 39,551 12,798

Total 145,548 31,609 34,471 211,628 208,934 2,694

Income from investments is detailed in Annex 21.

Other technical income net of reinsurance (Item II.4)

Other technical income amounted to € 9,596 thousand compared with € 8,027 thousand in 2016 and consisted mainly of commissions on management of the assets of internal funds and management commissions retroceded by external fund management companies.


Claims incurred, net of recoveries and reinsurance (Item II.5)

(in € thousands)

2017 2016 Change

Gross claims paid 435,217 468,990 ‐33,773

Reinsurers' share ‐805 ‐2,277 1,472

Gross change in the provision for claims to be paid 923 ‐26,827 27,750

Reinsurers' share ‐931 443 ‐1,374

Total 434,404 440,329 ‐5,925

Gross claims paid are detailed as follows:

(in € thousands)

2017 2016 Change

Claims 30,482 28,687 1,795

Policies matured 143,321 197,790 ‐54,469

Surrenders 257,220 237,948 19,272

Perpetual annuities 2,925 3,518 ‐593

Claim settlement costs 1,269 1,047 222

Total 435,217 468,990 ‐33,773

It should be noted that the difference between the amount of the provision for claims to be paid existing at the start of the year and sums paid to the beneficiaries of the contracts during the year for claims incurred in previous years, and also the amount of the related provisions at the end of the year is not significant.

Change in provisions for policy liabilities and in other technical provisions, net of reinsurance (Item II.6)

The positive change in Life business provisions amounted to € 489,345 thousand.

For details, refer to the commentary on the balance sheet.

Operating expenses ‐ (Item II.8)

(in € thousands)

2017 2016 Change

Acquisition commissions 14,754 15,633 ‐879

Other acquisition costs 9,953 9,639 314

Collection commissions 994 1,268 ‐274

Other administrative expenses 15,593 14,761 832

Reinsurance commissions and profit‐sharing ‐673 ‐922 249

Total 40,621 40,379 242

Reinsurance commissions and profit‐sharing amounted to € 673 thousand and consist exclusively of commissions received from reinsurers.

113

Investment management and financial charges (Items II.9 and II.10)

(in € thousands)

Management

charges

Value re‐adjustme

nts

Losses on disposals

2017 2016 Change


of which: shares and interests 0 33 5 38 0 38


other financial investments 3,331 12,590 0 15,921 10,798 5,123

Charges on class D investments 12,312 7,981 15,996 36,289 35,370 919

Total 27,722 29,897 17,724 75,343 73,117 2,226

Annex 23 provides the analytical schedule of investment management and financial charges.

Other technical charges net of reinsurance (Item II.11)

Other technical charges amounted to € 6,937 thousand compared with € 6,085 thousand in the previous year. The item comprises delegation commissions paid to co‐insurers for € 987 thousand, maintenance commissions for € 4,538 thousand and fund management commissions for € 1,412 thousand.

Allocated investment return transferred to the non‐technical account (Item II.12)

The allocated investment return transferred to the non‐technical account, in the amount of € 7,806 thousand, has been calculated according to the method determined by the Supervisory Authority with a specific measure.

The breakdown of the amount to be transferred is shown in the table below:

(in € thousands)

2017

Income from investments – Life business 1 159,280

Investment management and financial charges – Life business 2 39,054

NET PROFIT FROM INVESTMENTS 3=1‐2 120,226

Technical provisions of the Life branches year N‐1 4 4,209,958

Reinsurers’ share of Life technical provisions, year N‐1 5 2,872

Technical provisions of the Life branches year N 6 4,535,194

Reinsurers' share of Life technical provisions year N 7 2,649

HALF‐SUM OF THE TECHNICAL PROVISIONS 8=((4‐5)+(6‐7))/2 4,369,816

Shareholders’ equity year N‐1 9 497,858

Shareholders’ equity year N 10 491,864

HALF‐SUM OF SHAREHOLDERS’ EQUITIES 11=(9+10)/2 494,861

RATIO BETWEEN SHAREHOLDERS’ EQUITIES AND HALF‐SUM OF TECHNICAL PROVISIONS + SHAREHOLDERS’ EQUITIES 12=11/(8+11) 10,2%

THEORETICAL ALLOCATED INVESTMENT RETURN TO BE TRANSFERRED TO THE NON TECHNICAL ACCOUNT 13=12*3 12,227

THEORETICAL ALLOCATED INVESTMENT RETURN POSTED TO THE TECHNICAL 14= 3 ‐13 107,999

TECHNICAL INTEREST PAID BY CONTRACT TO POLICYHOLDERS 15 112,420

ALLOCATED INVESTMENT RETURN EFFECTIVELY TO BE TRANSFERRED 16 7,806

ALLOCATED INVESTMENT RETURN TO BE TRANSFERRED EFFECTIVELY

TO THE TECHNICAL ACCOUNT 17=3‐16 112,420

For information regarding the technical account of Life business lines, refer to Annexes 27 and 28.


Section 20 – Changes in technical items by business

Non‐life and Life business

The Company has adopted the analytical accounting procedure to allocate operating expenses (costs of personnel and general expenses) to the specific items of the accounts. The application made it possible to allocate the costs, recorded and classified by the general accounting system, to the items of the accounts. The criteria adopted to post items common to several business lines to each individual business line used, as parameters, the number of claims handled, configured differently according to the type of cost to be allocated and the percentage composition of the premiums written.

All the information required by this section is set forth in Annexes 25, 26, 27, 28 and 29. As regards the commentary on the trends of the various business lines, reference should be made to the Report on Operations.

115

Section 21 – Information regarding the non technical account (III)

Income from investments – Non‐life business (Item III.3)

(in € thousands)

Ordinary income

Value re‐adjustme

nts

Gains on disposals

2017 2016 Change

Land and buildings 3,417 0 0 3,417 3,756 ‐339

Investments in Group companies and other 33,524 0 0 33,524 46,596 ‐13,072


of which: shares and interests 4,807 477 3,272 8,556 7,334 1,222

fixed‐income securities 11,102 86 13,831 25,019 32,996 ‐7,977

other financial investments 422 1,064 2,713 4,199 2,229 1,970

Total 53,272 1,627 19,816 74,715 92,911 ‐18,196

The analytical schedule of investment income is provided in Annex 21.

Investment management and financial charges – Non‐life business (Item III.5)

(in € thousands)

Management

charges

Value re‐adjustme

nts

Losses on disposals

2017 2016 Change

Land and buildings 5,284 657 0 5,941 5,861 80

Investments in Group companies and other 0 0 0 0 400 ‐400


of which: shares and interests 235 1,942 69 2,246 2,703 ‐457


other financial investments 152 6,627 587 7,366 7,688 ‐322

Total 11,861 10,630 1,957 24,448 27,048 ‐2,600

The value re‐adjustment relating to land and buildings refers to the depreciation charged for the premises that house the Company headquarters.

Annex 23 provides the analytical schedule of Investment management and financial charges of Non‐life business.

Other income (Item III.7)

(in € thousands)

2017 2016 Change

Recoveries from third parties of admin. expenses and charges 34,275 35,469 ‐1,194

Other income and recoveries 701 546 155

Interest on receivables 1,687 1,542 145

Interest on bank deposits 32 66 ‐34

Utilisation of provisions for risks and charges 27,342 19,620 7,722

Total 64,037 57,243 6,794


As regards utilisation of provisions for risks and charges, refer to the commentary in Section 12 of the Balance Sheet.

Other charges (Item III.8)

(in € thousands)

2017 2016 Change

Administrative costs and expenses on behalf of third parties 34,275 35,469 ‐1,194

Interest expense and bank expenses 874 858 16

Accruals to provisions for risks and charges 12,871 19,494 ‐6,623

Amortisation of intangible assets 111 62 49

Miscellaneous charges 4,181 478 3,703

Total 52,312 56,361 ‐4,049

As regards provisions for risks and charges, refer to the commentary in Section 12 of the Balance Sheet.

Extraordinary income (Item III.9)

Extraordinary income amounted to € 10,415 thousand. The detail is as follows:

(in € thousands)

2017 2016 Change

Taxes for previous years 80 961 ‐881

Gains on trading of long‐term investments 1,818 0 1,818

Tax disputes 0 1,835 ‐1,835

Out‐of‐period income and other extraordinary income 8,517 4,480 4,037

Total 10,415 7,276 3,139

Extraordinary charges (Item III.10)

Extraordinary charges amounted to 3,513 thousand. The breakdown is as follows:

(in € thousands)

2017 2016 Change

Taxes for previous years 314 0 314

Out‐of‐period expenses and other extraordinary charges 3,199 4,275 ‐1,076

Total 3,513 4,275 ‐762

Income taxes for the year (Item III.14)

Income taxes for the year showed a negative balance of € 13,114 thousand and are the result of the following tax items:

(in € thousands)

IRES IRAP Total

Taxes on the result of the period 2,411 3,126 5,537

Change in prepaid taxes 9,095 396 9,491

Change in deferred taxes ‐1,914 0 ‐1,914

Total 9,592 3,522 13,114

117

Starting from the 2004 tax period, the Company has decided to participate in the national consolidation scheme as consolidating entity for the purpose of IRES (Corporate Income Tax).

Taxes on the result for the period amounted to a cost of € 5,537 thousand. The breakdown is shown below:

‐ € 2,411 thousand for current IRES levied at the rate of 24%;

‐ € 3,126 thousand for current IRAP levied at the rate of 6.82%.

Pursuant to art. 11 of Legislative Decree No. 240/1991, according to the principle of fiscal transparency, the IRES and IRAP taxable base of the Company includes the Company's share of the taxable income generated during the year by Reale Ites, amounting to € 1,280 thousand for IRES and to € 1,185 thousand for IRAP. With regard to said shareholding, the Company also recognised the prepaid IRES taxes on the temporary differences recorded thereby.

The change in prepaid IRES and IRAP reflects ordinary temporary differences between the value attributed according to statutory criteria and for tax purposes (mainly comprising write‐downs, losses on receivables, changes in provisions and in the provision for outstanding claims).

The change in deferred IRES reflects the adjustment of the exemption percentage of PEX securities.

Prepaid tax assets have been stated considering the reasonable certainty of future recovery.


The reconciliation between the theoretical tax charge and the actual tax charge for IRES and IRAP, with changes in relation to the previous year, is the following:

(in € thousands)

2017 2016 Change

Profit before taxes 83,831 61,574 22,257

Theoretical IRES ‐20,119 ‐17,041 ‐3,078

Tax effect of permanent differences

Increases: ‐3,533 ‐5,376 1,843

‐ Dividend Washing ‐42 ‐99 57

‐ Non‐recurring expenses ‐803 ‐2,917 2,114

‐ Taxes and other non‐deductible costs ‐514 ‐522 8

‐ Charitable donations ‐272 ‐155 ‐117

‐ Entertainment expenses ‐114 ‐116 2

‐ Change in the provision for policy liabilities ‐ life business ‐1,174 ‐1,442 268

‐ Other changes ‐614 ‐125 ‐489

Decreases: 12,134 20,053 ‐7,919

‐ Dividends excluded 8,408 15,184 ‐6,776

‐ PEX 415 0 415

‐ IRAP deduction 0 99 ‐99

‐ ACE allowance 1,337 4,246 ‐2,909

‐ Non‐recurring income 245 281 ‐36

‐ Decrease in provision for risks 0 0 0

‐ Other changes 1,729 243 1,486

IRES adjustment to deferred taxes 1,926 0 1,926

IRES for the year ‐9,592 ‐2,364 ‐7,228

Theoretical IRAP on the result of the technical account ‐2,565 ‐1,270 ‐1,295

‐ Personnel costs ‐527 ‐418 ‐109

‐ Administrative expenses ‐613 ‐609 ‐4

‐ Dividends 88 302 ‐214

‐ Deductible amortisation/depreciation 176 197 ‐21

‐ Other changes ‐81 ‐19 ‐62

IRAP advance tax adjustment 0 0 0

IRAP for the year ‐3,522 ‐1,817 ‐1,705

Total income tax ‐13,114 ‐4,181 ‐8,933

119

Changes during the year were as follows:

(in € thousands)

2016 Change 2017

Prepaid taxes: taxable tax taxable tax taxable tax

IRES

‐ Change in provisions for outstanding claims 94,398 22,655 ‐10,949 ‐2,628 83,449 20,027

‐ Write‐down of equity investments 2,668 641 716 172 3,384 813

‐ Provisions to reserves for risks and charges 61,663 14,799 ‐14,671 ‐3,521 46,992 11,278

‐ Write‐down of receivables from policyholders 108,829 26,119 ‐9,154 ‐2,197 99,675 23,922

‐ Write‐down of other receivables 3,151 756 ‐467 ‐112 2,684 644

‐ Losses on receivables from p/holders for 49,020 11,765 ‐4,128 ‐991 44,892 10,774

‐ Amortisation and depreciation 798 192 ‐63 ‐15 735 177

Total 320,527 76,927 ‐38,716 ‐9,292 281,811 67,635

Prepaid taxes Reale Ites:

‐ Provisions to reserves for risks and charges 1,791 428 ‐12 ‐1 1,779 427

‐ Amortisation, depreciation and other changes 1,425 342 825 198 2,250 540

Total 3,216 770 813 197 4,029 967

Total IRES 323,743 77,697 ‐37,903 ‐9,095 285,840 68,602

IRAP

‐ Losses on receivables from p/holders for 49,020 3,343 ‐4,128 ‐281 44,892 3,062

‐ Write‐down of receivables from policyholders 19,072 1,301 ‐1,606 ‐110 17,466 1,191

‐ Amortisation of goodwill 444 30 ‐74 ‐5 370 25

Total IRAP 68,536 4,674 ‐5,808 ‐396 62,728 4,278

Total advance taxes 392,279 82,371 ‐43,711 ‐9,491 348,568 72,880

Deferred taxes:

IRES

‐ Depreciation of real estate 4,212 1,012 0 0 4,212 1,012

‐ Revaluations of equity investments 11,675 2,802 ‐8,026 ‐1,927 3,649 875

‐ Dividends not collected 0 0 58 13 58 13

Total 15,887 3,814 ‐7,968 ‐1,914 7,919 1,900


Section 22 – Various information regarding the income statement

The detail of income and charges relating to Group companies and other shareholdings is provided in Annex 30.

A summary of the total amounts is provided below:

(in € thousands)

Subsidiaries


OtherOther

related i

Total

Income 56,017 10,256 3,869 1,216 71,358

Charges 39,558 241 0 1,989 41,788

Income and charges relating to subsidiaries mainly refer to the costs charged by Reale Mutua to supply the services under the contracts in force and the chargeback of costs relating to seconded personnel for € 31,924 thousand.

They also include income for dividends on shares and interests for € 24,031 thousand and charges for financial management services paid to Banca Reale for € 7,600 thousand.

Income from other related parties refers mainly to collection of insurance premiums for 1.216 thousand. Charges relating to other related parties mainly refer to compensation paid on policies for € 168 thousand and fees paid during the year to Directors and Auditors for € 1,778 thousand.

A summary of direct business premiums written is provided in Annex 31, while Annex 32 illustrates personnel costs, Directors’ and Auditors’ fees.

121

PART C: OTHER INFORMATION

This section provides the following additional information:

1. Transactions on derivative and structured financial instruments

2. Shareholders' equity

3. Fees for auditing and for services other than auditing

4. Cash flow statement


1. OPERATIONS ON DERIVATIVES AND STRUCTURED FINANCIAL INSTRUMENTS

Derivatives and structured financial instruments are acquired in accordance with the Company's strategic plan established with a Board resolution and IVASS Regulation No. 24 of 6 June 2016 and comply with the requirements established by the system of control of the securities portfolio. Derivatives and structured financial instruments are used for hedging purposes only, to mitigate the risk profile of the assets/liabilities hedged or to optimise the yield risk profile.

A) STRUCTURED FINANCIAL INSTRUMENTS

Open positions in structured debt securities at year‐end were as follows:

‐ in the Non‐life portfolio, a total carrying value of € 2,501 thousand; ‐ in the Life portfolio, a total carrying value of € 58,219 thousand, of which € 49,527 thousand included

in the assets of separately managed accounts.

There were no open positions in structured debt securities in the Life portfolio under art. 41 of Legislative Decree No. 209/05 or in the portfolio of the Teseo open‐ended pension fund.

The table below provides a summary of the structured debt securities in the Company's securities portfolio within the perimeter defined by the Solvency II rules implemented by Delegated Resolution (EU) 2015/35, supplementing Directive 2009/138/EC.

(in € thousands)

Carrying value Market Value Income/Expense

2017 2016 2017 2016 Ordinary Trading Valuation

Non‐life portfolio

59‐Other 2,501 2,501 2,900 2,949 175 0 0

TOTAL 2,501 2,501 2,900 2,949 175 0 0

Life portfolio

52‐Interest rate risk 58,219 59,800 91,843 98,954 11,792 ‐1 377

59‐Other 0 1,969 0 1,969 0 59 0

TOTAL 58,219 61,769 91,843 100,923 11,792 58 377

During the year transactions in the Non‐life portfolio generated ordinary income for € 175 thousand.

Transactions in the Life portfolio generated ordinary income for € 11,792 thousand, gains from trading for € 58 thousand and valuation gains for € 377 thousand.

In the Life portfolio under art. 41 of Legislative Decree No. 209/05 or in the Teseo open‐ended pension fund.

B) DERIVATIVES

The main derivatives on hand at the end of the year were as follows:

In the Non‐life portfolio, with the relative notional value recorded in the memorandum accounts:

‐ a contract stipulated with Credito Emiliano S.p.A. (expiring in 2018) that, within the framework of the joint interest in Credemassicurazioni S.p.A., envisages granting of put options to Reale Mutua (notional value of € 21,653 thousand) and of call options to Credito Emiliano S.p.A. (notional value of € 21,653 thousand) on the entire interest held by Reale Mutua in Credemassicurazioni (1,366,000 shares, equal to 50% of the share capital) that can be exercised in specific contractually‐defined cases.

123

In the Life portfolio, with the relative notional value recorded in the memorandum accounts:

‐ around 256 thousand Put options issued by Credito Emiliano on the same number of quotas of internal funds underlying unit‐linked products with guaranteed capital, for the purpose of hedging the financial guarantees of the invested capital for a total notional value of around € 3,838 thousand. The premiums paid for these options, calculated as a percentage of the notional value of the fund of each week, are recognised in the income statement in the year to which they refer.

‐ Four swap contracts: two with Royal Bank of Scotland Group Plc for a total notional value of € 7,120 thousand and two with Société Générale for a total notional value of € 6,000 thousand to hedge interest rate risk on the Crediop 2.1% 01/09/2025 (XS0104009617) structured bond. The contracts envisage swapping of interest, proportionally to the notional value stipulated maturing on the XS0104009617 Crediop 2.1% 01/09/2025 bond. This bond is carried in the Company's securities portfolio for a total nominal value exceeding the notional value of the interest swap and currently envisages a high annual optional coupon determined with a floor option and leverage tied to a defined amortisation plan: the commitments entered into have therefore been covered.

In the Life portfolio under art. 41 of Legislative Decree No. 209/05, with the positions disclosed at fair value and the relative notional value recorded in the memorandum accounts:

‐ one puttable interest rate swap contract stipulated with Credito Emiliano and included in the “Dinamica Protetta 2” insurance fund (starting date 27/08/2003 – closing date 07/01/2018) to hedge interest rate volatility of the internal insurance fund. The total notional value of reference for the variable rate is € 4,390 thousand and that of the fixed rate € 3,045 thousand.

There was also marginal exposure in rights and warrants on shares in the various portfolios for a carrying value of € 42 thousand.


Operations and results for the year on transactions in derivatives are set forth below:

(in € thousands)

Category of contracts Portfolio Counterparty Credit Current Fair Income /

rating value value Charges

Operations closed:

Rights and warrants on shares Non‐life Various 0 0 1

Rights and warrants on shares Life Various 0 0 54

Put options on Linea Dinamica Protetta – 01/07/2017 Life Credem adequate 0 0 ‐17

Puttable interest rate swap Linea Dinamica Protetta – 01/07/2017 (variable rate‐pay leg on € 20,500,000.00 notional to fixed rate receive leg on € 14,000,000.00 notional)

Life Credem adequate 0 0 18

Forward currency purchase/sale transactions Life Various 0 0 24

Total operations closed 0 0 80

Operations in course:

Put options on Linea Dinamica Protetta 2– 07/01/2018 Life Credem adequate 3,838 0 ‐13

Puttable interest rate swap Linea Dinamica Protetta 2 – 07/01/2018 (variable rate‐pay leg on € 4,390,000.00 notional to fixed rate receive leg on € 3,045,000.00 notional)

Life Credem adequate 4,390 179 11

Swap Crediop ‐ 01/09/2025 LifeRoyal Bank of

Scotland Groupadequate 7,120 ‐6,040 ‐1,722

Swap Crediop ‐ 01/09/2025 Life Société Générale high 6,000 ‐5,463 ‐1,542

Put option on Credemassicurazioni S.p.A. shares ‐ 29/09/2008‐31/10/2018

Non‐life Credito Emiliano adequate 21,653 N.A. 0

Call option on Credemassicurazioni S.p.A. shares ‐ 29/09/2008‐31/10/2018

Non‐life Credito Emiliano adequate 21,653 N.A. 0

Warrant on shares Life Various 42 42 17

Total operations in course 64,696 ‐11,282 ‐3,249

In the Life portfolio operations on derivative financial instruments referred to the closing of the Puttable Interest Rate Swap contract related to the "Dinamica Protetta" internal insurance fund and the closing in advance of some of the Puttable Interest Rate Swap contracts inserted in the “Dinamica Protetta 2” internal insurance fund following redemption of the underlying insurance contracts.

In the Life portfolio under art. 41 of Legislative Decree No. 209/05 forward currency purchase/sale transactions were carried out during the year, in order to hedge the exchange rate risk in the “Real Mida 2” internal insurance fund.

In the Non‐life portfolio and in the portfolio of the Teseo Open Pension Fund no transactions were carried out on such derivative instruments.

Lastly, it is stated that, during the year, company assets included rights on operations on capital relating to equities in the portfolio; such instruments were exercised or not exercised or sold always by the expiry date of the operation.

125

2. SHAREHOLDERS' EQUITY

The breakdown of shareholders’ equity resulting from the proposed allocation of the result for the year is set forth in the tables below for Non‐life and Life business respectively:

(in € thousands)

Shareholders’ equity for Non‐life business

31.12.2017Allocation proposed

to Meeting Updated

shareholders’ equity

Share capital or Guarantee fund 45,000 0 45,000

Revaluation reserves 111,817 0 111,817

Legal reserve 166,324 3,835 170,159

Other reserves 1,085,615 72,875 1,158,490

Net profit (loss) for the year 76,710 ‐76,710 0

Total 1,485,466 0 1,485,466

(in € thousands)

Shareholders’ equity for Life business

31.12.2017Allocation proposed

to Meeting Updated


Share capital or Guarantee fund 15,000 0 15,000

Revaluation reserves 24,406 0 24,406

Legal reserve 47,273 0 47,273

Other reserves 411,179 ‐5,993 405,186

Net profit (loss) for the year ‐5,993 5,993 0

Total 491,865 0 491,865


3. AUDIT FEES AND FOR SERVICES OTHER THAN AUDITING Disclosure of auditing fees and for services other than auditing

(art. 149.12 of the CONSOB Issuers Regulation)

Type of service

Supplier of the service

Recipient Fees

(in € thousands)

Auditing EY S.p.A.

Società Reale Mutua di Assicurazioni

119

Certification (**) EY S.p.A.


144

Other services EY S.p.A. Società Reale Mutua di Assicurazioni

245

EYFBA S.p.A.Società Reale Mutua

di Assicurazioni 632

(*) Note: this item comprises fees for auditing of: Separately Managed Accounts, Internal Insurance Funds, Pension Fund and the Market‐Value balance sheet

127

4. CASH FLOW STATEMENT

(in € thousands)

2017 2016

I. CASH FLOW FROM BUSINESS OPERATIONS

1. PRE‐TAX PROFIT FOR THE YEAR 1 83,830 3 61,574

2. CHANGES IN NON‐CASH ITEMS a) Change in technical provisions ‐ Non‐life business 2 ‐15,769 3 ‐21,781

b) Change in technical provisions ‐ Life business 3 488,746 3 431,598 c) Change in accumulated depreciation 4 ‐236 3 ‐407 d) Change in termination benefits and employee funds 5 ‐2,098 3 ‐1,740 e) Change in other provisions 6 ‐14,956 3 ‐1,008 f) Non‐monetary income and expenses deriving from investments 7 17,855 3 16,030 g) Gains and losses on disposal of investments 8 ‐56,426 3 ‐32,918Total 9 417,116 3 389,774

3. CHANGE IN RECEIVABLES AND PAYABLES GENERATED BY OPERATIONS a) Change in receivables and payables arising from direct operations 1 ‐30,642 4 ‐20,936

b) Change in receivables and payables arising from reinsurance operations 1 ‐17,748 4 14,964 c) Change in other receivables and payables 1 4,022 4 56,569 d) Change in other assets and liabilities 1 6,634 4 ‐10,403Total 1 ‐37,734 4 40,194

4. TAX PAID 1 14,468 4 ‐39,262

5. TOTAL NET CASH FLOW ARISING FROM BUSINESS OPERATIONS 1 477,680 4 452,280

II. CASH FLOW FROM INVESTMENT ACTIVITIES

1. NET CASH FLOW GENERATED/ABSORBED BY INVESTMENTS a) Land and buildings 1 ‐138 4 ‐246

b) Equity investments in subsidiaries, associates, other equity investments 1 ‐312,620 4 ‐1,150 c) Bonds, shares and interests, shares of collective investment funds 1 ‐27,918 4 ‐349,246 d) Loans 2 180 5 ‐191 e) Other financial investments 2 1,775 5 382 f) Investments for the benefit of Life policyholders who bear the 2 ‐147,401 5 ‐110,244 investment risk and relating to the administration of pension funds Total 2 ‐486,122 5 ‐460,695

2. NET CASH FLOW GENERATED/ABSORBED BY OTHER ITEMS a) Intangible assets 2 30 5 ‐618

b) Tangible assets 2 2,126 5 428Total 2 2,156 5 ‐190

3. TOTAL NET CASH FLOW ARISING FROM INVESTMENT ACTIVITIES 2 ‐483,966 5 ‐460,885

III. CHANGE IN CASH AND CASH EQUIVALENTS

1. Cash and cash equivalents at the beginning of the year 2 79,426 5 88,031

2. Cash and cash equivalents at the end of the year 2 73,140 5 79,426

3. CHANGE IN CASH AND CASH EQUIVALENTS IN THE YEAR 3 ‐6,286 6 ‐8,605

ANNEXES TO THE NOTES


Notes to the Financial Statements – Annex 1

Company SOCIETA' REALE MUTUA DI ASS.NI

BALANCE SHEET – NON-LIFE INSURANCE BUSINESS

ASSETS

Values of the year




1. Deferred acquisition commissions 4 0



4. Goodwill 8 0

5. Other multi-year costs 9 554 10 554

C. INVESTMENTS


1. Property used in company operations 11 17,093

2. Property rented to third parties 12 27,242



5. Construction in progress and advances 15 494 16 44,829


1. Shares and interests in:


b) subsidiary companies 18 1,620,415


d) associated companies 20 36,754

e) other companies 21 3,169 22 1,660,338

2. Bonds issued by:






3. Loans to:





e) other companies 33 0 34 0 35 1,660,338

to be carried forward 554

131

Financial 2017


181 0

182 0

184 0

186 0

187 0

188 0

189 633 190 633

191 15,251

192 29,426

193 0

194 0

195 29 196 44,706

197 0

198 1,364,580

199 0

200 36,754

201 3,815 202 1,405,149

203 0

204 0

205 0

206 0

207 0 208 0

209 0

210 0

211 0

212 0

213 0 214 0 215 1,405,149




ASSETS

Values of the year

carried forward 554




a) Listed shares 36 86,187

b) Unlisted shares 37 5,023

c) Interests 38 12,596 39 103,806

2. Shares in common investment funds 40 139,710

3. Bonds and other fixed-income securities

a) listed 41 1,168,108

b) unlisted 42 24,583

c) convertible debentures 43 0 44 1,192,691

4. Loans

a) loans secured by mortgage 45 28,602

b) loans on policies 46 0

c) other loans 47 1,343 48 29,945


6. Deposits with credit institutions 50 3,834

7. Other financial investments 51 0 52 1,469,986

IV - Deposits with ceding undertakings 53 255 54 3,175,408



1. Provision for unearned premiums 58 38,178

2. Provision for claims outstanding 59 171,410


4. Other technical provisions 61 0 62 209,588

to be carried forward 3,385,550

133


carried forward 633

216 45,041

217 5,286

218 12,596 219 62,923

220 116,561

221 1,444,090

222 18,869

223 0 224 1,462,959

225 28,354

226 0

227 1,258 228 29,612

229 0

230 4,563

231 0 232 1,676,618

233 268 234 3,126,741

238 36,612

239 143,122

240 0

241 0 242 179,734




ASSETS

Values of the year

carried forward 3,385,550

E. RECEIVABLES


1. Policyholders

a) for premiums current year 71 139,689

b) for premiums previous years 72 12,228 73 151,917

2. Insurance intermediaries 74 166,192

3. Current accounts with insurance companies 75 18,560

4. Policyholders and third parties for recoveries 76 67,656 77 404,325


1. Insurance and reinsurance companies 78 58,341

2. Reinsurance intermediaries 79 3,296 80 61,637

III - Other receivables 81 99,471 82 565,433

F. OTHER ASSETS


1. Furniture, office machines and internal transport vehicles 83 4,837


3. Machinery and equipment 85 6,509

4. Inventories and other goods 86 0 87 11,346

II - Cash at bank and in hand

1. Bank and Postal accounts 88 64,180

2. Cheques and cash on hand 89 2 90 64,182

IV - Other


2. Miscellaneous assets 93 133,038 94 133,040 95 208,568

of which connection account with Life business 901 14



2. Rents 97 0

3. Other prepayments and accrued income 98 973 99 3,997

TOTAL ASSETS 100 4,163,548

135



251 131,646

252 9,298 253 140,944

254 193,214

255 19,120

256 57,649 257 410,927

258 43,712

259 1,896 260 45,608

261 131,602 262 588,137

263 5,141

264 0

265 7,890

266 0 267 13,031

268 37,598

269 2 270 37,600

272 2

273 145,580 274 145,582 275 196,213

903 0

276 5,108

277 0

278 1,328 279 6,436

280 4,097,894




Values of the year


I - Subscribed capital or equivalent fund 101 45,000


III - Revaluation reserves 103 111,817

IV - Legal reserve 104 166,324



VII - Other reserves 107 1,085,615


IX - Net profit (loss) for the year 109 76,710

X Negative reserve for own shares held 401 0 110 1,485,466




1. Provision for unearned premiums 112 663,813

2. Provision for claims outstanding 113 1,761,353



5. Equalisation provision 116 10,137 117 2,435,856


137


281 45,000

282 0

283 111,817

284 163,234

285 0

500 0

287 1,026,904

288 0

289 61,801

501 0 290 1,408,756

291 0

292 658,636

293 1,750,579

294 0

295 617

296 11,939 297 2,421,771





Values of the year



1. Provisions for pensions and similar obligations 128 16,717


3. Other provisions 130 32,992 131 49,709

F. DEPOSITS RECEIVED FROM REINSURERS 132 901




2. Current accounts with insurance companies 134 225

3. Premium deposits and premiums due to policyholders 135 4,554

4. Guarantee funds in favour of policyholders 136 0 137 39,676



2. Reinsurance intermediaries 139 3,681 140 4,869





VII - Provision for employee termination indemnities 145 7,412


1. Premium taxes 146 28,849

2. Other tax liabilities 147 7,096

3. Social security 148 4,406

4. Miscellaneous payables 149 52,288 150 92,639



2. Commissions for premiums in course of collection 152 42,308

3. Miscellaneous liabilities 153 4,023 154 46,331 155 190,927

of which connection account with Life business 902 0


139



308 18,149

309 0

310 47,804 311 65,953

312 911

313 42,588

314 1,423

315 4,879

316 0 317 48,890

318 3,606

319 3,062 320 6,668

321 0

322 0

323 0

324 0

325 7,720

326 30,978

327 3,021

328 4,345

329 50,956 330 89,300

331 0

332 41,221

333 5,925 334 47,146 335 199,724

904 0





Values of the year



1. Accrued interest 156 0

2. Rents 157 689

3. Other accruals and deferred income 158 0 159 689

TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY 160 4,163,548

141



336 0

337 779

338 0 339 779

340 4,097,894


Notes to the Financial Statements –

Annex 2


BALANCE SHEET – LIFE INSURANCE BUSINESS

ASSETS

Values of the year




1. Deferred acquisition commissions 3 0



4. Goodwill 8 0

5. Other multi-year costs 9 0 10 0

C. INVESTMENTS


1. Property used in company operations 11 0

2. Property rented to third parties 12 0



5. Construction in progress and advances 15 0 16 0


1. Shares and interests in:


b) subsidiary companies 18 312,963



e) other companies 21 0 22 312,963

2. Bonds issued by:






3. Loans to:





e) other companies 33 0 34 0 35 312,963


143

Financial 2017


181 0

182 0

183 0

186 0

187 0

188 0

189 0 190 0

191 0

192 0

193 0

194 0

195 0 196 0

197 0

198 255,531

199 0

200 0

201 0 202 255,531

203 0

204 0

205 0

206 0

207 0 208 0

209 0

210 0

211 0

212 0

213 0 214 0 215 255,531




ASSETS

Values of the year

carried forward 0




a) Listed shares 36 1,264

b) Unlisted shares 37 0

c) Interests 38 0 39 1,264

2. Shares in common investment funds 40 121,503

3. Bonds and other fixed-income securities:

a) listed 41 4,395,793

b) unlisted 42 464

c) convertible debentures 43 0 44 4,396,257

4. Loans

a) loans secured by mortgage 45 0

b) loans on policies 46 1,509

c) other loans 47 0 48 1,509


6. Deposits with credit institutions 50 0

7. Other financial investments 51 0 52 4,520,533

IV - Deposits with ceding undertakings 53 3,229 54 4,836,725

D. INVESTMENTS FOR THE BENEFIT OF LIFE POLICYHOLDERS WHO BEAR THE

INVESTMENT RISK AND RELATING TO THE ADMINISTRATION OF PENSION FUNDS

I - Investments relating to contracts linked to investment funds and market indices 55 700,558

II - Investments relating to the administration of pension funds 56 222,383 57 922,941


II - LIFE BUSINESS

1. Provisions for policy liabilities 63 2,324


3. Provision for sums to be paid 65 325



6. Technical provisions where the investment risk

is borne by the policyholders and relating to the

administration of pension funds 68 0 69 2,649


145


carried forward 0

216 0

217 0

218 0 219 0

220 110,242

221 4,152,063

222 588

223 0 224 4,152,651

225 0

226 2,022

227 0 228 2,022

229 0

230 0

231 0 232 4,264,915

233 4,261 234 4,524,707

235 562,094

236 196,852 237 758,946

243 2,544

244 0

245 329

246 0

247 0

248 0 249 2,873




ASSETS

Values of the year


E. RECEIVABLES


1. Policyholders

a) for premiums current year 71 50,978

b) for premiums previous years 72 2,047 73 53,025



4. Policyholders and third parties for recoveries 76 0 77 112,347



2. Reinsurance intermediaries 79 0 80 1,907

III - Other receivables 81 53,618 82 167,872

F. OTHER ASSETS


1. Furniture, office machines and internal transport vehicles 83 64


3. Machinery and equipment 85 21

4. Inventories and other goods 86 0 87 85

II - Cash at bank and in hand

1. Bank and Postal accounts 88 8,958

2. Cheques and cash on hand 89 0 90 8,958

IV - Other


2. Miscellaneous assets 93 19,263 94 19,263 95 28,306

of which connection account with Non-life business 901 0



2. Rents 97 0

3. Other prepayments and accrued income 98 0 99 44,685

TOTAL ASSETS 100 6,003,178

147



251 32,757

252 6,242 253 38,999

254 37,593

255 11

256 0 257 76,603

258 1,683

259 361 260 2,044

261 39,806 262 118,453

263 126

264 0

265 100

266 0 267 226

268 41,827

269 0 270 41,827

272 0

273 18,018 274 18,018 275 60,071

903 0

276 46,435

277 0

278 0 279 46,435

280 5,511,485




Values of the year


I - Subscribed capital or equivalent fund 101 15,000


III - Revaluation reserves 103 24,406

IV - Legal reserve 104 47,273



VII - Other reserves 107 411,179


IX - Net profit (loss) for the year 109 -5,993

X Negative reserve for own shares held 401 0 110 491,865



II - LIFE INSURANCE BUSINESS

1. Provisions for policy liabilities 118 4,471,888


3. Provision for sums to be paid 120 46,610


5. Other technical provisions 122 16,521 123 4,535,194

D. TECHNICAL PROVISIONS WHERE THE INVESTMENT RISK IS BORNE

BY THE POLICYHOLDERS AND RELATING TO THE ADMINISTRATION OF PENSION FUNDS

I - Provisions relating to contracts linked to investment funds

and market indices 125 701,554

II - Provisions relating to the administration of pension funds 126 222,374 127 923,928


149


281 15,000

282 0

283 24,406

284 47,273

285 0

500 0

287 415,587

288 0

289 -4,408

501 0 290 497,858

291 0

298 4,150,691

299 182

300 45,688

301 0

302 13,397 303 4,209,958

305 563,797

306 196,845 307 760,642





Values of the year



1. Provisions for pensions and similar obligations 128 12,388


3. Other provisions 130 1,211 131 13,599

F. DEPOSITS RECEIVED FROM REINSURERS 132 2,177





3. Premium deposits and premiums due to policyholders 135 8,107

4. Guarantee funds in favour of policyholders 136 0 137 20,911


1. Insurance and reinsurance companies 138 40

2. Reinsurance intermediaries 139 0 140 40





VII - Provision for employee termination indemnities 145 1,294


1. Premium taxes 146 155

2. Other tax liabilities 147 468

3. Social security 148 0

4. Miscellaneous payables 149 10,178 150 10,801



2. Commissions for premiums in course of collection 152 2,364

3. Miscellaneous liabilities 153 14 154 2,378 155 35,424

of which connection account with Non-life business 902 14


151



308 12,676

309 0

310 1,355 311 14,031

312 2,398

313 5,163

314 263

315 7,771

316 0 317 13,197

318 99

319 0 320 99

321 0

322 0

323 0

324 0

325 1,363

326 169

327 0

328 0

329 8,267 330 8,436

331 0

332 2,364

333 0 334 2,364 335 25,459

904 0





Values of the year



1. Accrued interest 156 991

2. Rents 157 0

3. Other accruals and deferred income 158 0 159 991

TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY 160 6,003,178

153



336 1,139

337 0

338 0 339 1,139

340 5,511,485



Company SOCIETA' REALE MUTUA DI ASS.NI Financial 2017

Breakdown of the operating result between Non-life and Life business

Non-life business Life business Total

Result of the technical account .................................................................... 1 56,805 21 -19,167 41 37,638

Investment income ......................................................................................... + 2 74,715 42 74,715

Investment management and financial charges .............................................. - 3 24,450 43 24,450

Allocated investment return transferred

from the technical account of Life business ................................................... + 24 7,806 44 7,806

Allocated investment return transferred

to the technical account of Non-life business ................................................ - 5 30,506 45 30,506

Intermediate operating result ..................................................................... 6 76,564 26 -11,361 46 65,203

Other income .................................................................................................. + 7 63,241 27 796 47 64,037

Other charges .................................................................................................. - 8 51,243 28 1,069 48 52,312

Extraordinary income ..................................................................................... + 9 8,257 29 2,158 49 10,415

Extraordinary charges ..................................................................................... - 10 3,297 30 215 50 3,512

Profit before taxes ........................................................................................ 11 93,522 31 -9,691 51 83,831

Income taxes for the year ............................................................................... - 12 16,812 32 -3,698 52 13,114

Net Profit for the year .................................................................................. 13 76,710 33 -5,993 53 70,717


Financial 2017 Company SOCIETA' REALE MUTUA DI ASS.NI

Assets - Changes during the year in intangible assets (Item B) and land and buildings (Item C.I)

Intangible assets Land and buildings

B C.I

Gross initial balance ....................................................................................... + 1 2,054 31 57,637

Increases during the year ................................................................................ + 2 32 32 780

for: purchases or additions ............................................................................. 3 32 33 780

write-backs .............................................................................................. 4 0 34 0

revaluations.............................................................................................. 5 0 35 0

other changes ........................................................................................... 6 0 36 0

Decreases during the year ............................................................................... - 7 0 37 0

for: sales or decreases ..................................................................................... 8 0 38 0

long-term write-downs ............................................................................ 9 0 39 0

other changes ........................................................................................... 10 0 40 0

Gross final balance (a) ................................................................................. 11 2,086 41 58,417

Amortisation and depreciation:

Initial balance ................................................................................................. + 12 1,421 42 12,931

Increases during the year ................................................................................ + 13 111 43 657

for: amortisation and depreciation for the year .............................................. 14 111 44 657

other changes ........................................................................................... 15 0 45 0

Decreases during the year ............................................................................... - 16 0 46 0

for: reductions following disposals ................................................................ 17 0 47 0

other changes ........................................................................................... 18 0 48 0

Final values of amortisation (b) (*) ............................................................. 19 1,532 49 13,588

Carrying value (a – b) .................................................................................. 20 554 50 44,829

Current value .................................................................................................. 51 110,486

Total revaluations ........................................................................................... 22 0 52 6,021

Total write-downs ........................................................................................... 23 0 53 0

155



Assets – Changes during the year in investments in Group companies and other shareholdings: shares and

interests (Item C.II.1), bonds (Item C.II.2) and loans (Item C.II.3)

Shares and interests Bonds Loans

C.II.1 C.II.2 C.II.3

Initial balance ........................................................................................... + 1 1,660,680 21 0 41 0

Increases during the year: ......................................................................... + 2 313,267 22 0 42 0

for: purchases, subscriptions or issues ..................................................... 3 313,267 23 0 43 0

write-backs ........................................................................................ 4 0 24 0 44 0

revaluations........................................................................................ 5 0 25 0

other changes ..................................................................................... 6 0 26 0 46 0

Decreases during the year: ....................................................................... - 7 647 27 0 47 0

for: sales or repayments ............................................................................ 8 647 28 0 48 0

write-downs ....................................................................................... 9 0 29 0 49 0

other changes ..................................................................................... 10 0 30 0 50 0

Carrying value ......................................................................................... 11 1,973,300 31 0 51 0

Current value ............................................................................................ 12 1,973,221 32 0 52 0

Total revaluations ..................................................................................... 13 13,128 33 0

Total write-downs ..................................................................................... 14 174,520 34 0 54 0

Item C.II.2 includes:

Listed bonds .......................................................................................................................................................... 61 0

Unlisted bonds ...................................................................................................................................................... 62 0

Carrying value .................................................................................................................................................... 63 0

of which convertible debentures .......................................................................................................................... 64 0



Assets – Information regarding investee companies (*)

Ord. Type Listed or Business Name and registered offices Currency No. unlisted activity

(**) (1) (2) (3)

1 b UL 3 BANCA REALE SPA - TURIN EUR

2 b UL 8 BLUE ASSISTANCE SPA - TURIN EUR

3 b UL 4 IGAR S.A. - MADRID EUR

4 b UL 1 ITALIANA ASSICURAZIONI SPA - MILAN EUR

5 b UL 4 REALE IMMOBILI SPA - TURIN EUR

6 b UL 9 REALE ITES GEIE RMA - TURIN EUR

7 b UL 1 REALE SEGUROS GENERALES S.A. - MADRID EUR

8 b UL 1 REALE VIDA Y PENSIONES S.A. - MADRID EUR

9 b UL 1 UNIQA ASSICURAZIONI S.P.A. - MILAN EUR

10 d UL 1 CREDEMASSICURAZIONI SPA - REGGIO EMILIA EUR

11 d UL 1 SARA SPA ORD. - ROME EUR

12 d UL 1 SARA SPA PRIV. - ROME EUR

13 e UL 8 CEDACRI SPA - COLECCHIO EUR

14 e UL 9 EURAPCO AG - ZURICH CHF

15 e UL 1 SYNKRONOS ITALIA S.R.L.. - MILAN EUR

16 e UL 9 WELFARE ITALIA SERVIZI SRL - MILAN EUR

(*) Group companies and other companies in which a direct interest is held also through trust companies or through a third person must be listed

(**) The order number must be higher than "0"

(1) Type (3) Business (4) Amounts in original currency

a = Controlling 1 = Insurance company

b = Subsidiary 2 = Finance company (5) Indicate the total percentage ownership

c = Affiliated 3 = Credit institution

d = Associated 4 = Real estate company

e = Others 5 = Trust company

6 = Unit trust management or distribution company

(2) Indicate L for securities traded on regulated 7 = Consortium

markets and UL for the others 8 = Industrial company

9 = Other company or body

157


Financial 2017

Share capital Shareholders’ equity (***) Net income or loss of Percentage interest

Amount Number the previous year (***) Direct Indirect Total (4) shares (4) (4) % % %

30,000 30,000,000 60,253 1,406 95.00 5.00 100.00

3,120 3,120,000 5,838 1,032 100.00 0 100.00

33,343 554,800 40,096 1,104 95.00 5.00 100.00

40,455 26,100,050 456,592 18,644 100.00 0 100.00

209,500 20,950,000 876,910 16,604 85.92 14.08 100.00

93,339 5 93,108 0 81.70 18.30 100.00

87,426 4,040,000 440,507 34,943 95.00 5.00 100.00

10,000 10,000 9,885 914 5.00 95.00 100.00

7,762 1,504,187 259,373 -15,866 99.72 0 99.72

14,097 2,732,000 34,097 7,061 50.00 0 50.00

54,675 18,225,000 595,226 60,847 27.94 0 27.94

54,675 18,225,000 595,226 60,847 3.49 0 3.49

12,609 12,609 1.34 0 1.34

7,399 73,990 12.50 0 12.50

203 202,529 19.65 0 19.65

259 45 2.22 2.22



Assets – Detailed schedule of changes in investments in Group companies and other shareholdings:

shares and interests

Ord. Type Company name Increases during the year

No. For purchases Other (1) (2) (3) Quantity Value increases

1 B D BANCA REALE SPA 0

2 B D BLUE ASSISTANCE SPA 0

3 B D IGAR S.A. 0

4 B D ITALIANA ASSICURAZIONI SPA 0

4 B V ITALIANA ASSICURAZIONI SPA 0

5 B D REALE IMMOBILI SPA 0

5 B V REALE IMMOBILI SPA 0

6 B D REALE ITES GEIE RMA 0

7 B D REALE SEGUROS GENERALES S.A. 0

8 B D REALE VIDA Y PENSIONES S.A. 0

9 B V UNIQA ASSICURAZIONI S.P.A. * 275,000 57,432

9 B D UNIQA ASSICURAZIONI S.P.A. * 1,225,000 255,835

10 D D CREDEMASSICURAZIONI SPA 0

11 D D SARA SPA ORD. 0

12 D D SARA SPA PRIV. 0

13 E D CEDACRI SPA 0

14 E D EURAPCO AG 0

15 E D SYNKRONOS ITALIA S.R.L.. 0

16 E D WELFARE ITALIA SERVIZI SRL 0

Totals C.II.1 313,267 0

a Controlling companies 0 0

b Subsidiary companies 313,267 0

c Affiliated companies 0 0

d Associated companies 0 0

e Other 0 0

Total D.I 0 0

Total D.II 0 0

(1) Must match that indicated in Annex 6 (3) Indicate:

D for investments assigned to Non-life business (Item C.II.1)

(2) Type V for investments assigned to Life business (Item C.II.1)

a = Controlling V1 for investments assigned to Life business (Item D.1)

b = Subsidiary V2 for investments assigned to Life business (Item D.2)

c = Affiliated The same number must be assigned to the shareholding

d = Associated even if split

159


Financial 2017

Decreases during the year Carrying value (4) Purchase Value For sales Other Quantity Current cost value

Quantity Value decreases

0 28,500,000 40,119 56,938 40,119

0 3,120,000 2,511 3,812 2,511

0 527,060 31,555 31,555 31,555

0 7,088,432 129,905 255,595 129,905

0 19,011,618 151,687 168,969 151,687

0 16,000,000 830,748 830,748 830,748

0 2,000,000 103,843 103,843 103,843

0 1 76,390 76,390 76,390

0 3,838,000 252,743 252,743 252,743

0 500 610 610 610

0 275,000 57,432 57,432 57,432

0 1,225,000 255,835 255,835 255,835

0 1,366,000 22,136 22,136 22,136

0 5,091,660 12,370 12,270 12,370

0 636,457 2,248 2,248 2,248

84 647 169 1,301 1,301 1,301

0 9,248 1,151 1,151 1,072

0 39,800 716 716 716

0 1 0 400 0

1,973,300 2,134,692 1,973,221

0 0 0

1,933,378 2,094,470 1,933,378

0 0 0

36,754 36,654 36,754

3,168 3,568 3,089

0 0 0

0 0 0

(4) Indicate whether valued by the equity method with an (*) (only for Type b and d)



Company SOCIETA' REALE MUTUA DI ASS.NI Financial 2017 Breakdown of other financial investments according to use: shares and interests in companies, shares in common investment funds, bonds and other fixed-income securities, participation in investment pools and other financial investments (Items C.III.1, 2, 3, 5, 7) I – Non-life business

Long-term investment portfolio

Short-term financial assets

portfolio Total

Carrying

value Current value

Carrying value

Current value

Carrying value

Current value

1. Shares and interests: .................................................... 1 8,610 21 10,382 41 95,196 61 95,548 81 103,806 101 105,930

a) Listed shares ............................................................ 2 8,116 22 9,887 42 78,071 62 78,423 82 86,187 102 88,310

b) Unlisted shares ........................................................ 3 398 23 399 43 4,625 63 4,625 83 5,023 103 5,024

c) Interests ................................................................... 4 96 24 96 44 12,500 64 12,500 84 12,596 104 12,596

2. Shares in common investment funds ........................... 5 0 25 0 45 139,710 65 141,678 85 139,710 105 141,678

3. Bonds and other fixed-income securities .................... 6 32,443 26 33,624 46 1,160,248 66 1,168,844 86 1,192,691 106 1,202,468

a1) listed Government securities ................................. 7 15,183 27 15,205 47 774,400 67 775,535 87 789,583 107 790,740

a2) other listed securities ............................................. 8 0 28 0 48 378,525 68 385,986 88 378,525 108 385,986

b1) unlisted Government securities ............................. 9 17,260 29 18,419 49 7,303 69 7,303 89 24,563 109 25,722

b2) other unlisted securities ......................................... 10 0 30 0 50 20 70 20 90 20 110 20

c) convertible debentures........................................... 11 0 31 0 51 0 71 0 91 0 111 0

5. Participation in investment pools ................................ 12 0 32 0 52 0 72 0 92 0 112 0

7. Other financial investments ......................................... 13 0 33 0 53 0 73 0 93 0 113 0

II – Life business

Long-term investment portfolio

Short-term financial assets portfolio

Total

Carrying

value Current value

Carrying value

Current value

Carrying value

Current value

1. Shares and interests: .................................................... 121 0 141 0 161 1,264 181 1,269 201 1,264 221 1,269

a) Listed shares ............................................................ 122 0 142 0 162 1,264 182 1,269 202 1,264 222 1,269

b) Unlisted shares ........................................................ 123 0 143 0 163 0 183 0 203 0 223 0

c) Interests ................................................................... 124 0 144 0 164 0 184 0 204 0 224 0

2. Shares in common investment funds ........................... 125 0 145 0 165 121,503 185 125,670 205 121,503 225 125,670

3. Bonds and other fixed-income securities .................... 126 212,112 146 280,473 166 4,184,144 186 4,461,793 206 4,396,256 226 4,742,266

a1) listed Government securities ................................. 127 127,916 147 146,037 167 3,162,098 187 3,403,784 207 3,290,014 227 3,549,821

a2) other listed securities ............................................. 128 83,733 148 133,942 168 1,022,046 188 1,058,009 208 1,105,779 228 1,191,951

b1) unlisted Government securities ............................. 129 285 149 302 169 0 189 0 209 285 229 302

b2) other unlisted securities ......................................... 130 178 150 192 170 0 190 0 210 178 230 192

c) convertible debentures........................................... 131 0 151 0 171 0 191 0 211 0 231 0

5. Participation in investment pools ................................ 132 0 152 0 172 0 192 0 212 0 232 0

7. Other financial investments ......................................... 133 0 153 0 173 0 193 0 213 0 233 0

161



Assets – Changes during the year in other financial investments held as long-term investments: shares and interests, shares in common investment

bonds and other fixed-income securities, participation in investment pools and other financial investments (Items C.III.1, 2, 3, 5, 7)

Shares and

interests

Shares in common

investment Bonds and

other Participation in

investment Other financial funds fixed-income pools investments

C.III.1 C.III.2 C.III.3 C.III.5 C.III.7

Initial balance ......................................................... + 1 8,610 21 0 41 244,555 81 0 101 0

Increases during the year: ....................................... + 2 0 22 0 42 3,490 82 0 102 0

for: purchases.......................................................... 3 0 23 0 43 0 83 0 103 0

write-backs ...................................................... 4 0 24 0 44 0 84 0 104 0

transfer from short-term portfolio ................... 5 0 25 0 45 0 85 0 105 0

other changes ................................................... 6 0 26 0 46 3,490 86 0 106 0

Decreases during the year: ..................................... - 7 0 27 0 47 3,490 87 0 107 0

for: sales .................................................................. 8 0 28 0 48 0 88 0 108 0

write-downs ..................................................... 9 0 29 0 49 0 89 0 109 0

transfer to short-term portfolio ........................ 10 0 30 0 50 0 90 0 110 0

other changes ................................................... 11 0 31 0 51 3,490 91 0 111 0

Carrying amount .................................................. 12 8,610 32 0 52 244,555 92 0 112 0

Current value .......................................................... 13 10,382 33 0 53 314,098 93 0 113 0


Financial 2017


Assets – Changes during the year in loans and deposits with credit institutions (Items C.III.4, 6)

Loans Deposits with

credit institutions

C.III.4 C.III.6

Initial balance ................................................................................................................................ + 1 31,633 21 4,563

Increases during the year: .............................................................................................................. + 2 4,923 22 1

for: issues ....................................................................................................................................... 3 4,923

write-backs ............................................................................................................................. 4 0

other changes .......................................................................................................................... 5 0

Decreases during the year: ............................................................................................................ - 6 5,102 26 730

for: repayments .............................................................................................................................. 7 5,097

write-downs ............................................................................................................................ 8 0

other changes .......................................................................................................................... 9 5

Carrying amount ......................................................................................................................... 10 31,454 30 3,834



Company SOCIETA' REALE MUTUA DI ASS.NI Financial 2017 Assets – Schedule of assets relating to contracts linked to investment funds and market indices (Item D.I ) Fund code: 1 Description: CONTRACTS TIED TO THE VALUE OF SHARES OF UCI

Current value Purchase cost

Current year Previous year Current year Previous year

I. Land and buildings ................................................................. 1 0 21 0 41 0 61 0

II. Investments in Group companies and other shareholdings:

1. Shares and interests ............................................................ 2 0 22 0 42 0 62 0

2. Bonds.................................................................................. 3 0 23 0 43 0 63 0

3. Loans .................................................................................. 4 0 24 0 44 0 64 0

III. Shares in common investment funds ..................................... 5 0 25 0 45 0 65 0

IV. Other financial investments:


2. Bonds and other fixed-income securities ........................... 7 0 27 0 47 0 67 0

3. Deposits with credit institutions......................................... 8 0 28 0 48 0 68 0

4. Other financial investments ............................................... 9 0 29 0 49 0 69 0

V. Other ...................................................................................... 10 0 30 0 50 0 70 0

VI. Cash at bank and in hand ....................................................... 11 0 31 0 51 0 71 0

VII. Other liabilities ....................................................................... 12 0 32 0 52 0 72 0

…. ............................................................................................................. 13 33 53 73

Total ......................................................................................................... 14 0 34 0 54 0 74 0



Assets – Schedule of assets relating to contracts linked to investment funds and market indices (Item D.I ) Fund code: 2 Description: CONTRACTS TIED TO THE VALUE OF SHARES OF INTERNAL FUNDS






2. Bonds.................................................................................. 3 0 23 0 43 0 63 0

3. Loans .................................................................................. 4 0 24 0 44 0 64 0

III. Shares in common investment funds ..................................... 5 376,223 25 281,418 45 365,402 65 274,531


1. Shares and interests ............................................................ 6 79,093 26 69,551 46 67,584 66 59,856

2. Bonds and other fixed-income securities ........................... 7 199,442 27 183,605 47 201,113 67 181,322

3. Deposits with credit institutions......................................... 8 0 28 0 48 0 68 0


V. Other ...................................................................................... 10 3,383 30 2,918 50 3,383 70 2,918

VI. Cash at bank and in hand ....................................................... 11 45,366 31 26,418 51 45,366 71 26,418

VII. Other liabilities ....................................................................... 12 -3,158 32 -2,225 52 -3,158 72 -2,225

............................................................... ................................................... 13 33 53 73

Total ......................................................................................................... 14 700,558 34 562,094 54 679,899 74 543,229

163



Assets – Schedule of assets relating to contracts linked to investment funds and market indices (Item D.I ) Fund code: 3 Description: CONTRACTS LINKED TO SHARE INDICES OR OTHER REFERENCE VALUES






2. Bonds ................................................................................. 3 0 23 0 43 0 63 0

3. Loans .................................................................................. 4 0 24 0 44 0 64 0

III. Shares in common investment funds ..................................... 5 0 25 0 45 0 65 0



2. Bonds and other fixed-income securities ........................... 7 0 27 0 47 0 67 0

3. Deposits with credit institutions ........................................ 8 0 28 0 48 0 68 0


V. Other ...................................................................................... 10 0 30 0 50 0 70 0

VI. Cash at bank and in hand ....................................................... 11 0 31 0 51 0 71 0

VII. Other liabilities ....................................................................... 12 0 32 0 52 0 72 0

.................................... .............................................................................. 13 33 53 73

Total ......................................................................................................... 14 0 34 0 54 0 74 0



Assets – Schedule of assets relating to contracts linked to investment funds and market indices (Item D.I ) Fund code: Description: TOTAL






2. Bonds ................................................................................. 3 0 23 0 43 0 63 0

3. Loans .................................................................................. 4 0 24 0 44 0 64 0

III. Shares in common investment funds ..................................... 5 376,223 25 281,418 45 365,402 65 274,531


1. Shares and interests ............................................................ 6 79,093 26 69,551 46 67,584 66 59,856

2. Bonds and other fixed-income securities ........................... 7 199,442 27 183,605 47 201,113 67 181,322

3. Deposits with credit institutions ........................................ 8 0 28 0 48 0 68 0


V. Other ...................................................................................... 10 3,383 30 2,918 50 3,383 70 2,918

VI. Cash at bank and in hand ....................................................... 11 45,366 31 26,418 51 45,366 71 26,418

VII. Other liabilities ....................................................................... 12 -3,158 32 -2,225 52 -3,158 72 -2,225

...... ............................................................................................................ 13 33 53 73

Total ......................................................................................................... 14 700,558 34 562,094 54 679,899 74 543,229




Assets – Schedule of assets resulting from administration of pension funds (Item D.II) Code: 1 Pension fund description: LINEA PRUDENZIALE ETICA



I. Investments in Group companies and other shareholdings:

1. Shares and interests .................................................................................... 1 0 21 0 41 61 0

2. Bonds ......................................................................................................... 2 0 22 0 42 62 0

II. Other financial investments:

1. Shares and interests .................................................................................... 3 0 23 0 43 0 63 0

2. Bonds and other fixed-income securities ................................................... 4 49,730 24 44,398 44 50,378 64 43,736

3. Shares in common investment funds ......................................................... 5 0 25 0 45 0 65 0

4. Deposits with credit institutions ................................................................ 6 0 26 0 46 66 0

5. Other financial investments ....................................................................... 7 0 27 0 47 0 67 0

III. Other ............................................................................................................... 8 723 28 792 48 723 68 792

IV. Cash at bank and in hand ............................................................................... 9 1,498 29 1,043 49 1,498 69 1,043

VI. Other liabilities ............................................................................................... 10 -39 30 -169 50 -39 70 -169

… ....................................................................................................................................... 11 31 51 71

Total .................................................................................................................................. 12 51,912 32 46,064 52 52,560 72 45,402



Assets – Schedule of assets resulting from administration of pension funds (Item D.II) Code: 2 Pension fund description: LINEA BILANCIATA ETICA





2. Bonds ......................................................................................................... 2 0 22 0 42 62 0


1. Shares and interests .................................................................................... 3 23,349 23 19,171 43 19,731 63 17,071





III. Other ............................................................................................................... 8 513 28 559 48 513 68 559



… ....................................................................................................................................... 11 31 51 71

Total .................................................................................................................................. 12 58,618 32 51,493 52 55,440 72 49,150

165


Company SOCIETA' REALE MUTUA DI ASS.NI Financial 2017 Assets – Schedule of assets resulting from administration of pension funds (Item D.II) Code: 3 Pension fund description: LINEA SVILUPPO ETICA





2. Bonds ......................................................................................................... 2 0 22 0 42 62 0



2. Bonds and other fixed-income securities ................................................... 4 0 24 6,433 44 0 64 6,425




III. Other ............................................................................................................... 8 21 28 21 48 21 68 21

IV. Cash at bank and in hand ............................................................................... 9 5,603 29 851 49 5,603 69 851

VI. Other liabilities ............................................................................................... 10 -1,088 30 -252 50 -1,088 70 -252

....... .................................................................................................................................... 11 31 51 71

Total .................................................................................................................................. 12 52,115 32 46,195 52 44,118 72 40,892


Company SOCIETA' REALE MUTUA DI ASS.NI Financial 2017 Assets – Schedule of assets resulting from administration of pension funds (Item D.II) Code: 4 Pension fund description: LINEA GARANTITA ETICA





2. Bonds ......................................................................................................... 2 0 22 0 42 62 0







III. Other ............................................................................................................... 8 382 28 415 48 382 68 415



......... .................................................................................................................................. 11 31 51 71

Total .................................................................................................................................. 12 59,736 32 53,100 52 60,564 72 53,633




Assets – Schedule of assets resulting from administration of pension funds (Item D.II) Code: Pension fund description: TESEO OPEN-ENDED PENSION FUND





2. Bonds ......................................................................................................... 2 0 22 0 42 0 62 0





4. Deposits with credit institutions ................................................................ 6 0 26 0 46 0 66 0


III. Other............................................................................................................... 8 1,639 28 1,787 48 1,639 68 1,787


VI. Other liabilities ............................................................................................... 10 -1,780 30 -691 50 -1,780 70 -691

......... .................................................................................................................................. 11 0 31 0 51 0 71 0

Total .................................................................................................................................. 12 222,381 32 196,852 52 212,682 72 189,077

167



Liabilities - Changes during the year in components of the reserve for unearned premiums (Item C.I.1) and the provision for outstanding claims

(Item C.I.2) of the Non-life branches

Type Current year Previous year Change

Provisions for unearned premiums:

Provision for premium instalments ................................................. 1 663,694 11 658,296 21 5,398

Provision for unexpired risks .......................................................... 2 119 12 340 22 -221

Carrying amount .............................................................................. 3 663,813 13 658,636 23 5,177

Provisions for claims outstanding:

Provision for damages and direct expenses. ................................... 4 1,465,326 14 1,444,648 24 20,678

Provision for claim settlement costs ................................................ 5 66,044 15 65,205 25 839

Provision for claims incurred and not notified ................................ 6 229,983 16 240,726 26 -10,743

Carrying amount .............................................................................. 7 1,761,353 17 1,750,579 27 10,774



Liabilities - Changes during the year in the components of the provisions for policy liabilities (Item C.II.1) and in the provisions for

profit-sharing and premium refunds (Item C.II.4)

Type Current year Previous year Change

Actuarial reserve for pure premiums .................................................. 1 4,390,010 11 4,073,175 21 316,835

Premiums carried forward .................................................................. 2 11,247 12 11,208 22 39

Provision for mortality risk ................................................................ 3 4,944 13 5,881 23 -937

Integration provisions ......................................................................... 4 65,689 14 60,427 24 5,262

Carrying amount .............................................................................. 5 4,471,890 15 4,150,691 25 321,199

Provision for profit-sharing and premium refunds ............................. 6 0 16 0 26 0




Liabilities – Changes during the year in the provisions for other risks and charges (Item E) and in the provisions for employee termination indemnities (Item G.VII)

Provisions for

pensions Employee

and similar Provisions for

taxation Other provisions termination

obligations indemnities

Initial balance .......................................................... + 1 30,825 11 0 21 49,159 31 9,083

Provisions for the year ............................................. + 2 389 12 0 22 12,350 32 82

Other increases ........................................................ + 3 0 13 0 23 0 33 0

Utilisation during the year ....................................... - 4 1,366 14 0 24 27,306 34 460

Other decreases ........................................................ - 5 743 15 0 25 0 35 0

Carrying amount ................................................... 6 29,105 16 0 26 34,203 36 8,705

169



Detailed statement of assets and liabilities relating to Group companies and other shareholdings

I: Assets

Controlling i

Subsidiaries Affiliated i

Associated i

Other Total

Shares and interests ............................................... 1 0 2 1,933,378 3 0 4 36,754 5 3,169 6 1,973,301

Bonds ..................................................................... 7 0 8 0 9 0 10 0 11 0 12 0

Loans ..................................................................... 13 0 14 0 15 0 16 0 17 0 18 0

Participation in investment pools .......................... 19 0 20 0 21 0 22 0 23 0 24 0

Deposits with credit institutions ............................ 25 0 26 0 27 0 28 0 29 0 30 0

Other financial investments ................................... 31 0 32 0 33 0 34 0 35 0 36 0

Deposits with ceding undertakings ....................... 37 0 38 0 39 0 40 20 41 0 42 20

Investments relating to contracts linked

to investment funds and market indices ................ 43 0 44 42,721 45 0 46 0 47 0 48 42,721

Investments relating to the administration of

pension funds ......................................................... 49 0 50 0 51 0 52 0 53 0 54 0

Receivables arising out of

direct insurance ...................................................... 55 0 56 188 57 0 58 658 59 0 60 846

Receivables arising out of

reinsurance operations ........................................... 61 0 62 0 63 0 64 0 65 0 66 0

Other receivables ................................................... 67 0 68 4,506 69 0 70 0 71 0 72 4,506

Bank and Postal accounts ...................................... 73 0 74 64,951 75 0 76 0 77 0 78 64,951

Miscellaneous assets .............................................. 79 0 80 0 81 0 82 0 83 0 84 0

Total ...................................................................... 85 0 86 2,045,744 87 0 88 37,432 89 3,169 90 2,086,345

of which subordinated assets ................................. 91 0 92 0 93 0 94 0 95 0 96 0

Detailed statement of assets and liabilities relating to Group companies and other shareholdings II: Liabilities

Controlling

companiesSubsidiaries Affiliated

companiesAssociated companies

Other Total

Subordinated liabilities .......................................... 97 0 98 0 99 0 100 0 101 0 102 0

Deposits received from reinsurers ......................... 103 0 104 0 105 0 106 0 107 0 108 0

Accounts payable arising out of

direct insurance ...................................................... 109 0 110 190 111 0 112 0 113 0 114 190

Accounts payable arising out of

reinsurance operations ........................................... 115 0 116 262 117 0 118 0 119 0 120 262

Amounts owed to banks and credit institutions .... 121 0 122 0 123 0 124 0 125 0 126 0

Loans guaranteed by mortgages ............................ 127 0 128 0 129 0 130 0 131 0 132 0

Miscellaneous loans and other financial liabilities 133 0 134 0 135 0 136 0 137 0 138 0

Miscellaneous payables ......................................... 139 0 140 12,701 141 0 142 0 143 0 144 12,701

Miscellaneous liabilities ........................................ 145 0 146 0 147 0 148 0 149 0 150 0

Total ...................................................................... 151 0 152 13,153 153 0 154 0 155 0 156 13,153




Detail of "Guarantees, commitments and other memorandum accounts"

Current year Previous year

I. Guarantees given:

a) sureties and endorsements given in the interest of

controlling, subsidiary and affiliated companies ................................................................ 1 0 31 0

b) sureties and endorsements given in the interest of associated companies

and other shareholdings ....................................................................................................... 2 0 32 0

c) sureties and endorsements given in the interest of third parties ......................................... 3 0 33 0

d) other personal guarantees given in the interest of

controlling, subsidiary and affiliated companies ................................................................ 4 0 34 0

e) other personal guarantees given in the interest of

associated companies and other shareholdings ................................................................... 5 0 35 0

f) other personal guarantees given in the interest of third parties .......................................... 6 0 36 0

g) guarantees secured by mortgages given for obligations of controlling,

subsidiary and affiliated companies .................................................................................... 7 0 37 0

h) guarantees secured by mortgages given for obligations of associated companies and

and other shareholdings ....................................................................................................... 8 0 38 0

i) guarantees secured by mortgages given for obligations of third parties ............................ 9 0 39 0

l) guarantees given for obligations of the Company .............................................................. 10 0 40 0

m) assets deposited for

inward reinsurance .............................................................................................................. 11 0 41 0

Total .................................................................................................................................................. 12 0 42 0

II. Guarantees received:

a) from Group companies, associates and other shareholdings .............................................. 13 0 43 0

b) from third parties ................................................................................................................. 14 50,982 44 52,493

Total .................................................................................................................................................. 15 50,982 45 52,493

III. Guarantees issued by third parties in the interest of the Company:

a) from Group companies, associates and other shareholdings .............................................. 16 0 46 0

b) from third parties ................................................................................................................. 17 50,705 47 51,607

Total .................................................................................................................................................. 18 50,705 48 51,607

IV. Commitments:

a) commitments for purchases with obligation of resale ........................................................ 19 0 49 0

b) commitments for sales with obligation of repurchase ........................................................ 20 0 50 0

c) other commitments .............................................................................................................. 21 64,695 51 92,702

Total .................................................................................................................................................. 22 64,695 52 92,702............ ...... .....................................................................................................................................

V. Assets relating to pension funds managed in the name and on behalf of third parties 23 0 53 0

VI. Securities deposited with third parties 24 6,887,962 54 6,703,474

Total .................................................................................................................................................. 25 6,887,962 55 6,703,474

171



Schedule of commitments for transactions on derivatives

Derivatives

Current year Previous year

Purchase Sale Purchase Sale

(1) (2) (1) (2) (1) (2) (1) (2)

Futures: on shares 1 0 101 0 21 0 121 0 41 0 141 0 61 0 161 0

on bonds 2 0 102 0 22 0 122 0 42 0 142 0 62 0 162 0

on currencies 3 0 103 0 23 0 123 0 43 0 143 0 63 0 163 0

on rates 4 0 104 0 24 0 124 0 44 0 144 0 64 0 164 0

other 5 0 105 0 25 0 125 0 45 0 145 0 65 0 165 0

Options: on shares 6 21,695 106 42 26 21,653 126 0 46 18,527 146 21 66 18,506 166 0

on bonds 7 0 107 0 27 0 127 0 47 0 147 0 67 0 167 0

on currencies 8 0 108 0 28 0 128 0 48 0 148 0 68 0 168 0

on rates 9 0 109 0 29 0 129 0 49 0 149 0 69 0 169 0

other 10 3,838 110 0 30 0 130 0 50 16,309 150 0 70 0 170 0

Swaps: on currencies 11 0 111 0 31 0 131 0 51 0 151 0 71 0 171 0

on rates 12 13,120 112 -11,503 32 0 132 0 52 13,120 152 -14,816 72 0 172 0

other 13 4,390 113 179 33 0 133 0 53 26,240 153 398 73 0 173 0

Other transactions 14 0 114 0 34 0 134 0 54 0 154 0 74 0 174 0

Total......................................................................................... 15 43,043 115 -11,282 35 21,653 135 0 55 74,196 155 -14,397 75 18,506 175 0 Only transactions on derivatives existing at the date of the accounts that involve commitments for the Company must be stated. If the contract does not correspond precisely to the figures described or in the case in which it is characterised by elements of several types, it must be stated in the closest contractual category. Offsetting of items is not permitted except in relation to purchase/sale transactions relating to the same type of contract (same content, expiry, underlying assets, etc.).

Contracts that envisage swapping of two currencies must be indicated once only referring, by convention, to the currency to be purchased. Contracts that envisage interest rate and currency swaps must be indicated only under contracts on currency. Interest swap derivatives are classified conventionally as "purchases" or as "sales" according to whether they involve the purchase or sale of the fixed rate for the insurance company.

(1) For derivative contracts that involve or may involve the exchange of capital at term the settlement price of these must be indicated; in all other cases, the nominal value of the reference capital must be indicated.

(2) Indicate the fair value of derivative contracts;




Summary information relating to the technical account of Non-life insurance business

Gross i

Gross i

Gross charge Operating Reinsurance

written for the year for claims expenses balance

Direct business:

Personal accident and Health (classes 1 and 2) ........ 1 178,179 2 179,969 3 119,502 4 61,124 5 -544

TPL land vehicles (class 10) .................................... 6 440,445 7 440,038 8 315,585 9 97,682 10 -3,093

Hulls land vehicles (class 3) ..................................... 11 110,452 12 109,633 13 62,704 14 31,045 15 2,009

Marine, Aviation and Transport

(classes 4, 5, 6, 7, 11 and 12) ................................... 16 15,952 17 17,036 18 10,903 19 2,919 20 -1,678

Fire and other property damage (classes 8 and 9) .... 21 384,170 22 379,486 23 326,246 24 134,415 25 33,207

Non-motor TPL (class 13) ........................................ 26 216,677 27 218,671 28 96,904 29 76,909 30 -1,744

Credit and Suretyship (classes 14 and 15) ............... 31 34,535 32 31,868 33 11,146 34 11,336 35 -6,074

Sundry Pecuniary Losses (class 16) ......................... 36 3,681 37 3,526 38 173 39 1,191 40 -360

Legal Fees (class 17) ................................................ 41 13,767 42 13,161 43 3,709 44 5,190 45 -1,637

Assistance (class 18) ................................................ 46 18,153 47 17,305 48 9,692 49 6,272 50 -2

Total direct business ............................................... 51 1,416,011 52 1,410,693 53 956,564 54 428,083 55 20,084

Reinsurance business ............................................. 56 2,382 57 2,541 58 1,068 59 634 60 -101

Total Italian portfolio ............................................. 61 1,418,393 62 1,413,234 63 957,632 64 428,717 65 19,983

Foreign portfolio ..................................................... 66 114 67 113 68 45 69 25 70 0

Grand total .............................................................. 71 1,418,507 72 1,413,347 73 957,677 74 428,742 75 19,983

173



Summary statement concerning life insurance business referring to premiums and the reinsurance balance

Direct business Inward reinsurance Total

Gross premiums: 1 817,997 11 172 21 818,169

a) 1. for individual policies ................................................... 2 687,975 12 172 22 688,147

2. for group policies .......................................................... 3 130,022 13 0 23 130,022

b) 1. periodic premiums......................................................... 4 279,287 14 172 24 279,459

2. single premiums ............................................................ 5 538,710 15 0 25 538,710

c) 1. for contracts without profit-sharing .............................. 6 621,775 16 172 26 621,947

2. for contracts with profit-sharing ................................... 7 0 17 0 27 0

3. for contracts when the investment risk

is borne by the policyholders and

for pension funds ........................................................... 8 196,222 18 0 28 196,222

Balance of reinsurance ........................................................................ 9 -1,838 19 -76 29 -1,914




Investment income (Items II.2 and III.3)


Income from shares and interests:

Dividends and other income from shares and interests

of Group companies and shareholdings ............................................... 1 33,524 41 2,571 81 36,095

Dividends and other income from shares and interests in other companies 2 4,807 42 4,832 82 9,639

Total ......................................................................................................................... 3 38,331 43 7,403 83 45,734

Income from investments in land and buildings ................................................. 4 3,417 44 0 84 3,417

Income from other investments:

Income from bonds of Group companies and

shareholdings ........................................................................................ 5 0 45 0 85 0

Interest on loans to Group companies and

shareholdings ........................................................................................ 6 0 46 0 86 0

Income from shares in common investment funds .............................. 7 0 47 0 87 0

Income from bonds and other fixed-income securities ........................ 8 11,102 48 122,280 88 133,382

Interest on loans ................................................................................... 9 266 49 0 89 266

Income from shares in investment pools.............................................. 10 0 50 0 90 0

Interest on deposits with credit institutions ......................................... 11 1 51 0 91 1

Income from other financial investments............................................. 12 151 52 59 92 210

Interest on deposits with ceding undertakings ..................................... 13 5 53 94 93 99

Total ......................................................................................................................... 14 11,525 54 122,433 94 133,958

Value re-adjustments on investments in:

Land and buildings ............................................................................... 15 0 55 0 95 0

Shares and interests of Group companies and shareholdings .............. 16 0 56 0 96 0

Bonds issued by Group companies and

shareholdings ........................................................................................ 17 0 57 0 97 0

Other shares and interests..................................................................... 18 477 58 0 98 477

Other bonds .......................................................................................... 19 86 59 3,866 99 3,952

Other financial investments ................................................................. 20 1,064 60 1,659 100 2,723

Total ......................................................................................................................... 21 1,627 61 5,525 101 7,152

Income from the disposal of investments:

Gains on disposal of land and buildings .............................................. 22 0 62 0 102 0

Gains on shares and interests in Group companies and

shareholdings ........................................................................................ 23 0 63 0 103 0

Income from bonds issued by Group companies and

shareholdings ........................................................................................ 24 0 64 0 104 0

Gains on other shares and interests ...................................................... 25 3,272 65 0 105 3,272

Gains on other bonds ............................................................................ 26 13,831 66 23,887 106 37,718

Gains on other financial investments ................................................... 27 2,713 67 32 107 2,745

Total ......................................................................................................................... 28 19,816 68 23,919 108 43,735

GRAND TOTAL .................................................................................................... 29 74,716 69 159,280 109 233,996

175



Income and unrealised gains on investments for the benefit of policyholders who bear the investment risk and on investments relating to the administration of pension funds (Item II.3)

I. Investments relating to contracts linked to investment funds and market indices

Amounts

Income from:

Land and buildings .................................................................................................................................................................. 1 0

Investments in Group companies and shareholdings .............................................................................................................. 2 0

Shares in common investment funds ...................................................................................................................................... 3 530

Other financial investments ..................................................................................................................................................... 4 9,059

- of which income from bonds ....................................................................... 5 6,435

Other ........................................................................................................................................................................................ 6 85

Total ................................................................................................................................................................................................................... 7 9,674

Gains on the disposal of investments

Gains on disposal of land and buildings............................................................................................................................................................ 8 0

Gains on investments in Group companies and shareholdings. .............................................................................................. 9 0

Gains on common investment funds ....................................................................................................................................... 10 5,927

Gains on other financial investments ...................................................................................................................................... 11 3,333

- of which bonds ............................................................................................. 12 464

Other income ........................................................................................................................................................................... 13 141

Total ................................................................................................................................................................................................................... 14 9,401

Unrealised gains ................................................................................................................................................................................................ 15 19,123

GRAND TOTAL .............................................................................................................................................................................................. 16 38,198

II. Investments relating to the administration of pension funds

Amounts

Income from:

Investments in Group companies and shareholdings ........................................................................................................... 21 0

Other financial investments .................................................................................................................................................. 22 5,887

- of which income from bonds ....................................................................... 23 3,941

Other ........................................................................................................................................................................................ 24 152

Total ................................................................................................................................................................................................................... 25 6,039

Gains on the disposal of investments

Gains on investments in Group companies and shareholdings. .............................................................................................. 26 0

Gains on other financial investments ...................................................................................................................................... 27 1,151

- of which bonds ............................................................................................. 28 189

Other income ........................................................................................................................................................................... 29 0

Total ................................................................................................................................................................................................................... 30 1,151

Unrealised gains ................................................................................................................................................................................................ 31 6,960

GRAND TOTAL .............................................................................................................................................................................................. 32 14,150




Investment management and financial charges (Items II.9 and III.5)


Investment management charges and other charges

Charges relating to shares and interests ............................................................... 1 235 31 0 61 235

Charges relating to investments in land and buildings ........................................ 2 5,284 32 0 62 5,284

Charges relating to bonds .................................................................................... 3 6,191 33 12,079 63 18,270

Charges relating to common investment funds ................................................... 4 89 34 0 64 89

Charges relating to participation in investment pools ......................................... 5 0 35 0 65 0

Charges relating to miscellaneous financial investments .................................... 6 0 36 3,264 66 3,264

Interest on deposits received from reinsurers ...................................................... 7 62 37 67 67 129

Total .......................................................................................................................................... 8 11,861 38 15,410 68 27,271

Value adjustments on investments referring to:

Land and buildings ............................................................................................... 9 657 39 0 69 657

Shares and interests of Group companies and shareholdings .............................. 10 0 40 0 70 0

Bonds issued by Group companies and shareholdings ........................................ 11 0 41 0 71 0

Other shares and interests .................................................................................... 12 1,942 42 33 72 1,975

Other bonds .......................................................................................................... 13 1,404 43 9,293 73 10,697

Other financial investments ................................................................................. 14 6,627 44 12,590 74 19,217

Total .......................................................................................................................................... 15 10,630 45 21,916 75 32,546

Capital losses on disposal of investments

Losses on the sale of land

and buildings ........................................................................................................ 16 0 46 0 76 0

Losses on shares and interests ............................................................................. 17 69 47 5 77 74

Losses on bonds ................................................................................................... 18 1,301 48 1,723 78 3,024

Losses from other financial investments ............................................................. 19 587 49 0 79 587

Total .......................................................................................................................................... 20 1,957 50 1,728 80 3,685

GRAND TOTAL ..................................................................................................................... 21 24,448 51 39,054 81 63,502

177



Investment management and financial charges and unrealised losses on investments

for the benefit of policyholders who bear the investment risk and on investments relating to the administration of pension funds (Item II.10)

I. Investments relating to contracts linked to investment funds and market indices

Amounts

Management charges resulting from:

Land and buildings ................................................................................................................................................... 1 0

Investments in Group companies and shareholdings ............................................................................................... 2 0

Shares in common investment funds ....................................................................................................................... 3 46

Other financial investments ..................................................................................................................................... 4 766

Other ......................................................................................................................................................................... 5 8,209

Total ...................................................................................................................................................................................................... 6 9,021


Losses on disposal of land and buildings ................................................................................................................. 7 0

Losses on investments in Group companies and shareholdings .............................................................................. 8 0

Losses on common investment funds ...................................................................................................................... 9 1,201

Losses from other financial investments .................................................................................................................. 10 5,074

Other charges ........................................................................................................................................................... 11 7,241

Total ...................................................................................................................................................................................................... 12 13,516

Unrealised losses .................................................................................................................................................................................. 13 5,294

GRAND TOTAL ................................................................................................................................................................................. 14 27,831

II. Investments relating to the administration of pension funds

Amounts

Management charges resulting from:

Investments in Group companies and shareholdings ............................................................................................... 21 0

Other financial investments ..................................................................................................................................... 22 354

Other ......................................................................................................................................................................... 23 2,937

Total ...................................................................................................................................................................................................... 24 3,291


Losses on investments in Group companies and shareholdings .............................................................................. 25 0

Losses from other financial investments .................................................................................................................. 26 2,479

Other charges ........................................................................................................................................................... 27 0

Total ...................................................................................................................................................................................................... 28 2,479

Unrealised losses .................................................................................................................................................................................. 29 2,687

GRAND TOTAL ................................................................................................................................................................................. 30 8,457



Non-life business - Summary statement of the technical account by line of business - Italian portfolio

Accounting class 01 Accounting class 02

Accident Health

(name) (name)

Direct business gross of reinsurance

Premiums written .......................................................................................................... + 1 91,141 1 87,038

Change in the provisions for unearned premiums (+ or -) ............................................ - 2 776 2 -2,566

Charges relating to claims ............................................................................................. - 3 44,415 3 75,085

Change in miscellaneous technical provisions (+ or -) (1) .......................................... - 4 0 4 -64

Balance of other technical items (+ or -) ...................................................................... + 5 -1,214 5 -1,043

Operating expenses ....................................................................................................... - 6 35,119 6 26,005

Technical balance direct business (+ or -) .............................................................. A 7 9,617 7 -12,465

Result of outward reinsurance (+ or -) ................................................................... B 8 -1,209 8 665

Net result of inward reinsurance (+ or -) ............................................................... C 9 -49 9 25

Change in the equalisation provision (+ or -) ....................................................... D 10 51 10 0

Allocated investment return transferred from the non-technical account ............ E 11 1,644 11 1,266

Result of the technical account (+ or -).................. (A + B + C - D + E) 12 9,952 12 -10,509


Goods transported Fire and natural forces

(name) (name)


Premiums written .......................................................................................................... + 1 12,431 1 174,475

Change in the provisions for unearned premiums (+ or -) ............................................ - 2 -1,003 2 2,916

Charges relating to claims ............................................................................................. - 3 8,081 3 162,563

Change in miscellaneous technical provisions (+ or -) (1) ........................................... - 4 0 4 0

Balance of other technical items (+ or -) ...................................................................... + 5 147 5 -3,978

Operating expenses ....................................................................................................... - 6 1,795 6 61,319

Technical balance direct business (+ or -) .............................................................. A 7 3,705 7 -56,301

Result of outward reinsurance (+ or -) ................................................................... B 8 -1,279 8 36,340

Net result of inward reinsurance (+ or -) ............................................................... C 9 163 9 40


Allocated investment return transferred from the non-technical account ............ E 11 83 11 3,239

Result of the technical account (+ or -).................. (A + B + C - D + E) 12 2,636 12 -17,272


Non-motor TPL Credit

(name) (name)


Premiums written .......................................................................................................... + 1 216,677 1 1

Change in the provisions for unearned premiums (+ or -) ............................................ - 2 -1,994 2 1

Charges relating to claims ............................................................................................. - 3 96,906 3 1

Change in miscellaneous technical provisions (+ or -) (1) ........................................... - 4 0 4 0

Balance of other technical items (+ or -) ...................................................................... + 5 -2,881 5 0

Operating expenses ....................................................................................................... - 6 76,909 6 0

Technical balance direct business (+ or -) .............................................................. A 7 41,975 7 -1

Result of outward reinsurance (+ or -) ................................................................... B 8 -1,744 8 0

Net result of inward reinsurance (+ or -) ............................................................... C 9 141 9 0


Allocated investment return transferred from the non-technical account ............ E 11 10,497 11 15

Result of the technical account (+ or -).................. (A + B + C - D + E) 12 50,869 12 14

(1) In addition to the change in “Other technical provisions”, this item also includes the change in the “Provisions for profit-sharing and premium refunds”.

179


Financial 2017

Accounting class 03 Accounting class 04 Accounting class 05 Accounting class 06

Hulls land vehicles Hulls railway rolling stock Hulls aircraft Hulls marine, lake, river craft

(name) (name) (name) (name)

1 110,452 1 21 1 5 1 2,163

2 819 2 7 2 11 2 -112

3 62,703 3 213 3 19 3 1,737

4 0 4 0 4 0 4 0

5 -1,235 5 -2 5 1 5 6

6 31,045 6 3 6 0 6 831

7 14,650 7 -204 7 -24 7 -287

8 2,009 8 -1 8 -4 8 -249

9 52 9 -13 9 0 9 53

10 247 10 0 10 0 10 6

11 760 11 3 11 3 11 73

12 17,224 12 -215 12 -25 12 -416


Other property damage TPL land vehicles TPL aircraft TPL Marine


1 209,695 1 440,445 1 61 1 1,271

2 1,768 2 407 2 8 2 6

3 163,683 3 315,586 3 -105 3 958

4 0 4 0 4 0 4 0

5 -1,685 5 -7,128 5 -1 5 0

6 73,096 6 97,682 6 15 6 275

7 -30,537 7 19,642 7 142 7 32

8 -3,131 8 -3,092 8 -147 8 0

9 278 9 -89 9 0 9 0

10 -2,731 10 0 10 0 10 0

11 2,410 11 9,326 11 0 11 40

12 -28,249 12 25,787 12 -5 12 72


Suretyship Sundry pecuniary losses

Legal Fees Assistance


1 34,534 1 3,681 1 13,767 1 18,153

2 2,666 2 155 2 606 2 848

3 11,145 3 173 3 3,708 3 9,693

4 0 4 0 4 0 4 0

5 -3,241 5 -37 5 -84 5 -103

6 11,336 6 1,191 6 5,190 6 6,272

7 6,146 7 2,125 7 4,179 7 1,237

8 -6,074 8 -360 8 -1,638 8 -2

9 5 9 132 9 0 9 0

10 0 10 0 10 0 10 0

11 778 11 40 11 201 11 128

12 855 12 1,937 12 2,742 12 1,363




Summary statement of the technical account of all the Non-life branches

Italian portfolio

Risks of direct insurance Risks of indirect insurance

Risks preserved

Direct risks Risks ceded Risks

assumed Risks

retroceded

Total

1

2

3

4

5 = 1 - 2 + 3 - 4

Premiums written ...................................................................................... + 1 1,416,011 11 133,384 21 2,382 31 87 41 1,284,922

Change in the provisions for unearned premiums (+ or -) ........................ - 2 5,319 12 1,600 22 -159 32 -5 42 3,565

Charges relating to claims ......................................................................... - 3 956,564 13 133,087 23 1,068 33 -44 43 824,589

Change in miscellaneous technical provisions (+ or - ) ............................ - 4 -64 14 0 24 0 34 0 44 -64

Balance of other technical items (+ or -) ................................................... + 5 -22,478 15 3,704 25 0 35 0 45 -26,182

Operating expenses ................................................................................... - 6 428,083 16 22,485 26 634 36 35 46 406,197

Technical balance (+ or -) .................................................................................... 7 3,631 17 -20,084 27 839 37 101 47 24,453

Change in the equalisation provision (+ or -) ........................................... - 48 -1,801

Allocated investment return transferred from the non-technical account ...................................................................................................... + 9 30,431 29 75 49 30,506

Result of the technical account (+ or -) .............................................................. 10 34,062 20 -20,084 30 914 40 101 50 56,760

181



Life business – Summary statement of the technical accounts by individual branch – Italian portfolio

Accounting

class 01 Accounting

class 02 Accounting

class 03

(name) (name) (name)


Premiums written................................................................................................................................... + 1 451,413 1 0 1 196,223

Charges relating to claims ..................................................................................................................... - 2 285,825 2 0 2 67,484

Change in provisions for policy liabilities and in other technical provisions (+ or -) ........................... - 3 227,837 3 0 3 136,902

Balance of other technical items (+ or -) ............................................................................................... + 4 -3,343 4 0 4 5,355

Operating expenses ................................................................................................................................ - 5 26,693 5 0 5 9,078

Income from investments net of the allocated investment return transferred to the non technical account (*) + 6 87,676 6 0 6 10,601

Result of direct business gross of reinsurance (+ or -) .................................................................... A 7 -4,609 7 0 7 -1,285

Result of outward reinsurance (+ or -) ............................................................................................. B 8 -1,711 8 0 8 0

Net result of inward reinsurance (+ or -) ......................................................................................... C 9 2 9 0 9 26

Result of the technical account (+ or -)......................................................... (A + B + C) 10 -6,318 10 0 10 -1,259

Accounting

class 04 Accounting

class 05 Accounting

class 06

(name) (name) (name)


Premiums written................................................................................................................................... + 1 329 1 140,959 1 29,073

Charges relating to claims .................................................................................................................... - 2 34 2 72,953 2 8,819

Change in provisions for policy liabilities and in other technical provisions (+ or -) ........................... - 3 149 3 98,507 3 26,674

Balance of other technical items (+ or -) ............................................................................................... + 4 -4 4 -176 4 828

Operating expenses ................................................................................................................................ - 5 32 5 4,327 5 1,153

Income from investments net of the allocated investment return transferred to the non technical account (*) ............................................................................................................................................. + 6 11 6 24,406 6 5,760

Result of direct business gross of reinsurance (+ or -) .................................................................... A 7 121 7 -10,598 7 -985

Result of outward reinsurance (+ or -) ............................................................................................. B 8 -127 8 0 8 0

Net result of inward reinsurance (+ or -) ......................................................................................... C 9 0 9 0 9 0

Result of the technical account (+ or -)......................................................... (A + B + C) 10 -6 10 -10,598 10 -985

(*) Algebraic sum of items referring to the class and to the Italian portfolio included in items II.2, II.3, II.9, II.10 and II.12 of the Income Statement




Summary statement of the technical account of all Life business

Italian portfolio

Risks of direct insurance Risks of indirect insurance Risks preserved

Direct risks Risks ceded Risks

assumed Risks

retroceded Total

1 2 3 4 5 = 1 - 2 + 3 - 4

Premiums written ..................................................................................... + 1 817,997 11 3,969 21 172 31 137 41 814,063Charges relating to claims ........................................................................ - 2 435,115 12 1,441 22 1,026 32 296 42 434,404Change in provisions for policy liabilities and other technical

(+ or -) ....................................................................................................... - 3 490,069 13 27 23 -943 33 -245 43 489,344Balance of other technical items (+ or -) .................................................. + 4 2,660 14 0 24 0 34 0 44 2,660Operating expenses ................................................................................... - 5 41,283 15 663 25 10 35 10 45 40,620Income from investments net of the allocated investment return

non-technical account (*) ......................................................................... + 6 128,454 26 25 46 128,479Result of the technical account (+ or -) ................................................. 7 -17,356 17 1,838 27 104 37 76 47 -19,166

(* ) Algebraic sum of items referring to the Italian portfolio included in items II.2, II.3, II.9, II.10 and II.12 of the Income Statement


Company SOCIETA' REALE MUTUA DI ASS.NI Financial 2017 Summary schedule relating to the Non-life and Life technical accounts – Foreign portfolio Section I: Non-life business Total classes Direct business gross of reinsurance

Premiums written .......................................................................................................................................................... + 1 0 Change in the provisions for unearned premiums (+ or -)............................................................................................ - 2 0 Charges relating to claims ............................................................................................................................................. - 3 0 Change in miscellaneous technical provisions (+ or - ) ................................................................................................ - 4 0 Balance of other technical items (+ or -) ....................................................................................................................... + 5 0 Operating expenses ....................................................................................................................................................... - 6 0

Technical balance direct business (+ or -) ................................................................................................................ A 7 0Result of outward reinsurance (+ or -) ..................................................................................................................... B 8 0Net result of inward reinsurance (+ or -) ................................................................................................................. C 9 44

Change in the equalisation provision (+ or -) ..................................................................................................... D 10 0 Allocated investment return transferred from the non-technical account........................................................... E 11 0

Result of the technical account (+ or -).......................................... (A + B + C - D + E) 12 44

Section II: Life business Total classes Direct business gross of reinsurance

Premiums written .......................................................................................................................................................... + 1 0

Charges relating to claims ............................................................................................................................................. - 2 0 Change in provisions for policy liabilities and in other technical provisions (+ or -) .................................................. - 3 0 Balance of other technical items (+ or -) ....................................................................................................................... + 4 0 Operating expenses ....................................................................................................................................................... - 5 0 Income from investments net of the allocated investment return transferred to the non technical account (1)........... + 6 0 Result of direct business gross of reinsurance (+ or -) ............................................................................................ A 7 0 Result of outward reinsurance (+ or -) ..................................................................................................................... B 8 0 Net result of inward reinsurance (+ or -) ................................................................................................................. C 9 0 Result of the technical account (+ or -)........................................................ (A + B + C) 10 0

(1) Algebraic sum of items referring to the foreign portfolio included in items II.2, II.3, II.9, II.10 and II.12 of the Income Statement

183



Relationship with Group companies and other shareholdings

I: Income

Controlling companies

Affiliated companies

Associated companies Subsidiarie

s Other Total

Investment income

.. Income from land and buildings ......................................... 1 0 2 0 3 0 4 0 5 0 6 0Dividends and other income from shares and interests ...... 7 0 8 24,031 9 0 10 10,014 11 2,051 12 36,096Income from bonds ............................................................. 13 0 14 0 15 0 16 0 17 0 18 0Interest on loans ................................................................. 19 0 20 0 21 0 22 0 23 0 24 0Income from other financial investments ........................... 25 0 26 0 27 0 28 0 29 0 30 0Interest on deposits with ceding undertakings ................... 31 0 32 0 33 0 34 1 35 0 36 1

Total ....................................................................................... 37 0 38 24,031 39 0 40 10,015 41 2,051 42 36,097Income and unrealised gains on

investments for the benefit of policyholders who

bear the investment risk and relating to the

of pension funds 43 0 44 0 45 0 46 0 47 0 48 0Other income

Interest on receivables ........................................................ 49 0 50 0 51 0 52 0 53 0 54 0Refunds of administrative expenses and charges ............... 55 0 56 31,924 57 0 58 241 59 0 60 32,165Other income and recoveries .............................................. 61 0 62 0 63 0 64 0 65 0 66 0

Total ....................................................................................... 67 0 68 31,924 69 0 70 241 71 0 72 32,165Income from the disposal of investments (*) ..................... 73 0 74 0 75 0 76 0 77 0 78 0Extraordinary income .......................................................... 79 0 80 62 81 0 82 0 83 1,818 84 1,880GRAND TOTAL .................................................................. 85 0 86 56,017 87 0 88 10,256 89 3,869 90 70,142

Relationship with Group companies and other shareholdings

II: Charges

Controlling companies

Subsidiaries

Affiliated companies


Other Total

Investment management charges and

interest expense:

Charges relating to investment pools ................................. 91 0 92 7,600 94 0 93 0 95 0 96 7,600 Interest on subordinated liabilities ..................................... 97 0 98 0 100 0 99 0 101 0 102 0 Interest on deposits received from reinsurers ..................... 103 0 104 0 106 0 105 0 107 0 108 0 Interest on liabilities arising out of

direct insurance ................................................................... 109 0 110 0 112 0 111 0 113 0 114 0 Interest on liabilities arising out of

reinsurance operations ........................................................ 115 0 116 0 118 0 117 0 119 0 120 0 Amounts owed to banks and credit institutions ................. 121 0 122 0 124 0 123 0 125 0 126 0 Interest on loans guaranteed by mortgages ........................ 127 0 128 0 130 0 129 0 131 0 132 0 Interest on other loans ........................................................ 133 0 134 0 136 0 135 0 137 0 138 0 Losses on receivables ......................................................... 139 0 140 0 142 0 141 0 143 0 144 0 Administrative costs and expenses on behalf of third 145 0 146 31,924 148 0 147 241 149 0 150 32,165 Other charges ...................................................................... 151 0 152 34 154 0 153 0 155 0 156 34Total ....................................................................................... 157 0 158 39,558 160 0 159 241 161 0 162 39,799Expenses and unrealised losses on

investments for the benefit of policyholders who

bear the investment risk and relating to the

of pension funds .................................................................... 163 0 164 0 166 0 165 0 167 0 168 0Losses on the disposal of investments (*) ........................... 169 0 170 0 172 0 171 0 173 0 174 0Extraordinary charges ......................................................... 175 0 176 0 178 0 177 0 179 0 180 0GRAND TOTAL .................................................................. 181 0 182 39,558 184 0 183 241 185 0 186 39,799

(*) With reference to the other party in the operation




Summary statement of premiums written for direct business

Non-life business

Life business

Total

Establishment F.P.S. Establishment F.P.S. Establishment F.P.S.

Premiums written:

in Italy ..................................................... 1 1,414,933 5 0 11 817,543 15 0 21 2,232,476 25 0

in other EU countries .............................. 2 0 6 827 12 0 16 424 22 0 26 1,251

in non-EU Countries ............................... 3 0 7 251 13 0 17 30 23 0 27 281

Total ....................................................... 4 1,414,933 8 1,078 14 817,543 18 454 24 2,232,476 28 1,532

185



Statement of costs relating to personnel, directors and statutory auditors

I: Expenses for personnel


Personnel costs:

Italian portfolio:

- Wages and salaries .................................................................................. 1 63,174 31 7,484 61 70,658

- Social security contributions ................................................................... 2 17,432 32 2,065 62 19,497

- Allocation to the provision for employee termination indemnities

and similar obligations ........................................................................... 3 4,445 33 527 63 4,972

- Sundry personnel expenses ..................................................................... 4 15,511 34 1,838 64 17,349

Total .......................................................................................................... 5 100,562 35 11,914 65 112,476

Foreign portfolio:

- Wages and salaries .................................................................................. 6 0 36 0 66 0

- Social security contributions ................................................................... 7 0 37 0 67 0

- Sundry personnel expenses ..................................................................... 8 0 38 0 68 0

Total .......................................................................................................... 9 0 39 0 69 0

Grand total .................................................................................................... 10 100,562 40 11,914 70 112,476

Costs of self-employed personnel:

Italian portfolio .......................................................................................... 11 53,006 41 0 71 53,006

Foreign portfolio ....................................................................................... 12 0 42 0 72 0

Total ............................................................................................................... 13 53,006 43 0 73 53,006

Total expenses for personnel ....................................................................... 14 153,568 44 11,914 74 165,482

II: Description of items entered


Investment management charges .............................................................. 15 389 45 745 75 1,134

Charges relating to claims ......................................................................... 16 70,810 46 784 76 71,594

Other acquisition costs .............................................................................. 17 31,767 47 4,502 77 36,269

Other administrative expenses .................................................................. 18 24,900 48 5,819 78 30,719

Administrative costs and expenses on behalf of third parties ................... 19 25,702 49 64 79 25,766

20 0 50 0 80 0

Total ............................................................................................................... 21 153,568 51 11,914 81 165,482

III: Average number of staff during the year

Number Top management ....................................................................................... 91 45 Office staff ................................................................................................. 92 1,069

Blue collar ................................................................................................. 93 0 Other .......................................................................................................... 94 46

Total ............................................................................................................... 95 1,160

IV: Directors and statutory auditors

Number Fees Directors ......................................................................................................... 96 13 98 1,553 Statutory Auditors .......................................................................................... 97 3 99 225

187

OTHER ANNEXES

REPORTS AND ACCOUNTS 2017 188

STATEMENT PURSUANT TO LAW No. 72 OF 19 MARCH 1983

This statement discloses assets still held by the Company to which monetary revaluation has been applied or for which valuation criteria have been waived according to Art. 2425 - Section 3 of the previously valid Civil Code

MONETARY REVALUATION (amounts in € thousands)

Acquisition costs

Incremental Law No. 576 02/12/1975

Law No. 72 19/03/1983

Law No. 413

30/12/1991

Other revaluations

Carrying values

REAL ESTATE

Used in business operations 21,851 55 234 754 2,810 0 25,704

Rented to third parties 10,204 0 260 1,106 857 0 12,427

EQUITY INVESTMENTS IN ITALIAN COMPANIES AND INSTITUTIONS

In listed companies 268,564 0 0 1,666 0 11,362 281,592

In unlisted companies 12,270 0 29 71 0 0 12,370

189

Società Reale Mutua di Assicurazioni Notes to the Financial Statements Class C.II, C.III, D.I, D.II: list of long-term investments in shares, bonds, common investment funds Financial 2017Pursuant to Art. 15, Section 1 of Law No. 173/1997

Class Category Type Name Currency Nom. value in Carrying amount of assets (1) (2) quantity in thousands of euros

C.III O f NL ENEL 00/20 TV XL TR. IMP.ASS. LIT 1,578,000,000 815C.III O f NL ENEL 00/21 TV XLI TR. IMP.ASS. LIT 1,578,000,000 815C.III O f NL ENEL 97/18 TV XXXV TR. IMP.ASS. LIT 1,538,000,000 794C.III O f NL ENEL 98/18 TV XXXVI TR. IMP.ASS. LIT 1,552,000,000 802C.III O f NL ENEL 98/19 TV XXXVII TR. IMP.ASS. LIT 24,000,000,000 12,417C.III O f NL ENEL 99/19 TV XXXVIII TR. IMP.ASS. LIT 1,566,000,000 809C.III O f NL ENEL 99/20 TV XXXIX TR. IMP.ASS. LIT 1,565,000,000 808C.III O f NL FINLAND 09/13-15/09/18 TF 1.125% EUR 7,000,000 7,081C.III O f NL FRANCE 06/13-25/11/18 TF 1% EUR 8,000,000 8,102C.III O f L BAT 99/19 4,60% FLOOR EUR 5,000,000 5,000C.III O f L BEI ZC 11/96 - 05/11/26 EUR 10,624,645 6,095C.III O f L BELGIUM 03/14-22/06/34 TF 3% EUR 1,000,000 1,045C.III O f L BTP 05/13-01/09/44 TF 4.75% EUR 8,700,000 10,994C.III O f L BTP 11/93-01/11/23 TF 9% EUR 25,000,000 28,713C.III O f L BTP 4% 05 01.02.37 EUR 4,200,000 4,681C.III O f L BTP NV 01 98/29 5.25 EUR 18,000,000 17,995C.III O f L BTPS 09/14 - 01/12/24 TF 2.5% EUR 48,500,000 51,666C.III O f L CENTROB 98/18 ZC LIT 29,910,000,000 15,374C.III O f L COMMERZBANK 96/26 ZC LIT 94,860,000,000 26,029C.III O f L CREDIOP 2,1% 99/25 OPT FLOOR PREMIUM 4,2 RESTRUC EUR 31,960,000 31,711C.III O f L ENEL 98/19 TV XXXVII TR. IMP.ASS. LIT 551,000,000 285C.III O f L FINLAND 09/13-15/09/18 TF 1.125% EUR 2,500,000 2,529C.III O f L FOND.7% ANIA 6ÊM. CARIPLO LIT 9,839,429 5C.III O f L FOND.7% ANIA 6ÊM. ISP LIT 9,839,509 5C.III O f L FOND.7% ANIA 7ÊM. CARIPLO LIT 43,050,727 22C.III O f L FOND.7% ANIA 7ÊM. ISP LIT 43,050,741 22C.III O f L FOND.7% ANIA 8ÊM. CARIPLO LIT 43,052,237 22C.III O f L FOND.7% ANIA 8ÊM. ISP LIT 43,052,163 22C.III O f L FOND.7% ANIA 9ÊM. CARIPLO LIT 76,979,238 40C.III O f L FOND.7% ANIA 9ÊM. ISP LIT 76,979,252 40C.III O f L LOMB MC 98/28 ZC EUR 9,267,680 5,118C.III O f L QUEBEC STEP-UP EURO EUR 4,200,000 4,199C.III O f L RBS 99/19 CMS10 FLOOR 4.7% SUB TIER II EUR 500,000 500C.III P f NL BANCA D'ALBA SCRL EUR 17,974 46C.II P b NL BANCA REALE SPA EUR 28,500,000 40,119C.II P b NL BLUE ASSISTANCE SPA EUR 3,120,000 2,511C.II P e NL CEDACRI SPA EUR 169 1,301C.III P f NL CQOP SOA SPA EUR 1,082 244C.II P d NL CREDEMASSICURAZIONI SPA EUR 1,366,000 22,136C.III P f NL CREDITO EMILIANO EUR 1,397,500 8,116C.III P f NL DEVELOPMENT CAPITAL 1 S.C.A. EUR 12,183 155C.II P e NL EURAPCO AG CHF 9,248 1,151C.II P b NL IGAR S.A. EUR 527,060 31,555C.II P b NL ITALIANA ASSICURAZIONI SPA EUR 7,088,432 129,905C.II P b NL REALE IMMOBILI SPA EUR 16,000,000 830,748C.II P b NL REALE ITES EEIG RMA EUR 1 76,390C.II P b NL REALE SEGUROS GENERALES S.A. EUR 3,838,000 252,743C.II P b NL REALE VIDA Y PENSIONES S.A. EUR 500 610C.II P d NL SARA SPA ORD. EUR 5,091,660 12,370C.II P d NL SARA SPA PRIV. EUR 636,457 2,248C.II P e NL SYNKRONOS ITALIA S.r.l. EUR 39,800 716C.III P f NL UFF.CENTR.ITALIANO S.CONS.A R.L. EUR 25,241 49C.II P b NL UNIQA ASSICURAZIONI S.p.A. EUR 1,225,000 255,835C.II P b L ITALIANA ASSICURAZIONI SPA EUR 19,011,618 151,687C.II P b L REALE IMMOBILI SPA EUR 2,000,000 103,843C.II P b L UNIQA ASSICURAZIONI S.p.A. EUR 275,000 57,432

REPORTS AND ACCOUNTS 2017 190

Società Reale Mutua di Assicurazioni Notes to the Financial Statements Class C.II, C.III, D.I, D.II: list of long-term investments in shares, bonds, common investment funds Financial 2017Pursuant to Art. 15, Section 1 of Law No. 173/1997

Class Category Type Name Currenc Nom. value in Carrying value of assets (1) (2) quantity in thousands of euros

C.II Totals C.II 1,973,300 O Bonds and other securities 0 P Shares and interests 1,973,300 Q Shares in common investment funds 0

C.III Totals C.III 253,165 O Bonds and other securities 244,555 P Shares and interests 8,610 Q Shares in common investment funds 0

D.I Totals D.I 0 O Bonds and other securities 0 P Shares and interests 0 L Shares in common investment funds 0

D.II Totals D.II 0 O Bonds and other securities 0 P Shares and interests 0 Q Shares in common investment funds 0 Grand total 2,226,465 O Bonds and other securities 244,555 P Shares and interests 1,981,910 Q Shares in common investment funds 0

(1) Type (2) : a = Controlling NL for investments assigned to Non-life business b = Subsidiary L for investments assigned to Life business c = Affiliated L1 for investments assigned to Life business (D.I) d = Associated L2 for investments assigned to Life business (D.II) e = Other shareholdings f = Other

2017 CONSOLIDATED FINANCIAL STATEMENTS

Meeting of Delegates of 27 April 2018

THE GROUP

195

REALE GROUP at 31 December 2017 (% interest)

(Parent Company)

REALE MUTUA ASSICURAZIONI

Real estate companies Insurance companies Service companies Insurance holdings

100.00 100.00 100.00 100.00

REALE IMMOBILI S.P.A.

ITALIANA ASSICURAZIONI S.P.A.

BANCA REALE S.P.A. REALE GROUP LATAM

S.P.A.

100.00 100.00 100.00 97.00

IGAR S.A. REALE SEGUROS GENERALES S.A.

BLUE ASSISTANCE S.P.A.

REALE GROUP CHILE S.P.A.

100.00 100.00

REALE VIDA Y PENSIONES S.A.

REALE ITES EEIG

97.00 100.00

REALE CHILE SEGUROS S.A.

ITALNEXT S.R.L.

99.72 99.72

UNIQA ASSICURAZIONI S.P.A.

UNIQA INTERMEDIAZIONI

S.R.L.

99.72

UNIQA PREVIDENZA S.P.A.

89.75

UNIQA LIFE S.P.A.

31.43

SARA ASSICURAZIONI S.P.A.

50.00

CREDEM ASSICURAZIONI S.P.A.

Key:

Fully consolidated companies

Companies consolidated by the equity method

Consolidation area

REPORT ON OPERATIONS

199

1.1 MACROECONOMIC SCENARIO AND MARKETS

1.1.1 THE MACROECONOMIC SCENARIO

The global economy strengthened in 2017. Abundant monetary and fiscal stimulus packages sustained a widespread and synchronised improvement in growth rates in the majority of advanced countries as well as in emerging economies. The expansion of world trade and internal demand also contributed to the positive growth momentum.

According to the latest estimates by the International Monetary Fund (IMF), world GDP grew by 3.7% in 2017, compared to 3.2% in 2016.

In the United States, IMF forecasts point to growth of 2.3%. The most significant contributions came from investments, the increase in inventories and net exports, whereas the contribution of consumption remained substantially unchanged.

The IMF's 2017 growth forecast for China's GDP stood at 6.8% (6.7% in the previous year), mainly as a consequence of the recovery of world trade. China's expansion, which is important for global economic growth, leaves scope for the authorities to reduce the very high level of debt. Growth continued to be driven by consumption, the foreign trade balance improved and industrial production grew thanks to increased investment.

In emerging markets, GDP is estimated to have increased by 4.7% in 2017, on the back of robust growth in industrialised countries, the revival of world trade and the strengthening of commodity prices.

In the euro area, again according to IMF estimates, growth stood at 2.4% in 2017, an improvement on most of the forecasts made at the beginning of the year. The cyclical situation remained strong and sustainable, internal demand was driven by improvements in labour market conditions and wage growth. There were signs of recovery in the construction industry and investment in machinery increased.

After getting off to a slow start, the Italian economy gathered momentum, buoyed both by domestic demand and a rise in exports, with GDP growth estimated at 1.6% at the end of the year: exports made a positive contribution, sustained by growth in global demand and private consumption, linked to the increase (albeit only slight) in income from work and financial wealth. The unemployment rate continued to fall and was 11% in November 2017. Inflation remained weak and stood at 1% in December 2017 as measured by the harmonised index of consumer prices (HICP).

Spain's economy continued the expansionary trend that started four years ago. Domestic demand and consumption were again the main drivers of growth, which the IMF estimates will be 3.1% for 2017. The labour market improved and the rate of unemployment fell, standing at 16.7% in November. The harmonised index of consumer prices (HICP) rose to 1.2% in December.

In Chile the new president, elected at the end of 2017, promised to back measures aimed at boosting economic performance. The newly‐elected president plans to bring the economy back to potential output through actions to increase efficiency and regulations to revive investments. According to IMF estimates, growth for 2017 will stand at 1.4%.


1.1.2 FINANCIAL MARKETS

In 2017 the financial markets were affected by the economic climate outlined in the introduction.

The healthy global economic conditions led to gains on equity markets, but with monetary policy starting to normalise the bond component performed less well.

In the United States, confident in the soundness of economic growth and mindful of trends in the labour market, the Federal Reserve undertook three 25‐basis‐point increases in its benchmark rate and, importantly, began to reduce its securities holdings.

In Europe, the European Central Bank merely re‐tuned its monetary policy stance to the improving cyclical conditions and, starting in September, reduced its monthly asset purchases. On the whole, the ECB continued to pursue an expansionary monetary policy stance, which it expects will be necessary for a further extended period.

Solid global economic growth and the reduction in monetary policy accommodation both in the USA and, to a more limited extent, in Europe, are indications that the long period of falling bond yields could be drawing to an end. So far, however, the uncertainty surrounding inflation expectations has prevented any sudden jump in yields.

Short‐term yields fell and those with a maturity of more than one year were also in negative territory. Euribor 6 months moved from ‐0.22% at the beginning of the year to ‐0.27% at the end of December 2017.

In Italy, the outcome of the constitutional referendum triggered uncertainty over the government's future at the beginning of the year, and Italian ten‐year yield spreads over the equivalent German bund widened to more than 200 basis points. As stability was restored, spreads were able to reflect the improvement in fundamentals, especially with regard to growth and public finances.

Yields on ten‐year Italian government bonds rose from 1.82% at the end of December 2016 to 2.02% at the end of December 2017. The spread compared with ten‐year German bunds stood at 159 basis points at the end of 2017, substantially unchanged with respect to the 161 basis points at the end of 2016.

During the same period, yields on ten‐year German bunds rose to 0.43%, an increase of 0.21% compared to the end of December 2016, although much of the increase took place in the second half of December.

In Spain, robust economic growth contributed to lowering the credit risk on sovereign debt, which was only marginally affected by the Catalan crisis. Yields on ten‐year government bonds increased from 1.38% at the end of 2016 to 1.57% at the end of 2017, reflecting the increase in German bunds. After reaching 130 basis points in the immediate aftermath of the referendum in Catalonia, the spread compared with ten‐year German bunds stood at 114 basis points at the end of the year, practically unchanged with respect to the 118 basis points recorded at the end of 2016.

201

Ten‐year government bond yields ITALY ‐ SPAIN ‐ GERMANY (source: Bloomberg)

2017 was a positive year for corporate bonds, which benefited from the economic recovery and, above all, the central banks' asset purchase programmes. There was a further narrowing of spreads against government securities.

In 2017, equities were the best asset class in terms of returns, in line with improvements in the economy. In the US, the Dow Jones appreciated by 25.08%. The Euro Stoxx index ended the year up 6.49%. The German DAX moved up 12.51%, the French CAC by 9.26% and the Spanish IBEX index closed 7.40% higher. The Italian FTSE MIB index closed the year up 16.61%, one of the best performers in Europe, buoyed by an improved outlook for the bank sector and an increase in investment following the introduction of Individual savings plans (Piani Individuali di Risparmio ‐ PIR).

Germany Spain

Jan May June July Aug Sep OctFeb Mar Apr Nov

Italy

Dec


Prices on the Euro Stoxx index ‐31/12/2016‐31/12/2017 (source: Bloomberg)

With the more stable political backdrop and improving economy, the euro strengthened and the euro/dollar rate reached 1.20 in December, its highest for the year.

Jan May June July Aug Sep Oct Dec Feb Mar Apr Nov Dec

203

1.1.3 THE INSURANCE MARKET

According to the data provided by ANIA for the last quarter of 2017, on the Italian insurance market (Italian companies and representative offices of non‐EU insurers) there was a 2.4% year‐on‐year decrease in premium income, reflecting negative performance in the Life sector (‐3.6%).

On the Spanish insurance market, premium income fell slightly in 2017 compared with the previous year (‐0.7%). On the Chilean insurance market, overall premium income decreased by 2.2% according to the forecasts for the last quarter of 2017 provided by Asociacion De Aseguradores De Chile A.G.

Non‐life insurance business

On the Italian market, in the last quarter of 2017 there was a 1.2% year‐on‐year increase in Non‐life business. There was a 0.8% reduction in premium income in the Motor sector: premium income in the TPL land vehicles and TPL marine, lake and river craft businesses decreased by 2.2%, whereas Hulls land vehicles went in the opposite direction, with a 6.3% increase. These lines accounted for 49.6% of total Non‐life premiums (50.6% in 2016). Premium income in the Non‐motor sector increased by 3.2%: among the businesses with the highest premium income were Accident (+2.6%), Health (+9.5%), Fire and natural forces (+1.0%), Other property damage (+1.4%), Non‐motor TPL (+0.9%), Sundry pecuniary losses (+14.3%) and Assistance (+5.9%), whereas the Transport and Credit and surety businesses posted decreases of ‐2.0% and ‐1.5%, respectively, compared to the same period of the previous year. The premium income generated by Non‐motor classes accounted for 50.4% of total Non‐life premium income (49.4% in 2016).

According to the latest data for 2017 published by ICEA, on the Spanish market there was a 3.9% year‐on‐year increase in Non‐life business, which accounted for 53.6% of overall premium income (51.2% in 2016). There was a 3.4% increase in premium income in the Motor sector: specifically, premium income in the TPL land vehicles business increased by 3.8%, while the other businesses grew by 2.9%. These lines accounted for 32.1% of total Non‐life premiums (32.3% in 2016). Premium income in the Non‐motor sector increased by 4.2%; among the businesses with the highest premium income were Accident (+12.9%), Health (+4.2%), Non‐motor TPL (+7.3%) and Death (+2.2%). These lines accounted for 67.9% of total Non‐life premiums (67.7% in 2016).

On the Chilean market, there was a 1% year‐on‐year overall increase in Non‐life business. Considering the main areas, the Motor sector increased by 6.7% and Fire and Additional risks decreased by 5.7%. Total Non‐life premium income accounted for 30.5% of total premiums (29.6% in 2016).

Life insurance business

On the Italian market, in the last quarter of 2017 there was a 3.6% year‐on‐year decrease in Life business. In detail, there was a decrease in premium income for class I (‐14.7%) and for class V products (‐7.0%), which accounted for 63.7% and 2.6%, respectively, of total Life premiums. There was significant growth in class III premiums (unit‐linked products), which increased by 30.1%, and in class VI premiums (pension funds), which rose by 9.8%. These accounted for 31.7% and 2.0%, respectively, of total Life premiums.

According to the latest data for 2017 published by ICEA, on the Spanish market there was a 5.6% decrease in Life business, which accounted for 46.4% of overall premium income (48.8% in 2016).


1.1.4 REAL ESTATE SECTOR

The Italian property market continued to be subdued: estimates for 2017 indicate that sales rose but prices did not, despite showing some signs of expansion.

The volume of property sales actually rose slightly, in both the residential and non‐residential sectors: after increasing by, sales are estimated to have risen by around 5% in 2017 (+5.5% in the housing sector and +2.2% in the services and commercial sector) compared with 16% in the previous year. According to estimates for 2017, there were just under 560,000 house sales: compared to 2006, the last year of expansion in this sector, the market has contracted by 36%, with the number of contracts falling by around 300,000. The business property market fared even worse, with the number of property sales estimated at around 60,000 units, about 45% fewer compared to pre‐crisis levels (‐55% for offices). Prices continued to fall, albeit only slightly. The discrepancy between two indicators reflects factors such as weak income levels which affect demand and a constant excess in supply, which continues to hold prices down.

There are some grounds for optimism on the rental market: recovery in this sector is mainly being driven by demand for short‐term and temporary rentals by workers due to job‐mobility and by young people studying or working away from home. The number of families who rent because they cannot afford to buy their own home and who represent a large component of this market, also increased. Rentals fell slightly towards the end of the year in the face of continuing economic weakness which held back demand and so made rental property less profitable. Nonetheless, the effects of the crisis have been felt to a lesser extent on the rental market, as borne out by the cumulative variation in values since the beginning of the crisis (approximately ‐20% for rentals against about ‐25% for sales).

In the first half of 2017 the property market continued to be characterised by a lack of liquidity, which explains the very long absorption times (for sales but also for rentals in the business property sector) and the discounts applied.

Despite this, all sector‐specific indicators forecast an overall improvement in 2017 in relation to the previous three years, and recovery of the ground lost during the crisis. In detail: ‐ average selling times decreased slightly; ‐ rental times were shorter; ‐ the average discount applied to the asking price also fell in all sectors, which contributed to reducing

the liquidity of properties up for sale.

In Spain the volume of investments in the property market amounted to almost € 14 billion at the end of 2017, 45% more than in the previous year. With the exception of the business property market, all sectors saw notable increases in investment volumes. In Madrid, demand peaked at the end of 2017, when the level of office rentals was 22% higher than at the end of the previous year. The figures recorded in Madrid still do not approach the almost one million square metres of space leased in 2007, the year before the crisis started. Nevertheless, it is worth taking into account that companies no longer need such large spaces to undertake their activities because working practices have changed over the last decade. This has led to a considerable reduction in the "average space per employee", which has fallen from 14‐16 square metres per employee in the years prior to the crisis to 10‐12 square metres today. Average rental prices rose in 2017: in Madrid and the surrounding areas the average rent was € 17.6 per square metre per month in the last quarter, 7.3% more than in the same period of 2016, when it was € 16.4 per square metre/month. The monthly rent for prime property in Madrid increased by 6.8% to reach € 31 per square metre (€ 29 per square metre per month in the last quarter of 2016). In Barcelona office rentals followed a similar trend. There was a 20% increase in volumes in 2017. In Barcelona monthly rental prices continued to rise and reached € 23 per square metre.

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1.1.5 BANKING SECTOR

Direct bank deposits in Italy were substantially stable in 2017. In detail, at the end of 2017 overall euro‐denominated deposits by clients with Italian banks, consisting of deposits by resident clients (current account deposits, deposits redeemable at notice and repos) and bonds (net of those repurchased by banks) amounted to € 1,727.9 billion, decreasing by 0.01% on an annual basis. The stock of deposits fell by just € 89 million. An analysis of trends in the various components reveals that deposits held by resident clients increased at a tendential rate of +4.1% compared with the previous year, while bonds decreased by ‐17% on an annual basis (‐17.9% at December 2016).

Overall, bank loans to clients (in the private sector and to public authorities) amounted to € 1,763 billion at the end of December, a year‐over‐year increase of +1.5% (+0.4% at the end of 2016). Loans to households and non‐financial undertakings amounted to around € 1,356 billion, an annual increase of +1.4% (+0.9% at year‐end 2016). As regards business undertakings, there was an increase of around +0.2% in loans to non‐financial companies, in line with the previous year.

Non‐performing loans net of write‐downs amounted to around € 64.1 billion at year‐end 2017, substantially less than at the end of 2016 (€ 86.8 billion). The ratio of net non‐performing loans to total loans fell to 3.70% (compared with 4.9% at the end of 2016).

There was a slight reduction in interest rates on euro bank deposits for households and non‐financial undertakings, which moved from 0.41% at the end of 2016 to 0.38% at year‐end 2017.

The average rate on customer bank deposits (including returns on deposits, bonds and repos in euros held by households and non‐financial undertakings) was 0.76% at year‐end 2017 (0.99% in December 2016). Returns on bank bonds decreased over the year, from 2.74% to 2.60%.

According to figures issued by the Italian Banking Association (ABI), the weighted average rate of returns on all loans to households and non‐financial undertakings decreased further in 2017, from 2.85% to 2.69% at the end of the year (the lowest level on record).

Rates on new transactions also fell to their lowest ever: in December 2017 the interest rate on loans in euros to non‐financial undertakings was 1.50% (1.54% in December 2016), while that on loans in euros to households for house purchases, which takes into account trends in fixed and variable rates, was equal to 1.90% (2.02% in December 2016).

The spread between average lending and deposit rates for families and non‐financial undertakings remained low: 185 basis points in 2017 (198 basis points in 2016). This spread was more than 300 basis points prior to the financial crisis.


1.2 REGULATORY DEVELOPMENTS

Changes to tax regulations

Law No. 205 dated 27 December 2017, the “2018 Budget Law” was published on 29 December 2017. The Budget Law includes several important changes effective as of 1 January 2018. Some of the main points that will affect Group companies are outlined below:

‐ extension of the extra depreciation deduction for capital goods, introduced by Law No. 208/2015 (2016 Stability Law) ‐ art 1, section 29;

‐ extension of the so‐called "hyper depreciation" rate applicable to capital goods used for technological and/or digital transformation processes under an initiative known as the "Industry 4.0" plan, introduced by Law No. 232/2016 (2017 Stability Law) ‐ art. 1, sections 30‐36;

‐ revaluation of company assets (art. 1, sections 997‐998). The possibility of recording the higher value of tangible assets and equity investments included in the financial statements as at 1 January 2018 has been extended for one year;

‐ tax credit for Industry 4.0 training activities (art. 1, sections 46‐56). The Budget Law introduces a tax credit for companies that sustain costs for training activities related to the "Industry 4.0" technology development programme. The tax credit amounts to 40% of the costs incurred relating solely to the company's employees for the period in which they are engaged in training activities, up to a maximum of € 300,000 per year for each beneficiary company. It is subject to the condition that the training activities are agreed upon through corporate or regional collective agreements;

‐ mandatory electronic invoicing (art. 1, sections 909‐917). The Law introduces the universal obligation to issue electronic invoices as from 1 January 2019. The obligation applies to sales of goods and supplies of services to entities liable to VAT and private individuals resident, established or identified in Italy;

‐ VAT grouping rules (article 1, sections 984‐985). Transactions between a member of a VAT group and the permanent establishment of another member of that same VAT group are liable to VAT;

‐ future VAT rate increase (art. 1, section 2). From 1 January 2019 the standard VAT rate will increase from 22% to 24.2% and the reduced rate from 10% to 11.5%; from 1 January 2020 the ordinary rate will be raised to 24.9% and the reduced rate to 13%; from 1 January 2021 the ordinary rate will be increased to 25%. These VAT rate increases will apply unless other measures are implemented that would guarantee positive effects on public spending;

‐ insurance premiums covering the risk of natural disasters (art. 1, sections 768‐770). Taxpayers will be able to deduct 19% of insurance premiums paid to cover the risk of natural disasters under policies relating to residential property units from IRPEF;

‐ tax on insurance (art. 1, section 769). The Budget Law introduces a system of exemption on insurance for natural disaster policies with the inclusion of art. 11‐bis in Table C attached to Law No. 1216/1961 which defines the insurance policies and annuity contracts exempt from the tax;

‐ Web tax (art. 1, sections 1011‐1017). The Budget Law introduces a tax on online transactions to be levied on services supplied through electronic means, regardless of whether the transaction is concluded in Italy or abroad. The tax will be computed as 3% of the payment due and will apply as from 1 January 2019;

‐ early retirement (art. 1, sections 162‐163). The Budget Law has extended the voluntary early retirement scheme (APE ‐ Anticipo pensionistico) until 31 December 2019 and amended the criteria to be met by those applying for the social APE scheme, introduced by the 2017 Stability Law;

‐ structural incentive to employ young workers (art. 1, sections 100‐108 and 113‐115). The Law introduces an incentive for employers who hire young people under a new form of open‐ended employment contract with increasing protection with job tenure (contratto a tutele crescenti) instead of fixed‐term contracts. The incentive applies to young workers aged under 30 (or under 35 if hired in 2018) who have not previously been employed and amounts to a 50% reduction ‐ for a maximum period of 36 months ‐ on social security contributions paid by the employer, up to a maximum of € 3,000 per year;

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‐ tax allowances for companies in relation to renovation work on buildings used in the course of their

business activities and for individuals (art. 1, sections 3 and 12‐15). The IRPEF/IRES deductions applicable to energy refurbishment, in general amounting to 65%, and the 50% IRPEF bonus for building renovation work have been extended until the end of 2018. The Budget Law introduces new rules governing the granting of tax relief for work on common areas of apartment buildings located in seismic zones 1, 2 and 3. The deduction amounts to 80% if the works determine the transition to the next risk class down and 85% if the building moves down by two risk classes;

‐ local taxes on real estate (art. 1, section 42). The possibility for municipal councils to apply the same increase in the TASI tax rate as in 2016 (up to 0.8 per thousand) and the suspension of any increases in regional and municipal taxes and surtaxes (except TARI) will continue to apply throughout 2018.

Regulatory measures issued by IVASS

In February 2017 IVASS issued two Regulations for the national implementation of the EIOPA guidelines on the financial requirements of the Solvency II Directive (Pillar I requirements). In detail, Regulation No. 34/2017 laying down provisions on governance concerning the valuation of assets and liabilities other than technical provisions and the criteria used for their valuation. Regulation No. 35/2017 reflecting EIOPA guidelines on the adjustment for the loss‐absorbing capacity of technical provisions and deferred taxes. These supplement the existing legal framework. Under these regulations, in determining the solvency capital requirement, companies will be able to take into consideration the risk mitigating effect deriving from the loss‐absorbing capacity of technical provisions and deferred taxes, that is, to reflect potential compensation of unexpected losses through a decrease in technical provisions or deferred taxes.

* * *

On 28 February 2017, IVASS published Regulation No. 36, which came into force on 1 March 2017, establishing the timing, procedures, content and terms for transmitting data and information to IVASS to enable it to conduct statistical surveys, studies and analyses of the insurance market. The introduction of these requirements is also envisaged under art. 159 of the Solvency II Directive.

The regulation sets out a comprehensive set of rules for reporting data and information to IVASS to be used in statistical surveys, studies and analyses of the insurance market. It also provides the necessary link with the implementing regulations concerning accounting systems and reporting to supervisory authorities, following amendments to ISVAP Regulations 22/2008 and 7/2007 contained in IVASS Order No. 53 of 6 December 2016, as well as other changes in the rules on accounting and reporting to the supervisory authority and to the public (Pillar III), consequent to the implementation of the Solvency II Directive. The main points of this Regulation include the requirement for the Board of Directors to approve the "Statistical information policy" and to define a single contact person for reporting statistical information to IVASS.

* * *

In its Letter dated 8 February 2017, IVASS notified Life insurance companies operating in Italy that it had launched an investigation into "dormant" Life insurance policies, meaning policies that have not been paid to the beneficiaries and are still held by the insurance undertakings as unclaimed or time‐barred benefits. These may be policies on the death of the policyholder, of which the beneficiaries were not aware, or "savings" policies which, upon maturity, have not been collected for a variety of reasons. According to current legislation, the rights arising from life policies are barred after ten years from the date of the event. After that deadline, insurance undertakings must assign the relative amounts to the Dormant Accounts Fund held by CONSAP as established by Law No. 266 of 23 December 2005. It is important to make sure that the sums arising from people's savings and pension assets are paid to the rightful beneficiaries.


In its Letter to the Market dated 5 June 2017, IVASS asked insurance undertakings to conduct a self‐assessment to estimate their exposure to the risks of money laundering and terrorist financing, in light of the entry into force of the "Fourth Anti‐Money Laundering Directive" (Directive EU 849/2015) and then to submit the results of that assessment to IVASS. In view of the need to adopt a risk‐based approach, article 8 of the Directive establishes the requirement for each intermediary to assess the risks of money laundering and terrorist financing on an annual basis, considering the various factors (customers/products/services/geographic areas or delivery channels) that characterise its business activities. IVASS sent insurers a letter with instructions about the information that must be submitted in two parts by the Anti‐money laundering function which may, if necessary, request the support of other functions. The Anti‐money laundering function must set out the results of the self‐assessment in the annual report required pursuant to IVASS Regulation 41/2012, and include a specific chapter describing the steps of the process, the functions involved, the data and information on which the assessments were based, the results obtained and any corrective measures required. In the case of insurance groups, the Italian parent must coordinate the assessments conducted by each group company and account for the results of the assessments of each individual company in its report, assessing the relevance of the residual risks for the entire group.

* * *

On 19 July 2017, IVASS published Consultation paper No. 2/2017 laying down provisions on corporate and group governance and implementing the EIOPA guidelines on that matter pursuant to the Solvency II Directive. The proposal sets out an organised framework covering the following macro‐areas:

‐ the system of corporate governance; ‐ the regulatory framework for reinsurance and other risk‐mitigation techniques; ‐ the management of company assets; ‐ the fundamental functions of corporate governance; ‐ regulations governing remuneration; ‐ regulations governing outsourcing; ‐ group corporate governance.

Other new regulations

After a lengthy process that began in 2015, Parliament finally approved the Annual Law on Competition (Law No. 124 of 4 August 2017), published in the Official Journal of the Italian Republic on 14 August 2017, No. 189 and which came into force on 29 August. The Competition Law, transposing recommendations submitted to Parliament by the Italian Antitrust Authority, introduces several measures that apply to the insurance sector, especially TPL insurance for land vehicles. Some of these came into effect straight away, as from 29 August 2017, while others will be the subject of implementing regulations that will be issued in the coming months. Some notable measures introduced by the new law, which came into force on 29 August 2017, include the increase in the minimum liability amount for TPL cover for buses and coaches, the obligation to provide coverage, the requirement to indicate changes in premiums according to the no‐claims bonus scale, the prohibition of tacit renewal clauses in respect of ancillary TPL land vehicles insurance, provisions governing no‐claims bonus risk categories, exclusive authorised driver clauses, an extended reporting period for professional liability insurance and procedures for naming witnesses. The Law also includes a number of other provisions that will not come into effect until the respective implementing regulations have been adopted. In detail, art. 132‐ter of the Code of Private Insurance establishes the obligation for insurance undertakings to apply a discount to TPL land vehicle insurance premiums when the following conditions are met: policyholders agree to have their vehicle inspected beforehand; "black box" type devices are installed or are already in place; electronic mechanisms are installed that prevent the starting of the engine when the driver's blood‐alcohol level exceeds the legal limits permitted for driving.

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The Law also establishes the requirement for IVASS to identify the list of provinces with the highest claims rates, so that policyholders who live in those provinces and who install the black box and have not caused an accident in the last four years obtain an "additional" discount. Paragraph 14 introduces a further requirement whereby if a policyholder who has installed a black box is involved in an at‐fault accident, the penalty in terms of a reduction in the merit rating and increase in the premium (malus) must be less than would otherwise have been applied. Paragraph 14 also establishes that, if a claim is made, the same conditions must apply as well if the policyholder agrees to install a black box the next time the contract is renewed.

* * *

It should be noted that the purpose of Regulation (EU) No. 1286/2014 on key information documents for Packaged Retail and Insurance‐based Investment Products (PRIIPs), subsequently supplemented by Regulation (EU) No. 653/2017, is to improve the transparency of information offered to investors. The Regulation in question, which came into effect on 1 January 2018, applies to all class I, III, V and multi‐risk Life products that offer savings/investment opportunities for retail investors. It does not apply to pure risk insurance products (e.g., term‐life and long‐term care insurance) or supplementary pension schemes (individual pension plans and pension funds). One important change introduced by the Regulation is the obligation to prepare a document containing key information about the product (KID, Key Information Document) which must be delivered to potential investors, describing the product's features in a brief, clear and easily understandable manner. In detail, the KID must facilitate comparison with other similar products on the market, include a summary risk indicator with a narrative explanation, contain appropriate performance scenarios and show the possible gains and losses, and present and explain the impact of the total costs the investor pays. Under the new rules the insurance broker must provide the KID in good time before the investor is bound by any contract or offer relating to that PRIIP, in order for the investor to be able to make an informed investment decision. This document must be provided together with the information booklet or prospectus. It is required for all investment products that will be placed on the market in future as well as those already on the market.


1.3 REALE GROUP STRATEGY

In the market context outlined above, during the year Reale Group companies developed their strategies, all of which are based on a set of common guidelines:

‐ Identity and solidity: exemplify and accentuate our identity as a mutual insurance Group, develop the sustainability and corporate responsibility system and improve capital management models;

‐ People "at the centre": consolidate and enhance the centrality of individuals, with specific strategies addressing member‐policyholders, agents and employees;

‐ Profitable development: maintain a position consistent with the characteristics of the Group's business, pursuing innovation, profitability and with a special focus on welfare;

‐ Operational excellence: continue to pursue operational excellence through organisational models and processes aimed at fostering simplification, digitalisation and the improvement of services for customers;

‐ Growth and innovation: cultivate ambitions to develop external lines, also by furthering the Group's international expansion, and adopt a system‐based approach to innovation.

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1.4 SUSTAINABILITY REPORT

Pursuant to Legislative Decree No. 254 of 30 December 2016 implementing Directive 2014/95/EU of the European Parliament and of the Council of 22 October 2014, as a public‐interest entity and parent undertaking of a large group, Reale Mutua is required to disclose non‐financial and diversity information.

Therefore, starting from 2017, the Parent is required to present a specific consolidated non‐financial statement containing details about its subsidiaries and information relating to environmental, social and employee‐related matters, respect for human rights, anti‐corruption and bribery matters deemed relevant in view of the activities and characteristics of the Group.

The report also provides all the information necessary to understand the business model for the organisation and control of Group activities, including in relation to the management of the above matters, the policies pursued by the Group, including due diligence processes implemented, the outcome of those policies and the relevant non‐financial key performance indicators, the principal risks, generated or sustained, related to those matters linked to the Group's activities, its products, services or business relationships, including supply and subcontracting chains.

The report must contain information relating to at least the following:

‐ the use of energy, specifying whether energy is from renewable and/or non‐renewable sources, and water use;

‐ greenhouse gas emissions and air pollution; ‐ details of current and foreseeable impacts of any risk factors associated with the Group's operations

on the environment and on health and safety or other relevant environmental or health risk factors; ‐ social and employee‐related matters, including the actions taken to ensure gender equality,

implementation of conventions of international and national organisations and procedures for establishing social dialogue;

‐ respect for human rights, measures put in place to prevent human rights abuse and actions taken to prevent discrimination;

‐ measures taken to prevent corruption and bribery, with details of the instruments in place to fight these.

In accordance with the provisions of article 5, paragraph 3(b) of Legislative Decree No. 254/2016, the Parent has prepared this consolidated report as a separate document called the Reale Group Sustainability Report. The report, prepared in accordance with “GRI Standards”, is available in the "Sustainability" section of the Group's website www.realegroup.eu/IT.

The report is accompanied by the attestation issued by the auditor pursuant to art. 3, paragraph 10 of Legislative Decree No. 254/2016.


1.5 SUMMARY OF RESULTS

At the end of 2017 Reale Group's interest in the net profit amounted to € 147.5 million, compared with a positive result of € 131 million in the previous year.

As regards the scope of consolidation of Reale Group, in 2017 the Spanish subsidiary Reale Seguros pursued the project to establish a Non‐life insurance company in Chile and, on 12 May, Reale Chile Seguros Generales S.A. obtained authorisation to carry on insurance business. The company became operational in June, wholly funded by the Spanish subsidiary Reale Seguros through capital payments to the holding company Reale Group Latam, for a total of € 25.3 million (18.7 billion Chilean pesos), of which € 16.6 million (12.3 billion Chilean pesos) in 2017. The company provides insurance solutions in the areas of Accident, Health, Hulls land vehicles, Fire, Other property damage, TPL land vehicles, TPL marine craft and Non‐motor TPL. As at 31 December 2017 the company reported a loss for € 5,100 thousand, with profitability penalised by initial structural costs. Premiums written amounted to € 11,993 thousand and almost exclusively refer to Motor and Asset protection policies.

On 16 May Reale Mutua finalised the acquisition of a 99.72% stake in Uniqa Assicurazioni S.p.A. from Uniqa Internationale Beteilungs‐Verwaltungs GmbH, for a total price of € 294.1 million. Uniqa Assicurazioni owns 100% of the share capital of Uniqa Previdenza S.p.A. which, in turn, has a 90% stake in Uniqa Life S.p.A. and a 100% interest in Uniqa Intermediazioni S.r.l. On the same date, Reale Mutua made a contribution to the capital account of Uniqa Assicurazioni by way of repayment of existing subordinated loans, for a total of € 34.3 million. The price paid for the purchase was subject to a post‐closing adjustment on the basis of the actual financial situation of the companies that were acquired as at 31 March 2017. This adjustment, plus interest, was established at € 17.6 million in favour of Reale Mutua and paid by Uniqa Internationale Beteilungs‐Verwaltungs GmbH on 19 October. The final acquisition price, inclusive of additional charges, therefore amounted to € 313.3 million. Uniqa Assicurazioni is a Non‐life insurance company that sells Motor and Non‐motor products through a network of multi‐firm agents and brokers. The company contributed to the results of the Group with a loss of € 11.5 million, premium income for € 182 million and total assets worth € 447 million. Uniqa Previdenza, a Life insurance company, sells conventional and unit and index‐linked products through a network of multi‐firm agents, brokers, independent financial intermediaries and sales agreements with a number of local banks. The company contributed to the results of the Group with a net profit of € 2.2 million, premium income for € 387 million and total assets worth € 3,338 million. Uniqa Life is the Life insurance company established through a bancassurance partnership with Veneto Banca. The underlying distribution agreement came to an end during the year after Veneto Banca was placed under compulsory liquidation, as established by Decree No. 186 of 25 June 2017 issued by the Ministry of the Economy and Finance at the request of Banca d'Italia. In November 2017 the policy portfolio was reassigned to five qualified intermediaries (Asfalia, Assix, Finanza e Previdenza, Banca Consulia and Uniqa Intermediazioni) which have already signed a co‐operation agreement with Uniqa Previdenza. The acquisition resulted in a positive contribution of € 8,4 million for the Group in terms of net profit, € 59 million for premiums written and assets for € 1,391 million.

* * *

As at 31 December, Reale Group was made up of nineteen companies, of which ten insurers, two real estate companies, a bank, four service providers and two insurance holdings. Seventeen companies, of which eight insurance undertakings, have been fully consolidated, while two insurance undertakings have been valued by the equity method insofar as they are associates and joint ventures.

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* * *

To enable a better understanding of the impact of Reale Group's acquisition of the Uniqa companies and the start of operations by the Chilean insurance company, in the Report on Operations and in the Notes, data as at 31 December 2017 are also provided on a like‐for‐like basis considering the consolidation area as at 31 December 2016 (that is, without taking into account the contribution of the Uniqa companies or Reale Chile Seguros).

* * *

The main operating results in the 2017 consolidated financial statements, with comparable like‐for‐like data as at 31 December 2017 and with comparables for 31 December 2016 are set forth in the table below.

(in € thousands)

2017 2017

(like‐for‐like)2016 Change

Net premiums 4,171,408 3,586,443 3,534,868 636,540

Commissions receivable 22,541 19,742 14,864 7,677

Income and expense on financial instrum. measured at fv through the IS 24,500 23,979 15,030 9,470

Income on equity investments in subsidiaries, affiliates and j.ventures 25,324 25,324 25,103 221

Income on other financial instruments and investment property 437,867 356,600 373,721 64,146

Other revenues 141,414 127,185 113,721 27,693

TOTAL REVENUES AND INCOME 4,823,054 4,139,273 4,077,307 745,747

Net charges for claims ‐3,382,440 ‐2,789,003 ‐2,772,397 ‐610,043

Commissions payable ‐9,815 ‐6,112 ‐5,567 ‐4,248

Charges on equity investments in subsidiaries, affiliates and j.v. 0 0 0 0

Charges on other financial instruments and real property investments ‐76,072 ‐71,270 ‐54,154 ‐21,918

Operating expenses ‐948,449 ‐880,236 ‐871,719 ‐76,730

Other costs ‐203,889 ‐182,825 ‐192,044 ‐11,845

TOTAL COSTS AND CHARGES ‐4,620,665 ‐3,929,446 ‐3,895,881 ‐724,784

PROFIT (LOSS) BEFORE TAXES 202,389 209,827 181,426 20,963

TAXES ‐54,259 ‐55,854 ‐50,409 ‐3,850

CONSOLIDATED PROFIT (LOSS) 148,130 153,973 131,017 17,113

of which Group interest 147,511 154,044 131,037 16,474

of which minority interest 619 ‐71 ‐20 639

TOTAL CONSOLIDATED COMPREHENSIVE INCOME 197,249 140,677 106,114 91,135

Further information is provided in the table below.

2017 2017

(like‐for‐like)2016 Change

Expenses ratio 30.4% 30.5% 30.7% ‐0.3

Loss Ratio 68.1% 67.4% 64.3% 3.8

Combined ratio for the year 98.5% 97.9% 95.0% 3.5

Net premiums amounted to € 4,171.4 million and increased by 18.0% compared with the same period of the previous year (1.5% on a like‐for‐like basis). € 2,671.9 million refer to Non‐life business and € 1,499.5 million to Life business. The new companies contributed as follows: Uniqa Assicurazioni for € 153.3 million, Uniqa Previdenza for € 371.2 million, Uniqa Life for € 58.2 million and Reale Chile Seguros for € 2.3 million.


Gross premiums written for direct business and inward reinsurance increased by 18.0% (+1.4% like‐for‐like) to € 4,541.9 million, obtained for 80.2% in Italy, 19.5% in Spain and 0.3% in Chile. Non‐life business generated € 3,006.6 million, with an increase of 9.5% on 2016 (+2.4% like‐for‐like), and € 1,535.3 million stemmed from Life business, up 39.2% on the previous year (‐1.2% like‐for‐like).

Net charges for claims, in the amount of € 3,382.4 million, increased by 22.0% compared with 31 December 2016 (+0.6% like‐for‐like). These refer for € 1,724.3 million to Non‐life business (+9.4% compared with 2016 and +1.3% like‐for‐like) and for € 1,658.1 million to Life business (+38.5% compared with 2016 and ‐0.3% on a like‐for‐like basis).

Management costs amounted to € 948.4 million compared with € 871.7 million in the previous year, increasing by 8.8% (+1.0% like‐for‐like). These reflect commissions and other acquisition costs of € 747.1 million (+8.8% compared with 2016 and +2.0% like‐for‐like), investment management expenses of € 53.2 million (+1.5% compared with 2016 and ‐2.9% like‐for‐like) and other administrative expenses for € 148.1 million (+11.9% compared with 2016 and ‐2.8% like‐for‐like).

The Group's combined ratio for Non‐life business worsened compared with the previous year, rising from 95.0% to 98.5% (97.9% on a like‐for‐like basis) and reflected the effect of large claims in the Fire, Other property damage and Non‐motor TPL insurance during the year.

Investment income and charges generated a positive balance of € 411.6 million (€ 334.6 million like‐for‐like) in relation to € 359.7 million in the previous year.

The gross consolidated result before taxes was positive in the amount of € 202.4 million (€ 209.8 million like‐for‐like), compared with € 181.4 million in 2016.

After taxes, for € 54.3 million, consolidated income stood at € 148.1 million (€ 154.0 million like‐for‐like) compared with € 131.0 million in 2016: the Group's interest in net income was equal to € 147.5 million and the minority interest was € 619 thousand.

This result, adjusted by profit or loss taken directly to equity, in accordance with the provisions of international accounting standards (IFRS 1), determined a total comprehensive consolidated income showing a profit of € 197.3 million, compared with a profit of € 106.1 million in 2016: the Group's interest in the comprehensive income was a profit of € 193.9 million whereas the minority interest was a profit of € 3.4 million.

* * *

The main balance sheet data in the 2017 consolidated financial statements, with comparable like‐for‐like data as at 31 December 2017 and with comparables for 31 December 2016 are set forth in the table below.

(in € thousands)

31.12.2017 31.12.2017

(like‐for‐like)31.12.2016 Change

Investments 17,563,993 12,687,372 12,487,610 5,076,383

Technical provisions, net 15,397,037 11,078,244 10,538,843 4,858,194

Consolidated shareholders’ equity 2,579,215 2,573,101 2,432,343 146,872

Group investments reached € 17,564.0 million (an increase of 40.7% in relation to 31 December 2016: on a like‐for‐like basis investments would have increased by 1.6%) and comprised € 996.4 million of real estate investments, € 199.2 million of equity investments in subsidiaries, affiliates and joint ventures, € 587.4 million of loans and receivables, € 14,250.1 million of AFS financial assets and € 1,530.9 million of financial assets measured at fair value through the income statement.

Net technical provisions amounted to € 15,397.0 million compared with € 10,538.8 million in the previous year, an increase of 46.1% (+5.1% like‐for‐like).

Shareholders’ equity amounted to € 2,579.2 million compared with € 2,432.3 million at year‐end 2016, increasing by 6.0% (+5.8% like‐for‐like). Group interest in shareholders' equity amounted to € 2,566.9 million, and minority interest was equal to € 12.3 million.

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* * *

Regarding the Pillar III disclosure requirements of the Solvency II Directive, during the year the Group submitted the required quarterly quantitative data to IVASS within the time limits specified. The Company will report its year‐end solvency position within the time limit specified (18 June 2018). As of the date of approval of these financial statements, the Company did not have information about the solvency capital requirement (SCR) or eligible own funds that could be considered as definitive. The disclosure requirements pursuant to IVASS Regulation No. 7 of 13 July 2007, as amended by IVASS Order No. 53 of 6 December 2016, have therefore been met, by applying the transitional rules set forth in the aforesaid Order, with the disclosure of a solvency position based on currently available preliminary data; in detail, the position, determined using the standard formula, is as follows: ‐ solvency capital requirement (SCR): € 1,558.9 million; ‐ eligible own funds: € 3,153.9 million, all Tier 1 ‐ unrestricted; ‐ Solvency Ratio: 202.3%

* * *

With regard to fully‐consolidated Group companies, the performance during the year of each single sector of business is discussed below.

1.5.1 NON‐LIFE INSURANCE OPERATIONS

Within Reale Group, the Non‐life insurance companies (Reale Mutua, Italiana Assicurazioni, Uniqa Assicurazioni, Reale Seguros and Reale Chile Seguros), reported total gross premium income of € 3,006.6 million in relation to € 2,746.1 million in 2016, with an increase of 9.5%. Considering the companies included within the scope of consolidation as at 31 December 2016 (Reale Mutua, Italiana Assicurazioni and Reale Seguros), there was a 2.4% increase in gross premium income which was approximately € 66.4 million more than in the same period of the previous year.

Reale Group reported an overall increase of 9.5% in Non‐life premium income relating to direct business only, spread across all businesses (Motor +9.8%, Non‐motor +9.2%).

On the Italian market, the Group reported an increase in both the Motor and Non‐motor businesses (+12.1% and +10.1%, respectively), mainly as a consequence of the contribution of premiums by Uniqa Assicurazioni. On a like‐for‐like basis there was a slight increase of 0.5% in the Motor segment, attributable to the Hulls land vehicles business, and a 2.2% increase in the Non‐motor segment, due in particular to growth of the Fire, Other property damage and Non‐motor TPL businesses.

On the Spanish market, premium income increased in the Motor business (+3.9%), mainly reflecting the recovery of sales and maintenance of tariffs, and in the Non‐motor sector (+5.3%), primarily owing to expansion of the portfolio in the Fire, Other property damage and Non‐motor TPL sectors with the addition of new products for SMEs and an increase in the average price of multi‐risk products.


The detail of Non‐life business gross premiums written according to class of business is set forth in the table below.

(in € thousands)

20172017

(like‐for‐like) 2016 Change

Composition

Non‐life business 2017 2016

Personal accident and Health 313,568 276,545 280,010 12.0% 10.4% 10.2%

TPL land vehicles 1,003,869 923,623 915,339 9.7% 33.4% 33.3%

Motor, other branches 354,935 334,840 322,129 10.2% 11.8% 11.7%

Marine, aviation and transport 28,909 28,649 22,396 29.1% 1.0% 0.8%

Fire and other property damage 816,276 781,265 758,024 7.7% 27.2% 27.6%

Non‐motor TPL 320,106 302,570 294,823 8.6% 10.7% 10.7%

Credit and suretyship 48,101 47,915 46,009 4.6% 1.6% 1.7%

Sundry pecuniary losses 8,324 8,223 7,621 9.2% 0.3% 0.3%

Legal fees 22,923 22,079 20,516 11.7% 0.8% 0.8%

Assistance 88,644 85,813 78,206 13.4% 3.0% 2.9%

Total direct business 3,005,655 2,811,522 2,745,073 9.5% 100.0% 100.0%

Total inward reinsurance 930 930 988 ‐5.9% 0.0% 0.0%

Total Non‐life premium income 3,006,585 2,812,452 2,746,061 9.5% 100.0% 100.0%

The Group's combined ratio for the year for Non‐life insurance business (i.e. the ratio of claims for the year and management expenses to premiums for the year) was equal to 98.5%, worsening in relation to the previous year (95.0%), mainly owing to the claims component.

The combined operating ratio, which includes the result of reinsurance and other technical items, stood at 98.1% and, on a life‐for‐like basis (97.1%) improved by 0.8 percentage points with respect to the previous year (97.9%).

As shown in the table below, claims paid in 2017 amounted to € 1,982.6 million in relation to € 1,838.7 million in 2016, with an increase of 7.8%. Considering only the companies included in consolidation area at 31 December 2016, the increase was equal to 0.9%. 1,452,978 claims were reported in 2017 compared with 1,352,646 in 2016, an increase of 7.4% (+3.9% considering the 2016 consolidation area) mostly attributable to the Fire and Other property damage businesses.

Number of claims reported Claims paid (*)

Non‐life business 2017 2017

(like‐for‐like) 2016 Change 20172017 (like‐

for‐like) 2016 Change

Personal accident and Health 273,749 262,505 255,794 7.0% 183,118 164,664 172,516 6.2%

TPL land vehicles 330,137 316,831 306,140 7.8% 773,557 708,697 737,953 4.8%

Motor, other branches 217,410 211,054 204,445 6.3% 194,090 184,969 180,842 7.3%

Marine, aviation and transport 4,800 4,800 3,580 34.1% 17,585 17,566 15,027 17.0%

Fire and other property 492,167 481,782 455,919 8.0% 547,737 524,947 468,988 16.8%

Non‐motor TPL 44,218 41,751 40,313 9.7% 176,708 166,169 177,430 ‐0.4%

Credit and suretyship 531 527 715 ‐25.7% 22,317 22,221 22,122 0.9%

Sundry pecuniary losses 808 782 749 7.9% 1,126 1,097 1,739 ‐35.2%

Legal fees 3,285 3,232 3,114 5.5% 4,648 4,559 5,011 ‐7.2%

Assistance 85,873 81,525 81,877 4.9% 61,669 60,560 57,031 8.1%

Total 1,452,978 1,404,789 1,352,646 7.4% 1,982,555 1,855,449 1,838,659 7.8%

(*) amounts in € thousands

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The loss ratio for the period corresponded to 68.1%, compared with 64.3% in 2016. The loss ratio was mainly affected by the worsening of the ratio for the Non‐motor business, which moved up from 60.4% in 2016 to 67.0% at the end of 2017, primarily reflecting an unfavourable claims rate in the Non‐motor TPL, Fire and Other property damage sectors as the result of a number of major claims, which had an impact of some € 65 million on the Group in Italy and of around € 18 million on the Group's Spanish companies. The Group's Motor business loss ratio worsened slightly (increasing by 0.4%, from 69.0% to 69.4%), attributable to a downturn in technical performance of the Hulls land vehicles business (+1.2%).

The expenses for the year was equal to 30.4%, substantially unchanged in relation to 2016 (30.7%).

* * *


During 2017 new products were marketed and initiatives were launched, aimed at preventing any loss of competitiveness and offering insurance solutions that will allow the Group to continue to grow more than the market, especially in areas of business that are most profitable and strategic. The following section describes the activities undertaken by each company.

Società Reale Mutua di Assicurazioni/Italiana Assicurazioni S.p.A.

The Motor sector saw the following developments in 2017:

‐ the inclusion of three new optional clauses in the Motor insurance product (compensation in specific through approved repair shops, expert driver and Motor TPL excess) designed to limit the amount covered by TPL land vehicles insurance and thus reduce the premium. The option is only available to policyholders who have installed the "Full Box" black box;

‐ introduction of another clause called "GuidaBene&Risparmi" which rewards policyholders with a good driving record. This option is also only available if the "Full Box" has been installed.

Pursuing continued innovation in the Welfare sector, in the second half of 2017 a pilot project was launched in a number of agencies to assess the opportunities created by combining the existing offering with new electronic services available through the "HomeBox" device This consists of a central unit and a number of sensors to detect risks inside the home (smoke, flooding, intrusion) and notify the user if the alarm is triggered.

A new edition of the product for SMEs and professional categories was placed on the market. In addition to numerous improvements for all professional categories, the new offering guarantees comprehensive cover for specific new regulatory requirements for legal and healthcare professionals.

Uniqa Assicurazioni S.p.A.

In 2017 the company presented its new "Elastica” accident insurance policy and renewed the Professional liability offering in light of new legal requirements for registered professionals to take out specific insurance cover.

Reale Chile Seguros S.A.

In 2017 the company launched several products in the TPL land vehicles, Hulls land vehicles, Non‐motor TPL, Accident, Fire and Other property damage businesses. As at December 2017 the best‐selling product in terms of premium volumes was the “Incendio Comercial” policy that offers flexible cover for fire, earthquakes and other catastrophic events.

* * *


The main results of the Non‐life insurance companies in 2017 are set forth below.

Società Reale Mutua di Assicurazioni ‐ Turin

The Parent posted direct business premium income related to Non‐life operations of € 1,416,011 thousand at 31 December 2017, in relation to € 1,400,726 thousand in 2016, with an increase of 1.1%. Non‐life business closed the year with a net profit of € 76,710 thousand in relation to € 61,801 thousand in 2016.


The Company posted direct business premium income related to Non‐life operations of € 541,762 thousand at 31 December 2017, in relation to € 527,833 thousand in 2016, with a decrease of 2.6%. Non‐life business closed the year with a net profit of € 16,959 thousand in relation to € 28,170 thousand in 2016.

Uniqa Assicurazioni S.p.A. ‐ Milan

The Company posted direct business premium income related to Non‐life operations of € 241,957 thousand at 31 December 2017, in relation to € 239,941 thousand in 2016, with an increase of 0.8%. The year closed with a loss of € 15,866 thousand, compared with a net profit of € 3,620 thousand in the previous year.

Reale Seguros Generales S.A. – Madrid

In financial 2017, the Company reported a volume of premiums of € 853,749 thousand (€ 816,514 thousand in 2016), with a y/y increase of 4.6%. The year closed with a net profit of € 44,600 thousand, compared with € 22,099 thousand in the previous year.

Reale Chile Seguros S.A. – Santiago

The Company reported a volume of premiums from direct business of € 11,993 thousand. At the end of the year it reported a loss of € 5,100 thousand.

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1.5.2 LIFE INSURANCE OPERATIONS

The Life insurance companies of the Reale Mutua Group (Reale Mutua, Italiana Assicurazioni, Uniqa Previdenza, Uniqa Life and Reale Vida) posted gross premium income of € 1,535.3 million in relation to € 1,103.1 million in 2016, with an increase of 39.2%.

On a like‐for‐like basis (Reale Mutua, Italiana Assicurazioni and Reale Vida) there was a decrease of 1.2%: trends in the individual business classes reflect the Company's sales strategy which focused more on new multi‐risk and unit‐linked products in order to limit exposure to the financial risks associated with the performance of interest rates in the euro area and to guarantee the sustainability of the returns offered.

The Italian market continued to generate the greatest proportion of total premium income (97.8%).

The detail of Life business gross premiums written according to class of business is set forth in the table below.

(in € thousands)

20172017


Composition

Life business 2017 2016

I Insur. on the duration of human life 1,022,577 615,363 734,094 39.3% 66.6% 66.6%

III Insur. linked to investment funds 297,335 297,335 245,943 20.9% 19.4% 22.3%

IV Health insurance 25,025 389 184 13500.5% 1.6% 0.0%

V Oper. of capital redemption 147,458 147,388 95,520 54.4% 9.6% 8.7%

VI Oper. of group pension funds 42,756 29,073 27,077 57.9% 2.8% 2.5%

Total direct business 1,535,151 1,089,548 1,102,818 39.2% 100.0% 100.0%

Total inward reinsurance 173 173 270 0.0% 0.0% 0.0%

Total premiums written ‐ Life business 1,535,324 1,089,721 1,103,088 39.2% 100.0% 100.0%

Sums paid in 2017, referring to direct business only, amounted to € 886.8 million, increasing by 37.4% in relation to the previous year. The increase reflects the inclusion of the new Uniqa companies: net of these, there was a 10.1% decrease in sums paid compared with 2016.

Technical provisions, before the reinsurers' share, amounted to € 11,699 million, increasing by 68.5% in relation to the previous year, essentially due to the inclusion of the Uniqa Previdenza and Uniqa Life companies within the consolidation area of Reale Group.

* * *


During 2017, Group companies issued the following new products.


"Reale Pmi Italia": this is the new individual savings plan (PIR) compliant product. It is a limited recurrent premium unit‐linked policy developed in response to the 2017 Budget Law that introduced the individual savings plan (Piani individuali di risparmio ‐ PIR) scheme in Italy, aimed at channelling household investments towards Italian small and medium‐sized enterprises. Performance is linked to that of the new internal insurance fund "Linea Pmi Italia Free". The product envisages a reduction in the tax levied on returns for the duration of the contract, provided the investment is held for at least 5 years.

"Reale Quota Controllata": this is an innovative single premium unit‐linked whole life investment solution, without any proportional load fee and with the possibility of additional payments. Returns are linked to the "Reale Linea Mercato Globale", "Reale Impresa Italia", "Reale Linea Bilanciata Attiva" and "Reale Linea Controllata" funds. To optimise overall returns on the invested portfolio, the product offers two innovative options for automatically switching from the "Reale Linea Mercato Globale", "Reale Impresa Italia" and


"Reale Linea Bilanciata Attiva" funds to the "Reale Linea Controllata" fund: ‐ "Take Value": this option is activated when the equivalent value of the amount invested in the fund

exceeds 3% of the fund's reference capital, transferring the gain to the line with the lowest risk; ‐ “Take Defence”: this option is activated when the equivalent value of the amount invested in the fund

falls by at least 20% with respect to the fund's reference capital, transferring the entire investment to the line with the lowest risk, until the market turns favourable again and options can be used to voluntarily switch again.

“Dual Plus Reale Limited Marzo 2017”: this is a single‐premium savings product that allows member‐policyholders to diversify their investment: ‐ on the one hand, the separately managed "Fondo Reale" that guarantees repayment of the premium

invested upon occurrence of the event and so gives investors security and peace of mind; ‐ on the other, unit‐linked lines that follow financial market trends, as per the respective Regulations,

giving investors all the opportunities offered by the markets of reference. The unit‐linked component is associated with five internal funds: "Reale Linea Obbligazionaria", "Reale Linea Controllata", "Reale Linea Bilanciata Attiva", "Reale Impresa Italia" and "Reale Linea Mercato Globale". Key features of the multi‐risk product include the automatic switch option and the creation of investment profiles that cater for customers' different risk appetites.

“Reale Quota Progressiva”: this is a single‐premium product that allows 80% of the invested capital to be allocated to the "Reale Uno" separately managed fund and the remainder to the internal unit‐linked fund "Reale Linea Mercato Globale". The product features a special mechanism that can be activated upon commencement of the contract for the first three years, that allows 5% of the initial capital to be transferred from the separately managed fund to the unit‐linked fund at the end of each six‐month period after the date on which the contract takes effect.

Italiana Assicurazioni S.p.A.

“Tetris per Dynamo Camp” and “Tetris Edizione Speciale per Dynamo Camp” (single‐premium multi‐risk products): in addition to bringing class I and class III products together in a single structure, these policies contribute to funding Dynamo Camp, a non‐profit social solidarity organisation providing health and social services.

“Tetris No Load” (single‐premium multi‐risk product): in addition to bringing class I and class III products together in a single structure, this policy offers all customers a pricing system normally only available to retail customers.

“Crescita Italia”: this is the new individual savings plan (PIR) compliant product. It is a limited recurrent premium unit‐linked policy developed in response to the 2017 Budget Law that introduced the individual savings plan (Piani individuali di risparmio ‐ PIR) scheme in Italy, aimed at channelling household investments towards Italian small and medium‐sized enterprises. The product envisages a reduction in the tax levied on returns for the duration of the contract, provided each premium is invested for at least 5 years.

“Alto Valore Italiana”: this is a multi‐risk savings product linked to one of the separately managed funds that currently offers the best returns.

Uniqa Previdenza S.p.A.

The following new products were launched on the market through the network of agents and brokers in 2017:

“Certezza Rendita Più”: launched in May 2017, this annual premium income insurance product features a similar structure to the income insurance product already in the catalogue, but the pricing system has been adapted to suit the needs of the networks.

“Contopolizza Protetto”: launched in May 2017, this is a free savings plan used to create capital. It replaces the “Contopolizza Dinamico” solution already present in Uniqa Previdenza's product catalogue, starting

221

from the end of May 2017.

“Contopolizza TaxBenefit”: launched in September 2017, this is the new individual savings plan (PIR) compliant product. It is a single premium unit‐linked whole life investment solution. It is linked to the new internal fund called "Fondo Italia PIR".

The following products were sold through the bank sales network in 2017.

“Futuro Multiramo” and “Investi Multiramo”: launched in July and August, respectively, these are multi‐risk products with different investment profiles. They allow investors to compensate for any downward trends in returns on the separately managed fund by participating in upward movements in market prices over the medium and long term.

“InvestiSicuro Top”: launched in October, this is a whole life class I product sold by Banca Popolare dell’Alto Adige for customers who want to create capital that is guaranteed in the event of a claim or redemption.

“Prealpi Conto Sicurezza”: launched in November, this is a whole life class I product sold through Assicura Group Srl at agencies of Banca Prealpi for customers who want to create capital that is guaranteed in the event of a claim or redemption.

Reale Vida y Pensiones S.A.

“Reale Vida Instinto Familiar”: this innovative solution, the first of its kind on the market, specially addresses people with children and those planning to have a family. It includes the main guarantee in the event of death or permanent and total disability, which can be taken out by the parents or legal guardians on an optional basis. It also includes cover for congenital diseases, Down syndrome in babies and serious childhood diseases in children aged between 1 and 18. This policy envisages payment of the guaranteed capital to the beneficiary the moment the disease occurs. All members of the family unit can therefore benefit from the protection provided under a single policy, especially minors, for whom no such cover was previously available under existing insurance solutions.

“Reale Vida Zero”: this is a single recurrent‐premium product featuring a simplified process for taking out the policy that provides a capital payment in the event of one of the risks covered by the policy occurring.

* * *

The main results of the Life insurance companies in 2017 are set forth below.

Società Reale Mutua di Assicurazioni ‐ Turin

The Parent posted direct business premium income related to Life operations of € 817,997 thousand at 31 December 2017, in relation to € 797,089 thousand in 2016, with an increase of 2.6%. The Life business closed the year with a loss of € 5,994 thousand in relation to a loss of € 4,408 thousand in 2016.


The Company posted direct business premium income related to Life operations of € 238,700 thousand at 31 December 2017, in relation to € 259,878 thousand in 2016, with a decrease of 8.2%. The Life business closed the year with a net profit of € 1,685 thousand in relation to a loss of € 348 thousand in 2016.

Uniqa Previdenza S.p.A. ‐ Milan

The Company posted direct business premium income related to Life operations of € 715,583 thousand at 31 December 2017, in relation to € 918,298 thousand in 2016, with a decrease of 22.1%. The year closed with a loss of € 4,328 thousand, compared with a net profit of € 796 thousand in the previous year.


Uniqa Life S.p.A. ‐ Milan

The Company posted direct business premium income related to Life operations of € 100,910 thousand at 31 December 2017, in relation to € 180,521 thousand in 2016, with a decrease of 44.1%. The year closed with a net profit of € 6,075 thousand, compared with a net profit of € 8,820 thousand in the previous year.

Reale Vida y Pensiones S.A. – Madrid

In 2017 the Company reported a volume of premiums of € 32,851 thousand, compared with € 45,851 thousand in 2016. The year closed with a net profit of € 914 thousand, compared with € 43 thousand in 2016.

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1.5.3 REINSURANCE

The reinsurance policy of Reale Group companies is applied seeking to obtain the best possible combination between proportional (quota share, surplus share or a combination of the two) and non‐proportional covers (excess of loss or stop loss, to protect the part retained or as single coverage). In view of the different characteristics of the Italian and Spanish reinsurance markets and the presence of representative offices of foreign reinsurers who operate on the two markets, cessions are made separately by the Italian and Spanish companies, while ensuring operational synergy and sharing strategies for placing treaties in the reinsurance market.

With the commencement of business by the Chilean insurance company Reale Chile Seguros, Reale Group has also started to look for the best reinsurance solutions in Chile.

Relationships between Reale Group and the reinsurance market are based on the principle of obtaining congruous coverage of risks, with particular attention to the long‐term relationship between the ceding company and reinsurer, acknowledging a fair margin of profit to the latter and avoiding any short‐term speculative goals. During the year, the reinsurers selected by Reale Group achieved satisfactory underwriting results (despite being affected by major worldwide natural catastrophes in 2017), confirming a good level of economic and financial solidity.

ITALIAN COMPANIES

As the Parent and according to its activity of guidance, governance and control, Reale Mutua negotiates all compulsory cessions of Group companies jointly on the reinsurance market in order to secure the best economic and contractual conditions for each company, pursing an attentive strategy of curtailing risks and of balancing the portfolio.

Group companies, under the guidance and coordination of Reale Mutua, protect themselves with suitable forms of direct cession with professional reinsurers; recourse to facultative cessions is restricted and the Parent intervenes to indicate the channels that can be adopted for this type of business.

This approach has been adopted in order to promote more efficient risk management in accordance with current legislation and also to optimise reinsurance structures and simplify management and administrative aspects.

In 2017, reinsurance treaties were again assessed, adopting deterministic and stochastic modelling tools. Prospective quantitative analyses were carried out to measure the adequacy of reinsurance structures, also in the event of an adverse rate of claims (frequency and severity), taking into account both particularly significant individual claims and the all‐round claims rate. Particular attention was dedicated to earthquake and flood risks, evaluating geographic and seismic concentration. For Fire business, an analysis has been made of the earthquake catastrophe exposure of Reale Mutua and Italiana Assicurazioni, based on more updated information regarding the single portfolios, and an assessment of the forecast claims rate using the RMS, RQE and AIR commercial models.

Starting from 1 June 2017 the reinsurance structure of Uniqa Assicurazioni S.p.A. was altered and the predominately captive reinsurance system (intra‐group cessions to UNIQA RE) was abandoned in favour of a model more consistent with the standards used by Reale Group, aimed at optimising the Group's reinsurance structures and its well‐established reinsurance partnerships.

Reinsurance structures

As regards Non‐life insurance, proportional treaties are mainly adopted for Fire, Health, Suretyship, Technological Risks, Legal Fees and Hail business. The retained portfolio of Group companies (net of transfers to existing proportional treaties) is protected by suitable forms of non‐proportional coverage, also taking into account guarantee extensions to catastrophic risks.

The excess of loss treaties of Hulls land vehicles and TPL land vehicles are Group covers.


The Life reinsurance structures envisage a combination of proportional treaties (quota and excess) and non‐proportional treaties (excess of catastrophic risk, to protect risks retained for Reale Mutua and Italiana Assicurazioni).

SPANISH COMPANIES

Reinsurance policy is based on an analysis of historical data concerning profitability, claims rates and exposure to the various risk categories underwritten. The reinsurers selected guarantee the actual transfer of the risk and reduce counterparty and legal risks to a minimum, in order to achieve a balance between the actual protection of the portfolio and the cost of that protection.

A comprehensive study is carried out every three years to verify the adequacy of reinsurance covers in the various business lines. Exposure to catastrophic risks is not assessed since this cover is provided by the Consorcio de Compensación de Seguros.

Reale Seguros has stipulated proportional contacts for Other property damage. It has stipulated proportional and non‐proportional contracts for Fire and Multi‐risk business.

Quota and excess contracts are used for the Transport and Technological Risks business lines; non‐proportional treaties are adopted as single reinsurance cover for TPL land vehicles, Non‐motor TPL and Accident businesses.

Owing to uncertainties stemming from the new TPL land vehicles compensation table that came into effect in 2016, the "Subtramo XL Autos" reinsurance contract was maintained throughout 2017 to safeguard earnings in that business.

REALE CHILE SEGUROS S.A.

The Company has a reinsurance strategy and policy that allow it to negotiate its own excess of loss (XL) and proportional treaties. However, the strategy does not envisage the use of facultative reinsurance as the basis for doing business: this type of reinsurance will only be used in specific circumstances to offer insureds and/or brokers a complete solution.

Based on the 2017/2018 business plan and in line with its underwriting and reinsurance policies, the Company has negotiated proportional treaties for the following business lines: ‐ Fire and Other property damage; ‐ TPL marine craft and Hulls aircraft; ‐ Non‐motor TPL and Accident businesses.

It has also entered into an excess of loss treaty to protect the retained portfolio of the ceding company for catastrophic risk.

* * *

The main amounts for reinsurance ceded are listed in the table below:

(in € thousands)

20172017


Premiums ceded Non‐life business 311,446 282,020 271,922 39,524

Premiums ceded Life business 35,640 19,401 26,481 9,159

Total premiums ceded 347,086 301,421 298,403 48,683

Result of reinsurance ceded Non‐life business 54,112 57,475 ‐42,787 96,899

Result of reinsurance ceded Life business ‐2,917 246 ‐1,606 ‐1,311

Total result reinsurance ceded 51,195 57,721 ‐44,393 95,588

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1.5.4 REAL ESTATE SECTOR

As in the past, real estate transactions were mainly directed towards management of Reale Group's real estate assets, consisting of instrumental buildings used as offices and to house accessory parts of the corporate structure, and of buildings rented to third parties. Maintenance was carried out during the year both to guarantee routine upkeep of the buildings and also to maintain suitable quality levels of the assets. As at 31 December 2017, investments in real estate totalled € 966.4 million, against a market value of around € 1,569.1 million. Property investments arising as a consequence of the acquisition of the Uniqa companies totalled € 2,8 million.

The most significant activities undertaken by the Group's real estate companies and their main results in 2017 are summarised below.

Reale Immobili S.p.A.

In 2017 the Company continued to focus on preserving as well as enhancing the value of its real estate assets and those of other Reale Group companies.

During the year it launched a new image and communication strategy, with the creation of the "Collezione Prestige" product line to enable it to compete in the luxury property rental market. The new commercial proposal will feature prestigious residential properties with an extensive range of ancillary services for leaseholders. For this first stage of the project the Company has chosen three exclusive locations that will be included in the collection upon completion of refurbishment: Piazza Castello in Turin (only apartments in the Torre Littoria building), Piazza Sant’Ambrogio in Milan and Via del Babuino in Rome.

The main ongoing activities to enhance the value of real estate assets are described below:

‐ Turin, Via Sant'Agostino 1: refurbishment work continued on the part of the building used as residential housing, with the creation of high‐quality housing units, and on the part to be used as offices (the latter are owned by Reale Mutua);

‐ Turin, Isolato Sant'Emanuele: the renovation of architectural and plant engineering structures began during the year. In November the contracts were awarded for the development of nine property units within the Torre Littoria building as part of the "Collezione Prestige" project;

‐ Turin, Corso Vittorio Emanuele II 6: refurbishment of the entire building commenced in April. This will include a partial change of use from offices to residential housing. Work is scheduled to be completed by the end of 2018, with the offices on the fourth floor expected to be ready earlier;

‐ Turin, Corso Palestro 3: in November, once the preliminary lease agreement had been signed, contracts for works to convert the building into a students' hall of residence were awarded through a tender procedure;

‐ Milan, Isolato Dogana: redevelopment work on the entire block and the spaces in front of the building in Via Marconi and Piazza Diaz was completed in September and the finished project was presented to the press on 12 September 2017;

‐ Milan, Via Senato 11: work on the part of the building used as offices, from the second to the sixth floors, was completed in the first quarter. A leading fashion business has signed a lease agreement for all of these offices. The remaining part of the building was also delivered in April and has now all been leased;

‐ Milan, Via Soderini 54: renovation work has been completed, with a view to the sale of the building; ‐ Milan, Via Zuretti 34: within the framework of agreements with a leading provider of co‐working

space, with which the Company is in the process of signing a preliminary lease agreement, action is being taken to refurbish the common areas of the building, re‐arrange the functional layout of work spaces and create multi‐purpose areas;

‐ Milan, Via Brisa 5: in December the Company published invitations to tender for contracts for the restoration and redevelopment of the building, which will be used as offices, all of which are vacant at present;


‐ Milan, Piazzetta Pattari 2: in August the Company signed an agreement with Starhotels for the

construction and subsequent rental of complementary tourist accommodation adjacent to “Starhotels Rosa Grand” hotel. The redevelopment work is scheduled to start in April 2018 and should be completed by July 2019;

‐ Milan, Piazza Sant’Ambrogio/Galleria Borella: within the scope of the “Collezione Prestige” project, the building will be converted to include about thirty new luxury apartments featuring high‐quality fittings, equipped with every comfort and with a full range of amenities. The Gallery will also be redeveloped, with redefinition of both commercial and common spaces;

‐ Rome, Via Sistina 69: redevelopment of the entire building continued in preparation for the arrival of the Rocco Forte Group, which signed a preliminary lease agreement to use the building as a hotel in 2016;

‐ Rome, Via Torino 3/Piazza Esquilino 1: on 1 August the Company signed a preliminary lease agreement with H.n.h. Hotels & Resorts that will come into effect on 1 July 2019. Work is scheduled to start in April 2018 and will be completed by June 2019;

‐ Rome, Via del Babuino 114: work is ongoing to define an agreement with the Rocco Forte Group to rent the units as residential housing, as part of the “Collezione Prestige” project. Once the agreement has been signed, the definitive design work will start with the launching of the contract award procedure.

The main activities involving sales with a view to enhancing real estate assets are described below:

‐ Florence, Piazza della Signoria 4: sale of the remaining 20% share of the property (gain for € 3,316 thousand);

‐ Milan, Via Pirelli 5: sale of the entire building (gain for € 5,470 thousand); ‐ Milan, Via De Amicis 39: sale in lots of the property units in the building (gain for € 6,000 thousand).

In terms of economic results, at 31 December 2017 rents from real estate amounted to € 67,778 thousand, down € 2,935 thousand compared with 31 December 2016. Gains arising from the sale of real estate amounted to € 14,906 thousand compared with € 15,936 thousand in the previous year. The year closed with a profit of € 16,604 thousand compared with € 20,829 thousand in 2016.

Immobiliaria Grupo Asegurador Reale S.A. (Igar) The Spanish real estate company continued to manage and administer two high prestige, rented premises in Madrid (Paseo de la Castellana, 9‐11 and Paseo de Recoletos, 35) and the commercial premises in Granada.

As regards the building in Paseo de la Castellana, where a number of employees from Reale Seguros, Reale Vida and Reale Ites were based until the beginning of the year, these office spaces are now vacant and up for rent. New lease agreements have been signed for an overall area of 940 square metres.

In 2018 Reale Seguros will transfer the investment property stated in its accounts to the associated company Igar.

In 2017 revenues generated by ordinary operations amounted to € 3,276 thousand, compared with € 3,429 thousand in 2016, with a year‐on‐year decrease of 4.5%. The year closed with a net profit of € 1,104 thousand, compared with € 1,299 thousand in 2016.

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1.5.5 OTHER ACTIVITIES SECTOR

The most significant activities undertaken by the Group's service companies and their main results in 2017 are summarised below.

Blue Assistance S.p.A.

The Company continued its activities in traditional areas of business and in the various complementary fields, combining and intensifying activities that started in the previous year as part of new projects.

Revenues generated by ordinary operations amounted to € 29,254 thousand, 6.7% up on 2016. The year closed with a net profit of € 1,032 thousand compared with a profit of € 922 thousand in 2016.

Reale Ites EEIG

In the IT field, Reale Ites continued its activities to guarantee the routine operation of IT services, gearing to changes in business requirements and those in connection with the design of new insurance products. It also set up projects aimed at optimising and improving the overall IT system, with a view to substantially improving the service and reducing costs.

2017 saw the implementation of the digitalisation, multi‐channel and web/mobile projects that were completed at the end of 2016.

A number of major projects were also implemented or launched in 2017. These include:

‐ a specific assessment to define the procedures for integrating the companies acquired within the scope of the Uniqa project;

‐ a review of Planning and Control tools, with a view to providing a platform with integrated information flows between Group companies in order to improve the effectiveness and efficiency of planning;

‐ the Big Data project, to equip Reale Group with a modern platform for managing big data and developing advanced analysis techniques using special algorithms to offer solutions that are more consistent with the type of business, or for new business lines and, not least, to improve existing processes by making them more highly automated and closer to customers' needs;

‐ in the field of Information Security within Reale Group, during the year the Company proposed a specific initiative which has, among its main objectives, that of developing a harmonised approach to information security at Group level.

Revenues from services amounted to € 110,231 thousand and referred entirely to fees for IT services supplied to Group companies that are members of the Grouping. At year‐end investments in hardware and software amounted to € 96,901 thousand. The Company broke even at the end of 2017.

ITALNEXT S.r.l.

Italnext S.r.l. was established in 2015 and is a subsidiary of Italian Assicurazioni. Its purpose is to undertake insurance mediation and develop new distribution channels. The Company is still in the start‐up stage. Revenues from sales and services amounted to a total of € 827 thousand. The Company reported a loss of € 368 thousand.

Uniqa Intermediazioni S.r.l.

Uniqa Intermediazioni, established in 2004, performs agency activities through an independent agent. It has taken over responsibility for managing the portfolios of agencies with which the individual companies (Uniqa Assicurazioni, Uniqa Previdenza and Uniqa Life) have terminated their contract in terms of customer services. It is also a qualified agency that does business directly on the market. Revenues from sales and services amounted to a total of € 312 thousand. The Company reported a net profit of € 112 thousand.


1.5.6 BANKING SECTOR

In 2017 Banca Reale pursued its medium and long‐term goals in accordance with the 2017‐2019 three‐year plan, with specific reference to the following aspects:

‐ continual development of lending activities, also by gradually opening more branches in Italy, placing the focus on precautionary measures and giving priority to the quality of relations with customers rather than mere quantitative objectives;

‐ consolidation of direct deposits, both demand and medium and long‐term deposits, to guarantee balanced support to lending activities;

‐ gradual strengthening of the role of Banca Reale within Reale Group, through direct involvement in plans to overhaul the insurance companies' commercial model aimed at enhancing the high‐value offering for the Group's customers;

‐ stabilisation of operating expenses, by enhancing the efficiency of processes to support growth in terms of size;

‐ maintenance of an adequate solvency margin.

The Bank continued to open new "Spazio Banca Reale" areas in a number of Reale Group insurance agencies to expand its sales network. These are manned by qualified financial advisers who are assisted by financial managers from the Bank's branches. Two new "Spazio Banca Reale" areas were opened in 2017, bringing the total to twelve.

Projects aimed at integrating the offering of products and services to foster the growth of business for Reale Group companies included the development of policy loan services for insurance agency customers: loans were granted for a total of € 25.5 million in 2017, compared with € 21.1 million in 2016.

In terms of the main balance sheet and income statement items, total customer deposits stood at € 14,955,161 thousand at 31 December 2017, an increase of 39.3% compared with the previous year. This result mainly reflects the transfer of assets from the Uniqa Assicurazioni, Uniqa Previdenza e Uniqa Life companies following the takeover by the Parent. Loans to customers amounted to € 306,965 thousand at the end of the year, an increase of 11.5% over 2016. The income statement for 2017 closed with an intermediation margin of € 24,906 thousand (‐4.2% in relation to 2016). Profit from current operations, before taxes, amounted to € 2,587 thousand (‐9.4% compared with 2016). The year closed with a net profit of € 1,406 thousand compared with € 1,824 thousand in 2016.

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1.6 INVESTMENT MANAGEMENT

Group investments, by individual item, are set forth in the table below

(in € thousands)

31.12.2017 Composition31.12.2017 (like‐for‐like) Composition 31.12.2016 Composition Change

Real estate investments 996,413 5.7% 986,589 7.8% 975,908 7.8% 2.1%

Equity investm. in sub., aff. and j.v. 199,158 1.1% 199,158 1.6% 185,531 1.5% 7.3%

Loans and receivables 587,421 3.3% 515,874 4.1% 548,768 4.4% 7.0%

AFS financial assets 14,250,061 81.1% 9,802,132 77.3% 9,805,916 78.5% 45.3%

Financial assets measured at fair value through the IS 1,530,940 8.7% 1,183,619 9.3% 971,487 7.8% 57.6%

Total 17,563,993 100.0% 12,687,372 100.0% 12,487,610 100.0% 40.7%

Group companies managed their investment activities according to the usual criteria of prudence, adopting an approach that succeeded in achieving gains while limiting financial risks and bearing up to the volatility of the markets.

In the bonds compartment, Reale Group pursued a strategy aimed at achieving a balance between the soundness of investments and portfolio profitability, by ensuring adequate diversification of issuers. Overall portfolio risk remained consistent with the Group’s overall risk profile.

Debt securities totalled € 13,936.4 million at 31 December 2017, an increase of 43.1% compared with the same period of the previous year (‐1.5% on a like‐for‐like basis).

Some indices relating to the bonds portfolio at 31 December 2017 are set forth in the table below for the main Group companies.

Reale Mutua Assicurazioni

Italiana Assicurazioni

Uniqa Assicurazioni

Uniqa Previdenza

Uniqa Life

Reale Seguros

Reale Vida

Total duration 5.80 5.20 ‐ ‐ ‐ ‐ ‐

Duration Non‐life 2.50 2.50 3.40 ‐ ‐ 2.80 ‐

Duration Life 6.60 6.60 ‐ 7.70 6.20 ‐ 6.80

Average rating BAA1 BAA1 A1 A3 A3 BAA1 BAA1

Changes in duration in the Non‐life segment were consistent with the risk profile of the liabilities held, while in the Life segment Asset Liability Management techniques were used to match assets with commitments towards policyholders.

As far as equities are concerned, the portfolio size continued to be limited but investments in capital securities increased with a view to exploiting opportunities offered by the markets.

Capital securities and shares of UCITs totalled € 1,930.9 million at 31 December 2017, an increase of 81.6% compared with the same period of the previous year (+33.4% on a like‐for‐like basis).

The AFS financial assets item includes the "Atlante" common investment fund, an alternative investment fund set up by the Italian government to bring stability to the country's banking sector: a value adjustment of € 18,227 thousand was entered into the accounts in 2017. This measurement reflects the write‐off of the Fund's investment in two banks, Veneto Banca and Banca Popolare di Vicenza, for a total of € 3.4 billion, following the approval by the Council of Ministers of the text of the Decree Law dated 25 June 2017 putting the two banks into forced liquidation, confirmed on 26 June 2017 by the Meeting of investors.


It is also worth noting that on 28 December 2017 Reale Mutua sold part of its interest in Cedacri S.p.A., a company specialised in IT outsourcing services, within the scope of a transaction whereby FSI SGR, through one of its investment funds, acquired an overall interest of 27% in the share capital of Cedacri. Reale Mutua sold 0.67% of the capital for approximately € 2.5 million, making a gross capital gain of around € 1.8 million, and continues to hold a 1.34% interest in the share capital. The price was paid on 24 January 2018.

* * *

In carrying out their business activities, Group companies use derivative and structured financial instruments for hedging purposes, to limit the investment risk, and also to enhance portfolio management and achieve their investment goals more quickly, more easily, more economically or more flexibly than would be possible using the underlying assets.

All investment activities, also with regard to structured securities and derivatives, are regulated by specific resolutions of the Boards of Directors in accordance with their strategic guidelines and the financial situation of each company. The competent company structures verify these activities at regular intervals, on the basis of financial risk measurement parameters, and submit periodical reports on their findings to the Boards of Directors.

Use of derivative and structured instruments did not generate any significant losses or potential risks in 2017.

* * *

Details of income and charges on Group investments, divided by single item, are set forth in the table below.

(in € thousands)

20172017


Net income on financial instruments measured at fair value through the IS 24,500 23,979 15,030 9,470

Income on equity investments in subsidiaries, affiliates and j.v. 25,324 25,324 25,103 221

Income on other financial instruments and property investments: 437,867 356,599 373,721 64,146

Interest income 235,300 173,043 189,761 45,539

Other income 96,601 96,525 96,096 505

Realised gains 104,212 85,277 82,418 21,794

Valuation gains 1,754 1,754 5,446 ‐3,692

Total 487,691 405,902 413,854 73,837

Charges on equity investments in subsidiaries, affiliates and j.v. 0 0 0 0

Charges on other financial instruments and property investments: 76,072 71,269 54,154 21,918

Interest expense 6,779 3,258 3,852 2,927

Other charges 21,747 21,602 18,593 3,154

Realised losses 16,913 15,810 6,433 10,480

Valuation losses 30,633 30,599 25,276 5,357

Total charges 76,072 71,269 54,154 21,918

Total net income 411,619 334,633 359,700 51,919

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1.7 HUMAN RESOURCES

At 31 December 2017 the Group had a workforce of 3,659 people, 462 more than in the previous year (+14.5%). Not considering the new employees resulting from the acquisition of the Uniqa companies and those hired by the newly established Reale Chile Seguros, the workforce would have increased by 34 people (+1.1%).

* * *

On 22 February 2017, ANIA and the Italian Trade Union organisations came to an agreement over the renewal of the National Collective Labour Agreement for employees, which expired on 30 June 2013.

The new Agreement, which will expire on 31 December 2019, introduces some important changes to the contracts of employees in the insurance sector. The aim is to promote greater flexibility, especially in terms of working time, interchangeability of middle management roles and operational flexibility at contact centres.

* * *

On 23 February 2017 the Parent Reale Mutua and trade union representatives from Reale Mutua and Italiana Assicurazioni signed an agreement to establish an Administrative Hub within the Group Claims Handling department, with a view to improving settlement services for members and customers of Group companies. The project includes the centralisation of the majority of the administrative activities performed by the Settlement network and the Mass Claims department. The project will be completed by 31 December 2018 and will involve a total of 60 employees. It will not affect current employment levels and the employees concerned will not be required to move to a different office, although some may be reappointed to the role of adjuster. This will be done on a voluntary basis, taking into account organisational requirements and individual characteristics. It will be an opportunity for professional growth and specific courses will be held to train these new adjusters.

* * *

In the first quarter of 2017 Reale Seguros and trade union representatives reached an agreement for the renewal of the company‐level labour contract. The new contract came into force on the date it was signed and will expire on 31 December 2020. The aim is to contribute to improving conditions at work in order to increase the satisfaction and commitment of all employees.

* * *

On 10 July 2017 Reale Mutua and trade union representatives reached an agreement for the renewal of the company‐level labour contract which expired on 31 December 2015. The new contract came into force on the date it was signed and will expire on 30 June 2019. The main change introduced by the new contract is the agile work approach, which envisages the performance of certain work activities off company premises, without having to use a fixed workstation and without rigidly defined working hours.

* * *

On 26 October 2017, in its capacity as Parent, Reale Mutua notified trade union representatives from Reale Mutua, Italiana Assicurazioni, Reale Ites, Uniqa Assicurazioni, Uniqa Previdenza and Uniqa Life ‐ pursuant to articles 15 and 16 of the ANIA national collective labour agreement ‐ that on 19 October 2017 the Board of Directors had approved a Group restructuring and reorganisation plan following the acquisition of the three Uniqa companies. The aim is to improve the efficiency and efficacy of corporate functions in a market context characterised by a gradual aggregation of competitors and the rapid development of new technologies, which pose growing challenges for the Group in terms of economies of scale.

The plan will be implemented in steps and will be completed by the first half of 2020.


The project, parts of which will be subject to approval by IVASS as required by existing regulatory practice, includes an extensive review of the organisational model of the Group's insurance companies, in order to harness their skills and ensure that they continue to provide excellent service to members and policyholders, and to create operating synergies with a view to optimising the companies' cost structure.

The new model will be developed according to the principles laid down in the Group Regulations, and designed to allow the Parent to exercise guidance, governance and control, promote the efficient management and growth of individual companies and of the Group as a whole, and to enable Group companies to operate ‐ while maintaining their autonomy ‐ coherently and consistently with the model of governance defined. It will also ensure continuity with the principles underlying previous reorganisations which included the centralisation of many Group functions at Reale Mutua and individual companies specialising in certain activities.

As regards the ownership structure, the project envisages the merger of Uniqa Assicurazioni, Uniqa Previdenza and Uniqa Life into Italiana Assicurazioni. This operation will be submitted to the boards of directors of the companies concerned for their approval. Once the Supervisory Authority has granted its approval, it will be submitted to the respective Shareholders' Meetings within the terms established by law. The IT business unit that will become part of Italiana Assicurazioni as a consequence of this merger will be transferred to Reale Ites after obtaining all the relevant approvals and completing all the necessary legal procedures.

The main effects of the plan will be to pool activities and processes within Group functions and redesign the companies' business functions. Group companies will keep their headquarters in Turin and Milan, and a new operations hub employing a significant number of staff will open in Udine.

As a result of the Group's restructuring and reorganisation plan some employees may be assigned to different duties and/or moved to a different place of work; employment levels will also be affected. Based on the analysis of the processes and activities in the new organisational model and the target workforce size, the plan will result in 151 redundancies at the Group companies concerned.

The Parent has already stated that it will seek non‐traumatic solutions, using instruments such as redundancy incentive plans and the industry's Solidarity Fund, to be agreed upon with the trade unions.

Negotiations with trade union representatives from the companies concerned have already started.

* * *

The Academy and Internal Communication division has always been alert to changes in professional roles and external scenarios; in 2017 it continued to focus on training, development and internal communication to keep employees up‐to‐date and informed of successful initiatives in other areas. It contributed to the change management process and helped to develop Reale Group projects, by making them known to employees and encouraging them to get involved. In addition to the traditional training courses on technical and behavioural aspects, new continuous learning schemes were also made available. These featured the use of informal methods and involved the corporate workforce.

* * *

Reale Group considers occupational health and safety as an integral aspect of its business and a strategic commitment with respect to the more general purposes of each company.

Every company within the Group is committed to pursuing improvements in occupational health and safety, and to making sure they provide all the necessary human and financial resources and instruments to protect all aspects of the health and safety of all those who work for them In accordance with Legislative Decree No. 81/08 and subsequent amendments on occupational health and safety, in 2010 all Reale Group companies implemented an Occupational Health and Safety management system that meets the requirements of the BS OHSAS standard.

233

1.8 INNOVATION TECHNOLOGY

An increasingly competitive marketplace and rapidly evolving new technologies have had a significant effect on how customers purchase insurance cover. Now, more than ever before, it is essential to be able to adapt quickly to changes and anticipate trends that will influence the market.

To address this challenge, the Group has embarked on increasingly structured research into innovative projects, focusing in particular on new business models and tools that will allow it to remain competitive. The aim of the so‐called Open Innovation approach it has adopted is to combine internal resources and ideas with contributions from outside the Group.

For that purpose the Parent has decided to invest more in innovation, setting up an Innovation and Corporate Strategy unit and extending its areas of competence.

Through Academy, Reale Group launched a programme to develop specific skills and a widespread innovation programme, called "Realize", to promote research into innovative processes and products.

These activities also involved foreign partners (especially other members of the EURAPCO network) with whom the Group developed projects and experiments to address the challenges of the market.

In 2017 work also got underway to explore possible partnerships with start‐up companies (by screening companies across sectors and not only in the insurance industry) for possible strategic investments in enterprises that could create value for Reale Group.


1.9 DISTRIBUTION NETWORK

At 31 December 2017 the Group had 1,177 exclusive agencies, an increase of 117 compared with the previous year.

Reale Mutua has developed its distribution channels over the years to establish a network of agencies that, as at 31 December 2017, included 349 agencies under contract and 561 insurance agents/brokers. In addition to these, it has five subsidiary agencies and one for employees. As at 31 December 2017, the Parent had 28 standing distribution agreements with banks, leasing firms and intermediaries included in the list of intermediaries of the European Union, for the sale of both Life and Non‐life policies.

As part of the reorganisation of its sales network, Italiana Assicurazioni opened 13 agencies in 2017 (including five Next agencies), closed six and there was a change of management at 13. The total number of agencies thus increased from 341 in 2016 to 348 in 2017. Counting the 10 units of the REM Division as well, the Company now has a total of 358 agencies. As far as the "Light Agency" project is concerned, 29 Next agencies and sub‐agencies were recruited from the market and three of Italiana Assicurazioni's conventional agencies adhered to the project, for a total of 32.

Uniqa Assicurazioni and Uniqa Previdenza distribute their products through a network of 667 agents (593 multi‐firm agents and 74 one‐firm agents), 203 brokers and 19 banks. In addition to the 889 brokers there are 10 central units (broker management and support) for a total of 899 intermediaries.

Uniqa Life is no longer able to sell its products through the branches of Veneto Banca: the policy portfolio has therefore been reassigned to five qualified intermediaries.

Reale Seguros and Reale Vida distribute their products through a nationwide network of 387 exclusive agencies, 3,045 brokers and 55 branch offices.

* * *

The agreement between Reale Seguros and the Spanish bank BBVA for the exclusive sale of insurance products through the bank channel, which came into effect in 2013, is still in place. The partnership concerns the sale of two "Commercio" (commerce) and "Globale Fabbricati" (civil buildings) products through an online platform designed to meet the requirements of the bank. The results are extremely positive, in terms of both turnover and the claims rate.

* * *

As regards the new Chilean company Reale Chile Seguros, the first agency opened on 1 June in Santiago. Another two agencies opened during the second half of the year, one in the north and one in the south of the country. There are plans to open two more agencies, one in the centre‐south and one in the south of the country, to strengthen the Company's presence in the region. In accordance with the sales network model, all agency staff are employees of the Company. At present, Reale Chile Seguros sells its products with the support of eight sales managers who operate through a sales network made up of 257 brokers. The Company has also established contacts to offer its products through mass online distributors, as a means of opening up new sales channels. In striving to offer services that differ from those of its competitors, the Company has developed a brokerage platform called "FIDENS", through which brokers can obtain quotes for premium prices for the products in the Company's catalogue. The Company's website also features a specific area where potential new customers can request a quote themselves.

235

1.10 LITIGATION

Group companies are involved in tax disputes following assessments relating to tax periods from 2003 to 2012. These mainly regard VAT on coinsurance assignments and VAT treatment pertaining to the secondment of staff. With reference to the first matter at issue, the assessments merely regard the interpretation of tax regulations governing the application of VAT to coinsurance assignments, on which there is ample case law supporting the approach applied by insurance companies. In a few isolated cases the court has handed down an unfavourable ruling, three of which against Group companies, which, however remain firmly convinced that the dispute will be settled in their favour. On this matter, decisions 22429/2016 and 5585/2017 issued by the Supreme Court of Cassation deal with the treatment, for the purposes of VAT, of coinsurance agreements pursuant to article 1911 of the Italian Civil Code, with specific reference to the services provided by the "leading" insurer appointed by the other insurance undertakings party to the coinsurance agreement to carry out a series of activities in connection with the stipulation, management and execution of the insurance contract, for which coinsurance commissions are payable. The decisions shed light on several important elements that confirm the exemption of coinsurance activities from VAT. As for the second matter, the assessments regard the reclassification of secondment of staff as the supply of services subject to VAT in that, according to the Tax Office, the subjective and objective conditions for secondment of staff do not exist. As at the date of this report, the decisions handed down by the competent Provincial and Regional Tax Commissions have been in favour of the Companies involved.

One of the subsidiaries is also involved in a dispute in connection with the re‐calculation of the pro‐rata deductibility of VAT. The appeal is pending following the negative first instance ruling.

Lastly, on 7 July 2017 the Parent received € 22,016 thousand by way of repayment of tax receivables pursuant to the application for reimbursement of taxes relating to tax year 2007 following the objections raised by the Tax Authority in its tax assessment for the 2006 tax year concerning the application of IRES and IRAP to the provision for outstanding claims.

With regard to the arbitration proceedings initiated by Reale Seguros at the end of 2014 to determine the increased price, with respect to the minimum value, for the sale of its 50% stake in the share capital of CAI Seguros Generales de Seguros y Reaseguros S.A., the other 50% of which was held by Banco Grupo CajaTres (now Ibercaja Banco S.A.), for which Reale Seguros had exercised the right to sell, on 4 September 2017 the Court of Arbitration delivered its ruling in favour of Reale Seguros and determined the price to be € 20.4 million, plus interest and incidental charges. The other party did not appeal against this determination, which thus became final on 22 November 2017 and the Company was duly recorded the amount receivable under its assets.


1.11 OTHER INFORMATION

In accordance with art. 28.2 of ISVAP Regulation No. 20/2008, as subsequently amended by ISVAP Directive No. 3020/2012 and IVASS Order No. 17 of 15 April 2014, together with the financial statements, the Group's Italian insurance companies sent IVASS the documentation requested thereby, referring to data as at 31 December 2016. This documentation consisted of a report on the system of internal controls and risk management, illustrating the actions undertaken in the previous year and any changes to the system during the year, the internal audits performed, any highlighted faults and the corrective measures adopted. It also contained information on the organisational structure of the undertaking, including the results of the annual assessment of the size, composition and functioning of the administrative body. Documents referring to the organisational chart and system of delegating powers were attached to the report. According to the same Regulation, the Companies' Boards of Directors approved the action plans drawn up for 2017 by the CROs, for the internal audit, risk management, actuarial and compliance functions and pursuant to ISVAP Regulation No. 41/2012 for the anti‐money laundering function.

* * *

In 2017 the Boards of Directors of the Group's insurance companies approved the information security policy setting out a structured process for measuring their exposure to the risk of breach of information security and for identifying the physical, logical and procedural security measures for protecting information. The policy defines the guidelines to be followed in order to establish, ensure and maintain an appropriate level of information security, it sets out the criteria to be used to assess the level of security, based on the methodologies and standards of reference, and describes the organisational structure of the information security management system of Reale Group. This policy applies to all Reale Group companies in Italy and Spain.

* * *

In October 2017 Fitch Ratings confirmed the IFS (Insurer Financial Strength) rating of "BBB+" for Reale Mutua and its subsidiary Reale Seguros, with a stable outlook. This rating reflects the high level of capitalisation of Reale Mutua, the absence of financial obligations and its strong business profile in Italy.

This rating is higher than Italy's sovereign rating by the same agency, also thanks to the Group's international diversification with around 24% of net premiums subscribed in Spain. Fitch Ratings pointed out that by acquiring Uniqa Assicurazioni and its subsidiaries the Group has strengthened its business profile in Italy, increased the diversification of its product mix and expanded its sales network. Reale Chile Seguros was assigned a rating of A‐ by Fitch Ratings in June 2017 and by Feller Rate in September 2017 in relation to its capacity to meet its obligations.

* * *

In 2017, Reale Group decided to broaden the scope of activity of “Fundaciòn Reale”, which operates in Spain for Reale Seguros, to include all Group companies. Now renamed “Reale Foundation”, it is a cross‐company instrument with an international reach that will support projects to raise donations, creating value over time.

Embodying the principles of mutuality that have been guiding the actions of Reale Group companies for 190 years, its policy of sustainability and of serving the community, Reale Foundation will support initiatives in Italy, Spain and Chile, in line with the UN 2030 Agenda for sustainable development, with a specific focus on the following three areas: Health & Welfare, Social, Sustainable Environment and Communities.

Group companies will make an annual donation to the Foundation, for an amount that will be decided upon by each Board of Directors up to a maximum of 1% of the consolidated net profit at Group level.

237

1.12 MAIN EVENTS IN EARLY 2018

On 7 March 2018 an agreement was reached with the trade unions on the restructuring and reorganisation plan following the acquisition by Reale Group of the former Uniqa Italia Group companies, which includes the merger by incorporation of these into Italiana Assicurazioni S.p.A., as set forth in the notification pursuant to articles 15 and 16 of the ANIA national collective labour agreement of 26 October 2017. The plan, which involves Reale Mutua, Italiana Assicurazioni, Reale Ites, Uniqa Assicurazioni, Uniqa Previdenza and Uniqa Life, will be implemented in steps starting from the date of signing the agreement and will be completed by the end of the first half of 2020. Under the plan, the Group will maintain its companies' headquarters in Turin and Milan, and will also open an operations hub in Udine employing a significant number of staff. The reorganisation also envisages mobility of staff on a voluntary basis and an improvement in the overall level of expertise to be achieved through the recruitment of new resources, also with a view to promoting generational turnover. Measures have also been agreed upon to safeguard jobs in view of the redundancies that will result from the project (151 employees); use will be made of redundancy incentive plans for employees who are already of retirement age and workers with less than five years to go until reaching retirement age will have access to payments from the industry's Solidarity Fund.

* * *

In February 2018 Uniqa Previdenza received a letter from the liquidators of Veneto Banca, which has been placed into force liquidation, notifying it that, pursuant to art. 86(5) of the Consolidated Banking Law, proof of debt must be submitted between 22 February 2018 and 23 April 2018. The Company has therefore started to draw up its application and to prepare all the necessary supporting documents.

* * *

No further significant events have occurred after the closure of the accounts that could have a significant effect on the information provided in the balance sheet or income statement.


1.13 BUSINESS OUTLOOK

According to estimates by the International Monetary Fund, growth is forecast to stand at 2.2%. Foreign demand will continue to increase and difficult Brexit negotiations and a strong euro are not expected to pose significant risks. The ECB's adjustments to its monetary policy in response to improving cyclic conditions are not expected to have a dampening effect on growth and the labour market continues to improve with unemployment expected to fall further to 8.5%. Inflationary pressures remain low and the CPI could stand unchanged at 1.5%.

The results of the general election in Italy have so far done nothing to overcome the climate of uncertainty that preceded the vote. While the country tries to reach some kind of solution for a government, it will be important to keep an eye on market volatility and a widening of the spread with German bunds. According to the latest IMF estimates, growth in 2018 is forecast to stand at 1.4%. Economic recovery would lead to a drop in the rate of unemployment, which is on course to fall to 10.8% by the end of 2018.

In Spain, GDP growth is expected to slow to 2.4% in 2018, following strong growth in 2017. This slowdown should be regarded as a normal adjustment, after years of brisk expansion, rather than a loss of structural strength. The shrinking budget deficit will constraint growth in domestic demand, which could however be offset by better export performance. The flexibility introduced by reforms should continue to sustain growth of the labour market and analysts forecast that unemployment will fall to 15.6% by the end of 2018. However, this scenario will be influenced by uncertainty about a solution to the Catalan crisis.

Growth in Chile is expected to increase by 2.5%, buoyed by the positive global context, recovery of copper prices and an upturn in industrial output.

* * *

In this context, indications regarding Reale Group’s business activities confirm the projections examined during the Meeting of Delegates of the Parent on 11 December 2017.

In detail, 2018 will see the implementation of the Group's restructuring and reorganisation plan following the acquisition of the three Uniqa companies, as described previously in this report.

1.14 AUDIT

Pursuant to art. 25 of ISVAP Regulation No. 7 of 13 July 2007 as amended, the consolidated annual accounts at 31 December 2017 have been audited by EY S.p.A.

THE BOARD OF DIRECTORS

GENERAL ACCOUNTING SCHEDULES


Company: SOCIETA' REALE MUTUA DI ASS.NI

BALANCE SHEET ‐ Assets

(in € thousands)

FINANCIAL 2017 FINANCIAL 2016

1 INTANGIBLE ASSETS 386,260 322,985

1.1 Goodwill 267,246 201,114

1.2 Other intangible assets 119,014 121,871

2 PROPERTY, PLANT AND EQUIPMENT 265,336 268,182

2.1 Real property 233,207 230,760

2.2 Other property, plant and equipment 32,129 37,422

3 REINSURERS’ SHARE OF TECHNICAL PROVISIONS 773,348 401,805

4 INVESTMENTS 17,563,993 12,487,610

4.1 Real estate investments 996,413 975,908

4.2 Equity investments in subsidiaries, associates and joint ventures 199,158 185,531

4.3 Investments held to maturity 0 0

4.4 Loans and receivables 587,421 548,768

4.5 AFS financial assets 14,250,061 9,805,916

4.6 Financial assets at fair value through the income statement 1,530,940 971,487

5 MISCELLANEOUS RECEIVABLES 1,142,341 953,338

5.1 Receivables arising out of direct insurance operations 780,192 690,837

5.2 Receivables arising out of reinsurance operations 137,279 82,604

5.3 Other receivables 224,870 179,897

6 OTHER ASSETS 476,527 351,661

6.1 Non‐current assets or of a disposal group HFS 8,828 3,014

6.2 Deferred acquisition costs 0 0

6.3 Deferred tax assets 182,435 142,128

6.4 Current tax assets 169,724 121,877

6.5 Other assets 115,540 84,642

7 CASH AT BANK AND IN HAND AND CASH EQUIVALENTS 178,334 90,765

TOTAL ASSETS 20,786,139 14,876,346

Balance Sheet

241

BALANCE SHEET – Liabilities and Shareholders’ equity

(in € thousands)


1 SHAREHOLDERS' EQUITY 2,579,215 2,432,343

1.1 of which Group interest 2,566,964 2,432,082

1.1.1 Capital 60,000 60,000

1.1.2 Other equity instruments 0 0

1.1.3 Capital reserves 0 0

1.1.4 Retained earnings and other equity reserves 2,248,143 2,176,106

1.1.5 (Treasury stock) 0 0

1.1.6 Reserve for net exchange differences ‐375 0

1.1.7 Gains or losses on AFS financial assets 121,783 74,014

1.1.8 Other gains or losses recognised directly in equity ‐10,098 ‐9,075

1.1.9 Group interest in net income (loss) for the year 147,511 131,037

1.2 minority interest 12,251 261

1.2.1 Minority interest in capital and reserves 8,884 281

1.2.2 Profit or losses recognised directly in equity 2,748 0

1.2.3 Minority interest in net income (loss) for the year 619 ‐20

2 PROVISIONS 83,294 88,747

3 TECHNICAL PROVISIONS 16,170,385 10,940,648

4 FINANCIAL LIABILITIES 1,043,931 635,059

4.1 Financial liabilities at fair value through the income statement 334,591 20,915

4.2 Other financial liabilities 709,340 614,144

5 PAYABLES 467,501 423,358

5.1 Payables arising out of direct insurance operations 191,075 174,304

5.2 Payables arising out of reinsurance operations 17,641 14,769

5.3 Other payables 258,785 234,285

6 OTHER LIABILITIES 441,813 356,191

6.1 Liability of a disposal group HFS 0 0

6.2 Deferred tax liabilities 300,028 258,777

6.3 Current tax liabilities 12,249 306

6.4 Other liabilities 129,536 97,108

TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY 20,786,139 14,876,346



INCOME STATEMENT

(in € thousands)


1.1 Net premiums 4,171,408 3,534,868

1.1.1 Gross premiums earned 4,511,049 3,826,844

1.1.2 Premiums earned ceded in reinsurance ‐339,641 ‐291,976

1.2 Commissions receivable 22,541 14,864

1.3 Income and expense on financial instruments measured at fair value through the income statement

24,500 15,030

1.4 Income on equity investments in subsidiaries, affiliates and j.ventures 25,324 25,103

1.5 Income on other financial instruments and investment property 437,867 373,721

1.5.1 Interest income 235,300 189,761

1.5.2 Other income 96,601 96,096

1.5.3 Realised gains 104,212 82,418

1.5.4 Valuation gains 1,754 5,446

1.6 Other revenues 141,414 113,721

1 TOTAL REVENUES AND INCOME 4,823,054 4,077,307

2.1 Net charges for claims ‐3,382,440 ‐2,772,397

2.1.1 Amounts paid and change in technical provisions ‐3,704,971 ‐2,959,269

2.1.2 Reinsurers' share 322,531 186,872

2.2 Commissions payable ‐9,815 ‐5,567

2.3 Charges on equity investments in subsidiaries, affiliates and j.v. 0 0

2.4 Charges on other financial instruments and real property investments ‐76,072 ‐54,154

2.4.1 Interest expense ‐6,779 ‐3,852

2.4.2 Other charges ‐21,747 ‐18,593

2.4.3 Realised losses ‐16,913 ‐6,433

2.4.4 Valuation losses ‐30,633 ‐25,276

2.5 Operating expenses ‐948,449 ‐871,719

2.5.1 Commissions and other acquisition costs ‐747,134 ‐686,942

2.5.2 Investment management expenses ‐53,216 ‐52,391

2.5.3 Other administrative expenses ‐148,099 ‐132,386

2.6 Other costs ‐203,889 ‐192,044

2 TOTAL COSTS AND CHARGES ‐4,620,665 ‐3,895,881

PROFIT (LOSS) FOR THE YEAR BEFORE TAXES 202,389 181,426

3 Taxes ‐54,259 ‐50,409

PROFIT (LOSS) FOR THE YEAR NET OF TAXES 148,130 131,017

4 PROFIT (LOSS) ON DISCONTINUED OPERATIONS 0 0

CONSOLIDATED PROFIT (LOSS) 148,130 131,017

of which Group interest 147,511 131,037

of which minority interest 619 ‐20

Income Statement

243


STATEMENT OF COMPREHENSIVE INCOME

(in € thousands)

FINANCIAL

2017 FINANCIAL

2016

CONSOLIDATED PROFIT (LOSS) 148,130 131,017

Other income items net of taxes not reclassified to the income statement 437 ‐4,933

Change in the shareholders' equity of subsidiaries 0 0

Change in the intangible assets revaluation reserve 0 0

Change in the tangible assets revaluation reserve 0 0

Income and charges relating to non‐current assets or of a disposal group HFS 0 0

Actuarial gains and losses and adjustments relating to defined benefit plans 437 ‐4,933

Other items 0 0

Other income items net of taxes with reclassification in the income statement 48,682 ‐19,970

Change in the reserve for net exchange differences ‐378 0

Gains or losses on AFS financial assets 50,521 ‐17,073

Gains or losses on cash flow hedges 0 0

Gains or losses on hedges of net investments in foreign entities 0 0

Change in the shareholders' equity of subsidiaries ‐1,461 ‐2,897


Other items 0 0

TOTAL OF OTHER ITEMS IN THE STATEMENT OF COMPREHENSIVE INCOME 49,119 ‐24,903

TOTAL CONSOLIDATED COMPREHENSIVE INCOME 197,249 106,114

of which Group interest 193,882 106,134

of which minority interest 3,367 ‐20

Statement of comprehensive income


Statement of changes in Shareholders' Equity

Changes in the last two years in the individual items of shareholders’ equity are set forth in the schedule below.


(in € thousands)

Balance at 01‐01‐2016

Change in closing balances

Allocations

Adjustments for

reclassification in the income statement

Transfers Changes in ownership interest


Group interest in

Shareholders’ equity

Capital 60,000 0 0 0 60,000

Other equity instruments 0 0 0 0 0

Capital reserves 0 0 0 0 0

Retained earnings and other equity reserves 2,016,503 0 159,603 0 0 2,176,106

(Treasury stock) 0 0 0 0 0

Net profit (loss) for the year 159,301 0 ‐28,264 0 131,037

Other items in the statement of comprehensive income

89,842 0 18,436 ‐43,339 0 0 64,939

Total of which Group interest 2,325,646 0 149,775 ‐43,339 0 0 2,432,082

Minority interest in


Minority interest in capital and reserves 0 0 281 0 0 281

Net profit (loss) for the year 0 0 ‐20 0 ‐20


0 0 0 0 0 0 0

Total of which minority interest 0 0 261 0 0 0 261

Total 2,325,646 0 150,036 ‐43,339 0 0 2,432,343


Change in closing balances

Allocations

Adjustments for

reclassification in the income statement

Transfers Changes in ownership interest


Group interest in

Shareholders’ equity

Capital 60,000 0 0 0 60,000

Other equity instruments 0 0 0 0 0

Capital reserves 0 0 0 0 0

Retained earnings and other equity reserves 2,176,106 0 72,037 0 0 2,248,143

(Treasury stock) 0 0 0 0 0

Net profit (loss) for the year 131,037 0 16,474 0 147,511


64,939 0 89,669 ‐43,298 0 0 111,310

Total of which Group interest 2,432,082 0 178,180 ‐43,298 0 0 2,566,964

Minority interest in


Minority interest in capital and reserves 281 0 8,603 0 0 8,884

Net profit (loss) for the year ‐20 0 639 0 619


0 0 2,748 0 0 0 2,748

Total of which minority interest 261 0 11,990 0 0 0 12,251

Total 2,432,343 0 190,170 ‐43,298 0 0 2,579,215

Statement of changes in Shareholders’ Equity

245

CASH FLOW STATEMENT (indirect method)



Profit (loss) for the year before taxes 202,389 181,426Change in non‐monetary items 866,701 506,601Change in the non‐life provisions for unearned premiums 57,404 16,357Change in the provisions for outstanding claims and in other non‐life technical provisions

31,437 ‐49,556

Change in provisions for policy liabilities and other life technical provisions 734,983 493,548Change in deferred acquisition costs 0 0Change in provisions ‐15,230 ‐7,947Non‐monetary income and expenses deriving from financial instruments, real property investments and equity investments

8,401 11,224

Other changes 49,706 42,975Change in receivables and payables generated by operating activities ‐135,558 40,462

Change in receivables and payables deriving from direct and reinsurance operations

‐80,437 ‐13,206

Change in other receivables and payables ‐55,121 53,668Taxes paid ‐34,305 ‐92,851

Net liquidity generated/absorbed by monetary items relating to investments and financial activities

‐261,833 ‐139,182

Liabilities arising on financial contracts issued by insurance companies ‐42,189 ‐3,187Amounts owed to bank and interbank customers ‐51,467 90,272Loans and receivables from bank and interbank customers 13,625 ‐86,289

Other financial instruments measured at fair value through the income statement

‐181,802 ‐139,978

TOTAL NET CASH FLOW ARISING FROM OPERATING ACTIVITIES 637,394 496,456Net cash flow generated/absorbed by real estate investments ‐28,164 ‐21,841Net cash flow generated/absorbed by investments in subsidiaries, associates and joint ventures

‐13,627 ‐7,297

Net cash flow generated/absorbed by loans and receivables 16,422 ‐6,504Net cash flow generated/absorbed by HTM investments 0 0Net cash flow generated/absorbed by AFS financial assets ‐392,013 ‐429,927

Net cash flow generated/absorbed by plant, property and equipment and intangible assets

‐92,187 ‐49,975

Other net cash flow generated/absorbed by investment activities ‐5,814 6,575

TOTAL NET CASH FLOW FROM INVESTMENT ACTIVITIES ‐515,383 ‐508,969

Net cash flow generated/absorbed by capital instruments pertaining to the Group

0 0

Net cash flow generated/absorbed by own shares 0 0Distribution of dividends pertaining to the Group 0 0Net cash flow generated/absorbed by minority interest in capital and reserves 0 0Net cash flow generated/absorbed by subordinated liabilities and equity financial instruments

0 0

Net cash flow generated/absorbed by sundry financial liabilities ‐53,600 ‐4,394TOTAL NET CASH FLOW DERIVING FROM FINANCING ACTIVITIES ‐53,600 ‐4,394

Effect of exchange rate differences on cash and cash equivalents 0 0Cash at bank and in hand and cash equivalents at start of year 109,923 107,672Increase (decrease) in cash at bank and in hand and cash equivalents 68,411 ‐16,907Cash at bank and in hand and cash equivalents at end of year 178,334 90,765


Cash Flow Satement Changes in liabilities arising from financing activities are shown in the table below, in accordance with IAS 7 "Statement of cash flows".

(in € thousands)

31.12.2016

Cash flows (*)

Non‐cash flows 31.12.2017

Changes in Exchange diff

Changes in i l

Other h

Deposits received from reinsurers 53,497 ‐35,991 196,631 0 0 0 214,137

Debt securities issued 93,126 ‐7,657 0 0 0 0 85,469

Loans received 2,529 ‐5,117 3,632 0 0 0 1,044

Other financial liabilities 21,785 ‐4,835 0 0 0 0 16,950

Total 170,937 ‐53,600 200,263 0 0 0 317,600

(*) Flows included in the Statement of Cash Flows

(**) For purchase and sale transactions reference should be made to the "Summary of Results" section in the Report on Operations.

NOTES TO THE FINANCIAL

STATEMENTS


GENERAL ACCOUNTING PRINCIPLES

Statement of compliance with International Accounting Standards

The Consolidated Financial Statements of Reale Group have been prepared in accordance with international accounting standards. Legislative Decree No. 38 of 28 February 2005, exercising the options envisaged by EC Regulation No. 1606/2002 regarding the adoption of international accounting standards, extended the obligation of preparing the consolidated financial statements in accordance with international accounting standards starting from the year closed or in course at 31 December 2005 to all listed and unlisted insurance companies.

The schedules of the Balance Sheet, Income Statement, Changes in Shareholders’ Equity, Cash Flow Statement and the annexes to the Notes to the Consolidated Financial Statements comply with the formats defined by the Supervisory Authority with Regulation No. 7 of 13 July 2007 as subsequently amended and have been compiled according to the instructions set forth in the above Regulation.

Reale Group has taken advantage of the possibility, permitted by IFRS 1, of applying the following accounting standards as of 1 January 2005:

‐ IAS 32 Financial instruments: disclosure and additional information; ‐ IAS 39 Financial instruments: recognition and measurement; ‐ IFRS 4 Insurance contracts.

All other IAS/IFRS have been applied starting from 1 January 2004.

Basis of preparation

The Financial Statements have been prepared according to the principle of going concern. For the reasons set forth in the Report on Operations to which reference should be made, no uncertainty exists regarding the Group's ability to continue to operate as a functioning entity.

New accounting standards

As far as new accounting standards, amendments or interpretations are concerned, the following changes came into force on 1 January 2017 but do not affect Reale Group:

‐ Amendments to IAS 12 ‐ Income taxes, endorsed by Regulation (EU) 2017/1989; ‐ Amendments to IAS 7 ‐ Statement of cash flows, endorsed by Regulation (EU) 2017/1990; ‐ Amendments to IFRS 12 ‐ Disclosure of interests in other entities, endorsed by European Regulation

(EU) 2018/182;

On 18 May 2017 the International Accounting Standards Board (IASB) published the final version of the new IFRS 17 "Insurance contracts". This sets out the criteria for measuring and accounting for insurance contracts and replaces IFRS 4. The new standard, which will take effect as from 1 January 2021, will have a significant and far‐reaching impact, not only in terms of accounting practices, but also on the business activities of insurers. The long time between the date of issue and the date of application of this standard reflects the complexities involved in its implementation.

249

IFRS 9 “Financial instruments” was adopted by Commission Regulation (EU) 2016/2067 of 22 November 2016, published in the Official Journal of the European Union on 29 November 2016. The new standard officially comes into effect on 1 January 2018. Insurance undertakings will be allowed to defer adoption of the new standard, to bring the first application date in line with that of IFRS 17 so that they can plan the adoption of the two standards together. On 12 September 2016 the IASB published the amendment “Applying IFRS 9 Financial Instruments with IFRS 4 Insurance Contracts”, adopted with Regulation (EU) 2017/1988 published in the Official Journal of the European Union on 9 November 2017, which introduces two optional approaches: ‐ the overlay approach that allows insurers to present the amount equal to the difference between the

amount reported in the income statement for financial assets measured under IFRS 9 and the amount that would have been reported in the income statement for those assets if the insurer had applied IAS 39;

‐ the deferral approach which allows insurers that predominantly undertake insurance activities to apply a temporary exemption from IFRS 9.

Reale Group, which fulfils the requirement of predominantly undertaking insurance activities that is a condition for applying the aforesaid amendments to IFRS 4, will apply the deferral approach as from 1 January 2018. Therefore, the entry into force of IFRS 9 is not expected to affect the financial statements of the coming year or for as long as the Group continues to adopt this approach.

With a view to implementing IFRS 9 and IFRS 17, at the beginning of 2018 the Group started an assessment, with the following objectives: ‐ to carry out a gap analysis between the new standards and current accounting procedures for

measuring and managing operations; ‐ to assess the main impacts on the portfolio (insurance contracts and financial instruments); ‐ to define the approach for subsequent steps.

IFRS 15 “Revenue from contracts with customers” replaces IAS 18 “Revenue”, IAS 11 “Construction contracts” and the respective interpretations and has been endorsed through Regulation (EU) 2016/1905 of 22 September 2016 (published in the Official Journal on 29 October 2016). The standard applies to the first annual reporting period beginning on or after 1 January 2018.

On 13 January 2016 the IASB issued IFRS 16 “Leases”, which specifies how leases must be recognised, measured, presented and disclosed. It applies to annual reporting periods beginning on or after 1 January 2019 although earlier application is permitted if IFRS 15 "Revenue from contracts with customers" has also been applied. IFRS 16 replaces IAS 17 and the respective interpretations. Regulation 2017/1986 endorsing IFRS 16 was published in the Official Journal on 9 November 2017.

Based on the analyses carried out by the Group, the application of the two new accounting standards described above is not expected to have any significant impact on the statement of financial position.


CONSOLIDATION PRINCIPLES

Financial statements used for consolidation

The Consolidated Financial Statements have been prepared using, for the consolidated companies, the reporting package drawn up according to the instructions of the Parent Company.

With regard to the consolidation of income statement items of the Uniqa companies, please note that these refer to the period from 1 April 2017 ‐ 31 December 2017. Although these companies were actually acquired on 16 May 2017, the effect of consolidation on income statement items generated between 1 April and 16 May was not deemed of material importance, in terms of the proper disclosure of the Group's operating results.

Date of the Consolidated Financial Statements

The reference date is 31 December, the date on which all consolidated companies close their accounts.

Presentation currency

The accounts are presented in euros, the Group's functional currency; all amounts stated in the schedules and in the related Notes are rounded to the nearest thousand.

Basis of consolidation

The main criteria adopted in preparing the Consolidated Financial Statements are set forth below:

‐ Full consolidation

The Consolidated Financial Statements include those of the Parent and of associated companies in which Reale Mutua holds, directly or indirectly, a majority of the voting rights or exercises effective control. The assets and liabilities of fully‐consolidated companies are included in the Consolidated Financial Statements after eliminating the carrying value of the investments against the related shareholders’ equity. Minority interest in shareholders’ equity and in the operating result has been disclosed, according to the schedules envisaged, in specific items of consolidated shareholders’ equity and of the Consolidated Income Statement.

According to IAS 21, the following procedures must be used to prepare consolidated accounts that include foreign currency items:

balance sheet items (except shareholders' equity) must be translated into euros using the closing rate of exchange;

share capital must be translated into euros at the rate of exchange in force at the date of the transaction and retained earnings at the exchange rate at the time of generation of each net profit included in the item;

income statement items must be translated into euros using the average rate of exchange for the year.

Exchange differences arising from such translations are posted to a specific equity reserve. These are only recognised in the income statement upon disposal of the investment.

‐ Consolidation by the equity method

According to the equity method of consolidation, the Consolidated Financial Statements disclose only the portion of the carrying value of the shareholders’ equity of investments including the operating results of the year but not the values of the individual items. Associated companies are valued by the equity method as established by IAS 28.

251

Differences arising on consolidation

Differences between the underlying shareholders’ equity of the consolidated companies and the carrying values of the investments set forth in the individual accounts are allocated directly to consolidated shareholders’ equity in the consolidation reserve included under the Retained earnings and other capital reserves item. If the higher price paid reflects prospects of future earnings, positive differences are taken to Goodwill as difference on consolidation.

Elimination of intra‐group transactions

When preparing the Consolidated Financial Statements, all receivables, payables, revenues, expenses referring to transactions between Group companies consolidated line by line and by the proportional method and gains and losses, except for those considered permanent, resulting from transactions between Group companies and not yet realised with third parties have been eliminated. Dividends collected during the year by companies included in the scope of consolidation have also been eliminated.

VALUATION CRITERIA

The main valuation criteria adopted in preparing the Consolidated Financial Statements are set out below.

Consolidation criteria

The Consolidated Financial Statements of Reale Group reflect line‐by‐line integration of the accounts of the Reale Mutua Parent with those of all the companies controlled both directly and indirectly thereby. IFRS 10 envisages line‐by‐line consolidation also of subsidiaries that perform dissimilar activities to those of the Parent. Associated companies are stated according to the underlying shareholders’ equity. The Group does not have joint arrangements for which IFRS 11 envisages adoption of the proportional integration method.

Business combinations ‐ Goodwill

Business combinations are valued according to the purchase method. Therefore, the assets, liabilities and any identifiable potential liabilities of the business acquired that comply with the conditions for disclosure according to IFRS 3 are recognised at their current values on the date of acquisition, except for non‐current assets which are designated as held for sale as prescribed by IFRS 5 and which are recognised and measured at current values minus transaction costs.

Goodwill represents the excess of the cost of the acquisition over the fair value of the Group’s share of the identifiable assets, liabilities and potential liabilities of the business acquired. Goodwill is recognised under assets and is tested for impairment at least once a year. Impairments of value are recognised in the income statement and are not reinstated subsequently.

Other intangible assets

This item comprises intangible assets identifiable and controllable by the company from which future economic benefits are expected to flow to the enterprise, as established by IAS 38. Intangible assets with a definite useful life are recognised at cost net of amortisation, according to their residual useful life, and tested periodically for impairment. Intangible assets with an indefinite useful life are not amortised but are tested for impairment.


Property, plant and equipment

This item comprises property used in company operations, construction in progress, furniture, fittings, plant, equipment, office machines and also vehicles listed in public registers, as established by IAS 16.

Such assets are recognised at cost which, in addition to the purchase price, includes any accessory charges directly attributable to the purchase and to start of functioning of the asset.

Subsequently they are stated using the amortised cost method and net of any permanent impairments of value. Depreciation is calculated on a straight‐line basis over the estimated residual useful life of the assets. Land, which has an indefinite useful life, is not depreciated. At each reporting date, if there is evidence that an asset is impaired, the asset's carrying value is compared with its recoverable value, equal to the higher of fair value, net of any sale costs, and the relative value of the asset in use, meaning the current value of future cash flows deriving from the asset. Any adjustments are recorded in the income statement. If the reasons for the impairment no longer exist, the value is adjusted upwards by an amount that must not exceed the value of the asset, net of depreciation, had it not been previously impaired.

Upkeep and maintenance expenses that result in a significant and tangible increase in production capacity or safety or that extend the future useful life of the asset, are capitalised and added to the value of the relative asset. Ordinary maintenance costs are recognised in the income statement as incurred.

Leases

Leases are classified as finance leases when, according to the terms of the lease, all the risks and rewards of ownership are transferred to the lessee. All other leases are considered operating leases.

Assets under finance leases are recognised as assets of the Group at their fair value on the date of stipulation of the contract, or if lower, at the current value of the minimum lease payments. The corresponding liability towards the lessee is stated under liabilities for finance leases. Lease payments are allocated between the liability and finance charges so as to achieve a constant rate of interest on the finance balance outstanding. Financial charges are charged to income as incurred.

The costs of lease fees arising on operating leases are stated according to the term of the lease.

Reinsurers’ share of technical provisions

These are calculated according to the contractual conditions of reinsurance treaties in that this method is deemed to represent the specific economic results of the sector most correctly.

Real estate investments

Investments intended to earn rentals or for capital appreciation are classified under this item; property held for instrumental use or available for purchase/sale is not included.

At the time of the initial application of IAS/IFRS principles, real estate investments were recognised according to a deemed cost basis (corresponding to the values of expert appraisals of the property at 1 January 2004) established by IFRS 1.

Items of significant value, for which the useful life differs, are recognised separately.

253

These items are subsequently recognised at cost, in accordance with IAS 16 to which IAS 40 refers, net of depreciation and any permanent impairment of value. Depreciation is calculated on a straight‐line basis over the estimated residual useful life of the assets. Land, which has an indefinite useful life, is not depreciated. The estimated residual life varies according to the category of the property (high, medium, low), also on the basis of appraisals by qualified external consultants.

The following depreciation rates are used:

high‐range properties 1.00%mid‐range properties 2.00%low‐range properties and individual units 3.00%

At each reporting date, if there is evidence that an asset is impaired, the asset's carrying value is compared with its recoverable value, equal to the higher of fair value, net of any sale costs, and the relative value of the asset in use, meaning the current value of future cash flows deriving from the asset. Any adjustments are recorded in the income statement. If the reasons for the impairment no longer exist, the value is adjusted upwards by an amount that must not exceed the value of the asset, net of depreciation, had it not been previously impaired.

Upkeep and maintenance expenses that result in a significant and tangible increase in production capacity or safety or that extend the future useful life of the asset, are capitalised and added to the value of the relative asset. Ordinary maintenance costs are recognised in the income statement as incurred.

Equity investments in associates and joint ventures

The item comprises equity investments not consolidated line by line that can be measured by the equity or cost method. This item comprises equity investments in associates and joint ventures. Such investments are recognised according to the equity method, proportionally to the interest held by the Group. The equity investment is derecognised when contractual rights to receive expected cash flows from this are transferred.

Loans and receivables

This category includes loans, receivables and financial instruments that are not traded, with fixed or measurable incoming cash flows.

These assets are initially recognised on the date of signing of the contract, which coincides with the date of payment or, in the case of debt securities, the settlement date, based on fair value, equal to the amount paid, or subscription price, inclusive of directly attributable transaction costs.

Subsequently, these items are recognised at amortised cost calculated using the effective yield method. The effective interest rate is determined by calculating the rate that exactly discounts the current value of estimated future cash payments on the loan, both capital and interest, to the amount of the loan including costs/income attributable to the loan. These assets are tested for impairment at each annual or interim reporting date: impairments of value are stated in the income statement. If the reason for the impairment ceases to exist, the carrying value is reinstated in subsequent years; increases in value are stated in the income statement and must not result in a value of the asset in excess of what the amortised cost would have been if the write‐down for impairment had not been made.

The financial asset is derecognised when the contractual rights to receive the cash flows from the asset and the underlying risks are transferred.

The fair value of such assets is represented by the presumable value of recent or similar transactions or based on valuation techniques.


Financial assets available for sale

This category comprises all financial assets not covered by the other IAS 39 classifications. This section therefore includes equity securities, except for those included in subsidiary, affiliate and joint venture equity investments, listed debt securities, structured securities with embedded derivatives and mutual funds and unlisted debt securities not included in the previous categories.

These items are recognised initially on the date of settlement and at cost, considered to be the fair value of the financial instrument, increased by directly attributable transaction costs. The assets classified in such category are recognised at amortised cost using the effective yield method and measured at fair value. The fair value coincides with the closing price on the last day of trading of the year for instruments traded in an active market. In the absence of an active market, the fair value is represented by the price of recent transactions or of similar instruments or, alternatively, the values resulting from application of commonly used valuation models, that take into account the correlated risk factors and are based on market observables (e.g. cash flow discount). Differences in relation to the carrying value must be recognised in equity in a specific reserve for retained earnings or unrealised losses that will be utilised in the case of disposal.

At the time of sale or redemption, any losses or gains in relation to the value stated under assets are recognised in the income statement together with reversal of cumulative gains or losses and recorded in the corresponding item of shareholders’ equity. These assets are tested for impairment at each annual or interim reporting date. Impairments of value are stated as reducing the cost with offsetting item in the income statement through reversal of the portions of cumulative gains or losses and recorded in the specific equity item. If the reasons for the impairment no longer exist, the carrying value is reinstated and recognised in the income statement in the case of debt securities and posted to equity in the case of equity securities. The increase in value of debt securities must not result in a value of the asset in excess of what the amortised cost would have been if the write‐down for impairment had not been made.

The financial asset is derecognised when the contractual rights to receive the cash flows from the asset and the underlying risks are transferred.

Financial assets at fair value through the income statement

This category comprises financial instruments held for trading in the near term, derivatives and securities designated by the enterprise as measured at fair value through the income statement. Designated securities include structured financial instruments for which the embedded derivative must be valued separately if not closely related to the host contract, assets hedging the pension fund, unit‐ and index‐linked policies and any excesses intended to be disposed of.

These items are recognised initially on the settlement date and at cost deemed to be the fair value of the financial instrument; transaction costs and proceeds directly attributable to the purchase/sale of the instrument are not considered on initial recognition and are recognised directly in the income statement.

Subsequently, the liability is measured at fair value and the difference between the fair value and the carrying value is recognised in the income statement. The fair value coincides with the closing price on the last day of trading of the year for instruments traded in an active market. In the absence of an active market, the fair value is represented by the price of recent transactions or of similar instruments or, alternatively, the values resulting from application of commonly used valuation models, that take into account the correlated risk factors and are based on market observables (e.g. cash flow discount).

A financial asset measured at fair value through the income statement is derecognised when the contractual rights to receive the cash flows from the asset and the underlying risks are transferred.

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Hedging derivatives (Hedge Accounting)

Where appropriate, financial risks are covered using hedging derivatives in the form of cash flow hedges. A necessary condition for use of these hedges is the drafting of documentation that precisely identifies the strategy and objectives of the hedge and also the hedge derivative, the asset hedged and the correlation between these. With regard to strategies and declared objectives, hedging operations are monitored through periodic tests intended to demonstrate their effectiveness. As regards cash flow hedges, changes in fair value of the derivative are recognised in equity for the effective portion of the hedge and in the income statement for the ineffective portion. Amounts stated under equity will be recorded in the income statement when the cash flows hedged are realised. If the test does not confirm the effectiveness of the hedge, recognition of this is interrupted and the derivative is reclassified under non‐hedge derivatives. With regard to fair value hedges, the derivatives hedge fluctuations in the value of certain liabilities and are disclosed and recognised at fair value. In the case of effective hedge, the change in fair value of the item hedged is offset by the change in fair value of the hedging derivative. Such offsetting is disclosed through recognition in the income statement of the changes in value of both the item hedged and the hedging derivative. Any difference, which represents the ineffective portion of the hedge, therefore represents its net economic effect.

Measurement of the fair value of financial assets

General principles

Fair value is the amount for which an asset could be exchanged or a liability settled between knowledgeable, willing parties in an arm’s length transaction. An active market is the market for which quoted prices are readily and regularly available or systematically quoted on “alternative” trading systems from official circuits whose prices are considered “significant” and also those observable from contributors who operate as primary traders on the various markets where the prices proposed are representative of potential transactions and effective market transactions carried out in an orderly manner in normal trading conditions. The fair value determined is not the amount that would be received or paid in a forced transaction but the value at which a transaction could be carried out on the reporting date for such instruments in the most advantageous market to which the entity has access.

Fair value hierarchy

Assets and liabilities measured at fair value are classified according to the hierarchy established by IFRS 13. This classification defines a fair value hierarchy according to the level of discretion used. It gives the highest priority to quoted prices in active markets that represent the assumptions that market participants would use when pricing the asset or liability. The classification is based on the approach used to measure the fair value (Mark to Market, Mark to Model, Counterparty) and on whether the inputs are observable, if the Mark to Model approach is used. The fair value hierarchy defined and adopted as of 31 December 2017 is illustrated below:

Effective market quotes ‐ (Level 1): market price according to quoted prices in active markets. The existence of unadjusted quoted prices in an active market represents the best evidence of fair value; such prices are therefore those to which priority must be given for the valuation of financial assets. In the absence of an active market, valuation techniques must be adopted to determine an appropriate fair value. Such techniques include:

Valuation techniques ‐ (Level 2): this approach refers to market values connected directly or indirectly to the instrument to be valued and referring to products with similar risk characteristics. It is based on approximate valuations furnished by reliable providers or on prices determined using appropriate calculation methods and market observables. This method of calculation does not include discretionary parameters ‐ i.e. parameters whose value cannot be derived from the prices of financial instruments traded in active markets or cannot be determined at levels such as to replicate prices not present on active markets – such as to have a decisive influence on the final valuation price.


Valuation techniques ‐ (Level 3): measurements are based on observable and unobservable inputs and therefore involve estimates and assumptions when making the valuation.

The above methods must be applied in hierarchical order: if a price is available at level 2, one of the other valuation approaches based on assumptions formulated by the valuer must not be used (level 3).

Valuation process

In order to guarantee continuity and consistency of portfolio valuation and also comparison with the previous year, no modifications were made during the year as regards the determination of the fair value.

For debt securities, the fair value is determined as follows:

‐ for financial instruments quoted in active markets: the official prices on the last day of the reference year as these provide the best evidence of fair value and must be used when available (level 1);

‐ for financial instruments not quoted in active markets: the value furnished by contributors or financial intermediaries on the reference date. In a limited number of cases in which a value was not available, an estimate of fair value, made by a Group banking company according to market observables (level 2), was used.

For a number of instruments belonging to the loans and receivables category, where the price furnished is not available, the following valuation technique based on market observables was adopted: discounting of future cash flows (coupons and repayments) according to the risk‐free discount rate increased by a valuation spread of the security (discounted cash flows, in level 2).

The fair value of capital instruments has been determined as follows:

‐ for financial instruments quoted in active markets: the official prices of the last day of the reference year (level 1);

‐ for financial instruments whose fair value cannot be reliably determined: valuation at cost. The fair value is not reliable if the variability in the range of reasonable estimates of fair value is significant and the probability of the various estimates within the range is not reasonably ascertained. This type of valuation is applied to equity investments of a not significant amount, both at individual level and with regard to all Group financial assets (level 3).

For shares of common investment funds, the fair value is equal to the Net Asset Value provided by the asset management companies (level 3 for closed or speculative funds, level 1 for all others).

For derivative financial instruments, fair value is determined according to the values furnished by financial counterparties who use a standard method complying with those adopted on the market. This method adopts multiple parameters and indices which are in turn determined according to market observables derived from primary sources recorded on the valuation date (level 2).

The fair value of other receivables, which is required for information only, is mainly based on the use of unobservable internal parameters and is equal to the carrying value (level 3).

The fair value of real estate investments, which is required for information only, is equal to the appraisal value as calculated by independent experts (level 3).

Permanent impairment of financial assets

A financial asset or group of financial assets, excluding those designated at fair value recognised in the income statement, is impaired in the case of objective evidence of an impairment of value following one or more loss events after initial recognition of the asset, such as to generate a reduction in reliably estimated future cash flows relating to the financial assets. Possible indicators (qualitative factors) of impairment include: significant financial difficulties of the issuer, high probability of bankruptcy or admission to insolvency proceedings, disappearance of an active market due to financial difficulties, significant negative changes in the technological, market, economic or regulatory context in which the issuer operates, substantial downgrading of the issuer’s credit rating, the announcement or application of debt restructuring plans and the presence of impairments already disclosed in the accounts of previous years. In particular, further parameters can be distinguished

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according to type of financial assets; for example, for debt securities, effective breach of contract (such as default or failure to pay interest or principal).

For Group and unquoted investments and also for capital instruments held for strategic purposes, in addition to the above aspects, consideration must also be given to significant, prolonged impairments with consequent erosion of shareholders’ equity or significant differences between costs and pro‐quota shareholders’ equity, always in relation to the general capital and financial situation of the company and its development prospects.

For quoted capital instruments or shares in common investment funds, a significant or prolonged impairment of fair value in relation to the carrying value of the security is objective evidence of impairment of value. The Group considers the following quantitative parameters:

‐ the price of the security is continuously below its initial recognition value for a period of more than 24 months (prolonged impairment);

‐ the price of the security on the reporting date is more than 40% lower than the initial value (significant impairment).

In the case of objective evidence of impairment, this is determined as the difference between the amortised cost and the fair value or the current value of the prudent estimate of their probable recovery value at the time of valuation and is taken to the income statement. If, in subsequent periods there is evidence that this no longer exists, the carrying value of the assets is restored, in the income statement for debt securities (up to the limit of the previous impairment) and in shareholders’ equity for capital securities; otherwise further reductions of value, even if only slight with respect to the carrying value of the investment, are automatically taken to the income statement.

Miscellaneous receivables

This item mainly reflects receivables from policyholders for premiums being collected, from agents and other intermediaries and from insurance and reinsurance companies. Receivables are recognised at amortised cost calculated using the effective yield method. Such method is not adopted for receivables of such short duration as to make the effects of actualisation negligible; such receivables are carried at historical cost which corresponds to their face value, and are tested for impairment.

Non‐current HFS assets

Non‐current HFS assets are measured at the lower of their carrying value and market value net of sales costs. Non‐current assets are designated as Held For Sale when the carrying amount will be recovered principally through a sale transaction rather than through continuing use in the operations of the company. This condition is met only when sale is highly probable and the asset can be sold immediately in its initial conditions.

Cash and cash equivalents

This category comprises cash on hand and sight deposits. These items are stated at face value and in the case of foreign currencies at the year‐end exchange rate.

Group interest in shareholders’ equity

This heading reflects capital instruments and Group interest in shareholders’ equity. In particular, the Capital item reflects the amount of the Parent Company’s guarantee fund. Retained earnings and other capital reserves include, amongst others, gains or losses deriving from first‐time application of international accounting standards, catastrophe and equalisation provisions as set forth in IFRS 4.14(a) and consolidation reserves.


Gains or losses on AFS assets reflect gains and losses deriving from valuation of AFS financial assets, net of any deferred taxes and of the part attributable to policyholders and posted to insurance liabilities (so‐called shadow accounting). The Reserve for net exchange differences includes exchange differences recognised in equity, according to IAS 21, which derive from the translation of financial statements presented in foreign currencies into the presentation currency of the consolidated accounts.

Minority interest in shareholders’ equity

This heading comprises minority interest in capital instruments and related equity reserves.

Provisions

This item comprises the allocations pursuant to IAS 37 for present obligations (legal or implicit) deriving from a past event with which the company will probably be required to comply and the amount of which can be reliably estimated. Provisions represent the best possible estimate based on the data available on the reporting date and are discounted when the effect is significant.

Non‐life business premiums and technical provisions

Gross premiums written include amounts maturing during the year on insurance contracts, as defined by IFRS 4. Any revenues related to policies with an insignificant insurance risk component are not included under this item but treated according to the requirements of IAS 39 and IAS 18.

Insurance contracts within the scope of application of IFRS 4 are recognised according to the principles applicable to the statutory financial statements and, in particular, in accordance with the provisions of ISVAP Regulations Nos. 16 and 22. Therefore, such principles and provisions constitute the general rules applied for the recognition and measurement of technical provisions. In particular, the principle whereby the amount of the provisions must always be sufficient to guarantee compliance by the companies, as far as reasonably possible, with commitments assumed towards insureds has been complied with. The provisions are therefore calculated according to the criteria of the individual financial statements and technical provisions have not been re‐measured according to IFRS 4.

The provision for unearned premiums comprises two components, namely the provision for premium instalments and the provision for unexpired risks. The provision for premium instalments has been calculated according to the pro‐rata method based on gross premiums written, minus acquisition costs.

The provision for claims outstanding is estimated analytically according to a prudent evaluation based on objective data, adopting an ultimate cost approach, in the measure necessary to match commitments for the payment of the claims and the related direct and indirect claim settlement costs. The provision includes the estimate of claims for the year not yet reported. Actuarial statistical methods are used to verify the adequacy of the provisions in relation to ultimate cost.

At each reporting date, the company is required to carry out a Liability Adequacy Test on the provisions, as established by IFRS 4. The test consists in estimating future cash flows relating to existing contracts and on the basis of current assumptions. Any inadequacy of technical provisions in relation to estimated future cash flows must be recognised entirely in the income statement. With regard to the foregoing, it is considered that the requirements established by Italian insurance regulations are consistent and comply with the requirements of IFRS 4. In particular, it is considered that the unexpired risks component of the provision for unearned premiums, accrued in the case in which, for each class of business, the expected charge for claims exceeds the revenues of subsequent years, constitutes a reasonable approximation of the Liability Adequacy Test. Also in the case of the provision for claims outstanding, it is considered that measurement of such provisions on an ultimate cost basis comprises the main non‐discounted future cash flows and can, therefore, be considered as exceeding the amount resulting from application of the LAT according to IFRS4.

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Recognition of catastrophe and equalisation provisions is not permitted in that IFRS 4 does not envisage recording of any prudent provision for future claims; therefore the related provisions stated in the individual financial statements are reversed on consolidation.

The provision for increasing age is calculated analytically on the basis of actuarial methods.

Life business premiums and technical provisions

The Life portfolio has been classified interpreting the concept of significant insurance risk envisaged by IFRS 4 as equivalent to a ratio of risk capital to the total mathematical provision of at least 10%.

The contracts portfolio has been classified at individual policy level.

Briefly, the breakdown of the portfolio is as follows:

Insurance contracts:

‐ Revaluable policies tied to the duration of human life (except for deferred capital, mixed and whole life and zero technical return rate);

‐ Non‐revaluable policies (term life insurance); ‐ Deferred and immediate annuity policies.

Financial instruments containing a discretionary participating feature:

‐ Revaluable capitalisation policies (without guaranteed annuity coefficients); ‐ Revaluable policies tied to the duration of human life (deferred capital, mixed and whole life and zero

technical return rate).

Financial instruments without discretionary participating feature:

‐ Non‐revaluable policies (deferred capital, capitalisations); ‐ Indexed policies; ‐ Unit‐linked and index‐linked policies with death benefit at market value.

Insurance contracts and financial instruments with discretionary participation feature are recognised and measured according to current Italian legislation and the adequacy of provisions is tested according to IFRS 4. This test verifies the adequacy of “net technical provisions” through comparison with the “realistic provision" determined according to the current value of future cash flows. Contracts classified as financial instruments without discretionary participation are recognised according to IAS 39. For index‐linked contracts with death benefit at market value, the service component, recognised according to IAS 18, has been extrapolated:

‐ revenues and costs relating to the same transaction must be recognised simultaneously; ‐ revenues and costs from rendering of services must be recognised according to stage of completion of

the transaction.

Stage of completion can be measured using various methods, also including the constant rate method unless it is evident that other methods would represent stage of completion more effectively. Therefore, the portion to be amortised of costs incurred on financial contacts (DAC) and, conversely, the portion not yet matured of revenues linked to such contracts (DIR) have been determined on a linear basis. The financial component of the liabilities has been measured at fair value consistently with the underlying assets.

Shadow Accounting

Section 30 of IFRS 4 permits shadow accounting in order to match the value of the provision for policy liabilities relating to contracts inserted in Life separately managed accounts with the value of the financial assets inserted in separately managed accounts, determined according to IAS 39. Financial assets assigned to separately managed accounts are included in the AFS financial assets and financial assets measured at fair value through the income statement categories, both measured at fair


value. According to this accounting practice, shareholders’ equity or the result for the period has been adjusted for a value equal to the difference between the fair value and the carrying value of assets inserted in separately managed accounts, taking into account the average retrocession rate established in Life contracts and in compliance with guaranteed minimum rates. In other words, the difference between the mathematical provision measured according to international accounting standards, and that measured according to Italian GAAP reflects the year’s portion of unrealised gains and unrealised losses relating to securities inserted in separately managed accounts that will be paid to policyholders only at the time of sale of the assets.

Financial liabilities measured at fair value through the income statement

This category comprises financial liabilities held for trading in the near term, derivative financial instruments and liabilities designated by the enterprise as measured at fair value through the income statement. This category comprises all Life business financial policies. These items are recognised initially on the date of settlement at the fair value of the liability; direct transaction costs and proceeds are not considered at the time of initial recognition and are recognised directly in the income statement. Subsequently, the liability is measured at fair value and the difference between the fair value and the carrying value is recognised in the income statement. A financial liability measured at fair value through the income statement is derecognised when the contractual rights to receive the cash flows from the liability and the underlying risks are transferred.

Other financial liabilities

This category comprises financial liabilities not held for trading. It reflects loans and mortgages received and reinsurers’ deposits. These items are recognised initially on the date of payment at fair value, increased by direct transaction costs. Subsequently, these liabilities are recognised at amortised cost according to effective yield. Financial liabilities are derecognised when the contractual rights to the liabilities and underlying risks are transferred.

Payables

This item reflects trade payables and includes in particular payables arising out of direct insurance operations and reinsurance operations and also employee termination benefits.

Employee benefits

The provision for employee termination indemnities is regarded as a defined benefit plan.

Payables and the cost of the benefits disbursed in the year, recognised in the income statement, are determined using the Projected Unit Credit Method, which envisages the estimation of future outflows according to statistical and demographic assumptions and the financial discounting of such flows based on a market interest rate. Actuarial gains and losses from the re‐measurement of liabilities and assets at the reporting date are stated under equity.

Following the reform of supplementary pension schemes introduced by Law No. 296/06, a distinction must be made between:

‐ Termination indemnities, accrued at 31 December 2006: these are qualified as defined‐benefit plans as they have not been modified by the aforementioned reform.

‐ Termination benefits accrued after 31 December 2006: as decided by each employee, termination benefits accruing are allocated to supplementary pension funds or transferred to the Treasury Fund set up at INPS. In both cases, termination benefits are classed as defined‐benefit plans and the

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company recognises the quotas of contributions to supplementary pension funds and to the INPS Fund for the provision of work by employees in the income statement.

The healthcare policy for retired managers and the seniority bonuses for employees under the collective national employment contract, are classified as defined‐benefit plans.

Tax assets and liabilities

Income taxes are determined according to the forecast tax liability calculated on the income of the Group according to the tax rate in force on the reporting date. The Parent and the Italian subsidiaries (with the exception of Uniqa companies) have exercised the option to participate in the national fiscal consolidation scheme. Advance and deferred taxes have been calculated on the total amount of temporary differences between the values relevant for fiscal purposes and the carrying values, and on all adjustments made in accordance with IAS/IFRS principles. Deferred taxes have been calculated at the rate of taxation that is expected to apply at the time of realisation of the asset or cancellation of the liability. Deferred tax assets are recognised in the income statement, except for those relating to items recognised directly in equity, in which case the respective deferred taxes are also recognised under equity.

Commissions receivable and payable

These items comprise commissions relating to investment contracts not within the sphere of application of IFRS 4. In particular, they reflect the year's portion of explicit and implicit loadings and of management commissions, as regards commissions receivable, and acquisition costs as regards commissions payable. The items also reflect commissions accrued by companies operating in the banking sector.

Income and charges on investments

‐ Net income on financial instruments measured at fair value through the income statement

This item comprises realised gains and losses and positive and negative changes of value of assets and liabilities included in the "fair value through the income statement" category. The changes of value are measured according to the difference between fair value and carrying value of the financial instruments recorded in this category.

‐ Income/charges on investments in subsidiaries, associates and joint ventures

This item comprises income/charges deriving from investments in Group associated companies and joint ventures. In particular, it reflects Group interest in the result for the period of such associates.

‐ Income on other financial instruments and property investments

The item includes:

income/charges and realised gains/losses on AFS investments; income and charges on loans and receivables and other financial liabilities; income and charges on real estate investments.

Other revenues

The item includes, in particular:

‐ revenues on the sale of goods, the rendering of services other than those of a financial nature and the use, by third parties, of property, plant and equipment and intangible assets and of other business assets;

‐ other technical income linked to insurance contracts; ‐ exchange differences recognised in the income statement according to IAS 21; ‐ realised gains and any readjustments of value on intangible assets and property, plant and equipment.


Net charges for claims

This heading reflects claims paid, net of refunds, the change in the provisions for outstanding claims and other Non‐life technical provisions, the change in the mathematical provision and other Life technical provisions, the change in technical provisions relating to contracts where the investment risk is borne by the policyholders relating to insurance contracts and financial instruments within the scope of application of IFRS 4. The amounts are disclosed before claim settlement costs and net of portions ceded in reinsurance.

Other costs

The item includes, in particular:

‐ costs relating to the sale of assets and supply of services other than of a financial nature; ‐ other net technical charges linked to insurance contracts; ‐ provisions taken during the year; ‐ exchange differences recognised in the income statement according to IAS 21; ‐ realised losses, any permanent impairments of value and provisions relating to property, plant and

equipment when not allocated to specific items ‐ and intangible assets.

UNCERTAINTIES CONCERNING THE USE OF ESTIMATES

The information required in accordance with section 125 of IAS 1 is provided below.

The Consolidated Financial Statements for 2017 have been presented clearly and provide a true and fair view of the equity and financial situation and the operating result. Information about decisions made and the criteria used for estimations and valuations as required in accordance with international accounting standards is suitably illustrated in the explanatory notes. The use of estimates and assumptions by the Directors may however affect the amounts written in terms of assets and liabilities, costs and revenues. It is important to note that the estimates and hypotheses used, formulated on the basis of past experience and other reasonable assumptions, are subject to possible variations that could significantly affect the equity and financial situation as reported in these accounts. The following in particular are based on the use of subjective judgements:

‐ the estimated recoverability of goodwill stated in assets arising on company acquisitions; ‐ the determination of the fair value of financial assets and liabilities when not observable on active

markets. Such measurements are subjective in that they use inputs that are not directly or indirectly based on market observables and therefore involve estimates and assumptions when making the valuation;

‐ the estimated recoverability of deferred tax assets; ‐ the quantification of provisions for other risks and charges and employee benefit funds, given the

impossibility of ascertaining the amount or date of occurrence and applicable actuarial methods; ‐ the estimation of Non‐life technical provisions.

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CONSOLIDATION AREA

List of Group equity investments

The schedules that follow illustrate, respectively, fully‐consolidated equity investments and those consolidated by the equity method.

With respect to the previous year, the fully consolidated companies now include the Chilean insurance company Reale Chile Seguros Generales S.A., in which the Reale Group Chile S.p.A. subsidiary holds a 99.99% interest and the Reale Group Latam S.p.A. subsidiary owns the remaining 0.01%, and the Group also acquired 99.72% of the share capital of Uniqa Assicurazioni S.p.A., the company that owns 100% of the share capital of Uniqa Previdenza S.p.A. which, in turn, has a 90% stake in Uniqa Life S.p.A. and a 100% interest in Uniqa Intermediazioni S.r.l.


Fully consolidated companies

Company Sector % Company and % Group

direct indirect interest

REALE MUTUA DI ASSICURAZIONI

Turin insurance ‐ ‐ ‐ ‐

Guarantee fund € 60,000,000 Non‐life and Life

ITALIANA ASSICURAZIONI S.p.A.

Milan insurance 100.00 ‐ ‐ 100.00

Share Capital € 40,455,077 Non‐life and Life

UNIQA ASSICURAZIONI S.p.A.

Milan insurance 99.72 ‐ ‐ 99.72

Share Capital € 7,761,605 Non‐life

UNIQA PREVIDENZA S.p.A.

Milan insurance ‐ Uniqa Assicurazioni S.p.A. 100.00 99.72

Share Capital € 39,000,000 Life

UNIQA LIFE S.p.A.

Milan insurance ‐ Uniqa Previdenza S.p.A. 90.00 89.75


REALE SEGUROS GENERALES S.A.

Madrid insurance 95.00 Italiana Ass. S.p.A. 5.00 100.00


REALE VIDA Y PENSIONES S.A.

Madrid insurance 5.00 Reale Seguros S.A. 95.00 100.00


REALE CHILE SEGUROS GENERALES S.A.

Santiago insurance ‐ Reale Group Chile S.p.A. 99.99 97.00

Share Capital € 8,779,895 Non‐life ‐ Reale Group Latam S.p.A. 0.01

REALE IMMOBILI S.p.A.

Turin real estate 85.92 Italiana Ass. S.p.A. 14.08 100.00

Share Capital € 209,500,000

BANCA REALE S.p.A.

Turin banking 95.00 Italiana Ass. S.p.A. 5.00 100.00


REALE ITES EEIG

Turin services 81.70 Italiana Ass. S.p.A. 0.02 100.00

Endowment fund € 85,242,782 Reale Seguros S.A. 18.26

Reale Vida S.A. 0.01

Banca Reale S.p.A. 0.01

BLUE ASSISTANCE S.p.A.

Turin services 100.00 ‐ ‐ 100.00


IGAR S.A.

Madrid real estate 95.00 Reale Seguros S.A. 5.00 100.00


REALE GROUP LATAM S.p.A.

Santiago holding ‐ Reale Seguros S.A. 100.00 100.00

Share Capital € 25,610,163 insurance

REALE GROUP CHILE S.p.A.

Santiago holding ‐ R. Group Latam S.p.A. 97.00 97.00

Share Capital € 25,794,403 insurance

ITALNEXT S.r.l.

Milan services ‐ Italiana Ass. S.p.A. 100.00 100.00

Share Capital € 50,000

UNIQA INTERMEDIAZIONI S.r.l.

Milan services ‐ Uniqa Previdenza S.p.A. 100.00 99.72

Share Capital € 10,000

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Companies valued by the equity method

Company Sector % Company and % Group

direct indirect interest

SARA ASSICURAZIONI S.p.A.

Rome insurance 31.43 ‐ ‐ 31.43


CREDEMASSICURAZIONI S.p.A.

Reggio Emilia insurance 50.00 ‐ ‐ 50.00



INFORMATION REGARDING THE CONSOLIDATED BALANCE SHEET

1. INTANGIBLE ASSETS

(in € thousands)

31.12.2017 31.12.2016 Change

Goodwill 267,246 201,114 66,132

Other intangible assets 119,014 121,871 ‐2,857

Total 386,260 322,985 63,275

Goodwill

The movement on this item is detailed in the table below:

(in € thousands)

31.12.2017 31.12.2016

Gross value at the start of the year 208,435 208,435

Permanent impairments of value recorded in previous years ‐7,321 ‐7,321

Sub‐total 201,114 201,114

Increase for the year 66,132 0

Reductions due to transfers and reclassifications 0 0

Impairments of value recorded in the year 0 0

Other changes 0 0

Total 267,246 201,114

Goodwill amounted to 267,246 thousand and stemmed from the following operations:

‐ Reale Seguros: incorporation of Imperio Vida y Diversos, Union Aseguradora and Mutual Flequera:

182,175

‐ Consolidation difference on CredemAssicurazioni: 18,939

‐ Consolidation difference on Uniqa companies: 66,132 The goodwill arising on incorporation of Imperio Vida y Diversos S.A., Union Aseguradora S.A. and Mutual Flequera S.A. by Reale Seguros in 2003, 2005 and 2007, respectively, reflects the residual value of the positive difference between the purchase cost and the carrying values of the assets and liabilities acquired by the Group. The goodwill arising on incorporation of the investment in CredemAssicurazioni by the Parent carried out during 2012 reflects the positive difference between the purchase cost and the fair value of the assets and liabilities acquired. The increase for the year, amounting to € 66,132 thousand, refers to the consolidation of the equity investments in Uniqa Assicurazioni, Uniqa Previdenza and Uniqa Life, the acquisition of which was finalised in the first half of 2017. This item was provisionally determined under IFRS 3 "Business combinations", in that the fair value of the acquired assets and liabilities acquired was, in some cases, only determined provisionally.

The goodwill allocated during first‐time adoption on the date of transition to IFRS/IAS (1 January 2004) was equal to the total amount of the goodwill “inherited” as such on 31 December 2003, insofar as business combinations that occurred prior to such date have not been redetermined, as permitted by IFRS 1.

The goodwill, regardless of origin, has been allocated to the CGU ‐ Cash Generating Units – that are expected to benefit from synergies of the business combination, as prescribed by IAS 36 section 80. The Reale Mutua Group adopts the general rule that the CGU is identified as the company acquired.

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In the case of operations that have resulted in incorporation of a company or business unit by the Reale Seguros subsidiary in previous years, as from financial 2012 the Group has identified the CGU as the company acquired. The decision to consider Reale Seguros as the entity upon which to conduct the impairment test is entirely in line with the definition of CGU as set forth in IAS 36. The Group carries out an impairment test on goodwill allocated to CGU when preparing the annual and interim accounts. In fact, according to IAS 36 “Impairment of Assets”, IAS 38 “Intangible Assets” and IFRS 3 “Business combinations”, insofar as goodwill has an indefinite useful life, it is not systematically amortised but must be tested for impairment. With reference to the consolidation difference for the Uniqa companies, the amount of goodwill is in line with the price that was paid and based on the analyses conducted there has been no impairment of value.

The carrying value of the CGU corresponds to the aggregate consisting of assets, liabilities and shareholders’ equity of the legal entity and related goodwill (so‐called equity side), equivalent to the contribution of the CGU to consolidated shareholders’ equity. The recoverable value of the CGU is determined only according to the value in use model as it is not possible to determine the fair value net of costs to sell. Practically speaking, value in use is determined by estimating forecast incoming and outgoing cash flows that will be generated or absorbed by the CGU, discounted at a pre‐established rate (Discounted Cash Flow). Therefore, for the Spanish company, reference was made to the plan approved by the Board of Directors projected over a time horizon of 7 years. For CredemAssicurazioni, reference was made to the three‐year plan approved by the Board of Directors. Forecast cash flows also comprise premiums and charges relating to the management of insurance portfolios and also income and charges relating to financial assets in the portfolio insofar as closely linked to the nature of insurance business. Consequently, cash flows tend to coincide with the net result of the CGU. The discount rate adopted is the cost of equity, determined as the sum of the risk‐free rate of return and a premium for risk that, in turn, depends on the systematic risk profile of the company to which the valuation refers, measured via a ß coefficient.

The methods used to calculate the discount rate adopted for the Spanish and Italian CGUs are shown below:

Risk‐free rate ß Risk premium Cost of capital

Spanish CGU 1.57% 0.71 5.08% 5.17%

Italian CGU 2.02% 0.71 5.08% 5.62%

For the Spanish CGU, the risk‐free rate was taken as being equal to the yield on ten‐year Spanish government bonos, and for the Italian CGU as being equal to the yield on ten‐year Italian BTPs on the valuation date (average of the previous 3 months, thus corresponding to the period from 30 September 2017 to 31 December 2017). The ß coefficient was determined as the average of the variations in securities issued by European insurers with respect to changes on the market. The Risk Premium represents the compensation for an investment where the risk is higher than that of a risk‐free asset. Value in use comprises the terminal value of the CGU, determined through capitalisation of cash flows generated after the explicit forecast period adopting perpetual annuity formulas. In particular, the last cash flow has been discounted assuming a perpetual growth rate of 1%. A sensitivity analysis has been carried out on the valuations made with the DCF method, assuming fluctuations of the discount rate of +/‐ 1% correlated to changes in the growth rate adopted to calculate terminal value in a range of between 0.5% and 1.5%.


A summary of the results of the analysis is set forth in the table below:

REALE SEGUROS

Change in the recoverable value of the CGU

Terminal Value growth rate

Discount rate 0.50% 1.00% 1.50%

4.17% 117.02% 132.30% 153.31%

5.17% 91.39% 100.00% 110.95%

6.17% 74.98% 74.98% 86.96%

recoverable value (in € thousands) 1,122,343

carrying value (in € thousands) 593,160

ACQUISITION OF CREDEMASSICURAZIONI



Discount rate 0.50% 1.00% 1.50%

4.62% 112.79% 126.81% 145.33%

5.62% 91.33% 100.00% 110.78%

6.62% 76.88% 82.74% 89.73%

recoverable value (in € thousands) 82,265


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Other intangible assets

(in € thousands)

Other intangible assets Total

Software Other

Gross initial balance 386,812 22,719 409,531

Purchases and capital expenditure 36,271 86 36,357

Decreases following sale or reclassification 0 ‐51 ‐51

Increases deriving from business combinations 18,228 1,257 19,485

Impairments of value ‐1,234 0 ‐1,234

Reversals of write‐downs 0 0 0

Other changes ‐36 0 ‐36

Gross final balance 440,041 24,011 464,052

Initial accumulated depreciation ‐285,330 ‐2,330 ‐287,660

Depreciation for the period ‐39,212 ‐241 ‐39,453

Other changes ‐16,687 ‐1,238 ‐17,925

Final accumulated depreciation ‐341,229 ‐3,809 ‐345,038

Carrying value at year‐end 98,812 20,202 119,014

Other intangible assets mainly reflect the costs of software for long‐term use and other assets.

The gross increases deriving from the acquisition of the Uniqa companies amounted to € 19,485 thousand (€ 1,505 thousand net of accumulated depreciation).

Software assets have a definite useful life and are amortised at rates of between 20% and 33%.

The main items stated under purchases, for € 32,538 thousand, refer to the Reale Ites subsidiary, primarily in connection with the total or partial start‐up of the ordinary Solvency II, DataWareHouse Disposal and Work Centre projects and of the strategic Internal Model, Multi‐channel and CRM projects.

Impairments of value, for € 1,234 thousand, refer to an IT project that was not implemented by the Spanish business unit of Reale Ites owing to changes in the technological context of reference.

Other intangible assets include the agreement between the Reale Seguros subsidiary and the Spanish bank BBVA signed in 2013 regarding the exclusive sale of insurance products through the bank channel, recorded for € 20,000 thousand. This was classified as an intangible asset with an indefinite useful life and thus tested for impairment. The carrying value corresponds to the price paid, equal to € 20,000 thousand. The recoverable value was determined according to the value in use model as it was not possible to determine the fair value net of costs to sell. Practically speaking, value in use is determined by estimating forecast cash flows, discounted at a pre‐established rate (Discounted Cash Flow). The parameters used (discount rate and growth rate) are those used for the impairment test on the goodwill of Reale Seguros. A sensitivity analysis has been carried out on the valuations made with the DCF method, assuming fluctuations of the discount rate of +/‐ 1% correlated to changes in the growth rate adopted to calculate terminal value in a range of between 0.5% and 1.5%.


A summary of the results of the analysis is provided below:

SALES AGREEMENT WITH BBVA



Discount rate 0.50% 1.00% 1.50%

4.17% 116.34% 132.39% 154.46%

5.17% 90.82% 100.00% 111.68%

6.17% 74.45% 80.31% 87.42%

recoverable value (in € thousands) 75,116


2. PROPERTY, PLANT AND EQUIPMENT

(in € thousands)

31.12.2017 31.12.2016 Change

Real estate used in company operations:

Land 115,216 121,912 ‐6,696

Buildings 157,121 149,099 8,022

Accumulated depreciation on buildings ‐39,130 ‐40,251 1,121

Net value 233,207 230,760 2,447

Other property, plant and equipment:

Gross value 212,996 213,751 ‐755

Accumulated depreciation ‐180,867 ‐176,329 ‐4,538

Net value 32,129 37,422 ‐5,293

Total 265,336 268,182 ‐2,846

Real estate used in company operations

Real estate stated under property, plant and equipment includes that used in company business. These items are recognised at cost and, after unbundling of the land, are depreciated on a straight‐line basis over their useful life. The depreciation rate used was generally 3%. The land was unbundled on the basis of appraisals made in 2005 which provided a reliable benchmark for measuring the values on the date of transition (01/01/04). The value of Group real estate is tested regularly. In particular, insurance companies are required to comply with the provisions of the Supervisory Authority regarding determination of the market value of real estate used in company operations.

Those properties for which there was a significant difference between the value at 31 December 2017 and that at the end of the previous year were re‐valued at current market conditions. The carrying value of real estate used in company operations is € 83 million lower than the market value determined by the appraisals.

271

The movement on this item is set out in the table below:

(in € thousands)

Land Buildings Total

Gross initial balance 121,912 149,099 271,011

Purchases 457 228 685

Upkeep expenses 0 2,544 2,544

Decreases following sale or reclassification ‐6,030 ‐3,693 ‐9,723


Impairments of value 0 ‐439 ‐439

Reversals of write‐downs 0 4,088 4,088

Other changes ‐4,483 ‐6,146 ‐10,629

Gross final balance 115,216 157,121 272,337

Initial accumulated depreciation ‐40,251 ‐40,251

Depreciation for the period ‐4,368 ‐4,368

Other changes 5,489 5,489

Final accumulated depreciation ‐39,130 ‐39,130


Upkeep expenses mainly refer to construction and renovation work on properties in Corso Vittorio Emanuele II and in Via Bertola in Turin by the Reale Immobili subsidiary for € 1,588 thousand, and on properties in Via Corte d'Appello and Corso Agnelli by the Parent for € 773 thousand. Decreases following sale, for € 9,723 thousand, refer to the sale of the former operational headquarters of the Reale Seguros subsidiary. Increases deriving from business combinations, for € 14,800 thousand, refer to Uniqa Previdenza for € 10,000 thousand (office in Via Carnia, Milan) and to Uniqa Assicurazioni for € 4,800 thousand (office in Via Puintat, Udine). These properties were purchased at their market value based on an expert appraisal in the first half of 2017. Reversals of write‐downs mainly regard the Reale Seguros subsidiary, for € 2,920 thousand, and Reale Immobili, for € 1,166 thousand, and are based on revised expert appraisals. The other changes are essentially the result of the correct allocation of buildings owned by the Parent and by the Reale Immobili and Reale Seguros subsidiaries under property and real estate investments. Regarding the latter, buildings were transferred from real estate used in company operations to properties rented to third parties, for € 9,247 thousand, in view of the contribution to the Igar subsidiary scheduled for 2018.


Other property, plant and equipment

(in € thousands)

Office furniture and machines

PlantOther property,

plant and equipment

Total

Gross initial balance 108,783 94,221 10,747 213,751

Purchases and capital expenditure 2,946 5,303 150 8,399

Decreases following sale or reclassification ‐4,168 ‐3,998 ‐9 ‐8,175

Increases deriving from business combinations 5,128 2,735 3,819 11,682

Impairments of value 0 0 0 0

Reversals of write‐downs 0 0 0 0

Other changes 738 ‐12,661 ‐738 ‐12,661

Gross final balance 113,427 85,600 13,969 212,996

Initial accumulated depreciation ‐93,168 ‐72,461 ‐10,700 ‐176,329

Depreciation for the period ‐5,768 ‐5,426 ‐159 ‐11,353

Other changes ‐701 10,187 ‐2,671 6,815

Final accumulated depreciation ‐99,637 ‐67,700 ‐13,530 ‐180,867

Carrying value at year‐end 13,790 17,900 439 32,129

Other property, plant and equipment mainly includes instrumental assets used by Group companies to carry out their business, such as furniture, hardware, machinery and equipment.

Purchases were mainly made by the Parent and by the Italiana Assicurazioni and Reale Ites subsidiaries for their operational headquarters in Via Bertola, Turin and Via Traiano, Milan, for € 3,635 thousand. The Reale Seguros subsidiary also purchased plant and equipment for the new operational headquarters in Spain, for € 3,105 thousand. Decreases mainly refer to the disposal of obsolete plant and machinery and electronic equipment that had been fully depreciated. Gross increases deriving from the acquisition of the Uniqa companies amounted to € 11,682 thousand (€ 1,642 thousand net of accumulated depreciation). Other changes mainly refer to the reclassification of certain assets under the Real estate investments item by Igar and Reale Seguros.

3. REINSURERS' SHARE OF TECHNICAL PROVISIONS

This item amounted to a total of € 773,348 thousand and refers to direct business for € 769,568 thousand and to inward reinsurance for € 3,780 thousand. The detail is as follows: (in € thousands)

31.12.2017 31.12.2017

(like‐for‐like) 31.12.2016 Change

Non‐life provisions for unearned premiums 89,048 84,624 79,859 9,189

Non‐life provisions for claims outstanding 436,348 329,098 253,771 182,577

Other Non‐life provisions 0 0 0 0

Provision for sums to be paid 22,575 8,981 6,675 15,900

Provisions for policy liabilities 216,986 49,155 52,797 164,189

Technical provisions where the investment risk is borne by the policyholders and relating to the administration of pension funds 6,950 6,950 7,409 ‐459

Other Life provisions 1,441 1,441 1,294 147

Total 773,348 480,249 401,805 371,543

The most significant increase in provisions for claims outstanding, equal to € 106,661 thousand, refers to the Uniqa Assicurazioni subsidiary. The increase in provisions for policy liabilities mainly refers to the Uniqa

273

Previdenza subsidiary, for € 163,577 thousand.

The breakdown of such provisions between ceded and retroceded is set forth in the IVASS annex "Detail of reinsurers' share of technical provisions".

4. INVESTMENTS

(in € thousands)

31.12.2017 31.12.2017


Real estate investments 996,413 986,589 975,908 20,505

Equity investments in subsidiaries, affiliates and j.v. 199,158 199,158 185,531 13,627

Investments held to maturity 0 0 0 0

Loans and receivables 587,421 515,874 548,768 38,653

AFS financial assets 14,250,061 9,802,132 9,805,916 4,444,145

Financial assets measured at fv through the IS 1,530,940 1,183,619 971,487 559,453

Total 17,563,993 12,687,372 12,487,610 5,076,383


Real estate stated under investments is intended for rental to third parties. These items are recognised at cost, in accordance with IAS 16, to which IAS 40 refers in the case of adoption of the cost model and, after unbundling of the land, are depreciated on a straight‐line basis according to useful life. For the Italian companies, the value of the land has been unbundled from that of the building according to appraisals made in 2005, which provide a reliable benchmark for measuring the values on the date of transition (01.01.04). With regard to the Spanish companies, the value of the land is already unbundled from that of the buildings in the statutory accounts according to Spanish GAAP. A depreciation rate of between 1% and 3% was applied. The value of Group real estate is tested regularly. In particular, insurance companies are required to comply with the provisions of the Supervisory Authority regarding determination of the market value of their real estate investments.

Those properties for which there was a significant difference between the value at 31 December 2017 and that at the end of the previous year were re‐valued at current market conditions. The carrying value of real estate investments is € 573 million lower than the market value determined by the appraisals.

The movement on this item is set out in the table below.


(in € thousands)

Land Buildings Total

Gross initial balance 409,787 694,151 1,103,938

Purchases 19 672 691

Upkeep expenses 0 26,393 26,393

Decreases following sale or reclassification ‐1,879 ‐9,779 ‐11,658


Impairments of value 0 ‐997 ‐997

Reversals of write‐downs 0 396 396

Other changes 4,294 18,996 23,290

Gross final balance 413,550 731,355 1,144,905

Initial accumulated depreciation ‐128,030 ‐128,030

Depreciation for the period ‐9,911 ‐9,911

Other changes ‐10,551 ‐10,551

Final accumulated depreciation ‐148,492 ‐148,492


Upkeep expenses mainly refer to construction and renovation work on properties in Milan (Isolato Dogana), Turin (Corso Vittorio Emanuele II, Isolato Sant'Emanuele), Rome (Via Sistina) and to renovation work on individual residential housing units, by the Reale Immobile subsidiary. Decreases following sale or reclassification refer to the value of properties sold during the year by Reale Immobli (for € 2,830 thousand), and to a number of properties owned by the latter that were the subject of preliminary contracts of sale entered into before the reporting date and which were therefore reclassified under non‐current assets or of a disposal group HFS, for € 8,828 thousand. Increases deriving from business combinations, for € 2,852 thousand, refer exclusively to the property units owned by Uniqa Assicurazioni rented to third parties. These properties were purchased at their market value based on an expert appraisal in the first half of 2017. The permanent impairments recorded during the year refer to real estate for which the carrying value exceeds the market value as determined by specific appraisals; the difference between the carrying value and the value that emerged from the appraisal was therefore considered to represent a permanent impairment. Write‐downs refer to properties owned by Reale Immobili, for € 954 thousand, and by Reale Seguros, for € 43 thousand. The other changes mainly derive from the correct allocation of buildings owned by the Parent and by the Reale Seguros and Reale Immobili subsidiaries under business property and real estate investments. The reclassification of Reale Seguros, in view of the contribution to Igar scheduled for 2018, amounts to € 10,835 thousand.

Equity investments in subsidiaries, associates and joint ventures

The Reale Mutua Parent fully consolidates all subsidiaries including those that carry out dissimilar activities. This item therefore includes the interest in Sara Assicurazioni, an associated company, and that in CredemAssicurazioni, a joint venture, both of which are valued by the equity method.

This item amounted to € 199,158 thousand at 31 December. The € 13,627 thousand y/y increase reflects the alignment of the pro‐quota shareholders’ equity of Sara Assicurazioni for € 11,088 thousand and of CredemAssicurazioni for € 2,539 thousand.

275


(in € thousands)

31.12.2017 31.12.2017


Debt securities 86,149 23,448 29,104 57,045

Loans and receivables from bank customers 305,218 305,218 274,558 30,660

Interbank loans 22,420 22,420 66,705 ‐44,285

Deposits with ceding undertakings 3,573 3,573 4,601 ‐1,028

Other loans and receivables 170,061 161,215 173,800 ‐3,739

Total 587,421 515,874 548,768 38,653

The Debt securities item, with a fair value of approximately € 86 million, reflects bonds not quoted on an active market. The increase in this item, for € 57 million, mainly refers to assets of the Uniqa companies. No impairments of value were recorded on debt securities belonging to this category.

The Interbank loans item reflects receivables by the consolidated Banca Reale from other credit institutes for active deposits.

The Other loans and receivables item includes receivables from incoming agents for refund of severance allowances paid to discontinued agents for € 98 million (net of write‐downs for € 4 million), non‐sight deposits and repo agreements for € 20 million and loans on Life policies for € 6 million, as established by IVASS Regulation No. 7.

AFS financial assets

(in € thousands)

31.12.2017 31.12.2017


Capital securities 159,553 156,707 90,698 68,855

Debt securities 13,330,472 9,099,295 9,267,866 4,062,606

Shares of UCI 760,036 546,130 447,352 312,684

Total 14,250,061 9,802,132 9,805,916 4,444,145

The entire portfolio of AFS financial assets is recognised at fair value, except for various unlisted shares, valued at cost, for a value of around € 16 million for which the fair value cannot be determined in a reliable manner.

The debt securities mainly comprise bonds issued by Governments or Supranational Entities as specified in the section “Information regarding risks (Liquidity risk)”. This item includes the contributions of Uniqa Previdenza for € 2,929,735 thousand, Uniqa Life for € 1,118,159 thousand and Uniqa Assicurazioni for € 183,283 thousand.

The increase in Shares of UCI refers to assets of Uniqa companies for € 213,906 thousand. The item includes shares in the GRIES property investment fund, all held by the Reale Immobili subsidiary, the value of which amounted to € 12,156 thousand. Shares in the fund were reimbursed during the year for € 4,998 thousand. In accordance with the disclosure requirements of IFRS 12, information about the aforesaid interest as at 31 December 2017 is provided below:

‐ the total value of the real estate investments held by the fund is equal to € 8,876 thousand; ‐ no dividends were paid to shareholders during the year; ‐ the appraisal of the overall value of the real estate by independent experts generated a valuation loss

of € 51 thousand;


‐ on 7 November 2017 the Board of the Banca Reale subsidiary resolved to extend the loan granted to the GRIES fund until 31 December 2018. The loan was granted at ordinary market conditions to permit the fund to continue its business activities. During the year the loan generated interest income for € 163 thousand. In 2017 the GRIES fund made several capital repayments, following the sale of a number of properties, which resulted in an exposure of € 1,017 thousand at 31 December 2017 compared with € 8,000 thousand at 31 December 2016.

The AFS capital reserve, before taxes and shadow accounting items, amounted to € 690 million and comprised latent gains for around € 742 million and latent losses of around € 52 million.

With regard to impairments of value recognised in the income statement in the period, a summary of the related amounts according to each type of financial asset is provided below:

(in € thousands)

31.12.2017 31.12.2016

Debt securities 0 ‐120

Capital securities ‐977 ‐3,087

Shares of UCI ‐18,537 ‐6,389

Total ‐19,514 ‐9,596

The application of the rules for impairment testing as at 31 December 2017, in accordance with the Group's accounting policy, determined reductions in value for € 516 thousand. Furthermore, the application of the "once impaired, always impaired" rule resulted in a reduction of € 18,998 thousand in the value of securities that had already been written‐down at the end of the previous year. The impairments of value of shares of UCI recognised in the income statement mainly refer to the Atlante Fund, written down for € 18.2 million: further details are provided in the "Investment management" chapter in the Report on Operations.


(in € thousands)

31.12.2017 31.12.2017


Financial assets held for trading

Debt securities 472 0 0 472

Capital securities 0 0 0 0

Shares of UCI 336 336 788 ‐452

Other financial investments 791 0 0 791

Total 1,599 336 788 811

Financial assets measured at fair value through the income statement

Debt securities 519,260 472,297 444,210 75,050

Capital securities 172,619 172,417 147,324 25,295

Shares of UCI 838,324 543,016 376,995 461,329

Other financial investments ‐862 ‐4,447 2,170 ‐3,032

Total 1,529,341 1,183,283 970,699 558,642

Total financial assets through the income 1,530,940 1,183,619 971,487 559,453

Financial assets measured at fair value through the income statement comprise investments where the risk is borne by Life policyholders and relating to the administration of pension funds for € 1,453 million. Changes in shares of UCI classified as financial assets measured at fair value through the income statement, for € 461,329 thousand, include the contribution of Uniqa Previdenza for € 193,518 thousand and of Uniqa Life for € 101,790 thousand. Financial assets held for trading reflect net valuation gains for a total of around € 0.2 million, while financial assets measured at fair value through the income statement include net valuation gains for a total of around € 17 million.

277

It should be noted that, during the year, no reclassifications were made between the above categories of assets.

The reclassifications under level 2 instead of level 1 of the fair value hierarchy, made after 31 December 2016, amounted to around € 27.9 million and were attributable to the lack of an active market. The reclassifications under level 1 instead of level 2, with a value of € 14.8 million, were attributable to the presence of an active market that did not exist at the end of the previous year. Lastly, reclassifications under level 2 instead of level 3 amounted to around € 4.9 million and reflected the availability of a secondary market. There was also a decrease in exposure of level 3 financial instruments for around € 16 million. For further details reference should be made to the related annexes.

With regard to sovereign bonds, a summary of the relative impacts on shareholders' equity and on the result according to issuer is provided below:

(in € thousands)

Country Market value 31.12.2017

AFS reserve Impairment and write‐backs

(AFS) FVTIS

Austria 210,836 16,938 0 ‐334

Belgium 482,649 24,907 0 ‐208

Canada 77,773 734 0 0

Chile 1,071 ‐1 0 0

Finland 162,470 7,897 0 ‐114

France 916,715 26,609 0 ‐1,098

Germany 808,064 6,311 0 ‐1,254

Japan 10,081 ‐14 0 0

Indonesia 8,467 293 0 0

Ireland 386,559 10,057 0 ‐81

Israel 13,744 487 0 0

Italy 5,144,075 373,980 0 ‐2,618

Latvia 7,538 ‐85 0 0

Luxembourg 55,990 ‐204 0 0

Mexico 29,822 1,013 0 0

New Zealand 7,508 ‐24 0 0

Netherlands 143,884 9,949 0 ‐430

Poland 85,225 1,498 0 0

Portugal 38,029 ‐149 0 209

Romania 5,691 54 0 0

Slovakia 62,586 312 0 0

Slovenia 30,653 1,399 0 0

Spain 893,521 18,703 0 ‐1,056

USA 25,321 ‐210 0 0

Supranational 458,073 51,898 0 3

Total 10,066,345 552,352 0 ‐6,981


5. MISCELLANEOUS RECEIVABLES

(in € thousands)

31.12.2017 31.12.2017


Receivables arising out of direct insurance operations 780,192 706,066 690,837 89,355

Receivables arising out of reinsurance operations 137,279 104,375 82,604 54,675

Other receivables 224,870 177,996 179,897 44,973

Total 1,142,341 988,437 953,338 189,003

The carrying value of trade and other receivables is considered to be aligned with their fair value. Trade receivables do not produce interest and fall due in the short term.

With reference to receivables from insureds, agents and insurance and reinsurance companies, the Group is not affected by any particular concentrations of credit risk insofar as exposure is spread across a large number of counter parties.

Receivables arising out of direct insurance operations

(in € thousands)

31.12.2017 31.12.2017


Receivables from policyholders 411,668 363,100 339,355 72,313

Receivables from agents 236,669 212,815 233,749 2,920

Receivables from companies c/a 39,044 38,218 39,781 ‐737

Sums to be recovered 92,811 91,933 77,952 14,859

Total 780,192 706,066 690,837 89,355

Receivables from policyholders are stated net of the write‐downs of € 34,622 thousand. The allowance for doubtful debts is mainly allocated to the Accident, Health, Hulls land vehicles, Fire, Other property damage, TPL land vehicles, Non‐motor Non‐motor TPL and Surety businesses.

The allowance for doubtful debts allocated to receivables from agents amounted to € 13,640 thousand and current accounts with insurance companies are written net of the allowance for doubtful debts for € 2,829 thousand.

Receivables arising out of reinsurance operations:

(in € thousands)

31.12.2017 31.12.2017


Receivables from reinsurance companies 130,110 97,206 77,932 52,178

Receivables from reinsurance intermediaries 7,169 7,169 4,672 2,497

Total 137,279 104,375 82,604 54,675

This item is stated net of the related allowance for doubtful accounts of € 250 thousand.

279

Sundry receivables

(in € thousands)

31.12.2017 31.12.2017


Receivables from tenants 19,772 19,772 23,357 ‐3,585

Receivables from Tax Authorities 101,763 94,100 91,065 10,698

Miscellaneous receivables 103,335 64,124 65,475 37,860

Total 224,870 177,996 179,897 44,973

Sundry receivables are shown net of the allowance for doubtful debts for a total of € 15,584 thousand, of which € 14,551 thousand refer to receivables from tenants.

Receivables from the tax authorities include receivables other than those for income taxes for the year. In particular, they include receivables for VAT and also advances paid on the tax on insurance premiums.

Miscellaneous receivables comprise, amongst other items, negative variation margins on interest rate swaps of the Parent for € 12,720 thousand, Parent Company receivables from CONSAP for management of the Road Victims Fund for € 5,633 thousand, receivables of the Italian insurance undertakings for contributions to the Guarantee Fund for victims of road and hunting accidents for € 228 thousand, receivables for tax disputes for € 5,718 thousand and receivables deriving from the handling of foreign claims for € 634 thousand. The item also includes receivables accrued by Uniqa Previdenza from Veneto Banca by way of adjustment of the fee paid by the former to purchase 90% of the shares in Uniqa Life. Said adjustment was pegged to the results of distribution activities in accordance with the distribution contract between Uniqa Life and Veneto Banca entered into in 2009. Such receivables, amounting to € 24,700 thousand, were determined as the amount accrued as at 25 June 2017, the date on which the Ministry of the Economy and Finance published Decree Law No. 186 putting Veneto Banca into forced liquidation, at the request of Banca d'Italia. This amount, though payable by a company placed into forced liquidation, has a presumed realisable value that is equal to its nominal value in that it is guaranteed under the contract for the sale of 99.72% of the share capital of Uniqa Assicurazioni, which was signed by Uniqa Internationale Beteilungs‐Verwaltungs GmbH and Reale Mutua on 2 December 2016, in favour of Uniqa Previdenza. This item also includes receivables for € 17,422 thousand due to Reale Seguros following the sale of its interest in Cai Seguros.

6. OTHER ASSETS

(in € thousands)

31.12.2017 31.12.2017


Non‐current assets or of a disposal group HFS 8,828 8,828 3,014 5,814

Deferred acquisition costs 0 0 0 0

Deferred tax assets 182,435 130,236 142,128 40,307

Current tax assets 169,724 100,123 121,877 47,847

Other assets 115,540 98,084 84,642 30,898

Total 476,527 337,271 351,661 124,866

Non‐current assets or of a disposal group HFS

This item, amounting to € 8,828 thousand, refers to the value of the properties owned by the Reale Immobili subsidiary for which the preliminary contract of sale had already been entered into as at 31 December 2017.


Deferred tax assets

Deferred tax assets are calculated on the total amount of timing differences between the carrying value of the assets and liabilities on the balance sheet and the respective fiscal value as established by IAS 12 and considering the possibility of recovery at a later date. The timing differences stem mainly from write‐downs of receivables from policyholders and other receivables for around € 73 million, changes in provisions for outstanding claims for about € 35 million, provisions for future risks and charges for approximately € 22 million, adjustments to deferred acquisition costs stated in the accounts of the Uniqa companies as a consequence of application of Group accounting standards for about € 13 million, the adjustment of the value of assets for approximately € 10 million and value re‐adjustments on financial assets for around € 9 million.

Current tax assets

Current tax assets reflect receivables from the tax authorities for withholdings and receivables for income taxes. In accordance with ISVAP Regulation No. 7, they also include amounts deriving from recognition of taxes on mathematical provisions pursuant to art. 1, section 2 of Legislative Decree No. 209/02 as converted by Law No. 265/2002 as amended.

Other assets

(in € thousands)

31.12.2017 31.12.2017


Premium payments 61,627 61,627 64,273 ‐2,646

Indemnities discontinuous agents pending reimbursement 6,968 6,968 11,215 ‐4,247

Deferred commissions payable on investment contracts (DAC) 12,710 0 0 12,710

Miscellaneous assets 34,235 29,489 9,154 25,081

Total 115,540 98,084 84,642 30,898

Deferred commissions payable, equal to € 12,710 thousand, refer to costs on investment contracts without discretionary participation feature not within the scope of IFRS 4. Such amounts, consistently with the requirements of IAS 18, have been deferred and amortised according to the average residual term of the contracts. This amount derives from Uniqa Previdenza for € 12,408 thousand and from Uniqa Life for € 302 thousand.

7. CASH AT BANK AND IN HAND AND CASH EQUIVALENTS

At year‐end, this item amounted to € 178,334 thousand compared with € 90,765 thousand at 31 December 2016. It includes Group bank current accounts and short‐term deposits. The carrying value of such assets is aligned with their fair value.

281

1. SHAREHOLDERS' EQUITY

Group interest in shareholders’ equity amounted to € 2,566,964 thousand, while minority interest amounted to € 12,251 thousand for a total of € 2,579,215 thousand. The changes in the individual items are set forth in the Schedule of the Changes in Shareholders' Equity.

(in € thousands)

31.12.2017 31.12.2016 Change

Group interest in shareholders’ equity:

Capital 60,000 60,000 0

Other equity instruments 0 0 0

Capital reserves 0 0 0

Retained earnings and other equity reserves 2,248,143 2,176,106 72,037

(Treasury stock) 0 0 0

Reserve for net exchange differences ‐375 0 ‐375

Gains or losses on AFS financial assets 121,783 74,014 47,769

Other gains or losses recognised directly in equity ‐10,098 ‐9,075 ‐1,023

Net profit (loss) for the year 147,511 131,037 16,474

Total of which Group interest 2,566,964 2,432,082 134,882

Minority interest in shareholders’ equity:

Minority interest in capital and reserves 8,884 281 8,603

Profit or losses recognised directly in equity 2,748 0 2,748

Minority interest in the net income (loss) for the year 619 ‐20 639

Total of which minority interest 12,251 261 11,990

Total shareholders' equity 2,579,215 2,432,343 146,872

The breakdown of retained earnings and other equity reserves is as follows:

(in € thousands)

31.12.2017 31.12.2016 Change

Legal reserve 213,597 210,507 3,090

Ordinary reserve fund 1,488,149 1,433,846 54,303

Extraordinary reserve 1,931 1,931 0

Other equity reserves 151,012 134,147 16,865

Consolidation and IAS/IFRS first‐time application reserves 393,454 395,675 ‐2,221

Total 2,248,143 2,176,106 72,037

The Reserve for net exchange differences item, which showed a negative balance of € 375 thousand, refers to the Chilean subsidiaries Reale Group Latam, Reale Group Chile and Reale Chile Seguros whose accounts at 31 December 2017 have been translated into euros, the functional currency of Reale Group. With regard to Gains or losses on AFS financial assets, the balance of which at the end of the previous year was equal to € 74,014 thousand, € 43,298 thousand were transferred to the income statement during the year, as a consequence of disposal of the underlying financial assets and permanent losses of value as revealed by impairment tests. Other profit or losses recognised directly in equity, which posted a negative balance for € 10,098 thousand, include the positive AFS reserve referring to associated companies/joint ventures for € 11,348 thousand and actuarial losses in relation to liabilities deriving from defined benefit plans for employees, for € 21,446 thousand.

With regard to disclosure of the information required by IAS 1.124A, the Parent pursues objectives, policies and capital management processes strictly tied to the Company's mutual insurance business. By virtue of this legal standing, capital management is directed towards maximising the financial solidity of the Group in time in accordance with commitments assumed towards members‐insureds.


With the entry into force of Solvency II, as from 1 January 2016, Reale Group must calculate its solvency capital requirement (SCR) and eligible own funds as at the end of the financial year, in order to meet the new European requirements. Information about the capital managed and minimum capital requirements is provided in the "Summary of results" section of the Report on Operations.

283

RECONCILIATION BETWEEN THE STATUTORY FINANCIAL STATEMENTS OF THE PARENT COMPANY AND THE IAS/IFRS CONSOLIDATED FINANCIAL STATEMENTS

(in € thousands)

Result for the year Shareholders’ equity

2017 2016 31.12.2017 31.12.2016

Parent Company financial statements (local GAAP) 70,717 57,393 1,977,331 1,906,615

Re‐measurement of value of property (IAS 16 ‐ IAS 40) ‐435 ‐415 ‐1,265 ‐830

Adjustments to provisions (IAS 36) 0 0 ‐929 ‐929

Actuarial gains/losses (IAS 19) that affect the income statement ‐1,347 2,670 11,930 13,277

Actuarial gains/losses (IAS 19) that affect equity 0 0 ‐11,828 ‐12,885

Adjustments on AFS securities net of deferred liabilities towards policyholders (IAS 39) 0 0 23,593 29,388

Adjustments on financial assets (IAS 39) that affect the income statement ‐5,112 11,240 43,674 48,786

Reduction to zero of provisions for catastrophic risks, equalisation, others (IFRS 4) 2,882 6,315 69,306 66,424

Deferred liabilities towards policyholders through the income statement (IFRS 4) 2,435 2,209 ‐20,673 ‐23,108

Other minor adjustments ‐17 1,274 1,373 1,390

Fiscal effect on items reconciled 242 ‐6,428 ‐33,101 ‐33,343

Parent Company IAS/IFRS financial statement 69,365 74,258 2,059,411 1,994,785

Effect deriving from consolidation of controlling interests 86,794 90,805 240,469 238,161

Effect deriving from consolidation of interests measured by the equity method 25,324 25,103 170,061 154,890

AFS reserve subsidiaries 0 0 98,190 44,626

AFS reserve associates 0 0 11,348 12,810

Actuarial gains/losses (IAS 19) subsidiaries 0 0 ‐7,570 ‐7,034

Actuarial gains/losses (IAS 19) associates 0 0 ‐2,048 ‐1,967

Reserve for net exchange differences 0 0 ‐375 0

Elimination of the effects of intra‐group transactions 1,667 ‐565 ‐2,522 ‐4,189

Elimination of intra‐group dividends of companies:

‐ fully consolidated ‐25,625 ‐43,987 0 0

‐ consolidated by the equity method ‐10,014 ‐14,577 0 0

IAS/IFRS consolidated financial statements 147,511 131,037 2,566,964 2,432,082

Minority interests 619 ‐20 12,251 261

Total 148,130 131,017 2,579,215 2,432,343


2. PROVISIONS

(in € thousands)

31.12.2017 31.12.2016 Change

Provisions for taxes 1,654 422 1,232

Other provisions: 81,640 88,325 ‐6,685

Non‐fiscal litigation 5,106 5,442 ‐336

Personnel expenses 20,463 35,295 ‐14,832

Non‐recoverable refunds from agents 19,392 19,853 ‐461

Other charges 36,679 27,735 8,944

Total 83,294 88,747 ‐5,453

Provisions refer to liabilities as the consequence of past events, the occurrence of which is likely and the amount of which can be reliably estimated. The movement on other provisions during the year is set out below:

(in € thousands)

Non‐fiscal litigation

Personnel expenses

Non‐recoverable refunds from

agents

Other charges Total

Initial balance 5,442 35,295 19,853 27,735 88,325

Provisions 1,200 16,432 55 8,701 26,388

Utilisations ‐1,536 ‐31,014 ‐516 ‐8,549 ‐41,615

Increases deriving from business combinations 0 0 0 8,542 8,542

Other changes 0 ‐250 0 250 0

Final balance 5,106 20,463 19,392 36,679 81,640

Provisions for personnel expenses include provisioning for the costs of the corporate incentive scheme and utilisation of allocations made in previous years following the renewal of the national collective labour agreement applicable to the Italian insurance companies and of the company‐level labour contract applicable to the Parent and Italiana Assicurazioni.

Provisions for other charges deriving from business combinations, which amounted to € 8,542 thousand, refer to Uniqa Assicurazioni for € 4,879 thousand and to Uniqa Previdenza for € 3,663 thousand.

None of the provisions were discounted except for the provision referring to non‐recoverable refunds calculated on the basis of the discounted estimate of the economic effects deriving from future payments of agent severance allowances.

285

3. TECHNICAL PROVISIONS

(in € thousands)

31.12.2017 31.12.2017 (like‐for‐like)

31.12.2016 Change

Non‐life business

Provision for unearned premiums 1,269,148 1,161,745 1,142,728 126,420

Provision for claims outstanding 3,164,242 2,909,323 2,851,219 313,023

Other reserves 38,456 3,130 3,414 35,042

Total Non‐life business 4,471,846 4,074,198 3,997,361 474,485

Life business:

Provisions for policy liabilities 9,763,746 5,806,045 5,437,660 4,326,086

Provision for sums to be paid 118,706 76,100 71,232 47,474

Technical provisions where the investment risk is borne by the policyholders and relating to the administration of pension funds 1,214,714 1,183,986 933,075 281,639

Other reserves 601,373 418,164 501,320 100,053

Total Life business 11,698,539 7,484,295 6,943,287 4,755,252

Total technical provisions 16,170,385 11,558,493 10,940,648 5,229,737

Non‐life business

As regards the change in the Provision for unearned premiums item, for € 126,420 thousand, Uniqa Assicurazioni contributed for € 98,801 thousand and Reale Chile Seguros for € 8,602 thousand. The change in the Provision for claims outstanding item, for € 313,023 thousand, was attributable to Uniqa Assicurazioni for € 251,977 thousand and to Reale Chile Seguros for € 2,942 thousand.

With regard to provisions for claims outstanding, the provision for claims incurred but not reported (IBNR) amounted to € 373,886 thousand.

Other reserves include the ageing reserve in compliance with art. 47 of ISVAP Regulation No. 16/2008 for € 35,409 thousand, and also the reserve formed following the adequacy test on the provisions for unearned premiums. In particular, a provision has been made for unexpired risks, equal to € 3,047 thousand, determined according to the empirical method suggested by the Supervisory Authority and considered suitable to comply with the requirements of IFRS 4 regarding the adequacy test on provisions for unearned premiums.

Life business

Changes in the Provisions for policy liabilities item, for € 4,326,086 thousand, were attributable to Uniqa Previdenza for € 2,880,580 thousand and to Uniqa Life for € 1,077,121 thousand.

Provisions for policy liabilities on financial contracts with discretionary participation feature amounted to € 7,868,535 thousand.

A Liability Adequacy Test (LAT) has been carried out on contracts classified as "insurance contracts" and those classified as "financial instruments with discretionary participation feature", as prescribed by art. 15 of IFRS 4; this consists in verifying the adequacy of “net technical provisions” through comparison with the “realistic reserve”, determined on the basis of the present value of cash flows. The results of the test, described in part F “Information on risks”, highlighted the adequacy of the provisions accrued for each similar group analysed, except for the "Prefin" separately managed fund, held by Uniqa Previdenza, for which a provision of € 2,054 thousand has been accrued. Other reverses include the provision for deferred liabilities towards policyholders, accrued in application of shadow accounting criteria and equal to € 534,659 thousand, the provision for future charges (art. 31 of ISVAP Regulation No. 21/2008) for € 65,963 thousand and the provision for complementary insurance premiums for € 751 thousand.


4. FINANCIAL LIABILITIES

(in € thousands)

31.12.2017 31.12.2017 (like‐for‐like)

31.12.2016 Change

Financial liabilities at fair value through the income statement:

‐ held for trading 12,494 12,494 15,935 ‐3,441

‐ measured at fair value through the income statement 322,097 0 4,980 317,117

Other financial liabilities 709,340 553,507 614,144 95,196

Total 1,043,931 566,001 635,059 408,872

Financial liabilities held for trading

Financial liabilities held for trading, which amounted to € 12,494 thousand, refer to swap contracts entered into by the Parent Company for a total notional value of € 13,120, (for further details reference should be made to part F “Information on risks – derivatives”). The item includes net valuation gains for a total of around € 3.3 million.


This item amounted to € 322,097 thousand and refers to liabilities relating to financial contracts not regulated by IFRS 4 and booked according to the deposit accounting method, of which € 165,314 thousand attributable to Uniqa Previdenza and € 156,783 thousand to Uniqa Life.

Other financial liabilities

This item amounted to € 709,340 thousand at year‐end, compared with € 614,144 thousand at 31 December 2016. Such liabilities mainly consist of payables to bank customers for € 337,005 thousand, deposits received from reinsurers for € 214,136 thousand, debenture loans issued by the Banca Reale subsidiary and distributed to its own customers for € 85,469 thousand and interbank payables for € 54,736 thousand. The latter refer to two refinancing operations of the European Central Bank (Targeted Long Term Refinancing Operations)to which Banca Reale adhered on 16 December 2015 and 30 June 2016. The increase was mainly attributable to the increase in deposits received from reinsurers, in connection with the acquisition of Uniqa Previdenza. The fair value of these items is aligned with their respective carrying values.

287

5. PAYABLES

(in € thousands)

31.12.2017 31.12.2017


Payables arising out of direct insurance operations 191,075 177,355 174,304 16,771

Payables arising out of reinsurance operations 17,641 11,753 14,769 2,872

Other payables 258,785 230,022 234,285 24,500

Total 467,501 419,130 423,358 44,143

Payables arising out of direct insurance operations:

(in € thousands)

31.12.2017 31.12.2017 (like‐for‐like)

31.12.2016 Change

Payable to agents 171,888 159,344 151,764 20,124

Payable to policyholders 17,869 17,859 21,753 ‐3,884

Guarantee funds 0 0 0 0

Payable to companies c/a 1,318 152 787 531

Total 191,075 177,355 174,304 16,771

Payables arising out of reinsurance operations:

(in € thousands)

31.12.2017 31.12.2017


Payable to reinsurance companies 13,844 7,956 11,635 2,209

Payable to reinsurance intermediaries 3,797 3,797 3,134 663

Total 17,641 11,753 14,769 2,872

Other payables:

(in € thousands)

31.12.2017 31.12.2017 (like‐for‐like)

31.12.2016 Change

Employee termination indemnities 16,574 15,269 15,999 575

Payables for taxes on behalf of policyholders 73,452 67,268 68,801 4,651

Payables for miscellaneous taxes 12,547 9,325 9,643 2,904

Contributions to welfare and social security institutes 10,809 9,673 9,661 1,148

Payables to suppliers 88,250 82,698 76,606 11,644

Tenants’ caution money 8,311 8,311 7,986 325

Personnel management 21,867 20,226 22,111 ‐244

Miscellaneous payables 26,975 17,252 23,478 3,497

Total 258,785 230,022 234,285 24,500

According to IVASS Regulation No. 7, liabilities for termination benefits have been stated under other payables.


With regard to this liability, in accordance with Law No. 296 of 27 December 2006, enterprises with at least 50 employees are required to pay, on a monthly basis and as selected by the employee, termination benefits accrued after 1 January 2007, to the supplementary pension funds established by Legislative Decree No. 252/05 or to a specific Fund for payment to private sector employees of termination benefits under art. 2120 of the Italian Civil Code (hereinafter Treasury Fund) established at INPS. The actuarial assessment of the part of termination benefits accrued at 31 December 2006 is based on demographic and economic‐financial assumptions.

The main hypotheses are illustrated below:

Main actuarial hypotheses 31.12.2017

Probability of termination ‐ Reale Group (excluding Uniqa companies) 1.26%

Probability of termination ‐ Uniqa companies 2.72%

Life table ISTAT 2015‐2016

Frequency of termination benefit paid in advance

Reale Mutua 2.70%

Italiana Assicurazioni 2.90%

Blue Assistance 1.90%

Reale Immobili 1.00%

Banca Reale 1.00%

Reale Ites 2.70%

Uniqa companies 1.50%

Percentage of termination benefit paid in advance ‐ Reale Group (excluding Uniqa companies) 70.00%

Percentage of termination benefit paid in advance ‐ Uniqa companies 58.00%

Discount rate Euro Composite AA curve as at 29 December 2017

Rate of inflation 1.50%

It should also be noted that with the entry into effect of the new IAS 19 as from 1 January 2013, actuarial gains and losses in relation to liabilities deriving from defined benefit plans for employees are now taken directly to equity.

The changes in such liabilities in the last two years are summed up as follows:

(in € thousands)

31.12.2017 31.12.2016 Change

Carrying value at start of period 15,999 15,496 503

Increases deriving from business combinations 1,408 0 1,408

Provisions for the year 21 0 21

Interest expense ‐23 5 ‐28

Actuarial (gains)/losses 84 1,632 ‐1,548

Benefits paid ‐915 ‐1,134 219

Carrying value at end of period 16,574 15,999 575

The following information is provided in accordance with the new provisions of IAS 19:

‐ classification of actuarial (gains)/losses for amendments due to demographic hypotheses and financial hypotheses:

(in € thousands)

Breakdown of actuarial

(a) Actuarial (gains)/losses due to changes in financial hypotheses 122

(b) Actuarial (gains)/losses due to changes in demographic hypotheses ‐16

(c) Actuarial (gains)/losses due to past experience (deviation of hypotheses from reality) ‐22

Total 84

289

‐ average duration of the financial obligation for each Group company:

Duration of termination benefit fund at 31.12.2017

Reale Mutua 7.73

Italiana 6.60

Blue Assistance 13.42

Reale Immobili 7.08

Banca Reale 14.27

Reale Ites 9.83

Uniqa companies 14.00

‐ indication of future cash flows:

(in € thousands)

Termination benefit pro rated cash flows

1 year 1,255

2 years 1,128

3 years 1,131

4 years 1,192

more than 4 years 13,882

‐ sensitivity analysis for each relevant actuarial hypothesis at the end of the year stating the effects in the case of variations in the actuarial hypotheses that would have been reasonably possible at that date, in absolute terms (with respect to a carrying value of liabilities equal to € 16,574 thousand):

(in € thousands)

Discount rate 0.5% increase in rate 0.5% decrease in rate

15,892 17,237

Rate of inflation 0.5% increase in rate 0.5% decrease in rate

16,958 16,141

Probability of termination of employment contract

+50% prob. term. ‐50% prob. term.

16,497 16,593

Percentage of termination benefit paid in advance

+50% in advance ‐50% in advance

16,516 16,572


6. OTHER LIABILITIES

(in € thousands)

31.12.2017 31.12.2017 (like‐for‐like)

31.12.2016 Change

Liability of a disposal group HFS 0 0 0 0

Deferred tax liabilities 300,028 255,091 258,777 41,251

Current tax liabilities 12,249 5,196 306 11,943

Other liabilities 129,536 104,905 97,108 32,428

Total 441,813 365,192 356,191 85,622

Deferred tax liabilities, equal to € 300,028 thousand, reflect the fiscal effect of all temporary differences of a financial or economic nature that are expected to reverse in future years. This item includes around € 157 million referring to the differences between the carrying and fiscal values of real estate investments, around € 74 million referring to adjustments to the value of financial assets as a consequence of application of IAS/IFRS, around € 49 million referring to the cancellation of the values of provisions for catastrophic risks, equalisation and other special provisions due to application of IFRS 4, approximately € 12 million for adjustments related to the "fondo de comercio" (goodwill) of the Reale Seguros subsidiary and about € 6 million related to the deferred recognition in the income statement of the DAC and DIR of Uniqa companies.

Other liabilities:

(in € thousands)

31.12.2017 31.12.2017 (like‐for‐like)

31.12.2016 Change

Liabilities for employee benefits 40,784 38,858 42,432 ‐1,648

Commissions on premium payments 10,630 10,630 10,308 322

Deferred commissions receivable on invest. cont. (DIR) 4,143 0 0 4,143

Miscellaneous liabilities 73,979 55,417 44,368 29,611

Total 129,536 104,905 97,108 32,428

In accordance with IVASS Regulation No. 7, liabilities relating to defined benefits and other long‐term employee benefits, other than termination benefits, have been stated under Other liabilities. As detailed in the table, these refer in particular to health coverage for retired directors, seniority bonuses paid to employees according to the national collective bargaining agreement, and also the additional Company Pension Fund set up at the Parent Company.

(in € thousands)

31.12.2017 31.12.2017 (like‐for‐like)

31.12.2016 Change

Coverage of managers' medical expenses 13,202 12,208 14,246 ‐1,044

Long‐service bonuses 13,190 12,258 12,074 1,116

Parent Company pension fund 14,392 14,392 16,112 ‐1,720

Total 40,784 38,858 42,432 ‐1,648

The amount of such liabilities is determined according to actuarial methods. In particular, the economic‐financial hypotheses adopted in determining seniority bonuses comply fully with those adopted for the disclosure of termination benefits, while as regards health coverage of retired directors, the hypotheses adopted as regards inflation and discount rates remaining unchanged, the growth rate of future

291

reimbursements has been assumed, analysing the historical data of the Parent and breaking down the increase into inflation adjustments and increases due to ageing of the population.

It should also be noted that with the entry into effect of the new IAS 19 as from 1 January 2013, actuarial gains and losses in relation to liabilities deriving from defined benefit plans for employees are now taken directly to equity.

In accordance with the new provisions of IAS 19, the results of sensitivity analysis considering a change of +/‐ 50 basis points in the discount rate with regard to health cover for managers are provided below (against a carrying value of € 13,202 thousand):

(in € thousands)

Discount rate 0.5% increase in rate 0.5% decrease in rate

11,816 15,135

With regard to the additional pension fund of the Parent, specific assets hedging the pension plan for an amount equal to the liability stated are recognised under AFS financial assets.

The Deferred commissions receivable item, for € 4,143 thousand, reflects deferred income on non‐participating investment contracts not within the scope of IFRS 4 and accounted for in accordance with IAS 18. This amount derives from Uniqa Previdenza for € 3,483 thousand and from Uniqa Life for € 660 thousand.


INFORMATION ON THE CONSOLIDATED INCOME STATEMENT

1.1 NET PREMIUMS

Consolidated net premiums written amounted to € 4,171,408 thousand compared with € 3,534,868 thousand in the previous year. Gross premiums written by the Group amounted to € 4,541,909 thousand with an upswing of 18.0% compared with 2016. The component of premiums ceded in reinsurance amounted to € 347,310 thousand compared with € 298,686 thousand in the previous year.

(in € thousands)

2017 2017 (like‐for‐like)

2016 Change

Gross premiums Life business 1,535,324 1,089,721 1,103,088 432,236

Gross premiums Non‐life business 3,006,585 2,812,452 2,746,061 260,524

Total gross premiums written 4,541,909 3,902,173 3,849,149 692,760

(‐) Change in the gross provision for unearned premiums 30,860 18,856 22,305 8,555

Gross premiums earned 4,511,049 3,883,317 3,826,844 684,205

Premiums ceded Life business 35,777 19,538 26,697 9,080

Premiums ceded Non‐life business 311,533 282,106 271,989 39,544

Total premiums ceded 347,310 301,644 298,686 48,624

(‐) Change in the provision for unearned premiums, reinsurers’ share 7,669 4,770 6,710 959

Premiums earned ceded in reinsurance 339,641 296,874 291,976 47,665

Net premiums 4,171,408 3,586,443 3,534,868 636,540

It should be noted that adoption of IFRS 4 regarding insurance contracts did not reveal the existence of non‐insurance contracts in the Group Non‐life business portfolio. With regard to Life business, premiums written relating to insurance contracts amounted to € 758,253 thousand, those relating to financial contracts with discretionary participation features amounted to € 777,071 thousand. Premiums written relating to financial contracts without discretionary participation features amounted to € 50,296 thousand.

The breakdown of premiums by company is set forth below:

(in € thousands)

Company Non‐life Life business Total Total Change

direct indirect direct indirect 2017 2016

Italy:

Reale Mutua 1,416,011 550 817,997 173 2,234,731 2,198,637 1.6%

Italiana Assicurazioni 541,762 177 238,700 0 780,639 787,914 ‐0.9%

Uniqa Assicurazioni 182,140 0 0 0 182,140 0 n.a

Uniqa Previdenza 0 0 386,577 0 386,577 0 n.a

Uniqa Life 0 0 59,026 0 59,026 0 n.a

Total 2,139,913 727 1,502,300 173 3,643,113 2,986,551 22.0%

Spain:

Reale Seguros 853,749 203 0 0 853,952 816,747 4.6%

Reale Vida 0 0 32,851 0 32,851 45,851 ‐28.4%

Total 853,749 203 32,851 0 886,803 862,598 2.8%

Chile:

Reale Chile Seguros 11,993 0 0 0 11,993 0 n.a

Total 11,993 0 0 0 11,993 0 n.a

Carrying value 3,005,655 930 1,535,151 173 4,541,909 3,849,149 18.0%

293

1.2 COMMISSIONS RECEIVABLE

Commissions receivable amounted to € 22,541 thousand compared with € 14,864 thousand in the previous year. They comprise commissions on unit and index‐linked products for € 12,488 thousand, bank commissions for € 7,224 thousand and fees on financial contracts for € 2,829 thousand relating to Uniqa Previdenza and Uniqa Life.

1.3 NET INCOME ON FINANCIAL INSTRUMENTS MEASURED AT FAIR VALUE THROUGH THE INCOME STATEMENT

The table below sets forth the composition of income and expense on investments and on financial liabilities.

(in € thousands)

Net

interests

Other net

income

Net realised gains

Net valuation gains

20172017

(like‐for‐like)

2016 Change

Arising on:

Financial assets held for trading 2 ‐1 246 160 407 191 169 238

Fin. assets measured at f.v. through the IS 28,871 ‐15,102 ‐6,728 17,006 24,047 23,740 14,224 9,823

Financial assets held for trading 0 ‐3,264 0 3,312 48 48 637 ‐589

Fin. liabilities measured at fv through the IS 0 ‐2 0 0 ‐2 0 0 ‐2

Total 28,873 ‐18,369 ‐6,482 20,478 24,500 23,979 15,030 9,470

1.4 ‐ 1.5 FINANCIAL INCOME AND EXPENSE ON EQUITY INVESTMENTS IN SUBSIDIARIES, ASSOCIATES AND JOINT VENTURES, ON OTHER FINANCIAL INSTRUMENTS AND ON REAL ESTATE INVESTMENTS

(in € thousands)

Net

interests

Other net

income

Net realised gains

Net valuation gains

20172017

(like‐for‐like)

2016 Change

Arising on:

Real estate investments 0 68,334 15,082 ‐10,511 72,905 73,008 77,106 ‐4,201

Equity investments in subsidiaries, affiliates and j.v. 0 25,324 0 0 25,324 25,324 25,103 221

Loans and receivables 12,763 ‐15 ‐1,635 1,146 12,259 11,332 10,024 2,235

AFS financial assets 221,787 6,533 73,986 ‐19,514 282,792 203,751 235,599 47,193

Miscellaneous receivables 472 3 0 0 475 384 602 ‐127

Cash and cash equivalents 278 0 0 0 278 247 233 45

Other financial liabilities ‐2,701 0 ‐134 0 ‐2,835 ‐2,796 ‐3,113 278

Miscellaneous payables ‐4,078 ‐1 0 0 ‐4,079 ‐596 ‐884 ‐3,195

Total 228,521 100,178 87,299 ‐28,879 387,119 310,654 344,670 42,449

Valuation losses on AFS financial assets reflect permanent impairments of value resulting from impairment tests. Reference should be made to the commentary in the Notes in the assets section.

Income on financial assets affected by a permanent impairment of value amounted to € 743 thousand.

With regard to income from equity investments in subsidiaries, associates and joint ventures, the Other net income item, equal to € 25,324 thousand, comprises Group interest in the result of companies consolidated by the equity method.


1.6 OTHER REVENUES

This item totalled € 141,414 thousand in relation to € 113,721 thousand in the previous year. The breakdown is as follows:

(in € thousands)


2016 Change

Other technical income 8,848 2,739 3,753 5,095

Commissions cancelled 6,686 6,652 7,563 ‐877

Withdrawals from funds 60,218 55,836 60,905 ‐687

Recovery of administrative expenses and costs 3,807 4,129 3,979 ‐172

Realised gains/write‐ups of property, plant and equipment 7,233 7,233 556 6,677

Positive exchange differences 1,925 1,888 981 944

Other income and recoveries 24,018 23,029 22,918 1,100

Other out‐of‐period income 28,679 12,231 13,066 15,613

Total 141,414 113,737 113,721 27,693

The Realised gains and write‐ups of property, plant and equipment item includes the gains on the sale by Reale Seguros of its former operational headquarters for € 3,146 thousand. Other out‐of‐period income includes receivables due to Reale Seguros following the sale of its interest in Cai Seguros for € 13,448 thousand.

295

2.1 COST OF CLAIMS

Net cost of claims totalled € 3,382,440 thousand in relation to € 2,772,397 thousand in the previous year.

The total of claims paid and the change in technical provisions, relating to direct business and inward reinsurance, amounted to € 3,704,971 thousand in relation to € 2,959,269 thousand in the previous year. The detail is as follows:

(in € thousands)


2016 Change


Amounts paid 1,983,184 1,856,077 1,839,283 143,901

Change in the provision for outstanding claims 75,468 58,105 ‐51,741 127,209

Change in recoveries 40,240 39,017 45,769 ‐5,529

Change in other technical provisions 1,740 ‐122 186 1,554

Total Non‐life 2,020,152 1,875,043 1,741,959 278,193

Life business:

Amounts paid 887,854 581,747 646,726 241,128

Change in the provision for sums to be paid 6,580 4,869 ‐37,830 44,410

Change in the mathematical provision 513,720 369,841 427,461 86,259

Change in technical provisions where the investment risk is borne by the policyholders and relating to the administration of pension funds

275,590 250,911 176,183 99,407

Change in other technical provisions 1,075 2,095 4,770 ‐3,695

Total Life 1,684,819 1,209,463 1,217,310 467,509

Total amounts paid and change in technical 3,704,971 3,084,506 2,959,269 745,702

The reinsurers’ share amounted to a total of € 322,531 thousand in relation to € 186,872 thousand in the previous year and is detailed as follows:

(in € thousands)


2016 Change


Amounts paid 233,887 189,245 163,331 70,556

Change in the provision for outstanding claims 61,936 90,176 3,149 58,787

Total Non‐life 295,823 279,421 166,480 129,343

Life business:

Amounts paid 43,169 17,036 17,624 25,545

Change in the provision for sums to be paid 5,185 3,192 242 4,943

Change in the mathematical provision ‐21,142 ‐3,642 3,079 ‐24,221

Change in technical provisions where the investment risk is borne by the policyholders and relating to the administration of pension funds

‐651 ‐651 ‐766 115

Change in other technical provisions 147 147 213 ‐66

Total Life 26,708 16,082 20,392 6,316

Total reinsurers' share 322,531 295,503 186,872 135,659

2.2 COMMISSIONS RECEIVABLE

Commissions receivable amounted to € 9,815 thousand compared with € 5,567 thousand in the previous year. They included bank commissions for € 4,367 thousand, acquisition costs on financial contracts for € 3,703 thousand referring to Uniqa Previdenza and Uniqa Life, and commissions on unit and index‐linked


products for € 1,745 thousand.

2.5 OPERATING EXPENSES

The composition of operating expenses, divided into Life and Non‐life, is set forth in the table below.

(in € thousands)


2016 Change


Gross commissions and other acquisition costs: 757,974 716,859 703,541 54,433

Acquisition commissions 409,124 384,624 378,577 30,547

Other acquisition costs 205,151 195,570 187,146 18,005

Change in deferred acquisition costs 0 0 0 0

Collection commissions 143,699 136,665 137,818 5,881

(‐) Reinsurance commissions and profit‐sharing 62,059 55,294 55,661 6,398

Total Non‐life 695,915 661,565 647,880 48,035

Life business:

Gross commissions and other acquisition costs: 57,264 42,694 43,840 13,424

Acquisition commissions 30,542 22,801 22,629 7,913

Other acquisition costs 23,741 18,537 18,311 5,430

Change in deferred acquisition costs 0 0 0 0

Collection commissions 2,981 1,356 2,900 81

(‐) Reinsurance commissions and profit‐sharing 6,045 3,597 4,778 1,267

Total Life 51,219 39,097 39,062 12,157

Investment management expenses 53,216 50,861 52,391 825

Other administrative expenses 148,099 128,713 132,386 15,713

Total operating expenses 948,449 880,236 871,719 76,730

2.6 OTHER COSTS

This item amounted to € 203,889 thousand compared with € 192,044 thousand in the previous year. The item is detailed in the table below:

(in € thousands)


2016 Change

Other technical charges 27,103 18,108 21,413 5,690

Cancellation of receivables from policyholders for premiums 36,571 32,619 34,864 1,707

Provisions to reserves 46,926 40,528 54,324 ‐7,398

Administrative costs and expenses on behalf of third parties 3,807 4,129 3,979 ‐172

Depreciation of tangible assets 10,253 9,591 7,863 2,390

Amortisation of intangible assets 39,453 38,467 35,113 4,340

Realised losses/value reductions on property, plant and equipment 563 559 517 46

Realised losses/value reductions on intangible assets 1,234 1,234 0 1,234

Negative exchange differences 6,074 6,039 566 5,508

Sundry taxes 2,309 2,309 1,860 449

Real estate and service company costs 14,983 14,924 8,057 6,926

Other charges 4,064 3,904 4,332 ‐268

Other out‐of‐period expense 10,549 12,414 19,156 ‐8,607

Total 203,889 184,825 192,044 11,845

297

3. TAXES

(in € thousands)

2017 2016 Change

Costs for current taxes 46,506 32,264 14,242

Change in prepaid taxes ‐1,135 8,708 ‐9,843

Change in deferred taxes 8,888 9,437 ‐549

Total 54,259 50,409 3,850

Taxes for the year amounted to € 54,259 thousand (€ 55,854 thousand on a like‐for‐like basis) and comprise current taxes of € 46,506 thousand and a change in deferred tax assets and liabilities for € 7,753 thousand. Current Italian taxes and the taxes of foreign subsidiaries were determined applying the nominal rates in force at the balance sheet date to the respective tax bases. Deferred tax assets and liabilities have been calculated applying the rates that will presumably be in force on the date when these will reverse.

The change in deferred tax assets reflects a negative net balance of € 1,135 thousand. Such changes are stated if the correlated timing differences are likely to be reversed in subsequent years. They mainly reflect adjustments to the deferred acquisition costs stated in the accounts of Uniqa companies as a consequence of application of Group accounting standards for a negative balance of around € 8 million, reversal to subsequent years of the change in the claims provision for a negative balance of around € 2 million, the impact of value adjustments on financial assets for a negative balance of approximately € 1 million, the write‐down of receivables for around € 6 million and provisions for future risks and charges for around € 4 million.

Movement on deferred taxes reflects a positive net balance of € 8,888 thousand. These mainly refer to the deferred recognition in the income statement of the DAC and DIR of Uniqa companies, for approximately € 8 million, adjustments related to the "fondo de comercio" (goodwill) of the Reale Seguros subsidiary for around € 4 million, the reduction to zero of special provisions for around € 1 million, adjustments to the accounting values of financial assets, pursuant to IAS 39 for a negative balance of some € 4 million and the division into instalments of gains on property for a negative balance of about € 1 million. The reconciliation between the tax charges recorded in the financial statements and the theoretical tax charge, calculated on the basis of IRES charged at the nominal rate of 27.5% in force for 2017 is the following:

(in € thousands)

2017

Amount Rate

Pre‐tax result for the year 202,389

Theoretical income taxes (excluding IRAP) 48,573 24.00%

Tax effect of permanent differences 4,576 2.26%

Tax effect of foreign tax rates 753 0.37%

Tax effect of consolidated companies on Shareholders’ equity ‐6,078 ‐3.00%

Tax effect of other changes ‐1,197 ‐0.59%

IRES income tax (excluding IRAP) 46,627 23.04%

IRAP income tax 7,632 3.77%

Total income tax recognised in the financial statements 54,259 26.81%


Since the IRAP tax has a taxable basis that is different from income before taxes, it generates distortions between one year and another. Accordingly, in order to render the reconciliation between income taxes recognised and theoretical income taxes more meaningful, IRAP tax is not taken into consideration.

299

SEGMENT REPORTING

The items of the balance sheet and income statement according to sector of business are detailed in the tables below.



Balance Sheet by business sector

Non‐life business Life business

Total Year n Total Year n‐1 Total Year n Total Year n‐1

1 INTANGIBLE FIXED ASSETS 204,555,865 203,501,313 1,558,672 1,038,073

2 PROPERTY, PLANT AND EQUIPMENT 166,206,741 174,246,594 10,505,607 272,005

3 REINSURERS’ SHARE OF TECHNICAL PROVISIONS 525,395,659 333,629,454 247,952,593 68,175,194

4 INVESTMENTS 5,594,857,569 5,024,558,569 12,603,718,345 7,382,215,010

4.1 Real estate investments 77,279,464 66,727,403 0 0

4.2 Equity investments in subsidiaries, associates and joint ventures 2,044,824,768 1,544,072,846 469,781,233 329,798,894

4.3 Investments held to maturity 0 0 0 0

4.4 Loans and receivables 172,090,040 176,688,726 73,738,069 15,703,695

4.5 AFS financial assets 3,297,181,481 3,233,236,253 10,538,168,231 6,069,058,575

4.6 Financial assets at fair value through the income statement 3,481,816 3,833,341 1,522,030,812 967,653,846

5 MISCELLANEOUS RECEIVABLES 888,951,458 784,361,665 229,491,729 139,885,470

6 OTHER ASSETS 244,122,793 269,840,167 213,357,271 76,747,887

6.1 Deferred acquisition costs 0 0 0 0

6.2 Other assets 244,122,793 269,840,167 213,357,271 76,747,887

7 CASH AT BANK AND IN HAND AND CASH EQUIVALENTS 154,046,589 111,209,826 119,624,237 111,246,772

TOTAL ASSETS 7,778,136,674 6,901,347,588 13,426,208,454 7,779,580,411

1 SHAREHOLDERS' EQUITY

2 PROVISIONS 57,618,350 66,399,168 22,339,292 16,083,946

3 TECHNICAL PROVISIONS 4,471,846,652 3,997,360,787 11,698,538,763 6,943,286,781

4 FINANCIAL LIABILITIES 30,007,257 28,303,437 518,719,845 46,108,421

4.1 Financial liabilities at fair value through the income statement 0 0 334,590,845 20,915,155

4.2 Other financial liabilities 30,007,257 28,303,437 184,129,000 25,193,266

5 PAYABLES 346,608,777 326,613,201 59,794,373 34,201,629

6 OTHER LIABILITIES 184,134,902 162,495,638 97,023,926 30,902,782

TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY


Income Statement by business sector

Non‐life business Life business


1.1 Net premiums 2,671,860,851 2,458,476,832 1,499,547,278 1,076,391,397

1.1.1 Gross premiums earned 2,975,724,781 2,723,756,147 1,535,324,185 1,103,088,010

1.1.2 Premiums earned ceded in reinsurance ‐303,863,930 ‐265,279,315 ‐35,776,907 ‐26,696,613

1.2 Commissions receivable 0 0 15,317,553 9,869,622

1.3 Income and expense on financial instruments measured at fv through the IS 13,284 181,102 24,231,641 14,848,494

1.4 Income on equity investments in subsidiaries, associates and joint ventures 32,743,128 48,624,955 2,895,803 9,939,688

1.5 Income on other financial instruments and investment property 89,826,017 90,277,448 249,710,169 174,800,968

1.6 Other revenues 113,620,628 95,366,216 11,589,221 2,944,506

1 TOTAL REVENUES AND INCOME 2,908,063,908 2,692,926,553 1,803,291,665 1,288,794,675

2.1 Net charges for claims ‐1,731,227,962 ‐1,581,604,210 ‐1,658,110,552 ‐1,196,919,025

2.1.2 Amounts paid and change in technical provisions ‐2,027,049,875 ‐1,748,084,739 ‐1,684,819,374 ‐1,217,310,468

2.1.3 Reinsurers' share 295,821,913 166,480,529 26,708,822 20,391,443

2.2 Commissions payable 0 0 ‐5,448,086 ‐1,517,819

2.3 Expense on equity investments in subsidiaries, associates and joint ventures 0 0 0 0

2.4 Charges on other financial instruments and real property investments ‐27,182,705 ‐17,965,015 ‐22,246,995 ‐6,502,978

2.5 Operating expenses ‐854,242,214 ‐792,978,197 ‐89,892,726 ‐70,976,525

2.6 Other costs ‐126,352,735 ‐128,725,359 ‐19,709,451 ‐11,753,000

2 TOTAL COSTS AND CHARGES ‐2,739,005,616 ‐2,521,272,781 ‐1,795,407,810 ‐1,287,669,347

PROFIT (LOSS) FOR THE YEAR BEFORE TAXES 169,058,292 171,653,772 7,883,855 1,125,328

301

Financial: 2017

(Amounts in euros)

Real estate and services sector Banking sector Trans‐sectoral cancellations and d

Total

Total Year n Total Year n‐1 Total Year n Total Year n‐1 Total Year n Total Year n‐1 Total Year n Total Year n‐1

95,755,233 100,270,345 60,832 43,455 84,329,358 18,132,049 386,259,960 322,985,235

87,676,835 92,624,069 1,488,967 1,580,870 ‐542,066 ‐541,044 265,336,084 268,182,494

0 0 0 0 0 0 773,348,252 401,804,648

1,035,461,653 1,000,360,795 690,626,525 783,816,292 ‐2,360,670,823 ‐1,703,340,866 17,563,993,269 12,487,609,800

924,591,050 914,778,539 0 0 ‐5,457,012 ‐5,597,862 996,413,502 975,908,080

34,218,050 9,073,129 12,500 12,500 ‐2,349,678,200 ‐1,697,426,481 199,158,351 185,530,888

0 0 0 0 0 0 0 0

19,490,309 15,429,243 327,638,172 341,262,937 ‐5,535,611 ‐316,523 587,420,979 548,768,078

51,735,300 61,079,882 362,975,853 442,540,855 0 0 14,250,060,865 9,805,915,565

5,426,944 2 0 0 0 0 1,530,939,572 971,487,189

31,465,323 34,801,487 6,756,140 6,182,180 ‐14,324,181 ‐11,892,750 1,142,340,469 953,338,052

23,045,778 9,802,433 6,773,199 5,724,068 ‐10,771,536 ‐10,454,507 476,527,505 351,660,048

0 0 0 0 0 0 0 0

23,045,778 9,802,433 6,773,199 5,724,068 ‐10,771,536 ‐10,454,507 476,527,505 351,660,048

32,895,995 24,549,651 69,274,909 5,609,933 ‐197,508,083 ‐161,850,832 178,333,647 90,765,350

1,306,300,817 1,262,408,780 774,980,572 802,956,798 ‐2,499,487,331 ‐1,869,947,950 20,786,139,186 14,876,345,627

2,579,214,433 2,432,341,553

3,904,689 4,798,539 1,431,580 1,464,987 ‐2,000,000 0 83,293,911 88,746,640

0 0 0 0 0 0 16,170,385,415 10,940,647,568

6,014,778 1,754,023 692,232,803 721,060,894 ‐203,043,694 ‐162,167,355 1,043,930,989 635,059,420

0 0 0 0 0 0 334,590,845 20,915,155

6,014,778 1,754,023 692,232,803 721,060,894 ‐203,043,694 ‐162,167,355 709,340,144 614,144,265

63,815,103 65,209,469 11,610,302 9,289,109 ‐14,327,181 ‐11,953,563 467,501,374 423,359,845

164,188,833 165,081,867 9,452,631 10,861,712 ‐12,987,228 ‐13,151,398 441,813,064 356,190,601

20,786,139,186 14,876,345,627

Financial: 2017

(Amounts in euros)

Real estate and services sector Banking sector Trans‐sectoral cancellations and

adjustmentsTotal

Total Year n Total Year n‐1 Total Year n Total Year n‐1 Total Year n Total Year n‐1 Total Year n Total Year n‐1

0 0 0 0 0 0 4,171,408,129 3,534,868,229

0 0 0 0 0 0 4,511,048,966 3,826,844,157

0 0 0 0 0 0 ‐339,640,837 ‐291,975,928

0 0 20,297,660 17,586,841 ‐13,074,113 ‐12,592,932 22,541,100 14,863,531

196,049 ‐26 59,487 119 0 0 24,500,461 15,029,689

0 0 0 0 ‐10,314,538 ‐33,461,261 25,324,393 25,103,382

87,520,572 94,743,775 11,619,099 14,903,699 ‐808,169 ‐1,004,795 437,867,688 373,721,095

155,821,104 146,826,697 3,697,844 2,873,615 ‐143,316,783 ‐134,289,995 141,412,014 113,721,039

243,537,725 241,570,446 35,674,090 35,364,274 ‐167,513,603 ‐181,348,983 4,823,053,785 4,077,306,965

0 0 0 0 6,898,629 6,126,526 ‐3,382,439,885 ‐2,772,396,709

0 0 0 0 6,898,629 6,126,526 ‐3,704,970,620 ‐2,959,268,681

0 0 0 0 0 0 322,530,735 186,871,972

0 0 ‐4,366,889 ‐4,049,514 0 0 ‐9,814,975 ‐5,567,333

0 0 0 0 0 0 0 0

‐22,051,650 ‐24,826,815 ‐4,690,515 ‐4,807,006 99,783 ‐52,343 ‐76,072,082 ‐54,154,157

‐31,091,329 ‐28,513,219 ‐21,377,790 ‐21,251,854 48,155,671 42,000,301 ‐948,448,388 ‐871,719,494

‐159,426,528 ‐148,416,638 ‐2,651,514 ‐2,400,312 104,250,973 99,251,850 ‐203,889,255 ‐192,043,459

‐212,569,507 ‐201,756,672 ‐33,086,708 ‐32,508,686 159,405,056 147,326,334 ‐4,620,664,585 ‐3,895,881,152

30,968,218 39,813,774 2,587,382 2,855,588 ‐8,108,547 ‐34,022,649 202,389,200 181,425,813


INFORMATION REGARDING RISKS

1 Reale Group risk management1

Foreword

Recent changes in the insurance market, oriented towards ever increasing attention to policyholder protection and market stability, have ushered in various regulations, also at Community level, regarding internal control and risk management systems. While prioritising regulatory issues and sound, prudent management criteria, Reale Group’s risk management policy also takes into account the mutualistic nature of the Parent. Accordingly, constant upgrading of the risk management system, essential in promoting continuing development and continuity of each Group company, is a pivotal aspect of Group strategy, also with regard to maintaining full autonomy and independence from external centres of control and capitalisation.

1.1. The risk management organisational model

Reale Group has defined an organisational model for its risk management system that applies to all Group companies. The model is based on a clear definition of roles and responsibilities, as set out below.

In managing and coordinating the Group, the Parent defines the general guidelines for the risk management system, which are then implemented by the Subsidiaries:

‐ the Board of Directors of the Parent is responsible for defining risk management directives (the suite of most significant risk strategies and underwriting, measurement and management policies), for defining risk appetite and tolerance and for checking correct application of the risk management system by Top Management, in order to guarantee the safeguarding of company assets, including in the medium and long term;

‐ the Boards of Directors of the Subsidiaries, in accordance with the guidelines issued by the Parent and with the specific nature of each individual Company, are responsible for defining risk management directives (the suite of most significant risk strategies and underwriting, measurement and management policies), for defining risk appetite and tolerance and for checking correct application of the risk management system by Top Management, in order to guarantee the safeguarding of company assets, including in the medium and long term. They approve the policies, criteria, limits and procedures to be followed in order to assess risks and solvency, subject to approval by the Board of Directors of the Parent and taking into account the specific nature of each Company;

‐ the Group Control and Risk Committee offers advice and puts forward proposals and is responsible for assisting the Board of Directors with regard to the system of internal controls and risk management;

‐ Top Management is responsible for risk management system application, maintenance and monitoring;

‐ the "Comisiones de Auditoria", set up at Reale Seguros and Reale Vida, are responsible for aspects of the system of internal controls and risk management regulated by specific Spanish legislation;

‐ the Chief Risk Officer (CRO), a function set up at the Parent, guarantees the soundness of overall risk management by Reale Mutua and, in the future, of the Group as a whole,within the framework of the system of internal controls. The CRO is accountable for the centralised governance and coordination of all issues related to the monitoring of business risks and for ensuring consistency in the implementation of the related guidelines defined by the Board;

1The definition of Group and related scope of analysis has been determined in accordance with IVASS Regulation No. 22/2016.

303

‐ the Risk Management functions at the Parent and Subsidiaries assist the Board of Directors and Top Management in defining assessment methodologies and drawing up analyses for risk evaluation, measurement and control and also for coordinating risk monitoring activities and monitoring the implementation of the risk management policy;

‐ the Actuarial functions of the Parent and Subsidiaries are responsible for assessing the adequacy of technical provisions, issuing opinions on underwriting policies and reinsurance contracts and contributing towards effective implementation of the risk management system. The Actuarial function at Reale Mutua defines the guidelines at Group level;

‐ the Compliance functions at the Parent and Subsidiaries are responsible for assessing the adequacy of corporate organisation and procedures in order to prevent the risk of incurring judicial or administrative sanctions, of incurring capital losses or reputational damage deriving from infringement of laws, regulations or orders of the Supervisory Authorities or self‐regulation norms, such as bylaws, codes of conduct or codes of ethics, and in order to prevent the risks deriving from unfavourable changes in the regulatory framework or national case law. These functions also support the Board of Directors and Top Management with regard to the risk of non‐compliance. The Compliance function at Reale Mutua defines the guidelines at Group level;

‐ the Group Anti‐money laundering function, which is based at the Parent and works for Reale Mutua and Italiana Assicurazioni, is responsible for preventing and countering money laundering and funding of terrorist activities by performing tests and analyses to assess the adequacy of corporate procedures, efficacy of processes and specific controls, also with regard to their application to the sales network;

‐ the Internal Audit functions at the Parent and Subsidiaries are responsible for verifying and assessing risk management system effectiveness and efficiency.

Each function is responsible for operational risk management according to their area of responsibility in the business processes controlled. They must inform the Risk Management, Actuarial, Compliance, Anti‐money laundering and Internal Audit functions of any facts of relevance for the evaluation of risks, within their areas of competence.

The Board of Directors of the Parent is also assisted by specific internal bodies, including the Group Control and Risk Committee and the Group Investments Commission, responsible for verifying particular aspects of Company and Group performance also as regards the management of risks. Top Management at each Company makes use of joint teams, set up at Group level, that investigate and analyse specific aspects.

1.2. Risk management policies

Within the framework of the risk management system and in accordance with regulatory provisions, the Board of Directors of the Parent has formulated risk identification, measurement, management and control criteria in the "Risk management policies" document. This document sets forth guidelines for management of internal and external risks inherent in the business of Group companies, defining strategies and objectives, analysis, control and measurement methods, roles and responsibilities of the company functions involved. More generally, the document is also intended to promote deployment of a culture of risk control and management throughout Reale Group. Compliance with and application of the guidelines set out in the document are guaranteed by the system of internal controls which comprises a set of rules, procedures, control techniques and organisational structures intended to ensure correct functioning and performance of the Group.


1.3. Risk measurement and reporting

Risks are constantly monitored by the Risk Management function and by the individual competent functions; risk trends are notified to the Board of Directors, to Top Management and to the competent operating structures.

2 Risk Analysis

2.1. Market risks2

In assessing market risk, reference is made to all risks that result in downgrading of financial or real estate investments due to adverse changes in major market variables such as share prices, interest rates, the value of real estate assets, exchange rates, spreads and the concentration of investments.

Market risk management policies define:

‐ limits on investments according to type, with particular attention to risk/yield trade‐off; ‐ limits on investments in foreign currency; ‐ integrated asset‐liability management strategies (ALM) combined with cash flow matching valuations,

in particular for securities to hedge separately managed funds; ‐ guidelines on the use of derivatives; ‐ guidelines regarding investment property; ‐ guidelines and restrictions for control of the credit risk of financial investments.

The limits on investments are constantly verified and monitored by the competent corporate functions, and their findings are notified periodically to the Group Investments Commission.

With regard to equity risk, equity exposure accounts for 1.05% of the entire portfolio and amounts to approximately € 153 million. The main exposures relate to Banca d'Italia for € 12.5 million and Credito Emiliano for € 9.9 million. Overall, during the year, the equity portfolio reflected an annual volatility of 14.62%, with investments in equities mainly steered towards the financial and banking sectors, as indicated in the table below:

Market sector Composition (%)

Finance and Banking 35.74%

Industry 23.04%

Consumer goods 19.13%

Technological 9.28%

Services 5.32%

Energy 5.06%

Telecommunications 2.43%

Total 100.00%

2Unlisted strategic investments in Sara Assicurazioni and CredemAssicurazioni are not included in the analysis of market risk. Reale Immobili and Igar are included in the real estate compartment.

305

The prudent approach adopted with regard to interest rate risk is reflected in the reduced duration of Non‐life insurance portfolios aligned with foreseeable evolution of run‐off of reserves. In the Life insurance portfolio, duration is consistent with the structures of the reserves, based on Asset Liability Management techniques, in order to constantly match volumes of assets with those of liabilities for contractual obligations with subscribers in terms of duration and guaranteed minimum rates. The overall duration of the portfolio is around 5.86 years. This type of financial management has determined an effective average yield of 1.24% on maturity of the bond portfolio. Investments in foreign currency amounted to around 0.73% of the entire portfolio. Exposure to the risk of exchange rate fluctuations is therefore limited.

(in € thousands)

Currency Composition (%) Market value

USD 0.29% 41,576,683

CHF 0.01% 1,072,229

GBP 0.05% 7,538,676

NOK 0.08% 10,786,237

SEK 0.08% 10,935,803

JPY 0.12% 16,981,145

CAD 0.08% 10,821,186

CLP 0.02% 3,385,127

Total 0.73% 103,097,086

As far as spread risk is concerned, the debt securities in the portfolio have an average rating of BBB+ as measured by Fitch. Positions with a non‐investment grade rating account for 0.59% of the portfolio.

The breakdown of the bonds portfolio by rating class is set forth below:

Level Rating class (*) Composition (%)

Prime/High Grade AAA 9.90%

AA+ / AA / AA‐ 17.10%

Medium Grade A+ / A / A‐ 16.69%

BBB+ / BBB / BBB‐ 55.72%

Speculative BB+ / BB / BB‐ 0.28%

B+ / B / B‐ 0.00%

Extremely Speculative CCC+ / CCC / CCC‐ 0.00%

CC 0.00%

D 0.00%

NR 0.31%

Total 100.00%

(*) on the Fitch rating scale

The quantitative assessment of the impact of adverse risk factor trends is determined on a potential maximum loss basis using the SCR model. The calculation of the Group SCR takes into account effects deriving from diversification at the level of each individual Company.

Market risks tend to impact not only financial assets but also liabilities. Life liabilities in particular, in relation to minimum guaranteed rates, are particularly exposed to interest rate risk. Therefore, assessment of Life business market risks imposes consolidated measurements of assets and liabilities in view of the typical risk absorption mechanism of Life contracts. This absorption capacity depends on the minimum guaranteed rates and type of profit sharing.


2.2. Default risk

Default risk refers to the risk of insolvency of counterparties (reinsurers, banks, insureds, intermediaries and agents). As far as reinsurance counterparties are concerned, Reale Group has defined policies for the management and control of this risk in terms of guidelines and restrictions. Exposure to reinsurance counterparties rated A or higher by Fitch Ratings is equal to 97.7%.

2.3. Liquidity risk

Liquidity risk refers to the risk of an enterprise not having sufficient financial resources to fulfil its contractual obligations as they fall due. Liquidity risk is also constantly monitored according to run‐off of reserves for Non‐life business and the projected maturity commitments for Life business. Bonds, according to maturity, are set forth in the table below.

(in € thousands)

Debt securities by expiry Government Corporate Total

<= 1 year 1,407,486 352,362 1,759,848

>1 <=3 years 1,968,493 809,720 2,778,213

>3 <=5 years 1,202,157 768,468 1,970,625

>5 <=7 years 925,176 652,567 1,577,743

>7 <=10 years 1,197,522 648,184 1,845,706

>10 years 2,984,929 570,837 3,555,766

Total 9,685,763 3,802,138 13,487,901

Information regarding reserve flows according to contractual expiry referring to run‐off of the entire Life portfolio is provided in the table below.

(in € thousands)

Year Reserve by expiry

2018 451,172

2019 427,011

2020 520,657

2021 341,040

2022 502,404

2023 462,040

2024 473,735

2025 421,079

2026 399,560

2027 316,812

after 2028 5,738,830

Total 10,054,340

307

The expected run‐off coefficients of Motor TPL and Non‐motor TPL provisions are set forth in the table below.

Year Motor TPL Non‐motor TPL

2018 47.5% 23.8%

2019 19.6% 17.2%

2020 10.9% 14.0%

2021 7.2% 11.8%

2022 5.1% 9.5%

2023 3.5% 8.2%

2024 2.6% 6.2%

after 2024 3.6% 9.3%

Total 100.0% 100.0%

2.4. Underwriting risks

2.4.1. Life

Life business underwriting risks are mainly tied to demographic factors such as mortality and longevity, surrender trends, costs and catastrophic risks. With reference to demographic risks, mortality statistics are updated periodically, while the evolution of other risk factors is monitored also through benchmarking with the corresponding market data. Catastrophic risks are covered by specific non‐proportional reinsurance treaties. Guidelines have been established for the assumption of death cover contracts in respect of health and financial requirements. Total technical provisions amounted to € 10,914,620 thousand and their fair value was equal to € 10,662,847 thousand. The composition of the Life portfolio is detailed below.

Class Insurance contracts

Financial instruments with DPF

Financial instruments without DPF

Total

Not revaluable 2.1% 0.0% 0.0% 2.1%

Revaluable 14.4% 70.3% 0.0% 84.7%

Unit linked* 10.3% 0.0% 2.4% 12.7%

Index linked 0.0% 0.0% 0.5% 0.5%

Total 26.8% 70.3% 2.9% 100.0%* Including individual pension h d f d

Assessments of maximum potential loss have been made using the SCR model in order to assess the effects deriving from the main insurance underwriting risks, such as mortality, surrender rate and costs.

2.4.2. Non‐life

Non‐life underwriting risks are determined by the underwriting policies of the business and retention policies relating to the acquired portfolio and catastrophic risks. To address tariff risks, Reale Group has drawn up an Underwriting Rules Manual which provides technical guidance regarding underwriting policy, with particular reference to non‐standard products.


For fire catastrophic covers, for earthquake risks, the RMS, EQECAT and AIR models have been used in order to simulate various possible scenarios and to quantify the necessary catastrophic provisions necessary to withstand an event, considering a time horizon of at least 200 years. Reinsurance covers have been acquired, giving preference to the approach of the RMS model, currently more prudent and conservative.

Information regarding the development of Motor TPL and Non‐motor TPL business, with reference to the provisions of IFRS 4, is set forth in the tables below. Each diagonal of the triangle represents the accounting data at 31/12 of the year of observation of the total cost of claims per individual year of occurrence. The following are indicated in the detail for each year of occurrence and for each claim duration:

‐ incremental payments; ‐ cumulative payments; ‐ risks retained on claims open and on late claims; ‐ the final cost, consisting of the sum of cumulative amount paid and the amount of the provision.

It has been considered advisable to represent the evolution of claims of only TPL business lines in view of their significance and “long tail” characteristics. These businesses are characterised by a longer run‐off due to delays that drag out over the years, especially for Non‐motor TPL (development of the ultimate cost is therefore more liable to changes, thereby undermining the stability of the estimate in time). For both businesses the trend in reserves at ultimate cost generated a positive result, determined by the positive trend in the reserve for inventories.

309

Motor TPL business

Group Class 10 Claim duration

Occurrence 0 1 2 3 4 5 6 7

2010

Amount paid 472,611,726 329,666,698 105,426,944 44,798,436 24,798,183 19,609,897 15,754,442 5,181,112

Cumulative 472,611,726 802,278,424 907,705,369 952,503,804 977,301,988 996,911,885 1,012,666,327 1,017,847,439

Reserved 606,064,156 300,269,528 180,484,219 123,058,315 94,528,248 62,446,201 43,008,783 30,553,033

total 1,078,675,882 1,102,547,952 1,088,189,588 1,075,562,119 1,071,830,236 1,059,358,086 1,055,675,110 1,048,400,472

2011

Amount paid 452,977,069 311,499,011 88,003,249 43,471,874 23,027,572 15,701,926 9,223,139

Cumulative 452,977,069 764,476,080 852,479,330 895,951,203 918,978,776 934,680,702 943,903,841

Reserved 627,138,874 274,138,255 158,647,926 108,818,840 76,656,800 54,918,719 40,585,432

total 1,080,115,943 1,038,614,335 1,011,127,256 1,004,770,043 995,635,576 989,599,421 984,489,273

2012

Amount paid 404,934,490 272,550,114 85,632,607 36,738,227 21,744,179 16,277,994

Cumulative 404,934,490 677,484,604 763,117,211 799,855,437 821,599,617 837,877,611

Reserved 558,832,995 233,854,863 128,435,827 87,618,472 59,475,164 40,942,200

total 963,767,485 911,339,467 891,553,038 887,473,909 881,074,781 878,819,811

2013

Amount paid 390,882,494 264,000,632 76,612,284 30,347,680 17,421,473

Cumulative 390,882,494 654,883,126 731,495,410 761,843,090 779,264,563

Reserved 537,671,174 229,606,109 123,263,734 79,641,577 55,184,535

total 928,553,668 884,489,235 854,759,144 841,484,667 834,449,098

2014

Amount paid 398,810,018 255,721,204 79,853,974 30,915,799

Cumulative 398,810,018 654,531,222 734,385,196 765,300,995

Reserved 503,566,337 219,737,425 112,401,765 75,678,329

total 902,376,355 874,268,647 846,786,961 840,979,324

2015

Amount paid 433,715,534 280,125,797 88,077,151

Cumulative 433,715,534 713,841,330 801,918,481

Reserved 537,716,279 221,741,708 117,659,054

total 971,431,813 935,583,038 919,577,535

2016

Amount paid 422,138,971 273,265,927

Cumulative 422,138,971 695,404,898

Reserved 542,843,495 229,893,136

total 964,982,466 925,298,034

2017

Amount paid 428,205,758

Cumulative 428,205,758

Reserved 528,355,716

total 956,561,474

Non‐motor TPL business

Group Class 13 Claim duration

Occurrence 0 1 2 3 4 5 6 7

2010

Amount paid 29,173,381 38,077,723 22,354,433 12,368,319 13,728,018 10,940,209 10,304,602 6,689,960

Cumulative 29,173,381 67,251,104 89,605,537 101,973,856 115,701,874 126,642,083 136,946,685 143,636,645

Reserved 177,329,243 139,402,611 111,966,771 97,582,904 89,650,987 67,402,743 52,572,394 38,964,046

total 206,502,624 206,653,715 201,572,308 199,556,760 205,352,861 194,044,826 189,519,079 182,600,691

2011

Amount paid 28,268,671 42,766,472 21,164,725 11,480,700 13,246,838 7,557,995 9,603,977

Cumulative 28,268,671 71,035,143 92,199,868 103,680,568 116,927,406 124,485,401 134,089,378

Reserved 184,134,811 133,797,025 109,895,873 92,100,700 78,030,779 62,701,043 48,472,033

total 212,403,482 204,832,168 202,095,741 195,781,268 194,958,185 187,186,444 182,561,411

2012

Amount paid 30,723,591 43,694,425 20,434,847 13,082,930 11,705,210 8,742,857

Cumulative 30,723,591 74,418,017 94,852,864 107,935,794 119,641,005 128,383,862

Reserved 178,112,876 140,188,012 109,202,390 93,693,002 72,154,057 51,870,432

total 208,836,467 214,606,029 204,055,254 201,628,796 191,795,062 180,254,294

2013

Amount paid 28,761,786 38,934,528 18,028,008 13,011,447 11,037,236

Cumulative 28,761,786 67,696,313 85,724,322 98,735,769 109,773,005

Reserved 193,556,616 137,079,485 121,060,402 99,058,892 79,414,197

total 222,318,402 204,775,798 206,784,724 197,794,661 189,187,202

2014

Amount paid 29,380,230 37,100,234 20,168,906 16,103,452

Cumulative 29,380,230 66,480,464 86,649,371 102,752,823

Reserved 172,070,736 145,796,120 119,330,225 90,352,164

total 201,450,966 212,276,584 205,979,596 193,104,987

2015

Amount paid 29,340,636 38,098,321 15,958,808

Cumulative 29,340,636 67,438,956 83,397,765

Reserved 172,852,271 127,070,925 104,113,066

total 202,192,907 194,509,881 187,510,831

2016

Amount paid 30,029,724 36,564,117

Cumulative 30,029,724 66,593,842

Reserved 179,960,197 137,226,589

total 209,989,921 203,820,431

2017

Amount paid 29,853,366

Cumulative 29,853,366

Reserved 215,637,863

total 245,491,229


The results of the inflation sensitivity analysis are shown in the table below; in particular, the percentage variation in the estimate of the claims provision relating to increases in the inflation rate is indicated.

Inflation rate Motor TPL Non‐motor TPL

2.00% 4.67% 5.95%

4.00% 9.64% 12.43%

6.00% 14.93% 19.50%

2.5. Operational risks, legal and regulatory risks, reputational risk and Group membership risks

Risk assessments are performed to evaluate operational risks, legal and regulatory risks, strategic risks, reputational risk and Group membership risks. A qualitative approach is adopted based on self‐assessment of risks and controls tied to company processes and on the definition of the high level company risk profile. Risk Assessment, based on a general mapping of the processes within Group companies, is managed by Risk Management, for aspects concerning operational, legal and regulatory risks. The scope of analysis includes the Italian insurance and instrumental companies of the Group. Risk assessment envisages measurement at qualitative level of risks and controls tied to company activities. For each process, it involves the identification of operational risks with their risk factors, and the risks of non‐compliance with legal requirements, assessing their impact and frequency in order to determine the gross risk. The net risk of each process is then determined based on the subsequent identification and evaluation of the controls put in place to reduce the risk. Risk assessment also involves identifying the causes of risks and the shortcomings in on‐going controls in order to define a risk management plan (retention of the risk, transfer or mitigation through specific remedial actions). Risk factors are classified internally according to Basel II.

The Macro Check List is a self‐assessment tool used by Top Management for the qualitative assessment of the company risk profile, with particular reference to operational, reputational, non‐compliance, group membership and strategic risks.

Reale Group has drawn up a Contingency Plan to safeguard persons and assets and the continuity of business; the plan includes a Disaster Recovery Plan designed to minimise loss of information and recovery times in particularly critical situations.

The Group has drawn up a procedure for controlling the exchange of information and a system for monitoring intra‐group transactions and identifying the functions concerned, as required by IVASS Regulations Nos. 20 and 30.

2.6. Risk mitigation instruments

The Group adopts risk mitigation instruments in order to reduce its exposure to the risks underwritten, through recourse to reinsurance, and adopting hedge derivatives to restrict possible impairments of assets.

2.6.1. Reinsurance

Analyses have been conducted in order to optimise reinsurance solutions in accordance with the guidelines defined by the Board of Directors. Expected claims rate distribution curves have been defined by examining the historical series of each class of business (in terms of earnings, claims and exposure) and of the objectives defined in the strategic plans of the Companies. Such valuations have been made separately for basic and peak claims, assessing catastrophe exposure, and specific analyses have been made for business lines with not statistically significant historical series. The latter, performed using quantitative models for valuation of risk capital (VaR and T‐VaR), generated alternative scenarios according to which the optimal reinsurance solutions for each Italian company of the Group have been identified.

311

2.6.2. Derivatives

Reale Group makes limited use of derivatives; these instruments are used for the purposes that comply with the Group’s strategic plan as defined by each company’s Board of Directors, with IVASS Regulation No. 24 of 6 June 2016 and with the requirements of the financial instrument portfolio control system. Derivatives are used for hedging purposes only, to mitigate the risk profile of the assets/liabilities hedged or to optimise the yield risk profile. Moreover, the counterparties of all Group derivatives are leading financial operators of international and national standing. For each Reale Group company, details of the derivatives held, for which each company bears the risk, are provided below.

Derivatives held by Reale Mutua:

‐ approx. 256 thousand put options issued by Credito Emiliano on an equal number of quotas of internal funds underlying unit‐linked products to hedge the guaranteed capital for a notional value of approx. € 3,838 thousand. The fair value of these derivatives was equal to zero at the end of 2017;

‐ four interest rate swap contracts to hedge interest rate risk on the Crediop 2.1% 01/09/2025 (XS0104009617) structured bond: two with Royal Bank of Scotland Group Plc for a total notional value of € 7,120 thousand (the fair value, inclusive of accrued interest, was negative and equal to approx. € 6,562 thousand at the end of 2017); two with Société Générale for a total notional value of € 6,000 thousand (with a fair value, inclusive of accrued interest, that was negative and equal to approximately € 5,932 thousand at the end of the year). Estimated cash flows according to maturity commitments are provided below, based on information available at 31 December 2017.

(in € thousands)

Net flows Up to 1 year Up to 3 years Up to 5 years Up to expiry

Swap SOGEN Crediop – 01/09/2025 (OS4044968) ‐208 ‐442 ‐526 ‐549

SwapSOGEN Crediop – 01/09/2025 (0S4044887) ‐1,038 ‐2,208 ‐2,631 ‐2,743

Swap RBS Crediop – 01/09/2025 (OSRAM18066) ‐1,010 ‐2,119 ‐2,490 ‐2,571

Swap RBS Crediop – 01/09/2025 (OSRAM17514) ‐369 ‐766 ‐891 ‐913

Total ‐2,625 ‐5,535 ‐6,538 ‐6,776

The four interest swap contracts envisage swapping of interest accrued, proportionally to the notional value stipulated, on the XS0104009617 Crediop 2.1% 99/25 bond. This bond is carried in the Parent's securities portfolio for a total nominal value exceeding the notional value of the interest swap and currently envisages a high annual optional coupon determined with a floor option and leverage tied to a defined amortisation plan: the commitments entered into have therefore been covered.

Derivatives held by Italiana Assicurazioni:

approx. 27 thousand put options issued by Credito Emiliano on an equal number of quotas of internal funds underlying unit‐linked products to hedge the guaranteed capital for a notional value of approx. € 405 thousand. The fair value of these derivatives was equal to zero at the end of 2017.

Derivatives held by Reale Immobili:

‐ derivative to hedge variations in cash flows on the loan granted to Reale Immobili for real estate investments, with a residual capital of approx. € 0.5 million. Cash flows of the hedged transaction are reported on a six‐monthly basis deferred in relation to the expiry established in the loan contract (initial value equal to € 11.5 million, expiry 29/06/2018). Section 74 (a) of IAS 39 permits separation of the intrinsic value (the maximum between zero and the value of the option if it were exercised) and the time value (the value of the option based on its residual life) and designation as hedge instrument only in the case of change in the intrinsic value. According to the above assumptions, considering the current interest rates and since the variable part of the interest to maturity established by the loan contract cannot be calculated, the cap option is “out of the money” (the option cannot be exercised as the rate of interest on the loan is lower than the 5.5% cap). Therefore, its intrinsic value is equal to


zero and the entire fair value of the hedge instrument is tied to its time value that is currently zero, as it is not effective.

Internal model

In 2017 Reale Group completed activities in connection with the Supervisory Authority's preliminary assessment of the internal model (pre‐application process). In view of the successful outcome, the Board of Directors resolved to proceed with the official application for permission to use the Internal Model for regulatory purposes to determine the solvency capital requirement of the Group, the Parent and the Italiana Assicurazioni subsidiary. IVASS officially acknowledged receipt of the application on 6 February 2018 and began the investigation procedure.

The Group's Internal Model only applies to risk exposure in the Non‐life business and is incomplete as operational and catastrophic risks are not included. The risks to which Life business is exposed and those excluded from the scope of the Internal Model are measured using the Standard Formula.

Banca Reale

Banca Reale, which has not been included in the insurance group perimeter according to the definition of IVASS Regulation No. 22/2016, but which is subject to the supervision of Banca d’Italia, operates within Reale Group. In accordance with its size and the specific characteristics of its business and the type and scope of company risks, Banca Reale has adopted a risk management policy that involves all levels of the company and is implemented through a system of internal controls structured on three levels:

‐ line controls, intended to guarantee correct management of all activities and performed by the operational divisions or incorporated into IT supporting procedures. Line controls cover all of the Bank's activities and include tests, reports and monitoring performed by those responsible for the respective business units;

‐ control of risks and compliance, the aims of which include ensuring the correct implementation of risk management processes, observance of operational limits by the various functions and legal compliance of corporate procedures, including self‐regulatory measures. The functions responsible for these controls operate separately from those involved in production; they contribute to the definition of risk governance policies and risk management processes. The Risk Management function is involved in establishing acceptable levels of risk, developing risk management policies and in the various stages of the risk management process, as well as defining operational autonomy as regards the various types of risks. This function continually verifies the adequacy of such policies, processes and limits, monitors changes in the risks to which the company is exposed and compliance with operating limits when taking the different types of risks.

313

The Compliance and Anti‐money laundering function adopts a risk‐based approach to manage the risk of non‐compliance (risk of incurring judicial or administrative sanctions, substantial capital losses and damage to reputation deriving from infringement of mandatory regulations or self‐regulatory norms) and the risk of money laundering (the process of converting funds received from illegal activities into ostensibly clean money to disguise their illegal origin). This risk is managed across all company activities, by ensuring the adequacy of internal procedures to prevent it.

‐ Internal audits, performed by the Internal Audit function. This function is responsible, on the one hand, for third level controls, including on‐site inspections, to verify the correctness of operational procedures and risk trends and, on the other, for assessing the completeness, adequacy, functionality and reliability of the organisational structure and the other components of the system of internal controls, informing the corporate bodies of any needs for improvement.

Banca Reale controls and monitors its overall current and projected capital adequacy, as part of the ICAAP (Internal Capital Adequacy Assessment Process), according to the applicable supervisory provisions. This process is subject to routine controls by the Risk Management function with regard to methodological aspects, by the Compliance function with regard to compliance with the law and by the Internal Audit function, with the support of the operational functions within their specific sphere of competence, with regard to procedural aspects. The process is also subject to extraordinary controls whenever the bank is potentially exposed to significant new risks to be assessed (e.g. upon entering new markets/areas of operation) and/or when previously identified risks have new characteristics that alter the bank’s risk exposure. The risks to which the latter is exposed are credit risk, market risk and operational risk (first pillar), concentration risk, interest rate risk of the banking portfolio, liquidity risk, risk of excessive leverage, residual risk, strategic risk, reputation, outsourcing, compliance, country, relocation and basis risk (second pillar).

LAT – Liability Adequacy Test

In carrying out the Liability Adequacy Test (LAT), the “realistic reserve” has been calculated as forecast present value on the reporting date of future cash flows generated by contracts (premiums and benefits). The method of flow projection used is of the deterministic type with revaluation of these equal to the guaranteed minimum. Cash flows have been discounted using the risk‐free rates curve. The flows of the contracts were determined considering demographic, surrender and lapse hypotheses based on company experience. The test also took into account projected flows relating to premium loadings and future expenses. The adequacy of “net technical provisions” was also verified on the basis of a comparison with the “realistic reserve”. The valuation was made considering that “net technical provisions” comprise not only technical provisions stated according to Italian GAAP but also “shadow liabilities”. The adequacy of provisions has been verified for each Group company. The results of the test highlighted the adequacy of the provisions accrued for each similar group analysed, except for the "Prefin" separately managed fund, held by Uniqa Previdenza, for which a provision of € 2,054 thousand has been accrued. After the reporting date, no additional information emerged such as to require re‐examination of such analyses. LAT results are set forth in the table below.


(in € thousands)

Company Technical provisions, net

Realistic provisions(basic assumption)

Reale Mutua 4,793,149 4,112,819

Italiana Assicurazioni 1,335,364 1,146,467

Uniqa Previdenza 2,984,255 2,673,229

Uniqa Life 1,152,542 1,065,491

Total 10,265,310 8,998,006

315

INFORMATION REGARDING BUSINESS WITH RELATED PARTIES

Transactions between the Parent and its subsidiaries are eliminated in the consolidated financial statements according to the principle of elision of intra‐group relations and are therefore not discussed below. Such relations mainly reflect reinsurance transactions and the exchange of services between Group companies.

The balances of insurance, commercial and financial transactions between Group companies, including the Parent, and related parties are set forth below:

(in € thousands)

Counterparty 31.12.2017 31.12.2016

Assets Liabilities Assets Liabilities

Associated companies 678 0 1 0

Other related parties 957 4,903 1,125 16,317

Total 1,635 4,903 1,126 16,317

(in € thousands)

Counterparty 2017 2016

Income Charges Income Charges

Associated companies 242 241 261 261

Other related parties 1,539 6,099 2,091 4,932

Total 1,781 6,340 2,352 5,193

The underlying transactions were all concluded on an arm's length basis.

During the year, no allowance was made to cover possible losses on receivables from related parties.

Transactions with associated companies mainly refer to receivables arising out of direct insurance operations under agreements entered into by the Parent with Sara Assicurazioni and CredemAssicurazioni for € 658 thousand. Assets due from other related parties mainly refer to loans granted by the Banca Reale subsidiary for € 948 thousand, liabilities mainly comprise current accounts at Banca Reale for € 2,966 thousand and bonds issued by the latter for € 1,655 thousand.

Income and charges relating to associated companies mainly refer to the chargeback by the Parent to CredemAssicurazioni of costs sustained to supply the services under the contracts in force and of costs relating to seconded personnel for € 241 thousand. Income from other related parties chiefly refers to insurance premiums collected for € 1,403 thousand and rental on investment property for € 88 thousand. Payables to other related parties mainly refer to the remuneration of Directors and Statutory Auditors for € 5,528 thousand, claims paid on policies for € 185 thousand, interest on bonds issued by Banca Reale for € 179 thousand and surrenders and settlement of Life policies for € 100 thousand. Fees paid during the year to Directors and Statutory Auditors of the Parent who also carry out the same functions at other Group companies amounted to € 3,368 thousand, compared with € 2,574 thousand in 2016.


OTHER INFORMATION

Human resources

At 31 December 2017 the Group workforce included 3,659 persons, an increase of 462 compared with the previous year. The increase refers for 316 to employees of Uniqa companies and for 112 to Reale Chile Seguros. The breakdown is shown in the table below:

(persons)

31.12.2017 31.12.2017 (like‐for‐like)

31.12.2016

Top management 119 98 94

Middle managers and Office staff 3,540 3,133 3,103

Total 3,659 3,231 3,197

317

Disclosure of auditing fees and for services other than auditing

(art. 149.12 of the CONSOB Issuers Regulation)

Type of service Supplier of the service Recipient Fees (in € thousands)

Auditing 811

Auditing EY S.p.A. Società Reale Mutua di Assicurazioni

119

Auditing EY S.p.A. Italian subsidiaries 425

Auditing EY S.p.A. Foreign subsidiaries 190

Auditing EY S.p.A. European Economic Interest Grouping

33

Auditing PWC S.p.A. Uniqa companies 44

Certification (**)

EY S.p.A. Società Reale Mutua di Assicurazioni and Italian and foreign subsidiaries

573

PWC S.p.A. Uniqa companies 2

Other services

EY S.p.A.

Società Reale Mutua di Assicurazioni and Italian and foreign subsidiaries

410

EYFBA S.p.A. Società Reale Mutua di Assicurazioni and Italian and foreign subsidiaries

1,143

PWC S.p.A. Uniqa companies 82

(**) NB: this item comprises fees for auditing of: Separately Managed Accounts, Internal Insurance Funds, Pension Fund, Bank National Guarantee Fund, Targeted Longer Term Refinancing Operations (TLTRO) and the Economic Balance Sheet.

ANNEXES TO THE

FINANCIAL STATEMENTS



Consolidation area

Company name Registered office

(country) Operational centre

(country) (5) Method

(1)

REALE MUTUA DI ASSICURAZIONI 086 G.

ITALIANA ASSICURAZIONI S.p.A. 086 G.

REALE SEGUROS GENERALES S.A. 067 G.

REALE VIDA Y PENSIONES S.A. 067 G.

IGAR S.A. 067 G.

REALE IMMOBILI S.p.A. 086 G.

BANCA REALE S.p.A. 086 G.

REALE ITES GEIE 086 G.

BLUE ASSISTANCE S.p.A. 086 G.

ITALNEXT S.r.l. 086 G.

REALE GROUP LATAM S.p.A. 015 G.

REALE GROUP CHILE S.p.A. 015 G.

REALE CHILE SEGUROS S.A. 015 G.

UNIQA ASSICURAZIONI S.p.A. 086 G.

UNIQA PREVIDENZA S.p.A. 086 G.

UNIQA LIFE S.p.A. 086 G.

UNIQA INTERMEDIAZIONI S.r.l. 086 G.


Detail of non‐consolidated interests

Company name Registered office

(country) Operational centre

(country) (5) Activity (1)

SARA ASSICURAZIONI S.p.A. 086 1

CREDEMASSICURAZIONI S.p.A. 086 1

321

Financial: 2017

Assets (2)

% Direct interest

% Total interest

(3)

% Voting rights at general meeting

(4)

% consolidation

1 0 0 0 0

1 100.00 100.00 0 100.00

2 95.00 100.00 0 100.00

2 5.00 100.00 0 100.00

10 95.00 100.00 0 100.00

10 85.92 100.00 0 100.00

7 95.00 100.00 0 100.00

11 81.70 100.00 0 100.00

11 100.00 100.00 0 100.00

11 0 100.00 0 100.00

4 0 100.00 0 100.00

4 0 97.00 0 100.00

3 0 97.00 0 100.00

1 99.72 99.72 0 100.00

1 0 99.72 0 100.00

1 0 89.75 0 100.00

11 0 99.72 0 100.00

Financial: 2017

(Amounts in euros)

Type (2)

% Direct interest

% total interest (3)

% Voting rights at general meeting

(4)

Carrying value

B 31.43 31.43 0 181,694,685

C 50.00 50 0 17,463,666


Company: SOCIETA' REALE MUTUA DI ASS.NI Financial: 2017

Detail of property, plant and equipment and intangible assets

(Amounts in euros)

At cost At remeasured value or fair value Total carrying value

Real estate investments 996,413,502 0 996,413,502

Other properties 233,206,589 0 233,206,589

Other property, plant and equipment 32,129,495 0 32,129,495

Other intangible assets 119,014,364 0 119,014,364


Detail of financial assets

Investments held to maturity


Year n Year n‐1 Year n Year n‐1

Equity securities and derivates valued at cost 0 0 0 0

Equity securities at fair value 0 0 0 0

including listed securities 0 0 0 0

Debt securities 0 0 86,149,333 29,103,657

including listed securities 0 0 50,208,835 0

Shares of UCI 0 0 0 0

Loans and receivables from bank customers 0 0 305,218,322 274,557,818

Interbank loans and receivables 0 0 22,419,850 66,705,119

Deposits with ceding enterprises 0 0 3,572,859 4,601,108

Active financial components of insurance contracts 0 0 0 0

Other loans and receivables 0 0 170,060,615 173,800,376

Non‐hedge derivatives 0 0 0 0

Hedge derivatives 0 0 0 0

Other financial investments 0 0 0 0

Total 0 0 587,420,979 548,768,078

323

Financial: 2017

(Amounts in euros)


AFS financial assets Financial assets held for trading Financial assets measured at fair

value though the income statement

Total carrying value

Year n Year n‐1 Year n Year n‐1 Year n Year n‐1 Year n Year n‐1

16,233,828 21,845,197 0 0 0 0 16,233,828 21,845,197

143,318,885 68,853,006 0 0 172,619,055 147,324,279 315,937,940 216,177,285

133,386,452 65,758,465 0 0 172,619,055 147,324,279 306,005,507 213,082,744

13,330,472,203 9,267,865,683 471,570 0 519,260,137 444,210,384 13,936,353,243 9,741,179,724

13,264,795,248 9,265,236,426 0 0 514,013,745 444,182,532 13,829,017,828 9,709,418,958

760,035,949 447,351,679 335,640 788,130 838,323,638 376,995,196 1,598,695,227 825,135,005

0 0 0 0 0 0 305,218,322 274,557,818

0 0 0 0 0 0 22,419,850 66,705,119

0 0 0 0 0 0 3,572,859 4,601,108

0 0 0 0 0 0 0 0

0 0 0 0 ‐5,632,695 1,788,118 164,427,920 175,588,494

0 0 0 0 216,269 381,080 216,269 381,080

0 0 0 0 0 2 0 2

0 0 791,761 0 4,554,197 0 5,345,958 0

14,250,060,865 9,805,915,565 1,598,971 788,130 1,529,340,601 970,699,059 16,368,421,416 11,326,170,832



Detail of assets and liabilities relating to contracts written by insurance companies where the investment risk is borne by the customer and related to the administration of pension funds

Operations linked to investment funds and market indices

Year n Year n ‐ 1

Assets on the balance sheet 1,313,496,329 738,880,568

Infra‐group assets* 0 0

Total assets 1,313,496,329 738,880,568

Fin. liabilities on the balance sheet 322,096,582 4,289,465

Technical provisions on the balance sheet 992,339,751 736,230,368

Infra‐group liabilities* 0 0

Total Liabilities 1,314,436,333 740,519,833

* Assets and liabilities eliminated in the consolidation process


Detail of reinsurers’ share of technical provisions

Direct business

Year n Year n‐1

Non‐life provisions 523,768,147 331,685,155

Provision for unearned premiums 88,951,655 79,757,521

Provisions for claims outstanding 434,816,492 251,927,634

Other reserves 0 0

Life provisions 245,800,226 65,777,525

Provision for sums to be paid 22,575,385 6,674,859

Provisions for policy liabilities 214,834,149 50,399,672

Provisions for policies where the investments risk is borne by the policyholders and relating to the administration of pension funds 6,949,565 7,408,784

Other reserves 1,441,127 1,294,210

Total Reinsurers’ share of technical provisions 769,568,373 397,462,680

325

Financial: 2017

(Amounts in euros)

Operations connected with the management of pension funds Total

Year n Year n ‐ 1 Year n Year n ‐ 1

222,382,609 197,542,844 1,535,878,938 936,423,412

0 0 0 0

222,382,609 197,542,844 1,535,878,938 936,423,412

0 690,697 322,096,582 4,980,162

222,374,308 196,844,955 1,214,714,059 933,075,323

0 0 0 0

222,374,308 197,535,652 1,536,810,641 938,055,485

Financial: 2017

(Amounts in euros)

Inward reinsurance Total carrying value


1,627,512 1,944,299 525,395,659 333,629,454

95,972 100,851 89,047,627 79,858,372

1,531,540 1,843,448 436,348,032 253,771,082

0 0 0 0

2,152,367 2,397,669 247,952,593 68,175,194

0 0 22,575,385 6,674,859

2,152,367 2,397,669 216,986,516 52,797,341

0 0 6,949,565 7,408,784

0 0 1,441,127 1,294,210

3,779,879 4,341,968 773,348,252 401,804,648



Detail of technical provisions

Direct business

Year n Year n‐1

Non‐life provisions 4,467,454,696 3,992,407,448

Provision for unearned premiums 1,268,902,985 1,142,445,551

Provisions for claims outstanding 3,160,099,463 2,846,665,632

Other reserves 38,452,248 3,296,265

of which provisions stated following liability adequacy test 3,042,901 1,257,098

Life provisions 11,695,309,285 6,939,093,994

Provision for sums to be paid 118,705,550 71,231,455

Provisions for policy liabilities 9,761,538,730 5,435,200,608

Provisions for policies where the investments risk is borne by the policyholders and relating to the administration of pension funds 1,213,692,138 931,341,683

Other reserves 601,372,867 501,320,248

of which provisions stated following liability adequacy test 2,053,523 0

of which deferred liabilities towards policyholders 534,658,521 461,980,340

Total technical provisions 16,162,763,981 10,931,501,442


Detail of financial liabilities

Financial liabilities at fair value through the income statement


Financial liabilities measured at fair value through the

income statement


Financial liabilities with discretionary participation feature 0 0 0 0

Subordinated liabilities 0 0 0 0

Liabilities on financial contracts written by insurance companies deriving from: 0 0 322,096,582 4,980,162

contracts where the investment risk is borne by the policyholders 0 0 322,096,582 4,289,466

management of pension funds 0 0 0 690,696

other contracts 0 0 0 0

Deposits received from reinsurers 0 0 0 0

Financial liability components of insurance contracts 0 0 0 0

Debt securities issued 0 0 0 0

Payables to bank customers 0 0 0 0

Interbank payables 0 0 0 0

Other loans received 0 0 0 0

Non‐hedge derivatives 12,494,263 15,934,993 0 0

Hedge derivatives 0 0 0 0

Other financial liabilities 0 0 0 0

Total 12,494,263 15,934,993 322,096,582 4,980,162

327

Financial: 2017

(Amounts in euros)

Indirect business

Total carrying value


4,391,956 4,953,339 4,471,846,652 3,997,360,787

244,656 282,908 1,269,147,641 1,142,728,459

4,142,800 4,553,431 3,164,242,263 2,851,219,063

4,500 117,000 38,456,748 3,413,265

4,500 117,000 3,047,401 1,374,098

3,229,478 4,192,787 11,698,538,763 6,943,286,781

0 0 118,705,550 71,231,455

2,207,557 2,459,147 9,763,746,287 5,437,659,755

1,021,921 1,733,640 1,214,714,059 933,075,323

0 0 601,372,867 501,320,248

0 0 2,053,523 0

0 0 534,658,521 461,980,340

7,621,434 9,146,126 16,170,385,415 10,940,647,568

Financial: 2017

(Amounts in euros)

Other financial liabilities Total carrying value


0 0 0 0

0 0 0 0

0 0 322,096,582 4,980,162

0 0 322,096,582 4,289,466

0 0 0 690,696

0 0 0 0

214,136,257 53,496,703 214,136,257 53,496,703

0 0 0 0

85,468,602 93,126,267 85,468,602 93,126,267

337,005,414 311,909,931 337,005,414 311,909,931

54,735,861 131,298,173 54,735,861 131,298,173

1,043,799 2,528,574 1,043,799 2,528,574

0 0 12,494,263 15,934,993

0 0 0 0

16,950,211 21,784,617 16,950,211 21,784,617

709,340,144 614,144,265 1,043,930,989 635,059,420



Detail of other components of the consolidated statement of comprehensive income

Allocations Adjustments for reclassification in

the income statement


Other income components without reclassification in the income t t t

436,814 ‐4,933,211

Reserve arising from changes in shareholders' equity of associates 0 0

Intangible assets revaluation reserve 0 0

Tangible assets revaluation reserve 0 0


Actuarial gains and losses and adjustments relating to defined benefit plans 436,814 ‐4,933,211

Other elements 0 0

Other income components with reclassification in the income statement 91,979,340 23,368,312 ‐43,297,641 ‐43,338,702

Reserve for net exchange differences ‐377,830 0 0 0

Gains or losses on AFS financial assets 93,818,436 26,265,489 ‐43,297,641 ‐43,338,702

Gains or losses on cash flow hedges 0 0 0

Gains or losses on hedges of net investments in foreign entities 0 0 0

Reserve arising from changes in shareholders' equity of associates ‐1,461,266 ‐2,897,177 0 0

Income and charges relating to non‐current assets or of a disposal group held for sale 0 0 0 0

Other elements 0 0 0 0

TOTAL OTHER COMPONENTS OF THE STATEMENT OF COMPREHENSIVE INCOME

92,416,154 18,435,101 ‐43,297,641 ‐43,338,702


Assets and liabilities measured at fair value on a recurrent and non‐recurrent basis: breakdown by levels of fair value

Level 1

Year n Year n‐1

Assets and liabilities measured at fair value on a recurrent basis

AFS financial assets 13,607,755,034 9,377,404,336


Financial assets held for trading 335,640 788,130

Financial assets measured at fair value though the income statement 1,407,483,125 893,236,564

Real estate investments 0 0

Property, plant and equipment 0 0

Intangible assets 0 0

Total assets measured at fair value on a recurrent basis 15,015,573,799 10,271,429,030

Financial liabilities at fair value through the income statement

Financial liabilities held for trading 0 0

Financial liabilities measured at fair value through the income statement 322,096,582 1,963,390

Total liabilities measured at fair value on a recurrent basis 322,096,582 1,963,390

Assets and liabilities measured at fair value on a non‐recurrent basis

Non‐current assets or of a disposal group HFS 0 0

Liability of a disposal group HFS 0 0

329

Financial: 2017

(Amounts in euros)

Other changes Total change Taxes Balance

Total Year n Total Year n‐1 Total Year n Total Year n‐1 Total Year n Total Year n‐1 at 31‐12‐(n) at 31‐12‐(n‐1)

0 0 436,814 ‐4,933,211 0 0 ‐21,447,874 ‐21,884,688

0 0 0 0 0 0 0 0

0 0 0 0 0 0 0 0

0 0 0 0 0 0 0 0

0 0 0 0 0 0 0 0

0 0 436,814 ‐4,933,211 0 0 ‐21,447,874 ‐21,884,688

0 0 0 0 0 0 0 0

0 0 48,681,699 ‐19,970,390 0 0 135,505,288 86,823,589

0 0 ‐377,830 0 0 0 ‐377,830 0

0 0 50,520,795 ‐17,073,213 0 0 124,535,021 74,014,226

0 0 0 0 0 0 0

0 0 0 0 0 0 0

0 0 ‐1,461,266 ‐2,897,177 0 0 11,348,097 12,809,363

0 0 0 0 0 0 0 0

0 0 0 0 0 0 0 0

0 0 49,118,513 ‐24,903,601 0 0 114,057,414 64,938,901

Financial: 2017

(Amounts in euros)

Level 2 Level 3 Total

Year n Year n‐1 Year n Year n‐1 Year n Year n‐1

537,063,799 307,106,337 105,242,032 121,404,892 14,250,060,865 9,805,915,565

1,263,330 0 0 0 1,598,970 788,130

120,666,177 76,271,195 1,191,300 1,191,300 1,529,340,602 970,699,059

0 0 0 0 0 0

0 0 0 0 0 0

0 0 0 0 0 0

658,993,306 383,377,532 106,433,332 122,596,192 15,781,000,437 10,777,402,754

12,494,263 15,934,994 0 0 12,494,263 15,934,994

0 3,016,771 0 0 322,096,582 4,980,161

12,494,263 18,951,765 0 0 334,590,845 20,915,155

0 0 0 0 0 0

0 0 0 0 0 0



Detail of changes in level 3 financial assets and liabilities measured at fair value on a recurrent basis

AFS financial assets

Opening balance 121,404,892

Purchases/Issues 16,211,577

Sales/Repurchases ‐1,900,246

Repayments ‐8,232,412

Gain (loss) through the income statement ‐19,314,970

‐ of which valuation gains/losses ‐19,314,970

Gains or losses in other items in the statement of comprehensive income 1,941,611

Transfers to level 3 0

Transfers to other levels ‐4,868,420

Other changes 0

Closing balance 105,242,032


Assets and liabilities not measured at fair value: breakdown by levels of fair value

Carrying value

Year n Year n‐1

Assets

Investments held to maturity 0 0

Loans and receivables 587,420,979 540,531,971

Equity investments in subsidiaries, associates and joint ventures 199,158,351 185,530,888

Real estate investments 996,413,502 975,908,080

Property, plant and equipment 265,336,084 268,182,494

Total assets 2,048,328,916 1,970,153,433

Liabilities

Other financial liabilities 709,340,144 614,144,265

331

Financial: 2017

(Amounts in euros)


Property, plant and equipment

Intangible assets

Financial liabilities at fair value through the income statement Financial assets at fair value

through the income statement

Financial assets held for trading

Financial assets measured at fair value though the income statement



0 1,191,300 0 0 0 0 0

0 0 0 0 0 0

0 0 0 0 0 0

0 0 0 0 0 0 0

0 0 0 0 0 0 0

0 0 0 0 0 0 0

0 0 0 0 0 0 0

0 0 0 0 0 0 0

0 0 0 0 0 0 0

0 0 0 0 0 0 0

0 1,191,300 0 0 0 0 0

Financial: 2017

(Amounts in euros)

Fair value

Level 1 Level 2 Level 3 Total

Year n Year n‐1 Year n Year n‐1 Year n Year n‐1 Year n Year n‐1

0 0 0 0 0 0 0

0 0 86,149,333 29,103,657 501,271,646 511,428,314 587,420,979 540,531,971

0 0 0 0 235,994,136 270,482,229 235,994,136 270,482,229

0 0 0 0 1,569,132,502 1,492,849,080 1,569,132,502 1,492,849,080

0 0 0 0 348,787,084 353,223,494 348,787,084 353,223,494

0 0 86,149,333 29,103,657 2,655,185,368 2,627,983,117 2,741,334,701 2,657,086,774

0 0 0 0 709,340,144 614,144,265 709,340,144 614,144,265



Detail of insurance technical items

Year n

Gross amount Reinsurers' share Net amount

Non‐life business

NET PREMIUMS 2,975,724,781 ‐303,863,930 2,671,860,851

a Premiums written 3,006,585,142 ‐311,532,952 2,695,052,190

b Change in the provision for unearned premiums ‐30,860,361 7,669,022 ‐23,191,339

COST OF CLAIMS ‐2,027,049,875 295,821,913 ‐1,731,227,962

a Amounts paid ‐1,990,081,704 233,885,484 ‐1,756,196,220

b Change in the provision for outstanding claims ‐75,467,783 61,936,429 ‐13,531,354

c Change in recoveries 40,239,935 0 40,239,935

d Change in other technical provisions ‐1,740,323 0 ‐1,740,323

Life business

NET PREMIUMS 1,535,324,185 ‐35,776,907 1,499,547,278

COST OF CLAIMS ‐1,684,819,374 26,708,822 ‐1,658,110,552

a Amounts paid ‐887,854,432 43,169,247 ‐844,685,185

b Change in the provision for sums to be paid ‐6,580,149 5,185,125 ‐1,395,024

c Change in the mathematical provision ‐511,508,701 ‐21,141,872 ‐532,650,573

d

Change in technical provisions where the investment risk is borne by the policyholders and relating to the administration of pension funds ‐275,589,858 ‐650,595 ‐276,240,453

e Change in other technical provisions ‐3,286,234 146,917 ‐3,139,317


Financial and investment income and expense

Interest Other income Other expense Realised gains Realised losses

Results of investments 263,423,220 122,433,241 ‐37,359,372 117,423,012 ‐36,471,281

a Deriving from property investments 0 81,932,916 ‐13,599,314 15,082,294 0

b Deriving from equity investments in subsidiaries, associates and joint ventures 0 25,324,393 0 0 0

c Deriving from HTM investments 0 0 0 0 0

d Deriving from loans and receivables 12,763,007 0 ‐15,265 0 ‐1,634,768

e Deriving from AFS financial assets 221,787,251 14,665,102 ‐8,131,593 89,130,045 ‐15,144,233

f Deriving from financial assets held for trading 2,295 0 ‐837 250,093 ‐3,797

g Deriving from financial assets measured at fair value through the income statement 28,870,667 510,830 ‐15,612,363 12,960,580 ‐19,688,483

Results of miscellaneous receivables 471,680 2,778 0 0 0

Result of cash and cash equivalents 278,325 0 0 0 0

Results of financial liabilities ‐2,700,616 0 ‐3,266,713 0 ‐134,193

a Deriving from financial liabilities held for trading 0 0 ‐3,264,488 0 0

b Deriving from financial liabilities measured at fair value through the income statement 0 0 ‐2,225 0 0

c Deriving from other financial liabilities ‐2,700,616 0 0 0 ‐134,193

Result of payables ‐4,078,462 0 ‐561 0 0

Total 257,394,147 122,436,019 ‐40,626,646 117,423,012 ‐36,605,474

333

Financial: 2017

(Amounts in euros)

Year n‐1

Gross amount Reinsurers' share Net amount

2,723,756,147 −265,279,315 2,458,476,832

2,746,060,573 −271,989,237 2,474,071,336

−22,304,426 6,709,922 −15,594,504

−1,748,084,739 166,480,529 −1,581,604,210

−1,845,408,497 163,331,471 −1,682,077,026

51,741,150 3,149,058 54,890,208

45,768,867 0 45,768,867

−186,259 0 −186,259

1,103,088,010 −26,696,613 1,076,391,397

−1,217,310,468 20,391,443 −1,196,919,025

−646,726,045 17,623,844 −629,102,201

37,829,625 241,867 38,071,492

−425,329,662 3,078,511 −422,251,151

−176,182,965 −766,175 −176,949,140

−6,901,421 213,396 −6,688,025

Financial: 2017

(Amounts in euros)

Total gains and losses

realised

Valuation gains Valuation losses Total

unrealised gainsand losses


Year n


Year n‐1 Valuation gains

Reversals of carrying

Valuation losses

Write‐downs carrying

429,448,820 32,093,158 1,754,290 ‐15,552,977 ‐30,633,077 ‐12,338,606 417,110,214 362,225,322

83,415,896 0 396,210 0 ‐10,906,897 ‐10,510,687 72,905,209 77,106,943

25,324,393 0 0 0 0 0 25,324,393 25,103,382

0 0 0 0 0 0 0 0

11,112,974 0 1,358,080 0 ‐212,450 1,145,630 12,258,604 10,025,003

302,306,572 0 0 0 ‐19,513,730 ‐19,513,730 282,792,842 235,596,979

247,754 ‐450,469 0 ‐14,851 0 ‐465,320 ‐217,566 169,304

7,041,231 32,543,627 0 ‐15,538,126 0 17,005,501 24,046,732 14,223,711

474,458 0 0 0 0 0 474,458 601,936

278,325 0 0 0 0 0 278,325 232,612

‐6,101,522 3,938,008 0 0 0 3,938,008 ‐2,163,514 ‐2,476,639

‐3,264,488 3,938,008 0 0 0 3,938,008 673,520 636,674

‐2,225 0 0 0 0 0 ‐2,225 0

‐2,834,809 0 0 0 0 0 ‐2,834,809 ‐3,113,313

‐4,079,023 0 0 0 0 0 ‐4,079,023 ‐883,222

420,021,058 36,031,166 1,754,290 ‐15,552,977 ‐30,633,077 ‐8,400,598 411,620,460 359,700,009



Detail of insurance operating expenses

Non‐life business

Year n Year n‐1

Gross commissions and other acquisition costs ‐774,866,462 ‐718,978,403

a Acquisition commissions ‐409,124,619 ‐378,576,793

b Other acquisition costs ‐222,042,811 ‐202,583,118

c Change in deferred acquisition costs 0 0

d Collection commissions ‐143,699,032 ‐137,818,492

Reinsurance commissions and profit‐sharing 62,059,240 55,660,618

Investment management expenses ‐11,523,115 ‐11,939,359

Other administrative expenses ‐129,911,877 ‐117,721,053

Total ‐854,242,214 ‐792,978,197


Interests in unconsolidated structured entities

Name of the structured entity Revenues from the structured

entity received during the period of reference

Carrying value (on the transfer date) of the assets transferred to the structured entity during the

period of reference

Carrying value of the assets recognised in the financial

statements and relating to the structured entity

GRIES FUND 12,155,823

335

Financial: 2017

(Amounts in euros)

Life business

Year n Year n‐1

‐57,263,416 ‐43,839,550

‐30,542,052 ‐22,629,185

‐23,740,740 ‐18,310,712

0 0

‐2,980,624 ‐2,899,653

6,044,524 4,778,077

‐10,805,883 ‐12,196,178

‐27,867,951 ‐19,718,874

‐89,892,726 ‐70,976,525

Financial: 2017

(Amounts in euros)

Corresponding assets item of the balance sheet

Carrying value of the liabilities recognised in the financial

statements and relating to the structured entity

Corresponding liabilities item of the balance sheet

Maximum exposure to the risk of loss

45 12,155,823


REALE GROUP CELEBRATES REALE MUTUA'S 190TH ANNIVERSARY