Romania – the next best thing

Generali RomaniaNovember 12, 2009

Bucharest

2

Content

� Current Romanian economic outlook. And impact on the insurance industry

� Generali PPF on the CEE markets

� Why could Romania be the best next thing in the ins urance industry?

� Conclusions

Current Romanian economic outlook and impact on the insurance industry

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Macroeconomic outlook - GDP

� Strong growth of economy in the past was driven by loans. Credit crunch caused sharp decline of GDP in 2009.� 2010 is expected to record another 5.9% decrease, with a small revival at the end of the year.

CEE Population - end of 2008 (million inhabitants)source: United Nations Department of Economic and Social Affairs

– Population Division

10,4

38,1

21,5

5,4 2,0

10,3 7,6 11,23,1 3, 7

9,82,0

46,0

0,05,0

10,015,020,025,030,035,040,045,050,0

Czech

RepublicPoland

Romani aSlova

kiaSlove

niaHunga

ryBulgariaGre

eceA lban

ia

Bosnia and H

ertegovin

aSerbia

Republic

of Mace

doniaUkrai

n e

�Romania is a very interesting country, despite temporarily expecting shrinking GDP as it is the second biggest population in CEE with development potential in many areas.

GDP (bln RON)

Ø 451

-8,5%22,1%

2009 2010 20112007 2008

-5,9% +2,7%

Macroeconomic outlook

*data source: Romanian National Statistic Institute;

Romanian National Prognosis Institute

� Inflation rate declines in spite of the devaluation of RON. � Romanian economy did not reach the bottom yet. It is expected in Q4 2009 and Q1/2010 resulting in the peak of unemployment in 2010.�We expect further devaluation of RON to 4.5 RON / EUR in 2010.

Insurance as % GDP

*data source: XPRIMM Insurance Profile magazine; Generali’s own estimations; CEA

Risk awareness is still on very low level having a as a result no significant increase for the insurance penetration in the upcoming three years.

CEE Insurance markets are still small compared to the mature Western markets

Romania Insurance Penetration

Insurance market size evolution

� Starting 2005, GWP increased every year, exception making 2009, when GWP decreased by 9,7% (in EUR) compared to 2008� The paid claims are on a continuous growing path; this year the paid claims increased by 13.8 % �Insurance become unprofitable

*data source: XPRIMM Insurance Profile magazine;

�To be profitable insurance in term of value of risk should grow in upcoming years (mainly in car insurance)

Insurance product mix evolution

�Romania Insurance market is dominated by car & property insurance and no dramatic change in insurance segments is expected.�Car insurance will still dominate non life segment in the upcoming three years.�Slow increase of property, accident and liability insurance is foreseen.

*data source: XPRIMM Insurance Profile magazine; Generali’s

own estimations

CEE market structure

�life insurance dominates with around 50%.

�motor insurances has only 30%

�property has around 10%

Generali PPF Holding

A leading insurer

• Founded in 1831• 34.7 bln Euros gross written premiums (1H09)

• 287 bln Euros in reserves (1H09)• 389 bln Euros AUM (1H09)•Niche presence in Swiss private banking; no commercial or corporate banking• More than 80,000 employees• More than 53 million customers

Global player focused in Europe

• Presence in around 64 countries• Historical leader in Italy• Top-tier presence in all key European markets, except UK; only in niche life business in US• Strong presence in fast growing Eastern European countries

Strong capital base

• Strong rating from key agencies • Conservative asset allocation

Generali Group at a glance

Generali PPF’s presence in CEE

Ukraine

Poland

HungaryRomania

Serbia Bulgaria

Croatia

Slovenia

Czech Rep

Russia

Slovakia

Kazakhstan

Belarus

� Presence in 14 countries with 323 million inhabitants

� Total Premiums 2008: EUR 3.4billion

� # 1 in the Czech Rep.

� # 2 in Hungary� # 3 in Slovakia� # 4 in Romania

Why could Romania be the next best thing in the insurance industry?

Long term growth opportunities

�High growth potential – In the assumption of Romania converging to the current WE levels of %GDP for both non-life and life insurance in 25 years (at that time representing 61% of WE levels), the local insurance market would growth at 10% CAGR in non-life and 22% CAGR in life insurance segments

*data source: Morgan Stanley Research

Long term growth opportunities

�Romania – the most attractive market in the region in terms of life market growth potential and market size

Long term growth opportunities

�Romania – the most attractive market in the region in terms of non - life market growth potential and market size

Demographical Dilemma

Public Pension System

� In 2008, only 4.9 million employees contributed in the system, while the number of pensioners went up to 4.7 million.

� Birth and fertility rates are dramatically decreasing and the average age of the population is constantly growing;

� Romania’s demographic problems show that its public pension budget is no longer sustainable in its current form and needs a major reform.

No. of contributors compared with pensioners number (1990 – 2008)

� Annual average number of contributors(thousands persons)� Pensioners number (thousands persons)

Demographical Dilemma

Public Health Insurance System�Not enough money to finance all of the in-patient costs, in addition to the drugs and the medical check-ups (which are supposed to be free for all the contributors, children and pensioners).�At the end of 2009 an important part of hospitals will not have enough money to pay the employees and the sanitary materials.�In order to finance the National Health Insurance System, the Ministry of Health concluded that additional charges for both employees and even pensioners have to be introduced beginning with 2010.

�Unfortunately, Romania is on the last position

Health Expenditure (% of GDP)

Governement share (% of total health

expenditure)

Czech Republic 7.1 89

Hungary 7.8 71

Poland 6.2 69

Romania 5.5 70

Slovenia 8.5 72

How can the insurance industry assist in the demographical dilemma?

TO PROMOTE:

� Changes in the private pensions system� 2nd PILLAR PRIVATE PENSIONS

� Predictability is necessary – the existence of a well established plan, respected in any economical, social or political context

� A faster surpassing of the actual 2% milestone, in favor of theprivate administrators

� Increase the contribution of 2% to 0.5% per year - as it was initially in the law

� 3rd PILLAR PRIVATE PENSIONS� Increasing fiscal deductibility, in order to encourage the sector

� Reform of health services financing� PRIVATE HEALTH INSURANCES SYSTEM

� Regulation of the health services� Increasing fiscal deductibility, in order to encourage the sector

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Public policies implemented in other CEE markets

�In the coming years, and in an unknown order, CEE countries will have to tackle the challenge of aging populations combined with unsustainable pension systems. This nearly inevitable pension reform could massively spur growth in premiums.

�A recent example of this is Poland, which in 2008 introduced a capital gains tax exemption to certain types of life policy and saw premiums grow by 52% in 08 vs. 07.

�Consumer demand for life is growing even without governmental incentives. Public pensions in CEE countries are relatively modest compared to Western levels, and so private saving is becoming a necessity for the growing number of middle to high income earners. Demand for protection products also rises as the wealth of CEE citizens rises.

�Insurance-related public policies implemented in other CEE markets� Fiscal

� Pension and savings related - Poland example� Medical insurance related – Slovakia example

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Conclusions

� Romania – the most attractive market, being under penetrated with low GDPper capita, offering the potential of high growth

� Short-term decrease and slower recovery

�Consumer demand for life is growing even without governmental incentives. Public pensions in CEE countries are relatively modest compared to Western levels, and so private saving is becoming a necessity for the growing number of middle to high income earners. Demand for protection products also rises as the wealth of CEE citizens rises.

� Long-term opportunities – where public policies are to be devised – assistance to the pension system through measures to sustain savings insurance products

Thank you!