MEDIOLANUM GROUP CONSOLIDATED FINANCIAL · Mediolanum Group – Consolidated Financial Statements...

2015

MED

IOLA

NUM

GRO

UP –

CON

SOLI

DATE

D FI

NANC

IAL

STAT

EMEN

TS20

15

MEDIOLANUM GROUP

CONSOLIDATEDFINANCIALSTATEMENTS

2015

MediolanumGroup–ConsolidatedFinancialStatements2015 2 BancaMediolanumS.p.A.CorporateBodies

3 Corporatestructure

4 MediolanumGroup’s2015FinancialHighlights

6 ReclassifiedconsolidatedincomestatementasatDecember31,2015

7 SummaryofBusinessPerformanceforFY2015

9 ReportonoperationstotheConsolidatedFinancialStatementsasatDecember31,2015

38 ConsolidatedAccounts

46 NotestotheConsolidatedFinancialStatementsasatDecember31,2015256 CertificationoftheConsolidatedFinancialStatementspursuanttoarticles81-terofConsobRegulationno.11971

ofMay14,1999,asamended

258 IndependentAuditors’Report

262 Annex1–Reportingrequiredpursuanttoprudentialregulations

BancaMediolanumS.p.A.–SeparateAnnualFinancialStatements2015264 2015FinancialHighligts

267 ReportonoperationstotheSeparateAnnualFinancialStatementsasatDecember2015

312 Accounts

320 NotestotheSeparateFinancialStatementsasatDecember31,2015

462 Feespaidtotheindependentauditors

464 CertificationoftheAnnualSeparateFinancialStatementspursuanttoarticles81-terofConsobRegulationno.11971

ofMay14,1999,asamended

466 IndependentAuditors’Report

470 ReportoftheBoardStatutoryAuditors

480 OrdinaryGeneralMeetingofApril5,2016

TableofContents

The English version of the Annual Report is a translation of the Italian text provided for the convenience

of international readers.

ANNUAL REPORT AND ACCOUNTS2015

Registered Office Basiglio Milano Tre (MI) Via F. Sforza Pal. MeucciShare capital of Euro 600,000,000.00 fully paid-up

Tax Registration and Milan Register of Companies No. 02124090164 VAT Registration No. 10698820155

2

Banca Mediolanum S.p.A. Corporate Bodies

Board of directors

Ennio Doris Chairman of the Board of Directors

Edoardo Lombardi Vice Chairman

Giovanni Pirovano Vice Chairman

Massimo Antonio Doris Chief Executive Officer

Bruno Bianchi Director

Luigi Del Fabbro Director

Annalisa Sara Doris Director

Paolo Gualtieri Director

Antonio Maria Penna Director

Angelo Renoldi Director

Carlos Javier Tusquets Trias de Bes Director

Board of statutory auditors

Arnaldo Mauri Chairman of the Board of Statutory Auditors

Adriano Angeli Statutory Auditor

Marco Giuliani Statutory Auditor

Francesca Meneghel Alternate Auditor

Gianluca Orrù Alternate Auditor

Board secretary

Luca Maria Rovere

independent auditors

Deloitte & Touche S.p.A.

3

Corporate structureSituation as at December 31, 2015

° Companies forming part of Mediolanum Banking Group.°° Since Mediobanca holds treasury shares, total shareholding amounts to 3.405% of voting rights.

Mediobanca S.p.a.°°

GaMaXManaGeMent (aG) °(LuXeMbourG coMpany)

100%

MedioLanuM GeStione Fondi SGr p.a.°

MedioLanuM aSSet ManaGeMent Ltd °

(iriSh coMpany)

100%

99,998%

99,999%

100%

92%

100%

2,60%

0,74%

MedioLanuMaSSicurazioni S.p.a.

100% 100%

banca eSperia S. p.a.50%

pi Servizi S.p.a.

100%

Fibanc S.A.°(SpaniSh coMpany)

bankhauS auGuSt Lenz & co.°

(GerMan coMpany)

MedioLanuM internationaL FundS LiMited °

(iriSh coMpany)

MedioLanuM penSioneS S.A., S.G.F.P.°(SpaniSh coMpany)

99,999%MedioLanuM GeStión S.G.I.I.C., S.A.°

(SpaniSh coMpany)

MedioLanuM Fiduciaria S.p.a. °

100%

MedioLanuM coMunicazione S.p.a.°

100% 100% MedioLanuM vita S.p.a.

banco MedioLanuM S.a.° (SpaniSh coMpany)

FerMi & GaLeno reaL eState S.r.L. °

100%

MedioLanuM internationaL LiFe LiMited

(iriSh coMpany)

3%

°

100%

5%

4

Mediolanum Group’s 2015Financial Highlights

Data for inflows and assets

E/m Dec. 31, 2015 Dec. 31, 2014 Change %

Total customer assets (*) 70,681.6 64,457.1 10%

Consolidated net income 5,717.1 5,237.8 9%

Banca Mediolanum net inflows 4,662.9 4,081.9 14%

- Net inflows AuM 3,729.0 3,855.3 (3%)

of which mutual funds and Unit Linked 4,687.4 4,827.6 (3%)

- Net inflows AuA 933.9 226.7 n.s.

Banca Esperia net inflows 462.0 629.5 (27%)

(*) The figures relating to the Assets under management and administration refer exclusively to Retail customers while those relating to Banca Esperia were considered in proportion to the ownership percentage (50%).

Balance sheet figures

E/m Dec. 31, 2015 Dec. 31, 2014 Change %

Total assets 44,710.2 42,547.9 5.1%

Available for sale financial assets (AFS) 14,971.5 15,516.8 (3.5%)

Held to maturity financial assets (HTM) 2,567.1 2,512.1 2.2%

Financial assets held for trading (HFT) 1,201.8 846.9 41.9%

Loans to customers net of L&R securities (Loans) 7,166.0 6,315.0 13.5%Payables to customers and securities issuednet of Cassa di Compensazione e Garanzia (Funding)

14,919.3

12,804.5

16.5%

Loans ratio on customer inflows 48% 49% (2.6%)

Income statement figures

E/m Dec. 31, 2015 Dec. 31, 2014 Change %

Gross pre-tax profit 561.2 452.9 24%

Income taxes (122.6) (132.3) (7%)

Net profit 438.6 320.6 37%

Profitability ratios

E Dec. 31, 2015 Dec. 31, 2014 Change %

Earnings per share – total 0.594 0.435 37%

Diluted earnings per share (*) 0.591 0.432 37%

(*) Net income attributable to holders of ordinary shares divided by the weighted average of ordinary shares in issue.

Resources Dec. 31, 2015 Dec. 31, 2014 Change %

Financial advisors 5,224 5,195 0.6%

Average workforce 2,532 2,428 4.3%

CONSOLIDATED ANNUALFINANCIAL STATEMENTS

2015

5

Capital adequacy

E/m Dec. 31, 2015 Dec. 31, 2014 Change %

Bank-oriented financial conglomerate

Equity(1) 1,484 1,053 41%

Capital requirements 1,159 745 56%

Equity surplus (deficit) 325 308 6%

Own funds and coefficients for supervisory purposes as at December 31, 2015 – Banking Group*

E/m Dec. 31, 2015 Dec. 31, 2014 Change %

Shareholders’ equity(2) 1,506 1,286 17%

RWA (risk weighted assets) 7,633 6,978 9%

Total assets 27,734 26,592 4%

(2) Total assets determined in accordance with regulatory provisions of the Bank of Italy (Circular of the Bank of Italy no. 285 of December 17, 2013) provide a different consolidation criterion. Compared to the approach adopted in the Consolidated Financial Statements, insurance investments are consolidated according to the equity method while the jointly controlled entity (Banca Esperia) using the proportionate line-by-line method.

Equity ratios – Mediolanum Banking Group**

Values expressed in % Dec. 31, 2015 Dec. 31, 2014

Common Equity Tier 1 ratio 19.66% 18.43%

Tier 1 Ratio 19.66% 18.43%

Total Capital Ratio 19.73% 18.43%

(1) At the date of submission of this report, the Capital Ratios were determined taking into account the profit as at December 31, 2015, net of dividends according to the proposed 2015 profit allocation of Banca Mediolanum, and will be subject to reporting to the Bank of Italy following the approval of the draft financial statements by the Board of Directors and upon receipt of the comfort letter from the independent auditors. The aforementioned solvency coefficients were determined according to the new harmonized framework for banks and investment firms contained in Directive 2013/36/EU (CRD IV) and in Regulation (EU) 575/2013 (CRR) June 26, 2013, which transpose the EU standards set by the Basel Committee on Banking Supervision (the so-called Basel 3 framework), and on the basis of the Bank of Italy Circulars no. 285 and no. 286 (enacted in 2013) and no. 154 (updated in 2013).

6


2015

Reclassified consolidated income statement as at December 31, 2015 (*)

E/t Dec. 31, 2015 Dec. 31, 2014 Change Change %

Entry fees 101,989 98,929 3,060 3%

Management fees 815,072 672,129 142,943 21%

Performance fees 325,951 176,108 149,843 85%

Banking service fees and revenues 86,405 100,490 (14,085) (14%)

Other fees 36,999 34,101 2,898 8%

Fee income 1,366,416 1,081,757 284,659 26%

Net interest income 252,839 234,583 18,256 8%

Net income (loss) on investments at fair value (1,120) (8,579) 7,459 (87%)

Net financial income 251,719 226,004 25,715 11%

Equity method valuation 22,260 18,694 3,566 19%

Net insurance income (excluding commissions) 43,935 57,030 (13,095) (23%)

Realized gains (losses) on other investments 8,546 95,942 (87,396) (91%)

Impairment of loans (13,164) (17,254) 4,090 (24%)

Impairment of other investments (4,180) (11,757) 7,577 (64%)

Net income (loss) on other investments (8,798) 66,931 (75,729) n.s.

Other revenues 26,702 27,548 (846) (3%)

TOTAL REVENUES 1,702,234 1,477,964 224,270 15%

Network commission expenses (495,691) (448,532) (47,159) 11%

Other commission expenses (57,544) (53,403) (4,141) 8%

General and administrative expenses (504,775) (467,352) (37,423) 8%

Amortization and depreciation (26,050) (22,268) (3,782) 17%

Provisions for risks and charges (56,959) (33,515) (23,444) 70%

TOTAL COSTS (1,141,019) (1,025,070) (115,949) 11%

GROSS PRE-TAX PROFIT 561,215 452,894 108,321 24%

Income taxes (122,602) (132,277) 9,675 (7%)

NET PROFIT FOR THE PERIOD 438,613 320,617 117,996 37%

(*) This income statement has been prepared according to a scheme that reflects the Group’s management system that provides for the reclassification of the components of net profit before tax by nature and exposing financial income and expenses related to assets and liabilities for which the investment risk is borne by policyholders in the item “Net insurance income”.

7

Summary of Business Performancefor FY 2015

E/m Dec. 31, 2015 Dec. 31, 2014 Change Change %

Net Profit

of which:

438.6 320.6 118.0 37%

Fee income 1,366.4 1,081.8 284.6 26%

The growth in fee income was driven by growth in assets under management that generated higher management fees

(Euro +142.9 million) partly due to the good performance of net inflows in the year, as well as by higher performance

fees thanks to the favorable trend in the financial markets (Euro +149.8 million).

Net financial income 251.7 226.0 25.7 11%

The growth in average bank assets led to an improvement in net financial income (Euro +25.7 million). In fact, the

yield on loans decreased to a less than proportional extent with respect to the reduction in the cost of funding.

Equity method valuation 22.3 18.7 3.6 19%

Improvement in income generated from equity investments valued at equity, in particular for the contribution

relating to Mediobanca S.p.A. (Euro +7.6 million over the comparable period).

Net income (loss) on other investments (8.8) 66.9 (75.7) n.s.

Net income from other investments recorded a negative balance of Euro -8.8 million compared to Euro +66.9

million in 2014, mainly for lower gains on AFS financial instruments (about Euro 80 million).

Network commission expenses (495.7) (448.5) (47.2) 11%

Increase in recurring commissions of the sales network mainly in relation to the sustained growth in assets.

Administrative expenses (504.8) (467.4) (37.4) 8%

Increase in personnel expenses (Euro +11.1 million) mainly due to the growth in the average workforce (+104 units

compared to the previous year) for the year and other administrative expenses primarily related to higher expenses

regarding entry into force of the so-called “Save Banks” decree (Euro +19.3 million).

8


2015

Net provisions for risks (57.0) (33.5) (23.5) 70%

The increase was mainly due to an extraordinary provision by the Spanish Group Banco Mediolanum equal to 11.2

million due to the negative outcome of a decision at first instance to the detriment of the former Fibanc Group (now

Banco Mediolanum) and higher expenses resulting from discounting of indemnity funds to the sales network follow-

ing the reduction in market interest rates at year end and the progressive reduction in the turnover rate of the Banca

Mediolanum network promoters.

Income taxes (122.6) (132.3) 9.7 (7%)

Despite the increase in gross profit in the year, there was virtually no change in the tax burden. During the year, the

charge was recorded for the closing of the tax dispute in Italy for about Euro 31.2 million, down 9.6 million com-

pared to the allocation for the year 2014 (Euro 40.8 million).

9

REPORT ON OPERATIONS

Report on operations to the Consolidated Financial Statements as at December 31, 2015

The Banca Mediolanum Group closed FY 2015 with a net profit of Euro 438.6 million, compared to a net profit the

prior year of Euro 320.6 million.

It is recalled that following the reverse merger Banca Mediolanum became parent company of the Mediolanum

Banking Group and Parent Company of the Financial Conglomerate having banking prevalence. The merger of Me-

diolanum S.p.A. into Banca Mediolanum S.p.A. has produced legal effects towards third parties, pursuant to art.

2504-bis, paragraph 2, Civil Code, as at December 30, 2015. The accounting effects of the merger shall instead be

effective from the first day of the current fiscal year to the Date of Effectiveness of the merger (January 1, 2015).

At the same time of the effectiveness of the merger, the Banca Mediolanum ordinary shares were admitted to listing

on the electronic stock market (MTA). The reverse merger has not changed the scope of consolidation, the latter

remaining unchanged from as previously outstanding at December 31, 2014, so it was not necessary to prepare

comparative diagrams of the previous year other than as already previously approved and published through the

2014 Consolidated Financial Statements.

Macroeconomic scenario

The moderate economic recovery, the weak price trend, the overall expansionary orientation of the monetary policy

of major central banks, the renewed Greek financial crisis and the resurgence of unresolved geopolitical tensions

were the issues that influenced the performance of financial markets during 2015.

In 2015, the international economic cycle remained positive, supported by good fundamentals and, above all, by the

accommodative policies of the major central banks. Despite the profound efforts, global growth remains, however,

far from its potential: the International Monetary Fund estimates that world growth in 2015 was 3.1% from 3.4%

the previous year, with rising contribution of industrialized countries at 2.0% from 1.8% in 2014 and declining of

emerging countries at 4.0% from 4.6% in 2014. In detail, the change in GDP in 2015 is estimated in the US at

2.6% (2.4% in 2014), the Eurozone at 1.5% (0.9% in 2014), in Japan at 0.6% (-0.1% in 2014). In the period,

in Spain there was confirmation of exit from the recession already highlighted in 2014 (+1.4% and +3.1% growth

rates in 2014 and 2015 respectively) and in Italy at the end of the economic slowdown of the last three years (-0.4%

in 2014 and +0.8% in 2015); gross domestic product is expected to stand at +1.5% in Germany (+1.6% in 2014)

and +1.2% in France (+0.2% in 2014).

In advanced economies, the continued support by the monetary policies has contributed to the improvement of

production and employment; in particular, the recovery has proved more robust and sustainable in the US and UK,

where the Federal Reserve and Bank of England are gradually abandoning the expansionary monetary policy, while it

is still uncertain in the Eurozone and Japan, where analysts estimate needed further increases in quantitative easing

programs of the European Central Bank and Bank of Japan, also in light of the persistent deflationary pressures.

The year just ended was in fact the year of normalization of US monetary policy: on December 16, 2008, the Federal

Reserve zeroed reference rates in order to counter the concurrent recession; after exactly seven years, on December

10


2015

16, 2015, the emergency ended with the first rise in interest rates, justified by a return of the unemployment rate to

5% from the peak of 10% in 2009.

In the Eurozone, on the other hand, the expansionary monetary policy of the European Central Bank, focused on a

vigorous securities purchase program launched in March, counters deflationary pressures and keeps interest rates

at low levels, favoring both the refinancing of the high public debts accumulated during the crisis, and the weakness

of the single currency to the main currencies (thus fostering exports). At its meeting on December 3, the ECB also

decided to further reduce the interest rate on deposits with the Central Bank, to -0.30% from -0.20% and to extend

the securities purchase program up to the end of March 2017 from the previous deadline of September 2016. In the

area, the economic recovery is also based on growth in domestic demand, supported by retail sales and household

consumption, and is more prevalent in the service sector rather than in manufacturing. Specifically, Germany is ex-

periencing an increase in public spending in order to offset the decline in exports and fixed investments with respect

to previous years; in Italy, as already mentioned, the economy is re-emerging from a prolonged recession in the wake

of elements such as the reduction of oil prices, the weakness of the Euro to the main currencies, the economic and

institutional reforms being implemented and the reduction in yields produced by the quantitative easing of the ECB.

The data and surveys confirm the economic inversion and improvement in the confidence of consumers and entre-

preneurs: the initial conservative estimates of the beginning of the year (+0.4%) of the IMF regarding the economic

recovery of our country significantly underestimated the potential expressed in 2015.

From Japan, new signs of weakness and stalling emerged of the actual transmission of fiscal stimulus (of the Shinzo

Abe government) and monetary stimulus (of the Bank of Japan of Haruhiko Kuroda) to the economy, which prelude

new intervention measures in 2016.

In emerging and developing markets, the fifth consecutive year of growth slowdown is justified by several factors:

the fall in the price of raw materials, the excessive growth of debt and the persistence of unresolved idiosyncratic

social, political, financial and military issues. Some of the major emerging economies show serious criticality: the

international scenario is burdened by the recession of some big countries (Brazil and Russia) and the slowdown in

China. In Brazil, the simultaneous presence of economic recession (-3.0% in 2015 from +0.1% in 2014), inflation,

public deficit and political corruption limit the effectiveness of resorting to the counter-cyclical fiscal policies and

the monetary policy instruments. Russia is affected by the drastic reduction in the prices of raw materials (oil and

gas) and the effects of the economic sanctions imposed by the US and the European Union, following the political

and military crisis with Ukraine. If Russia’s entry into recession (-3.8% in 2015 from +0.6% in 2014) is a political

success for the international community as part of the sanctions regime, one should not underestimate the risks of a

further slowdown for the financial stability of several countries, including the Eurozone, with significant trade with

Russia. China’s transition to lower growth rates (7.3% in 2014, 6.8% in 2015, 6.3% in 2016), although in line

with expectations, had greater external repercussions than expected, as evidenced by the increase in financial market

volatility in the second half of 2015, following the devaluation of the Yuan in August by the People’s Bank of China.

The next intervention of monetary easing by the Chinese central bank on October 23, with the surprise reduction

of the interest rate on loans and deposits and the obligatory reserve coefficient, clearly showed the attention of the

Chinese authorities on the issue of domestic growth. While on one hand in China exponential growth of the debt

of non-financial companies could represent a serious risk factor, it is also necessary to underline that the Beijing

authorities have, also thanks to low inflation, a wide range of monetary and fiscal levers to address the soft landing

of the country. On November 30, 2015, the International Monetary Fund announced the addition of the Renminbi in

the basket of reserve currencies, which determines the value of Special Drawing Rights (SDR). The special drawing

rights are the reference currency of the IMF and an international reserve instrument. The value of the SDR is deter-

mined by a basket of the most representative currencies of the global economy: with effect from October 1, 2016,

11


the Renminbi will be included with a weight of 10.92%, alongside the US dollar (41.73%), Euro (30.93%), British

pound (8.09) and Japanese yen (8.33%). The IMF decision confirms the integration of the Chinese economy in the

international financial system and represents a tangible recognition of the progress made by the Beijing authorities

in reforming the country’s monetary and financial system.

At international level, the declines in commodity prices keep away the achievement of inflation targets, allowing the

passing of the baton in the orientation of monetary policy among the major central banks.

During the year, the third bailout of Greece was characterized by approximate handling of the negotiations by the

Greek authorities, by a prolonged conflict between governments of the Eurozone and the International Monetary

Fund on the procedures for application of the program and probable output possibility of a member country from the

monetary union. The achievement of the agreement has avoided Greece exit from the Euro and an irreversible crisis,

transferring in time the identification of a definitive solution.

The European political scenario was characterized by some major electoral events in 2015: the British general elec-

tions, held on May 7, amply reconfirmed the outgoing Prime Minister David Cameron (Conservative Party), despite

the high uncertainty detected by the preliminary polls. On September 20, in Greece, the Syriza party and its leader

Tsipras re-established leadership of the government and are called upon to ensure compliance with the objectives set

in the new bailout program. In September, Spain was involved with regional elections in Catalonia, with the victory of

the independence front, and, in December, the general elections, won by the outgoing Prime Minister Mariano Rajoy

(Partido Popular), however without reaching the absolute majority. Similarly, in Portugal, the outgoing center-right

party has been confirmed to lead the country, ensuring the relative majority of votes (38.5%), but not absolute in

Parliament.

Among other notable events, we recall the outbreak of the scandal on diesel engine emissions produced by the Ger-

man automotive group Volkswagen, after the US Environmental Protection Agency (EPA) ordered the recall of

about 500 thousand vehicles on which software designed to circumvent controls on toxic gas emissions was installed;

the matter had a significant impact on market sentiment, and in particular on the automotive sector. In the final

period of the year, public opinion was badly shaken by the attacks perpetrated by the Islamic State (ISIS), including

those in Paris on November 13, which led to a tightening of international geopolitical tensions and resulted in a dete-

rioration in confidence also on the financial markets. With particular reference to the Italian market, we also report

the crisis emerged in late November in relation to the arrangements made for the rescue of four banks (Banca delle

Marche, Banca Popolare dell’Etruria e del Lazio, Cassa di Risparmio di Ferrara e Cassa di Risparmio di Chieti),

which resulted in losses for investors who had purchased subordinated securities of the same.

12


2015

Financial Markets

In 2015, global equity markets were down -2.7% (MSCI World in US dollars). In the US, the S&P500 recorded

negative performance of -0.7%, the Nasdaq Composite positive of +5.7%; in Europe, stock markets fared well,

too, on average (STOXX Europe 600 +6.8%). In detail, the stock markets in Italy (+12.0% FTSE MIB), Germany

(+9.6% DAX), France (+8.5% CAC 40) and the Netherlands (+5.8% AEX) outperformed the stock markets in

Spain (-6.2% IBEX 35), England (-4.9% FTSE 100) and Switzerland (-1.8% SMI); in Asia, the Japanese market

(+9.1% Nikkei 225) outperformed the stock markets in Australia (-1.8% S&P/ASX 200) and Hong Kong (-6.9%

HANG SENG). Emerging stock markets achieved on average a negative -17.1% (MSCI Emerging Markets index

in Dollars).

In 2015, the German government curve recorded reductions in yields compared to the previous year on the shortest

maturities (2 years -0.35% from -0.10%, 5 years -0.05% from 0.02%, 10 years 0.63% from 0.54%, 30 years

1.49% from 1.39%) offering negative yields up to 5 years. The spread between Italian and German debt on the ten-

year maturity went from an initial 135 basis points to 97 as at December 31, while on two-year maturity it went from

an initial 63 basis points to 31 as at December 31. In 2015, the Italian government curve registered the following

reductions in yields: from 0.29% to -0.04% at 1 year, from 0.53% to -0.03% at 2 years, from 0.95% to 0.50% at

5 years, from 1.89% to 1.60% at 10 years and from 3.23% to 2.70% at 30 years. The spread between Spanish and

German debt on the ten-year maturity went from an initial 107 to 114 as at December 31. During the last session

in 2015, the US government showed a two-year yield of 1.05%, an increase compared to 0.66% at the beginning of

the year, while the 10-year yield of 2.27% showed only a marginal increase from 2.17% at the beginning of the year.

Starting April, there was a substantial increase in yields in high yield markets and emerging markets. The average

yield of emerging markets changed on average from 6.15% at the beginning of 2015 to 6.71% at year-end (JPMor-

gan Emerging Markets Global Sovereign Index, JPEGSOYD Index), recording a minimum of 5.68% on April 24 and

maximum of 6.82% on September 29; in high yield markets, yields rose from 6.61% at the beginning of the year to

8.74% at December 31 (Barclays US Corporate High Yield Index, LF98YW Index) with a minimum of 5.88% on

February 27 and a maximum of 9.00% on December 14.

In 2015, the listing of the USD towards the Euro went from 1.2098 at the beginning of the year to 1.0862 as at

December 31, recording a minimum of 1.2109 during the first session and maximum of 1.0458 during the session on

March 16. Continuing the trend started in 2014, the US dollar has steadily and significantly strengthened towards

the common currency in the first quarter of the year, incorporating the economic differential between the US and

the Eurozone, and the divergent phase of monetary policy between Federal Reserve and European Central Bank;

subsequently, accomplices the uncertainty regarding the timing of the first rate hike by the Fed and the downward

revision of US domestic growth, changes in the exchange rate have had less unidirectional character, mostly staying

within the 1.05-1.15 range. Despite the volatility generated by the uncertainty regarding the outcome of the general

elections in the UK on May 7 and the referendum on English membership of the European Union proposed by 2017,

the pound has showed a gradual strengthening towards the single currency since the beginning of the year (the listing

went from 0.78 at the start of the year to 0.74 as at December 31). The performance of the Euro-Yen exchange rate

was in turn greatly influenced by expectations and the actual monetary policy actions of the respective central banks,

both characterized by an expansionary orientation, with an overall weakening of the Euro, from 144.85 at the start

of the year to 130.64 as at December 31. Following the unexpected decision of the Central Bank of Switzerland

adopted on January 15 to remove the minimum level of 1.20 on the Euro-Swiss franc exchange rate, there was a

rapid and significant depreciation and a phase of high volatility, followed by only a partial recovery and year end at

a level of 1.088.

13


The Insurance Market1

From an initial estimate prepared by ANIA, in November 2015, new individual life policy inflows in Italy from Italian

companies and representatives of companies outside the EU, including the additional single premiums, amounted to

Euro 89.6 billion, an increase of +6.3% compared to the same period the previous year. Also considering the new

life premiums of EU sample companies, with premiums in November 2015 of Euro 14.3 billion (-0.1% compared to

the 2014 figure), total new life business amounted to Euro 103.9 billion, +5.4% compared to the same period the

previous year. With regard to Italian and non-EU companies, in November 2015, class I premiums related to new in-

dividual policies amounted to Euro 59.3 billion, down (-5.8%) compared to November 2014. Inflows of new premi-

ums on Class V policies were also down, -22.8% compared to the first eleven months of 2014, with a volume of Euro

2.2 billion. The remaining portion of new life production was represented by class III premiums (only Unit Linked),

which reached Euro 27.9 billion from the beginning of the year (+52.7%). Contributions related to new individual

adhesions to pension schemes, totaling Euro 1,022 million, increased slightly over November 2014 (+3.9%).

The banking market

Italian households’ savings

Total financial assets of families in Italy amounted to Euro 4,018 billion in Q2 2015, with an annual increase of

0.6%. The main performance of its components compared to the same period of the previous year may be summa-

rized as follows.

Stable and growing:

• the dynamics of notes, coins and bank deposits (both on demand and term), which marked a positive growth

rate of 1.8%. The amount of this aggregate on total household financial assets amounted to 30.9% (a slight

increase compared to a year before);

• mutual fund units were up 33.0% yoy and amounted to 10.9% of financial assets of households (8.2% in the

same period the previous year);

• life insurance, pension funds and severance funds that were up 10.1%. The amount of this aggregate amounted

to 19.9% (18.2% in the same period of the previous year).

Down:

• shares and investments, down by 1.1% yoy, were equal to 23.7% of all financial assets (24.1% in the second

quarter of 2014);

• bonds showed a negative change (-28.2%) and was shared by both the banking item (-32.3%) and public bonds

(-34.1%). The amount of this aggregate on total household financial assets amounted to 10.8% (15.2% the

previous year).

1 Source: ANIA TRENDS – Nuova produzione Vita – November 2015.

14


2015

Funding

In 2015, in Italy banking funding slightly declined. In detail, according to preliminary estimates by SI-ABI at year

end 2015, deposits in Euro from customers of all Italian banks, represented by resident customer deposits1 and

bonds (net of those repurchased by banks) was equal to Euro 1,697 billion, recording an annual change of -0.6%

(-1.69% in November 2015; -1.2% at year-end 2014) and a decline in the stock of inflows of about Euro 10.3

billion yoy.

The analysis of the various components shows deposits of resident customers (net of operations with central coun-

terparties and term deposits connected with sales of receivables) were up +3.7% at the end of 2015 (+2.4% in

November 2015), an increase in absolute value on an annual basis of over Euro 47 billion. The amount of funds

reached a level of 1,311.2 billion at the end of December.

The annual change of the bonds amounted to -13.0% (-13.2% in November 2015), showing a decrease in absolute

value on an annual basis of Euro 57.6 billion. The amount of bonds amounted to Euro 386.1 billion.

Before the start of the crisis – in late 2007 – the amount of bank deposits was about Euro 1,513 billion (+184

billion from the end of 2007 to date); as follows: 1,000.5 billion of customer deposits (+258 billion from the end of

2007 to date) and 512.2 billion of bonds (-70 billion since 2007).

Lending

At year-end 2015, loans to households and companies recorded a slightly positive change yoy.

Based on preliminary estimates, at year end 2015, total loans to Italian residents (private sector and public authori-

ties, net of repurchase agreements with central counterparts) stood at Euro 1,830.2 billion, with a change of +0.1%

yoy (+0.8% the previous month). At the end of 2007 – before the start of the crisis – said loans amounted to 1.673

billion; since then marking a growth of over Euro 157 billion in absolute value.

Loans to Italian residents to the private sector2 were also slightly positive (+0.1% at year-end 2015, +0.8% the

previous month). At the end of 2015, volumes of loans to residents amounted to Euro 1,559 billion (1,450 million

at the end of 2007, about +109 billion since then until the end of 2015).

Loans to households and non-financial companies as at December 2015 amounted to Euro 1,420.5 billion, recording

a slightly positive change year on year (of +0.5%), the best result since April 2012 (+0.7% in November 2015;

+1.5% approximately in the Eurozone average in November 2015). At the end of 2007, these loans amounted to

1,279 billion, with an increase in the period of nearly 142 billion in absolute value.

Maturity analysis shows that short-term lending (due within one year) was down -4.8% (-2.4% in November 2015),

while medium/long-term lending (due after more than one year) was down +2.2% (-1.8% in November 2015).

The trend dynamic of total loans to households increased3 (+0.8% in November 2015, +0.6% the previous month).

1 Deposits in current accounts, time deposits, excluding those related to operations of transfers of loans, deposits redeemable with notice and repurchase agreements; deposits are net of transactions with central counterparties.

2 Other Italian residents: Non-financial companies, consumer households, family businesses, non-profits, insurers, pension funds, other financial institutions net of repos with central counterparties.

3 Consumers households and family business

15


Non-performing

In November 2015, gross non-performing loans aggregated to Euro 201 billion, increasing by Euro 2 billion over

October 2015 and about 20 billion versus the end of November 2014, up 11% year on year; +21.1% in November

2014.

The ratio of non-performing loans to total loans came to 10.4% in November 2015 (9.5% a year earlier and 2.8%

at the end of 2007, prior to the start of the crisis), reaching 17.3% for smaller operators (16% in November 2014),

17.8% for companies (15.9% a year earlier) and 7.2% for households (6.9% in November 2014).

With regard to non-performing loans net of write-downs (non-harmonized statistics, figures not homogeneous with

the harmonized statistics as a result of the different criteria in the reporting of write-downs), in November 2015

they amounted to about Euro 88.8 billion, an increase of 1.6 billion compared to October and approximately 4

billion compared to the same month of the previous year (+4.7% annual increase, slowing compared to +12.2% a

year earlier).

Interest and yields

The average rate on deposits from customers (which includes the return of deposits, bonds and repurchase agree-

ments in Euro applied to households and non-financial companies) was 1.19% in December 2015 (1.50% in

December 2014). In the year under review, interest rates on repurchase agreements also declined, from 1.14% in

December 2014 to 0.91% in December 2015, and yields on bank bonds decreased (from 3.16% in December 2014

to 2.94% in December 2015).

In terms of bank interest rates, in 2015 there was a slight decrease in the rate on deposits in Euro applied to house-

holds and non-financial companies: this rate, in fact, went from 0.73% at year-end 2014 to 0.53% at year-end

2015.

In 2015, the weighted average rate applied to total loans extended to households and non-financial companies cal-

culated by the Italian Bankers’ Association decreased from 3.62% at the end of 2014 to 3.26% at the end of 2015.

In the year under review, interest on active bank accounts and Euro-denominated revolving loans to households and

non-financial companies decreased (from 4.95% in December 2014 to 4.34% in December 2015).

Taxes on new loans decreased: in December 2015, the rate applied to Euro-denominated loans extended to non-fi-

nancial companies was 1.99% (2.57% in December 2014), while interest on Euro-denominated home loans to

households (average for both fixed and floating-rate loans, considering all the various types of loans) decreased to

2.51% (2.83% in December 2014), recording the lowest value since June 2010.

In the last month, fixed-rate lending accounted for 61% (vs. 27.4% in December 2014).

The yearly average spread between lending and funding interest rates applied to households and non-financial com-

panies increased slightly to 212 bps in 2015, +2 bps vs. the 2014 average; before the beginning of the financial crisis

the average spread between lending and funding interest rates exceeded 300 percentage points.

16


2015

Operating performance

Banca Mediolanum S.p.A. recorded positive net inflows for Euro +4,662.9 million compared to Euro +4,081.9

million in the comparative period (+14%).

In particular, the net inflow generated by the Funds and Unit Linked sector is positive for Euro +4,687.4 million (De-

cember 31, 2014: Euro +4,827.6 million). It includes Euro +1,978.5 million for the new product, “My Life”. Net

inflows of Life Insurance Products were negative for Euro -506 million (December 31, 2014: Euro -733 million).

The policy related to Freedom bank account has a negative balance of Euro -471.2 million compared to a negative

balance of Euro -747.3 million as at December 31 of the previous year.

Third-party structured bonds recorded net inflows of Euro -452.4 million versus Euro -239.4 million at the end of

the prior year.

Assets under administration recorded a positive net inflow of Euro +1,405.1 million, compared to Euro +974 million

the prior year, in relation to the greater contribution of other securities administered (Euro +409.3 million over the

comparable period).

Net inflows for 2015 regarding the main networks operating in Italy, distributed by Assoreti, show Banca Mediola-

num third in the rankings, with a positive balance of Euro 4.7 billion, stable compared to 2014 (data of assets are

calculated according to the Assoreti rules).

As at December 31, 2015, total assets managed by the Mediolanum Group achieved the balance of Euro 70,681.6

million, with a growth of 10% compared to the figure at the end of 2014 (Euro 64,457.1 million).

As at December 31, 2015, the number of Family Bankers of Banca Mediolanum S.p.A. was 4,387 compared to

4,386 at the end of 2014. The substantially stable number of Family Bankers, together with the continued strong

growth in assets, confirms the ability of the sales network to become more efficient improving average portfolio

values under management for each promoter. The average portfolio per capita at the end of 2015 was approximately

Euro 13.3 million for Family Bankers and Euro 31.1 million for Private Bankers.

The growth in assets under management and the positive performance of the markets have generated in the year a

proportional increase in recurring revenues. In fact, management fees amounted to Euro 815.1 million compared to

Euro 672.1 million as at December 31, 2014 (+21%).

The good performance of the markets has also resulted in a significant increase in performance fees, equal to Euro

326.0 million, an increase compared to the previous period (Euro +149.9 million).

During the year, there was an increase in net financial income, which went from Euro 226 million in 2014 to Euro

251.7 million at the end of 2015, in relation to the growth in average bank assets. The reduction in the cost of de-

posits, which continued in 2015, was even more significant compared to the decline in lending yields including those

made by treasury closely related to the trend in financial markets.

Revenues from banking operations and the related commissions went from Euro 100.5 million to 86.4 in 2015.

Lastly, different commissions remained substantially in line with prior year figures at 37 million against 34.1 in

2014.

17


The Equity method valuation went from Euro +18.7 million as at December 31, 2014 (Euro 14.5 million Medioban-

ca, Euro 4.2 million Banca Esperia), to Euro +22.3 million at the end of the period under review (Euro 22.1 million

Mediobanca, Euro +0.2 million Banca Esperia).

Net income from other investments recorded a negative balance of Euro -8.8 million compared to Euro +66.9 mil-

lion in 2014, for lower gains on AFS financial instruments (about Euro 80 million).

Overall, network commission expenses increased from Euro 448.5 million to Euro 495.7 million in 2015. This

growth is related primarily to higher recurring commissions generated by the sustained growth in assets.

Administrative expenses went from Euro 467.4 million to Euro 504.8 million in the year under review. The growing

trend that has characterized the entire year 2015, was generated by the contributions to the Deposit Guarantee

Scheme and the Resolution Fund (ordinary and extraordinary component) for Euro 19.3 million, higher costs for

information systems and costs derived from average organic growth (Euro +11.1 million).

The cost for amortization in 2015 increased slightly compared to the previous year from Euro 22.3 million to Euro

26.1 million.

Provisions for risks and charges went from euro 33.5 million to Euro 57 million at the end of FY 2015. This change

is attributable mainly to an extraordinary legal provision by the Spanish group Banco Mediolanum of 11.2 million

and to the increased provisions for bonus indemnities to the Sales network progressive reduction in the network

turnover rate.

Taxes for FY 2015 amounted to Euro 122.6 million, a decrease over the previous year of Euro 9.7 million (Decem-

ber 31, 2014: Euro 132.3 million). In the item taxes, it is noted that the higher taxes paid for the closure of the tax

dispute have been accounted for, the higher cost for the year amounted to approximately Euro 31.2 million, down 9.6

million compared to the cost allocated in 2014 (Euro 40.8 million). The year under review also benefits from the

new implementing discipline regarding expenses deductible for Irap.

Customers

As at December 31, 2015, the Mediolanum customer base holder of at least one product of the group amounted to

1,127,828 customers, of which 943,357 first holders, an increase of 4.0% compared to 907,105 as at December

31, 2014. In the year 2015, Banca Mediolanum acquired 88,592 customers (vs. 83,666 in 2014, +5.9%), and lost

52,340 (vs. 54,688 in 2014, -4.3%) with a positive net balance of 36,252 customers.

Increase in the number of customers first holders of current accounts (672,586 vs. 619,052), credit cards (228,816

vs. 208,870), credit lines (124,987 vs. 110,858) and mutual funds (345,174 vs. 324,763).

Average assets per customer increased from Euro 57,918 at year end 2014 to Euro 61,954 at year end 2015. The

retention figure also improved, which went from 93.8% in December 2014 to 94.2% in December 2015.

The data on the Customer Base confirms the ability of Banca Mediolanum in knowing how to attract new prospects

and in managing the satisfaction of existing customers by offering products and services that aim to ensure customer

investment security and asset growth.

18


2015

New products and main initiatives in the year

In the context of the Banca Mediolanum banking offer in 2015, funding from customers (bank accounts, deposit

accounts, repurchase agreements and bonds) continued to grow. In particular:

Freedom Più bank account

The Freedom Più bank account was launched in March 2012. As at December 31, 2015, there were about 158,000

of these accounts, accounting for about 22% of all bank accounts. At year end, Freedom Più account balances ag-

gregated to Euro 4.40 billion, of which Euro 3.30 billion remunerated at the current account interest rate.

Freedom One bank account

The Freedom One bank account was launched in September 2012. As at December 31, 2015, there were about

236,000 of these accounts, accounting for about 33% of all bank accounts. Of the latter, about 7% activated the

Term Deposit service, introduced on March 7, 2013 for this type of current account. At year end, Freedom One ac-

count balances aggregated to Euro 1.59 billion, of which Euro 426 million locked up in the Term Deposit accounts.

MyFreedom current account

In April 2015, the MyFreedom current account was launched. It includes three custom current account profiles for

customers: MyFreedom One, MyFreedom Premium, MyFreedom Young; as at December 31, 2015, there were about

33,200 of these accounts, accounting for about 5% of all bank accounts, of which:

• 13,500 MyFreedom One;

• 12,900 MyFreedom Premium;

• 6,500 MyFreedom Young.

At year end, Freedom One assets under management totaled about Euro 562,000, of which about Euro 142,000

locked up in the Term Deposit accounts.

InMediolanum deposit account

As at December 31, 2015, there were about 109,000 InMediolanum deposit accounts, the deposit account launched

in May 2011. With reference to 2015, 8,500 new deposit accounts were opened, of which about 70% opened by

new customers of Banca Mediolanum.

At year end, balances on InMediolanum deposit accounts aggregated to about Euro 1.95 million, of which 1.58

billion locked up.

19


My Life policy

As part of the insurance offer, in 2015, in order to offer products always in line with market trends and customer

needs, various developments have been made on the Policy Mediolanum My Life. In particular, new third-Company

UCI were included. In addition, with a view to continuous enrichment of the product, two new contractual options

were introduced, made available for both new investors and for existing subscribers of the Policy, if interested: the

Big Chance Program (with the aim of providing customers with the opportunity to benefit from the very beginning

of the typical advantages of the insurance product on the entire amount paid in the policy) and the option of con-

verting the redemption value Annuity (to strengthen the social security value of the policy). Finally, the new term of

12 months was added of the Pic Scheduled on the Bond Double Chance, thus expanding the choices available on the

number of payments that can be made through this service.

Consolidated Net Inflows, Assets under Management and Assets under Administration

Net inflows

E/m Dec. 31, 2015 Dec. 31, 2014 Change %

ITALY

Funds and Unit Linked products 4,687.4 4,827.6 (3%)

of which directly in funds 2,840.5 3,478.9 (18%)

of which “My Life” Unit Linked 1,978.5 1,540.0 28%

of which other Unit Linked (131.7) (191.3) (31%)

Other Life insurance products (506.0) (733.0) (31%)

Total managed assets 4,181.4 4,094.6 2%

Third-party structured bonds (452.4) (239.4) 89%

Total managed assets + structured bonds 3,729.0 3,855.3 (3%)

Administered assets 1,405.1 974.0 44%

“Freedom” life policies (471.2) (747.3) (37%)

Total administered assets including Freedom 933.9 226.7 312%

BANCA MEDIOLANUM 4,662.9 4,081.9 14%

BANCA ESPERIA GROUP (*) 462.0 629.5 (27%)

ITALY 5,124.9 4,711.4 9%

SPAIN 599.3 521.9 15%

GERMANY (7.1) 4.5 n.s.

TOTAL FOREIGN MARKET 592.2 526.4 13%

TOTAL NET INFLOWS 5,717.1 5,237.8 9%

(*) The figures relating to Banca Esperia were considered in proportion to the percentage of ownership (50%).

Banca Mediolanum S.p.A. recorded positive net inflows for Euro +4,662.9 million compared to Euro +4,081.9 mil-

lion in the comparative period (+14%). Assets under administration recorded a positive net inflow of Euro +1,405.1

million, compared to Euro +974 million the prior year, in relation to the greater contribution of other securities

administered (Euro +409.3 million over the comparable period).

20


2015

Assets under management and under administration (*)

E/m Dec. 31, 2015 Dec. 31, 2014 Change %

ITALY

Funds and asset management and Unit Linked Policies 39,820.7 35,332.8 13%

“Freedom” life policies 503.1 974.3 (48%)

Other insurance products 1,730.9 2,147.0 (19%)

Bank deposits 15,979.4 14,578.9 10%

BANCA MEDIOLANUM 58,034.2 53,033.0 9%

BANCA ESPERIA GROUP (**) 8,595.6 7,957.0 8%

ITALY 66,629.8 60,990.0 9%

SPAIN 3,546.0 2,983.1 19%

GERMANY 505.8 484.0 5%

TOTAL FOREIGN MARKETS 4,051.8 3,467.1 17%

TOTAL ASSETS UNDER MANAGEMENT AND ADMINISTRATION 70,681.6 64,457.1 10%

(*) The figures relating to assets under administration of retail customers were made. (**) These figures have been included in the Esperia in proportion to the percentage of ownership (50%).

At year end, total assets under management and administration amounted to Euro 70,681.6 million up 10% from

the figure as at December 31, 2014 (Euro 64,457.1 million). This change is principally due to the increase in assets

in mutual funds and Unit Linked policies (Euro +4,487.9 million compared to the amounts in 2014).

Inflows and assets under management by operating segments

The analysis of consolidated inflows, assets under management and under administration by operating segment is

set out below.

ITALY – BANKING

Assets under management amounted to Euro 15,979.5 million compared to Euro 14,578.9 million in the compara-

tive period. The analysis of assets under administration, on a management basis, is set out in the table below.

E/m Dec. 31, 2015 Dec. 31, 2014 Change %

Current account deposits 12,854.8 11,379.8 13%

Banca Mediolanum bonds 154.7 272.1 (43%)

Third-party structured bonds 885.4 1,044.2 (15%)

Securities in custody and under administration 2,084.6 1,882.4 11%

Repurchase agreements - 0.4 n.s.

Total assets under administration 15,979.5 14,578.9 10%

As at December 31, 2015, the number of bank accounts of Banca Mediolanum was 840,696 compared to 774,449

at the end of 2014.

21


ITALY – ASSET MANAGEMENT

Gross inflows in mutual funds and assets managed amounted to Euro 11,469.8 million, an increase of 9% compared

to the relative comparative period.

Gross inflows

E/m Dec. 31, 2015 Dec. 31, 2014 Change %

“Best of Brands” funds of funds 5,302.0 4,006.9 32%

“Challenge” funds 711.0 582.9 22%

Other Italy-based mutual funds 1,678.9 3,132.0 (46%)

Third-party funds and others managed 581.3 186.6 212%

Total direct inflows in mutual funds 8,273.2 7,908.4 5%

Funds included in “My Life” Unit Linked 2,138.5 1,548.8 38%

Funds included in “Other” Unit Linked 1,058.1 1,020.1 4%

Total indirect inflows in mutual funds 3,196.6 2,568.9 24%

Total mutual funds and management 11,469.8 10,477.3 9%

In particular, the increase in direct inflows in mutual funds is mainly due to direct inflows on “Best Brands” funds

(Euro +1,295.1 million vs. the comparative period), partially offset by lower direct inflows of other Italian mutual

funds (Euro -1,453.1 million compared to December 31, 2014).

Net inflows

E/m Dec. 31, 2015 Dec. 31, 2014 Change %

“Best Brands” funds of funds 2,137.8 1,211.9 76%

“Challenge” funds (45.8) (125.8) (64%)

Other Italy-based mutual funds 358.8 2,336.6 (85%)

Third-party funds and others managed 389.8 56.3 n.s.

Total direct inflows in mutual funds 2,840.5 3,478.9 (18%)

Funds included in “My Life” Unit Linked 1,978.5 1,540.0 28%

Funds included in “Other” Unit Linked (131.7) (191.3) (31%)

Total indirect inflows in mutual funds 1,846.8 1,348.7 37%

Total mutual funds and management 4,687.4 4,827.6 (3%)

22


2015

The analysis of assets managed in mutual funds, on a management basis, is set out in the table below:

E/m Dec. 31, 2015 Dec. 31, 2014 Change %

“Best Brands” funds of funds 16,403.4 13,819.0 19%

“Portfolio” funds of funds 383.8 459.8 (17%)

“Challenge” funds 13,369.0 13,386.6 0%

Hedge funds of funds 121.9 166.2 (27%)

Other Italy-based mutual funds 7,003.8 6,311.8 11%

“Real estate” funds 315.0 416.2 (24%)

Third-party funds and others managed 1,404.3 528.7 n.s.

Adjustments for Group funds included in funds of funds and managed (458.0) (508.9) (10%)

Funds included in “My Life” Unit Linked 3,434.9 1,539.9 n.s.

Funds included in “Other” Unit Linked 11,612.2 11,374.3 2%

Adjustments for own funds included in Unit Linked (13,769.7) (12,160.8) 13%

Total asset management and mutual fund products 39,820.7 35,332.8 13%

At the end of 2015, assets under management amounted to Euro 39,820.7 million, up 13% compared to the previ-

ous year-end (December 31, 2014: Euro 35,332.8 million).

ITALY – INSURANCE

Life

E/m Dec. 31, 2015 Dec. 31, 2014 Change %

Unit Linked Life products 15,047,1 12,914.2 17%

Index Linked Life products 404,9 881.8 (54%)

Traditional Life products 1,326,0 1,265.2 5%

Total Life products (excluding “Freedom”) 16,778,0 15,061.3 11%

“Freedom” life policies 503,1 974.3 (48%)

The table below shows the breakdown of inflows as at December 31, 2015:

E/m Dec. 31, 2015 Dec. 31, 2014 Change %

Recurring premiums 50.7 52.0 (3%)

Single premiums and group policies 2,342.7 1,674.2 40%

Total new business 2,393.4 1,726.2 39%

In-force pension plans 479.6 482.8 (1%)

Other in-force business 375.6 404.3 (7%)

Total portfolio 855.2 887.1 (4%)

Total premiums written excl. “Freedom” 3,248.6 2,613.3 24%

“Freedom” premiums written 1,712.7 2,655.5 (36%)

Total gross premiums written 4,961.3 5,268.8 (6%)

23


Below is a detailed table of liquidations recorded at the end of FY 2015:

E/m Dec. 31, 2015 Dec. 31, 2014 Change %

Claims 82.2 58.1 42%

Coupons 49.6 43.5 14%

Maturities 959.3 998.1 (4%)

Surrenders 816.6 897.9 (9%)

Amounts paid (ex. “Freedom”) 1,907.7 1,997.6 (4%)

Amounts paid under “Freedom” contracts 2,188.1 3,419.5 (36%)

Damages

At year-end 2015, the volume of premiums written amounted to Euro 60,210 thousand (Euro 57,266 thousand

compared to the comparative period), an increase of 5%.

Deposits from direct operations for premiums written are detailed as follows:

E/t Dec. 31, 2015 Dec. 31, 2014 Change

Class-01 Accident 24,981 24,247 734

Class-02 Sickness 21,944 20,189 1,755

Class-07 Transport 6 6 0

Class-08 Fire 4,894 4,520 374

Class-09 Other damages to assets 2,611 2,526 85

Class-13 General TPL 1,925 1,795 130

Class-16 Pecuniary losses 2,974 3,150 (176)

Class-17 Legal protection 60 65 (5)

Class-18 Assistance 815 768 47

Total Work premiums 60,210 57,266 2,944

As at December 31, 2015, the total number of claims paid amounted to Euro 10,725 thousand (Euro 9,582 thou-

sand as at December 31, 2014), an increase of Euro 1,143 thousand.

24


2015

SPAIN

E/m Dec. 31, 2015 Dec. 31, 2014 Change %

Assets under Administration: 3,546.1 2,983.1 19%

Assets under Management 2,223.0 1,887.8 18%

Assets under Administration 1,323.1 1,095.3 21%

Gross inflows AuM: 905.3 777.1 16%

Net inflows 599.3 521.9 15%

Assets under Management 343.2 364.0 (6%)

Assets under Administration 256.1 157.9 62%

Assets under management amounted to Euro 3,546.1 million, compared to Euro 2,983.1 million at the end 2014,

an increase of 19%. Net inflows at the end of the year were positive for Euro +599.3 million compared to a balance

of Euro +521.9 million in the comparative period.

GERMANY

E/m Dec. 31, 2015 Dec. 31, 2014 Change %

Assets under Administration: 505.8 484.0 5%

Assets under Management 412.9 404.6 2%

Assets under Administration 92.9 79.4 17%

Gross inflows AuM: 64.8 67.2 (4%)

Net inflows (7.1) 4.5 n.s.

Assets under Management (20.1) (1.5) n.s.

Assets under Administration 13.0 6.0 n.s.

Total assets under administration went from Euro 484.0 million at the end of 2014 to Euro 505.8 million at the end

of the year under review, up 5% over the previous year.

Net inflows were negative for Euro -7.1 million compared to a positive balance of Euro +4.5 million of the previous

year.

Lending

At year-end 2015, loans to customers (item 70) recorded a growth with a balance of Euro 7,478.1 million (Decem-

ber 31, 2014: Euro 6,779.0 million), an increase of 10%. There is significant growth in retail lending, mainly due to

personal loans, residential mortgages and credit lines in the current account.

For a more detailed description of the activity carried out, reference is made to the description in the relevant section

of Banca Mediolanum’s individual financial statements, taking into account the weight of the latter on the Group’s

total volume (approximately 96.5%1 as at December 31, 2015).

1 Value calculated by dividing the item loans to customers net of Banca Mediolanum L&R Securities on the Group homogeneous data.

25


The Sales Networks

Unit Dec. 31, 2015 Dec. 31, 2014 Change

ITALY – BANCA MEDIOLANUM 4,387 4,386 1

SPAIN 789 749 40

GERMANY 48 60 (12)

Total 5,224 5,195 29

As at December 31, 2015, Banca Mediolanum S.p.A. financial advisors network went from 4,386 at year end 2014

to 4,387.

Income statement data by operating segment as at December 31, 2015

The analysis of income statement data by operating segment is set out below, with possible reclassification of com-

parative data.

ITALY – BANKING


Banking service fees and revenues 67,132 82,000 (14,868) (18%)

Other fees 421 259 162 63%

Fee income 67,553 82,259 (14,706) (18%)

Interest income 220,564 198,076 22,488 11%

Net income (loss) on investments at fair value (2,175) (15,964) 13,789 (86%)

Net financial income 218,389 182,112 36,277 20%

Net income (loss) on other investments (8,414) 61,722 (70,136) (114%)

Other revenues 11,450 10,629 821 8%

TOTAL REVENUES 288,979 336,722 (47,743) (14%)

Network commission expenses (42,432) (51,240) 8,808 (17%)


Administrative expenses (246,497) (217,874) (28,622) 13%

Amortization and depreciation (16,448) (12,524) (3,924) 31%

Net provisions for risks (4,349) (5,672) 1,324 (23%)

TOTAL COSTS (325,078) (300,867) (24,211) 8%

GROSS PRE-TAX PROFIT (36,099) 35,856 (71,954) (201%)

Gross pre-tax profit for the Italy – Banking segment recorded a negative balance of Euro 36.1 million compared to

a positive balance of Euro 35.9 million of the previous year. The change is largely explained by the item Net income

from other investments, for which a comment is provided below.

26


2015

Net financial income stood at Euro 218.4 million, an increase of Euro 36.3 million vs. the comparative period (Euro

182.1 million). The change is principally due to the increase in bank assets and the lower overall cost of funding.

Net income from other investments went from Euro +61.7 million to Euro -8.4 million in the reporting period and

are attributable to lower gains on disposal on Available for sale financial assets (about Euro 80 million).

Fee income amounted to Euro 67.6 million (Dec. 31, 2014: Euro +82.3 million) decreased by 18% mainly due to

lower commissions from the placement of third-party structured bonds.

Network commission expenses decreased by 17% to Euro 42.4 million, down Euro -8.8 million compared to the

previous period, due to the lower acquisition fees on the placement of structured bonds.

Administrative expenses for the period went from Euro 217.9 million in 2014 to Euro 246.5 million in the period

under review, an increase of Euro 28.6 million mainly due to the implementation of the contribution to the Deposit

Guarantee Scheme and Protection Fund (ordinary and extraordinary component) of Euro 19.3 million, the increase

in IT expense for the full implementation of projects and the increase in personnel costs as a result of the inclusions

in the previous year.

ITALY – ASSET MANAGEMENT


Entry fees 87,731 87,733 (2) 0%

Management fees 453,901 390,473 63,428 16%


Other fees 32,978 30,595 2,383 8%

Fee income 765,651 610,900 154,751 25%

Interest income 32 347 (315) (91%)

Net income (loss) on investments at fair value 0 (6) 6 (100%)

Net financial income 32 341 (309) (91%)

Net income (loss) on other investments 61 28 33 116%

Other revenues 408 281 126 45%

TOTAL REVENUES 766,152 611,551 154,602 25%


Other commission expenses (15,984) (18,224) 2,240 (12%)

Administrative expenses (94,767) (98,440) 3,673 (4%)

Amortization and depreciation (933) (1,534) 601 (39%)

Net provisions for risks (25,824) (15,764) (10,060) 64%

TOTAL COSTS (408,786) (374,524) (34,262) 9%


27


Gross pre-tax profit of Italy – Asset Management recorded a balance of Euro 357.4 million, compared to the fig-

ure of the previous year of Euro 237.0 million, benefiting from the higher commission recorded in the comparative

period.

Fee income for the reporting period amounted to Euro 765.7 million, an increase (Euro +154.8 million) compared

to the previous year (Euro +610.9 million), mainly due to the increase in assets that generated higher management

fees (Euro +63.4 million) and higher performance fees recorded in the reporting period (Euro +88.9 million).

Network commission expenses amounted to Euro 271.3 million, an increase of Euro 30.7 million over the compar-

ative period; this increase is attributable to the increase in management fees.

Total costs, net of Network commission expense, amounted to Euro 137.5 million, an increase of Euro 3.6 million

compared to December 31, 2014 (Euro 133.9 million). The increase is mainly due to the change in the item Net

provisions for risks, in particular due to the growth of the Network Provisions for bonus indemnities.

ITALY – INSURANCE SEGMENT


Management fees 319,487 250,784 68,703 27%


Other fees 2,005 1,964 41 2%

Fee income 436,688 317,613 119,075 37%

Interest income 11,754 11,874 (120) (1%)

Net income (loss) on investments at fair value 512 6,681 (6,169) (92%)

Net financial income 12,266 18,555 (6,289) (34%)


Net income (loss) on other investments 126 2,727 (2,601) (95%)

Other revenues 12,399 14,581 (2,182) (15%)

TOTAL REVENUES 489,726 390,288 99,438 25%




Amortization and depreciation (6,769) (6,479) (290) 4%


TOTAL COSTS (287,153) (246,336) (40,817) 17%


Gross pre-tax profit Italy – Insurance recorded a balance of Euro +202.6 million compared to the previous year

result of Euro +144.0 million.

28


2015

Fee income for the period amounted to Euro 436.7 million (December 31, 2014: Euro 317.6 million). The positive

change in this item compared to the previous year is attributable to the increase in technical reserves of Unit Linked

products (we note in particular the contribution of My Life product, sold since March 2014), which generates higher

management fees (Euro +68.7 million) and the positive performance of the market that led to higher performance

fees pertaining to the Life segment (Euro +50.3 million).

Net financial income for the period was positive for Euro +12.3 million, a decrease of Euro 6.3 million compared

to 2014. This difference is mainly due to valuation gains on securities at fair value recorded in 2014, compared with

an almost nil contribution of this component in 2015.

Net insurance income, before acquisition costs of investments went from Euro 36.8 million as at December 31,

2014 to Euro 28.2 million in the reporting period. This change is largely due to the increase in the cost of guarantees

recognized to policyholders (mainly bonuses recognized to customers for the Unit Linked portfolio, the increase of

which is related to the lower expiration of portfolio policies).

Network commission expenses increased by Euro 25.1 million from Euro 122.7 million in 2014 to Euro 147.9

million as at December 31, 2015. This change is mainly due to the increase of assets, which generates an increase in

recurring fees to be relegated.

Total costs, net of Network commission expense, amounted to Euro 139.3 million, an increase of Euro 15.7 million

compared to December 31, 2014 (Euro 123.6 million). The increase is mainly due to higher costs incurred by the

Group, also considering the volumes generated by the My Life product.

ITALY – OTHER


Interest income (1) 8 (9) (113%)

Net income (loss) on investments at fair value - 1 (1) (100%)

Net financial income (1) 9 (10) (111%)

Equity method valuation 22,260 18,694 3,566 19%

Net income (loss) on other investments - - - n.s.

TOTAL REVENUES 22,259 18,703 3,556 19%


Gross profit before tax of Italy – Other recorded a profit of Euro +22.3 million (December 31, 2014: Euro +18.7

million).

Equity method valuation reports for the period under review, the share of the result of Banca Esperia and Medioban-

ca (December 31, 2015: Euro +0.2 million Banca Esperia, Euro +22.1 million Mediobanca).

29


SPAIN


Entry fees 13,660 10,551 3,109 29%

Management fees 34,143 24,400 9,743 40%


Banking service fees and revenues 5,309 5,577 (268) (5%)

Other fees 1,125 1,002 123 12%

Fee income 67,614 47,399 20,215 43%

Interest income 20,983 24,238 (3,255) (13%)

Net income (loss) on investments at fair value 455 761 (306) (40%)

Net financial income 21,438 24,999 (3,561) (14%)


Net income (loss) on other investments (449) 2,622 (3,071) (117%)

Other revenues 2,286 1,687 599 36%

TOTAL REVENUES 105,200 94,642 10,558 11%

Network commission expenses (29,909) (29,657) (252) 1%

Other commission expenses (5,498) (4,509) (989) 22%


Amortization and depreciation (1,605) (1,466) (139) 9%


TOTAL COSTS (83,800) (69,460) (14,340) 21%

GROSS PRE-TAX PROFIT 21,400 25,182 (3,782) (15%)

Fee income increased by Euro +20.2 million from Euro 47.4 million to Euro 67.6 million at the end of the reporting

period (+43%). This increase is attributable to subscription fees that increased +3.1 (+29%), management fees

that increased by Euro +9.7 million (+40%) and Euro +7.5 million from performance fees.

Net insurance income, before acquisition costs, amounted to Euro 14.3 million, down over the 2014 results due to

the suspension of the placement of Index Linked products.

Network commission expenses are substantially in line with the previous year.

Costs attributable net of commission expenses to the sales network and net provisions for risks and charges of the

segment amounted to Euro 41.0 million (December 31, 2014: Euro 38.3 million), an increase of 2.7 million on the

previous year.

Net provisions, an increase of Euro +11.4 million, were affected by non-recurring expenses due to the negative out-

come of a first instance sentence as already outlined above.

30


2015

GERMANY


Entry fees 598 646 (48) (7%)

Management fees 7,541 6,472 1,069 17%


Banking service fees and revenues 14,015 12,943 1,072 8%

Other fees 470 281 189 67%

Fee income 28,961 23,617 5,344 23%

Interest income (493) 40 (533) n.s.

Net income (loss) on investments at fair value 88 (52) 140 n.s.

Net financial income (405) (12) (393) n.s.

Net insurance income (excluding commissions) 1,377 2,284 (907) (40%)

Net income (loss) on other investments (123) (169) 46 (27%)

Other revenues 298 489 (191) (39%)

TOTAL REVENUES 30,108 26,209 3,899 15%

Network commission expenses (4,219) (4,355) 136 (3%)


Administrative expenses (19,948) (19,199) (749) 4%

Amortization and depreciation (295) (264) (31) 12%

TOTAL COSTS (36,392) (34,033) (2,359) 7%

GROSS PRE-TAX PROFIT (6,284) (7,824) 1,540 (20%)

Fee income amounted to Euro 29.0 million compared to Euro 23.6 million in 2014. This change is mainly due to

higher performance fees generated by the segment.

Net insurance income, before acquisition costs, amounted to Euro 1.4 million, down over the results of the compar-

ative period due to the suspension of the placement of Index Linked products.

Network commission expenses are substantially in line with the previous year.

Other commission expenses recorded an increase of Euro 1.7 million (+17%) linked to the management activity

in outsourcing, by Gamax, of certain investment funds, which generated incremental fees for the performance of the

period.

Administrative expenses amounted to Euro 19.9 million, an increase of about Euro 0.7 million compared to the

comparative period. The higher costs are due to the implementation of the scheduled growth plan of the German

subsidiary.

31


Intercompany and related party transactions

There were no atypical or unusual transactions with related parties, including intercompany transactions, that are

part of the Group’s ordinary business, were made at arm’s length in consideration of the features of goods and ser-

vices provided. Said transactions were made at arm’s length in consideration of the features of goods and services

provided.

In accordance with Art. 2391-bis of the Italian Civil Code, Art. 71-bis of Consob Regulation 11971/99 (Regulation

for Issuers) and the recommendations set out in the Code of Conduct, adopted by the company under resolutions

passed by the Board of Directors, related party disclosures are set out in the relevant section of the Notes.

Social and environmental responsibility

For information on the Group’s policy on social and environmental responsibility, readers are referred to the Social

Report 2015.

Impairment test

Goodwill recorded in the consolidated financial statements as at December 31, 2015 refer to the “Cash Generating

Units” (“CGU”) Spain and Italy that represent the geographic areas of control, in line with the Group’s business

reporting system.

For the purpose of impairment test as at December 31, 2015, the assistance of a primary specialist firm was request-

ed. The valuations were based on cash-flow estimates derived from the 2016-2018 Plans (approved by the Board of

Directors of the Company and the Boards of Directors of the subsidiaries) and applying industry standard methods

best suited for the purposes of the exercise in the specific cases, in accordance with applicable accounting standards.

The process of impairment has been subsequently specifically approved by the Board of Directors.

In their report the independent experts concluded that – with due consideration of the limits inherent in the use of

estimates that are uncertain by their very nature and subject to changes in the macroeconomic environment and

external circumstances as well as, in the specific case, based on assumptions relating to future events and manage-

ment actions that may not materialize – their analysis revealed no impairment of goodwill for the CGU Spain and

Italy – Life. Impairment testing details are set out in Part B of the Notes.

With regard to equity investments measured with the equity method, and in particular regarding Mediobanca S.p.A.,

the assistance of an independent expert was requested in order to ensure maintenance of the carrying amount as at

December 31, 2015. The impairment test as at December 31, 2015 was carried out by determining the recoverable

value, based on the configuration of the use value, through the application of the Dividend Discount Model methodol-

ogy of the so-called variant of Excess Capital. This method is usually used in practice nationally and internationally

for the purpose of determining the economic value of companies operating in the financial sector and subject to com-

pliance with the minimum capitalization, and has been applied in continuity with the previous years. The recoverable

amount of an interest in Mediobanca S.p.A. was determined on the basis of information available to the public and in

particular, the objectives and strategies 2014-2016, actual results as at September 30, 2015 and market consensus.

32


2015

The main variables and parameters considered for the purpose of determining the recoverable amount of the invest-

ment in Mediobanca are illustrated below:

• Financial statements for the years ended June 30, 2013, 2014 and 2015;

• Quarterly Reports as at September 30, 2013, 2014 and 2015;

• Expected net profits determined on the basis of strategic guidelines for 2014-2016;

• Target capital requirements: Tier 1 Ratio equal to 8.75%;

• Cost of equity at 8.27%, estimated using the Capital Asset Pricing Model (CAPM) assuming:

– Risk-free rate of 1.75% (average 6-month gross yield on 10-yr Italian BTP as at December 31, 2015);

– Beta coefficient of 1.19 (average beta coefficient of the Mediobanca stock as at December 31, 2015 based on

2-year weekly data) which reflects the overall average stock volatility;

– Market risk premium of 5.5% (according to Italian market valuation practice)

Terminal value estimated by considering:

• the estimation of potentially distributable dividend over the projection period by maintaining a minimum level of

regulatory capital (Tier 1 ratio of 8.75%), considering the SREP add-on);

• a rate of long-term growth of 1.5%, in line with long-term inflation expectations.

Moreover, sensitivity analyses were performed in relation to possible changes in the underlying assumptions that

affect the value of the assets, more specifically, the cost of own capital, long-term growth rate and by estimated net

income for the strategic guidelines and taking into account the 2014-2016 Projections on the basis of the consensus

analyst published in the presentation of our results as at September 30, 2015.

In light of this analysis, with reference to December 31, 2015, taking into account the elements listed above and

described, there was a recoverable value of the investment that falls within the range Euro 12.4 and Euro 14.4 with

a central value equal to Euro 13.4 per share.

The increase in the recoverable value over the previous year is largely due to the decrease in market rates that, as is

known, amounted to record lows in the Eurozone. In order to appreciate the results of the analyses performed with

a reasonable degree of prudence the expert reports that interest rates represent a valuation variable, exogenous with

respect to the fundamentals of the bank, subject to variations in the market by their nature uncertain and unpre-

dictable.

It shall be noted that methodologically the sensitivity range was obtained as the average of the results of the sen-

sitivity analyses carried out that, in a particularly prudent scenario, are at the lower end, below the carrying value.

Based on all the factors, it was therefore decided to confirm the carrying value of the investment recorded in the

Consolidated Financial Statements.

At the beginning of 2016, especially in February, the Italian banking securities sector was the subject of overall

depreciation of share prices, including the Mediobanca stock. From the analyzes performed, the reduction in the Me-

diobanca stock prices was on average lower than that of the other banking sector securities. In the same period, the

volatility of the stock, estimated over the time horizon of two years, remained broadly stable and the fundamentals

remained virtually unchanged. Therefore, since the information elements collected did not show a significant deterio-

ration in the economic and financial data adopted for the purposes of the impairment test, the Court confirmed the

validity of the estimate.

Instead with reference to the investment in Banca Esperia S.p.A., as at December 31, 2015, the latter reported a

net equity of Euro 187.7 million in line with the previous year, corresponding to a net asset value per share of Euro

1.55 (Euro 1.55 vs. December 31, 2014) and a balance of assets under management of Euro 17,191 million and

33


operating profit of Euro 6.6 million. In light of the foregoing, given the constant growth in the size of the investment,

both in terms of increase in the balance of equity and the balance of assets under management and considering the

positive result for the year, for a carrying value of the investment for Banca Esperia equal to Euro 1.58 per share

compared to a net asset value equal to Euro 1.55, there were no indicators of lasting impairment.

The sector regulatory scenario “Bank Recovery and Resolution Directive 2014/59/EU” and “Deposit Guarantee Schemes 2014/49/EU”

The new measures related to the EU enactment legislation (later transposed in the various national contexts) have

generated a total cost for the Group for the year 2015 of approximately Euro 20.8 million. In this regard, it is

recalled that the cost is mainly attributable to the claims of Banca Mediolanum, in particular due to saving Banks

covered by the “Save Banks” decree law. Therefore, reference is made to the relevant section in the report of opera-

tions of the annual separate financial statements of Banca Mediolanum.

Tax Disputes

With reference to the tax dispute regarding transfer prices that affected both Banca Mediolanum and Mediolanum

Vita – summarized below – it is hereby informed that it has been permanently closed following a settlement agree-

ment, finalized by the two companies with the Inland Revenue on December 1, 2015. Making use of deflation instru-

ments of the tax dispute envisaged by national legislation, not only the litigation annuities – from 2005 to 2009 – but

also the subsequent annuities until 2014 inclusive have been defined, with higher taxes for a total of Euro 120.2

million plus interest with a net economic effect for the year 2015 of Euro 31.2 million. The higher taxes are resulting

from a recalculation of the amount of the management fees paid to Banca Mediolanum and Mediolanum Vita S.p.A..

It is also noted that for the current year, Mediolanum International Funds Ltd, together with Mediolanum Vita S.p.A.

and Banca Mediolanum, has adjusted the relegated management fees on the basis of the facts set out above.

It is also recalled that during the closure of the dispute with the Italian tax authorities, the amount was recalculated

of fee relegations due from Mediolanum International Fund for the placement of funds common to Banca Medio-

lanum S.p.A. and Mediolanum Vita S.p.A. for the years from 2005 to 2014 and the higher taxes due were conse-

quently redetermined. For these higher taxable amounts and related taxes recognized to Italian tax authorities, the

Irish Subsidiary Mediolanum International Funds submitted a request to the Irish Tax Authority for reimbursement

of the higher taxes paid in the aforementioned years for a total value that can amount to a maximum of about Euro

41 million. In this regard, taking into account that this amount was considered a contingent asset within the scope

of application of IAS 37 – Provisions, Contingent Liabilities and Contingent Assets and considering the absence as

at December 31, 2015 of the prerequisites for accounting recording of said receivable, it was deemed appropriate

to provide this information.

34


2015

Capital adequacy of the financial conglomerate Banca Mediolanum S.p.A.

With reference to the financial conglomerate Banca Mediolanum S.p.A., the calculation of capital adequacy as at

December 31, 2015, according to the provisions of supplementary supervision in force, shows that in the face of the

conglomerate capital requirements amounted to Euro 1,159 million, the conglomerate’s equity to hedge the required

margin amounted to Euro 1,484 million, with a surplus of Euro 325 million.

Shareholders’ equity, Own Funds and the Coefficients relevant for Supervisory purpos-es as at December 31, 2015

As at December 31, 2015, shareholders’ equity, excluding net profit, amounted to Euro 1,631.5 million versus Euro

1,492.7 million as at December 31, 2014.

The Euro +138.8 million change mainly refers to the target allocation to reserves of 2014 profit (Euro +120.2

million) as well as the increase in the valuation reserve of Available for sale financial assets (Euro +26.1 million

versus the prior year).

Earnings per share (EPS) amount to Euro 0.594 versus Euro 0.435 in 2014.

With regard to prudential supervisory requirements, according to the new regulations in force (Basel 3) it is noted

that the Bank of Italy – Banking and Financial Supervisory Department – announced the minimum capitalization

limits for the Mediolanum Banking Group, following outcome of the periodic review process and prudential assess-

ment (SREP). These capital requirements are binding from the report on own funds as at December 31, 2015. The

specific capital requirements attributed to the Mediolanum Banking Group are as follows: CET1 Ratio al 7.3%, Tier

1 Ratio at 9.8%, Total Capital Ratio at 13.1%.

The equity ratios as at December 31, 2015 are well above the minimum thresholds set by the Bank of Italy and for

the Mediolanum Banking Group amounted to:

• Common Equity Tier 1 Ratio (CET1)1 19.66%

• Tier 1 Ratio 19.66%

• Total Capital Ratio 19.73%

Disclosures pursuant to Document no. 4 of March 3, 2010 jointly issued by the Bank of Italy, CONSOB and ISVAP

In document no. 4 dated March 3, 2010 jointly issued by the Bank of Italy (Italy’s Central Bank), CONSOB (stock

market regulator) and ISVAP (insurance market regulator), Italian regulators called upon Senior Management to

adhere strictly to international accounting and financial reporting standards and applicable legislation and provide

complete, clear and timely information about the risks and uncertainties to which their companies are exposed, the

1 At the date of submission of this report, the Capital Ratios were determined taking into account the profit as at December 31, 2015, net of dividends according to the proposed 2015 profit allocation as outlined below, and will be subject to reporting to the Bank of Italy following the approval of the draft financial statements by the Board of Directors and upon receipt of the comfort letter from the independent auditors.

35


capital their companies have to cover those risks and their earnings generation ability. In connection therewith man-

agement is making the following disclosures:

• as to the entity’s ability to continue as a going concern, the management of Banca Mediolanum S.p.A. confirms

they reasonably expect the Company and the companies belonging to the Group will continue in operation in the

foreseeable future and therefore the Consolidated Financial Statements for the year ended December 31, 2015

were prepared based on the going concern assumption. Following their examination of the financial position,

result of operations and cash-flows, they also confirm they did not find any evidence of uncertainties in relation

to the ability of the entity to continue in operation as a going concern;

• in relation to “Impairment of Assets” (IAS 36), as illustrated above, the impairment method used by Banca

Mediolanum included assessment by an independent expert based on current multi-year business plans previously

approved by the Board of Directors of the Bank. The process of impairment was subsequently approved by the

Board of Directors. In addition to as already reported in the previous paragraph “Impairment test on invest-

ments”, for further details, readers are referred to section 10 in Part B of the Notes;

• with regard to information on the criteria used to measure equity instruments classified as “available for sale”

and the requirements set out in paragraph 61 of IAS 39, the Bank and the companies belonging to the Group

assess separately if there is a “significant” or “prolonged” decline in the value of the assets. If it finds out that

there has been a “significant” or a “prolonged” decline in value, the Group recognizes the impairment loss on

the equity investments irrespective of any other considerations. Specifically, for equity investments the Group

considers there is evidence of impairment when the decline in the original fair value exceeds one third or is

prolonged for over 36 months. For details on disclosures to be made in the notes, readers are referred to Parts

A, B and E of the Notes. Information on “fair value hierarchy” for positions held as at December 31, 2015,

including prior year’s comparative information, is given in Part A of the Notes.

Finally, no disclosure is made in relation to financial debt contract clauses (IFRS 7) or debt restructuring (IAS 39),

since the Bank is not engaged in any of these.

Key corporate events subsequent to the end of the year

After December 31, 2015, there was no other event which could have a significant impact on the financial position,

results of operations and cash flows of the Company.

Main risks and uncertainties

Readers can find information about the risks and uncertainties to which the Mediolanum Group is exposed in this

Report and in the Notes.

Specifically, information about the risks related to the performance of the world’s economies and financial markets

is set out in this Report, under “Macroeconomic Environment”, “Financial Markets” and “Outlook”. Information

on financial risk and operational risk is detailed in Part F of the Notes. The significant market volatility that affect-

ed the beginning of the year 2016 and the possible continuation in 2016 could result in a decrease in the Group’s

profitability.

Outlook

If in 2015 the attention of analysts and traders repeatedly focused on the monetary policy decisions of major central

banks, in 2016, a proper analysis of the financial markets cannot be bypassed by economic growth, the asynchronous

nature of the latter in different geographical areas, the employment levels and the stabilization of the commodity

market.

The International Monetary Fund and the International Organization for Economic Cooperation and Development

formulate growth estimates for 2016 (respectively 3.6% and 3.3%), up compared to 2015 (3.1% and 2.9%), but

they both address the need for structural reforms that will improve efficiency, productivity and sustainability of the

economic expansion underway. With an increase of 0.8% of gross domestic product in 2015 and expected at 1.3%

in 2016, Italy shows an economic framework in gradual and constant improvement.

Considering the risks that are inherent in the business conducted by the Bank, barring any exceptional events or

circumstances that depend on variables essentially outside the control of Directors and Senior Management – and

not in the offing at present – the outlook for 2016 is positive.

Basiglio, February 18, 2016

For the Board of Directors

The Chairman

Ennio Doris

36


2015

ConsolidatedAccounts

2015


2015

38

Statement of Financial PositionAssets

E/t Dec. 31, 2015 Dec. 31, 2014

10. Cash and cash equivalents 84,079 65,746

20. Financial assets held for trading 1,201,810 846,885

30. Financial assets measured at fair value 15,863,864 14,367,301

40. Available for sale financial assets 14,971,486 15,516,840

50. Held to maturity financial assets 2,567,080 2,512,081

60. Loans to banks 715,416 811,050

70. Loans to customers 7,478,108 6,779,007

80. Hedge derivatives 892 1,287

90. Value adjustment of financial assets backed by generic hedges (+/-) - -

100. Equity investments 433,281 421,609

110. Reinsurers’ share of technical reserves 69,602 71,353

120. Tangible assets 220,741 191,607

130. Intangible assets 193,835 182,820

of which:

- goodwill 125,625 125,625

140. Tax assets 437,576 461,574

a) current 325,720 337,720

b) deferred 111,856 123,854

b1) pursuant to Law 214/2011 - -

150. Non-current assets and disposal groups 554 567

160. Other assets 471,847 318,128

Total assets 44,710,171 42,547,855

CONSOLIDATEDACCOUNTS

39

Liabilities and Shareholders’ equity E/t Dec. 31, 2015 Dec. 31, 2014

10. Amounts due to banks 815,364 7,615,391

20. Amounts due to customers 22,217,699 14,231,750

30. Securities issued 223,505 341,741

40. Financial liabilities held for trading 279,016 370,696

50. Financial liabilities measured at fair value 3,478,927 1,597,251

60. Hedge derivatives 64,512 100,218

70. Value adjustment of financial liabilities backed by generic hedges (+/-) - -

80. Tax liabilities 142,028 277,870

a) current 27,024 143,983

b) deferred 115,004 133,887

90. Liabilities associated with assets held for sale - -

100. Other liabilities 597,618 661,955

110. Employee completion-of-service entitlements 11,983 11,216

120. Provisions for risks and charges: 215,858 196,609

a) severance benefits and similar obligations 688 672

b) other provisions 215,170 195,937

130. Technical reserves 14,593,526 15,329,810

140. Valuation reserves 203,961 177,769

150. Redeemable shares - -

160. Equity instruments - -

170. Reserves 945,767 1,290,672

175. Interim dividend (-) (118,206) (110,608)

180. Share premium reserve - 63,199

190. Share capital 600,000 73,744

200. Treasury shares (-) - (2,045)

210. Shareholders’ equity attributable to minority interest (+/-) - -

220. Net profit (loss) for the year (+/-) 438,613 320,617

Total liabilities and shareholders’ equity 44,710,171 42,547,855


2015

40

Consolidated income statementE/t Dec. 31, 2015 Dec. 31, 2014

10. Interest income and similar income 496,366 569,753

20. Interest expense and similar charges (178,355) (239,175)

30. Net interest income 318,011 330,578

40. Commission income 1,425,824 1,108,226

50. Commission expenses (547,629) (495,646)

60. Net commission 878,195 612,580

70. Dividends and similar income 4,201 6,510

80. Net income from trading (11,550) 4,045

90. Net income from hedging 10,740 (5,400)

100. Gains (losses) on sale or buyback of: 5,332 90,633

a) loans (8) 22

b) available for sale financial assets 5,999 90,671

c) held to maturity financial assets - -

d) financial liabilities (659) (60)

110. Net result from financial assets and liabilities measured at fair value 361,208 933,566

120. Banking income 1,566,137 1,972,512

130. Net impairment/reversal of impairment of: (17,344) (28,851)

a) loans (13,164) (17,254)

b) available for sale financial assets (4,107) (10,175)

c) held to maturity financial assets - -

d) other financial instruments (73) (1,422)

140. Net income from financial operations 1,548,793 1,943,661

150. Net premiums 2,951,116 3,913,298

160. Balance of other income/expenses from insurance activities (3,397,981) (4,925,914)

170. Net income from financial and insurance operations 1,101,928 931,045

180. Administrative expenses: (486,516) (446,686)

a) personnel expenses (187,462) (176,393)

b) other administrative expenses (299,054) (270,293)

190. Net provisions for risks and charges (59,324) (35,101)

200. Impairment/reversal of impairment of tangible assets (8,940) (8,455)

210. Impairment/reversal of impairment of intangible assets (17,109) (13,971)

220. Other operating income/expenses 8,921 7,208

230. Operating costs (562,968) (497,005)

240. Profit (loss) on equity investments 22,260 18,694

250. Net income of valuations at fair value of tangible and intangible assets - -

260. Impairment of goodwill - -

270. Profits (losses) on disposal of investments (5) (52)

280. Profit (loss) before tax on continuing operations 561,215 452,682

290. Income tax expense on continuing operations (122,602) (132,277)

300. Profit (loss) after tax on continuing operations 438,613 320,405

310. Profit (loss) after tax of non-current assets pending disposal - 212

320. Profit (loss) for the year 438,613 320,617

330. Profit (loss) for the year attributable to minorities - -

340. Profit (loss) for the year attributable to the parent company 438,613 320,617


41

Consolidated statement of other comprehensive incomeE/t Dec. 31, 2015 Dec. 31, 2014

10. Net profit (loss) for the year 438,613 320,617

Other statement of other comprehensive income, net of income tax without reversals to the income statement

20. Tangible assets - -

30. Intangible assets - -

40. Defined benefit plans (737) 386

50. Non-current assets or disposal groups held for sale - -

60. Share of valuation reserves on investments accounted for by the equity method (2,658) 4,766

Other comprehensive income components, net of income tax with reversal to the income statemet

70. Hedges of investments in foreign operations - -

80. Exchange rate differences - -

90. Cash flow hedges - -

100. Available for sale financial assets 23,200 41,187

110. Non-current assets held for sale - -

120. Share of valuation reserves on investments accounted for by the equity method 6,387 10,874

130. Total other income components net of taxes 26,192 57,213

140. Comprehensive income (Captions 10+130) 464,805 377,830

150. Total consolidated comprehensive income (loss) pertaining to minority interests - -

160. Total consolidated comprehensive income (loss) pertaining to the parent company 464,805 377,830


2015

42

Consolidated statement of changes in equityAs at December 31, 2014

E/tBalance as at

Dec. 31, 2013Changes to

opening balancesBalance as at

Jan 1, 2014

Appropriation of prioryear’s profit

Changes in the year

Shareholders’ equity as at

Dec. 31, 2014

Minority shareholders’

equity as at Dec. 31,

2014Changes in

reserves

Equity transactions

Comprehensive income as at

Dec. 31, 2014Issue of new

shares

Purchase of treasury

shares

Extraordinary distributionof dividends

Changes in equity

instruments

Derivatives on treasury

sharesStock

optionsShareholding

interestsReservesDividends and

other allocations

Share capital:

a) ordinary shares 73,600 - 73,600 - - - 144 - - - - - - - 73,744 -

b) other shares - - - - - - - - - - - - - - - -

Share premium reserve 59,376 - 59,376 - - - 3,823 - - - - - - - 63,199 -

Reserves:

a) of profits 997,809 - 997,809 226,159 - (20,359) - - (110,608) - - 2,370 - - 1,095,371 -

b) others 84,693 - 84,693 - - - - - - - - - - - 84,693 -

Valuation reserves 100,781 - 100,781 - - 19,775 - - - - - - - 57,213 177,769 -

Capital instruments - - - - - - - - - - - - - - - -

Treasury shares (2,045) - (2,045) - - - - - - - - - - - (2,045) -

Profit (loss) for the year 336,580 - 336,580 (226,159) (110,421) - - - - - - - - 320,617 320,617 -

Group shareholders’ equity 1,650,794 - 1,650,794 - (110,421) (584) 3,967 - (110,608) - - 2,370 - 377,830 1,813,348 -

Minorities shareholders’ equity - - - - - - - - - - - - - - - -

As at December 31, 2015

E/tBalance as at



Jan 1, 2015


Changes in the year


Dec. 31, 2015



2015Changes in

reserves

Equity transactions



shares


shares


Changes in equity

instruments


sharesStock

optionsShareholding


other allocations

Share capital:

a) ordinary shares 73,744 - 73,744 - - 526,256 - - - - - - - - 600,000 -

b) other shares - - - - - - - - - - - - - - - -

Share premium reserve 63,199 - 63,199 - - (63,199) - - - - - - - - - -

Reserves:

a) of profits 1,095,371 - 1,095,371 232,159 - (385,134) - - (118,206) - - 3,371 - - 827,561 -

b) others 84,693 - 84,693 - - (84,693) - - - - - - - - - -

Valuation reserves 177,769 - 177,769 - - - - - - - - - - 26,192 203,961 -


Treasury shares (2,045) - (2,045) - - 2,045 - - - - - - - - - -


Group shareholders’ equity 1,813,348 - 1,813,348 - (88,458) (4,725) - - (118,206) - - 3,371 - 464,805 2,070,135 -



43

Consolidated statement of changes in equityAs at December 31, 2014

E/tBalance as at



Jan 1, 2014


Changes in the year


Dec. 31, 2014



2014Changes in

reserves

Equity transactions



shares


shares


Changes in equity

instruments


sharesStock

optionsShareholding


other allocations

Share capital:

a) ordinary shares 73,600 - 73,600 - - - 144 - - - - - - - 73,744 -

b) other shares - - - - - - - - - - - - - - - -

Share premium reserve 59,376 - 59,376 - - - 3,823 - - - - - - - 63,199 -

Reserves:

a) of profits 997,809 - 997,809 226,159 - (20,359) - - (110,608) - - 2,370 - - 1,095,371 -

b) others 84,693 - 84,693 - - - - - - - - - - - 84,693 -

Valuation reserves 100,781 - 100,781 - - 19,775 - - - - - - - 57,213 177,769 -


Treasury shares (2,045) - (2,045) - - - - - - - - - - - (2,045) -


Group shareholders’ equity 1,650,794 - 1,650,794 - (110,421) (584) 3,967 - (110,608) - - 2,370 - 377,830 1,813,348 -


As at December 31, 2015

E/tBalance as at



Jan 1, 2015


Changes in the year


Dec. 31, 2015



2015Changes in

reserves

Equity transactions



shares


shares


Changes in equity

instruments


sharesStock

optionsShareholding


other allocations

Share capital:

a) ordinary shares 73,744 - 73,744 - - 526,256 - - - - - - - - 600,000 -

b) other shares - - - - - - - - - - - - - - - -

Share premium reserve 63,199 - 63,199 - - (63,199) - - - - - - - - - -

Reserves:

a) of profits 1,095,371 - 1,095,371 232,159 - (385,134) - - (118,206) - - 3,371 - - 827,561 -

b) others 84,693 - 84,693 - - (84,693) - - - - - - - - - -

Valuation reserves 177,769 - 177,769 - - - - - - - - - - 26,192 203,961 -


Treasury shares (2,045) - (2,045) - - 2,045 - - - - - - - - - -


Group shareholders’ equity 1,813,348 - 1,813,348 - (88,458) (4,725) - - (118,206) - - 3,371 - 464,805 2,070,135 -



2015

Consolidated Statement of Cash FlowsIndirect Method

E/t Dec. 31, 2015 Dec. 31, 2014

A. OPERATIONS1. Operations 360 (612.010)- result for the year 438,613 320,617- gains/losses on financial assets held for trading and on financial assets/liabilities at

fair value (+/-)

(421,757)

(989,478)- gains/losses on hedges (+/-) (10,740) 5,400- net impairment/reversal of impairment (+/-) 17,344 28,851- net write-downs/write-backs of tangible and intangible assets (+/-) 26,049 22,426- net provisions for risks and charges and other costs/revenues (+/-) 59,324 35,101- taxes, duties and unpaid tax credits (+/-) (111,844) (34,927)- other adjustments (+/-) 3,371 -2. Cash generated/absorbed by financial assets (1,649,401) (4,128,370)- financial assets held for trading (354,925) 288,217- financial assets measured at fair value (1,496,168) (1,614,985)- available for sale financial assets 571,546 (2,880,969)- loans to banks: on demand 42,811 (138,316)- loans to banks: other loans 52,823 427,825- loans to customers (699,101) (1,118,499)- other assets 233,613 908,3573. Cash generated/used by financial liabilities 1,983,798 4,993,076- due to banks: on demand 83,822 (23,833)- due to banks: other amounts due (6,883,849) 2,688,856- payables due to customers 7,985,949 1,326,286- securities issued (118,236) (27,668)- financial liabilities held for trading (91,680) 119,829- financial liabilities measured at fair value 1,845,970 1,567,354- other liabilities (838,178) (657,748)

Net cash generated by/used in operating activities 334,757 252,696B. INVESTMENT ACTIVITIES

1. Cash generated by 378,499 4,934- held to maturity financial assets 372,374 4,934- sales of tangible assets 6,125 -2. Cash used by (488,259) (37,635)- purchase of held to maturity financial assets (412,280) -- purchases of tangible assets (48,455) (3,258)- purchases of intangible assets (27,524) (34,377)

Net cash generated by/used in investing activities (109,760) (32,701)C. FINANCING ACTIVITIES

- issue/purchase of treasury shares (formation of share capital) - 144- issue/purchase of equity instruments - 6,193- dividend distribution and other (206,664) (221,029)

Net cash generated by/used in financing activities (206,664) (214,692)NET CASH GENERATED/USED IN THE YEAR 18,333 5,303Legend: (+) generated (-) used

RECONCILIATION STATEMENT

E/t Dec. 31, 2015 Dec. 31, 2014

CaptionsCash and cash equivalents at beginning of the year 65,746 60,443Total net cash generated/used in the year 18,333 5,303Cash and cash equivalents at end of the year 84,079 65,746

44


2015

Notes to the Consolidated Financial Statements

2015

46


2015

Notes to the Consolidated Financial Statements as at December 31, 2015

The Notes are structured as follows:

Part A – Accounting policies

Part B – Information on the consolidated statement of financial position

Part C – Information on the consolidated income statement

Part D – Information on comprehensive income

Part E – Information on risks and risk management

Part F – Information on consolidated equity

Part G – Business combinations

Part H – Related party transactions

Part I – Equity-settled share-based payment transactions

Part L – Segmental information

PART A – ACCOUNTING POLICIES

A.1 – GENERAL

Section 1 – Compliance with the international accounting and financial reporting standards

The consolidated financial statements for the year ended December 31, 2015, were prepared pursuant to Legislative

Decree no. 38 of February 28, 2005, in accordance with the International Accounting and Financial Reporting

Standards (IAS/IFRS) issued by the International Accounting Standards Board (IASB) and the related interpreta-

tions of the International Financial Reporting Interpretations Committee (IFRIC) as adopted by the European Com-

mission under European Parliament and Council Regulation (EC) 1606 of July 19, 2002 and subsequent updates.

The consolidated financial statements for the year ended December 31, 2015 were prepared in accordance with the

“Instructions for the preparation of the consolidated financial statements of companies and the consolidated finan-

cial statements of banks and financial companies that are parent companies of banking groups” issued by the Bank

of Italy through Circular 262 of December 22, 2005 and subsequent updates.

Section 2 – Accounting basis

The Financial Statements have applied the IAS/IFRS in force as at December 31, 2015 (including accounting

standard SIC e IFRIC), as endorsed by the European Commission, as well as the new compliance with the general

framework for the preparation and presentation of financial statements prepared by the IASB.

In applying IAS/IFRS, no departure was made from requirements therein.

The financial statements include the Consolidated statement of financial position, the Consolidated income state-

ment, the Statement of consolidated comprehensive income, Statement of changes in equity, the Consolidated state-

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

47

ment of cash flows and the Notes to the consolidated financial statements. It also includes the Report on operations.

In accordance with Art. 5 of Legislative Decree no. 38 of February 28, 2005 the Financial Statements were pre-

pared using the Euro as reporting currency.

The amounts set out in the Accounts, in the Notes and in the Report on Operations are presented in thousands of

Euro unless stated otherwise.

The Accounts and the Notes also include comparative information for the year ended December 31, 2014.

Following the reverse merger, Banca Mediolanum became parent company of the Mediolanum Banking Group and

parent company of the Financial Conglomerate having banking prevalence. The merger of Mediolanum S.p.A. into

Banca Mediolanum S.p.A. has produced legal effects towards third parties, pursuant to art. 2504-bis, paragraph 2,

Civil Code, as of December 30, 2015. The accounting effects of the merger shall instead be effective from the first

day of the current fiscal year to the Date of Effectiveness of the merger (January 1, 2015).

At the same time of the effectiveness of the merger, the Banca Mediolanum ordinary shares were admitted to listing

on the electronic stock market (MTA).

The merger was carried out through the distribution and allocation to the shareholders of Mediolanum of Banca

Mediolanum ordinary shares, resulting from prior fractionation of the ordinary shares of Banca Mediolanum to the

extent necessary to permit the satisfaction of the Exchange Ratio. Under art. 2504-ter, paragraph 1, of the Civil

Code, Banca Mediolanum shares in exchange for treasury shares held by Mediolanum have not been assigned. At the

Effective Date of the merger, and following fractionation, therefore, the share capital of Banca Mediolanum amounts

to Euro 600,000,000.00, fully subscribed and paid-in, divided into 738,401,857 ordinary shares with no par value,

assigned in exchange of the 738,401,857 Mediolanum shares held by third parties of Mediolanum.

The merger was realized for the rationalization of the structure of the Mediolanum Banking Group following the

recent assumption of the role of the parent by the former parent company Mediolanum S.p.A. The merger therefore

aimed at shortening the chain of investors, streamlining organization and management processes, while improving

the level of profitability and safeguarding the brands and commercial vocation of the Mediolanum Banking Group

that have always been characterized by customer-focus and the values of solidity and security.

On the basis of the international accounting standards applied by the Company in preparing the financial statements,

the mergers by incorporation mother-daughter are not classifiable as business combinations as they do not involve

any exchange with third parties with respect to the assets combined or acquisition in the economic sense. The only

change compared to the situation before the merger concerns the procedure for exercising control over the assets

and liabilities.

The merger only involves the Companies concerned with a totalitarian control relation. For all the stated reasons,

the merger is therefore excluded from the scope of IFRS 3, moreover as it is between entities that were already part

of the Mediolanum Group. Considering the special nature of this transaction and the fact that the IAS/IFRS do not

regulate it specifically, it is believed that the choice of the most appropriate accounting policy must be guided by the

general standards of IAS 8.

As clearly indicated by IAS 8, the system of the IAS/IFRS standards can be defined as a “closed” system; it follows

that the treatment of the above transaction was sought in the first instance within the body of the IAS/IFRS stand-

ards. In particular, IAS 8 provides that, in the absence of an IAS/IFRS standard or interpretation that specifically

applies to a transaction, other event or condition, an entity must use its judgment in developing and applying an

48


2015

accounting standard that provides information that is:

(a) relevant for the economic decisions of users; and

(b) reliable, so that the financial statements:

• faithfully represent the equity – financial situation, the economic result and financial flows of the entity;

• reflect the economic substance of transactions, other events and circumstances, and not merely the legal form;

• are neutral, i.e. free from bias;

• are prudent; and

• are complete with reference to all material respects.

In making said judgment, the applicability of the following sources in descending order was considered: (a) the

applicable requirements and guidance contained in the standards and interpretations that deal with similar and

related cases; and (b) the definitions, recognition criteria and measurement concepts for the accounting of assets,

liabilities, revenues and expenses contained in the so-called systematic framework. In expressing the aforesaid judg-

ment, management may also consider the most recent provisions issued by other entities in charge of establishing

the accounting standards that use a similar conceptual systematic framework to develop accounting standards, other

accounting literature and consolidated industry practices, to the extent that these do not conflict with the sources

described above.

In the search for an accounting treatment that falls within the conceptual scope of the Framework and that meets

the criteria of IAS 8, the key element is the fact that the accounting standard chosen to represent the mergers must

reflect the economic substance of the same, regardless of their legal form.

Given the elements characterizing the merger (the absence of economic exchange with third parties, no additional

influence on the merged group cash flows, companies within the same consolidation area), accounting standards have

been adopted that give priority to principles such as to ensure the continuity of values, not recognizing said transac-

tion as it involves two entities within the same scope of consolidation.

For clarity, it is noted that all the comparative figures presented in these financial statements refer to the Mediola-

num Group with Mediolanum S.p.A. as parent company. These figures are comparable with those of the new Medio-

lanum Group with Banca Mediolanum S.p.A. as parent.

Content of accounting statements

Consolidated statement of financial position and income statement

The Statement of financial position and income statement set out items, sub-items and further details (“of which”

under the various items and sub-items). In accordance with Bank of Italy’s requirements, items with a nil balance

for both the year under review and the prior year are not indicated. In the income statement, revenues are indicated

with no sign, while costs are shown within parentheses.

Consolidated statement of other comprehensive income

The Statement of other comprehensive income presents gains and losses relating to the year’s changes in the value

of assets, stated net of related taxation. Negative amounts are shown within parentheses.

49


Consolidated statement of changes in equity

The Statement of changes in equity shows the composition of shareholders’ equity as well as the movements in the

various equity accounts (i.e. share capital, capital reserves, retained earnings, assets and liabilities revaluation re-

serves and net profit for the year) in the year under review and the prior year. The Banking Group did not issue any

equity instruments other than ordinary and savings shares.

Consolidated statement of cash flows

The Statement of cash flows provides information on cash flows for the period under review and the prior period.

It is prepared using the indirect method whereby in reporting cash flows from operating activities profit or loss is

adjusted for the effects of non-cash transactions.

Cash flows are classified by operating, investing and financing activities.

The cash flows generated in the period are indicated with no sign, while the cash flows used in the period are shown

within parentheses.

Content of the Notes to the consolidated financial statements

The Notes set out the information required under the international accounting and financial reporting standards and

Bank of Italy’s Circular Letter 262/2005 and subsequent updates.

In accordance with Bank of Italy’s requirements, no notes are provided for items with a nil balance for both the year

under review and the prior year. In the tables with income statement information, revenues are indicated with no sign,

while costs are shown within parentheses.

Section 3 – Scope and methods of consolidation

The consolidated financial statements include the accounts of Banca Mediolanum S.p.A. and those of its directly or

indirectly controlled subsidiaries.

The subsidiaries which are consolidated on a line-by-line basis in accordance with the international accounting

standards are set out in the tables below.

50


2015

1. Investments in subsidiaries exclusively

Group companies that are directly owned by Banca Mediolanum S.p.A. and consolidated on a line-by-line basis:

E/tCompany

Share capital Holding

Registered/Operating

OfficeType of

relation (1) Activities carried out

Mediolanum Vita S.p.A. 207,720 100.00% Basiglio 1 Life Insurance

Mediolanum Comunicazione S.p.A. 775 100.00% Basiglio 1 Audio/film/TV production

PI Servizi S.p.A. 517 100.00% Basiglio 1 Real estate brokerage

Mediolanum International Life Ltd 1,395 100.00% Dublin 1 Life Insurance

Mediolanum Assicurazioni S.p.A. 25,800 100.00% Basiglio 1 Damages Insurance

Mediolanum Gestione Fondi SGR p.A. 5,165 100.00% Basiglio 1 Mutual fund management

Mediolanum International Funds Ltd 150 92.00% Dublin 1 Mutual fund management

Mediolanum Asset Management Ltd 150 100.00% Dublin 1Asset management

and consulting activities

Gamax Management AG 2,000 99.99% Luxembourg 1 Mutual fund management

Mediolanum Fiduciaria S.p.A. 240 100.00% Basiglio 1 Trust company

Banco Mediolanum S.A. 86,032 100.00% Barcelona 1 Banking

Bankhaus August Lenz & Co. AG 20,000 100.00% Munich 1 Banking

Fermi & Galeno Real Estate S.r.l. 10 100.00% Basiglio 1 Real estate management

Group companies that are indirectly owned by Banca Mediolanum S.p.A. and owned through Banco Mediolanum S.A., consolidated on a line-by-line basis:

E/tCompany



OfficeType of


Mediolanum Gestión S.A. S.G.I.I.C. 2,506 100.00% Barcelona 1 Mutual fund management

Fibanc S.A. 301 100.00% Barcelona 1 Financial consulting firm

Mediolanum Pensiones S.A. S.G.F.P. 902 100.00% Barcelona 1 Pension Fund management

Mediolanum International Funds Ltd 150 5.00% Dublin 1 Mutual fund management

Group companies that are indirectly owned by Banca Mediolanum S.p.A. and owned through Bankhaus August Lenz:

E/tCompany



OfficeType of


Mediolanum International Funds Ltd 150 3.00% Dublin 1 Mutual fund managementLegend:(1) Type of relation: 1 = majority of voting rights in the General Meeting

2 = dominant influence at General Meeting 3 = agreements with other shareholders 4 = other forms of control 5 = joint management ex Art. 26, paragraph 1, legislative decree no. 87/92

(1) Type of relation: 6 = joint management ex Art. 26, paragraph 2, legislative decree no. 87/92

51


Banca Mediolanum S.p.A. associates accounted for directly or indirectly using the equity method:

E/tCompany

Share capital Holding HQ Activities carried out

Mediobanca S.p.A. 435,183 3.40% Milan Banking

Banca Mediolanum S.p.A. jointly owned entities accounted for using the equity method:

E/tCompany

Share capital Holding HQ Activities carried out

Banca Esperia S.p.A. 63,000 50.00% Milan Banking

Methods of consolidation

Subsidiaries are consolidated on a line-by-line basis, while associates and joint ventures are accounted for using the

equity method.

Full consolidation (line-by-line)

Consolidation is the combination of the accounts of the Parent Company and those of its subsidiaries line by line by

adding together like items of the statement of financial position and the income statement. Following the allocation

to minority shareholders of their interests, in a specific item, in equity and in the result for the year, the residual value

is eliminated against the book value of the subsidiaries concerned.

Any resulting difference, if positive, after recognition of the assets or liabilities of the subsidiary, is recognized as

goodwill under “Intangible Assets” on first-time consolidation, and under “Other Reserves” thereafter. Negative

differences are recognized in the income statement.

Assets, liabilities, income and expense between consolidated companies are fully derecognized.

Business combinations are accounted for by applying the purchase method. Goodwill acquired in a business combi-

nation is initially measured at cost, being the excess of the cost of the business combination over the Group’s (ac-

quirer’s) interest in the net fair value of the identifiable assets, liabilities and contingent liabilities of the acquiree.

After initial recognition, goodwill is measured at cost less any accumulated impairment losses. For the purpose of

impairment testing, goodwill acquired in a business combination is allocated, from the acquisition date, to each of

the Group’s (acquirer’s) cash-generating units or groups of cash-generating units, that are expected to benefit from

the synergies of the combination, irrespective of whether other assets or liabilities of the acquiree are assigned to

those units or groups of units.

If goodwill has been allocated to a cash-generating unit (or group of cash-generating units) and the Group disposes

of an operation within that unit, the goodwill associated with the operation disposed of is included in the carrying

amount of the operation when determining the gain or loss on disposal and is measured on the basis of the relative

values of the operation disposed of and the portion of the cash-generating unit retained.

The income and expenses of a subsidiary acquired during the reporting period are included in the consolidated finan-

cial statements from the date of acquisition.

The income and expenses of a subsidiary acquired during the reporting period are included in the consolidated finan-

cial statements from the date of acquisition. Accordingly, the income and expenses of a subsidiary disposed of in the

reporting period are included in the consolidated financial statements until the date on which the parent ceases to

control the subsidiary. Any difference between the consideration for the disposal of the subsidiary and its carrying

amount as at the date of disposal is recognized in the income statement. The financial statements of the Parent

52


2015

Company and those of its subsidiaries used in the preparation of the consolidated financial statements are prepared

as at the same reporting date. When a company within the Group uses different accounting policies, in preparing the

consolidated financial statements adjustments are made to make them uniform with the accounting policies adopted

by the Group.

Consolidation using the equity method

Under the equity method, an investment is initially measured at cost and its carrying amount is increased or de-

creased thereafter to reflect the value of the investor’s share of the investee’s equity and profit.

The investor’s share of the profit or loss of the investee is recognized under the relevant item in the consolidated

income statement, and the investor’s share of changes in the investee’s equity, other than transactions with the share-

holders, is recognized under the relevant item in the consolidated statement of other comprehensive income. If there

is evidence that an investment may be impaired, its recoverable amount is calculated by estimating the present value

of future cash flows expected to be generated by the subsidiary or associate, including the proceeds on the ultimate

disposal of the investment. If the recoverable amount is lower than the carrying amount, the resulting difference is

recognized in the income statement.

In applying the equity method to investments in associates and joint ventures the approved IAS/IFRS annual/interim

financial statements of associates were used.

2. Ratings and significant assumptions to determine the scope of consolidation

The following is a summary of key assessments made in the determination of the consolidation area.

The reason for which the Mediolanum Group deems it does not control the “Unit Linked” internal insurance funds

(for which it holds 100% of the outstanding) and the funds promoted (securities, real estate and Sicav) is the con-

temporary non-respect of all the conditions for control in IFRS 10. In relation to the Unit Linked the Mediolanum

Group believes that:

i) it does not exercise full power over the entity of the investment (Unit Linked) as limited by the requirements laid

down in the regulations of the funds in terms of asset allocation and management policies;

ii) it is not significantly exposed to variable returns of the entity involved in the investment.

In fact, the profits or losses related to the valuation of the assets included in the Unit Linked are fully recognized to

policyholders through the change in the mathematical reserve and only the change in the relative commission impact

remains with the Group (impact compared to the variability of flows of the entity and not considered significant).

In relation to the funds, the Mediolanum Group believes that:

i) it does not own the majority of outstanding units and directly support the investment risk (for example: unit funds

that hold shares in funds managed, the risk of which is borne by policyholders);

ii) it does not exercise full power over the entity of the investment (funds) as limited by the requirements laid down

in the regulations of the funds in terms of asset allocation and management policies;

iii) it is not significantly exposed to variable returns of the entity of the investment as it does not hold or holds a

marginal portion of the funds or holds units for which it does not bear the investment risk.

Exposure to changes in the value of the funds, i.e. the gains or losses related to the valuation of assets, are at-

tributable to the subscribers and only the change in the relative commission impact remains with the Group. In

particular, the Group is exposed to the risk of variability of subscription fees and charges on premiums, linked to

the performance of inflows, management fees relating to assets under management and incentive fees linked to the

53


performance of managed funds, as well as operational, compliance and reputational risks typical of the sector in

which the Group operates.

Section 4 – Post Balance Sheet Date Events

In the period between the end of financial year 2015 and the date on which these financial statements were prepared,

there was no event – other than those set out in the corresponding section of the Report on operations to which

readers are referred – which could materially impact the business or result of operations of the Group.

Section 5 – Other information

Information on the business and the results of operations for the year 2015 of the main subsidiaries is set out in the

Report on Operations accompanying the consolidated financial statements.

The Banca Mediolanum S.p.A. consolidated financial statements were audited by Deloitte & Touche S.p.A., in exe-

cution of the General Meeting Resolution of April 20, 2011, as integrated in the Resolution proposal by the General

Meeting of September 29, 2015.

A.2 – SIGNIFICANT ACCOUNTING POLICIES

Accounting Policies

This section presents the accounting policies applied in the preparation of the consolidated financial statements for

the year ended December 31, 2015. The accounting policies applied in the preparation of the consolidated financial

statements, with respect to the classification, measurement, recognition and derecognition of the various items of

assets and liabilities as well as the various items of income and expense, are consistent with those applied by the Me-

diolanum Group in the preparation of the consolidated financial statements for the year ended December 31, 2014.

Accounting standards, amendments and ifrs interpretations applied starting from january 1, 2015

The following accounting standards, amendments and IFRS interpretations were applied for the first time by the

Group from January 1, 2015:

On May 20, 2013 the interpretation IFRIC 21 – Levies, was published, which provides clarification on when recogni-

tion of a liability related to taxes (other than income taxes) imposed by a government agency. The standard addresses

both the liabilities for taxes that fall within the scope of IAS 37 – Provisions, contingent liabilities and assets, both

for the taxes where the amount and timing are certain. The interpretation is applied retrospectively for annual peri-

ods commencing no later than June 17, 2014 or later. The adoption of this new interpretation was used for the pur-

poses of accounting of costs related to provisions of the so-called “bail-in” mechanism (DGS and SRF) charging as

annual cost the requested contribution for the year 2015 (ordinary and extraordinary item). It is specified that with

54


2015

the 2016 Stability Law, a Solidarity Fund was set up aimed at distributing provisions for investor performance (indi-

viduals, individual entrepreneurs, agricultural entrepreneurs or farmers) which, at the date of entry into force of Decree

law no. 183 of November 22, 2015, held subordinated financial instruments issued by the four banks in resolution.

The Solidarity Fund will have up to Euro 100 million and will be supported by the interbank deposit protection fund;

regarding the matter, the enactment of special ministerial decrees is envisaged.

In this regard, in view of the adoption of said decrees that will make the provision applicable, the company decided to

exclusively provide only information in the financial statements as it does not deem the conditions apply for the regis-

tration of the allocation.

On December 12, 2013, the IASB published the “Annual Improvements to IFRS: 2011-2013 Cycle” which incorpo-

rates amendments to some standards in the context of the annual improvement process thereof (among which: IFRS

3 Business Combinations – Scope exception for joint ventures, IFRS 13 Fair Value Measurement – Scope of portfolio

exception, IAS 40 Investment Properties – Interrelationship between IFRS 3 and IAS 40). The changes shall apply

beginning the years that start January 1, 2015 or after. The adoption of said amendments had no impact on the consol-

idated financial statements of the Group.

Accounting standards, amendments and ifrs and ifric interpretations approved by the european union, not yet obligatorily applicable and not adopted by the group in advance as at december 31, 2015

The Group has not applied the following standards, new and amended, issued but not yet effective.

Amendment to IAS 19 “Defined Benefit Plans: Employee Contributions” (published on November 21, 2013): con-

cerning the accounting of the contributions made by employees or third parties to the defined benefit plans. The

amendment shall apply at the latest beginning the years that start February 1, 2015 or after.

Amendment to IFRS 11 Joint Arrangements – “Accounting for acquisitions of interests in joint operations” (pub-

lished on May 6, 2014): relating to the accounting for the purchase of stakes in a joint operation whose activity

constitutes a business. The amendments are applicable starting from January 1, 2016. However, earlier application

is permitted.

Amendments to IAS 16 Property, plant and equipment and IAS 41 Agriculture – “Bearer Plants” (published on

June 30, 2014): the bearer plants, or fruit trees that shall produce annual crops (such as vines, plant nuts) shall be

accounted for in accordance with the requirements of IAS 16 (rather than IAS 41). The amendments are applicable

starting from January 1, 2016. However, earlier application is permitted.

Amendments to IAS 16 Property, plant and Equipment and IAS 38 Intangibles Assets – “Clarification of acceptable

methods of depreciation and amortization” (published on May 12, 2014): according to which a criterion of depreci-

ation based on revenues is considered generally inappropriate, since revenues generated by an activity that includes

the use of the asset depreciated generally reflect factors other than only consumption of economic benefits of the

asset, requirement that is, instead, required for depreciation. The amendments are applicable starting from January

1, 2016. However, earlier application is permitted.

Amendment to IAS 1 – “Disclosure Initiative” (published on December 18, 2014): the objective of the amendments

is to provide clarification to disclosure elements that may be perceived as impediments to a clear and intelligible

drafting of financial statements. The amendments are applicable starting from January 1, 2016. However, earlier

application is permitted.

55


Amendment to IAS 27 – Equity Method in Separate Financial Statements (published on August 12, 2014): intro-

duces the option of using in the separate financial statements of an entity the equity method for the evaluation of

investments in subsidiaries, jointly ventures and associates. The amendments are applicable starting from January 1,

2016. However, earlier application is permitted.

The directors do not expect a significant impact on the Group’s consolidated financial statements from the adoption

of these amendments.

Lastly, as part of the annual process of improvement of the standards, on December 12, 2013, the IASB published

the documents “Annual Improvements to IFRSs: 2010-2012 Cycle” (among which IFRS 2 Share Based Payments

– Definition of vesting condition, IFRS 3 Business Combination – Accounting for contingent consideration, IFRS

8 Operating segments – Aggregation of operating segments and Reconciliation of total of the reportable segments’

assets to the entity’s assets, IFRS 13 Fair Value Measurement – Short-term receivables and payables) and on Sep-

tember 25, 2014 “Annual Improvements to IFRSs: 2012-2014 Cycle” (among which: IFRS 5 – Non-current Assets

Held for Sale and Discontinued Operations, IFRS 7 – Financial Instruments: Disclosure and IAS 19 – Employee

Benefits), which partially integrate the existing standards. The amendments apply at the latest respectively for an-

nual periods beginning on or after February 1, 2015 or later date and for annual periods beginning on January 1,

2016 or later date.

The directors do not expect a significant impact on the Group’s consolidated financial statements from the adoption

of said amendments.

Accounting standards, amendments and ifrs interpretations not yet approved by the European Union

At the date of reference of this document, the EU competent authorities have not yet completed the standardization

process required to adopt the accounting principles and amendments described below.

Standard IFRS 14 – Regulatory Deferral Accounts (published on January 30, 2014) that allows only those that

adopt IFRS for the first time to continue to recognize the amounts related to activities subject to regulated tariffs

(“Rate Regulation Activities”) under previous accounting standards adopted. As the Group is not a first-time adop-

ter, said standard is not applicable.

Standard IFRS 15 – Revenue from Contracts with Customers (published on May 28, 2014), which is destined to

replace IAS 18 – Revenue and IAS 11 – Construction Contracts, as well as the interpretations of IFRIC 13 – Cus-

tomer Loyalty Programs, IFRIC 15 – Agreements for the Construction of Real Estate, IFRIC 18 – Transfers of

Assets from Customers and SIC 31 – Revenues-Barter Transactions Involving Advertising Services. The standard

establishes a new model of revenue recognition shall apply to all contracts with clients except those that fall within

the scope of application of other IAS/IFRS principals such as leasing, insurance contracts and financial instruments.

The fundamental steps for the recognition of revenues according to the new model are:

• identification of the contract and with the client;

• identification of the performance obligations of the contract;

• determination of the price;

• allocation of the price to the performance obligations of the contract;

• criteria for recognition of revenues when the entity meets each performance obligation.

The principle is applicable starting from January 1, 2018. However, earlier application is permitted. At present,

based on the information available and the current characteristics of the Group’s products, it is reasonable not to

56


2015

expect significant changes on the accounting methods adopted to date. The matter in question will however be subject

to detailed analysis in 2016 also in light of possible interpretations that may arise.

Final version of IFRS 9 – Financial Instruments (published on July 24, 2014). The document includes the results

of the phases relating to Classification and measurement, impairment and hedge accounting, of the IASB’s project

aimed at replacing IAS 39:

• introduces new criteria for classifying and measuring financial assets and liabilities;

• with reference to the impairment model, the new standard requires the estimate of losses on receivables to be

made on the basis of the model of expected losses (and not on the model of incurred losses used by IAS 39) using

supportable information, available without unreasonable effort or expense that include current and prospective

historical data;

• introduces a new hedge accounting model (increase in the types of transactions eligible for hedge accounting,

changes in the accounting method of forward contracts and options when included in a hedge accounting report,

changes in the effectiveness test).

The new standard, which replaces the previous version of IFRS 9, shall be applied for financial statements beginning

on January 1, 2018 or later.

The Mediolanum Group is planning the development of administrative and accounting procedures to better meet

the information requirements that will be introduced by the new international accounting standard applicable as at

January 1, 2018, i.e. IFRS 9.

In this context, an analysis was conducted, limited to Banca Mediolanum, to verify the major impacts with particular

reference to the new accounting standard on financial instruments.

In this assessment, emphasis was attributed in the first instance to the new impairment model that goes from “in-

curred” logics to an “expected” model. The main new elements with respect to the current accounting standard are

related to the fact that:

• financial assets are classified into 3 buckets depending on the deterioration of the creditworthiness with respect

to the origin where the last bucket includes impaired loans;

• provisions relating to instruments that are in bucket 1 are defined on the basis of the expected loss over the next

12 months, while those in buckets 2 and 3 consider the “lifetime expected loss”;

• the use of the best information available giving more importance to predictions of future conditions (forward

looking approach) allows anticipating the recognition of losses;

• any change, favorable or unfavorable, of the expectations of recoverability of cash flows is to be recognized in

the income statement.

Within the mentioned project phase, Banca Mediolanum launched a simulation activity with the purpose of estimat-

ing the potential impact of adopting the new standard IFRS 9 in order to highlight possible areas of intervention.

This analysis was conditioned by significant simplifications adopted as well as by the purposes of the simulation

which was to provide a macro-estimate of potential issues.

The analyzes carried out in line with market expectations and with the stringent new rules imposed, showed:

i) an increase in provisioning on credit exposures, including those in securities, particularly for positions included in

bucket 2;

ii) an increase in variability of the loss estimates due to inclusion in the same of scenarios with reference to informa-

tion to predict future conditions (“forward looking”).

57


The second area of analysis concerned the classification of the financial instruments portfolio. The main change in-

troduced by IFRS 9, is therefore the alignment of the business model adopted by the Company for the management

of a portfolio of financial instruments and their classification, further subject to the technical characteristics of the

instrument. The analysis highlighted the need to explore the requirements of the business model analysis and test to

be carried out to verify the characteristics of the financial instrument.

On January 13, 2016, the IASB published the standard IFRS 16 – Leases, which is intended to replace the standard

IAS 17 – Leases, as well as the interpretations IFRIC 4 Determining whether an Arrangement contains a Lease,

SIC-15 Operating Leases – Incentives and SIC-27 Evaluating the Substance of Transactions Involving the Legal

Form of a Lease.

The new standard provides a new definition of lease and introduces a criterion based on control (right of use) of an

asset to distinguish lease contracts from service contracts, identifying as discriminants: the identification of the asset,

the right to replace the same, the right to obtain substantially all of the economic benefits arising from the use of the

asset and the right to direct the use of the asset underlying the contract.

The standard establishes a single model of recognition and evaluation of lease agreements for the lessee, which involves

registration of the leased asset to also operational in assets with financial debt balancing entry, while also providing the

opportunity to not recognize as leases contracts concerning “low-value assets” and leases with a contract term equal

to or less than 12 months. By contrast, the Standard does not include significant changes for lessors.

The directors don’t expect that the application of IFRS 16 may have a significant impact on the accounting of lease

contracts and the related disclosure in the Group’s consolidated financial statements. However, it is not possible to

provide a reasonable estimate of the effect until the Group has completed a detailed analysis of the related contracts.

Document “Investment Entities: Applying the Consolidation Exception (Amendments to IFRS 10, IFRS 12 and IAS

28)” (published on December 18, 2014), containing amendments relating to issues raised following the application of

the consolidation exception granted to investment entities. The amendments introduced by the document shall be ap-

plied beginning the years that start January 1, 2016 or after. However, early adoption is permitted. The directors do not

expect a significant impact on the Group’s consolidated financial statements from the adoption of these amendments,

as the company does not fulfill the definition of investment company.

On September 11, 2014, the IASB published an amendment to IFRS 10 and IAS 28 Sales or Contribution of Assets

between an Investor and its Associate or Joint Venture. The document was published in order to resolve the current

conflict between IAS 28 and IFRS 10. In accordance with IAS 28, the profit or loss resulting from the sale or transfer

of a non-monetary asset to a joint venture or associate in return for a portion in the capital of the latter is limited to

the shareholding in the joint venture or associate by other investors outside the transaction. In contrast, IFRS 10 re-

quires the recording of the entire gain or loss in the event of loss of control of a subsidiary, even if the entity continues

to hold a non-controlling stake in it, including in this case also the sale or transfer of a subsidiary to a joint venture or

associate. The amendments introduced require that for a sale/transfer of an asset or a subsidiary to a joint venture or

associate, the measure of the gain or loss to be recognized in the financial statements of the seller/transferor depends

on whether the assets or subsidiary sold/transferred constitute a business, under the meaning of IFRS 3. If the assets

or the subsidiary sold/transferred represent a business, the entity shall recognize the gain or loss on the entire invest-

ment held; otherwise, the portion of the gain or loss related to the share still held by the entity shall be eliminated. The

amendments will apply from January 1, 2016; however, a postponement of the date of initial application is expected.

On September 25, 2014, the IASB published the document “Annual Improvements to IFRSs: 2012-2014 Cycle”.

The amendments introduced by the document shall be applied beginning the years that start January 1, 2016 or after.

The document introduces amendments to the following standards:

58


2015

IFRS 5 – Non-current Assets Held for Sale and Discontinued Operations. The amendment introduces specific guide-

lines to the standard in the case in which an entity reclassifies an asset (or disposal group) from the held-for-sale

category to the held-for-distribution category (or vice versa), or when the classification requirements no longer apply

of an asset as held for distribution. The amendments define that (i) such reclassification shall not be considered as a

change to a sales plan or a distribution plan and that the same criteria for the classification and evaluation shall re-

main valid; (ii) the assets that no longer meet the classification criteria for the held-for-distribution shall be treated

the same way as an asset no longer classified as held for sale;

IFRS 7 – Financial Instruments: Disclosure. The amendments govern the introduction of additional guidelines to

clarify whether a servicing contract constitutes residual involvement in a transferred asset for the purposes of the

disclosure required in relation to the assets transferred. Moreover, it is clarified that the disclosure on the compen-

sation of financial assets and liabilities is normally not explicitly required for interim financial statements. However,

said disclosure may be necessary to fulfill the requirements of IAS 34, in the case of significant information;

IAS 19 – Employee Benefits. The document introduces amendments to IAS 19 to clarify that the high quality cor-

porate bonds used to determine the discount rate of post-employment benefits shall be in the same currency used for

the payment of the benefits. The amendments clarify that the scope of the market of high quality corporate bonds to

be considered shall be the one in terms of currency;

IAS 34 – Interim Financial Reporting. The document introduces amendments in order to clarify the requirements to

be met in the event that the disclosure required is presented in the interim financial report, however outside of the in-

terim financial statements. The amendment specifies that said disclosure is included through a cross-reference from

the interim financial statements to other parts of the interim financial report and that said document is available to

readers of the financial statements in the same manner and with the same timing of the interim financial statements.

On December 18, 2014, the IASB published the amendment to IAS 1 – Disclosure Initiative. The objective of the

amendments is to provide clarification to disclosure elements that may be perceived as impediments to a clear and

intelligible drafting of financial statements.

Non performing exposures (NPE) and forborne exposuresLastly, it should be noted that with respect to the 2014 consolidated financial statements, is applicable from January

1, 2015 the new notion of impaired assets adopted by the Bank of Italy in the 7th update of January 20, 2015 of

Circular 272 “Accounts Matrix”, following the transposition of the new definitions of non-performing exposures

(NPE) and forborne exposures introduced by the implementing technical standards concerning statistical supervi-

sory consolidated harmonized reports defined by the European Banking Authority and approved by the European

Commission on January 9, 2015 (hereinafter ITS ).

Impaired financial assets are divided into the categories of non-performing, likely defaults (unlikely to pay) and past

due and/or overdue impaired exposures; all these categories correspond to all the non-performing exposures referred

to in ITS. The definition was also introduced of forborne exposures, transverse to “performing” and “non-perform-

ing” exposures. The previous notions of watch list exposures and restructured exposures are repealed.

Cash assets (loans and debt securities) and “off balance sheet” assets (guarantees issued, irrevocable and revocable

commitments to disburse funds) fall within the scope of the new categories of impaired financial assets, other than

the financial instruments allocated to the accounting portfolio “Financial assets held for trading” and derivative

contracts.

For further details, reference shall be made to as outlined in Part E.

59


Financial assets held for trading

Financial assets held for trading consist mainly of debt securities, equities and trading derivatives with positive fair

value.

Financial assets held for trading are initially recognized on the settlement date if they are debt securities and equi-

ties, and on the trade date if they are derivatives.

On initial recognition, financial assets held for trading are measured at cost, i.e. the fair value of the instrument,

without adding directly attributable transaction costs or income.

After initial recognition, financial assets held for trading are measured at their fair value.

The fair value of a financial instrument quoted in an active market is determined using its market quotation (bid/

ask or average price). If the market for a financial instrument is not active, fair value is determined using estimation

and valuation techniques which measure all instrument-related risks and use market data, e.g. the quoted price of

instruments with similar characteristics, discounted cash flow analysis, option pricing models, recent comparable

transactions.

Reclassification to other categories of financial assets is not allowed except for rare circumstances which are unlike-

ly to occur again in the near term.

In such rare circumstances debt securities and equities that are no longer held for trading can be reclassified to

the other categories under IAS 39 (Held to maturity financial assets, Available for sale financial assets, Loans and

Receivables), provided that they satisfy the relevant requirements. The carrying amount of the reclassified financial

instrument is its fair value on the date of reclassification. The existence of any embedded derivative contracts that

require unbundling is assessed upon reclassification.

Financial assets are derecognized when the contractual rights to the cash flows from the financial asset expire or the

financial asset and substantially all the risks and rewards of ownership thereof are transferred.

Financial assets measured at fair value through the income statement

This category includes investments for the benefit of life-assurance policyholders who bear the risk, because of the

need to reduce the valuation mismatch with respect to the valuation of related liabilities. Financial assets measured

at fair value through the income statement mainly include funds and debt securities (structured and unstructured).

Financial assets measured at fair value through the income statement are initially recognized on the settlement date

if they are debt securities, and on the trade date if they are derivatives and funds.

On initial recognition financial assets measured at fair value through the income statement are measured at cost, i.e.

the fair value of the instrument, without adding directly attributable transaction costs or income.

After initial recognition financial assets measured at fair value through the income statement are measured at their

fair value.

The fair value of a financial instrument quoted in an active market is determined using its market quotation. If the

market for a financial instrument is not active, fair value is determined using estimation and valuation techniques

which measure all instrument-related risks and use market data, e.g. the quoted price of instruments with similar

characteristics, discounted cash flow analysis, option pricing models, recent comparable transactions.



60


2015

Available for sale financial assets

Available for sale financial assets include non-derivative financial assets that are not classified as Loans and Receiv-

ables, Financial assets held for trading or Held to maturity financial assets.

In particular, shareholdings that are not held for trading and those that do not qualify as investments in subsidiaries,

associates or joint ventures are also classified under this category.

Available for sale financial assets are initially recognized on the settlement date if they are debt or equity instru-

ments and on the trade date if they are loans or receivables.

On initial recognition available for sale financial assets are measured at cost, i.e. the fair value of the instrument,

plus any directly attributable transaction costs or income. When reclassified out of the held to maturity financial

assets category, available for sale financial assets are re-measured at their fair value on such reclassification.

After initial recognition available for sale financial assets continue to be measured at fair value, and are amortized

through profit or loss, while gains or losses arising from a change in their fair value are recognized in a specific

equity reserve until the financial asset is derecognized or impaired. At the time of their dismissal or impairment, the

cumulative gain or loss previously recognized in equity is recognized in the income statement.

Equity investments whose fair value cannot be reliably measured as set out above are measured at cost.

At each interim and annual balance sheet date the Group assesses whether there is objective evidence of any im-

pairment loss.

If the fair value of a previously impaired asset increases and the increase can be objectively related to an event

occurring after the impairment loss was recognized, the impairment loss is reversed and the reversal recognized in

the income statement if the asset is a loan or receivable or a debt instrument, and in equity if the asset is an equity

investment. The reversal shall not result in a carrying amount of the financial asset that exceeds what the amortized

cost would have been had the impairment loss not been recognized at the date the impairment is reversed. Financial

assets are derecognized when the contractual rights to the cash flows from the financial asset expire or the financial

asset and substantially all the risks and rewards of ownership thereof are transferred.

Held to maturity financial assets

Held to maturity financial assets consist of debt securities with fixed or determinable payments and fixed maturity

which the Group intends or has the ability to hold to maturity. If, as a result of a change in intention or ability, it is

no longer appropriate to classify an investment as held to maturity, it is reclassified as a available for sale financial

asset.

Held to maturity financial assets are initially recognized on settlement date.

Held to maturity financial assets are initially measured at cost, including any directly attributable costs or income.

When reclassified out of the available for sale financial assets category, the fair value on such reclassification is the

value of the amortized cost at which held to maturity financial assets are carried amortizing the valuation reserve

previously recorded. After initial recognition held to maturity financial assets are measured at amortized cost using

the effective interest method. In case of sale of significant quantities of securities not close to maturity recorded

in this class, the so-called “tainting rule” is applied, i.e. the prohibition of classification in this item for two years.

Gains or losses of held to maturity financial assets are recognized in the income statement when the financial asset

is derecognized or impaired, and through the recognition of the amortized cost process. At each interim and annual

reporting date the Group assesses whether there is objective evidence of any impairment loss.

61


If any such evidence exists, the amount of the impairment loss is measured as the difference between the carrying

amount of the asset and the present value of estimated future cash flows, discounted at the financial asset’s original

effective interest rate. The amount of the impairment loss is recognized in the income statement.

If the value of a previously impaired investment increases and the increase can be objectively related to an event





Loans and receivables

This category includes loans to customers and to banks with fixed or determinable payments, that are not quoted in

an active market and that, upon initial recognition, were not classified as available for sale financial assets.

Loans and receivables also include trade receivables, repurchase agreements and securities purchased under a public

offering or private placement, with fixed or determinable payments, that are not quoted in an active market.

A loan or receivable is initially recognized at fair value on the trade date or, in the case of a debt instrument, on the

settlement date on the basis of the fair value of the financial instrument, equal to the amount disbursed, or the sub-

scription price, including any directly attributable costs or income determinable on the trade date, even if settled at

a later date. Costs that are reimbursed by the borrower/debtor or are internal administrative expenses are excluded.

Carryovers and repurchase agreements which entail the obligation for a future resale/repurchase are recognized as

funding or lending transactions. Specifically, the amount received for the sale of an asset under an agreement to

repurchase it at a future date is recognized in the statement of financial position as a debt, while the amount paid

for the purchase of an asset under an agreement to resell it at a future date is recognized as a loan.

After initial recognition, loans and receivables are measured at amortized cost. Amortized cost is the amount at

which the financial asset is measured on initial recognition minus principal repayments, plus or minus the cumula-

tive amortization using the effective interest method of any difference between that initial amount and the maturity

amount, plus or minus any directly attributable costs/income and minus/plus any reduction/reversal for impairment.

The effective interest rate is identified by calculating the rate that equates the present value of the future cash flows

of the loan, by capital and interest, to the amount disbursed, including any costs/income attributed to the loan. The

effective interest rate is the rate that exactly discounts estimated future cash flows (principal and interest) to the

net carrying amount of the asset, i.e. the carrying amount plus/minus any directly attributable costs/income, through

the expected life of the asset.

Amortized cost is not applied to short-terms loans and receivables for which the effect of discounting is immaterial.

At each interim and annual reporting date the Group assess whether there is objective evidence of any impairment

loss as a result of one or more events that occurred after initial recognition. If there is objective evidence of impair-

ment, the loan or receivable is classified as follows:

• Non-performing: these are formally impaired loans i.e. exposures to borrowers that are unable to meet their

payment obligations, even if their insolvency has not been established by a court of law, or in equivalent con-

ditions. The evaluation is generally on an analytical basis (even through the comparison with coverage levels

defined statistically for some loan portfolios below a predefined threshold) or, if the amounts are not individually

significant, on a flat-rate basis for homogeneous categories of loans.

62


2015

• Likely defaults (“unlikely to pay”): represent on- and off-balance sheet exposures, therefore the conditions do

not apply for classification of the debtor as non-performing and for which there is an improbability assessment

which, in the absence of actions such as enforcement of collateral, the debtor is able to fully meet (principal

and/or interest) its credit obligations. This assessment is carried out independently of the presence of any

amount (or installment) past due and unpaid. The classification as likely default is not necessarily linked to the

explicit presence of anomalies (non-reimbursement) but is indeed linked to the existence of elements indicative

of a situation of risk of debtor default. Likely defaults are generally assessed analytically (even through the

comparison with coverage levels defined statistically for some loan portfolios below a predefined threshold) or

applying flat-rate percentages for homogeneous categories of loans.

• Past due and/or overdrawn impaired loans: represent on-balance sheet exposures, other than those classified

as non-performing or likely default which, at the reporting date, are past due or overdrawn. Past due and/

or overdrawn impaired loans can be determined by reference, alternatively, to the individual debtor or to the

individual transaction. Impaired past due loans and/or overdrawn loans are valued analytically, through flat-

rate methods, which use flat-rate historical/statistical basis applying where available the risk detected by the

appropriate risk factor used for the purposes of Regulation (EU) no. 575/2013 (CRR) related to prudential

requirements for credit institutions and investment firms (LGD – Loss Given Default).

Impaired loans are individually assessed and the amount of the impairment loss is measured as the difference be-

tween the asset’s carrying amount (measured at amortized cost) at the time of assessment and the present value

of estimated future cash flows discounted at the financial asset’s original effective interest rate.

Future cash flows are estimated taking into account the expected time of recovery, the realizable value of any

collaterals as well as any costs of recovery which are recorded, limited to legal fees, in the risk fund. Future cash

flows of receivables which are expected to be recovered in the short term are not discounted.

The asset’s original effective interest rate remains unchanged over time also in the event of a restructuring as a

result of which the interest rate changes or the loan or receivable actually carries no interest.

The amount of the impairment loss is recognized in the income statement.

If the value of a previously impaired loan or receivable increases and the increase can be objectively related to

an event occurring after the impairment loss was recognized, the impairment loss is reversed and the reversal

recognized in the income statement. The reversal shall not result in a carrying amount of the financial asset that

exceeds what the amortized cost would have been had the impairment loss not been recognized at the date the

impairment is reversed.

Receivables for which no objective evidence of loss individually identified, usually loans not impaired, are assessed

on a collective impairment. For the purpose of a collective evaluation of impairment, loans and receivables are

grouped on the basis of similar credit risk characteristics and the related loss probability is estimated using histor-

ical loss rates based on observable data at the time of assessment that can reliably estimate the loss probability

of each loan group. In case of significant loans not impaired, an analytical assessment can be made.

Any collectively assessed impairment loss is recognized in the income statement. At each interim and annual re-

porting date any additional impairment loss or reversal thereof is calculated in relation to the entire portfolio of

loans not impaired on that same date.

63


Hedging transactions

Hedging transactions are intended to offset changes in the fair value or cash flows of an item or group of items,

which are attributable to a particular risk, in the event that risk materializes.

Pursuant to IAS 39, the Company adopted fair value hedging to cover exposure to changes in the fair value of a

financial item that is attributable to a particular risk. In particular, the Company entered into fair value hedges of

the interest rate exposure of a portfolio of fixed-rate mortgages.

Only instruments that involve a party external to the Group can be designated as hedging instruments. A hedge of

an overall net position in a portfolio of financial instruments does not qualify for hedge accounting.

Hedging derivatives are measured at fair value. As they are accounted for as fair value hedges, the changes in the

fair value of the hedged item are offset by the changes in the fair value of the hedging instrument. Hedge accounting

recognizes the offsetting effects on profit or loss of changes in the fair values of the hedging instrument and the

hedged item (in relation to changes generated by the underlying risk). Any resulting difference, which represents

the partial ineffectiveness of the hedge, is the net effect on profit or loss. Fair value is determined on the basis of

quoted prices in an active market, prices quoted by market participants or internal valuation models commonly

used in financial practice, which take into account all risk factors associated with the instruments and based on

market information. Derivatives are recognized as hedging derivatives if there is formal documentation of the

hedging relationship between the hedging instrument and the hedged item and if, at the inception of the hedge and

prospectively, the hedge is expected to be effective during the period for which the hedge is designated.

A hedge is effective if it achieves offsetting changes in the fair value of the hedged risk.

The hedging relationship is considered effective if, at the inception of the hedge and in subsequent periods, the

changes in the fair value of the hedged item are offset by the changes in fair value of the hedging instrument and

if the actual results of the hedge are within a range of 80% -125%.

Hedge effectiveness is assessed at the date the entity prepares its annual or interim financial statements, using:

• prospective tests which support hedge accounting in terms of expected effectiveness;

• retrospective tests which show the degree of hedge effectiveness in the relevant past periods. In other words, they

measure how much actual results differed from perfect hedging.

The aforementioned hedges are periodically balanced.

If the tests do not confirm hedge effectiveness, hedge accounting is discontinued, the hedging derivative is reclas-

sified into trading instruments while the hedged item is again recognized according to its usual classification in

the statement of financial position and the changes in the fair value of the hedged item up until the date hedge

accounting was discontinued are amortized applying the effective interest rate.

Equity investments

It is stated that there is the presence of control of an entity, when the investor has at the same time:

a) power on the entity of the investment;

b) exposure or rights to variable returns arising from the relation with the entity of the investment;

c) the ability to exercise its power on the entity of the investment to affect the amount of its returns.

64


2015

If an investor is able to exercise voting rights sufficient to determine the operating and financial policies of the in-

vestee it exercises control.

In the presence of complex situations, in the definition of control, the judgment is exercised that takes into account:

• of the nature of the relevant activities;

• the manner in which decisions are made relating to such activities;

• if the rights of investors confer the current ability to direct the activities in question;

• if the investor is exposed, or has the right to variable returns from its involvement with the investee;

• if the investor has the ability to use its power over the investee to affect the return on investment.

There is the presence of a liaison relation, according to as provided in IAS 28, when the investor has significant

influence over an investee. The significant influence and the power to participate in the decisions of the financial and

operating policies of the investee, without control or joint control.

As a general rule, the existence of significant influence is assumed when an entity holds, directly or indirectly, through

subsidiaries, 20% or more of the voting power of an investee.

In the presence of more complex situations, for example in the case of ownership of units less than 20%; in the

definition of significant influence the judgment is exercised that takes into account:

• representation in the board of directors or equivalent body of the investee;

• participation in decision making processes, including participation in decisions regarding dividends or other dis-

tributions;

• significant transactions between the entity and the investee;

• interchange of managerial personnel; or

• provision of essential technical information.

There is the presence of a joint arrangement in accordance with IFRS 11 when i) there is a factual or legal agree-

ment between the parties, ii) said agreement allows the exercise of joint control that is when the relevant decisions

relating to the subject of the agreement must be taken unanimously by all parties involved.

According to IFRS 11 joint arrangements can be classified into two distinct categories:

• joint operations;

• joint ventures.

A joint arrangement that is not structured through a corporate vehicle is considered a joint operation. Otherwise a

joint arrangement structured through a corporate vehicle can be both a joint operation and a joint venture.

There is the presence of a joint operation if the parties involved in the agreement have rights and obligations on

the individual assets and liabilities of the agreement. The joint operations are accounted for by the parties involved

recognizing the related portion of assets, liabilities, revenues and expenses.

There is the presence of a joint venture if the parties that hold joint control have rights on the net assets covered by

the agreement and the parties are responsible only for their portions of investment in the joint venture.

Associated companies and joint ventures are measured using the equity method.

If there is evidence that an investment may be impaired, its recoverable amount is calculated by estimating the

present value of future cash flows expected to be generated by the subsidiary or associate, including the proceeds on

the ultimate disposal of the investment.

If the recoverable amount is lower than the carrying amount, the resultant difference is recognized in the income

statement.


65




Investment property and other tangible assets

Tangible assets include land, Group-occupied property, investment property, furnishings, fixtures, fittings, plant and

equipment.

These are tangible items that are held for use in the production or supply of goods or services, for rental to others, or

for administrative purposes and that are expected to be used during more than one period.

This account also includes assets held under finance leases even when the lessor retains title thereof.

Tangible assets are initially measured at cost, which comprises the purchase price of the asset and all costs directly

attributable to the asset’s acquisition and operation.

The costs of major repairs which increase the future economic benefits associated with the asset are recognized in the

carrying amount of the asset, while the costs of day-to-day servicing are recognized in the income statement.

Tangible assets, including investment property, are measured at cost less any accumulated depreciation and impair-

ment losses.

Tangible assets are systematically depreciated on a straight-line basis over their useful lives except for land, be it

acquired separately or together with buildings, which has an indefinite useful life. Under the international accounting

standards land and buildings are separable assets and are to be accounted for separately. When the value of land is

embedded in the value of the building, only for land on which a building stands, their respective value is determined

by independent experts.

At each interim and annual reporting date, if there is an indication that an asset may be impaired the carrying amount

of the asset is compared to its recoverable amount. The recoverable amount of an asset is the higher of its fair value

less costs to sell and its value in use. Any reduction is recognized as impairment loss in the income statement.

If the value of a previously impaired asset increases, the impairment loss is reversed. The reversal shall not result in

a carrying amount that exceeds what the asset value would have been net of accumulated depreciation less previous

impairment.

A tangible asset is derecognized from the statement of financial position on disposal or when no future economic

benefits are expected from its use or disposal.

Intangible assets

Intangible assets include goodwill and long-term application software, as well as intangible assets generated during

the acquisition of a business. Goodwill is the excess of the cost of the acquisition over the acquirer’s interest in the fair

value of the identifiable assets and liabilities acquired. Other intangible assets are recognized if they are identifiable

as such and arise from contractual or other legal rights.

An intangible asset can be recognized as goodwill when the excess of the cost of the acquisition over the acquirer’s

interest in the fair value of the identifiable assets and liabilities acquired (including any accumulated impairment

losses) is representative of the future earnings capabilities of the investee.

Any negative goodwill (badwill) is directly recognized in the income statement, if it does not depend on provisions for

risks not reflected in the situation of the accounts of the business being acquired.

66


2015

Other intangible assets are measured at cost less any accumulated amortization and impairment losses only if it is

probable that future economic benefits attributable to the asset will flow to the entity and the cost of the asset can

be measured reliably. Otherwise, the cost is recognized as an expense in the income statement in the year in which

it was incurred.

Intangible assets are amortized on a straight-line basis over their useful lives. Intangible assets with indefinite useful

lives are not amortized, but periodically tested for impairment by comparing their recoverable amount with their

carrying amount.

At each reporting date, if there is evidence of impairment, the recoverable amount of the asset is estimated. If the

recoverable amount of the asset is less than its carrying amount, the carrying amount of the asset is reduced to its

recoverable amount.

An intangible asset is derecognized on disposal or when no future economic benefits are expected from it.

Other assets

Other assets include expenditure on the renovation of leasehold property.

Expenditure on the renovation of leasehold property is capitalized since during the lease term the lessee controls the

assets and obtains future economic benefits from them.

Expenditure on the renovation of leasehold property is amortized over a period which does not exceed the lease term.

Insurance contracts

The insurance contracts under IFRS 4 are those contracts that transfer significant insurance risk. Such contracts

may also transfer financial risk.

Insurance risk is significant if, and only if, there is a reasonable possibility that the occurrence of the insured event

will cause a significant change in the present value of net cash flows of the insurer. For the Mediolanum Group this

limit is set at 5%.

Debt and securities issued/Other financial liabilities

Other financial liabilities include the various forms of funding from banks and customers as well as bonds issued net

of any buybacks.

These financial liabilities are initially recognized when amounts are received or bonds are issued.

They are initially measured at fair value, i.e. generally the amount received or the issue price, plus any additional

costs/income directly attributable to the individual funding transaction or bond issue and not reimbursed by the

creditor. Internal administrative expenses are not added.

The fair value of any financial liabilities issued below market value is subject to assessment and the difference over

market value is directly recognized in the income statement.

After initial recognition, financial liabilities are measured at amortized cost using the effective interest method.

Except for short-term liabilities for which the time value of money is immaterial that are measured on the basis of the

contractual cash flows and related costs are recognized in the income statement over the contractual term of the liability.

67


Financial liabilities are derecognized when they have expired or extinguished. Notes are derecognized also when they

are bought back. The difference between the carrying amount of the liability and the amount paid to buy it back is


Financial liabilities held for trading

Financial liabilities held for trading include:

• trading derivatives with negative fair value;

• short positions on securities trading.

These financial liabilities are initially recognized at the time amounts are received or the financial instruments un-

derlying the transaction are settled.



After initial recognition, financial liabilities are measured at fair value.

Financial liabilities are derecognized when they have expired or extinguished.

Financial liabilities measured at fair value

Recording includes financial liabilities designated at fair value through the income statement, on the basis of the

power granted to companies (so-called “fair value option”) of IAS 39. The Group has taken advantage of the oppor-

tunity to designate at fair value financial products that do not present a significant insurance risk and that are not

included under separate management and therefore do not involve elements of discretionary investment.

Said liabilities are recorded at the date of issue in an amount equal to their fair value. They are measured at fair

value and the result is recognized in the income statement.

Assets/Liabilities associated with disposal groups held for sale

This account relates to non-current assets/liabilities and disposal groups held for sale. They are measured at the

lower of their carrying amount and fair value less cost to sell.

Related income and expenses (after taxes) are separately recognized in the income statement.

Employee completion-of-service entitlements

Completion-of-service entitlements are recognized at the present value of the benefit obligations calculated using

actuarial techniques in accordance with the rules governing “defined benefit plans”. Future disbursements are

estimated on the basis of past data (such as employee turnover and retirement) and demographic patterns, includ-

ing assumptions for pay hikes pursuant to section 2120 of the Italian Civil Code (application of a fixed rate of 1.5

percent and a rate equal to 75 percent of ISTAT inflation rate where applicable). To determine the present value

of benefit obligations the Projected Unit Credit Method is used. The rate used for discounting is determined on the

basis of market rates of high-quality bonds, in line with the estimated residual timing of commitments.

68


2015

Such values involve the recognition in the income statement of expenses related to work performance and net finan-

cial expense and the inclusion of actuarial gains and losses arising from the remeasurement of liabilities in Other

comprehensive income/(loss).

Entitlements accrued from January 1, 2007 allocated to either INPS or private pension plans are defined contribu-

tion payment obligations, since the company’s obligation is limited to the amount it agrees to contribute to the fund.

The defined contribution obligations for each period are the amounts to be contributed for that period.

Provisions for risks and charges

Provisions for risks and charges relate to amounts set aside for present obligations resulting from a past event for

which it is probable that an outflow of resources embodying economic benefits will be required to settle the obliga-

tion, provided that a reliable estimate can be made of the obligation.

When the effect of the time value of money is material, the amount of the provision is discounted at current market

rates consistent with the risk of the liabilities. Provisions for risk and charges are recognized in the income statement.

Employee pension plan

For the defined contribution pension plan under which the company’s obligation is limited to the amount it agrees

to contribute to the fund, the amount of the contribution payable for the year is recognized in the income statement.

Life Technical Reserves

Technical reserves represent the reserves for liabilities under insurance contracts and investment contracts with

Discretionary Participation Features (DPF).

Life technical reserves include the mathematical reserve, calculated on each individual contract according to the

payment commitments undertaken and on the basis of the actuarial assumptions adopted for the computation of

related premiums; this reserve includes all revaluations applied in accordance with contract terms, as well as provi-

sions for rate, demographic risk and is not lower than the surrender values.

Technical reserves also include amounts set aside for the portion of premiums and the portion of contract-related

expenses, e.g. handling costs and additional health premiums that relate to future periods.

At each reporting date, an assessment is made of the adequacy of insurance contract reserves (liability adequacy

test) using current estimates of future cash-flows under insurance contracts. If the assessment reveals that the car-

rying amount of reserves is inadequate in the light of the estimated future cash flows, the Group increases reserves

and recognizes the difference in the income statement.

Technical reserves for contracts with DPF represent the reserves for liabilities arising on unrealized gains on assets

under segregated fund management contracts.

In the case of net gains related to hedging assets of DPF contracts, the Group allocates a so-called reserve of Shad-

ow Accounting on the basis of the average rates of relegation of returns on segregated funds.

This reserve is recognized in equity when the unrealized gains or losses are recognized in equity, otherwise it is rec-

ognized in the income statement.

69


Damages Technical Reserves

Premium reserves

The premium reserve for direct insurance is determined analytically for each policy according to the pro-rata basis

method, based on gross premiums written, net of acquisition commissions and other acquisition costs, limited to

direct costs.

The possible need for an allocation of the reserve relating to unexpired risks is assessed, as allowed by arts. 9 to 11

ISVAP Regulation no.16 of March 4, 2008 on the basis of the ratio of claims/premiums.

The premium reserve to reinsurers, as determined in accordance with the underlying treaties, is calculated according

to the same criteria used in determining the reserves on direct “quota” treaty, while the flat-rate system was used

for the portfolio.

Other technical reserves

The ageing reserve was calculated in accordance with the criteria set out in the ISVAP Regulations no. 16 of

March 4, 2008.

Accident reserves

The work injuries reserve was determined in accordance with ISVAP Regulation no. 16 of March 4, 2008 analyti-

cally through an examination of all claims outstanding at the balance sheet date and carried out with reference to

what will be, according to the best estimate of future costs currently anticipated, the cost that the Company may

be required to compensate (so-called “ultimate cost”). The claims reserves are estimated by the directional liqui-

dators according to the “continuous” reserve method; the reserve claim is therefore evaluated each time updated

information is received and however at least once a year. Furthermore, the claims of “run off” management (RCA

and professional RC civil liability) because of the peculiarities and specificity that distinguish them are managed by

a dedicated structure located within the Claims Department. The Management of the Company periodically verifies

the main technical indicators in order to assess the possible need for additions/revisions of the classes of claims.

The reserve includes an estimate for claims occurred but not yet reported at year end which are calculated on the

basis of the experience acquired in previous years, properly assessed to take account of the characteristics of the

classes, as well as the estimate of the cost in the event of particularly relevant claims occurred but reported after

the end of the year.

The reserve is also integrated to consider settlement costs attributable to compensation (direct costs based on the

forfeited estimate of directional and indirect liquidators on the basis of the internal cost structure).

The claims reserve of indirect work is on the basis of communication by originators and revised in the light of ob-

jective facts and statistics available.

The claims reserve as recorded in the accounts is considered, on the basis of objectively known elements, adequate

to fully meet the expected charges for the settlement of claims incurred up to the end of the year. The claims reserve

to reinsurers is determined using criteria similar to those adopted for the reserves of direct and indirect work and in

respect of the underlying treaties.

70


2015

Reserve arising from the verification of the adequacy of damage technical reserves

A test is conducted on the damage technical reserves in accordance with IFRS 4 (Liability Adequacy Test – LAT).

For the control of the adequacy of the premium reserve for each ministerial class the additional reserve is calculated

for Risks in Progress with the simplified method as required by ISVAP Regulation no. 16 art. 11. Since the reserve

claims are measured at ultimate cost, and not discounted, it is possible to deem the future cash flows of payments

(LAT on claims reserve) implicitly verified.

Assets and liabilities denominated in foreign currencies

Assets and liabilities denominated in foreign currencies are initially recognized in the functional currency, applying

to the foreign currency amount the exchange rate in effect at the date of the transaction.

At each interim or annual reporting date, assets and liabilities denominated in foreign currencies are measured as

follows:

• monetary items are translated using the closing rate;

• non-monetary items measured at historical cost are translated applying the exchange rate in effect at the date

of the transaction;

• non-monetary items measured at fair value are translated applying the exchange rate in effect at the reporting

date.

Exchange differences arising on the settlement of monetary items or on translating monetary items at rates different

from those at which they were translated on initial recognition during the period or in previous financial statements

are recognized in the income statement in the period in which they arise.

When a gain or loss on a non-monetary item is recognized directly in equity, the exchange difference component of

that gain or loss is also recognized in equity. Conversely, when a gain or loss on a non-monetary item is recognized

in the income statement, the exchange difference component of that gain or loss is also recognized in the income

statement.

Tax assets and liabilities

The Italian companies that are part of the Mediolanum Group adhere to the so-called “tax consolidation regime”

regulated by articles 117-129 of the Consolidated Income Tax Act introduced into Italy’s tax legislation by Legis-

lative Decree 344/2003. Under said regime the taxable profits or tax losses, including any withholding taxes, tax

deductions and tax credits, of all participating Group companies are consolidated into the Parent Company. The

Parent Company, as reporting entity, calculates the consolidated taxable profit by adding the taxable profits/losses

of all participating Group companies to its own taxable profit/tax loss.

The Mediolanum Group companies that elected to apply the “tax consolidation regime” calculated their tax base and

transferred the resulting taxable income to the Parent Company. In case of tax losses of one or more Group compa-

nies against which consolidated taxable profit for the current year is available or against which there is a high prob-

ability that future taxable profits will be available, those tax losses are also consolidated into the Parent Company.

The Group recognizes current and deferred taxes applying the tax rates in effect in the countries where consolidated

subsidiaries are incorporated.

71


Income taxes are recognized in the income statement except for items which are credited/charged directly to equity.

Provisions for income taxes are calculated on the basis of conservative estimates of the current and deferred tax

expense. Deferred taxes are computed in respect of the temporary differences, with no time limit, arising between the

tax bases of assets and liabilities and their carrying amounts in the financial statements.

Deferred tax assets are recorded to the extent that there is reasonable certainty they will be recovered, i.e. to the

extent that the Company – or the Parent Company under Italy’s tax consolidation regime – is expected to continue

to generate sufficient taxable income against which temporary differences can be utilized.

Deferred tax assets and deferred tax liabilities are not netted, and are separately recognized in the statement of

financial position under “Tax assets” and “Tax liabilities” respectively.

Deferred taxes are accounted for using the liability method on temporary differences between the tax base of an

asset or liability and its carrying amount in the statement of financial position. A deferred tax liability is recognized

for all taxable temporary differences.

A deferred tax asset is recognized for all deductible temporary differences, and the carry-forward of unused tax

losses and unused tax credits, to the extent that it is probable that taxable profit will be available against which the

deductible temporary difference and the carry-forward of unused tax losses and unused tax credits can be utilized,

unless:

• the deferred tax asset arises from the initial recognition of an asset or liability in a transaction that is not a

business combination and, at the time of the transaction, affects neither accounting profit nor taxable profit

(tax loss);

• a deferred tax asset is also recognized for all deductible temporary differences associated with investments in

subsidiaries, associates and joint ventures, only to the extent that it is probable that the temporary difference

will reverse in the foreseeable future and taxable profit will be available against which the temporary difference

can be utilized.

Deferred tax assets and deferred tax liabilities are systematically re-measured to reflect any changes either in tax

rules or tax rates as well as any possible changes in the company’s tax position.

Income statement

Revenue is recognized when received or when it is probable that future economic benefits will flow to the entity and

the amount of those benefits can be measured reliably.

In particular:

• commissions are measured on an accrual basis;

• interest income and interest expense are recognized on an accrual basis applying the effective interest method;

• dividends are recognized in the income statement when their distribution to shareholders is established;

• any default interests, in accordance with the terms of the relevant agreement, are recognized in the income

statement only when actually received.

72


2015

OTHER INFORMATION

Use of estimates

These consolidated financial statements entailed the use of complex valuations and estimates which had an impact

on assets, liabilities, revenues and costs recognized as well as on the identification and quantification of potential

assets and liabilities. These estimates primarily related to:

• estimates and assumptions used to determine the fair value of financial instruments that are not quoted in an

active market (fair value hierarchy levels 2 and 3);

• identification of loss events as per IAS 39 – IAS 36;

• assumptions used for the identification of any objective evidence of impairment of intangible assets and equity

investments recognized in the statement of financial position;

• determination of impairment losses on loans and other financial assets;

• estimates to determine technical reserves;

• determination of provisions for risks, including the estimate of the discounting rate and other key parameters

(network turnover rate);

• estimates and assumptions for the determination of the probability of utilization of deferred tax assets;

• assumptions used to determine the costs of stock options plans for top management and employees.

Senior management regularly check valuations and estimates made on the basis of past experience and other reason-

able factors. Due to the uncertainty typically related to these financial items, actual values may differ from estimates

due to the occurrence of unexpected events or changes in operating conditions.

Impairment

When upon assessment at the reporting date there is any indication that an asset may be impaired, the tangible or

intangible assets with the exception of any goodwill are tested for impairment in accordance with IAS 36.

An asset is impaired when its carrying amount exceeds its recoverable amount, which is the higher of its fair value

less cost to sell (the amount obtainable from the sale of the asset in an arm’s length transaction between knowl-

edgeable, willing parties) and its value in use (i.e. the present value of the future cash flows expected to be derived

from the permanent use of the assets and its disposal at the end of its useful life).

If an asset is impaired, the relevant impairment loss is recognized in profit or loss and the depreciation (amorti-

zation) charge for the asset shall be adjusted accordingly in future periods.

If, in a subsequent period, there is any indication that the impairment loss recognized in prior periods no longer

exists, the previously recognized impairment loss is reversed.

If there is objective evidence that a financial asset is impaired, the Group applies the provisions of IAS 39, except

for financial assets carried at fair value through profit or loss.

Indications of possible impairment include events such as significant financial difficulties of the issuer, default

or delinquency in interest or principal payments, the possibility that the borrower will enter bankruptcy or other

financial reorganization and the disappearance of an active market for that financial asset.

A significant or prolonged decline in the market value of an investment in an equity instrument or holdings in

UCITS below its cost is also objective evidence of impairment.

73


Specifically, for capital instruments, there is evidence of impairment where the decline in the original fair value

exceeds one-third or is prolonged for over 36 months.

If there is objective evidence of impairment, the amount of the impairment loss is measured:

• As the difference between the asset’s carrying amount and the present value of estimated future cash flows dis-

counted at the financial asset’s effective interest rate computed at initial recognition, for financial assets carried

at amortized cost;

• As the difference between cost (for equity investments) or amortized cost (for debt instruments) and current

market value, for available for sale financial assets.

If, in a subsequent period, the reasons for the impairment loss no longer exist, the impairment loss is reversed and

the reversal recognized in the income statement if the asset is a debt instrument, and in equity if the asset is an

equity investment.

Goodwill is tested for impairment annually (or any time there is evidence of impairment). To that end goodwill is

allocated to the cash-generating unit (CGU). If the recoverable amount of the unit is less than its carrying amount,

an impairment loss is recognized. The recoverable amount of a cash-generating unit is the higher of the cash-gen-

erating unit’s fair value less cost to sell and its value in use. The impairment loss on goodwill is recognized in the

income statement and cannot be reversed in subsequent periods.

Share-based payments

IFRS 2 is the accounting standard governing share-based payments.

Stock option plans currently in force are considered “equity settled” share-based payments; consequently the Stock

options granted, and the corresponding increase in equity, are measured by reference to the fair value of the stock

option at grant date, and accounted for during the vesting period.

The fair value of the stock option is determined using a valuation technique that takes into account the specific terms

and conditions of the stock option plan in place, in addition to information such as the exercise price and the life of

the option, the current price of underlying shares, the expected volatility of the share price, dividends expected on

the shares and the risk-free interest rate for the life of the option. The pricing model separately measures the stock

option and the probability that the market conditions upon which vesting is conditioned be satisfied. The combination

of the two values is the fair value of the stock option.

The cumulative expense recognized at each annual reporting date up until the vesting date takes account of the

vesting period and is based on the best available estimate of options that are going to be exercised upon vesting. The

reversal recognized in the income statement for each year represents the change in the cumulative expense over the

amount recognized in the prior year. No expense is recognized for options that do not vest.

Incentive systems are also provided for key personnel based on share-based payments of the Group in compliance

with the rules on the remuneration of said personnel. Currently, said obligations are accounted for as “cash settled”

share-based payment, as the physical delivery of the financial instruments (so-called “performance shares”) is sub-

ject to the necessary General Meeting resolution.

74


2015

A.3 – DISCLOSURE ON TRANSFERS BETWEEN PORTFOLIOS OF FINANCIAL ASSETS

A.3.1 Reclassified financial assets: book value, fair value and impact on profit or loss

E/tReclassified

from (2)Reclassified

to (3)Book

Value (4)Fair Value

(5)

Income components in the absence of the transfer (before tax)

Income components recorded in the year

(before tax)

Valuation (6)

Other(7)

Valuation (8)

Other(9)

A. Debt securities 5,425 5,331 1 5 - 5

HFT Loans to customers 5,425 5,331 1 5 - 5

The reclassification of assets outlined in the table above relates exclusively to portfolio transfers made in 2008 which

were, in part, sold in the following years. In the year under review, there was no reclassification of assets.

A.4 – FAIR VALUE DISCLOSURES

Fair Value disclosures

This section includes the fair value disclosure as required by IFRS 13. The fair value is defined as the amount that

could be received to sell an asset or paid to transfer a liability in an orderly transaction between counterparties, on

the relevant market at the measurement date. A financial instrument is considered listed on an active market if quot-

ed prices are promptly and regularly available on the regulated market (intended as a platform for trading, dealers

or brokers) and such prices are the actual market transactions on a regular basis. If such market prices or other

observable inputs are not available, alternative valuation models are used (Mark to Model). The Group uses valuation

methods in line with methods that are generally accepted and used by the market. Valuation models include techniques

based on discounted future cash flow (and on volatility estimates) and are reviewed regularly in order to ensure full

keeping with the valuation objectives.

Fair value hierarchy

The IFRS13 standard establishes a fair value hierarchy according to the degree of observability of the inputs and

parameters used for the assessments. In particular, there are three levels:

• Level 1: the fair value of instruments classified in this level is determined on the basis of price quotes observed

in active markets;

• Level 2: the fair value of instruments classified in this level is determined based on valuation models that use

mainly inputs observable in active markets;

• Level 3: the fair value of instruments classified in this level is determined based on valuation models that pri-

marily use significant unobservable inputs in active markets.

The Group adopts a policy for the recognition of the fair value level of individual positions. The policy establishes the

rules for both the definition of “active market” and the resulting operating procedure of portfolio valuation in order

to eliminate any discretion in the identification of the levels.

Securities that do not belong to the previous categories are considered part of an inactive market.

This definition exclude securities to hedge third-class policies for which there is a repurchase agreement with the

issuer.

75


The Risk Management function of Banca Mediolanum, as part of the coordination for all Group companies, provides

methodological and/or operating support to the corresponding risk structures of the conglomerate companies also

with regard to the definition of active market.

The Mediolanum Group considers listed in an active market:

• Securities traded on Italian regulated markets (ex. MTS, MOT).

• Securities traded on organized trading systems authorized or recognized by Consob (so-called MTF), for which

the price significance was determined through the following procedure.

• Securities for which there is an executable listing that meets the criteria defined below:

– Completeness of the historical series of reference;

– Tolerance thresholds between Money and Letter price differentiated according to the financial instrument;

– Significant variability of the daily price in the reference month;

– Maximum limit of monthly price deviation;

– Maximum limit of the price deviation relative to a benchmark price.

Securities that meet the aforementioned criteria are classified as listed in an active market and the “fair value” is

determined based on the type of financial instrument:

• for equity securities listed on Italian and Foreign Stock Exchanges, the closing price on the last trading day of

the reference month;

• for bond securities, the Money price will be considered (for long positions) and the Letter price (for short posi-

tions) from executable source.

For financial instruments not within the active market, valuation of the same is through the assignment process of

fair value level 2 or level 3 as outlined below.

Description of migration between the valuation levels of assets

The Company adopts a policy, defined at the level of Mediolanum Group, for the recognition of the fair value level

of individual positions. The policy sets out the rules that each Company shall follow for both the definition of active

market and for the resulting operating procedure of portfolio enhancement with the aim to eliminate any discretion

in the identification of the levels.

It should be noted that in the year, in the portfolio of Mediolanum Vita S.p.A. there was a level transition of a security

related to a subordinated bank bond from level 1 to level 2. As at December 31, 2015, the security still does not

meet any of the requirements and criteria of the policy on the levels of fair value and therefore has determined the

level passage as indicated above. Verification of the trading volume was not comparable to that held by the Company

in the portfolio. Therefore, in order to compensate for the lack of other executable market contributors with which

to benchmark, we proceeded with the calculation of the mark-to-model price that, unlike previous valuations of the

same security, stood at a level not compliant with the price of the individual contributor taken as a reference. For

prudential purposes, it was thus deemed appropriate to assign to such security the price calculated by the model with

subsequent assignment of level 2 of fair value.

Description of the process used to measure the fair value of classified instruments as level 2 and 3 of the fair value hierarchy

The level 2 instruments of the Mediolanum Group are represented by bonds issued by third parties and by Hedge

Fund of Funds (HFoF) units as well as certain derivative instruments. The securities belonging to this category are

valued on the basis of market data inputs, either directly or indirectly observable. The fair value of the bonds is

76


2015

calculated as the sum of the current values at the end of the year of the related cash flows. The discounting rate is

calculated as the sum of two components:

• the risk-free rate;

• the credit spread.

The risk-free rate is deducted from the implicit value in IRS contracts (interest rate swap), while the credit spread is

deducted from the price of bonds of the same issuer, with fixed coupon and a maturity comparable with the security

valued. If there are no securities of the same issuer, and for own bonds, a credit spread is used derived from a weight-

ed average of the observed values for bonds listed on institutional markets of major Italian banks.

If the forecast cash flows are not determined but are dependent on market variables, they are identified on the basis

of:

• implicit forward rates in the values of the risk-free rate for different maturities;

• implicit volatility in the swaption, cap and floor option prices.

Expected cash flows on the basis of implied volatility are determined (where relevant) using the Black model.

The value of the positions in HFoF is instead determined on the basis of the latest available amount.

The fair value of level 2 derivative financial instruments (represented by Amortizing Interest Rate Swap) is deter-

mined by taking into account their level of collateralization: in particular, the value of the contracts is calculated by

discounting the cash flows arising from them at rates derived from the implicit values in OIS contracts (Overnight

Interest Swap) and the relevant Basis Swap contracts.

Level 3 assets of the Group mainly consist of assets covering liabilities related to Index Linked policies, holdings

in UCITS and positions in unlisted shares. Level 3 of the fair value of assets and liabilities that are not measured

at fair value on a recurring basis include receivables and payables with customers and banks, as well as properties.

Hedging assets of Index Linked policies pertaining to the life insurance companies are represented by bonds and

derivative contracts traded outside regulated markets, and characterized by low liquidity and complex financial

structures. Therefore, for their valuation, complex stochastic models are used.

In particular:

• for the components of the contracts related to the interest rate a short-rate model is used that obtains the future

value of interest rates through the evolution of a parameter that represents the instantaneous rate (i.e. the limit

of the risk-free rate recognized for an investment of infinitesimal duration). The model used (Pelsser model)

ensures the positivity of the interest rate, and is calibrated based on the level of implicit interest rates in the

swap curve for the reference currency and the values of the implicit volatilities for swap options characterized

by greater liquidity (at-the-money swaptions);

• for the components of the contracts related to credit risk an intensity model is used or a model that is based

on a probability of failure of the other party determined at the initial time of the simulation. The model used

(non-homogeneous Poisson model) is calibrated on the basis of CDS spreads observed on the market for the

reference issuer;

• for the components of contracts linked to the value of indexes, a model based on Geometric Brownian motion

is used. The model used (multivariate geometric brownian motion) simulates the future value of the indices

taking into account the level of risk-free interest rates, index volatility, the value of expected dividends, and the

correlation between their returns. The model is calibrated on the observed value of the indices and the historical

volatility and correlations (on an observation period of years).

The logic underlying property assessments aims to determine a fair value through a mark-to-model, which is a

theoretical value derived from assumptions that can descend on distinct asset classes regardless of counterparty or

property specifications (intrinsic peculiarities, sector, geographical location and so on).

77


The starting point for the determination of the fair value of property (included in property funds) is the lease fee

(contractually fixed) that the lessee of the property agrees to pay the lessor for an agreed number of years. These

fees are discounted and capitalized using:

• initial value of the fee paid;

• discount rate of the fee paid;

• capitalization rate of net profit, after an initial start-up of operations.

The first rate is obtained through a linear combination of a market indicator, a spread for the risk of illiquidity, a

spread for the risk associated with the property investment and a spread for the industry/urban planning risk (re-

corded in the discount rates following an asset-dependent logic). The marginal effect of each of the 4 components

will therefore reflect the market sensitivity of the evaluator, as well as related predictions and expectations. The

capitalization rate (Exit rate), by contrast, is the factor that allows converting an indication of future income into an

indication of present value. It is also determined through a linear combination: the inputs are taken from the finan-

cial market and the market of reference of the property, in particular the Risk Out rate is derived from the assessor

observing the transactions identified in the relevant market.

In accordance with the provisions of existing law, the assets in the property funds are valued by independent experts

every six months. The evaluations, assumptions and inputs used by the independent experts are then subject to vali-

dation by the risk management of the Company. The price of the shares, in consideration of their low incidence in the

portfolios of competence, is assumed to be equal to historical cost.

The fair value of property owned directly by the Group was determined with reference, in general, to the “compar-

ative” method.

For receivables and payables to banks and customers with short-term maturities, the fair value is assumed to be

equal to the book value, as it is considered a good approximation. For medium/long-term performing loan expo-

sures, mainly represented by loans for mortgage contracts to customers, the fair value measurement considered the

discounting of contractual flows. For non-performing exposures, a fair value corresponding to the book value was

assumed.

The assumptions at the basis of the determination of fair value, specific of the model and not observable in the mar-

ket, determined the level 3 classification.

The shares included in available for sale financial assets measured at level 3 of the fair value include the indirect

investee VISA Europe Limited. The investee value was acquired by VISA Inc., which will materialize in 2016 and

involve the recognition of 3 price components, a part adjusted in cash, a part in “preferred” capital instruments,

the value of which is subject to certain valuation clauses, the last part related to “earn-out” options. In determining

the fair value, the Mediolanum Group considered the value in cash, the value of “preferred” instruments to which a

liquidity discount was applied, based on the valuation clauses and decided to value the zero earn-out clause because

of the uncertainty related to said component.

For financial assets and liabilities with short-term maturities, the fair value is assumed to be equal to the book value,

as it is considered a good approximation. For medium/long-term performing loan exposures, mainly represented by

loans for mortgage contracts to customers, the fair value measurement considered the discounting of contractual

flows. For non-performing exposures, a fair value corresponding to the book value was assumed.



78


2015

QUANTITATIVE INFORMATION

A.4.5 Fair value hierarchy

A.4.5.1 Assets and liabilities measured at fair value on a recurring basis:breakdown by fair value levels

E/t

Dec. 31, 2015 Dec. 31, 2014

L1 L2 L3 L1 L2 L3

1. Financial assets held for trading 1,175,642 25,068 1,100 804,532 34,610 7,743

2. Financial assets measured at fair value 15,082,502 555,655 225,707 13,006,039 917,354 443,908

3. Available for sale financial assets 14,774,352 65,142 131,992 15,304,032 94,260 118,548

4. Hedge derivatives - 892 - - 1,287 -

Total 31,032,496 646,757 358,799 29,114,603 1,047,510 570,199

1. Financial liabilities held for trading 216,974 61,886 156 331,201 39,058 437

2. Financial liabilities measured at fair value 3,473,139 4,124 1,664 1,586,295 8,598 2,358

3. Hedge derivatives - 64,512 - - 100,218 -

Total 3,690,113 130,522 1,820 1,917,496 147,874 2,795

Legend:L1 = Level 1L2 = Level 2L3 = Level 3

A.4.5.2 Annual changes in financial assets measured at fair value on a recurring basis (level 3)

E/t

Financial assets held for

trading

Financial as-sets measured

at fair value

Available for sale financial

assets Hedge

derivativesTangible

assetsIntangible

assets

1. Opening balance 7,743 443,908 118,548 - - -

2. Increases 39,634 82,662 21,532 - - -

2.1. Acquisitions 994 68,116 8,498 - - -

2.2. Profits recognized:

2.2.1. Income statement 257 14,546 - - - -

- Gains 8 2,019 - - - -

2.2.2. Shareholders’ equity X X 12,509 - - -

2.3. Transferred from other levels - - - - - -

2.4. Other increases 38,383 - 525 - - -

3. Decreases 46,277 300,863 8,088 - - -

3.1. Sales 44,428 - 3,132 - - -

3.2. Reimbursements 1,680 5,070 - - - -

3.3. Losses recognized:

3.3.1. Income statement 169 22,812 4,137 - - -

- of which: losses 29 1,987 896 - - -

3.3.2. Shareholders’ equity X X 800 - - -

3.4. Transferred to other levels - - - - - -

3.5. Other decreases - 272,981 19 - - -

4. Closing balance 1,100 225,707 131,992 - - -

The main change of level 3 securities is related to selling right of the index linked policies for redemption hedging

securities.

79


A.4.5.3 Year’s changes in financial liabilities measured at fair value (level 3)

Financial liabilities

E/t Held for tradingMeasured

at fair valueHedge

derivatives

1. Opening balance 437 2,358 -

2. Increases 1,351 - -

2.1. Issues - - -


2.2.1. Income statement - - -

- of which losses - - -

2.2.2. Shareholders’ equity X X -

2.3. Transferred from other levels - - -

2.4. Other increases 1,351 - -

3. Decreases 1,632 694 -

3.1. Reimbursements - - -

3.2. Buybacks - - -


3.3.1. Income statement - - -

- of which gains - - -

3.3.2. Shareholders’ equity X X -

3.4. Transferred to other levels - - -

3.5. Other decreases 1,632 694 -

4. Final balance 156 1,664 -

A.4.5.4 Assets and liabilities not measured at fair value or measured at fair valueon a non-recurring basis: breakdown by fair value levels

E/t

Dec. 31, 2015 Dec. 31, 2014

FV FV

BV L1 L2 L3 BV L1 L2 L3

1. Held to maturity financial assets 2,567,080 2,675,855 - - 2,512,081 2,639,055 - -

2. Loans to banks 715,416 5,139 16,200 700,589 811,050 5,110 19,044 787,152

3. Loans to customers 7,478,108 63,180 248,360 8,220,642 6,779,007 114,657 342,233 6,347,293

4. Tangible assets held for investment purposes 102,677 - - 117,200 104,152 - - 118,200

5. Non-current assets and disposal groups 554 - - 554 567 - - 567

Total 10,863,835 2,744,174 264,560 9,038,985 10,206,857 2,758,822 361,277 7,253,212

1. Amounts due to banks 815,364 - - 815,487 7,615,391 - - 7,642,888

2. Payables due to customers 22,217,699 - - 22,220,275 14,231,750 - - 14,870,764

3. Securities issued 223,505 - 233,261 - 341,741 - 353,529 -

Total 23,256,568 - 233,261 23,035,762 22,188,882 - 353,529 22,513,652

Legend:BV = Book ValueL1 = Level 1L2 = Level 2L3 = Level 3

80


2015

PART B – INFORMATION ON THE CONSOLIDATED STATEMENT OF FINANCIAL POSITION

ASSETS

Section 1 – Cash and cash equivalents – Caption 10

1.1 Analysis of cash and cash equivalents

E/t Dec. 31, 2015 Dec. 31, 2014

a) Cash 76,614 63,308

b) Demand deposits at Central Banks 7,465 2,438

Total 84,079 65,746

Section 2 – Financial assets held for trading – Caption 20

2.1 Analysis of financial assets held for trading

E/t

Dec. 31, 2015 Dec. 31, 2014

L1 L2 L3 L1 L2 L3

A. Non-derivatives

1. Debt securities 1,175,638 20,219 867 804,502 26,791 5,426

1.1 Structured notes 1,995 213 867 - 5,293 5,426

1.2 Other debt securities 1,173,643 20,006 - 804,502 21,498 -

2. Capital securities - - - - - -

3. Holdings in UCITS - - - - - -

4. Loans - - - - - -

4.1 Repurchase agreements - - - - - -

4.2 Others - - - - - -

Total A 1,175,638 20,219 867 804,502 26,791 5,426

B. Derivatives

1. Financial derivatives: 4 4,849 233 30 7,819 2,317

1.1 Held for trading 4 4,719 107 30 7,161 2,186

1.2 Associated with fair value option - 130 126 - 658 131

1.3 Others - - - - - -

2. Credit derivatives: - - - - - -

2.1 Held for trading - - - - - -

2.2 Associated with fair value option - - - - - -

2.3 Others - - - - - -

Total B 4 4,849 233 30 7,819 2,317

Total (A+B) 1,175,642 25,068 1,100 804,532 34,610 7,743

81


2.2 Analysis of Financial assets held for trading by debtor/issuer

E/t Dec. 31, 2015 Dec. 31, 2014

A. Non-derivatives 1. Debt securities 1,196,724 836,719

a) Governments and Central Banks 766,344 654,020

b) Other government agencies - -

c) Banks 416,890 169,207

d) Other issuers 13,490 13,492

2. Equity investments - -

a) Banks - -

b) Other issuers: - -

- insurance companies - -

- financial companies - -

- non-financial companies - -

- others - -

3. Holdings in UCITS - -

4. Loans - -

a) Governments and Central Banks - -


c) Banks - -

d) Other subjects - -

Total A 1,196,724 836,719

B. Derivatives -

a) Banks 4,532 4,002

- Fair value 4,532 4,002

b) Customers 554 6,164

- Fair value 554 6,164

Total B 5,086 10,166

Total (A + B) 1,201,810 846,885

82


2015

Section 3 – Financial assets measured at fair value – Caption 30

3.1. Analysis of financial assets measured at fair value:

E/t

Dec. 31, 2015 Dec. 31, 2014

L1 L2 L3 L1 L2 L3

1. Debt securities 96,797 481,642 225,707 255,030 822,695 443,908

1.1 Structured notes 92,621 352,127 218,325 214,620 628,660 431,367

1.2 Other debt securities 4,176 129,515 7,382 40,410 194,035 12,541

2. Equity investments - - - - - -

3. Holdings in UCITS 14,985,705 74,013 - 12,751,009 94,659 -

4. Loans - - - - - -

4.1 Structured - - - - - -

4.2 Others - - - - - -

Total 15,082,502 555,655 225,707 13,006,039 917,354 443,908

Cost - - - - - -

3.2 Analysis of financial assets measured at fair value by debtor/issuer

E/t Dec. 31, 2015 Dec. 31, 2014

1. Debt securities 804,146 1,521,633



c) Banks 715,327 1,385,493

d) Other issuers 19,572 -


a) Banks - -





- others - -

3. Holdings in UCITS 15,059,718 12,845,668

4. Loans - -



c) Banks - -


Total 15,863,864 14,367,301

83


Section 4 – Available for sale financial assets – Caption 40

4.1 Analysis of available for sale financial assets

E/t

Dec. 31, 2015 Dec. 31, 2014

L1 L2 L3 L1 L2 L3

1. Debt securities 14,742,342 16,141 6,334 15,276,991 21,485 342

1.1 Structured notes - - - - - -

1.2 Other debt securities 14,742,342 16,141 6,334 15,276,991 21,485 342

2. Equity investments 4,792 - 49,884 4,813 - 41,350

2.1 Measured at fair value 4,792 - 9,236 4,813 - 1,789

2.2 Measured at cost - - 40,648 - - 39,561

3. Holdings in UCITS 27,218 49,001 75,774 22,228 72,775 76,856

4. Loans - - - - - -

Total 14,774,352 65,142 131,992 15,304,032 94,260 118,548

Equity instruments measured at fair value include the VIS Europe shares subject of the aforementioned transaction

with VISA INC.

4.2 Available for sale financial assets: breakdown by debtors/issuers

E/t Dec. 31, 2015 Dec. 31, 2014

1. Debt securities 14,764,817 15,298,818

a) Governments and Central Banks 14,417,453 14,956,997

b) Other government agencies 8,037 -

c) Banks 254,268 273,426



a) Banks - -

b) Other issuers: 54,676 46,163

- insurance companies 4,683 4,718

- financial companies 13,231 5,509

- non-financial companies 36,085 23,963

- others 677 11,973

3. Holdings in UCITS 151,993 171,859

4. Loans - -



c) Banks - -


Total 14,971,486 15,516,840

84


2015

Section 5 – Held to maturity financial assets – Caption 50

5.1 Analysis of held to maturity financial assets

E/t

Dec. 31, 2015 Dec. 31, 2014

BVFV

BVFV

Level 1 Level 2 Level 3 Level 1 Level 2 Level 3

1. Debt securities 2,567,080 2,675,855 - - 2,512,081 2,639,055 - -

- structured - - - - - - - -

- others 2,567,080 2,675,855 - - 2,512,081 2,639,055 - -

2. Loans - - - - - - - -

Total 2,567,080 2,675,855 - - 2,512,081 2,639,055 - -

Legend: FV = fair valueBV = book value

During the year, securities matured for a total of approximately Euro 372 million. Purchases were also made for

approximately Euro 412 million.

5.2 Analysis of held to maturity financial assets by debtor/issuer

E/t Dec. 31, 2015 Dec. 31, 2014

1. Debt securities 2,567,080 2,512,081



c) Banks 87,018 85,301

d) Other issuers - -

2. Loans - -



c) Banks - -


Total 2,567,080 2,512,081

Total fair value 2,675,855 2,639,055

85


Section 6 – Loans to banks – Caption 60

6.1 Analysis of loans to banks

E/t

Dec. 31, 2015 Dec. 31, 2014

BVFV

BVFV


A. Loans to Central Banks 124,044 838 - 123,206 220,158 - - 220,158

1. Time deposits - X X X 20,381 X X X

2. Reserve requirements 124,044 X X X 199,777 X X X

3. Repurchase agreements - X X X - X X X

4. Others - X X X - X X X

B. Loans to banks 591,372 4,301 16,200 577,383 590,892 5,110 19,044 566,994

1. Loans 571,090 - - 577,359 566,985 - - 566,994

1.1 Current accounts and demand deposits

158,750 X X X 201,561 X X X

1.2 Time deposits 180,337 X X X 60,853 X X X

1.3 Others Loans: 232,003 X X X 304,571 X X X

- Repurchase agreements 171,735 X X X 278,559 X X X

- Finance leases - X X X - X X X

- Others 60,268 X X X 26,012 X X X

2. Debt securities 20,282 4,301 16,200 24 23,907 5,110 19,044 9

2.1 Structured notes - X X X - X X X

2.2 Others Debt securities 20,282 X X X 23,907 X X X

Total 715,416 5,139 16,200 700,589 811,050 5,110 19,044 787,152

Legend: FV = fair valueBV = book value

86


2015

Section 7 – Loans to customers – Caption 70

7.1 Analysis of loans to customers by type

E/t

Dec. 31, 2015 Dec. 31, 2014

Book value Fair value Book value Fair value

Not impaired

Impaired

L1 L3Not

impaired

Impaired

Purcha-sed Others L2

Purcha-sed Others L1 L2 L3

Loans 7,106,548 - 59,448 - - 8,220,497 6,260,135 - 54,876 - - 6,347,121

1. Current accounts 425,543 - 4,090 X X X 403,884 - 5,427 X X X

2. Repurchase agreements 47,465 - - X X X 181,379 - - X X X

3. Mortgages 4,966,212 - 46,854 X X X 4,381,227 - 40,795 X X X

4. Credit cards, personal loans and 4. salary-guaranteed loans

1,075,586 -

5,129 X X X 822,044

- 4,429

X

X

X

5. Finance leases - - - X X X - - - X X X

6. Factoring - - - X X X - - - X X X

7. Other loans 591,742 - 3,375 X X X 471,601 - 4,225 X X X

Debt securities 312,112 - - 63,180 248,360 145 463,996 - - 114,657 342,233 172

8. Structured notes - - - X X X - - - X X X

9. Other debt securities 312,112 - - X X X 463,996 - - X X X

Total 7,418,660 - 59,448 63,180 248,360 8,220,642 6,724,131 - 54,876 114,657 342,233 6,347,293

As at December 31, 2015, impaired loans amounted to Euro 59,448 thousand, up Euro 4,572 thousand over the

prior year (“non performing” exposures of 2014 identified on the basis of the definition in force at the time).

87


7.2 Analysis of loans to customers by debtor/issuer

E/t

Dec. 31, 2015 Dec. 31, 2014

Not impaired

Impaired

Not impaired

Impaired

Purchased Others Purchased Others

1. Debt securities 312,113 - - 463,996 - -

a) Governments 306,560 - - 356,474 - -

b) Other government agencies - - - 150 - -

c) Other issuers 5,553 - - 107,372 - -

- non-financial companies - - - - - -

- financial companies 5,425 - - 107,372 - -

- insurance companies - - - - - -

- others 128 - - - - -

2. Loans to: 7,106,547 - 59,448 6,260,135 - 54,876

a) Governments 21 - - - - 16

b) Other government agencies 29 - - 166 - -

c) Other subjects 7,106,497 - 59,448 6,259,967 - 54,860

- non-financial companies 214,482 - 7,076 207,720 - 8,426

- financial companies 387,865 - 3,375 446,997 - 4,212

- insurance companies 1,182 - - 718 - -

- others 6,502,968 - 48,997 5,604,534 - 42,222

Total 7,418,660 - 59,448 6,724,131 - 54,876

7.3 Loans to customers: micro-hedging

E/t Dec. 31, 2015 Dec. 31, 2014

1. Fair value micro-hedging loans: 376,855 467,874

a) Interest rate risk 376,855 467,874

b) Currency risk - -

c) Credit risk - -

d) Multiple risks - -

2. Cash flows micro-hedging loans: - -

a) Interest rate risk - -


c) Forecast transactions - -

d) Other hedges - -

Total 376,855 467,874

88


2015

Section 8 – Hedging derivatives – Caption 80

8.1 Analysis of hedging derivatives by type of hedge and fair value hierarchy

E/t

Dec. 31, 2015 Dec. 31, 2014

FV

NV

FV

NVL1 L2 L3 L1 L2 L3

A) Financial derivatives

1) Fair value - 892 - 69,092 - 1,287 - 72,502

2) Cash flows - - - - - - - -

3) Foreign investments - - - - - - - -

B) Credit derivatives

1) Fair value - - - - - - - -

2) Cash flows - - - - - - - -

Total - 892 - 69,092 - 1,287 - 72,502

Legend:FV = fair valueNV = notional value

8.2 Analysis of hedging derivatives by hedged portfolio and type of hedge (book value)

E/t

Fair Value Cash flows

Fore

ign

inve

stm

ents

Micro-hedging

Mac

ro-

head

ging

Mic

ro-

head

ging

Mac

ro-

head

ging

Interest rate risk

Currency risk

Credit risk

Pricing risk

Multiple risks

1. Available for sale financial assets - - - - - X - X X

2. Receivables 892 - - X - X - X X

3. Held to maturity financial assets X - - X - X - X X

4. Portfolio X X X X X - X - X

5. Other transactions - - - - - X - X -

Total assets 892 - - - - - - - -

1. Financial liabilities - - - X - X - X X


Total liabilities - - - - - - - - -

1. Forecast transactions X X X X X X - X X

2. Portfolio of financial assets and financial2. liabilities

X X X X X - X - -

89


Section 10 – Equity investments – Caption 100

10.1 Investments: disclosures on holdings

Registe-red office

Operative office

Type of relation*

Ownership percentageVoting rights

%Company name Investing company % Held

A. Joint ventures

Banca Esperia S.p.A. Milan Milan 7 Banca Mediolanum S.p.A. 50.00% 50.00%

B. Companies under significant influence

Mediobanca S.p.A. Milan Milan 4 Banca Mediolanum S.p.A.Mediolanum Vita S.p.A.

2.60%0.74%

2.60%0.74%

Legend:* Type of relation: 7 = Joint Control 4 = significant influence

10. 2 Subsidiaries, joint ventures and companies over which significant influence is exercised: book value, fair value and dividends received

E/t Book Value Fair Value Dividends received

A. Joint ventures

Banca Esperia S.p.A. 95,786 - -

B. Companies under significant influence

Mediobanca S.p.A. 337,495 258,510 7,274

Total 433,281 258,510 7,274

10.3 Subsidiaries, joint ventures and companies over which significant influence is exercised: key financial infor-mation

E/t Cas

h an

d ca

sh

equi

vale

nts

Fina

ncia

l ass

ets

Non

-fina

ncia

l ass

ets

Fina

ncia

l lia

bilit

ies

Non

-fina

ncia

l lia

bilit

ies

Ban

king

inco

me/

Tota

l re

venu

es

Net

inte

rest

inco

me

Adj

. Rev

ersa

l of

impa

irm

ent o

n ta

ngib

le a

nd in

tang

ible

as

sets

Pro

fit (

loss

) be

fore

ta

x on

con

tinu

ing

oper

atio

ns

Pro

fit/fo

r th

e ye

ar (

1)

Tota

l oth

er in

com

e co

mpo

nent

s ne

t of

taxe

s (2

)

Com

preh

ensi

ve in

com

e (3

) =

(1)

+ (2

)

A. Joint venturesBanca Esperia S.p.A. 129 1,818,526 108,338 1,667,532 71,721 82,583 12,834* (1,769)* 11,514* 6,550* (500)* 6,050*

B. Companies under significant influenceMediobanca S.p.A.* 48,236 69,501,964 1,998,738 61,656,234 1,354,230 907,295 601,638* (18,852)*380,279* 323,113* (374,198)* (51,085)*

(*) Half-year result.

90


2015

The companies, for which all of the voting rights are held directly and indirectly, are considered subsidiaries.

The investments recorded under caption 100 – Investments of the consolidated financial statements are Mediobanca

S.p.A. and Banca Esperia.

In particular, the investment in Mediobanca S.p.A. is classified under “Investments in associates”.

The assessment of the significant influence considered the following aspects:

• strategic purpose of the investment for the Mediolanum Group that holds 3.34% (3.40% because of the owner-

ship of shares of Mediobanca) through a syndicate pact representative of 31.44% of the share capital position-

ing itself as the third shareholder. This Pact was subject to renewal on January 8, 2016 and is aimed at ensuring

the stability of the shareholding structure and the representativeness of the management and safeguarding of

the management uniqueness of Mediobanca S.p.A. The duration of the Pact will be until December 31, 2017;

• representation in the administrative body of the investee as a result of the resolutions of the extraordinary

General Meeting of October 28;

• significant transactions with Mediobanca S.p.A. in relation to the joint control of the Banca Esperia Group,

which represents the business unit dedicated to consulting services and asset management focusing on the private

customers segment.

CET1, at December 31, 2015 amounted to 12.4% phased-in while Total Capital phased-in amounted to 16.06%.

The CET1 fully phased was instead equal to 13.36% while the Total Capital fully phased to 16.56%.

Equity at December 31, 2015 amounted to Euro 8,538 million.

Instead, the investment in the Esperia Group is classified in “Investments in joint ventures”. The Mediolanum Group

holds 50% of the share capital and defines, together with Mediobanca S.p.A., the members of the Governing Bodies

and the key management of the Company. The total net equity of the Company amounted to Euro 187.7 million as

at December 31, 2015.

10.5 Year’s movements in equity investments

E/t Dec. 31, 2015 Dec. 31, 2014

A. Opening balance 421,609 391,869

B. Increases 11,672 29,740

B.1 Acquisitions - -

B.2 Reversal of impairment - -

B.3 Write-ups - -

B.4 Other changes 11,672 29,740

C. Decreases - -

C.1 Disposals - -

C.2 Value adjustments - -

C.3 Other changes - -

D. Closing balance 433,281 421,609

E. Total write-ups - -

F. Total adjustments - -

91


The year’s movements relate to the investments in Mediobanca and Banca Esperia accounted for under the equity

method in accordance with the respective share of equity included in the consolidated accounts as at December 31,

2015.

Banca Mediolanum S.p.A. decided to review for impairment the value of its stake in Mediobanca at December 2015.

For that purpose, it requested the assistance of a specialist valuation firm.

As reported in the Report on Operations and as done in prior years, the recoverable amount of the CGUs was deter-

mined by calculating their value in use.

For the valuation of the shareholding held by the Mediolanum Group the Dividend Discount Model (Excess Capital

variant) was used. This method is usually used in practice nationally and internationally for the purpose of determin-

ing the economic value of companies operating in the financial sector and subject to compliance with the minimum

capitalization, and has been applied in continuity with the previous years.

The recoverable amount of an interest in Mediobanca S.p.A. was determined on the basis of information available to

the public and in particular, the objectives and strategies 2014-2016 under actual results as at September 30, 2015.

The main variables and parameters considered for the purpose of determining the recoverable amount of the invest-

ment in Mediobanca are illustrated below:

• Results for the years ended June 30, 2013, 2014 and 2015;

• Quarterly results as at September 30, 2013, 2014 and 2015;

• Expected net profits determined on the basis of strategic guidelines for 2014-2016;

• Cost of equity at 8.27%, estimated using the Capital Asset Pricing Model (CAPM) assuming:

– Risk-free rate of 1.75% (average 6-month gross yield on 10-yr Italian BTP at December 31, 2013);

– Beta coefficient of 1.19 (average beta coefficient of the Mediobanca stock as at December 31, 2014 based on

2-year weekly data) which reflects the overall average stock volatility;

– Market risk premium of 5.5% (according to Italian market valuation practice).

• Terminal value estimated by considering:

– the estimation of potentially distributable dividend over the projection period by maintaining a minimum level

of regulatory capital;

– a rate of long-term growth of 1.5%, in line with long-term inflation expectations.

The Mediobanca value was also subject to sensitivity analyses that were also performed in relation to possible chang-

es in the underlying assumptions that affect the value, represented in particular by the cost of capital, the growth

rate of long-term results and estimated net income with reference to the 2014-2016 strategic guidelines, also in

consideration of projections made on the basis of the consensus of analysts published following the presentation of

the results as at September 30, 2015.

In light of this analysis, with reference to December 31, 2015, taking into account the elements listed above and

described, the expert identified a recoverable value of the investment that falls within the range Euro 12.4 and Euro

14.4 with a central value equal to Euro 13.4 per share.

With respect to the impairment test as at December 31, 2014, the increase in the recoverable value is therefore

largely due to the decrease in market rates that, as is known, amounted to record lows in the Eurozone. In order to

appreciate the results of the analyses performed with a reasonable degree of prudence the expert reports that interest

rates represent a valuation variable, exogenous with respect to the fundamentals of the bank, subject to variations in

the market by their nature uncertain and unpredictable. It shall be noted that methodologically the sensitivity range

was obtained as the average of the results of the sensitivity analyses carried out that, in a particularly prudent sce-

nario, are at the lower end, below the carrying value. This limit scenario shows the extreme variability of the results,

the complexity of the assessment process and ultimately, together with other factors, confirms the carrying value.

92


2015

From the first days of 2016, the Mediobanca stock recorded a significant decrease in prices. From the analyzes

carried out, this decline was on average lower than that of other Italian bank stocks. In the same period, the vola-

tility of the stock, estimated over the time horizon of two years, remained broadly stable. Therefore, the information

elements collected did not show a significant deterioration in the economic and financial fundamentals adopted for

the purposes of the impairment test, confirming the validity of the estimate.

Section 11 – Reinsurers’ share of technical reserves – Caption 110

11.1 Analysis of reinsurers’ share of technical reserves

E/t Dec. 31, 2015 Dec. 31, 2014

A. Damages 4,296 3,783

A1. Premium reserves 1,116 968

A2. Accident reserves 1,607 1,653

A3. Other reserves 1,573 1,162

B. Life 65,306 67,570

B1. Mathematical reserves 65,003 67,056

B2. Reserves for sums to be paid 303 514

B3. Other reserves - -

C. Technical reserves under which the investment risk is borne by the policyholder - -

C1. Reserves for contracts whose performance is linked to investment funds C1. and market indices

- -

C2. Reserves relating to the administration of pension funds - -

D. Total reinsurers’ share of technical reserves 69,602 71,353

Section 12 – Property and equipment – Item 120

12.1 Analysis of tangible assets measured at cost

E/t Dec. 31, 2015 Dec. 31, 2014

A. Assets held for use 118,058 87,451

1.1 owned 118,033 87,451

a) land 58,204 50,538

b) buildings 43,413 27,497

c) furnishings 3,534 3,316

d) electronic equipment 12,115 4,583

e) other 767 1,517

1.2 acquired under finance leases 25 -

a) land - -

b) buildings - -

c) furnishings - -

d) electronic equipment - -

e) other 25 -

Total 118,058 87,451

93


12.2 Analysis of tangible assets held for investment measured at cost

E/t

Dec. 31, 2015 Dec. 31, 2014

Book value

Fair value

Book value

Fair value

L1 L2 L3 L1 L2 L3

1. Property assets 102,677 - - 117,200 104,152 - - 118,200

a) land 61,867 - - 70,156 61,867 - - 69,486

b) buildings 40,810 - - 47,044 42,285 - - 48,714

2. Assets acquired under finance leases - - - - - - - -

a) land - - - - - - - -

b) buildings - - - - - - - -

Total 102,677 - - 117,200 104,152 - - 118,200

12.5 Property and equipment held for own use: annual changes

E/t Land Buildings FurnishingsElectronic equipment Others Total

A. Gross opening balance 44,878 67,606 25,197 26,641 17,759 182,081

A.1 Total net write-downs - (34,449) (21,881) (22,058) (16,242) (94,630)

A.2 Net opening balance 44,878 33,157 3,316 4,583 1,517 87,451

B. Increases 13,340 28,091 2,231 17,244 (4,953) 55,953

B.1 Acquisitions 13,340 27,525 2,153 10,861 (5,424) 48,455

B.2 Capitalized improvement costs - 520 2 44 74 640

B.3 Reversal of impairment - - - - - -

B.4 Increases in fair value:

a) equity - - - - - -

b) income statement - - - - - -

B.5 Positive exchange differences - - - - - -

B.6 Reclassified from investment property - - - - - -

B.7 Other changes - 46 76 6,339 397 12,518

C. Decreases 14 17,835 2,013 9,712 (4,228) 25,346

C.1 Disposals - - 39 5,688 398 6,125

C.2 Depreciation - 8,888 1,825 1,912 (5,248) 7,377

C.3 Impairment: - - - - - -

a) equity - - - - - -


C.4 Decreases in fair value:

a) equity - - - - - -


C.5 Negative exchange differences - - - - - -

C.6 Reclassified to:

a) tangible assets held for investment - - - - - -

b) assets held for sale - - - - - -

C.7 Other changes 14 8,947 149 2,112 622 11,844

D. Net closing balance 58,204 43,413 3,534 12,115 792 118,058

D.1 Total net write-downs - (41,476) (21,522) (18,250) (8,010) (89,258)

D.2 Gross closing balance 58,204 84,889 25,056 30,365 8,802 207,316

E. Measured at cost - - - - - -

94


2015

12.6 Year’s movements in tangible assets held for investment purposes

E/t Land Buildings


B. Increases - 46

B.1 Acquisitions - 46

B.2 Capitalized improvement costs - -

B.3 Increases in fair value - -

B.4 Reversal of impairment - -

B.5 Positive exchange differences - -

B.6 Reclassified from assets held for use - -

B.7 Other changes - -

C. Decreases - 1,521

C.1 Disposals - -

C.2 Depreciation - 1,521

C.3 Decreases in fair value - -

C.4 Impairment - -

C.5 Negative exchange differences - -

C.6 Reclassified to other asset portfolios - -

a) assets held for use - -

b) non-current assets held for sale - -



E. Measured at fair value 70,156 47,044

Section 13 – Intangible assets – Caption 130

13.1 Analysis of intangible assets

E/t

Dec. 31, 2015 Dec. 31, 2014

Finite life Indefinite life Finite life Indefinite life

A.1 Goodwill X - X -

A.1.1 Attributable to the Group X 125,625 X 125,625

A.1.2 Attributable to minorities X - X -

A.2 Other intangible assets 68,210 - 57,195 -

A.2.1 Assets measured at cost: 68,210 - 56,695 -

a) Internally generated intangible assets - - - -

b) Other assets 68,210 - 56,695 -

A.2.2 Assets measured at fair value: - - 500 -


b) Other assets - - 500 -

Total 68,210 125,625 57,195 125,625

95


13.2 Intangible assets: annual changes

E/tGoodwill

Other Internally generated intangible assets Other intangible assets: TotalFinite Indefinite Finite Indefinite

A. Gross opening balance 125,625 - - 64,373 - 189,998

A.1 Total net write-downs - - - (7,178) - (7,178)

A.2 Net opening balance 125,625 - - 57,195 - 182,820

B. Increases - - - 27,535 - 27,535

B.1 Acquisitions - - - 27,524 - 27,524

B.2 Increases in internal intangible B.2 assets

X

-

-

-

-

-

B.3 Reversal of impairment X - - - - -

B.4 Increases in fair value - - - - - -

- equity X - - - - -

- income statement X - - - - -


B.6 Other changes - - - 11 - 11

C. Decreases - - - 16,520 - 16,520

C.1 Disposals - - - - - -

C.2 Value adjustments - - - 16,516 - 16,516

- amortization X - - 16,516 - 16,516

- impairment - - - - - -

+ equity X - - - - -

+ income statement - - - - - -

C.3 Decreases in fair value - - - - - -

- equity X - - - - -


C.4 Classified to non-current assets held C.4 for sale

-

-

-

-

-

-


C.6 Other changes - - - 4 - 4

D. Net closing balance 125,625 - - 68,210 - 193,835

D.1 Total net write-downs - - - (9,183) - (9,183)

E. Gross closing balance 125,625 - - 77,393 - 203,018

F. Measured at cost - - - - - -

This section provides disclosures on impairment testing conducted on Cash Generating Units (CGUs) in operation as

at December 31, 2015, in accordance with IAS 36 and the instructions set forth in the document jointly issued by

the Bank of Italy, CONSOB and ISVAP on March 3, 2010.

The purpose of impairment testing is to ascertain that the carrying amount of each cash generating unit (CGU) does

not exceed its recoverable amount, i.e. the benefit that can be derived from it, either through future use (value in use)

or by its disposal (fair value less cost to sell), whichever is the higher.

Impairment testing was conducted with the assistance of an independent expert applying the methods and assump-

tions set out below.

96


2015

DEFINITION OF CGU AND ALLOCATION OF GOODWILLLike in prior years, CGUs have been identified on the basis of the geographic area of operations in accordance with

the Mediolanum Banking Group business reporting system.

Hence, impairment testing was conducted on the CGUs set out in the table below.

E/m Description Allocated goodwill

CGU Spagna Banco Mediolanum S.A. 102.8

CGU Italia Life Gamax Management AG - Divisione Italia 22.7

As at December 31, 2015, total goodwill amounted to Euro 125.5 million allocated to the Spain CGU for Euro

102.8 million and the Italy CGU for Euro 22.7 million.

VALUATION METHODAs done in prior years, the recoverable amount of the CGUs was determined by calculating their value in use.

Under IAS 36 value in use can be calculated applying the Discounted Cash Flow (DCF) method. The DCF method

determines the value in use of a CGU, or an entity, by computing the present value of future cash flows (from oper-

ations) it is expected to generate over time.

For the assessment of lenders, it is common practice to apply the Free Cash Flow to Equity (FCFE) model known

in Anglo-Saxon countries as “Dividend Discount Model” (DDM), in the Excess Capital variant, that determines the

value of the entity on the basis of the future cash flows it expects to be capable of distributing to the shareholders,

without impacting the assets supporting its future growth, in compliance with regulatory capital requirements, and

applying a discount rate which reflects the specific equity risk. Please note that although the name Dividend Discount

Model contains the term “dividend”, the cash flows it calculates are not the dividends the entity expects to distribute

to its shareholders, but the cash flows potentially available to equity holders net of the assets needed for business

operation.

CGU SPAINThe recoverable amount of the CGU Spain was determined based on value in use calculated by applying the DDM

method to the information set out in the 2016-2018 business plan approved by the Boards of Directors of Banco

Mediolanum and Banca Mediolanum S.p.A.

The 2016-2018 Plan was built on reasonable, consistent assumptions and represents the management best estimate

of the range of possible future developments for the CGU.

The 2016-2018 Plan confirmed the strategic lines set out in the previous plan 2015-2017. In particular, the Plan

confirmed the objective of developing Banca Mediolanum’s business model in Spain.

The previous plan was updated to incorporate most recent expectations in relation to interest rate developments over

the plan period and inflows forecasts on the basis of volumes and sales network numbers as at December 31, 2015.

Specifically, the 2016-2018 Plan was based on the following key assumptions:

• Family Bankers (FB) network growth from 760 people to 1,249 people at year end 2018;

• growth in assets under management and administration at an average annual rate of 18.7%;

• an increase in income of commercial an average of 5.6% per annum.

97


To determine the value in use of the CGU two scenarios were considered:

• situation developed on the basis of projections 2016-2018 contained in this plan;

• prudential scenario: developed using the projections set out in the Plan with the exclusion of income components

related to corporate treasury activities.

In both scenarios cash-flows were estimated assuming a minimum Tier 1 Capital Ratio of 12.1% of RWA, taking

into account the SREP add-on.

Under the Capital Asset Pricing Model, the discount rate applied to calculate the present value of future cash flows

(ke) was estimated at 10.7%, based on the following parameters:

• risk-free rate of 1.9% calculated on the basis of average historical 6-month yields on 10-year Spanish treasuries;

• beta coefficient (risk measure of the stock compared to the market) of 1.15 calculated on the basis of the his-

torical 2-year beta of a panel of comparable entities operating in the Spanish banking market;

• market premium (i.e. the premium required by investors to buy equities in lieu of risk-free assets) of 5.5% in

line with common practice;

• specific risk premium conservatively estimated at 2.5% to take into account the underlying uncertainty in the

execution of the plan.

The value of the CGU at the end of the plan period was calculated based on cash flows available in 2018, prudentially

excluding in both evaluation scenarios, the contribution of corporate treasury activities, and assuming 2% long-term

growth in line with long/term inflationary expectations.

The results of both the base and the prudential scenario did not indicate any impairment losses of the CGU. The

analyses did not reveal any facts requiring impairment of goodwill allocated to the CGU Spain.

Particularly stressed sensitivity analyzes were carried out that regarded the following separately:

• Discount rate

• Long-term growth rate

• Net profitability

Upon the occurrence of reasonable changes in the aforementioned basis assumptions, there were no cases where the

recoverable amount of the CGU was equal to the related book value.

CGU ITALY LIFEGoodwill allocated to this CGU aggregated to Euro 22.7 million.

The recoverable amount of this CGU is assumed higher than its carrying amount. The comparison of Banca Medio-

lanum S.p.A. stock market capitalization (Euro 5.4 billion as at December 31, 2015) to its equity (Euro 2.0 billion

as at December 31, 2015) reveals an implicit multiple of 2.7x, indicating no impairment of goodwill allocated to

the CGU Italy Life.

In conclusion, the market capitalization higher than shareholders’ equity led the directors to conclude on the absence

of any impairment elements both in terms of each CGU and the group.

98


2015

Section 14 - Tax assets and liabilities - Caption 140 (assets) and Caption 80 (liabilities)

14.1 Analysis of deferred tax assets

E/t Dec. 31, 2015 Dec. 31, 2014

Charge to the income statement 94,822 105,628

Charge to equity 17,034 18,226

Total 111,856 123,854

14.2 Analysis of deferred tax liabilities

E/t Dec. 31, 2015 Dec. 31, 2014


Charge to equity 93,816 86,900

Total 115,004 133,887

14.3 Changes in deferred tax assets (balancing item in income statement)

E/t Dec. 31, 2015 Dec. 31, 2014

1. Initial balance 105,628 106,689

2. Increases 33,508 31,134

2.1 Deferred tax assets arisen in the year 33,508 30,763

a) relating to previous years 31 22

b) due to changes in accounting criteria 2,821 107

c) reversal of impairment (2) 1

d) other 30,658 30,633

2.2 New taxes or increased tax rates - -

2.3 Other increases - 371

3. Decreases 44,314 32,195

3.1 Deferred tax assets cancelled in the year 42,651 30,318

a) reversals 14,575 609

b) write-downs of non-recoverable amounts - -

c) changes in the accounting policies - -

d) other 28,076 29,709

3.2 Reduced tax rates 1,530 -

3.3 Other decreases 133 1,877

a) turned into tax credit under Act 214/2011 - -

b) others 133 1,877

4. Final balance 94,822 105,628

99


14.4 Changes in deferred tax liabilities (balancing item in income statement)

E/t Dec. 31, 2015 Dec. 31, 2014


2. Increases 530 1,392

2.1 Deferred tax liabilities arisen in the year 530 1,391

a) relating to previous years - -

b) changes in the accounting policies - -

c) other (temporary differences arisen in the year) 530 1,391


2.3 Other increases - 1

3. Decreases 26,329 1,090

3.1 Deferred tax liabilities cancelled in the year 26,328 267

a) reversals - -


c) other 26,328 267

3.2 Reduced tax rates - -

3.3 Other decreases 1 823

4. Final balance 21,188 46,987

14.5 Changes in deferred tax assets (balancing item in shareholders’ equity)

E/t Dec. 31, 2015 Dec. 31, 2014


2. Increases 2,623 9,846



b) due to changes in accounting criteria - -

c) other 2,623 9,846


2.3 Other increases - -

3. Decreases 3,815 5,266


a) reversals 2,380 380



d) other 1,435 4,886


3.3 Other decreases - -


100


2015

14.6 Changes in deferred tax liabilities (balancing item in shareholders’ equity)

E/t Dec. 31, 2015 Dec. 31, 2014


2. Increases 27,624 54,257

2.1 Deferred tax liabilities arisen in the year 27,624 54,257



c) other 27,624 54,257



3. Decreases 20,708 29,197

3.1 Deferred tax liabilities cancelled in the year 20,708 29,197

a) reversals 6,547 6,024


c) other 14,161 23,173




101


Section 15 – Non-current assets and disposal groups and related liabilities – Caption 15 assets and Caption 90 liabilities

15.1. Analysis of non-current assets and disposal groups by type of asset

E/t Dec. 31, 2015 Dec. 31, 2014

A. Individual assets A.1 Financial Assets - - A.2 Equity investments - - A.3 Tangible assets 554 567 A.4 Intangible assets - - A.5 Other non-current assets - -Total A 554 567 of which measured at cost 554 567 of which measured at fair value level 1 - - of which measured at fair value level 2 - - of which measured at fair value level 3 554 567B. Groups of assets (operating units disposed) B.1 Financial assets held for trading - - B.2 Financial assets measured at fair value - - B.3 Available for sale financial assets - - B.4 Held to maturity financial assets - - B.5 Loans to banks - - B.6 Loans to customers - - B.7 Equity investments - - B.8 Tangible assets - - B.9 Intangible assets - - B.10 Other assets - -Total B - - of which measured at cost - - of which measured at fair value level 1 - - of which measured at fair value level 2 - - of which measured at fair value level 3 - -C. Liabilities associated with individual assets held for sale - - C.1 Debts - - C.2 Securities - - C.3 Other liabilities - -Total C - - of which measured at cost - - of which measured at fair value level 1 - - of which measured at fair value level 2 - - of which measured at fair value level 3 - -D. Liabilities associated with disposal groups D.1 Due to banks - - D.2 Due to customers - - D.3 Securities issued - - D.4 Financial liabilities held for trading - - D.5 Financial liabilities measured at fair value - - D.6 Provisions - - D.7 Other liabilities - -Total D - - of which measured at cost - - of which measured at fair value level 1 - - of which measured at fair value level 2 - - of which measured at fair value level 3 - -

102


2015

The item Non-current assets and disposal groups includes all Statement of financial position assets relating to assets

held for sale of Banco Mediolanum S.A. for Euro 554 thousand.

Section 16 – Other assets – Caption 160

16.1 Analysis of other assets

E/t Dec. 31, 2015 Dec. 31, 2014

Commissions receivable 500 489

Receivables from tax authorities 101,861 93,591

Receivables from financial advisors 4,326 3,866

Advances to suppliers and professionals 6,625 6,691

Security deposits 19,834 9,559

Receivables from employees 526 545

Other receivables 184,307 132,215

Items in transit 128,464 44,074

Accrued assets 5,454 5,260

Deferred assets 6,195 5,309

Other assets 13,755 16,529

Total 471,847 318,128

103


LIABILITIES

Section 1 – Amounts due to banks – Caption 10

1.1 Analysis of amounts due to banks

E/t Dec. 31, 2015 Dec. 31, 2014

1. Amounts due to central banks - 6,682,488

2. Amounts due to banks 815,364 932,903

2.1 Current accounts and demand deposits 92,130 8,308

2.2 Time deposits 489,513 670,382

2.3 Loans 226,673 250,919

2.3.1 Repurchase agreements 226,673 -

2.3.2 Others - 250,919

2.4 Commitments to buy back own equity instruments - -

2.5 Other payables 7,048 3,294

Total 815,364 7,615,391

Fair Value - Level 1 - -


Fair Value - Level 3 815,487 7,615,391

Total Fair Value 815,487 7,615,391

Amounts due to banks amounted to Euro 815.4 million compared to Euro 7,615.4 million in the comparative period.

The change is mainly due to the closure of the loans with Central Banks.

104


2015

Section 2 – Payables due to customers – Caption 20

2.1 Analysis of payables due to customers

E/t Dec. 31, 2015 Dec. 31, 2014

1. Current accounts and demand deposits 10,713,177 8,283,179

2. Time deposits 3,360,435 3,989,143

3. Loans 7,991,485 1,821,172

3.1 Repurchase agreements 7,988,512 1,818,690

3.2 Others 2,973 2,482

4. Commitments to buy back own equity instruments - -

5. Other payables 152,602 138,256

Total 22,217,699 14,231,750



Fair Value - Level 3 22,220,275 14,870,764

Total Fair Value 22,220,275 14,870,764

Payables due to customers were up by Euro 7,985.9 million compared to the figure as at December 31, 2014. This

change is mainly due to the increase in the balance of repurchase agreements with Cassa Compensazione e Garanzia.

2.3 Analysis of item 20 “Payables due to customers”: structured payables

E/t Dec. 31, 2015 Dec. 31, 2014

A. Payables due to customers A.1 Structured payables - 404

105


Section 3 – Securities issued – Caption 30

3.1 Analysis of securities issued

E/t

Dec. 31, 2015 Dec. 31, 2014

Book value

Fair value Book value

Fair value


A. Securities

1. Bonds 223,505 - 233,261 - 341,741 - 353,529 -

1.1 structured - - - - 53,876 - 53,926 -

1.2 other 223,505 - 233,261 - 287,865 - 299,603 -

2. Other securities - - - - - - - -

2.1 structured - - - - - - - -

2.2 others - - - - - - - -

Total 223,505 - 233,261 - 341,741 - 529 -

3.2 Analysis of caption 30 “Securities issued”: subordinate securities

E/t Dec. 31, 2015 Dec. 31, 2014

Securities issued: subordinate securities 154,242 219,237

Total 154,242 219,237

106


2015

Section 4 – Financial liabilities held for trading – Caption 40

4.1 Analysis of financial liabilities held for trading

E/t

Dec. 31, 2015 Dec. 31, 2014

NVFV

FV* NVFV

FV*L1 L2 L3 L1 L2 L3

A. Non-derivatives liabilities

1. Amounts due to banks 158,198 171,306 - - 171,306 249,346 264,198 - - 264,199

2. Payables due to customers 39,880 45,668 - - 45,668 57,611 66,999 - - 66,999

3. Debt securities - - - - - - - - - -

3.1 Bonds - - - - - - - - - -

3.1.1 Structured - - - - X - - - - X

3.1.2 Other bonds - - - - X - - - - X

3.2 Other securities - - - - - - - - - -

3.2.1 Structured - - - - X - - - - X

3.2.2 Others - - - - X - - - - X

Total A 198,078 216,974 - - 216,974 306,957 331,197 - - 331,197

B. Derivatives

1. Financial derivatives - 61,886 156 4 39,058 437

1.1 For trading X - 61,886 156 X X 4 39,058 437 X

1.2 Associated with fair value 1.2 option

X

-

-

-

X

X

-

-

-

X

1.3 Others X - - - X X - - - X

2. Credit derivatives - - - - - -

2.1 For trading X - - - X X - - - X

2.2 Associated with fair value 2.2 option

X

-

-

-

X

X

-

-

-

X

2.3 Others X - - - X X - - - X

Total B X - 61,886 156 X X 4 39,058 437 X

Total A+B X 216,974 61,886 156 X X 331,201 39,058 437 X

Legend:FV = fair valueFV* = fair value calculated excluding any changes in value due to changes in the credit standing of the issuer over the date of issueNV = nominal or notional valueL1 = Level 1L2 = Level 2L3 = Level 3

4.4 Year’s movements in financial liabilities (excluding “short positions”) held for trading

Financial liabilities consist entirely of short positions. Therefore, no information is provided under this heading.

107


Section 5 – Financial liabilities measured at fair value – Caption 50

5.1. Analysis of financial liabilities measured at fair value

E/t

Dec. 31, 2015 Dec. 31, 2014

NVFV

FV* NVFV


1. Amounts due to banks - - - - - - - - - -

1.1 Structured - - - - X - - - - X

1.2 Others - - - - X - - - - X

2. Payables due to2. customers

3,478,927 3,473,139 4,124 1,664 - 1,597,251 1,586,295 8,598 2,358 -

2.1 Structured - - - - X - - - - X

2.2 Others 3,478,927 3,473,139 4,124 1,664 X 1,597,251 1,586,295 8,598 2,358 X

3. Debt securities - - - - - - - - - -

3.1 Structured - - - - X - - - - X

3.2 Others - - - - X - - - - X

Total 3,478,927 3,473,139 4,124 1,664 - 1,597,251 1,586,295 8,598 2,358 -


The increase recorded during the year was mainly due to the inflows generated by the “My Life” product, legally

insurance contract but that does not transfer significant insurance risks.

108


2015



E/t

Dec. 31, 2015 Dec. 31, 2014

Fair valueNV

Fair valueNV

L1 L2 L3 L1 L2 L3

A. Financial derivatives - 64,512 - 242,766 - 100,218 - 341,219

1) Fair value - 64,512 - 242,766 - 100,218 - 341,219

2) Cash flows - - - - - - - -


B. Credit derivatives - - - - - - - -

1) Fair value - - - - - - - -

2) Cash flows - - - - - - - -

Total - 64,512 - 242,766 - 100,218 - 341,219

Legend:NV = nominal valueL1 = Level 1L2 = Level 2L3 = Level 3

6.2 Analysis of hedging derivatives by hedged portfolio and type of hedge

E/t

Fair value Cash flows

Fore

ign

inve

stm

ents

Micro-hedging

Mac

ro-h

eadg

ing

Mic

ro-

head

ging

Mac

ro-

head

ging

Interest rate risk

Exchan-ge rate

riskCredit

riskPricing

risk

Mul-tiple risks


2. Receivables 64,512 - - X - X - X X




Total assets 64,512 - - - - - - - -





2. Portfolio of financial assets and financial2. liabilities

X X X X X - - - -

109


Section 8 – Tax liabilities – Caption 80

Readers are referred to section 14 of Assets.

Section 9 – Liabilities associated with assets held for sale – Caption 90

Readers are referred to section 15 of Assets.

Section 10 – Other liabilities – Item 100

10.1 Analysis of other liabilities

E/t Dec. 31, 2015 Dec. 31, 2014

Agents’ severance benefits 5,856 4,945

Payables to promoters, advisors and dealers 39,023 35,924

Payables to suppliers 65,963 70,292

Payables to parent companies, subsidiaries and associates 1,668 1,982

Payables to tax authorities 105,435 131,030

Payables to social security agencies 7,232 6,096

Payables to employees 20,442 16,884

Payables to professionals, directors and auditors 4,574 9,449

Security deposits 147 133

Items in transit 154,819 115,435

Deferred liabilities 13,291 23,525

Accrued liabilities 539 553

Other liabilities 171,619 239,423

Guarantee deposits 5,954 5,218

Tax payables borne by policyholders 1,056 1,066

Total 597,618 661,955

110


2015

Section 11 – Employee termination indemnity – Item 110

11.1 Year’s movements in employee completion-of-service entitlements

E/t Dec. 31, 2015 Dec. 31, 2014


B. Increases 7,596 5,774

B.1 Provisions for the year 5,955 5,422

B.2 Other changes 1,641 352

C. Decreases (6,829) (6,429)

C.1 Funds used in the year (6,729) (6,342)

C.2 Other changes (100) (87)


The discount rate used for the employee termination indemnity provision is consistent with the riskiness of the cash

flows to be discounted of liabilities by maturity and reflects current market conditions.

The discount rate used is consistent with the riskiness of the cash flows to be discounted of liabilities by maturity

and reflects current market conditions. Given the current market situation with the discount rates at historic lows,

a further significant reduction cannot be assumed. An increase in the discount rate would result in a reduction in

provisions with a positive impact on the income statement.

Section 12 – Provisions for risks and charges – Caption 120

12.1 Analysis of provisions for risks and charges

E/t Dec. 31, 2015 Dec. 31, 2014

1. Company severance entitlements 688 672

2. Other provisions for risks and charges 215,170 195,937

2.1 Legal proceedings 32,751 17,616

2.2 Personnel expenses - -

2.3 Others 182,419 178,321

Total 215,858 196,609

111


12.2 Year’s movements in provisions for risks and charges

E/tSeverance

entitlementsOther

provisions

A. Opening balance 672 195,937

B. Increases 48 75,841

B.1 Provisions for the year 10 75,841

B.2 Time-related changes - -

B.3 Discount rate changes - -

B.4 Other changes 38 -

C. Decreases 32 56,608

C.1 Used in the year 32 40,046

C.2 Discount rate changes - -

C.3 Other changes - 16,562

D. Closing balance 688 215,170

12.4 Analysis of other provisions for risks and charges: other

E/tBalance at

Dec. 31, 2014Amounts set

aside in the year Other changes Used in the yearBalance at

Dec. 31, 2015

Provision:- legal disputes 17,616 15,159 (1,748) (2,001) 29,026

- other: - - - - -

Risks related to FA illegal actions 33,726 5,481 (5,600) (7,632) 25,975

Customer base entitlements 43,933 27,523 (1,044) (3,092) 67,320

Managerial allowance 52,267 11,791 (3,391) (11,525) 49,142

Portfolio allowance 20,059 2,693 (1,072) (2,091) 19,589

Future expenses on distributed products 10,500 1,834 - (2,466) 9,868

Other provisions 17,836 11,294 (3,393) (11,487) 14,250

Total 195,937 75,775 (16,248) (40,294) 215,170

The table above shows the analysis of other provisions and the year’s movements.

The Provision for legal disputes mainly includes legal liabilities (litigation and pre-litigation) relating to Banca Me-

diolanum and its subsidiary Banco Mediolanum. In particular, the account includes provisions made during the year

of Euro 11.2 million due to the unfavorable sentence that involved the former Fibanc Group now Banco Mediolanum.

The Provision for risks related to FA illegal actions covers the Bank’s risk of future liabilities for claims below the

deductible threshold of the insurance policy taken out to cover damage suffered by Customers as a result of the

misconduct of the Bank’s financial advisors. Based on historical data and the claims received by the Bank at balance

sheet date, the amount of the provision adequately covers those risks. The provision also includes amounts set aside

to cover the risk of liabilities arising from legal claims made by customers against the Bank in relation to securities

defaults.

The Provision for Customer base entitlements covers the related entitlements of financial advisors. The provision was

calculated on the basis of reaching retirement age in the next five years and future liabilities estimated on the basis

of the Bank’s historical data in accordance with the requirements of IAS 37.

In addition to contractual benefits, the Group voluntarily, unilaterally and discretionarily rewards its financial advi-

sors with additional allowances. These are: the Portfolio and/or Structure Allowance, and the Managerial Allowance.

112


2015

The Portfolio and Structure Allowance is paid to financial advisors in relation to the value of their customer portfo-

lio or their agents’ organization, as applicable.

The adopted regulation governs transfers between financial advisors of the responsibility in the management of

portfolios of bank customers or entrustment and assistance of a structure of financial advisors. The types of transfer

are realized with the release of a financial advisor, due to the termination of the agency and the takeover of another

financial advisor, and with the reallocation of portfolios and/or facilities between financial advisors. The Bank main-

tains an active role in the process of finding a successor advisor.

At the time of transfer, the regulation requires:

• payment to the financial advisor originator – subject to the possession of certain personal qualifications and to

the non-performance of competitive activities in the two years following the termination of the appointment – of

compensation arising from the valuation of the portfolio sold or of the structure disposed, according to prede-

termined criteria and

• the corresponding debit to the financial promoter successor of a charge of an equivalent amount equal to the

value of the portfolio and/or structure acquired under management.

The Bank pays the outgoing FA at the end of the third year after the date the contract is terminated and charges the

same amount to the substitute FA in 3 or 5 years. No interest is applied in either case. If there is no substitute FA,

no allowance is paid to the outgoing FA. The actuarial calculation took account of the effect of any future cash-flow

mismatches (due to the different timing between payment and collection and no interest being applied), and also of

counterparty risk through the application of a discount rate.

The Managerial Allowance is paid to sales network members having managerial roles whose compensation is based

on specific commercial parameters. This allowance is paid when the FA meets old age pension requirements – pro-

vided that he does not engage in any competitive activities in the two years after he retires – or in the event of full

permanent disability or death of the FA. Similarly to the portfolio and/or structure allowance, the Managerial Al-

lowance is paid within 3 years of the date on which the FA left the sales network. The actuarial calculation is based

on the estimated probability of payment of the allowance for retirement of FAs in managerial roles at year end, as

well as the risk of death or full permanent disability of FAs, and takes account of the relationship between the FA’s

length of service at the date of the calculation and the length of service at the date of occurrence of the events that

trigger the payment (pro-rata basis) with the application of a discount rate.

The Provision for product distribution relates to amounts set aside to cover expected future liabilities in connection

with commissions payable to the sales force primarily on Tax Benefit New sales. The figure shown under other chang-

es relates to adjustments made to amounts set aside in prior years.

The discount rate used for the aforementioned provisions is consistent with the riskiness of the cash flows to be dis-

counted of liabilities by maturity and reflects current market conditions. Given the current market situation with the

discount rates at historic lows, a further significant reduction cannot be assumed. An increase in the discount rate

would result in a reduction in provisions with a positive impact on the income statement.

113


Section 13 – Technical reserves – Caption 130

13.1 Analysis of technical reserves

E/t Insurance Reinsurance Dec. 31, 2015 Dec. 31, 2014

A. Damages 120,657 80 120,737 101,937

A.1 Premium reserves 93,779 - 93,779 76,834

A.2 Accident reserves 23,882 80 23,962 22,920

A.3 Other reserves 2,996 - 2,996 2,183

B. Life 1,902,002 - 1,902,002 2,331,790

B.1 Mathematical reserves 1,750,894 - 1,750,894 2,182,254

B.2 Reserves for outstanding claims 94,155 - 94,155 90,841

B.3 Other reserves 56,953 - 56,953 58,695

C. Technical reserves under which the investment risk is borneC. by the insurance company 12,570,787

- 12,570,787 12,896,083

C.1 Reserves for contracts whose performance is linked C.1 to investment funds and market indices 12,570,787

- 12,570,787 12,896,083

C.2 Reserves relating to the administration of pension funds - - - -

D. Total technical reserves 14,593,446 80 14,593,526 15,329,810

13.2 Year’s movements in technical reserves

Total technical reserves amounted to Euro 14,593.5 million, a decrease of Euro -736.3 million compared to the

comparative period. The change is mainly due to the decrease in mathematical reserves and reserves relating to

contracts linked to investment funds (respectively Euro -431.4 million and Euro -325.3 million).

Section 14 – Reimbursable shares – Caption 150

Item not applicable for the Group.

114


2015

Section 15 – Group Shareholders’ equity – Captions 140, 160, 170, 180, 190, 200 and 220

For further information on this section, reference is made to the description in section 15.3.

15.2 Year’s movements in share capital - number of Parent Company shares

Unit Ordinary Others

A. Shares at year start 737,436,998 -

- fully paid 737,436,998 -

- not fully paid - -

A.1 Treasury shares (-) - -

A.2 Shares outstanding: initial balance 737,436,998 -

B. Increases 964,859 -

B.1 New issues 964,859 -

- payment: - -

- business combinations - -

- conversion of bonds - -

- warrants exercised - -

- other 964,859 -

- bonus issues: - -

- employees - -

- directors - -

- other - -

B.2 Sale of treasury shares - -

B.3 Other changes - -

C. Decreases - -

C.1 Cancellation - -

C.2 Purchase of treasury shares - -

C.3 Sale of businesses - -


D. Shares outstanding: final balance 738,401,857 -

D.1 Treasury shares (+) - -

D.2 Shares at year end 738,401,857 -

- fully paid 738,401,857 -


Shares existing at the beginning of the year refer to those of the company Mediolanum S.p.A. converted into Banca

Mediolanum shares in the manner described in the Report on Operations in the paragraph “Merger transaction”.

115


15.3 Share capital: other information

As at December 31, 2015, the share capital amounted to Euro 600.0 million (December 31, 2014: Euro 73.7 thou-

sand), divided into 738,401,857 ordinary shares with no par value. For the changes compared to the previous year,

reference is made to as described in part A Accounting policies regarding the reverse merger.

15.4 Reserves: other information

Reserves amounted to Euro 945.8 million, a decrease of Euro 344.9 million compared to the comparative period.

15.5 Other information

Analysis of shareholders’ equity attributable to the Group

E/t Dec. 31, 2015 Dec. 31, 2014

1. Share capital 600,000 73,744

2. Share premium reserve - 63,199

3. Reserves 945,767 1,290,672

4. Interim dividend (-) (118,206) (110,608)

5. Treasury shares - (2,045)

a) Parent Company - (2,045)

b) subsidiaries - -


7. Capital instruments - -

8. Profit (Loss) 438,613 320,617

Total 2,070,135 1,813,348

Reconciliation of the Parent Company’s shareholders’ equity to consolidated shareholders’ equity

E/tCapital and

reserves ProfitShareholders’

equity

Parent Company financial statements as at December 31, 2015 1,197,338 351,126 1,548,464

Successive changes in carrying amount and equity of companies consolidated on a line-by-line basis

(142,877) 579,435

436,558

Differences on investments accounted for by the equity method 64,305 22,260 86,565

Intragroup dividends 511,969 (511,969) -

Elimination of intragroup transactions effects (993) 109 (884)

Amortization of greater value attributed to property on the date of acqui-sition of investments consolidated on a line-by-line basis

5,490

(166)

5,324

Other transactions (3,710) (2,182) (5,892)

Consolidated financial statements as at December 31, 2015 1,631,522 438,613 2,070,135

116


2015

OTHER INFORMATION

1. Guarantees issued and commitments

E/t Dec. 31, 2015 Dec. 31, 2014

1) Financial guarantees: 661 31,487

a) Banks - 30,571

b) Customers 661 916

2) Commercial guarantees: 66,732 55,325

a) Banks 15,088 10,771

b) Customers 51,644 44,554

3) Irrevocable commitments to disburse funds 90,623 152,163

a) Banks 23 74,885

i) with certain drawdown 23 74,885

ii) with possible drawdown - -

b) Customers 90,600 77,278

i) with certain drawdown 51 647

ii) with possible drawdown 90,549 76,631

4) Commitments under credit derivatives: protection sales - -

5) Assets pledged to secure third-party obligations 2,432 2,895

6) Other commitments - 456

Total 160,448 242,326

2. Assets pledged to secure own liabilities and commitments

E/t Dec. 31, 2015 Dec. 31, 2014

1. Financial assets held for trading 68,774 79,749

2. Financial assets measured at fair value - -


4. Held to maturity financial assets 843,881 1,373,131

5. Loans to banks - 456

6. Loans to customers 194,960 411,443


Total 9,104,021 8,448,496

117


5. Brokerage and asset management on behalf of third parties

E/t Dec. 31, 2015

1. Orders executed on behalf of customers -

a) Purchases 3,340,954

1. settled 3,340,954

2. not settled -

b) Sales 3,465,925

1. settled 3,465,925

2. not settled -

2. Portfolio management -

a) Individual 30,872

b) Collective 26,984,879

3. Securities in custody and under administration -

a) Custodian bank services (other than managed assets) -

1. securities issued by entities incl. in consolidated accounts -

2. other securities 425,377

b) Custodian bank services (other than managed assets): other -

1. securities issued by entities incl. in consolidated accounts 150,235

2. other securities 5,972,622

c) Third-party securities held by other custodians 6,123,329

d) Own securities held by other custodians 34,198,878

4. Other transactions -

In the management of “Collective” portfolios, the funds underlying the Unit Linked policies were not considered.

118


2015

PART C – INFORMATION ON THE INCOME STATEMENT

Section 1 - Interest - Captions 10 and 20

1.1 Analysis of interest income and similar income

E/t Debt securities LoansOther

transactions Dec. 31, 2015 Dec. 31, 2014

1. Financial assets held for trading 14,353 - 64 14,417 12,908

2. Available for sale financial assets 206,421 - - 206,421 266,874

3. Held to maturity financial assets 65,523 - - 65,523 67,992

4. Loans to banks 780 557 - 1,337 2,938

5. Loans to customers 2,602 169,150 227 171,979 159,833

6. Financial assets measured at fair value 36,360 - 48 36,408 59,092

7. Hedge derivatives X X - - -

8. Other assets X X 281 281 116

Total 326,039 169,707 620 496,366 569,753

1.3.1 Interest income on financial assets denominated in foreign currencies

E/t Dec. 31, 2015 Dec. 31, 2014

Interest income on assets denominated in foreign currencies 61 63

1.4 Analysis of Interest expense and similar charges

E/t Payables SecuritiesOther

transactions Dec. 31, 2015 Dec. 31, 2014

1. Amounts due to central banks (308) X - (308) (5,894)

2. Amounts due to banks (6,407) X (57) (6,464) (8,748)

3. Payables due to customers (132,306) X - (132,306) (183,129)

4. Securities issued X (10,593) - (10,593) (14,753)

5. Financial liabilities held for trading (11,701) - - (11,701) (9,103)

6. Financial liabilities measured at fair value - - (10) (10) (10)

7. Other liabilities and funds X X (4,377) (4,377) (3,769)

8. Hedge derivatives X X (12,596) (12,596) (13,769)

Total (150,722) (10,593) (17,040) (178,355) (239,175)

1.5 Interest expense and charges expenses: differentials on hedging transactions

E/t Dec. 31, 2015 Dec. 31, 2014

A. Positive differences arising on hedging transactions 29 760

B. Negative differences arising on hedging transactions (12,625) (14,529)

C. Balance (A-B) (12,596) (13,769)

119


1.6.1 Interest expense on foreign currency liabilities

E/t Dec. 31, 2015 Dec. 31, 2014

Interest expense on foreign currency liabilities (440) (362)

Section 2 – Commission – Captions 40 and 50

2.1 Analysis of fee income

E/t Dec. 31, 2015 Dec. 31, 2014

a) Guarantees issued 51 62

b) Credit derivatives - -

c) Management, brokerage and consulting services: 1,226,795 960,756

1. financial instruments brokerage 2,778 2,957

2. currency brokerage 3 2

3. portfolio management 1,184,774 906,222

3.1. individual 213 263

3.2. collective 1,184,561 905,959

4. securities in custody and under administration 4,215 4,702

5. custodian bank - -

6. sale of securities 9,862 25,528

7. receipt and transmission of orders 6,044 6,356

8. consulting activities - -

8.1 investment consulting - -

8.2 financial structure consulting - -

9. services to third parties 19,119 14,989

9.1 portfolio management 10,099 5,489

9.1.1. individual - -

9.1.2. collective 10,099 5,489

9.2 insurance products 255 266

9.3 other products 8,765 9,234

d) Collection and payment services 23,424 21,733

e) Servicing for securitization transactions - -

f) Factoring services - -

g) Tax collection services - -

h) Management of multilateral trading systems - -

i) Bank accounts custodian and management services 14,643 14,790

j) Other services 160,911 110,885

Total 1,425,824 1,108,226

120


2015

2.2 Analysis of commission expense

E/t Dec. 31, 2015 Dec. 31, 2014

a) Guarantees received - -


c) Management and brokerage services (497,815) (433,731)

1. financial instruments brokerage (1,631) (2,069)

2. currency brokerage - -

3. portfolio management: (5,756) (5,084)

3.1 own (4,056) (3,037)

3.2 delegated by third parties (1,700) (2,047)

4. securities in custody and under administration (1,082) (736)

5. financial instruments brokerage (25,245) (25,530)

6. off-premises sales of financial instruments, products and services (464,101) (400,312)

d) Collection and payment services (25,142) (22,027)

e) Other services (24,672) (39,888)

Total (547,629) (495,646)

Section 3 – Dividends and similar income – Caption 70

3.1 Analysis of dividends and similar income

E/t

Dec. 31, 2015 Dec. 31, 2014

Dividends

Income from holdings in

UCITS Dividends

Income from holdings in

UCITS

A. Financial assets held for trading - - - -

B. Available for sale financial assets 1,782 2,419 3,564 2,389

C. Financial assets measured at fair value - - - -

D. Equity investments - X 557 X

Total 1,782 2,419 4,121 2,389

121


Section 4 – Net income from trading – Caption 80

4.1 Analysis of net income from trading

E/t Gains (A)

Tradinggains

(B) Losses (C)

Trading losses

(D)

Net income [(A+B) - (C+D)]

Dec. 31, 2015

1. Financial assets held for trading 4,747 6,161 (4,126) (7,309) (527)

1.1 Debt securities 4,747 6,149 (4,126) (7,176) (406)

1.2 Equity investments - 10 - (130) (120)

1.3 Holdings in UCITS - 2 - (3) (1)

1.4 Loans - - - - -

1.5 Others - - - - -

2. Financial liabilities held for trading 1,806 8,383 (545) (802) 8,842

2.1 Debt securities 1,806 8,382 (545) (797) 8,846

2.2 Payables - - - - -

2.3 Others - 1 - (5) (4)

3. Other financial assets and liabilities3. exchange differences X X X X 414

4. Derivatives 28 11,997 (17,078) (17,011) (20,279)

4.1 Financial derivatives: 28 11,997 (17,078) (17,011) (20,279)

- debt securities and interest rates 17 11,655 (17,049) (16,948) (22,325)

- equity investments and stock indices 11 342 (29) (63) 261

- currencies and gold X X X X 1,785

- others - - - - -

4.2 Credit derivatives - - - - -

Total 6,581 26,541 (21,749) (25,122) (11,550)

122


2015

Section 5 – Net income from hedging – Caption 90

5.1 Analysis of net income from hedging

E/t Dec. 31, 2015 Dec. 31, 2014

A. Income from:

A.1 Fair value hedging derivatives 35,705 -

A.2 Hedged financial assets (fair value) 345 37,038

A.3 Hedged financial liabilities (fair value) - -

A.4 Cash-flow hedging financial derivatives - -

A.5 Assets and liabilities denominated in foreign currencies - -

Total income from hedging (A) 36,050 37,038

B. Expenses related to:

B.1 Fair value hedging derivatives (395) (42,438)

B.2 Hedged financial assets (fair value) (24,915) -

B.3 Hedged financial liabilities (fair value) - -

B.4 Cash-flow hedging financial derivatives - -

B.5 Assets and liabilities denominated in foreign currencies - -

Total expense from hedging (B) (25,310) (42,438)

C. Net income from hedging (A-B) 10,740 (5,400)

Section 6 – Gains (losses) on sale/buyback – Caption 100

6.1 Analysis of gains (losses) on sale/buyback

E/t

Dec. 31, 2015 Dec. 31, 2014

Gains Losses Net result Gains Losses Net result

Financial assets

1. Loans to banks - (5) (5) 28 (1) 27

2. Loans to customers 5 (8) (3) 6 (11) (5)

3. Available for sale financial assets 6,110 (111) 5,999 90,680 (9) 90,671

3.1 Debt securities 3,606 (82) 3,524 89,767 (8) 89,759

3.2 Equity investments - (29) (29) 343 (1) 342

3.3 Holdings in UCITS 2,504 - 2,504 570 - 570

3.4 Loans - - - - - -

4. Held to maturity financial assets - - - - - -

Total assets 6,115 (124) 5,991 90,714 (21) 90,693


1. Amounts due to banks - - - - - -

2. Payables due to customers - - - - -

3. Securities issued - (659) (659) 5 (65) (60)

Total liabilities - (659) (659) 5 (65) (60)

123


Section 7 – Net result from financial assets and liabilities measured at fair value – Caption 110

7.1 Analysis of net change in value of financial assets and liabilities measured at fair value

E/t

Gains Gains on disposal LossesLosses on

disposalNet result

[(A+B) − (C+D)] Dec. 31, 2015(A) (B) (C) (D)

1. Financial assets 546,348 146,488 (176,665) (215,806) 300,365

1.1 Debt securities 16,475 18,612 (15,910) (13,959) 5,218

1.2 Equity investments - - - - -

1.3 Holdings in UCITS 529,873 127,876 (160,755) (201,847) 295,147

1.4 Loans - - - - -

2. Financial liabilities 67,847 - (605) (6,398) 60,844

2.1 Debt securities - - - - -

2.2 Amounts due to banks - - - - -

2.3 Due to customers 67,847 - (605) (6,398) 60,844

3. Financial assets and liabilities:3. exchange differences

X

X

X

X

-

4. Credit and financial derivatives - - - (1) (1)

Total 614,195 146,488 (177,270) (222,205) 361,208

Section 8 – Net impairment/reversal of impairment – Caption 130

8.1 Analysis of net impairment of loans

E/t

Value adjustments(1)

Write-backs(2)

TotalIndividualPortfolio

Individual Portfolio

Cancellations Others A B A B Dec. 31, 2015

Dec. 31, 2014

A. Loans to banks

- Loans - - - - - - - - (169)

- Debt securities - - - - - - - - -

B. Loans to customers

Impaired loans acquired

- Loans (237) - X - 114 X X (123) (26)

- Debt securities - - X - - X X - -

Other receivables

- Loans (1,100) (16,911) (1,672) - 5,269 - 1,373 (13,041) (17,059)


C. Total (1,337) (16,911) (1,672) - 5,383 - 1,373 (13,164) (17,254)

124


2015

8.2 Analysis of net impairment of Available for sale financial assets

E/t


Write-backs(2)

TotalIndividual Individual

Cancellations Others A B Dec. 31, 2015 Dec. 31, 2014

A. Debt securities - - - - - -

B. Equity investments - (91) X X (91) (50)

C. Holdings in UCITS - (4,016) X - (4,016) (10,125)

D. Loans to banks - - - - - -

E. Loans to customers - - - - - -

F. Total - (4,107) - - (4,107) (10,175)

Legend:A = From interestB = Other recoveries

8.4 Analysis of net impairment of other financial items

E/t


Write-backs(2)

TotalIndividual

Portfolio


Cancellations Others A B A BDec. 31,

2015Dec. 31,

2014

A. Guarantees issued - - (73) - - - - (73) (1,422)

B. Credit derivatives - - - - - - - - -

C. Commitments to disburseC. funds

- - - - - - - - -

D. Other transactions - - - - - - - - -

E. Total - - (73) - - - - (73) (1,422)


125


Section 9 – Net premiums – Caption 150

9.1 Analysis of net premiums written

Insurance Reinsurance Dec. 31, 2015 Dec. 31, 2014

A. Life

A.1 Gross premiums booked (+) 2,915,656 - 2,915,656 3,882,421

A.2 Reinsurance premiums (-) (4,042) X (4,042) (2,836)

A.3 Total 2,911,614 - 2,911,614 3,879,585

B. Damages

B.1 Gross premiums booked (+) 59,780 - 59,780 56,796

B.2 Reinsurance premiums (-) (3,489) X (3,489) (3,106)

B.3 Change in the gross amount for premiums B.3 reserve (+/-)

(16,937)

-

(16,937)

(20,131)

B.4 Change in premiums reserve borne by B.4 reinsurers (+/-) 148 - 148 154

B.5 Total 39,502 - 39,502 33,713

C. Total net premiums 2,951,116 - 2,951,116 3,913,298

Section 10 – Balance other income and expense from insurance activities – Caption 160

10.1 Analysis of balance of other income and expenses from insurance activities

E/t Dec. 31, 2015 Dec. 31, 2014

1. Net change in technical reserves 754,105 603,147

2. Claims paid during the year (4,148,474) (5,528,999)

3. Other income and expenses (net) from insurance activities (3,612) (62)

Total (3,397,981) (4,925,914)

126


2015

10.2 Analysis of “Net change in technical reserves”

E/t Dec. 31, 2015 Dec. 31, 2014

1. Life

A. Mathematical reserves 991,612 1,203,818

A.1 Gross annual amount 993,666 1,207,771

A.2 Reinsurers’ share (-) (2,054) (3,953)

B. Other technical reserves 303 (3,393)

B.1 Gross annual amount 303 (3,393)

B.2 Reinsurers’ share (-) - -

C. Technical reserves under which the investment risk is borne by the insurance C. company

(237,399) (596,976)

C.1 Gross annual amount (237,399) (596,976)

C.2 Reinsurers’ share (-) - -

Total “life insurance reserves” 754,516 603,449

2. Damages

Change in other damages technical reserves other than claim net of reinsurance (411) (302)

Total 754,105 603,147

10.3 Analysis of “Claims during the year”

E/t Dec. 31, 2015 Dec. 31, 2014

Life: expenses relating to claims, net of reinsurance

A. Amounts paid (4,134,911) (5,604,726)

A.1 Gross annual amount (4,140,634) (5,612,946)

A.2 Reinsurers’ share (-) 5,723 8,220

B. Change in reserve for outstanding claims (3,526) 85,662

B.1 Gross annual amount (3,315) 85,797

B.2 Reinsurers’ share (-) (211) (135)

Total life claims (4,138,437) (5,519,064)

Damages: expenses relating to claims, net of recoveries and reinsurance

C. Amounts paid (9,014) (8,021)

C.1 Gross annual amount (9,846) (8,704)

C.2 Reinsurers’ share (-) 832 683

D. Change in recoveries net of reinsurers’ shares 64 (26)

E. Change in claims reserve (1,087) (1,888)

E.1 Gross annual amount (1,041) (2,198)

E.2 Reinsurers’ share (-) (46) 310

Total damages claims (10,037) (9,935)

127


10.4 Analysis of item “Other insurance income/expenses”

10.4.1 Life

E/t Dec. 31, 2015 Dec. 31, 2014

Life

A. Income 10,556 11,237

- Other technical income, net of reinsurance - -

- Unrealized income and gains related to investments for the benefit of - policyholders who bear the risk

- -

- Change in commissions and other acquisition costs to be amortized - -

- Commissions and investments in profits received from reinsurers - -

- Other income 10,556 11,237

B. Expenses (8,506) (8,942)

- Other technical expenses, net of reinsurance - -

- Unrealized expenses and losses related to investments for the benefit of - policyholders who bear the risk

- -

- Acquisition commissions - -

- Other acquisition costs - -

- Collection commissions - -

- Other expenses (8,506) (8,942)

Total Life (A - B) 2,050 2,295

10.4.2 Damages

E/t Dec. 31, 2015 Dec. 31, 2014

Damages

A. Income 80 504

- Other technical income, net of reinsurance - -

- Change in commissions and other acquisition costs to be amortized - -

- Commissions and investments in profits received from reinsurers - -

- Other income 80 504

B. Expenses (5,742) (2,861)

- Other technical expenses, net of reinsurance - -

- Acquisition commissions - -

- Other acquisition costs - -

- Collection commissions - -

- Other expenses (5,742) (2,861)

Total Damages (A - B) (5,662) (2,357)

128


2015

Section 11 – Administrative expenses – Caption 180

11.1 Analysis of personnel expenses

E/t Dec. 31, 2015 Dec. 31, 2014

1) Employees (171,258) (160,022)

a) salaries and wages (121,446) (113,703)

b) social security (33,730) (31,475)

c) completion of service entitlements - (17)

d) pensions - -

e) provision for employee termination indemnity (5,954) (5,422)

f) provisions for severance benefits and similar obligations: (10) (61)

- defined contribution plan - (32)

- defined benefit plan (10) (29)

g) external supplementary pension funds: (2,185) (1,613)

- defined contribution plan (1,963) (1,496)

- defined benefit plan (222) (117)

h) expenses in connection with equity-settled share-based payment transactions - -

i) other employee benefits (7,933) (7,731)

2) Other personnel (4,878) (6,234)

3) Directors and Statutory Auditors (11,326) (10,137)

4) Retired personnel - -

Total (187,462) (176,393)

11.2 Average number of employees by category

Resources Dec. 31, 2015 Dec. 31, 2014

1) Employees 2,532 2,428

a) executives 97 88

b) middle managers 386 354

c) other employees 2,049 1,986

2) Other personnel 119 4

Total 2,651 2,432

11.3 Company pension plans with defined benefits: total costs

E/t Dec. 31, 2015

Current service costs (10)

Financial expenses -

Estimated return on assets into which the plan invests -

Estimated return on redemption rights accounted for as assets -

Actuarial gains and losses -

Past service costs -

Effect of other reductions and cancellations -

Total (10)

129


11.5 Analysis of other administrative expenses

E/t Dec. 31, 2015 Dec. 31, 2014

IT systems (93,308) (95,845)

Infoprovider services (9,236) (6,981)

Financial Services fees and expenses (3,080) (2,962)

Miscellaneous services (26,526) (24,361)

Intercompany services (2,228) (2,504)

Taxes and duties (3,860) (3,208)

Television and internet communication services (2,405) (2,673)

Network advisory services and consulting (3,731) (3,812)

Rentals (14,089) (13,716)

Maintenance and repairs (5,894) (3,619)

Telephone and postal expenses (13,841) (13,099)

Other consulting and collaboration (22,839) (22,887)

Contributions to “Family Banker Offices” (775) (1,287)

Consumables (6,932) (7,204)

Insurance (2,940) (2,729)

Member fees (23,866) (4,348)

Advertising and promotional expenses (28,567) (29,203)

Organization of conventions (13,140) (11,802)

Consulting, education and training for sales network (2,185) (2,225)

Company canteen (74) (147)

Energy utilities (1,801) (1,662)

Business expenses, gifts and other (6,866) (4,404)

Market research (2,617) (1,958)

Recruitment and selection of employees (858) (1,588)

Travel expenses (1,654) (1,459)

Recruitment and selection of financial advisors (436) (221)

Other administrative expenses (5,306) (4,389)

Total (299,054) (270,293)

Section 12 – Net provisions for risks and charges – Caption 190

12.1. Analysis of net provisions for risks and charges

E/t Dec. 31, 2015 Dec. 31, 2014

Portfolio allowance (1,621) (4,426)

Supplementary customer allowances (26,479) (14,154)

Risks for financial advisor offences 119 (4,692)

Future expenses on distributed products (1,834) (2,355)

Legal proceedings (12,357) 3,272

Managerial allowance (13,794) (8,503)

Other allocations to the provisions for risks and charges (3,358) (4,243)

Total (59,324) (35,101)

130


2015

Section 13 – Depreciation and net impairment of tangible assets – Caption 200

13.1. Analysis of depreciation and net impairment of tangible assets

E/tDepreciation

(A)Impairment

(B)Write-backs

(C)

Net result(A + B + C)

Dec. 31, 2015

A. Tangible assets - - - -

A.1 Owned (8,934) - - (8,934)

- held for use (7,413) - - (7,413)

- held for investment purposes (1,521) - - (1,521)

A.2 Assets acquired under finance leases (6) - - (6)

- held for use (6) - - (6)

- held for investment purposes - - - -

Total (8,940) - - (8,940)

Section 14 – Amortization and net impairment of intangible assets – Caption 210

14.1 Analysis of amortization and net impairment of intangible assets

E/tAmortization

(A)Impairment

(B)Write-backs

(C)

Net result(A + B + C)

Dec. 31, 2015

A. Intangible assets - - - -

A.1 Owned (17,109) - - (17,109)

- internally generated - - - -

- other (17,109) - - (17,109)

A.2 Assets acquired under finance leases - - - -

Total (17,109) - - (17,109)

Section 15 – Other operating income/expenses – Caption 220

15.1/15.2 Analysis of other operating income and expenses

E/t Dec. 31, 2015 Dec. 31, 2014

Recovery of expenses for contracts and services rendered 404 247

Rental income on properties owned 5,777 7,073

Income on divestments 36 36

Recharge of costs to customers 46,618 45,419

Recovery of various costs 62 398

Recharge of costs to promoters 33 52

Other income - 9

Total “Other operating income” 52,930 53,234

Other operating expenses - -

Losses on divestments (17) (97)

Transactions and compensation (6,450) (5,544)

Amortization of expenses for improvements of third-party assets (1,194) (1,407)

Other expenses (36,348) (38,978)

Total “Other operating expenses” (44,009) (46,026)

131


Section 16 – Profit (Loss) on equity investments – Caption 240

16.1 Analysis of profit (loss) on equity investments

E/t Dec. 31, 2015 Dec. 31, 2014

1) Joint ventures

A. Income 3,275 4,236

1. Revaluations 3,275 4,236

2. Gains on sale - -

3. Write-backs - -

4. Other income - -

B. Expenses (3,155) -

1. Write-downs - -

2. Impairment - -

3. Losses on disposal - -

4. Other expenses (3,155) -

Net Result 120 4,236

2) Companies under significant influence

A. Income 22,140 14,458

1. Revaluations 22,140 14,458

2. Gains on sale - -

3. Write-backs - -

4. Other income - -

B. Expenses - -

1. Write-downs - -

2. Impairment - -


4. Other expenses - -

Net Result 22,140 14,458

Total 22,260 18,694

132


2015

Section 19 – Profit (Loss) on disposal of investments – Caption 270

19.1 Analysis of profit (loss) on disposal of investments

E/t Dec. 31, 2015 Dec. 31, 2014

A. Property - -

- Gains on disposal - -

- Losses on disposal - -

B. Other assets (5) (52)

- Gains on disposal 4 12

- Losses on disposal (9) (64)

Net result (5) (52)

Section 20 – Income tax expense on continuing operations – Caption 290

20.1 Analysis of income tax expense on continuing operations

E/t Dec. 31, 2015 Dec. 31, 2014

1. Current taxes including closing of tax assessment (-) (109,410) (134,661)

2. Change in current tax prior years (+/-) (13,892) 1,740

3. Change in current tax for the year (+) - -

3. bis Change in current tax for the year for tax credits under law no 214/2011 (+) - -

4. Change in deferred tax assets (+/-) 987 1,054

5. Change in deferred tax liabilities (+/-) (287) (410)

6. Income tax expense for the year (-) (-1+/-2+3+3bis+/-4+/-5) (122,602) (132,277)

20.2 Reconciliation between theoretical and effective tax rate

E/t Dec. 31, 2015 Dec. 31, 2014

Theoretical IRES tax rate or equivalent taxes 12.01% 13.10%

Profit before tax 561,215 452,682

Theoretical tax expense 67,404 59,282

Higher actual rate and higher IRAP taxable base 18,201 27,137

Other adjustments – permanent differences 5,797 5,058

IRES tax expense and equivalent taxes 91,402 91,477

Effective IRES tax rate and equivalent taxes 16.29% 20.21%

provision for legal disputes 31,200 40,800

Total taxes to income statement 122,602 132,277

Total effective tax rate 21.85% 29.22%

133


Section 21 – Net profit (loss) after tax of non-current assets pending disposal – Caption 310

21.1 Analysis of profit (loss) after tax of non-current assets/liabilities pending disposal

E/t Dec. 31, 2015 Dec. 31, 2014

1. Income - -

2. Expenses - -

3. Result of valuations of groups of assets and associated liabilities - -

4. Realized gains (losses) - 212

5. Taxes and duties - -

Profit (Loss) - 212

Section 24 – Earnings per share

24.1 Average number of diluted capital ordinary shares

Dec. 31, 2015 Dec. 31, 2014

Net Profit (*) 438,613 320,617

Weighted average number of outstanding shares 737,919,428 736,719

Adjustment for stock options with potential dilution effect (*) 4,765 4,910

Weighted average number of outstanding shares for purposes of diluted earnings per share 742,684,154 741,630

Diluted earnings per share (Euro) 0.591 0.432

(*) Values in Euro thousands

134


2015

PART D – INFORMATION ON CONSOLIDATED COMPREHENSIVE INCOME

STATEMENT OF OTHER COMPREHENSIVE INCOME

E/t

Dec. 31, 2015

Gross amount

Incometax

Netamount

10. Profit (Loss) for the year X X 438,613

Other income components without reversals to the income statement (3,395) - (3,395)

20. Tangible assets - - -

30. Intangible assets - - -

40. Defined benefit plans (737) - (737)

50. Non-current assets held for sale - - -

60. Share of valuation reserves on investments accounted for by the equity method (2,658) - (2,658)

Other income components with reversals to the income statement 40,833 (11,246) 29,587

70. Hedges of investments in foreign operations: - - -

a) changes in fair value - - -

b) reversals to the income statement - - -

c) other changes - - -

80. Exchange differences: - - -




90. Cash flow hedges: - - -




100. Available for sale financial assets: 31,262 (8,062) 23,200

a) changes in fair value 52,529 (15,121) 37,408

b) reversals to the income statement (21,322) 7,078 (14,244)

- impairment 3,358 (1,143) 2,215

- realized gains/losses (24,680) 8,221 (16,459)

c) other changes 55 (19) 36

110. Non-current assets held for sale: - - -




120. Share of valuation reserves on investments accounted for by the equity method:

9,571

(3,184)

6,387

a) changes in fair value 1,671 (577) 1,094

b) reversals to the income statement (2,045) 676 (1,369)

- impairment - - -

- realized gains/losses (2,045) 676 (1,369)

c) other changes 9,945 (3,283) 6,662

130. Total other income components 37,438 (11,246) 26,192

140. Comprehensive income (Captions 10+130) 37,438 (11,246) 464,805

150. Total consolidated comprehensive income (loss) pertaining to minority interests - - -

160. Total consolidated comprehensive income (loss) pertaining to the parent company 37,438 (11,246) 464,805

135


PART E – INFORMATION ON RISKS AND RISK MANAGEMENT

SECTION 1 – BANKING GROUP RISKS

1.1 CREDIT RISK – QUALITATIVE INFORMATION

GENERAL ASPECTS

Risk Management and Internal Control System

The Group’s internal control system consists of the set of rules, procedures and functions established to ensure the

effectiveness and efficiency of corporate processes, the protection of company’s assets and the proper management

of customer assets, the reliability and integrity of accounting and management information as well as compliance

with internal and external rules, statutes and regulations. The companies of the Mediolanum Group operate a com-

prehensive, effective internal control system in accordance with applicable regulations and the business they conduct.

The Board of Directors and management play a key role in the establishment of an adequate risk management

framework and the implementation of an effective internal control system.

The control system is organized on various levels, to which different levels of responsibility correspond. Specifically,

the internal control system is built around the following three main lines of defense:

• line controls: made by the individuals who carry out a certain activity and by their supervisors. They are generally

carried out within the same organizational unit or function and are arranged directly by the same production

structures or incorporated in automated procedures or executed as part of back-office activities;

• risk or second-level controls: performed by units other than operating units that contribute to the definition of

risk measurement methods, control of operating limits of officers to whom authorities are delegated, and verify

compliance of transactions with the risk/return targets set by corporate bodies in their respective areas of respon-

sibility. This category includes controls over credit risk, market risk, capital risk, investment risk, operational

risk, compliance risk and reputational risk;

• internal audit or third-level controls: entails the periodic assessment of the completeness, effectiveness and

adequacy of the internal control system in relation to the nature of the business and the level of risks under-

taken. These controls are the responsibility of the Internal Audit function which is separate and independent of

operating units.

For the performance of their duties, control staff is granted access to all corporate structures as well as to any

information they may need to assess outsourced activities. The Board of Directors and the Board of Statutory Au-

ditors receive regular reports on internal control work so that they can promptly take suitable corrective measures

if deficiencies are detected.

136


2015

Underlying principles

The following general principles form the bedrock of the Group risk management framework:

• completeness in the types and location of risks;

• segregation of duties between the Compliance and Risk Management function and Operating Units, in accord-

ance with the proportionality principle, which entails an implementation approach by subsidiaries commensu-

rate with the size of the entity;

• use of uniform, consistent models and methods for the collection of data and information as well as for the

analysis and measurement of risks by all organizational units and/or companies within a Group, as applicable;

• timely and consistent analysis and measurement of risks; subsequent preparation of reports to support control

and decision-making processes;

• transparency and dissemination of models, methods and criteria applied in the analysis and measurement of

risks to promote a control culture within the organization and understanding of the reasons underlying the

choices made;

• delegation of risk management authorities and responsibilities from the Board of Directors to the Operating

Units for their direct management of the risks to which corporate processes are exposed.

The Mediolanum Group has defined as part of the processes that characterize the different business activities, its

Risk Appetite Framework (“RAF”) or the level of risk, overall and by type of risk that it intends to adopt for the

achievement of its strategic objectives, identifying the metrics being monitored, the relative tolerance thresholds

and different limits of risk.

To ensure adherence to the above standards, the Mediolanum Group has therefore adopted a system of internal

policies that define the comprehensive risk management and control framework of reference.

The main objectives of these policies are to:

• ensure that any material breaches/anomalies be promptly identified by the internal control system and ade-

quate corrective/mitigating actions be taken;

• ensure the consistent application of risk management principles and rules across the Group;

• promote a risk management culture at all levels of the organization and encourage consistent, knowledgeable

operating choices and practices, in a structured way.

Risk Management Function

The Risk Management Function of Banca Mediolanum is responsible for monitoring the exposure of the Bank and

the Group to financial and credit risks and assessing the capital impact on operational and reputational risks, keep-

ing under constant control the capital adequacy in relation to the activity performed exercising a role of guidance

and coordination on issues related to the management and control of current and perspective risks, in respect of

subsidiaries in which there are Risk Management Functions.

The Risk Management Function therefore defines and maintains the framework of the control and management of

all the risks of the companies belonging to the Banking Group; it is responsible for the supervision of the first pillar

risks (credit, market and operational) and conducts qualitative and quantitative assessment of second pillar risks of

Basel II, in compliance with the guidelines of the Board of Directors and the current law provisions.

It also defines the methods for assessing and monitoring reputational risks in coordination by the Compliance Func-

tion. It is also responsible for drafting regulation policies regarding all relevant risks and identifies and develops

137


quantitative methodologies for the management of relevant risk pertaining to the first and second pillar.

Continuous verification of the adequacy of the Risk Appetite Framework and of the banking Group and coordi-

nates the Internal Capital Adequacy Assessment Process (ICAAP) for those activities specifically attributed to

them and falling within the scope of the ICAAP Regulation.

The Risk Management Function exercises, in accordance with as explicitly required by law, its function of guid-

ance and coordination for all Mediolanum Group companies through different areas of activity including strategic,

management and technical/managerial coordination. The Risk Management Function, following assessment by

the Audit and Risks Committee on the performance of control activities, reports to the Board of Directors on the

overall situation of risk in its various components.

Compliance Function

The Compliance Function oversees the management of non-compliance risks, according to a risk-based approach,

with regard to all corporate activities, using, for oversight of certain regulatory areas for which there are forms

of specialized oversight, to specifically identified specialist units which are attributed certain stages of the com-pliance process. In addition to overseeing the regulatory framework, the Function is responsible for specialist

consulting, regulatory alert and gap analysis, verification of adequacy of company structures and processes with

respect to the existing regulatory framework and identification of actions to mitigate non-compliance risks.

The Compliance Function of Banca Mediolanum S.p.A. also oversees the risks of non-compliance also on behalf of

the Italian Group companies, by means of specific service agreements, and outsources, for the Risk Management

functions of the Mediolanum Group and other Italian companies of the Group, assessments on operational and

reputational risks, as part of the integrated assessment activities and periodically sends the results to the func-

tions, based on the schedule agreed with them.

The Function reports to the Board of Directors about the overall situation of non-compliance risk in its various

aspects.

Anti-Money Laundering Unit

The Anti-Money Laundering Unit, as a second-level control function, regularly fulfilled its mission during the year

through the verification of suitability of the system of internal controls and procedures adopted by the Bank, and

proposing organizational and procedural changes necessary in order to ensure adequate monitoring of risks in

terms of combating money laundering and terrorist financing.

The Anti-Money Laundering Unit, which employs 16 resources, also analyzed more than 9,200 “positions to be

evaluated” – generated by automatic oversights or detected by employees, collaborators and Family Bankers –

that were subjected to the Delegate of Reporting of Suspicious Transactions or Deputy to assess any suspects

pursuant to art. 41 Legislative Decree 231/2007.

In collaboration with the Human Resources Division and Mediolanum Corporate University, the Anti-Money Laun-

dering Unit has provided more than 50 training sessions to employees, collaborators and Family Bankers.

138


2015

Network Inspection Sector

During the year under review, the Network Inspection continued to carry out second level controls and checks on

the sales network members to make sure their off-premises activities were in full compliance with the regulations

in force.

Checks and inspections were conducted at the Family Banker private offices in the field as well as at the archives

and corporate Headquarters. Additional checks were conducted via ad-hoc quantitative and statistical indicators

monitoring potential operational and reputational risks related to the Sales Network activities.

The Network Inspection staff also availed themselves of the support of Banking Center resource, for the conduct

of supplementary direct control activities on customers, also by means of remote communication and information.

Upon completion of checks, actions were planned to remedy any irregularities found and, where necessary, sanctions

were applied to the financial advisors involved or their mandate was revoked.

As at December 31, 2015, the Network Inspection team consisted of a total of 26 resources, with productivity in

line with the previous year. The Banking Services Center staff providing assistance to Network Inspection unit, even

by means of remote communication, consisted of 4-6 people.

In 2015, the cases of fault committed by Family Bankers and reported to the Supervisory Board amounted to 10

against 9 cases in 2014, with the confirmation of a stable and reduced frequency of claims in relation to the average

over the past 10 years.

As further protection, in 2015, the Bank renewed the policy taken out to cover any illegal actions committed by the

sales force to the detriment of customers.

Internal Audit Team

The Internal Audit Team constantly monitors the internal control system to verify its effectiveness and efficiency and

to identify any deficiencies in the system, in procedures or policies, verifies and supplements the effectiveness of the

overall management process of financial, credit and operational risk.

Internal Auditing provides independent and objective audit services and consulting to improve the effectiveness and

efficiency of the organization and of the overall internal control system.

The team monitors operation and assesses functionality of the overall internal control system, including via field

checks, and reports on possible improvements of risk management policies, risk measurement tools and governance

processes to the Board of Directors and the Chief Executive Officer.

It performs the above activities also for the companies belonging to the Group with which it has entered into a spe-

cific contract; it also carries out coordination activities at Group level with respect to the homologous Functions at

the subsidiaries and affiliates.

The team regularly reports on its activities to the Board of Directors, the Board of Statutory Auditors and the Au-

dit and Risks Committee. In the event of serious irregularities, the team immediately reports them to the Board of

Statutory Auditors and the Board of Directors.

139


Risks Committee

The Audit Committee provides assistance to the Board of Directors in their at least annual assessment of the con-

formity, adequacy and effective operation of the internal control system by making sure that key risks, including

credit risk, are correctly identified and measured as well as properly managed and monitored.

The Audit Committee assists the Board of Directors in the performance of their duties of guidance with respect to

the Internal Control System of the Company and its subsidiaries as well as the regular assessment of its adequacy

and effective operation. The Audit Committee assesses the audit program prepared by the Internal Audit team from

which it receives regular reports; it examines and assesses any issues raised by control teams, the Statutory Audi-

tors and the independent auditors in their reports; it assesses issues raised and recommendations made following

controls by Control and/or Supervisory Authorities. The Audit Committee reports to the Board of Directors on its

activities, at least biannually, upon the approval of the half-yearly and annual reports and accounts; it fulfills the

further internal control duties mandated to it by the Board of Directors, in particular in respect of its relationship

with the independent auditing firm.

140


2015

RISK DISCLOSURES PURSUANT TO IFRS 7

IFRS 7 covered in this section, mainly regards the disclosures to be provided concerning the nature and extent of

risks arising from financial instruments to which the Company is exposed. The disclosures required under IFRS 7

are both qualitative and quantitative and relate to exposure to credit risk, liquidity risk and market risk. Qualitative

disclosures relate to the “objectives, policies, processes and methods adopted by management for risk measurement

and management”, while quantitative disclosures relate to quantitative data about the entity’s exposures to credit

risk, liquidity risk and market risk.

This section provides information that is representative of Mediolanum Group risk exposures pursuant to IFRS 7, in

accordance with their relevance for the Group’s operating segments, i.e. insurance, banking and asset management.

Pursuant to IFRS7 disclosures are provided in relation to liquidity risk, credit risk and market risk. This section,

however, contains further information about risk management policies and techniques for purposes beyond the scope

of IFRS 7.

It shall also be noted that with the introduction of IFRS 13, a number of amendments have been made to a number

of standards, in particular, all related disclosures of the Fair Value Hierarchy (FVH) are no longer regulated by

IFRS 7 but by IFRS 13.

IFRS 13 thus establishes a single standard for fair value valuation and provides a complete indication on the fair

value assessment of financial and non-financial assets and liabilities. IFRS 13 therefore proposes a new definition of

fair value, defined as “the price that would be received to sell an asset or that would be paid to settle a liability in a

normal transaction between market participants at the measurement date”. The fair value is thus determined based

on market values. Disclosures on the different fair value levels of items subject to the relative valuation, as required

by IFRS 13 have been extensively outlined in Part A of the Notes.

Financial Instruments’ classification methodological principles

The disclosures required by IFRS 7 can be substantially referred to the classification in three main types of risk:

1. Credit Risks. Credit risk is the risk of loss arising from the deterioration in the creditworthiness up to default of

either retail customers or institutional counterparties of whom the bank is a creditor in its investment activities,

as a result of which debtors fail to meet all or part of their contractual obligations.

2. Market Risks. Market risk is the risk of potential losses, which may also be significant, from adverse move-

ments in market rates and prices to which the Mediolanum Group companies are exposed in their investment

activities, such as interest rates, exchange rates, equity prices, volatility, bond spreads.

3. Liquidity Risks. Liquidity risk is typically the risk that arises from the difficulty of liquidating assets. More spe-

cifically, it is the risk that a financial instrument cannot be bought or sold without a material decrease/increase

in its price (bid-ask spread) due to the potential inability of the market to settle the transaction wholly or part-

ly. Liquidity risk is also the potential risk that an entity will be unable to obtain adequate funding. Pursuant to

Basel II Second Pillar Supervisory Review of the Internal Capital Adequacy Assessment Process (ICAAP), the

regulator requires banking organizations to put in place liquidity risk measurement and management policies

and processes.

Information on risks is set out below.

141


Risk management at Conglomerate level

For financial conglomerates that engage in both insurance and banking, the traditional approach applied by reg-

ulators and supervisors to ensure that enough capital is held against risks has been to consider the risk profile of

each business (insurance and banking) and set forth capital requirements against the specific risks to which each

business is exposed. The insurance business is subject to Solvency II requirements and the banking business to the

ICAAP process. At conglomerate level, compliance with these requirements is compounded by assessment, analysis

and monitoring of risk concentration.

Risk concentration indicates an exposure with the potential to produce losses that are large enough to threaten the

solvency or financial position of the conglomerate entities. Management and control of risk concentration is carried

out by aggregating the exposures of all Conglomerate entities to the same counterparty, be it public or private, re-

gardless of the form of exposure.

Quarterly reports with particulars on the most significant exposures of the Conglomerate to the same counterparties

are sent to the Supervisory Authorities.

Owing to their pervasive nature a common risk framework was adopted at Group level for strategic risk, operational

risk, compliance risk and reputational risk. Said framework is applied to the various entities within the Group under

a proportionate approach according to the characteristics of the specific business and related statutory and regula-

tory requirements.

Given the common framework information about strategic risk, operational risk, compliance risk and reputational

risk provided in the following pages relates to the entire Group while the information about financial risk and credit

risk is given separately for the insurance business and banking business.

Banking – Financial Risk and Credit Risk

As mentioned briefly above, the Internal Audit system of the Mediolanum Group meets the need to ensure sound and

prudent management of the activities of both the bank and the other Group companies, while reconciling the achieve-

ment of company objectives, proper and accurate risk monitoring and operability based on criteria of correctness.

To this end, the companies of the Group have adequate risk assessment and control systems, in line with the com-

plexity and characteristics of the present and future activities by adopting and formalizing a series of criteria and

rules for the definition of their risk appetite through the adoption of the Risk Appetite Framework (RAF). The

RAF, approved by the Strategic Supervisory Body of the parent company, therefore summarizes the strategies of

risk assumption representing the overall structure within which it is intended to manage the risks undertaken, also

through the definition of maximum tolerance to risk, with consequent articulation of the oversight adopted overall

and divided for each significant risk. The RAF as a tool able to focus attention on the risk profile of the Banking

Group, through an integrated vision of risks, has significant relations and synergies with the ICAAP process, ideally

“upstream” with respect to the latter.

142


2015

The Internal Capital Adequacy Assessment Process (ICAAP)

The assessment of the risk profile and the periodic review is carried out continuously and is reported at least annual-

ly through the ICAAP (Internal Capital Adequacy Assessment Process) report, which represents the self-assessment

process of capital adequacy according to the Group’s internal rules. Under Basel II Pillar 2 (Title III of Bank of

Italy’s Circular 285/2013) banks are required to have a process to estimate their own internal capital requirements

to cover all risks, including those not captured by the total capital requirement (Pillar 1) as part of the assessment

of the bank’s current and future exposure, taking account of the bank’s strategies and possible developments in the

environment in which it operates. Supervisory regulations detail the steps, the frequency and the main risks to be

considered and, for certain risks, set out indications on methods that should be used in the assessment. In applica-

tion of the proportionality principle, banks are classified into three categories that generally identify intermediaries

according to their size and the complexity of their activities. Responsibility for the ICAAP rests with corporate

governance bodies of the parent company.

The Supervisory Review Process (SREP)

Starting 2014, the Supervisory Review Process – SREP underwent a profound transformation through the es-

tablishment of the Single Supervisory Mechanism (MVU), which includes the European Central Bank (ECB) and

the National Competent Authorities of EU member states. This body is responsible for the prudential supervision

of all credit institutions of the member states and ensuring that the EU policy on prudential supervision of banks

is implemented coherently and effectively in all EU countries. Therefore, the new rules introduced require that the

supervision of intermediaries defined significant be carried out by the ECB in close cooperation with the national su-

pervisory Authorities. The supervision of the remaining banks will remain under the responsibility of the Authorities

of each country that will proceed on the basis of uniform criteria. Banca Mediolanum currently and according to the

criteria established by the ECB, is included in this second group of banks. Supervision is therefore divided into two

separate phases: the first is the banks’ process for assessing their current and future capital adequacy in relation

to their risk profile and business strategies (ICAAP). The second is the Supervisory Review and Evaluation Process

(SREP) conducted by the national banking Supervisory Authorities that review and evaluate banks’ internal capital

adequacy and, if needed, take appropriate action.

The SREP hinges on the collaboration and exchange of information between the Banking Supervisor and banks. The

Banking Supervisor (Bank of Italy) can thus gain a deeper understanding of the banks’ ICAAP including underlying

assumptions, and banks can detail the assumptions underlying their assessment.

Banks define strategies and put in place procedures and tools to maintain adequate capital level – in terms of value

and composition – to cover all the risks to which they are or may be exposed, including those risks for which a capital

charge is not required.

The ICAAP hinges on the bank’s sound risk management framework, effective internal control system, robust cor-

porate governance and well-defined lines of responsibilities.

143


Board and senior management are responsible for the ICAAP. They are responsible for designing and organizing

it in accordance with respective competences and prerogatives. They are responsible for the implementation and

for regular reviews of the ICAAP to ensure it is commensurate with the operational and strategic environment in

which the bank operates.

The ICAAP must be documented, shared and known across the organization and subject to internal audit.

The Supervisory Review Process reflects the principle of proportionality, i.e.:

• the bank’s corporate governance, risk management framework, internal control system and capital assessment

process are commensurate with the nature, size and complexity of its activities;

• the frequency, the level of detail and sophistication of the SREP depend on the systemic relevance, the nature,

size and complexity of the bank’s business.

Classification of intermediaries in relation to the ICAAP

The principle of proportionality applies to:

• the methods used to measure/assess risks and related internal capital adequacy;

• the type and characteristics of stress tests;

• the treatment of correlations between risks and overall internal capital requirements;

• organization of the risk management system;

• level of detail and sophistication of ICAAP reports to the Bank of Italy.

To facilitate the implementation of the proportionality principle, banks are classified into three categories accord-

ing to their size and the complexity of their activities. The Mediolanum Banking Group falls within category 2, i.e.

banking groups or banks applying the standardized approach, with consolidated or separate assets in excess of Euro

3.5 billion.

Banks apply a consistent approach to deriving capital requirements from the bank’s risk measurement under the

first pillar and overall internal capital requirements.

It shall also be noted that for the purpose of classification according to the criteria of the current EU provisions (re-

fer to EU regulation no. 575/2013 and circular 285/2013 implementing the CRR) it seems reasonable to consider

and qualify “Banca Mediolanum” as “intermediary bank”.

144


2015

Banca Mediolanum’s ICAAP processes

In accordance with supervisory requirements and in line with best practices, Banca Mediolanum’s ICAAP entails

the following steps:

1. identification of risks for assessment;

2. measurement/assessment of individual risks and related internal capital level;

3. measurement of the overall internal capital level;

4. determination of overall capital level and reconciliation to regulatory capital.

Key Risks Mapping

In accordance with Bank of Italy’s Circular 285 of December 2013 and subsequent updates, the process for the

identification of the key risks for the Mediolanum Banking Group starts from the analysis of the Bank’s and Group’s

statutory lines of business and activities conducted in each of these lines.

Risk mapping therefore starts from the macro lines that make up the Banking Group’s business.

In the Mediolanum Banking Group, the following main business segments can be identified:

• Lending (Retail and Commercial Banking)

• Treasury activities (Trading and Sales)

• Asset Management

• Retail Brokerage.

The starting point is risk measurement followed by the definition of relevant risk thresholds for risks for which there

is a capital charge requirement as well as for other risks for which there is no capital charge requirement but must

be analyzed and monitored.

First pillar risks

Credit Risk (including counterparty risk)

Credit risk is the risk of loss arising from the deterioration in the creditworthiness up to default of retail, corporate

and institutional counterparties of whom the bank is a creditor in its investment or lending business, as a result of

which debtors fail to meet all or part of their contractual obligations.

Market Risk

For banks using the standardized approach the capital requirement for market risk is the sum of capital require-

ments for position risk, settlement risk, concentration risk and commodity risk.

Operational Risk

Banca Mediolanum defines operational risk as “the risk of economic loss or damage to assets, and sometimes legal

and administrative consequences, resulting from any misconduct or inappropriate behavior of its personnel, inade-

quate or failed systems or internal processes, or external events”.

145


Second pillar risks

Concentration Risk

Concentration risk is the risk arising from exposure to individual counter-parties, groups of related counter-parties

or counter-parties in the same industry, business segment or geographical area.

Interest rate risk

Interest rate risk arising on activities other than trading: the risk of potential changes in interest rates.

Liquidity Risk

Liquidity risk is typically the risk that arises from the difficulty of liquidating assets. More specifically, it is the

risk that a financial instrument cannot be bought or sold without a material decrease/increase in its price (bid-ask

spread) due to the potential inability of the market to settle the transaction wholly or partly. Liquidity risk is also

the potential risk that an entity will be unable to obtain adequate funding.

Residual Risk

The risk that the credit risk mitigation techniques adopted by the Bank turn out to be less effective than anticipated.

Strategic Risk

Strategic risk is the current or prospective risk of impact on earnings or capital arising from changes in the indus-

try, adverse business decisions, improper implementation of decisions, lack of responsiveness to industry changes.

Compliance Risk (or Non-Conformity Risk)

It is the risk of legal penalties or fines, financial losses or reputational damage resulting from failed compliance

with statutes, regulations, codes of conduct, self-discipline or internal rules.

Reputational Risk

Reputational risk is the current or prospective risk of impact on earnings or capital arising from the negative

perception of the bank’s image by customers, counterparties, shareholders, investors or Supervisory Authorities.

146


2015

1.1 – BANKING GROUP – CREDIT RISK

QUALITATIVE INFORMATION

General aspects

Lending, be it the provision of home loans or consumer credit, or in other forms to meet other financing needs, is

part of the business of the Mediolanum Banking Group. Consistently with the Group mission, lending complements

the Group primary business i.e. the distribution of banking, asset management, insurance and retirement savings

products. The Group applies prudent credit policies, which are geared to develop and strengthen the relationship with

customers who invest in products managed by the companies within the Group.

With particular reference to Banca Mediolanum, the Lending Division is responsible for ensuring adequate imple-

mentation of the Bank’s credit policy in compliance with laws and regulations in force. Currently the Credit Division

is divided into the following Units: Ordinary Loans, Special Loans, Corporate Loans, Credit Quality Monitoring and

Watch List and Credit Operations.

The Short-term lending team is responsible for all processes relating to approval and granting of overdrafts, loans,

endorsements as well as for management of guarantees.

The team exercises credit approvals under delegated authorities. For credit that is outside the scope of the authori-

ties delegated to it, the team prepares all information and documentation relating to the loan application including

a non-binding opinion and submits it to superior bodies.

The Medium/Long-term lending team is responsible for approval and granting of mortgage loans in accordance with

Credit Management Guidelines and Rules.

Prepares and submits reports to the Head of the Division and collaborates with the Credit Quality Monitoring and

Watchlist Unit in the preparation of Medium/Long-term Lending Policy and Rules.

The Credit Operations Unit collaborates with the Credit Quality Monitoring and Watchlist Unit in the drafting of

Corporate Credit Rules and Policies and also deals with the collection of applications and documentation relating to

corporate credit (mortgages and ordinary loans) and assessment in accordance with the company’s risk policies and

risk appetite, manages relationships with Customers, the Sales Network and the other units of the Bank, providing

assistance for setting the application of corporate credit. The team also sees to the formal and substantive review

of credit application and deals with the preliminary investigation and the investigation of all the corporate credit

claims, in coordination with the Relevant Customer unit for the specific segment.

The Credit Quality Monitoring and Watch List Unit is the unit that oversees the supervision and monitoring of credit

activities of the Bank, overseeing the proper performance of first-level controls by operational offices, with particu-

lar reference to credit risk. Processes and analyzes the periodic reporting (both management and operational) and

contributes to the definition of the guidelines of the banking group in relation to forecasting policies and models

and overall credit risk also for foreign banking companies belonging to the Group in accordance with the Guidelines

established by the Board of Directors of the Parent Company, supporting the Risk Management Function in this

activity. The team deals with customers in difficulty ensuring that suitable solutions are found and implemented in

a timely manner in accordance with policies and rules. The Watchlist team is informed of any amounts in arrears

collected by foreign lenders that are part of the Group.

The Credit Operations team manages the relationships with Customers and the sales network providing all-round

assistance across the credit application process for all types of lending. The team has also approval authority for low

risk, limited-amount credit applications.

147


Credit risk management – Organizational aspects

The credit risk management framework includes policies that set out general principles and instructions on lending

as well as on monitoring the quality of the loan portfolio. The Parent Company of the Banking Group is responsible

for assessing overall exposure to credit risk and defining credit risk measurement policies for Banca Mediolanum.

Credit risk exposure is also assessed at the level of individual companies in their respective areas of responsibility, by

measuring and monitoring the risk associated with the various categories of financial instruments. Capital adequacy

and, in particular, compliance with solvency ratios and exposure limits for credit risk as set by local supervisory

authorities are periodically monitored by the competent offices of the respective companies.

Credit risk measurement, management and control

Credit quality is monitored by regularly assessing, in each stage of the lending process, whether there is evidence of risk

in accordance with entity-specific operating procedures.

In the lending process it is fundamental to have a comprehensive understanding of the financial condition of the bor-

rower and the type of financing which best meets his needs, the loan purpose, the borrower creditworthiness and earn-

ings capacity. To that end, each entity within the Group, as part of its loan application analysis, gathers all information

needed to assess the consistency of the borrower’s income and exposure (including existing commitments) with the type

and purpose of the loan or other financing. In that examination, the entity uses performance and financial analysis tools

as well as intelligence obtained from private and public Credit Bureaus. Particular focus is on valuation of guarantees.

All loans are also subject to regular review by the competent units within each Group entity. Outstanding loans are

continuously monitored focusing especially on riskier positions. Regular reports on credit protection actions taken are

submitted to the Board of Directors of the respective companies.

The second-level monitoring process prepared by the Risk Management Function aims to analyze the credit quality

and the dynamics of risk exposure along the fundamental regulations and management guidelines by calculating sum-

mary risk indicators and representing progress over time in order to prepare action plans necessary to mitigate or avoid

risk factors.

In particular, the Risk Management Function prepares the following types of audits:

• “Massive” audits:

Such audits are applied to the loan portfolio as a whole or its relevant subsets (ex: customer segment, geograph-

ical area and type of entrustment, etc.) that allow highlighting potentially “abnormal” behavior of the portfolio

analyzed. Exceeding attention thresholds defined in correspondence with massive audits can activate the conduct

of sample audits that allow analyzing the anomalies found on individual positions.

• “Sample” audits:

Such audits are carried out on individual credit positions that fall within the samples selected by the Risk

Management Functions based on specific criteria. Sample audits can be activated both after carrying out the mas-

sive audits and independently of the latter. As the audits in question are focused on individual credit positions, they

may result in the acquisition of documentation to accompany the claim and assessments on the realizable value of

guarantees associated with credit exposure.

As part of the sample audits, the Risk Management Function verifies registration in the automatic internal pro-

cedures of all the information necessary for the assessment of the credit and traceability of the recovery process.

Furthermore, the documentation available is verified on the basis of which the competent structure of the first-level

assessment conducted its own analysis.

148


2015

In particular, massive and sample audits were defined in order to verify:

• Performance of the loan portfolio:

The Risk Management Function prepares periodic reporting in order to monitor the quality of the loan portfolio

through the calculation of Key Risk Indicators and for the representation of certain risk variables/parameters.

• Correct classification of positions:

Based on the internal classification policies of impaired loans and the rules relating to the performance monitor-

ing process, the Risk Management Function verifies whether the classification rules of positions (both performing

and in default) are applied appropriately on the basis of indicators able to detect a potential misclassification.

For example, negative external events are assessed (ex.: Risk Control Unit) that cause a further deterioration in

the creditworthiness of the position, including signals that can lead to overt cases of non-recoverability.

Said verifications are carried out through sample audits, as part of which, for each position verified, the assess-

ments carried out and the results thereof are documented.

• Adequacy of provisions:

The Risk Management Function verifies, for homogeneous loan portfolios, the correct application of impairment

logics indicated in internal policies. Such verifications are carried out at both massive level considering the totality

of the performing/non-performing portfolio, and sample level.

• Adequacy of the recovery process:

The Risk Management Function contributes to the definition of the recovery process and verification that the rele-

vant procedures are actually complied with by the operating units: the adequacy is assessed by identifying critical

issues and collaborating with the relevant structures for the identification of corrective actions. In addition, Risk

Management carries out an independent verification of the evidence represented by the first-level structures in

terms of management time and amounts recovered.

149


Credit risk mitigation techniques

Loans extended by the Banking Group entities are secured by collaterals received from borrowers. Collaterals

primarily consists of mortgages over property and pledge over financial instruments, plus conditional sale, endorse-

ments, patronage letter and other forms of security, such as surety bonds. Although secondary to the assessment of

the borrower’s creditworthiness, in the assessment of credit risk great emphasis is placed on the appraised value of

the collateral received from the obligor and the prudential adjustments applied are properly differentiated according

to the type of collateral whose value is subject to regular review against its market value.

The Banking Group does not offset credit risk exposures against positive balances of on- or off-balance sheet items.

Credit risk mitigation (CRM) techniques consist of loan-related contracts or other instruments and techniques that

reduce credit risk whose risk mitigating effect is recognized in the calculation of regulatory capital, as well as, for

risk management purposes, in the internal policies of the Mediolanum Banking Group. Credit risk is inherent in the

Credit Division’s lending business and in Financial Management division’s liquidity management.

Eligible CRM techniques fall into two broad categories:

1. Real guarantees.

2. Personal guarantees.

Real guarantees are:

1. financial collateral, i.e. cash, certain financial instruments, gold – pledged or transferred – repurchase/reverse

repurchase and securities lending/borrowing transactions;

2. master netting agreements;

3. on-balance sheet netting;

4. mortgages.

Personal guarantees include personal guarantees and credit derivatives.

The latter are currently not allowed by the Mediolanum Banking Group as credit mitigation techniques of the bank-

ing book as approved only for trading.

Eligible CRM techniques are mortgages and pledges or other equivalent security interests in assets with a reasonable

degree of liquidity and a reasonably stable market value. This category includes guarantees provided by such lien.

Conversely, although taken into account when deciding whether or not to extend a loan, “irrevocable orders to sell

other Group financial products” are not eligible for CRM purposes.

Credit risk on mortgage loans is mitigated by the property given as collateral. Properties given as loan collateral

must be located in Italy and be residential properties.

Semi-residential properties are accepted provided that they satisfy the following requirements:

• the non-residential portion does not exceed 40% of the estimated property value;

• the property is located in a residential area;

• the borrower is self-employed and intends to use the property as his/her primary residence.

In all these instances Loan-to-Value shall not exceed 70%.

150


2015

The bank applies a disciplined approach to lending and adequate checks e.g. it checks the accurateness and com-

pleteness of the property appraisal as this is crucial to get a true view of risk. The bank requires than any request

for mortgage loan approval be accompanied by a valid property appraisal setting out a true estimate of the value

of the property for which the loan is sought and certifying to the highest possible degree that a valid building

permit and any other authorizations for the property have been obtained. If not so, the loan will not be extended

or the loan amount reduced to be commensurate with the true property value (which depends on its location, on

how easily it can be resold, etc.).

The appraisal is carried out by external referenced experts affiliated with Banca Mediolanum and in any case

must fulfill the requirements of independence and professionalism.

The relevant technical unit within the Special Loans Sector of the Lending Division is responsible for ensuring

that internal procedures for the preparation of property appraisals are thoroughly and properly applied. The

first-level structure also conducts a periodic verification (due diligence on the appraisals) involving a second and

different expert company for a predefined sample of claims: this verification allows conducting a verification of

the validity of the process in place and a revaluation consistent with the state and market of the property provided

as collateral.

As part of the second-level monitoring process, the Risk Management Function carries out quarterly checks on

the revaluation of properties provided as guarantee. In particular, in agreement with the Lending Division, moni-

toring is performed of the deviation (variation) between the property value revalued and the last appraisal value

available in order to identify the properties for which there is a significant reduction in value.

In addition, the Risk Management Function periodically checks the consistency of the appraisal value of the secured

property in the context of the IT procedures used by the Bank and that there is a connection between the mortgage

relation and the corresponding mortgage guarantee.

Evaluating the quality of the portfolio

The Mediolanum Banking Group assesses the quality of the loan portfolio applying the following two-step approach

in view of identifying any possible impairment:

• identification of assets to be individually or collectively tested for impairment;

• measurement and recognition of the impairment loss in accordance with the specific impairment rules.

The first step is preliminary to the impairment test that assesses and measures the impairment loss, if any.

Banca Mediolanum tests for impairment loans and endorsements with fixed or determinable payments extended

to retail/corporate and institutional clients. Loans and endorsements to retail/corporate clients typically consist of

arranged overdraft facilities, loans and credit lines repayable in installments, while those extended to institutional

clients (banks and other financial institutions) are made up of deposits, repurchase agreements (amount paid for the

purchase of the asset under an agreement to resell it at a future date) and hot money facilities.

To identify loans and endorsements to be individually/collectively tested for impairment it is necessary to analyze the

significance of the exposure and check whether there is objective evidence of any losses.

Loans classified as “non-performing” (past due and/or overdrawn impaired exposures, likely default and non-per-

forming) according to reporting criteria under the current Supervisory provisions, regardless of the significance of

individual exposure, are subject to analytical assessment, which differs between “analytical-forfeit” assessment and

“analytical-individual assessment”. In fact, these are exposures for which there is objective evidence of impairment

as per §64 of IAS 39.

151


For impaired exposures (forbearance non-performing) subject to grants, even if they do not form a separate category

of loans in default since they are classified as non-performing, likely defaults or past due and/or overdrawn impaired

exposures, depending on the case, there shall be an analytical-forfeit or analytical-individual assessment depending

on the class and the presence of overdrafts/past due/overdue.

For exposures that are individually assessed for impairment the recoverable amount of the individual exposure is

determined on the basis of:

• estimated recoverable cash flows;

• timing of recoveries;

• the interest rate used to discount future cash flows.

Non-performing loans have a different estimate/treatment approach depending on the class of belonging, the techni-

cal form, the value of the collateral backing the loan, the economic-equity assets of the counterparty and all infor-

mation, internal and external, collected as part of the recovery process that management considered most significant

and indicative of the level of potential risk.

Exposures that are not individually assessed are grouped on the basis of similar risk characteristics and collectively

assessed for impairment.

The collective impairment loss is obtained by adding up the losses of each group. The collective impairment amount

is compared with the previous carrying amount of loans to determine the amount of provisions to set aside or use.

The process for the identification of the groups of loans to be collectively assessed under IAS is in line with the credit

risk approach under Bank of Italy’s Circular no. 285 of December 17, 2013 and subsequent updates. Specifically,

the risk parameters under said regulation, i.e. probability of default (PD) by rating class and Loss Given Default

(LGD), are significant parameters for the classification of loans into groups with similar credit risk characteristics

and for the calculation of provisions.

Impaired financial assets

Each Group entity, within its sphere of independence, has its own effective tools for prompt detection of any problem

loans.

The rules set forth by the Basel Committee introduced significant changes in the general definitions of problem loans

and the discretionary guidance of national supervisory authorities. The most significant change relates to the defini-

tion of default. A default is considered to have occurred with regard to a particular obligor when either or both of

the two following events have taken place:

• the bank considers that the obligor is unlikely to pay its credit obligations in full, without recourse by the bank

to actions such as realizing security (if held);

• the obligor is past due more than 90 days on any material credit obligation to the bank.

In accordance with the discretionary guidance of national supervisory authorities, each entity within the Group

classifies troubled positions according to their level of risk.

Each entity has dedicated problem loan management units that apply operating procedures and take action accord-

ing to the severity of the problem.

To determine default Banca Mediolanum refers to the definition of “impaired loans” used for the purpose of finan-

cial reporting. Impaired loans include:

• over 90 days past due loans;

• likely defaults;

• non-performing loans.

152


2015

Past due and/or overdrawn impaired exposures

They refer to on-balance sheet exposures, other than those classified as non-performing or likely default, which are

past due or overdrawn continuously more than 90 days and the higher of the following two values is equal to or

higher than the 5% threshold: a) average of amounts past due and/or overdrawn on the entire exposure recorded

on a daily basis in the last previous quarter; b) amount past due/overdrawn on the entire exposure referred to the

reference date of the report.

In particular, in the case of exposures to installment repayment, the unpaid installment is considered to represent

the most delay and, if a counterparty has several past due and/or overdrawn exposures for more than 90 days, the

highest delay is considered.

In the case of overdrafts on current accounts “revoked” in which the credit limit granted has been exceeded (al-

though due to the capitalization of interest), the calculation of days of overdraft begins, depending on the fact that

occurs first, starting from the first date of failure to pay interest that determines the overdraft or from the date of

the first request for return of capital.

Past due and/or overdrawn impaired exposures include loans to individuals who fulfill the conditions for their clas-

sification among past due and/or overdrawn impaired exposures and which have one or more credit lines that meet

the definition of “Non-performing exposures with forbearance measures”.

Likely defaults

They refer to on and “off-balance” exposures towards the same debtor against whom the Bank deems complete ful-

fillment unlikely (principal and/or interest) to its credit obligations without recourse to actions such as enforcement

of guarantees. This assessment is carried out independently of the presence of any amounts (or installments) past

due and not paid if there are elements that imply a situation of risk of default of the debtor (for example, a crisis in

the industry in which the debtor operates).

Likely defaults include, unless the conditions for their classification as non-performing apply: the overall exposures

to persons who fulfill the conditions for their classification as likely default and that have one or more credit lines

that meet the definition of “Non-performing exposures with forbearance measures”.

In addition, on-and off-balance sheet exposures are allocated in the category of likely defaults for which, due to the

deterioration of the economic and financial conditions of the debtor, the bank agreed to modify the original contrac-

tual terms that gave rise to a loss (former restructured loans). This classification is guided by the principle that, at

the time of granting, the previous past due is “zeroed” and allocation of the renegotiated exposure among impaired

assets implies an evaluation of the status of the debtor on the basis of the principle of the likely default.

153


Non-performing

Non-performing loans consist of on and off-balance sheet exposures to borrowers that are unable to meet their pay-

ment obligations – even if their insolvency has not been established by a court of law – or in equivalent conditions,

regardless of any losses estimated by the lender and irrespective of any security taken.

They also include exposures to persons who fulfill the conditions for their classification as non-performing and that

have one or more credit lines that meet the definition of “Non-performing exposures with forbearance measures”.

Excludes exposures whose anomalous situation is caused by factors related to country risk.

Counterparty Risk

Counterparty risk is part of credit risk. Counterparty risk is the risk that a party to a derivative contract may fail to

perform on its contractual obligations and, when marked to market, the value of the derivative contract turns out to

be positive for Banca Mediolanum. Exposure to counterparty risk is measured applying the present value method to

OTC derivative contracts. The replacement cost of each contract is its fair value, if positive. Fair value is positive if

the bank is a net creditor of the counterparty.

To protect against counterparty risk arising from said derivatives contracts the Group entered into ISDA Master

Agreements. It should be noted that Banca Mediolanum has the appropriate instruments and procedures for the

management of collateral with respect to derivatives. The activity on the negotiation of the relevant agreements of

the Credit Support Annex is the main exercise on the mitigation of counterparty risk.

Concentration Risk

Concentration risk is defined by regulations as the risk arising from exposure to individual counterparties, groups of

related counterparties or counterparties in the same industry, business segment or geographical area. Concentration

risk thus falls within the wider category of credit risk.

As required by the Banking Supervisor (Bank of Italy), in relation to the capital requirement of the single name risk,

the Banking Group’s exposure to concentration risk is monitored only for the ‘Business and Others’ Portfolio. The Group

exposure in that portfolio is of limited size and relevance. In addition, the Banking Group put in place a system for

monitoring concentration risk on a weekly basis in accordance with rules governing management of large exposures.

In accordance with regulations in force (Bank of Italy’s Circular 285/2013, second part, Chapter 10, Section 1 and

subsequent updates), for large exposures the Mediolanum Banking Group has set the maximum limit for each exposure

at 25% of consolidated regulatory capital.

Banca Mediolanum has defined operating licenses and limits in accordance with the Institutional Counterparty Credit

Risk Policy. These operating licenses and limits represent Banca Mediolanum’s risk tolerance based on the Bank’s risk

appetite. Operating licenses and limits are closely monitored on an ongoing basis to ensure they are not exceeded and

are regularly reviewed, generally on an annual basis. Derogation from said limits is subject to delegated authorities of

the Chief Executive Officer and the Head of Finance.

154


2015

Credit Risk Stress Testing Procedures

Credit risk exposures are essentially gauged using three key parameters: Exposure at Default (EAD), Probability of

Default (PD) and Loss Given Default (LGD).

As to exposure classes for which the credit risk capital charge is calculated, based on the qualitative and quantitative

considerations set out below, it was decided to focus attention exclusively on:

• exposures to regulated financial institutions;

• unsecured retail exposures;

• exposures secured by property.

The portfolios above (i.e. the portfolios to which stress testing can be applied) include assets in which the Bank

intends to continue to invest in the near future while keeping its exposure to other asset classes contained.

Stress testing is applied also to past due positions. So, for each asset class and for each portfolio, all exposures, both

performing and impaired, at a given baseline date are considered and stressed to see how they would perform under

various crisis scenarios.

Despite the unsecured credit portfolios to the retail sector and regulated financial institutions having limited amounts

in terms of exposure, it is however considered necessary to assess the effect that adverse macroeconomic conditions

and extreme events would have in the management of banking operations. It is therefore important to proceed to the

stress tests for this type of use in order to understand, after hypothetical extreme events, the evolutionary dynamics

of the intrinsic risk of this type of asset.

155



A. CREDIT QUALITY

A.1 Performing and impaired assets: balance, impairment, developments, business and geo-graphical distribution

A.1.1 Analysis of financial assets by category and credit quality (book value)

E/t Non

-pe

rfor

min

g

Lik

ely

defa

ults

Pas

t due

im

pair

ed

Pas

t due

not

im

pair

ed

Not

impa

ired

Total

1. Available for sale financial assets - - - - 14,764,817 14,764,817

2. Held to maturity financial assets - - - - 2,567,080 2,567,080

3. Loans to banks - - - - 715,416 715,416

4. Loans to customers 17,580 34,771 7,097 64,598 7,354,062 7,478,108

5. Financial assets measured at fair value - - - - 804,146 804,146

6. Financial assets being disposed of - - - - - -

Total Dec. 31, 2015 17,580 34,771 7,097 64,598 26,205,521 26,329,567

Total Dec. 31, 2014 13,397 36,237 5,242 70,533 26,797,180 26,922,589

A.1.2 Analysis of credit exposures by category and credit quality (gross and net exposures)

E/t

Impaired assets Non-impaired assets

Total (Net exposure)G

ross

exp

osur

e

Spe

cific

adj

ustm

ents

Net

exp

osur

e

Gro

ss e

xpos

ure

Por

tfol

io a

djus

tmen

ts

Net

exp

osur

e

1. Available for sale financial assets - - - 14,764,817 - 14,764,817 14,764,817

2. Held to maturity financial assets - - - 2,567,080 - 2,567,080 2,567,080

3. Loans to banks - - - 715,416 - 715,416 715,416

4. Loans to customers 111,671 (52,223) 59,448 7,428,140 (9,480) 7,418,660 7,478,108

5. Financial assets measured at fair value - - - X X 804,146 804,146

6. Financial assets being disposed of - - - - - - -

Total Dec. 31, 2015 111,671 (52,223) 59,448 25,475,453 (9,480) 26,270,119 26,329,567

Total Dec. 31, 2014 100,992 (46,116) 54,876 26,876,894 (9,181) 26,867,712 26,922,589

156


2015


E/t

Assets with evidentpoor credit quality Other assets

Accumulated losses Net exposure Net exposure

1. Financial assets held for trading - - 1,201,810

2. Hedge derivatives - - 892

Total Dec. 31, 2015 - - 1,202,702

Total Dec. 31, 2014 - - 848,172

A.1.2.1 Distribution of performing loans renegotiated and not renegotiated by related portfolio

E/t

Exposures subject to renegotiation as part of Collective Agreements

Other Exposures

Total (Net exposures)P

ast d

ue u

p to

3 m

onth

s

Pas

t due

3 to

6 m

onth

s

Pas

t due

up

to 6

mon

ths

wit

hin

1 ye

ar

Pas

t due

1 y

ear

Not

ove

rdue

Pas

t due

up

to 3

mon

ths

Pas

t due

3 to

6 m

onth

s

Pas

t due

up

to 6

mon

ths

wit

hin

1 ye

ar

Pas

t due

1 y

ear

Not

ove

rdue

1. Available for sale financial assets - - - - - - - - - 14,764,817 14,764,817

2. Held to maturity financial assets - - - - - - - - - 2,567,080 2,567,080

3. Loans to banks - - - - - - - - - 715,416 715,416

4. Loans to customers 1,205 1,101 94 - 96,714 55,290 6,683 204 164 7,257,205 7,418,660

5. Financial assets measured at fair5. value - - - - - - - - - 804,146 804,146

Total 1,205 1,101 94 - 96,714 55,290 6,683 204 164 26,108,664 26,270,119

157


A.1.3 Banking Group - On and off-balance sheet loans to banks: gross and net values and past due ranges

Gross exposure

E/t

Impaired assets

Individual impairment

Collective impairment

Net exposureU

p to

3 m

onth

s

3 to

6 m

onth

s

6 to

12

mon

ths

Ove

r 1

year

Non-impaired

assets

A. ON-BALANCE SHEET

a) Non-performing - - - - X - X -

- of which: exposures subject to grants - - - - X - X -

b) Likely defaults - - - - X - X -


c) Past due impaired - - - - X - X -


d) Past due not impaired X X X X - X - -

- of which: exposures subject to grants X X X X - X - -

e) Other not impaired X X X X 1,146,460 X (62) 1,146,398


TOTAL A - - - - 1,146,460 - (62) 1,146,398

B. OFF-BALANCE SHEET

a) Impaired - - - - X - X -

b) Not impaired X X X X 317,230 X - 317,230

TOTAL B - - - - 317,230 - - 317,230

TOTAL (A+B) - - - - 1,463,690 - - 1,463,628

158


2015

A.1.6 Banking Group - On and off-balance sheet loans to customers: gross and net values and past due ranges

Gross exposure

E/t

Impaired assets


Collective impairment Net exposureU

p to

3 m

onth

s

3 to

6 m

onth

s

6 to

12

mon

ths

Ove

r 1

year

Non-impaired

assets

A. ON-BALANCE SHEET

a) Non-performing - - 698 44,953 X (27,584) X 18,068

- of which: exposures subject to grants - - - 485 X (194) X 291

b) Likely defaults 15,693 7,124 14,857 23,789 X (24,130) X 37,333

- of which: exposures subject to grants 10,413 3,436 2,882 3,166 X (9,366) X 10,530

c) Past due impaired 2,298 5,248 1,028 570 X (1,899) X 7,244

- of which: exposures subject to grants 1,219 363 15 11 X (224) X 1,384

d) Past due not impaired X X X X 72,493 X (1,198) 71,295

- of which: exposures subject to grants X X X X 1,856 X (20) 1,836

e) Other not impaired X X X X 24,162,711 X (8,895) 24,153,816


TOTAL A 17,991 12,372 16,583 69,312 24,235,204 (53,613) (10,093) 24,287,756

B. OFF-BALANCE SHEET

a) Impaired 72 16 - - X (17) X 71

b) Not impaired X X X X 7,744,461 X (270) 7,744,191

TOTAL B 72 16 - - 7,744,461 (17) (270) 7,744,262

TOTAL (A+B) 18,063 12,388 16,583 69,312 31,979,665 (53,630) (10,363) 32,032,018

159


A.1.7 Banking Group – On-balance sheet credit exposures to customers: analysis of gross impaired exposures

E/t Non-performing Likely defaults Past due impaired

A. Opening gross balance 37,965 61,655 5,980

- of which: loans sold but not derecognized - - -

B. Increases 14,189 31,811 17,976

B.1 reclassified from performing loans 104 20,025 15,596

B.2 reclassified from other impaired loan categories 9,640 3,006 616

B.3 other increases 4,445 8,780 1,764

C. Decreases 6,503 32,003 14,812

C.1 reclassified to performing loans - 2,643 5,438

C.2 cancellations 4,346 7,181 -

C.3 receipts 2,143 11,923 6,368

C.4 proceeds from sale - - -

C.5 losses from sale - - -

C.6 reclassified to other impaired loan categories - 10,256 3,006

C.7 other decreases 14 - -

D. Closing gross balance 45,651 61,463 9,144


A.1.8 Banking Group – On-balance sheet credit exposures to customers: analysis of net impairment


A. Net impairment at beginning of the year 24,568 22,150 688


B. Increases 8,353 8,804 1,874

B1 impairment 5,829 8,633 1,746

B.1 losses from sale - - -

B.2 reclassified from other impaired loan categories 2,524 171 46

B.3 other increases - - 82

C. Decreases 5,337 6,825 664

C.1 reversal of impairment from revaluations 381 1,493 189

C.2 reversal of impairment from receipts 610 2,083 279

C.3 gains on disposal - - -

C.4 cancellations 4,346 635 -

C.5 reclassified to other impaired loan categories - 2,546 196

C.6 other decreases - 68 -

D. Net impairment at year end 27,584 24,130 1,898


160


2015

A.2 Analysis of exposures by internal and external rating

A.2.1 Banking Group – Analysis of on and off-balance sheet exposures by external rating

E/t

External rating classes

Unrated TotalClass 1 Class 2 Class 3 Class 4 Class 5 Class 6

A. On-balance sheet 485,598 195,654 17,104,073 142,959 69,675 4,543 7,588,067 25,590,569

B. Derivatives - - - - - - 58,530 58,530

B.1 Financial derivatives - - - - - - 5,813 5,813

B.2 Credit derivatives - - - - - - 52,717 52,717

C. Guarantees issued - - 84 437 - 39 72,410 72,970

D. Commitments to disburseD. funds

- 13 10 71 2 - 196,314 196,410

E. Other - - 7,730,709 - - - 2,873 7,733,582

Total 485,598 195,667 24,834,876 143,467 69,677 4,582 7,918,194 33,652,061

A.3 Analysis of secured exposures by type of collateral

A.3.1 Banking group – Secured credit exposures to banks

E/t Net

exp

osur

es

Real guarantees (1)Personal guarantees (2)

Tota

l (1)

+(2)

Credit derivatives Unsecured loans

Pro

pert

y, m

ortg

ages

Pro

pert

y, fin

ance

leas

es

Secu

ritie

s

Othe

r re

al g

uara

ntee

s

CLN

Other derivatives

Gov

ernm

ents

and

cen

tral

ban

ks

Oth

er g

over

nmen

t age

ncie

s

Bank

s

Othe

r su

bjec

ts

Gov

ernm

ents

and

cen

tral

ba

nks

Othe

r go

vern

men

t age

ncie

s

Bank

s

Othe

r su

bjec

ts

1. Secured on-balance sheet credit1. exposures

171,736

-

-

171,736

-

-

-

-

-

-

-

-

-

-

171,736

1.1 Entirely secured 171,736 - - 171,736 - - - - - - - - - - 171,736

- of which impaired - - - - - - - - - - - - - - -

1.2 Partly secured - - - - - - - - - - - - - - -


2. Secured “off-balance sheet” credit2. exposures 52,808 - - - 52,808 - - - - - - - - - 52,808

2.1 Entirely secured 52,808 - - - 52,808 - - - - - - - - - 52,808


2.2 Partly secured - - - - - - - - - - - - - - -


161


A.3.2 Banking Group – Secured credit exposures to banks

E/tNet

exposures

Personal guarantees (2)

Total(1)+(2)

Real guarantees (1) Credit derivatives Unsecured loans

CLN

Other derivatives

Pro

pert

y, m

ortg

ages

Pro

pert

y, fin

ance

leas

es

Secu

ritie

s

Othe

r re

al g

uara

ntee

s

Gov

ernm

ents

and

cen

tral

ba

nks

Othe

r go

vern

men

t age

ncie

s

Bank

s

Othe

r su

bjec

ts

Gov

ernm

ents

and

cen

tral

ba

nks

Oth

er g

over

nmen

t ag

enci

es

Bank

s

Othe

r su

bjec

ts

1. Secured on-balance sheet credit exposures:

5,668,659

5,027,213

-

450,918

89,875

-

-

-

-

-

-

531

-

86,607

5,655,144

1.1 Entirely secured 5,621,763 5,000,927 - 438,997 88,060 - - - - - - - - 85,787 5,613,771

- of which impaired 47,935 44,515 - - - - - - - - - - - 279 44,794

1.2 Partly secured 46,896 26,286 - 11,921 1,815 - - - - - - 531 - 820 41,373

- of which impaired 2,355 2,145 - - - - - - - - - 31 - 179 2,355

2. Secured “off-balance sheet” credit exposures:

107,104

5,071

-

59,703

39,662

-

-

-

-

-

-

-

-

1,839

106,275

2.1 Entirely secured 104,606 5,071 - 59,627 38,064 - - - - - - - - 1,828 104,590

- of which impaired 48 - - 43 5 - - - - - - - - - 48

2.2 Partly secured 2,498 - - 76 1,598 - - - - - - - - 11 1,685


162


2015

B. DISTRIBUTION AND CONCENTRATION OF EXPOSURES

B.1 Analysis of loans to customers (on- and off-balance sheet positions) by borrower cate-gory (book value)

B.1 Banking Group – Analysis of loans to customers (on and off-balance sheet positions) by borrower category (book value)

E/t

GovernmentsOther government

agencies Financial companies Insurance companies Non-financial companies Other subjects

Net

exp

osur

e

Spe

cific

val

ue

adju

stm

ents

Por

tfol

io v

alue

ad

just

men

ts

Net

exp

osur

e

Spe

cific

val

ue

adju

stm

ents

Por

tfol

io v

alue

ad

just

men

ts

Net

exp

osur

e

Spe

cific

val

ue

adju

stm

ents

Por

tfol

io v

alue

ad

just

men

ts

Net

exp

osur

e

Spe

cific

val

ue

adju

stm

ents

Por

tfol

io v

alue

ad

just

men

ts

Net

exp

osur

e

Spe

cific

val

ue

adju

stm

ents

Por

tfol

io v

alue

ad

just

men

ts

Net

exp

osur

e

Spe

cific

val

ue

adju

stm

ents

Por

tfol

io v

alue

ad

just

men

ts

A. On-balance sheet

A.1 Non-performing - - X - - X - - X - - X 665 (2,011) X 17,403 (25,572) X - of which exposures subject to grants - - X - - X - - X - - X - - X 291 (194) X

A.2 Likely defaults - - X - - X 3,961 (6,148) X - - X 8,444 (5,223) X 24,928 (12,758) X - of which exposures subject to grants - - X - - X 3,375 (5,758) - - - X 2 - X 3,554 (1,373) -

A.3 Past due A.3 impaired - - X - - X 7 (1) X 1 - X 257 (72) X 6,979 (1,826) X

- of which exposures subject to grants - - X - - X - - X - - X 2 - X 1,291 (214) X

A.4 Not impaired 16,559,000 X - 8,066 X - 476,267 X (171) 14,012 X - 360,991 X (2,657) 6,806,775 X (7,265) - of which exposures subject to grants - X - - - X - X - - X - - X - - - -

Total A 16,559,000 - - 8,066 - - 480,235 (6,149) (171) 14,013 - - 370,357 (7,306) (2,657) 6,856,086 (40,156) (7,265)

B. Off-balance sheet

B.1 Non-performing - - X - - X - - X - - X - - X - - X

B.2 Likely defaults - - X - - X - - X - - X - - X 1 - X B.3 Other impaired B.3 assets - - X - - X - - X - - X - - X 69 (17) X

B.4 Not impaired 10 X - - X - 51,362 X (24) 19,176 X (112) 18,593 X (28) 133,429 X (107)

Total B 10 - - - - - 51,362 - (24) 19,176 - (112) 18,593 - (28) 133,499 (17) (107)

Total A+B Dec. 31, 2015 16,559,010 - - 8,066 - - 531,597 (6,149) (195) 33,189 - (112) 388,950 (7,306) (2,685) 6,989,584 (40,173) (7,372)

Total A+B Dec. 31, 2014 16,863,983 (2) - 166 - - 777,381 (6,109) (53) 152,592 - (111) 396,464 (5,547) (1,736) 6,063,208 (36,253) (7,602)

163


B.2 Banking Group – Analysis of loans to customers (on and off-balance sheet positions) by geographical distri-bution (book value)

E/t

Italy Other EU countries America Asia Rest of the world

Net

ex

posu

re

Net

im

pair

men

t

Net

ex

posu

re

Net

im

pair

men

t

Net

ex

posu

re

Net

im

pair

men

t

Net

ex

posu

re

Net

im

pair

men

t

Net

ex

posu

re

Net

im

pair

men

t

A. On-balance sheet

A.1 Non-performing 17,925 (25,448) 143 (2,135) - - - - - -

A.2 Watch list 32,255 (21,122) 5,077 (3,006) 1 (1) - - - -

A.3 Past due impaired 7,018 (1,828) 225 (71) - - - - - -

A.4 Not impaired 21,984,025 (9,018) 2,236,531 (1,068) 1,620 (5) 2,552 - 384 (2)

Total A 22,041,223 (57,416) 2,241,976 (6,280) 1,621 (6) 2,552 - 384 (2)


B.1 Non-performing - - - - - - - - - -

A.2 Likely defaults 1 - - - - - - - - -

B.3 Other impaired assets 64 (6) 5 (11) - - - - - -

B.4 Not impaired 194,111 (247) 28,459 (23) - - - - - -

Total B 194,176 (253) 28,464 (34) - - - - - -

Total A+B Dec. 31, 2015 22,235,399 (57,669) 2,270,440 (6,314) 1,621 (6) 2,552 - 384 (2)

Total A+B Dec. 31, 2014 22,355,488 (51,045) 1,895,617 (6,367) 1,374 (1) 1,290 - 25 -

B.3 Banking Group – Analysis of bank loans (on and off-balance sheet positions) by geographical distribution (book value)

E/t


Net

exp

osur

e

Net

im

pair

men

t

Net

exp

osur

e

Net

im

pair

men

t

Net

exp

osur

e

Net

im

pair

men

t

Net

exp

osur

e

Net

im

pair

men

t

Net

exp

osur

e

Net

im

pair

men

tA. On-balance sheet

A.1 Non-performing - - - - - - - - - -

A.2 Watch list - - - - - - - - - -

A.3 Past due impaired - - - - - - - - - -

A.4 Not impaired 792,463 (48) 323,030 (9) 30,390 (5) 515 - - -

Total A 792,463 (48) 323,030 (9) 30,390 (5) 515 - - -

B. Off-balance sheet - - - - - - -

B.1 Non-performing - - - - - - - - - -

B.2 Likely defaults - - - - - - - - - -

B.3 Other impaired assets - - - - - - - - - -

B.4 Not impaired 75,151 - 32,991 - - - - - - -

Total B 75,151 - 32,991 - - - - - - -

Total A+B Dec. 31, 2015 867,614 (48) 356,021 (9) 30,390 (5) 515 - - -

Total A+B Dec. 31, 2014 613,094 - 416,842 - 19,504 - 53 - - -

164


2015

B.4 Large Risks

Nominal Weighted

a) Total (book value) 26,167,259 1,307,426

c) Number 7

C. SECURITIZATION TRANSACTIONS

C.1 Securitization transactions

The Group does not have exposures arising from securitization transactions.

C.2 Analysis of exposures arising from third-party securitizations by type of securitized asset and by type of exposure

E/t

On-balance sheet exposures Guarantees issued Credit facilities

Senior Mezzanine Junior Senior Mezzanine Junior Senior Mezzanine Junior

Book

valu

e

Impa

irmen

t/rev

ersa

l of

impa

irmen

t

Book

valu

e

Impa

irmen

t/rev

ersa

l of

impa

irmen

t

Book

valu

e

Impa

irmen

t/rev

ersa

l of

impa

irmen

t

Book

valu

e

Impa

irmen

t/rev

ersa

l of

impa

irmen

t

Book

valu

e

Impa

irmen

t/rev

ersa

l of

impa

irmen

t

Book

valu

e

Impa

irmen

t/rev

ersa

l of

impa

irmen

t

Book

valu

e

Impa

irmen

t/rev

ersa

l of

impa

irmen

t

Book

valu

e

Impa

irmen

t/rev

ersa

l of

impa

irmen

t

Book

valu

e

Impa

irmen

t/rev

ersa

l of

impa

irmen

t

F-E Mortgages srl 1,211 - - - - - - - - - - - - - - - - -

Cordusio RMBS/UNICREDIT BANCA

874

-

-

-

-

-

-

-

-

-

-

-

-

-

-

-

-

-

VELA/BANCA NAZIONALE DEL LAVORO

1,140

-

-

-

-

-

-

-

-

-

-

-

-

-

-

-

-

-

BPM SECURITIZATION / BANCA POPOLARE MILANO

2,201

-

-

-

-

-

-

-

-

-

-

-

-

-

-

-

-

-

165


E. SALE TRANSACTIONS

E.1 Banking Group - Financial assets sold but not derecognized: book value and full value

E/t


Financial assets

measured at fair value



Loans to banks

Loans to customers Total

A B C A B C A B C A B C A B C A B CDec. 31,

2015Dec. 31,

2014

A. Non-derivatives 75,018 - - - - - 7,295,149 - - 161,546 - - - - - - - - 7,531,713 1,803,085

1. Debt securities 75,018 - - - - - 7,295,149 - - 161,546 - - - - - - - - 7,531,713 1,803,085

2. Equity investments - - - - - - - - - X X X X X X X X X - -

3. UCI - - - - - - - - - X X X X X X X X X - -

4. Loans - - - - - - - - - - - - - - - - - - - -

B. Derivatives - - - X X X X X X X X X X X X X X X - -

Total Dec. 31, 2015 75,018 - - - - - 7,295,149 - - 161,546 - - - - - - - - 7,531,713 X

of which impaired - - - - - - - - - - - - - - - - - - - X

Total Dec. 31, 2014 24,584 - - - - - 1,715,588 - - 62,913 - - - - - - - - X 1,803,085

of which impaired - - - - - - - - - - - - - - - - - - X -Legend:A = Financial assets sold, fully recognized on the Statement of financial position (book value)B = Financial assets sold, partly recognized on the Statement of financial position (book value)C = Financial assets sold, partly recognized on the Statement of financial position (full value)

E.2 Banking Group - Financial liabilities against financial assets sold but not derecognized: book value and full value

E/t


trading

Financial assets me-asured at fair value

Available for sale

financial assets

Held to maturity financial

assetsLoans to

banksLoans to

customers Total

1. Payables due to customers 61,410 - 7,331,805 166,181 - - 7,559,396

a) against financial assets fully a) recognized

61,410 - 7,331,805 166,181 - - 7,559,396

b) against financial assets partly b) recognized

- - - - - - -

2. Amounts due to banks 49,980 - 236,251 - - - 286,231


49,980 - 236,251 - - - 286,231


- - - - - - -

3. Securities issued - - - - - - -


- - - - - - -


- - - - - - -

Total Dec. 31, 2015 111,390 - 7,568,056 166,181 - - 7,845,627

Total Dec. 31, 2014 24,581 - 1,715,198 64,799 - - 1,804,578

166


2015

E.3 Sale transactions with liabilities having recourse only to the assets sold: fair value

E/t


trading

Financial assets



assets

Held to maturity

financial assets (fair value)

Receivables from banks (fair value)

Receivables from customers

(fair value) Total

A B A B A B A B A B A BDec. 31,

2015Dec. 31,

2014

A. On-balance sheet assets 75,018 - - - 30,582 - - - - - - - 105,600 -

1. Debt securities 75,018 - - - 30,582 - - - - - - - 105,600 -

2. Equity securities - - - - - - X X X X X X - -

3. UCI - - - - - - X X X X X X - -

4. Loans - - - - - - - - - - - - - -

B. Derivatives - - X X X X X X X X X X - -

Total assets 75,018 - - - 30,582 - - - - - - - 105,600 -

C. Associate liabilities 74,975 - - - 12,782 - - - - - - - X X 1. Payables due to 1. customers

24,995 - - - 12,782 - - - - - - - X X

2. Amounts due to 2. banks

49,980 - - - - - - - - - - - X X

3. Securities issued - - - - - - - - - - - - X -

Total liabilities 74,975 - - - 12,782 - - - - - - - 87,756 -

Net value as at Dec. 31, 2015

149,993 - - - 43,364 - - - - - - - 193,356 X

Net value as at Dec. 31, 2014

- - - - - - - - - - - - X -

167


F. BANKING GROUP – Credit Risk Measuring Method

SECTION 1.2 BANKING GROUP - MARKET RISK

1.2.1 Interest rate risk and pricing risk – Trading book

Qualitative information

General aspectsThe Banking Group’s trading book, as defined by supervisory authorities, consists of financial instruments subject

to capital requirements for market risk. According to this classification, at present only Banca Mediolanum has a

true trading book.

Specifically, the trading book consists of positions held by the Banking Group’s functions authorised to take market

risk exposures within the limits and the authorities delegated to them by the Boards of Directors. The trading book

primarily consists of positions in bonds, equities, derivatives and money market instruments.

It should be noted that the portfolio of the Banking Group is characterized by the predominance of domestic govern-

ment bonds relative to other issuers, represented in the table from the rating assigned to the country, thus presenting

a relatively low default risk.

Rating analysis for the entire Mediolanum Banking Group’s securities portfolio, including both the trading book and

the banking book, is set out below.

Banking Group securities portfolio - RATING COMPOSITION (S&P Equivalent)Year-end spot data (2015 vs. 2014)

E/t Rating classes (S&P Equivalent) 2015 % 2014 % Change (%)

Total portfolio 16,595,384 100% 16,636,896 100% -

AAA (59,303) (0.4%) (122,399) (0.7%) (52%)

AA+ to AA- 90,084 0.5% 107,195 0.6% (16%)

A+ to A- 26,683 0.16% 7,947 0.05% 236%

BBB+ to BBB- 16,410,679 98.9% 16,618,965 99.9% (1%)

BB+ or lower 162,363 1.0% 12,658 0.1% 100%

Unrated (35,122) (0.2%) 12,530 0.1% (380%)

NOTE: the value of the portfolio does not consider the marginal portion of Funds, Shares and Rights.

168


2015

Classes BBB+ to BBB- include Italian government securities.

Interest Rate Risk and Pricing Risk - Measurement and ManagementThe Parent Company’s Risk Management function is responsible for ensuring that the various entities use con-

sistent methods in assessing financial risk exposure. It also contributes to the definition of lending and operating

limits. However, each entity within the Group is directly responsible for the control of the risks assumed. Risks

are to be in accordance with the policies approved by the respective Board of Directors and consistent with the

complexity of managed assets.

Exposure to interest rate risk is measured by applying portfolio analyses (e.g. exposure limits, characteristics of the

instruments and of the issuers) as well as by estimating the risk of maximum loss on the portfolio (Value at risk).

VaR TablesHFT Securities Portfolio - MARKET RISKYear-end spot data (2015 vs. 2014)

E/t 2015 2014 Change (%)

Nominal 255,681 51,920 392%

Market value 226,694 45,910 394%

Duration 0.49 0.37 32%

VaR 99% - 1 d 1,308 946 38%

BBB+ to BBB-98.9%

Unrated-0.2%

AAAAA+ to AA-A+ to A-BBB+ to BBB-BB+ or lowerUnrated

BB+ or lower1%

A+ to A-0.16%

AA+ to AA-0.5%

AAA-0.4%

0.0%

10.0%

30.0%

20.0%

40.0%

50.0%

60.0%

70.0%

80.0%

90.0%

100.0%

Portfolio Rating Composition – Mediolanum Banking Group (2015)

169


Quantitative information

1. Trading Book: Time-to-maturity (repricing date) of non-derivative financial assets and liabilities and of finan-cial derivatives

E/t On

demandUp to 3 months

3 to 6 months

6 to 12 months

1 to 5 years

5 to 10 years

Beyond 10 years

Indefinite maturity

1. Non derivative assets 12,485 222,507 10,244 60,213 266,474 74,364 14,552 -

1.1 Debt securities - 222,404 10,244 60,042 266,235 72,678 14,552 - - with early redemption - option - - - - - - - - - others - 222,404 10,244 60,042 266,235 72,678 14,552 -

1.2 Other assets 12,485 103 - 171 239 1,686 - -

2. Non-derivatives liabilities 94,257 37,503 954 3,871 153,678 52,330 7,937 -

2.1 Repurchase agreements - 36,416 - - - - - - 2.2 Other liabilities 94,257 1,087 954 3,871 153,678 52,330 7,937 -

3. Financial derivatives - - - - - - - -

3.1 With underlying securities - - - - - - - -

- Options - - - - - - - -

- + Long positions - - - - - - - -

- + Short positions - - - - - - - -

- Other derivatives - - - - - - - -

- + Long positions - 51,990 6,035 - - - - -

- + Short positions - 6,035 - 28,583 23,411 - - -

3.2 Without underlying securities - - - - - - - -

- Options - - - - - - - -

- + Long positions - - - - - - - -

- + Short positions - - - - - - - -

- Other derivatives - - - - - - - - - + Long positions - 894,067 47,463 - - - - - - + Short positions - 719,073 49,721 4,659 37,409 47,585 86,945 -

170


2015

1.2.2 Interest rate risk and pricing risk – Banking book


Interest Rate Risk and Pricing Risk - General Information, Measurement and Management

The Group’s banking book1 is made up of those financial instruments that are not part of the trading book, in

particular inter-bank loans, available for sale financial assets and held to maturity financial assets (IAS category:

Held to Maturity).

Banking book interest rate risk exposures are measured and managed by the Group’s Parent Company using an

ALM model.

Risk management activities include, inter alia, controls for credit risk inherent in transactions with institutional

counterparties according to the operating procedures and limits approved by the Board of Directors of each entity

within the Group in compliance with the guidelines issued by the Group’s Parent Company. Interest rate risk is the

risk of potential impact of unexpected interest rate changes on the Bank’s current earnings and equity. This risk is

typical of banking book positions.

The banking book consists of on- and off-balance sheet items that are not held for trading.

The targets to be pursued process to support proper management of interest rate risk are:

• ensure the stability of net interest income, minimizing any adverse impact of changes in interest rates (earnings

perspective), largely with near-term focus. The stability of net interest income is mainly influenced by Repricing

Risk, Yield Curve Risk, Basis Risk, Refixing Risk and Optionality Risk;

• protect the economic value, i.e. the present value of expected cash flows from assets and liabilities. The economic

value perspective is focused on the potential medium/long-term effects of changes in interest rates and is mainly

associated with re-pricing risk;

• ensure that interest rate risk that has been taken or can be taken be properly identified, measured, monitored

and managed in accordance with uniform methods and procedures shared;

• make sure that risk measurement models are commensurate with actual earnings generated by the various risk

owners;

• ensure that the quality of risk measurement and management systems is aligned with market standards and best

practices;

• define risk limits and licenses for the various levels of responsibility;

• ensure the generation of accurate data and reports by the various officers responsible for risk management and

control at the different levels within the organization;

• ensure compliance with requirements established by domestic and international supervisory authorities.

The definition of limits and licenses reflects the risk appetite of the organization and permits to control that practices

at the various levels within the organization are aligned with the strategic guidelines and policies adopted by the

Board of Directors.

1 The generic definition of “Banking book” are therefore includes financial assets/liabilities held to maturity or at least in the medium/long term (“buy and hold”), loans, deposits (retail, corporate, financial institutions).

171


The application of the principles above led to the definition of the following indicators:

• Net interest income sensitivity to parallel shifts in the yield curve;

• Economic value sensitivity to parallel shifts in the yield curve.

Management of the interest rate risk in the banking book is part of Asset Liability Management (ALM). The Medi-

olanum Banking Group has in place an ALM system that measures performance of annual Net Interest Income and

the Bank’s Economic Value in relation to regulatory capital. The ALM system is also used by management to assess

the impact of funding and lending policies on the entity’s financial condition and earnings.

Asset Liability Management

The Ermas application is the system used for managing banking book’s Assets and Liabilities against the risk of

adverse movements in interest rates. As such, the Ermas application assists management in assessing the bank’s

funding and lending policies and their possible impact on the bank’s financial condition and earnings. The bank reg-

ularly updates the dedicated ALM policy including limits and procedures for monitoring annual Net Interest Income

and the Economic Value of the bank.

Movements in annual net interest incomeSpot data as at December 31, 2015

E/t Balance +100bps -100bps

Total assets (*) 21,106,136 96,325 (84,179)

Total liabilities (*) (25,390,942) (114,823) 99,717

Off-balance sheet (hedging derivatives) 69,092.18 2,149.55 (209,89)

CHANGES OCCURRED IN THE YEAR (4,215,714) (16,348) 15,328

(*) Excludes the values of statement of financial position items insensitive to the change in interest rate.

Fair Value Hedges

The introduction of IAS 39 brought about profound changes in the way derivatives and related hedged balance sheet

assets/liabilities are accounted for. Under IAS 39 all derivatives, either trading or hedging derivatives, are to be rec-

ognized in the Statement of financial position at their fair value and any change, either increase or decrease, in their

fair value is to be recognized through profit or loss.

When the hedged item is measured at historical (amortized) cost the asymmetry resulting from the different meas-

urement method may lead to income statement information volatility. IAS 39 addresses this issue allowing entities

to apply consistent measurement methods to the hedging instrument and to the hedge item (Hedge Accounting).

To qualify for Hedge Accounting under IAS 39 the hedging relationship must satisfy certain conditions relating to

hedge effectiveness and related documentation.

172


2015

The use of hedge accounting engages various structures of Banca Mediolanum. The Treasury Committee provides

guidance on hedging policies. The Financial Management function handles all aspects relating to the identification

and operation of IAS compliant hedges. The use of hedge accounting engages various structures of Banca Medio-

lanum. The Treasury Committee provides guidance on hedging policies. Banca Mediolanum Financial Management

function handles all aspects relating to the identification and operation of IAS compliant hedges. The Risk Manage-

ment Function works across the process ensuring the alignment of systems and proper management of hedges. The

Accounting and Financial Reporting function records and monitors hedges on an ongoing basis and prepares Hedge

Accounting documentation. As shown in the table below, back-testing of hedge effectiveness proved the hedge ratio

met the requirement |0.8| ≤ HR ≤ |1.25|:

Hedging RatioYear-end spot (2015 vs. 2014)

2015 2014 Change (%)

Hedging ratio changes on hedged portfolio 101% 112% (10%)

Cash Flow Hedges

There are no hedges as defined under IAS.

173


1. Banking book: Time-to-maturity (repricing date) of financial assets and financial liabilities

E/t On demandUp to 3 months

3 to 6 months

6 to 12 months

1 to 5 years

5 to 10 years

Beyond 10 years

Indefinite maturity

1. Cash assets 3,286,245 5,240,540 6,849,833 3,162,949 5,425,942 165,353 363,535 46,234

1.1 Debt securities 648,164 586,026 6,841,410 3,131,192 5,317,570 42,593 4,496 -

- with early redemption option - 2,351 - - - - 873 -

- others 648,164 583,675 6,841,410 3,131,192 5,317,570 42,593 3,623 -

1.2 Loans to banks 106,271 340,936 - (6,886) - - - 2,000

1.3 Loans to customers 2,531,810 4,313,578 8,423 38,643 108,372 122,760 359,039 44,234

- current accounts 860,636 21 33 78 306 755 - 341

- other loans 1,671,174 4,313,557 8,390 38,565 108,066 122,005 359,039 43,893

- with early redemption option 1,290,857 4,265,655 6,321 11,072 86,333 106,743 219,821 2,856

- others 380,317 47,902 2,069 27,493 21,733 15,262 139,218 41,037

2. Non-derivatives 11,315,072 7,522,399 2,546,864 2,981,626 296,753 - - 2,972

2.1 Due to customers 11,220,970 6,249,153 2,435,298 2,813,238 63,896 - - 2,972

- current accounts 10,094,595 706,442 674,880 564,296 6,082 - - -

- other payables 1,126,375 5,542,711 1,760,418 2,248,942 57,814 - - 2,972

- with early redemption option - - - - - - - -

- others 1,126,375 5,542,711 1,760,418 2,248,942 57,814 - - 2,972

2.2 Amounts due to banks 94,102 753,641 103,566 168,388 1,262 - - -

- current accounts 41,112 - - - - - - -

- other payables 52,990 753,641 103,566 168,388 1,262 - - -

2.3 Debt securities - 97,464 8,000 - 231,595 - - -


- others - 97,464 8,000 - 231,595 - - -

2.4 Other liabilities - 422,141 - - - - - -


- others - 422,141 - - - - - -

3. Financial derivatives 1,842 489,807 29,516 27,867 410,719 623,951 872,717 -

3.1 With underlying securities - - - - - - - -

Options - - - - - - - -

+ Long positions - - - - - - - -

+ Short positions - - - - - - - -

Other derivatives - - - - - - - -

+ Long positions - 10 23 - 51 - - -

+ Short positions - 73 10 - - - - -

3.2 Without underlying securities - - - - - - - -

Options - - - - - - - -

+ Long positions - 17,107 5,839 21,264 232,368 301,380 399,552 -

+ Short positions 1,842 218,981 12,740 400 127,961 258,609 356,977 -

Other derivatives - - - - - - - -

+ Long positions - 242,766 7,850 - - - - -

+ Short positions - 10,870 3,054 6,203 50,339 63,962 116,188 -

4. Other transactions off-balance sheet - - - - - - - -

+ Long positions - (45,467) - - - - - -

+ Short positions - 45,467 - - - - - -

174


2015

1.2.3 Currency risk


Currency Risk - General information, Measurement and Management

The Group is exposed to currency risk on all its foreign-currency denominated assets and liabilities (both on- and

off-balance sheet) including euro-denominated positions linked to the performance of foreign exchange rates. Cur-

rency exposure limits were set by reference to the net value of positions in the main operating currencies.

Currency Risk-Hedges


Internal models and other sensitivity analysis methods

VaR (Value at Risk) estimates the risk of loss resulting from adverse movements in the exchange rate of traded

financial instruments as a result of adverse market movements.

175



1. Analysis of assets, liabilities and derivatives by currency denomination

E/t US Dollar UK Pound Japanese Yen Swiss FrancOther

currencies

A. Financial assets 41,489 3,413 739 389 965

A.1 Debt securities - - - - -

A.2 Equity investments 2,073 - - - -

A.3 Loans to banks 39,280 3,401 698 386 965

A.4 Loans to customers 60 1 - 3 -

A.5 Other financial assets 76 11 41 - -

B. Other assets 3,200 339 - 1 1

C. Financial liabilities 122,954 1,182 706 243 30

C.1 Amounts due to banks 45,008 - - 14 -

C.2 Payables due to customers 77,852 1,171 665 229 30

C.3 Debt securities - - - - -

C.4 Other financial liabilities 94 11 41 - -

D. Other liabilities 3,356 425 - - -

E. Financial derivatives 78,661 (34) - (229) 5

Options (2,066) - - - -

+ Long positions 11,097 1,909 1,915 - -

+ Short positions 13,163 1,909 1,915 - -

Others 80,727 (34) - (229) 5

+ Long positions 402,671 - - 5 17

+ Short positions 321,944 34 - 234 12

Total assets 458,457 5,661 2,654 395 982

Total liabilities 461,417 3,550 2,621 477 42

Unbalance (+/-) (2,960) 2,111 33 (82) 940

176


2015

1.2.4 Derivative instruments

A. Financial derivatives

A.1 Trading book: year-end notional amounts

E/t

Dec. 31, 2015 Dec. 31, 2014

Overthe counter

Central counterparties

Overthe counter


1. Debt securities and interest rates 181,162 58,025 105,757 34,052

a) Options - - - -

b) Swap 181,162 - 105,757 -

c) Forwards - - - -

d) Futures - 58,025 - 34,052

e) Others - - - -

2. Equity investments and stock indices - 4 - -

a) Options - - - -

b) Swap - - - -

c) Forwards - - - -

d) Futures - - - -

e) Others - 4 - -

3. Currencies and gold 756,824 - 389,102 -

a) Options - - - -

b) Swap 633 - 125,982 -

c) Forwards 756,191 - 263,120 -

d) Futures - - - -

e) Others - - - -

4. Commodities - - - -

5. Other underlying - - - -

Total 937,986 58,029 494,859 34,052

177


A.2 Banking book: year-end notional amounts

A.2.1 Hedging derivatives

E/t

Dec. 31, 2015 Dec. 31, 2014

Overthe counter


Overthe counter


1. Debt securities and interest rates 319,708 - 421,571 -

a) Options 69,092 - 72,502 -

b) Swap 250,616 - 349,069 -

c) Forwards - - - -

d) Futures - - - -

e) Others - - - -

2. Equity investments and stock indices - - - -

a) Options - - - -

b) Swap - - - -

c) Forwards - - - -

d) Futures - - - -

e) Others - - - -

3. Currencies and gold - - - -

a) Options - - - -

b) Swap - - - -

c) Forwards - - - -

d) Futures - - - -

e) Others - - - -



Total 319,708 - 421,571 -

178


2015

A.2.2 Other derivatives

E/t

Dec. 31, 2015 Dec. 31, 2014

Overthe counter


Overthe counter


1. Debt securities and interest rates 83 - 75,533 9,985

a) Options - - - -

b) Swap - - - -

c) Forwards 83 - 75,533 9,985

d) Futures - - - -

e) Others - - - -


a) Options - - - -

b) Swap - - - -

c) Forwards - - - -

d) Futures - - - -

e) Others - - - -


a) Options - - - -

b) Swap - - - -

c) Forwards - - - -

d) Futures - - - -

e) Others - - - -



Total 83 - 75,533 9,985

179


A.3 Financial derivatives: positive gross fair value - analysis by type of product

E/t

Positive fair value

Dec. 31, 2015 Dec. 31, 2014

Overthe counter


Overthe counter


A. Trading book 4,775 4 6,273 -

a) Options - - - -

b) Interest rate swaps - - - -

c) Cross currency swaps - - 3,368 -

d) Equity Swaps - - - -

e) Forwards 4,775 - 2,905 -

f) Futures - - - -

g) Others - 4 - -

B. Banking book - hedging derivatives 1,034 - 1,412 -

a) Options 892 - 1,287 -

b) Interest rate swaps 142 - 125 -

c) Cross currency swaps - - - -


e) Forwards - - - -

f) Futures - - - -

g) Others - - - -

C. Banking book - other derivatives - - 34 -

a) Options - - - -




e) Forwards - - 34 -

f) Futures - - - -

g) Others - - - -

Total 5,809 4 7,719 -

180


2015

A.4 Financial derivatives: negative gross fair value – analysis by type of product

E/t

Negative fair value

Dec. 31, 2015 Dec. 31, 2014

Overthe counter


Overthe counter


A. Trading book 62,030 - 39,170 -

a) Options - - - -

b) Interest rate swaps 53,249 - 36,207 -

c) Cross currency swaps - - 76 -


e) Forwards 8,781 - 2,887 -

f) Futures - - - -

g) Others - - - -


a) Options - - - -




e) Forwards - - - -

f) Futures - - - -

g) Others - - - -

C. Banking book - other derivatives - - - 4

a) Options - - - -




e) Forwards - - - 4

f) Futures - - - -

g) Others - - - -

Total 126,542 - 139,388 4

181


A.5 Trading book – OTC financial derivatives: notional amount, gross positive and negative fair value by counterparty – contracts that do not fall under netting arrangements

E/t

Governments and central

banks

Other government

agencies BanksFinancial

companiesInsurance

companiesNon-financial

companiesOther

subjects

1. Debt securities and interest rates

- notional amount - - 181,162 - - - -

- positive fair value - - - - - - -

- negative fair value - - 53,249 - - - -

- future exposure - - 2,205 - - - -

2. Equity investments and stock2. indices - notional amount - - - - - - -


- negative fair value - - - - - - -

- future exposure - - - - - - -

3. Currencies and gold

- notional amount - - 345,529 393,629 - - 680

- positive fair value - - 4,098 658 - - 6

- negative fair value - - 1,257 7,392 - - 2

- future exposure - - 3,446 3,937 - - 7

4. Others

- notional amount - - - - - - -




182


2015

A.6 Trading book – OTC financial derivatives: notional amount, gross positive and negative fair value by counterparty – contracts that fall under netting arrangements

E/t


banks

Other government


companiesInsurance

companies

Non-financial

companiesOther

subjects



- positive fair value (before compensation) - - - - - - -

- negative fair value (before compensation) - - - - - - -

2. Equity investments and stock indices





- notional amount - - 16,986 - - - -

- positive fair value (before compensation) - - 14 - - - -

- negative fair value (before compensation) - - 131 - - - -

4. Others




183


A.7 Banking book – OTC financial derivatives: notional amount, gross positive and negative fair value by counterparty – contracts that do not fall under netting arrangements

E/t


banks

Other government


companiesInsurance


companiesOther

subjects


- notional amount - - 311,880 51 - - 10

- positive fair value - - 892 - - - -












4. Others





184


2015

A.8 Banking book – OTC financial derivatives: notional amount, gross positive and negative fair value by counterparty – contracts that fall under netting arrangements

E/t


banks

Other government


companiesInsurance


companiesOther

subjects


- notional amount - - 7,850 - - - -










4. Others




A.9 Residual life of OTC financial derivatives: notional amount

E/t Up to 1 year 1 to 5 yearsBeyond 5

years Total

A. Trading book 766,049 37,409 134,529 937,987

A.1 Financial derivatives on debt securities and interest A.1 rates

9,224 37,409 134,529 181,162

A.2 Financial derivatives on equity investments and stock A.2 indices

- - - -

A.3 Financial derivatives on currencies and gold 756,825 - - 756,825

A.4 Financial derivatives on other values - - - -

B. Banking book 20,210 50,339 249,242 319,791

B.1 Financial derivatives on debt securities and interest A.1 rates

20,210 50,339 249,242 319,791

B.2 Financial derivatives on equity investments and stock A.2 indices

- - - -

B.3 Financial derivatives on currencies and gold - - - -

B.4 Financial derivatives on other values - - - -

Total Dec. 31, 2015 786,259 87,748 383,771 1,257,777

Total Dec. 31, 2014 487,683 95,311 408,968 991,962

185


B. Credit derivatives

B1. Credit derivatives: year-end and average notional amounts

E/t

Trading book Banking book other contracts

individual basket individual basket

1. Purchases of protection

a) Credit default products - - 50,040 -

b) Credit spread products - - - -

c) Total rate of return swaps - - - -

d) Other - - - -

Total Dec. 31, 2015 - - 50,040 -

Total Dec. 31, 2014 - - 55,555 -

2. Sales of protection

a) Credit default products 50,040 - - -

b) Credit spread products - - - -

c) Total rate of return swaps - - - -

d) Other - - - -

Total Dec. 31, 2015 50,040 - - -

Total Dec. 31, 2014 55,555 - - -

B.2 OTC credit derivatives: positive gross fair value - analysis by type of product

E/t

Positive fair value

Dec. 31, 2015 Dec. 31, 2014

A. Trading book 2,677 3,378

a) Credit default products 2,677 3,378

b) Credit spread products - -

c) Total rate of return swaps - -

d) Other - -

B. Banking book - -

a) Credit default products - -



d) Other - -

Total 2,677 3,378

186


2015

B.3 OTC credit derivatives: negative gross fair value - analysis by type of product

E/t

Negative fair value

Dec. 31, 2015 Dec. 31, 2014

A. Trading book 39 61

a) Credit default products 39 61



d) Other - -

B. Banking book 4,469 5,939

a) Credit default products 4,469 5,939



d) Other - -

Total 4,508 6,000

B.4 OTC credit derivatives: gross fair value (positive and negative) by counterparty - contracts that do not fall under netting arrangements

E/t


banks

Other government


companiesInsurance


companiesOther

subjects

Trading

1. Purchase of protection





2. Sale of protection





Banking book


- notional amount - - - - - - 50,040


- negative fair value - - - - - - 4,469





187


B.5 OTC credit derivatives: gross fair value (positive and negative) by counterparty - contracts that fall under netting arrangements

E/t


banks

Other government


companiesInsurance


companiesOther

subjects

Trading






- notional amount - - 50,040 - - - -

- positive fair value - - 2,677 - - - -

- negative fair value - - 39 - - - -

Banking book









B.6 Residual life of credit derivatives: notional amount

E/t Up to 1 year 1 to 5 yearsBeyond 5

years Total

A. Trading book - 50,040 - 50,040

A.1 Credit derivatives with “qualified” “reference obligation” - 50,040 - 50,040

A.2 Credit derivatives with “unqualified” “reference obligation” - - - -

B. Banking book - 50,040 - 50,040

B.1 Credit derivatives with “qualified” “reference obligation” - 50,040 - 50,040

B.2 Credit derivatives with “unqualified” “reference obligation” - - - -

Total Dec. 31, 2015 - 100,080 - 100,080

Total Dec. 31, 2014 11,030 100,080 - 111,110

188


2015

1.3 – BANKING GROUP – LIQUIDITY RISK


A. Liquidity Risk – General information, Measurement and Management

The liquidity management model is structured in a manner that ensures adequate levels of liquidity in the short term

as well as in the medium and long term. Given the types of assets held, their duration as well as the type of funding,

the entire Banking Group has no short-term liquidity concerns. From a structural viewpoint, the Banking Group can

rely on a stable core funding and is only marginally exposed to volatility. This is evidenced also by Bank’s econometric

projections of “on demand positions”. In addition to its core funding, the Mediolanum Banking Group implements

short-term funding policies through repurchase agreements, medium-term bond issues, term deposits and Long Term

Refinancing Operations.

Liquidity risk management, which is through the definition of guidelines and indicators in the Risk Appetite Frame-

work document adopted by all Group companies (where applicable) is monitored by the Risk Management unit

applying dedicated policies and procedures, including operating and structural limits and definition and constant

monitoring of the maturity ladder. The liquidity risk policy also defines a contingency funding plan under the broader

Asset Liability Management model of the Banking Group.

In compliance with Basel II Second Pillar requirements, and in view of the progressive implementation of Basel

III, all internal procedures for liquidity risk management have been updated. The policy on liquidity risk adopted

effectively implemented a control procedure that involves the preparation of daily reporting that monitors the limits

of operating liquidity related to treasury management, consolidated weekly reporting of the Banking Group, which is

sent to the Supervisory Board and quarterly reports which controls the aggregated structural liquidity of the Group,

brought to the attention of the Strategic Supervisory Board also with a view to compliance with the indicators

defined within the RAF. The method used to manage operational liquidity is derived from the Maturity Mismatch

Approach and is based on the monitoring of cumulative gaps generated by Net Flows and Counterbalancing Capacity

as assessed using an operational Maturity Ladder. Structural liquidity is monitored by determining the long term

ratio (Net Stable Funding Ratio) in accordance with the rules defined by the European Banking Authority (EBA) in

relation to the new Basel 3 liquidity risk requirements.

Also in 2015, the Mediolanum Banking Group continued its quarterly monitoring as promoted by the EBA aimed

at completion of the implementation of Basel 3 rules for liquidity risk management and determination of capital

requirements of Banks.

189


Liquidity Risk Stress Testing

In addition to monitoring liquidity on a daily basis, the Mediolanum Banking Group also conducts stress scenario

simulations.

Stress scenarios are run for both systemic events (Market Stress Scenarios) and bank specific events (Bank Specific

Stress Scenarios) in relation to the macroeconomic environment, commercial policies and customer behavior.

Generally, the systemic events tested in stress scenario simulations may include:

• a financial market shock that brings about a significant change in interest rates and exchange rates;

• a systemic shock like the one after September 11 which significantly restricts access to money markets;

• scarce liquidity in the interbank market.

Bank specific events may include:

• significant withdrawals of deposits by customers;

• reputational damage with subsequent difficulty to renew financing sources in the money market;

• default of a major market counterparty or source of funding;

• deterioration in loan quality;

• steep increase in draw-downs on committed credit lines;

• significant decline in the ability to roll over short-term funding;

• bigger haircuts on assets included in Counter Balancing Capacity (CBC).

Simulations are run under the different stress scenarios to evaluate the effects on the expected behavior of inflows

and outflows over a given time horizon, both in terms of estimated cash-flows and timing. The Maturity Ladder is

redefined for each scenario simulation.

190


2015


1. Time-to-maturity of financial assets and liabilities

E/t On demand1 to 7

days7 to 15

days15 days to

1 month1 to 3

months3 to 6

months6 to 12 months

1 to 5years

Beyond 5 years Indefinite

Non derivative assets 1,151,952 46,059 17,128 284,429 339,530 1,007,251 5,182,742 12,265,942 4,077,678 138,695

A.1 Government A.1 securities

54,894 - 309 - 102,744 840,600 4,739,449 10,379,949 40,507 -

A.2 Other debt A.2 securities

431 - 15,619 44,590 1,001 7,964 102,542 280,881 50,764 -

A.3 Holdings in UCITS 110,644 - - - - - - - - 7,453

A.4 Loans 985,983 46,059 1,200 239,839 235,785 158,688 340,751 1,605,112 3,986,407 131,242

- Banks 137,301 (1,397) (400) 213,309 59,310 9,147 (3,734) - - 116,047

- Customers 848,682 47,456 1,600 26,529 176,474 149,541 344,485 1,605,112 3,986,407 15,195

Non derivative liabilities 11,002,277 2,273,551 571,651 1,390,804 3,222,460 2,591,436 2,948,126 384,780 60,595 -

B.1 Deposits and B.1 current accounts

10,780,245

53,940

109,538

683,476

1,088,099

1,204,240

1,142,069

9,595

-

-

- Banks 141,091 7,519 18,040 11,022 243,164 103,614 91,276 - - -

- Customers 10,639,154 46,421 91,498 672,454 844,934 1,100,626 1,050,793 9,595 - -

B.2 Debt securities - - - - 1,899 1,206 3,105 220,574 - -

B.3 Other liabilities 222,032 2,219,611 462,113 707,328 2,132,462 1,385,990 1,802,952 154,611 60,595 -

Off-balance sheet 53,249 133,152 - - 1,380,518 94,919 24,034 34,677 23,407 661

C.1 Financial C.1 derivatives with C.1 capital exchange

-

42,218

-

-

1,380,518

94,919

-

34,677

23,407

-

- Long positions - 21,023 - - 711,342 47,483 - 6,090 - -

- Short positions - 21,196 - - 669,176 47,436 - 28,587 23,407 -

C.2 Financial C.2 derivatives without C.2 capital exchange

53,249

-

-

-

-

-

-

-

-

-

- Long positions - - - - - - - - - -

- Short positions 53,249 - - - - - - - - -

C.3 Deposits and loans C.3 to be received

-

90,934

-

-

-

-

-

-

-

-

- Long positions - 45,467 - - - - - - - -

- Short positions - 45,467 - - - - - - - -

C.4 Irrevocable C.4 commitments to C.4 disburse funds

-

-

-

-

-

-

24,034

-

-

-

- Long positions - - - - - - 24,034 - - -

- Short positions - - - - - - - - - -

C.5 Financial C.5 guarantees issued

-

-

-

-

-

-

-

-

-

661

C.6 Financial C.6 guarantees C.6 received

-

-

-

-

-

-

-

-

-

-

C.7 Credit derivatives C.7 with capital C.7 exchange

-

-

-

-

-

-

-

-

-

-

- Long positions - - - - - - - - - -

- Short positions - - - - - - - - - -

C.8 Credit derivatives C.8 without capital C.8 exchange

-

-

-

-

-

-

-

-

-

-

- Long positions - - - - - - - - - -

- Short positions - - - - - - - - - -

191


SECTION 1.4 – BANKING GROUP – OPERATIONAL RISKS


A. General aspects, operational risk measurement and management

The Mediolanum Group defines operational risk as “the risk of economic loss or damage to assets, and sometimes

legal and administrative consequences, resulting from any misconduct or inappropriate behavior of its personnel,

inadequate or failed systems or internal processes, or external events”.

In line with what is required by industry regulations, Banca Mediolanum adopted and regularly updates a specific

framework for the control and management of operational risk.

The Risk Management Function is responsible for supervising operational risk, with the support of the Compliance

Assessment and Controls Unit of the Legal and Compliance Function to carry out risk assessment activities. It also

collaborates with the Network Inspectorate Sector for the control and management of operational risks arising from

the work of the Sales Network of Banca Mediolanum S.p.A. and the Accounting and Financial Reporting Sector

for the verification of capital adequacy, for the requirements of capital for operational risks of Banca Mediolanum

S.p.A. and Banking Group.

The Risk Management and Compliance function is separate and independent of operating units and reports directly

to the Parent Company’s corporate bodies.

Specific Risk Management Functions are also present at the main Companies of the Banking Group, in order to

ensure greater proximity to the business, maintaining at the Parent Company a role of guidance and coordination.

The reference framework for the management and control of operational risk adopted by the Mediolanum Banking

Group is composed of four basic phases:

1. “Identification”;

2. “Measurement”;

3. “Monitoring, Control and Reporting”;

4. “Management”.

Each of these phases is characterized by specific objectives, models, methodologies and tools and is implemented

by the Group companies, depending on the complexity of the activities carried out, exposure to operational risk and

regulatory information – specific regulations, in accordance with the principle of proportionality.

The identification is the activity of finding and collecting information relating to operational risks through the

coordinated and consistent processing of all relevant sources of information. The aim is the establishment of a com-

prehensive information base.

The identification is done through the definition and classification of the information needed for the integrated man-

agement of operational risks.

The information necessary for this purpose includes:

192


2015

• qualitative and quantitative assessments of the risk exposure of key business processes, as part of the annual

Risk Self-Assessment conducted by the Compliance Assessment and Controls Unit of the Compliance Function

on behalf of the Risk Management Function;

• internal loss data, together with all information relevant to the measurement and management of risks (including

recoveries from insurance and direct), collected through the process of Loss Data Collection;

• preliminary analysis, by the Compliance Assessment and Controls Unit of the Legal and Compliance Function, of

the risk exposure to the entry into new businesses or new contracts/commercial agreements, as well as a result

of organizational changes/regulations;

• “Key Risk Indicators”, i.e. risk and performance indicators that provide insight into the status of operational

processes and the main drivers of exposures. These indicators, updated by the Compliance Assessment and

Controls unit of the Legal and Compliance Function, may include “exposure indicators” or “anomaly indica-

tors”.

Measurement is the activity of analysis and optimization of risk.

It is an activity aimed at the complete knowledge of the overall risk profile of the company leading to the quantifi-

cation of:

• regulatory capital: capital requirement defined on the basis of supervisory regulation provisions (EU 575/2013

Regulation). For the measurement of regulatory capital for operational risk, all the companies belonging to the

Mediolanum S.p.A. Banking Group, with the sole exception of Banca Esperia1, adopt the “standardized” method

to calculate the regulatory capital requirement;

• economic capital: measurement of risk for internal purposes, performed using an integrated approach that

reflects both the actual losses from operational risks and potential one valued net of the effectiveness of controls

in place to mitigate them. This measurement activity is therefore based on the outcome of risk identification

analyses, applies an actuarial statistical model and is a means of verifying the adequacy of regulatory capital

for operational risks.

The Monitoring, Control and Reporting is a direct result of the preliminary phases of identification and measure-

ment that allow analyzing the overall exposure to operational risks of the various business units and promptly re-

porting any problems found. The main tool used in the conduct of this process is the drafting of periodic information

to the company functions involved, Top Management and the Board of Directors.

The Management phase entails the periodic assessment of risk control and mitigation strategies. Depending on the

nature and size of risk, in accordance with the risk appetite approved by management, the bank decides whether it

can take the risk, adopt risk mitigation or transfer the risk to third parties.

In 2015, the risk assessment process covered nearly all of the activities, identifying, for the Mediolanum Banking

Group, some 2,600 operational risk checkpoints. About 90% of checkpoints were judged to be effective or in need

of being just better formalized. Mitigation actions were taken in relation to controls that were judged to be unsatis-

factory or in need of improvement.

1 Banca Esperia adopts the “basic” method.

193


SECTION 1.5 – OTHER RISKS


A. General aspects, measurement and management

In addition to the above risks, the Mediolanum Banking Group has identified and monitors the following other

risks.

Strategic Risk

Strategic risk is the current or prospective risk of impact on earnings or capital arising from changes in the industry,

adverse business decisions, improper implementation of decisions, lack of responsiveness to industry changes.

All Group companies are potentially exposed to strategic risk, each at different levels according to the volume of

business they manage and their operations.

Strategic risk may arise from:

• business decisions relating to the entry into new (local or international) markets or new product lines or changes

in the distribution model or channels;

• external events, changes in the competitive environment or unexpected market scenarios due to macroeconomic

events, or changes in the regulatory environment.

Strategic risk identification processes are part of usual management planning and control, entail analyses of market

scenario and changes in the competitive environment resulting from macroeconomic events or regulatory devel-

opments. These analyses are typically conducted upon budgeting and planning as well as upon the occurrence of

external events that may have a significant impact on the group’s business.

Compliance Risk

Across the Mediolanum Banking Group, a single compliance risk management framework has been defined that

entrusts the Legal and Compliance Function with the responsibility of ensuring compliance as well as supervision,

guidance and control of Group companies within its remit.

The scope of work of the Compliance Function has been defined taking account of the responsibilities given to other

functions within the organization based on the above Group Compliance Model and in relation to specific regulatory

areas.

The different steps of the Compliance framework, provided by the Group Compliance Policy, updated during the year

and implemented by the company, include the following activities:

• Definition of the methodological framework for compliance risk assessment and monitoring;

• Periodic valuation of the methodological compliance risk assessment framework;

• Planning of compliance activities;

• Consulting activities and training;

• Monitoring of alert and regulatory developments;

194


2015

• Analysis of the impact of regulatory developments and definition of adjustment interventions;

• Verification of monitoring adequacy;

• Verification of operation;

• Valuation residual risk;

• Preparation and update of documents/specialized compliance procedures;

• Reporting and corporate bodies;

• Reporting to supervisory authorities;

• Managing relations with supervisory authorities and category associations;

• Group Coordination.

Overall, the Compliance Function has not identified, with regards to its competence, criticalities in the completeness,

accuracy, adequacy, operation and reliability of the internal control system of the company, despite having provided

appropriate guidelines on specific regulatory aspects in order to strengthen the existing controls.

Reputational Risk

Reputational risk is the current or prospective risk of impact on earnings or capital arising from the negative per-

ception of the company’s image by customers, counterparties, shareholders, investors or supervisory authorities.

Reputational risk may arise from internal or external events.

Internal or external events may include, but are not limited to:

• the materialization of other risks (e.g. market risk, liquidity risk, legal risk or strategic risk) not adequately kept

in check;

• the occurrence of operational risk events (e.g. malfunctioning, disservice, etc.) with impact on the stakeholders’

perception of the bank;

• failed compliance with statutes, regulations and codes of conducts, including those that may be outside the purview

of the Compliance team;

• internal or external communications being ineffectively or inappropriately handled;

• the behavior of corporate officers, employees or collaborators.

More generally, internal events include all events directly associated with the processes in place and the business

conducted by the company as well as any management or operational choices made by the Bank (e.g. external com-

munications, materialization of operational risk events, failure to comply with legislation).

External events include comments or debates in the media, on social networks, blogs and/or other means of digital

communication with circulation of information or opinions that damage the reputation of the company. These events

are not directly associated with processes in place or business conducted by the Company, but are related to the cir-

culation of negative opinions or information about the Company or its management (e.g. debates on blogs or social

networks, newspaper articles or opinions about the Company and its management).

The materialization of reputational risk may have effects on other risks.

Banca Mediolanum S.p.A. recognizes the reputation of the Bank is the bedrock on which the trust-based relationship

with customers and market credibility are built. Hence, reputation is managed and protected in accordance with the

Group’s guidelines, through:

• the values that are embedded across the organization;

195


• the promotion of a corporate culture built on integrity, fairness and compliance at all levels of the organization;

• the adoption of a reputational risk governance and control model.

The process of identifying, assessing and mitigating exposure to reputational risk is conducted by the Compliance

Assessment and Controls of the Legal and Compliance Function, as part of the integrated Risk Self-Assessment ac-

tivities carried out annually on various organizational units with respect to operational and compliance risk. On this

occasion, the employees of the Compliance Assessment and Controls Unit require the Heads of Organizational Units

whose activities have an impact on the critical values perceived by stakeholders, provide a qualitative assessment of

exposure to reputational risk, also analyzing data or documents that might lead to better compliance assessment of

safeguards in place. Among these elements particularly important factors are complaints received from customers,

complaints and inquiries received by the Supervisory Authority, satisfaction surveys, etc.

The results of the evaluations made and any mitigation actions are pooled with other units of the Compliance Func-

tion and the Risk Management Function which take them into account, within their respective competence, for the

planning of their activities and in the preparation of periodical reports to corporate bodies.

SECTION 2 – INSURANCE COMPANY RISKS

INSURANCE – FINANCIAL RISK AND CREDIT RISK

INSURANCE COMPANY RISKS

Introduction

The Group conducts insurance business through three entities: the Italian companies Mediolanum Vita and

Mediolanum Assicurazioni and the Irish company Mediolanum International Life LTD.

The risk management system for the three Companies of the Group was designed to provide a common and con-

sistent approach of risk management at all levels of the company and aims to support and facilitate the processes

of identification, reduction, transfer or elimination, to the extent in which the residual risk is acceptable, of the

impact that the risks have on the ability of individual companies to achieve their business objectives.

The risk management process allows identifying, assessing and governing and monitoring risks on an ongoing

basis, taking into due account the changes in the nature and size of the business and the market environment, and

is attributable to the following phases:

A. Identification of risks, definition of the methods of estimation and related assessment: involves the definition of

principles, tools and methodologies for proper identification, description, classification, estimation (qualitative,

semi-quantitative and quantitative) and risk assessment.

B. Process of defining the risk appetite: involves combining the previous phase, of identification, mapping and risk

assessment of the Company with the definition and quantification of the risk appetite and the resulting allocation

of risk tolerances and related operating limits.

196


2015

C. Governance of process and risks: consists of the policies to be followed for the assumption of new risks and/

or the conduct of existing risks. The activities of assumption and conduct of various types of risk are governed

by specific Policies which establish the principles and/or limits to be met in the course of activities, in order to

ensure a risk profile consistent with the risk appetite of the Company.

D. Monitoring and Reporting: involves continuous monitoring of the risk profile of the Company and the production

of adequate information both to the internal bodies and structures of the Company and to the Control Authorities

and external stakeholders.

The process of defining the Risk Appetite is the main phase of the process of strategic decision and risk governance.

This phase of the risk management process, starting from mapping and risk assessment, lays the foundation for

defining the risk preference of the Companies and identifies the risk appetite of the same as well as the tolerance

levels and operating limits.

The Risk Appetite, that is the expression of the level of risk that every company is willing and able to accept in

pursuit of its strategic objectives, provides the context for risk and capital management. The main objective of the

Group Structures is to maintain a level of capital efficient for the management of the business and the protection

of its policyholders.

The risk profile control and management models are tailored to the complexity of the business and the character-

istics of the products sold.

MEDIOLANUM VITA

Insurance Risks

The typical risks of the insurance portfolio of Mediolanum Vita can be summarized in two categories: rates risks

and reserve risks.

Rates risks are managed by the Actuarial function initially during definition of the technical characteristics and

product pricing, and over time through periodic verification on sustainability and profitability (both in terms of

product and total liabilities portfolio). When defining a product, the profit testing tool is used in order to measure

profitability and identify in advance any weaknesses through specific sensitivity analyses. For cases of greater eco-

nomic impact, income information is also reported such as the results of the profit testing.

Reserve risk is managed and overseen by the Actuarial function of the Company during the exact calculation of

mathematical reserves, with a series of both detailed controls (for example with preventive control on the correct

system storage of the variables needed for calculation such as returns, quotations, technical bases, parameters for

supplementary reserves, recalculation of values of individual contracts) as well as overall controls, by comparing

results with the estimates made on a monthly basis. Special attention is paid to controlling the correct acquisition

of contracts, through the balancing of the relevant portfolio with reconstruction of changes divided by events that

occurred during the period and consistency of the amounts settled, with respect to changes in reserves.

197


Regarding Solvency II, these two risk categories were defined and grouped with the broader term of subscription

risk. Article 13 point 30) of Directive 2009/138/EC defines this risk as the risk of loss or of adverse change in the

value of insurance liabilities due to inadequate assumptions concerning the fixing of prices and the establishment

of reserves.

Therefore, the proper assessment of subscription risk to which the Company is exposed during its investment activ-

ities is crucial, particularly with regard to the Risk Appetite Framework defined by the Company and the relevant

economic capital absorbed.

While some methodologies adopted reflect mainly operating needs, the framework for the definition, management

and control of subscription risk is based on legal requirements laid down by the Solvency II regulation where

applicable.

Mediolanum Vita adopted this definition by identifying and classifying in this category the following risks:

1. Mortality risk;

2. Longevity risk ;

3. Disqualification risk ;

4. Expense risk;

5. Catastrophe risk.

Mortality riskMortality risk is associated to (re)insurance obligations (such as insurance in case of death or mixed policies) in

which the (re)insurance company guarantees a series of single or recurring payments in the event of death of the

policyholder during the term of the policy.

It is applicable to (re)insurance obligations that depend on mortality risk, such as those for which the amount

payable in case of death exceeds the technical reserves and, consequently, an increase in mortality rates results in

an increase in technical reserves.

Longevity riskLongevity risk is associated to (re)insurance obligations (for example, returns), for which the (re)insurance com-

pany guarantees a series of payments up to the death of the policyholder, and for which a decrease in mortality

rates results in an increase in technical reserves, or to (re)insurance obligations (for example mixed policies) in

which the (re)insurance company guarantees a single payment, in case of survival of the policyholder for the entire

duration of the policy.

It is applicable to (re)insurance obligations that depend on longevity risk, or in which there is no benefit in case of

death or the amount provided in the event of death is less than the technical reserves and, consequently, a decrease

in mortality rates results in an increase in technical reserves.

Disqualification riskDisqualification risk is the risk of loss or change in liabilities due to a change in the exercise rates of the options

by policyholders.

Account must be taken of all the options provided for policyholders, legal or contractual, which can significantly

change the value of future cash flows.

198


2015

Expense riskExpense risk derives from the change in expenses incurred in relation to insurance or reinsurance contracts.

Catastrophe riskCatastrophe risk derives from extreme or irregular events, the effects of which are not adequately captured in the

other sub-modules of subscription risk of life insurance.

The Risk Management function implemented a process that involves monitoring at least quarterly, with communica-

tion both to the Product and Equity Committee and to the Board of Directors, of disqualification risk with particular

reference to:

1. outputs for redemptions;

2. failure to maintain the existing portfolio.

The Risk Management function implemented a process that involves monitoring at least quarterly, with communica-

tion both to the Product and Equity Committee and to the Board of Directors, of disqualification risk with particular

reference to:

1. outputs for redemptions;

2. failure to maintain the existing portfolio.

Mediolanum Vita considers the impact on future profitability of all sources of income and expense, especially those

related to possible early termination of existing contracts. When pricing certain products penalties are included for

early termination of contracts. These penalties are calculated to compensate, at least partly, lost revenues.

Additionally, under the vast majority of contracts in force, financial guarantees are not paid in the event of early

termination of the contract, which is thus discouraged, and potential costs for the Company are reduced.

The assumptions used for both product pricing and risk assessment are regularly reviewed and updated based on

actual experience of early termination of contracts.

An analysis of life insurance reserves by contract maturity is set out in the table below:

E/t Insurance Investment Total

within 1 year 505,120 - 505,120

1 to 2 years 431,813 - 431,813

2 to 3 years 459,343 - 459,343

3 to 4 years 698,114 - 698,114

over 5 years 9,224,563 3,433,365 12,657,928

whole life 1,503,818 - 1,503,818

Total 12,822,771 3,433,365 16,256,135

199


The total includes mathematical reserves and technical reserves for contracts under which the risk is borne by the

policyholder amounting respectively to Euro 865,567.7 and Euro 14,522,183.4 thousand, the reserve for other

technical items amounting to Euro 361,845.6 thousand, and investment contracts financial liabilities amounting

to Euro 3,433.4 thousand.

The Life Insurance Books of the Company largely consist of contracts with a predominantly savings component

and a marginal “pure risk” component (death plus other coverage e.g. disability, injury…). There are also some

annuity books that are exposed to longevity risk.

The risks related to products with a predominantly savings component, and to guarantees of minimum return, are

considered when pricing the products setting guarantees in a prudent way, in line with the specific features of each

financial market and considering regulatory constraints, if any.

As to the demographic risk associated with death benefit policies, prudent technical rates based on population

mortality tables plus adequate loadings are applied when pricing products.

To further mitigate mortality risk the Company reinsures principal in excess of Euro 100,000.

As to longevity risk, the Company regularly reviews the adequacy of technical rates for the annuities it pays out.

For contracts featuring an initial accumulation plan with option to convert capital into annuities in the future

generally, no guarantee is given of conversion rates for future annuities.

The propensity of policyholders to opt for annuities is also monitored so that adjustments can be promptly made

to demographic assumptions and rates.

Regarding the impact of this variable on earnings, the Company calculated that a 1% change in said variable would

bring about a similar movement of Euro 1.47 million in the group’s net profit for 2014.

Disqualification risk and expense risk are prudentially assessed and incorporated into the pricing of new products.

Product pricing and profit testing are based on assumptions derived from the Company’s actual experience.

To mitigate risks associated with surrenders in general, penalties are applied. These penalties are calculated

to compensate lost revenues. Portfolio reviews on annual planning include analyses that check consistency of

assumptions made with actual experiences.

An analysis of life insurance gross premiums by product class and geographic area is set out in the table below.

E/t Unit Linked Index Linked Traditional Collective Total

Spain - - - - -

Germany - - - - -

Italy 3,079,876 - 1,757,064 7,347 4,844,287

Total 3,079,876 - 1,757,064 7,347 4,844,287

200


2015

An analysis of insurance technical reserves by level of guarantee offered is set out in the table below:

E/t Dec. 31, 2015

Liabilities with interest rate guarantee 1,368,673

0% 537,101

2% 16,369

3% 127,119

4% 688,084

Liabilities without interest rate guarantee 14,887,462

Total 16,256,135

The total includes mathematical reserves, technical reserves for contracts under which investment risk is borne by

the policyholder and reserves relating to management of the pension fund, the reserve for other technical items and

investment contracts’ financial liabilities.

The value of the Technical Reserves of Mediolanum Vita as at December 31, 2015 amounted to Euro 16,256 million,

an increase of 12% compared to the previous year increase. The increase in Reserves in 2015 of approximately Euro

1,690 million is mainly due to the commercialization of the new product called MyLife.

E/t 2015 2014 Δ (Value) Δ (%)

MR Initial (Start Year) 14,566,517 13,199,857 1,366,659 10.4%

MR Final 16,256,135 14,566,517 1,689,619 11.6%

MR Change 1,689,619 1,366,659 322,959 23.6%

A more detailed analysis is set out in the table below:

1. Total premiums invested in December 2015 amounted to Euro 4,765 million, a slight decrease of about 8%

compared to the amount invested in the same period in 2014.

2. Reserve releases for payments amounted to Euro 3,490 million, a decrease compared to the same figure of the

previous year. As in the past even in this case the difference is mainly due to the impact of partial redemptions

of the product Mediolanum Plus.

3. The change in other Additional Reserves amounted to Euro 26 million, an increase of about Euro 7.2 million

over the previous year. This is due, as will be seen further, essentially to the trend to the Bonuses Reserve of

Unit Linked policies.

4. The change in reserves due to the market valuation of assets was positive for Euro 430 million, a decrease

compared to the figure recorded in the same period of 2014.

5. The revaluation of traditional policies linked to fund returns of the Medinvest fund and the Freedom fund was

around Euro 33 million, a decrease over 2014.

201


E/t 2015 2014 Δ (Value) Δ (%)

MR Initial (Start Year) 14,566,517 13,199,857 1,366,659 10.4%

Premiums Invested 4,765,455 5,205,108 (439,653) (8.4%)

Release for Payments (3,490,613) (4,779,960) 1,289,347 (27.0%)

VAR for other Pol. items Unit Linked (91,225) (27,251) (63,974) 234.8%

VAR for actuarial comp. Pol. Traditional 17,540 10,893 6,647 61.0%

VAR for Additional Reserves 26,346 19,097 7,249 38.0%

VAR for Market Valuation 429,126 888,946 (459,820) (51.7%)

Pol. Revaluation Traditional 32,990 49,826 (16,836) (33.8%)

MR FINAL 16,256,135 14,566,517 1,689,619 11.6%

MR Change 1,689,619 1,366,659 322,959 23.6%

Mathematical Reserves for Unit Linked Policies without Additional Reserves

In 2015, mathematical reserves for Unit Linked policies were up about Euro 1,308 million, a sharp increase com-

pared to the figure recorded for the same period in 2014. The analysis is explained by the following key factors:

1. invested premiums amounted to approximately Euro 3,014 million of which Euro 1,591 million relating to the

1st year and Euro 1,423 million to in-force business. The comparison with the previous year shows a significant

increase in both first annuity and in portfolio premium inflows;

2. reserve release for amounts payable to policyholders amounted to about Euro 1,124 million, of which Euro

655 million relating to surrenders, Euro 61 million to claims and Euro 66 to reclassifications and the rest to

maturities. The overall figure is in line with the performance recorded the previous year;

3. reserve release due to divestments for administrative expenses borne by customers amounted to about Euro 54

million, a sharp increase compared to 2014;

4. investments for bonuses were down over the prior year’s figure;

5. the change in the reserve for the market valuation of insurance funds amounted to about Euro 427 million,

showing a decrease compared with the same figure of 2014.

202


2015

E/t 2015 2014 Δ (Value) Δ (%)

MR Initial 12,151,514 9,823,153 2,328,361 23.7%

Premiums Invested 3,013,703 2,514,206 499,497 19.9%

- Initial 1,590,768 1,410,130 180,638 12.8%

- Successive 1,422,935 1,104,076 318,859 28.9%

Release for Payments (1,123,863) (1,037,385) (86,478) 8.3%

- for Surrenders (655,105) (596,366) (58,738) 9.8%

- for Reclassifications (65,557) (74,224) 8,667 (11.7%)

- for Claims (61,489) (32,248) (29,242) 90.7%

- for Maturities (341,712) (334,547) (7,165) 2.1%

Release for Admin./Operating Costs (53,701) (18,995) (34,706) 182.7%

Investments for Bonuses 12,977 22,205 (9,229) (41.6%)

Invested/Divested for Switch (415) (1,104) 689 (62.4%)

Invested/Divested by Mov. General 11,631 6,063 5,569 91.9%

Related guarantees (521) (879) 359 (40.8%)

Changes for Market Valuation (*) 427,395 880,322 (452,926) (51.5%)

MR Final 14,376,148 12,151,514 2,224,634 18.3%

MR Change 2,224,634 2,328,361 (103,727) (4.5%)

Mathematical Reserves for Index Linked Policies without Additional Reserves

The change in mathematical reserves for Index Linked policies continued to decrease sharply in 2015 vs. 2014. This

trend can be explained by the following points:

1. there were no new index issues;

2. reserve release for payments amounted to about Euro 109 million (of which Euro 7 million relating to surren-

ders, Euro 4 million for claims, Euro 97 million for maturities). Compared to 2014, reserve release totaled

around 52%;

3. the change in the reserve for market valuation of securities underlying index issues showed a decrease of about

Euro 7 million.

E/t 2015 2014 Δ (Value) Δ (%)

MR Initial 255,033 472,824 (217,791) (46.1%)

Premiums Invested - - - n.s.

Release for Payments (108,671) (227,946) 119,276 (52.3%)

- for Surrenders (7,065) (11,560) 4,495 (38.9%)

- for Claims (4,179) (5,856) 1,677 (28.6%)

- for Maturities (97,427) (210,531) 113,104 (53.7%)

Changes for market valuation 3,107 10,155 (7,048) (69.4%)

MR FINAL 149,469 255,033 (105,564) (41.4%)

MR CHANGE (105,564) (217,791) 112,228 (51.5%)

203


Mathematical Reserves for Traditional Policies without Additional Reserves

As at December 2015, mathematical reserves for traditional policies were down Euro 763 million mainly due to the

following factors:

1. the investment of premiums, which amounted to Euro 1,752 million and refers mainly to the issue of premiums

related to the policy Mediolanum Plus, decreased from the data of the previous year by about 35%;

2. the Reserve release for total payments amounted to Euro 1.737 million and was attributable solely to redemp-

tions, even partial, of Mediolanum Plus product;

3. the revaluation of traditional policies linked to returns of the Medinvest and the Freedom fund was around Euro

33 million, a decrease over the same period of 2014;

4. the year 2015 also recorded an increase in other actuarial items mainly due to annuities paid out.

Riserve matematiche delle Polizze Tradizionali senza Riserve aggiuntive

La variazione della riserva matematica relativa alle polizze tradizionali mostra a dicembre 2013 una diminuzione

di circa 1.737 milioni di euro rispetto all’anno passato. Possiamo sottolineare i seguenti principali elementi:

1. l’investimento dei premi è stato pari a 3.596 milioni, in netta diminuzione rispetto il 2012, da attribuire prin-

cipalmente al prodotto Medplus oltre alle commercializzazione di polizze temporanee caso morte;

2. lo smontamento della riserva a fronte dei pagamenti totali ammonta a 5.410 milioni di euro così suddivisi:

5.320 milioni sono relativi ai riscatti; 22 ai sinistri; 68 alle scadenze. Rispetto a dicembre 2012 assistiamo ad

una diminuzione del 48% dei pagamenti;

3. la rivalutazione delle polizze tradizionali, legata al rendimento del fondo, si è attestata intorno ai 75 milioni

di euro, in forte diminuzione rispetto il 2012.

E/t 2015 2014 Δ (Value) Δ (%)

MR Initial 1,824,470 2,587,477 (763,007) (29.5%)

Premiums Invested 1,751,752 2,690,902 (939,150) (34.9%)

- Initial 14,879 21,217 (6,338) (29.9%)

- Successive 1,736,873 2,669,685 (932,812) (34.9%)

Release for Payments (2,258,079) (3,514,629) 1,256,550 (35.8%)

- for Surrenders (2,194,298) (3,435,906) 1,241,609 (36.1%)

- for Claims (16,180) (14,391) (1,789) 12.4%

- for Maturities (47,601) (64,331) 16,730 (26.0%)

Actuarial Components 17,540 10,893 6,647 61.0%

Revaluation 32,990 49,826 (16,836) (33.8%)

MR FINAL 1,368,673 1,824,470 (455,797) (25.0%)

MR CHANGE (455,797) (763,007) 307,210 (40.3%)

Other Additional Reserves (Bonus Res. Exp. Res. Reserve for Demographic Adjustments, etc.)

In 2015, additional reserves increased by about Euro 26 million compared to the prior year. An analysis of the main

items shows as follows:

1. the change in the Bonus Reserves in December 2015 was about Euro 21 million, an increase compared to the

change recorded in the same period of the previous year;

2. the provision for future expenses increased by Euro 0.832 million in 2015, an increase compared to the change

in 2014;

3. the change in the Reserve for the return of charges related to individual pension plans in 2015 decreased over

the previous year;

4. in 2015, the change in the technical bases adjustment reserve decreased by about Euro 0.4 million compared

to the change recorded at the end of 2014;

5. the value of the Reserve for the risk of Declining Rates recorded a decrease of about Euro 2 million in 2015;

this is due mainly to the decline in yields predictable the next five years of related to separate Medinvest man-

agement.

204


2015

E/t 2015 2014 Δ (Value) Δ (%)

MR Initial (Start Year) 335,500 316,403 19,097 6.0%

Provision for Unit Linked Bonus 20,540 15,069 5,471 36.3%

- Loyalty Bonus (2,166) (5,708) 3,542 (62.1%)

- Bonus at Maturity 23,041 20,573 2,468 12.0%

- Bonus at Recurring (335) 205 (540) (263.4%)

Provision for Dipiù Pac Bonus - - - n.s.

Provision for Return Caric. Tax Bft (81) (544) 462 (85.1%)

Provision for Future Charges 832 (761) 1,594 209.3%

- Other (528) (842) 314 (37.3%)

- Pol. Traditional 1,360 81 1,279 n.s.

Provision for Adj. Demographic Bases 2,871 3,360 (489) (14.6%)

Provision for Death (137) (192) 55 (28.6%)

Amounts set aside for Declining Rates 2,216 1,912 304 15.9%

Other Provisions 106 253 (148) (58.3%)

- General Risks - - - n.s.

- Warranty provision 63 36 27 74.8%

- Additional premiums 42 217 (175) (80.4%)

MR FINAL 361,846 335,500 26,346 7.9%

MR CHANGE 26,346 19,097 7,249 38.0%

Market Risk

Regarding the process for the definition of investment strategies, the proper identification of market risks to which

the Company is exposed during its investment activities is crucial, particularly with regard to the Risk Appetite

Framework defined by the Company and the relevant economic capital absorbed.


and control of market risks is based on legal requirements laid down by the Solvency II regulation where applicable.

Article 13, point 31) of Directive 2009/138/EC defines the market risk as the risk of loss or unfavorable change in

the financial situation deriving, directly or indirectly, from fluctuations in the level and volatility of the market prices

of the assets, liabilities and financial instruments.

As described in its risk identification and mapping policy, Mediolanum Vita adopted this definition identifying and

classifying the following risks in this category:

4. Interest Rate Risk

5. Equity Risk

6. Currency Risk

7. Spread Risk

8. Concentration Risk (subject of specific policy)

9. Liquidity Risk (subject of specific policy)

10. Financial Instruments Derivatives Risk

205


Interest rate risk

Interest rate risk exists for all assets and liabilities whose value is “sensitive” to changes in the term structure of

interest rates or volatility of interest rates. This applies to both real and nominal term structures.

The activities sensitive to changes in interest rates include fixed income investments, financial instruments (such as

loans), loans on policies, derivatives on interest rates and any insurance activities.

Equity risk

Equity risk arises from the level or volatility of market prices for securities. The exposure to equity risk refers to all

assets and liabilities whose value is sensitive to changes in stock market prices.

Currency risk

Currency risk arises from changes in the level or volatility of exchange rates. Companies may be exposed to currency

risk arising from various sources, including their investment portfolios, as well as assets, liabilities and investments

in associates.

Property risk

Property risks arise because of the sensitivity of financial assets, liabilities and investments to the level or volatility

of property market prices.

The following investments are classified as property and their risks are considered in accordance with the sub-form

of property risk:

1. land, property and rights on property assets;

2. direct or indirect investments in real estate companies that generate regular income, or that are otherwise

intended for investment purposes;

3. property investments for own use of the insurance company.

206


2015

Spread risk

Spread risk is the part of risk that reflects changes in the value of financial assets, liabilities and instruments due

to a change in the level and volatility of credit spreads with respect to the term structure of the risk-free rate. The

spread risk applies at least to the following classes of securities: Corporate bonds of high credit quality (investment

grade); High-yield corporate bonds; Subordinated debt; Hybrid debt.

Moreover, spread risk is applicable to all types of asset-backed securities as well as to all segments of structured

credit products such as backed debit bonds. In particular, the risk spread covers credit derivatives, for example,

but not limited to, credit default swaps, total return swaps and credit linked notes that are not held as part of a

recognized risk mitigation policy. The spread risk also includes the credit risk of other risky investments including

in particular: investments; debt securities issued to and from associated companies and companies with which the

insurance company has an investment relation; debt securities and other fixed income securities; investments in

mutual funds.

Market concentration risk

The risk of market concentration in the field of financial investment derives from the accumulation of exposures with

the same counterparty.

Concentration risk extends to activities impacted by equity risk, the interest rate and spread and the property risk

and excludes those activities of the form of risk of default of the counterparty.

It does not include other types of concentration (for example, by geographical area, industrial sector, etc.).

Liquidity risk

Risk that the Company is not able to adequately meet expected and unexpected cash outflows. This condition may be

linked to the inadequacy of future cash flows to meet expected and unexpected commitments or even the difficulty

to liquidate part of the assets to meet cash needs.

Regarding Solvency II, a process was implemented that involves monitoring at least quarterly, with communication

both to the Product and Equity Committee and to the Board of Directors, of market risks that have a greater impact

in terms of absorption of regulatory capital, in this case for Mediolanum Vita:

1. Equity

2. Currency

3. Interest rate

This in order to make the control process in place consistent with the Company’s Risk Appetite Framework.

207


Free Capital and Traditional Portfolio

The controls currently in place monitor the value of underlying assets ex-ante and ex-post. Frequency of controls is

established at the level of each entity.

In the traditional reserve portfolio, the risk of asset-liability mismatch is periodically assessed using an Asset Lia-

bility Management model. In particular, these activities are assessed by Mediolanum Vita using an Asset Liability

Management stochastic model. In particular, the model in question is based on stochastic dynamic financial analysis

(DFA) which allows evaluating how the situation of the company may change if several scenarios and strategic

decisions vary. It allows projections not only of possible future scenarios but also of their probability. The software

generates stochastic projections of the flows of assets and liabilities in the company’s traditional portfolio. To that

end, at each assessment date 1,000 Market-Consistent financial scenarios are generated. Each of these scenarios

shows the possible developments of risk factors over a 20-year horizon. The system allows ex-ante modeling for:

• current and future asset allocation;

• type of securities to be bought/sold;

• ranking of securities to be bought/sold;

• liabilities paid up and lapse rate assumptions;

• performance target;

• actions to be taken to meet performance target.

Through ad-hoc reports generated by the system, it is possible to monitor the long-term impact of management

investment choices on the company’s profitability and solvency.

Under the regulations in force, the Company within is authorised to use derivatives to hedge current positions or

movements in underlying assets or liabilities.

Financial derivatives are primarily used to achieve operating targets with greater efficiency, flexibility and rapidity,

to optimize portfolio management (“effective management”) and to mitigate market risk arising on interest rate or

foreign exchange rate movements (risk mitigation).

In the process of measuring market risk on Medinvest and Freedom separate management and Free Equity, the Risk

Management Function adopted the method of calculation of Value at Risk (VaR).

The Value at Risk indicates the maximum potential loss observed with a certain level of probability in a defined

period of time, following changes in financial markets: it is estimated by using the Historical Simulation Full Eval-

uation methodology. The historical simulation method consists in determining the value of the portfolio using the

parameters relevant for it observed on the market (risk factors), and in determining the changes in this portfolio in

response to changes in the parameters observed in the past.

The implementation choices of the Company were in line with the best practices of the market:

• time horizon of one working day (period = 1 day);

• observation period of 3 years;

• 99% confidence level.

208


2015

The values of the parameters are taken daily from the Bloomberg provider; the calculations of the portfolio valua-

tions and value of VaR are made through the calculation engine of the SAS solution for Insurance Risk Management.

The chart below shows Value at Risk (VaR) in FY 2015:

The chart below sets out an analysis of Mediolanum Vita Company portfolio by type of assets.

11,000

10,000

9,000

8,000

7,000

6,000

5,000

4,000

01/01

/2015

01/12

/2015

01/11

/2015

01/10

/2015

01/09

/2015

01/08

/2015

01/07

/2015

01/06

/2015

01/05

/2015

01/04

/2015

01/03

/2015

01/02

/2015

VaR Portfolio Mediolanum Vita S.p.A. (data in e/000)

Step CPN4.4% Floating

7.5%

Fixed54.3%

Variable1.6%

Zero Coupon32.2%

FloatingStep CPN

Fixed

VariableZero Coupon

Analysis by type of Mediolanum Vita S.p.A. asset portfolio (Dec. 31, 2015)

209


Unit Linked

Mediolanum Vita securities portfolio - POSITIONSpot Data (Dec. 31, 2015 vs. Dec. 31, 2014)

IAS Classification E/t

Dec. 31, 2015 Dec. 31, 2014 Change (%)

HFT

Nominal 647,750 453,306 43%

Market value 654,287 380,680 72%

AFS

Nominal 703,382 1,215,940 (42%)

Market value 789,390 1,345,284 (41%)

HTM

Nominal 308,856 308,856 -

Market value 358,076 351,566 2%

L&R

Nominal 27,714 27,736 -

Market value 26,591 25,256 5%

TOTAL

Nominal 1,687,702 2,005,838 (16%)

Market value 1,828,344 2,102,785 (13%)

NOTE: the value of the securities portfolio does not include residual Index Linked Policies Funds, Shares and Rights.

Investments to the benefit of policyholders who bear the investment risk and in connection with pension fund management

These investments consist of holdings in Proprietary Insurance Funds (under Unit Linked policies), financial instru-

ments – notes and derivative instruments – (under Index Linked policies) and individual pension plans that are an

insurance product linked to holdings in Irish UCITS. For these products the amounts payable by Life Insurers are

linked to changes in the value of units of one or more proprietary funds, which in turn depends on changes in the

price of the underlying financial assets or in the price of the financial instruments.

The competent functions manage risk by ensuring that regulatory limits (e.g. exposure limits, asset quality and vol-

atility) are not exceeded.

For class III products – Unit and Index Linked policies – the use of derivatives is allowed to protect related technical

reserves. Derivatives and the related assets approximate at best possible the value of technical reserves.

The Company is exposed to counterparty risk on existing derivative positions. For listed instruments with daily re-

margining risk is residual.

For Over-The-Counter contracts, exposure to credit risk is represented by the fair value on the measurement date.

Credit risk is regularly monitored by reviewing counterparty exposure limits and credit standing. In addition, credit

risk is mitigated by collateralization under CSAs (where applicable).

The Mediolanum Vita pension product does not offer guarantees of a financial nature; therefore, up until the time

conversion into annuities occurs, the amount of accrued capital is always entirely correlated to the value of the

holdings in the UCITS into which the contributions paid are invested.

210


2015

Index Linked Portfolio

The teams of each insurance entity within the Group monitor exposure to credit risk also for Index Linked contracts,

as this type of insurance investment entails customer exposure to two or three counterparties (the bond issuer, the

option counterparty and in some cases the swap counterparty).

For the Index Linked portfolio credit risk analysis includes measurements of both nominal value and market value

of exposures. For each counterparty, the probability of default (PD) is assessed on the basis of a model that is based

on the company’s financial indicators and the economic cycle and Loss Given Default (LGD, set at 60% according

to best market practice). PD times LGD and exposure gives the expected loss for each counterparty. The 1-year ex-

pected losses due to default in the Index Linked portfolio is computed by aggregating all expected losses.

In addition to expected losses (EL) also unexpected losses (UL) are computed for credit risk. Unexpected loss is the

variability of the loss rate. The calculation of unexpected loss is based on the assumption that the only “unfavorable”

event that can happen over the time period chosen (a year) is represented by counterparty insolvency. This approach

allows measuring the rate of unexpected loss associated with a credit exposure on the basis of the volatility of the

binomial distribution.

Index Linked Portfolio of Mediolanum VitaSpot Data (Dec. 31, 2015 vs. Dec. 31, 2014)

E/t Dec. 31, 2015 Dec. 31, 2014 Change (%)

Expected loss 1,084.14 2,513.80 (57%)

Unexpected loss 9,284.99 17,168.58 (46%)

The management indicator that was adopted and used by the Risk Management of the Company to manage market

risks related to Unit Linked products is the Tracking Error Volatility (TEV), calculated on a monthly basis.

The tracking error measures the added value that the mutual fund in which the UL product invests has realized with

respect to the benchmark and represents an initial measurement of sound management.

In addition, Mediolanum Vita also decided to measure the volatility of the tracking error (or Tracking Error Volatil-

ity), that is its variability over time, since it indicates the differential risk that the investor bears choosing to invest

in the fund rather than directly in the benchmark. The model used is multi-factorial.

This model allows analyzing the TEV of the assets and the portfolio of shares, bonds and currencies using different

factors depending on the local market of belonging.

211


Credit risk and counterparty risk

The credit risk represents the risk that over the life of a financial instrument linked to an insurance product there

may be an event which changes the repayment ability (creditworthiness) of the counterparty (issuer) and conse-

quently the value of the credit position. Credit risk can be divided into two components: insolvency and migration

risk. Insolvency risk is the risk of not being able to fully collect a certain number of future payments as a result of

the insolvency of the debtor; migration risk relates to the risk of a decline in the value of the instrument as a result

of the deterioration of the credit standing/rating of the debtor.

Counterparty risk arises mainly from typical derivatives of some class III products. In particular, if the counterparty

of the OTC transaction incurs a deterioration of its financial solidity which may involve default, it may not fulfill the

obligations arising from the negotiation of said instrument. This risk is monitored by the Company through compli-

ance with European regulations EMIR (European Market Infrastructure Regulation).

The credit risk for Mediolanum Vita can emerge mainly from the issuer risk as a result of the default of the securities

in the portfolio. It is noted that the securities portfolio of Mediolanum Vita is characterized by the prevalence of

investments in domestic government securities with respect to other issuers resulting from exposure to the irrelevant

default risk.

Mediolanum Vita securities portfolio - RATING COMPOSITIONSpot Data (Dec. 31, 2015 vs. Dec. 31, 2014)

Rating classesE/t

Dec. 31, 2015 % Dec. 31, 2014 % Change (%)

Total portfolio 1,828,344 100% 2,102,785 100% (13%)

AAA 696 - - - n.s.

AA+ to AA- 19,841 1.1% 13,964 0.7% 42%

A+ to A- 11,241 0.6% 39,334 1.9% (71%)

BBB+ to BBB- 1,704,435 93.2% 1,943,897 92.4% (12%)

BB+ or lower 82,140 4.5% 96,051 4.6% (14%)

Unrated 9,991 0.5% 9,540 0.5% 5%

NOTE: the value of the securities portfolio does not include residual Index Linked Policies Funds, Shares and Rights.

Reinsurance credit risk

Mediolanum Vita has reinsured part of its portfolio. Exposures arising from reinsurance are exposures to counter-

party risk. The credit risk arising from reinsurance is estimated by calculating the expected loss where default prob-

abilities are derived using a calculator that is based on the Merton model. Credit risk associated with reinsurance

contracts in force is partly mitigated through deposits received from counterparties.

212


2015

Reinsurance credit risk Mediolanum Vita portfolioSpot data as at December 31, 2015

E/t

Reinsured Technical Reserves

Expected loss PD LGD

Total 65,003 20

Swiss Re Europe S.A 27,362 7.4 0.05% 60%

Munchener Ruck Italia S.p.A. 14,492 2.9 0.03% 60%

Scor Global Life SE 9,859 4.6 0.08% 60%

Swiss Re Frankona Rueckversicherung-AG 5,854 1.6 0.05% 60%

Scor Global Life Se (EX REVIOS) 5,842 2.8 0.08% 60%

Hannover Rueckversicherung- AG 1,595 0.3 0.04% 60%

Liquidity Risk

Liquidity risk is essentially in relation to Segregated Funds free capital and traditional portfolio since for Class III

reserves there are buyback arrangements in place ensuring that the assets backing said reserves can be promptly

realized. Liquidity risk is managed applying a Group-wide consistent method of analysis based on maturity and rat-

ing. Maturity analysis provides information for the management of liquidity risk and interest rate risk showing any

mismatch by type of instrument and maturity (month or quarter).

350,000

300,000

250,000

200,000

150,000

0

MATURITY

CA

PIT

AL

FLO

WS

AN

D I

NTE

RE

ST (

€/0

00)

1d

50,000

100,000

AFSHFTL&RHTM

3m 6m 1yr 2yr 3yr 5yr 10yr 20yr

Analysis of Mediolanum Vita portfolio (December 31, 2015)

213


Operational Risks




In line with the model already used by other companies of the Mediolanum Group, the Company adopted and regu-

larly updated a specific framework for the management of operational risk.

The reference framework for the management and control of operational risk is composed of four basic processes:





Each of these processes is characterized by specific objectives, models, methodologies and tools.







• qualitative and quantitative assessments of the risk exposure of key business processes, as part of the annual Risk

Self-Assessment conducted on the basis of specific outsourcing contracts with the Company by the Compliance

Assessment and Controls Unit of the Legal and Compliance Function of Banca Mediolanum S.p.A. on behalf of

the Risk Management Function of the Company;

• internal data of actual loss, together with all information relevant to the measurement and management of risks

(including recoveries from insurance and direct), collected through the process of Loss Data Collection by the

Risk Management Function of the Company;

• preliminary analysis, by the Compliance Assessment and Controls unit of the Legal and Compliance Function

of Banca Mediolanum S.p.A., in coordination with the Risk Management Function of the Company, of the risk

exposure to the entry into new businesses or new contracts/commercial agreements, as well as a result of organ-

izational changes/regulations.




tors”.

Measurement is the activity of analysis and optimization of risk. It is an activity aimed at the complete knowledge

of the overall risk profile of the company leading to the quantification of:

• Economic capital;

• Regulatory capital.

214


2015

The “Monitoring, Control and Reporting” process is a direct result of the preliminary processes of identification

and measurement that allow analyzing the overall exposure to operational risks of the various business units and

promptly reporting any problems found. The main tool used in the conduct of this process is the drafting of periodic

information to the company functions involved, Top Management and the Board of Directors.

The “Management” process entails the periodic assessment of risk control and mitigation strategies. Depending on

the nature and size of risk, in accordance with the risk appetite approved by management, the bank decides whether

it can take the risk, adopt risk mitigation or transfer the risk to third parties.

In terms of the estimation of operational risk conducted on the organizational units of the Company, with approach

and depth graded according to the expected risks and the nature of the units, summary assessments did not highlight

elements of criticality.

Monitoring

As part of its business processes, Mediolanum Vita has identified control points that are assigned to the specific

subjects/functions.

The process of controlling and monitoring risks aims to:

• monitor the performance of the Company in relation to as defined in both the business plan and objectives and

Risk Appetite;

• support the decision-making process, ensuring compliance on one hand, with as defined within the risk policies

and on the other with the law and regulatory requirements;

• ensure effective and efficient use of company resources to constantly improve the company’s operations;

• support the process of communication and reporting.

The Company continually reviews its risk management system and regularly prepares adequate reporting to support

and feed the discussion with the relevant bodies, as well as the Company’s decision-making process.

The Risk Management function is responsible for the preparation of reports on risk management. This reporting

considers and contains information on:

• adequacy of the risk management system in relation to as defined in this document and in the context of company

objectives;

• alignment of the risk limits and tolerances regarding as defined in terms of Risk Appetite;

• correctness of the identification and classification of risks;

• results of the review of the risk management system;

• assessments regarding the use of risk elements within the decision-making process and the corporate culture of

the Company;

• changes in the nature and extent of the risk to which the Company is exposed and the latter’s ability to adequately

respond to changes, both internal and external;

• quality of the monitoring and control process of the risk management system, including events in which such con-

trols were ineffective or insufficient, resulting in a negative impact (financial and otherwise) for the Company.

215


The Risk Management function prepares a “Dashboard” on the management of the risk system with qualitative

information on a monthly basis while quantitative information is also provided quarterly. This dashboard is presented

to the Products and Equity Committee and the Board of Directors.

Lastly, in 2015, Risk Management produced the values related to the estimation of the Perspective Capital Require-

ment for the time horizon of the strategic plan (FLAOR) as required by the supervisory board. The results indicated

substantial stability of the coverage ratio on the SCR and MCR in the next three years.

Project for adaptation to Solvency II

Mediolanum Vita has completed the project aimed at the implementation of Solvency II regulations. The project

involved all company departments. Solvency II is based on three fundamental pillars. The first pillar relates to

quantitative requirements for the risk-based calculation of solvency capital, the second pillar to qualitative and

quantitative requirements and involves Own Risk and Solvency Assessment (ORSA), and the third pillar to reporting

and disclosure to the various stakeholders. Mediolanum Vita has completed the infrastructure for the calculation of

the first pillar capital requirement. Also with particular reference to the second pillar of Solvency II regulations, in

2015 there were several interventions to improve and complete the adequacy and efficiency of the risk management

system in terms of both governance and constant monitoring of the risk profile. During the year 2015, the Company

sent the reports required by the Solvency II legislation – Interim Phase. The underlying objective was to rationalize

the system by placing at its center the concept of solvency in accordance with the new regulatory requirements of

Solvency II.

MEDIOLANUM INTERNATIONAL LIFE (MILL)

Insurance Risks

The typical risks of the insurance portfolio of Mill can be summarized in three categories: rates risks, demographic

risks – actuarial and reserve risks.

Rates risks are managed initially during definition of the technical characteristics and product pricing, and over time

through periodic verification on sustainability and profitability (both in terms of product and total liabilities portfo-

lio). When defining a product, the profit testing tool is used in order to measure profitability and identify in advance

any weaknesses through specific sensitivity analyses. For cases of greater economic impact, income information is

also reported such as the results of the profit testing.

Reserve risk is managed and overseen during the exact calculation of mathematical reserves, with a series of both

detailed controls (for example with preventive control on the correct system storage of the variables needed for cal-

culation such as returns, quotations, technical bases, parameters for supplementary reserves, recalculation of values

of individual contracts) as well as overall controls, by comparing results with the estimates made on a monthly basis.

Special attention is paid to controlling the correct acquisition of contracts, through the balancing of the relevant

portfolio with reconstruction of changes divided by events that occurred during the period and consistency of the

amounts settled, with respect to changes in reserves.

216


2015

Regarding Solvency II the proper assessment of insurance risks to which the Company is exposed during its invest-

ment activities is crucial, particularly with regard to the Risk Appetite Framework defined by the Company and the

relevant economic capital absorbed.


and control of insurance technical risks is based on legal requirements laid down by the Solvency II regulation where

applicable.

The Company considers the impact on future profitability of all sources of income and expense, especially those

related to possible early termination of existing contracts. When pricing certain products penalties are included for

early termination of contracts. These penalties are calculated to compensate, at least partly, lost revenues.

Additionally, under the vast majority of contracts in force, financial guarantees are not paid in the event of early

termination of the contract, which is thus discouraged, and potential costs for the Company are reduced.

The assumptions used for both product pricing and risk assessment are regularly reviewed and updated based on

actual experience of early termination of contracts.

An analysis of life insurance reserves by contract maturity is set out in the table below:

E/t Insurance Investment Total

within 1 year 192,125 944 193,069

1 to 2 years 177,360 - 177,360

2 to 3 years 23,845 - 23,845

3 to 4 years 16,820 - 16,820

over 5 years 103,494 - 103,494

whole life 989,513 43,709 1,033,221

Total 1,503,157 44,653 1,547,810

The total includes mathematical reserves and technical reserves for contracts under which the risk is borne by the

policyholder amounting to Euro 63,040,696 and Euro 1,480,086,977, respectively, and investment contracts finan-

cial liabilities amounting to Euro 44,010,237.

The Insurance Book of the Company largely consists of contracts with a predominantly savings component and a

marginal “pure risk” component (death).

The risks related to products with a predominantly savings component are considered when pricing the products

setting guarantees in a prudent way, in line with the specific features of each financial market and considering reg-

ulatory constraints, if any.

As to the demographic risk associated with death benefit policies, prudent technical rates based on population mor-

tality tables plus adequate loadings are applied when pricing products.

For contracts featuring an initial accumulation plan with option to convert capital into annuities in the future gen-

erally, no guarantee is given of conversion rates for future annuities.

For the calculation of the regulatory capital requirement of Solvency II, the voluntary early exit from the contract

(lapse risk) is the component that absorbs more than 90% of the capital requirement for the Company.

217


With reference to this type of risk and expense risk they are prudentially assessed and incorporated into the pricing

of new products. Product pricing and profit testing are based on assumptions derived from the Company’s actual

experience.

To mitigate risks associated with surrenders in general, penalties are applied. These penalties are calculated to com-

pensate lost revenues. Portfolio reviews on annual planning include analyses that check consistency of assumptions

made with actual experiences.

An analysis of life insurance gross premiums by product class and geographic area is set out in the table below.

E/t Unit Linked Index Linked Traditional Collective Total

Spain 67,408 34,902 - - 102,310

Germany 25,997 3,117 - - 29,114

Italy 78,400 - - - 78,400

Total 171,805 38,019 - - 209,824

An analysis of insurance technical reserves by level of guarantee offered is set out in the table below.

E/t Dec. 31, 2015

Liabilities with interest rate guarantee -

0% -

2% -

3% -

4% -

Liabilities without interest rate guarantee 1,547,810

Total 1,547,810

The total includes mathematical reserves, technical reserves for contracts under which investment risk is borne by

the policyholder, the reserve for other technical items and investment contracts’ financial liabilities.

The value of Technical Reserves as at December 31, 2015 amounted to Euro 1.546 million, a decrease over the

previous year of about Euro 0.5 million.

E/t 2015 2014 Δ (Value) Δ (%)

MR Initial 2,111,601 2,576,034 (464,433) (18.0%)

MR Final 1,546,295 2,111,601 (565,306) (26.8%)

MR Change (565,306) (464,433) (100,873) 21.7%

218


2015

A more detailed analysis is set out in the table below:

E/t 2015 2014 Δ (Value) Δ (%)

MR Initial (Start Year) 2,111,601 2,576,034 (464,433) (18.0%)

Premiums Invested 176,268 193,932 (17,664) (9.1%)

Release for Payments (817,559) (814,931) (2,628) 0.3%

Changes for Additional Reserves (677) 1,166 (1,843) (158.0%)

Changes for Market Valuation 76,663 155,401 (78,738) (50.7%)

MR Final 1,546,295 2,111,601 (565,306) (26.8%)

MR Change (565,306) (464,433) (1,843) (158.0%)

Mathematical Reserves for Unit Linked Policies without Additional Reserves

In 2015, mathematical reserves for Unit Linked policies were down about Euro 28 million compared to the figure

recorded for the same period in 2014.

The analysis is explained by the following key factors:

1. invested premiums amounted to Euro 138 million of which Euro 52 million relating to the 1st year and Euro

86 million to in-force business. From the comparison with the prior year, there was a significant increase of

the 1st annuity.

2. the reserve release for the total payments to be paid to policyholders amounted to about Euro 212 million,

most of which are due to redemptions, in line with the prior year figure.

3. The change in the reserve for market valuation of insurance funds showed a revaluation of Euro 49 million in

2015 down over 2015.

E/t 2015 2014 Δ (Value) Δ (%)

MR Initial 926,373 960,857 (34,484) (3.6%)

Premiums Invested 138,342 99,592 38,751 38.9%

- Initial 52,028 21,903 30,125 137.5%

- Successive 86,314 77,688 8,625 11.1%

Release for Payments (215,974) (212,128) (3,846) 1.8%

- for Surrenders (105,453) (202,427) 96,974 (47.9%)

- for Claims (8,235) (9,680) 1,446 (14.9%)

- for Maturities (102,287) (21) (102,266) n.s.

Changes for Market Valuation (*) 49,111 78,053 (28,942) (37.1%)

MR Final 897,852 926,373 (28,521) (3.1%)

MR Change (28,521) (34,484) 5,962 (17.3%)

219


Mathematical Reserves for Index Linked Policies without Additional Reserves

At December 2015, mathematical reserves for Index Linked policies were down about Euro 536 million, down

over 2014.

Specifically:

1. the investment of premiums amounted to Euro 38 million that from a comparison with the previous year

decreased by approximately 59%;

2. reserve release for payments amounted to about Euro 602 million (of which Euro 45 million relating to surren-

ders, Euro 28 million for claims, Euro 529 million for maturities). Compared to 2014, there was a substantial

decrease in all payment items;

3. the change in the reserve for the market value of securities underlying Index Linked policies showed a slight

revaluation of Euro 28 million, down over the prior year.

E/t 2015 2014 Δ (Value) Δ (%)

MR Initial 1,103,156 1,534,271 (431,115) (28.1%)

Premiums Invested 37,925 94,340 (56,415) (59.8%)

- Initial 37,925 94,340 (56,415) (59.8%)

Release for Payments (601,585) (602,803) 1,218 (0.2%)

- for Surrenders (44,667) (205,257) 160,589 (78.2%)

- for Claims (27,521) (34,552) 7,031 (20.3%)

- for Maturities (529,397) (362,994) (166,403) 45.8%

Changes for market valuation 27,552 77,348 (49,796) (64.4%)

MR Final 567,048 1,103,156 (536,108) (48.6%)

MR Change (536,108) (431,115) (104,993) 24.4%

Other Additional Reserves (Bonus Res. Exp. Res. Reserve for Demographic Adjustments, etc.)

In 2015, additional reserves decreased by about Euro 0.7 million, in contrast over the prior year. An analysis of the

main items shows as follows:

1. As at December 2015, the Bonus Reserve showed a Euro 1.2 million decrease;

2. Amounts set aside for future expenses increased by 20% in 2015 over 2014.

E/t 2015 2014 Δ (Value) Δ (%)

MR Initial (Start Year) 79,568 77,124 2,443 3.2%

Amounts set aside for Bonus Reserve 2,505 3,782 (1,277) (33.8%)

Amounts set aside for Future Expenses including Death Claims

(3,182) (2,616) (565) 21.6%

MR Final 78,891 78,290 601 0.8%

MR Change (677) 1,166 (1,843) (158.0%)

220


2015

Market Risk

Regarding the process for the definition of investment strategies, the proper identification of market risks to which

the Company is exposed during its investment activities is crucial, particularly with regard to the Risk Appetite

Framework defined by the Company and the relevant economic capital absorbed.


and control of market risks is based on legal requirements laid down by the Solvency II regulation where applicable.

Article 13, point 31) of Directive 2009/138/EC defines the market risk as the risk of loss or unfavorable change in

the financial situation deriving, directly or indirectly, from fluctuations in the level and volatility of the market prices

of the assets, liabilities and financial instruments.

As described in its risk identification and mapping policy, Mediolanum Vita adopted this definition identifying and

classifying the following risks in this category:


2. Equity Risk

3. Currency Risk

4. Spread Risk

5. Concentration Risk (subject of specific policy)

6. Liquidity Risk (subject of specific policy)

7. Financial Instruments Derivatives Risk .

The most significant risks in terms of capital absorption for Solvency II supervision are as follows:


2. Equity Risk

3. Currency Risk.

Unit Linked

The indicator that was adopted and used by the Risk Management of the Company to manage market risks related

to Unit Linked products is the Tracking Error Volatility (TEV), calculated on a monthly basis.

The tracking error measures the added value that the mutual fund in which the UL product invests has realized with

respect to the benchmark and represents an initial measurement of sound management.

Index Linked Portfolio – Credit Risk

For the Index Linked portfolio credit risk analysis includes measurements of both nominal value and market value

of exposures. For each counterparty, the probability of default (PD) is assessed on the basis of a model that is based

on the company’s financial indicators and the economic cycle and Loss Given Default (LGD, set at 60% according

to best market practice). PD times LGD and exposure gives the expected loss for each counterparty. The 1-year ex-

pected losses due to default in the Index Linked portfolio is computed by aggregating all expected losses.

221


In addition to expected losses (EL) also unexpected losses (UL) are computed for credit risk. Unexpected loss is the

variability of the loss rate. The calculation of unexpected loss is based on the assumption that the only “unfavorable”

event that can happen over the time period chosen (a year) is represented by counterparty insolvency. This approach

allows measuring the rate of unexpected loss associated with a credit exposure on the basis of the volatility of the

binomial distribution.

Free Equity

The Company has limited free capital which is mainly invested in term deposits held with other Mediolanum Group

companies. As for any Index Linked related residues as a result of redemptions, they will be freed up in the shortest

time possible with the counterparties and thus the residual counterparty risk in free equity can be considered mar-

ginal.

Compliance Risk Control

As part of the Mediolanum Group, a unitary model was defined for monitoring compliance risk, which attributes to

the Compliance Function of Banca Mediolanum S.p.A. the task of ensuring the direct supervision of Compliance

activities.

The scope of work of the Legal and Compliance Function has been defined taking account of the responsibilities

given to other functions within the organization based on the above Group Compliance Model and in relation to

specific regulatory areas.

In this regard, Mediolanum Vita S.p.A. signed a specific service agreement with Banca Mediolanum S.p.A. for the

outsourcing of activities carried out by the regulatory compliance function, in order to benefit from the structure of

the same as a center of professionalism and expertise within the Group.

The different phases of the Compliance process, provided by the Compliance Policy, include the following activities:









• Valuation of residual risk;




• Managing relations with supervisory authorities and category associations.

222


2015




Reputational Risk

Reputational risk, in line with the indications received by the Parent Company, is the current or prospective risk of

impact on earnings or capital arising from the negative perception of the Company’s image by customers, counter-

parties, shareholders, investors or supervisory authorities.

Reputational risk may arise from internal or external events. Internal events may include, but are not limited to:

• the materialization of other risks (e.g. market risk, liquidity risk, legal risk or strategic risk) not adequately

kept in check;

• the occurrence of operational risk events (for example malfunctioning, disservice) with impact on the stakehold-

ers’ perception of the bank;

• failed compliance with statutes, regulations and codes of conducts, including those that may be outside the pur-

view of the Compliance team;











The materialization of reputational risk may also have effects on other risks.

Mediolanum Vita S.p.A. recognizes the reputation of the Bank is the bedrock on which the trust-based relationship












223



complaints and inquiries received by the Supervisory Authority, etc.




MEDIOLANUM ASSICURAZIONI

Information on risks and risk management

The internal control system consists of the set of rules, procedures and functions established to ensure the effective-

ness and efficiency of corporate processes, adequate risk control, safeguarding of the value of corporate assets, the

reliability and accurateness of financial and management information as well as the compliance of transactions with

the law, the regulations issued by Supervisory Authorities, self-discipline and internal rules.

Mediolanum Assicurazioni S.p.A. has its own Risk Management function.

Said function is assigned the task of monitoring and assessing the exposure to market and country risks as well as

those related to counterparty solvency, credit and operational, monitoring capital adequacy in relation to the activity.

It is also responsible for developing quantitative methods aimed at determining and managing risk subject to control.

The risks that have the most impact on damage insurance risks are the rates risk and the reservation risk. The Com-

pany is not exposed to any significant catastrophe risks.

Underwriting risk is the risk that the premiums are insufficient to meet future claims and expenses.

In particular, the Company carries out a careful analysis to define the pricing of insurance products through simu-

lations in terms of product portfolios.

The reservation risk measures the risk that the claims reserves in the accounts are not sufficient to meet the obliga-

tions to policyholders or claimants. The claims reserve represents the ultimate cost incurred by the Company to repay

all obligations deriving from this claim or claims already received or estimated (IBNR claims), and is determined on

the basis of documentation and direct valuations available at the reporting date. The reservation risk is constantly

monitored through actuarial analyses similar to those used for the determination of reserves, noting the development

of the ultimate cost and varying the reserves in line with the reservation policies (continuous reserve).

Based on an outsourcing contract, Banca Mediolanum S.p.A. was assigned the risk assessment in relation to oper-

ational risks.

224


2015

Development claims reserves for the main generation classes

For Accident and Sickness, the development of claims by generation as at December 31, 2015 is provided.

Reserve amount + paid

E/t

Year of generation/occurrence

2010 2011 2012 2013 2014 2015 Total

as at Dec. 31 of the year of generation N 4,522 4,583 4,646 6,019 8,250 8,655 36,676

as at Dec. 31 of year N+1 4,715 4,981 4,818 6,527 8,603 - 29,644

as at Dec. 31 of year N+2 4,688 4,610 4,834 5,243 - - 19,375

as at Dec. 31 of year N+3 4,590 4,384 4,679 - - - 13,654

as at Dec. 31 of year N+4 4,602 4,406 - - - - 9,008

as at Dec. 31 of year N+5 4,606 - - - - - 4,606

2.2 Financial risks

Information on risks and risk management

The internal control system consists of the set of rules, procedures and functions established to ensure the effective-

ness and efficiency of corporate processes, adequate risk control, safeguarding of the value of corporate assets, the

reliability and accurateness of financial and management information as well as the compliance of transactions with

the law, the regulations issued by Supervisory Authorities, self-discipline and internal rules.

Objectives and policies for financial risk management

The financial management of the assets related to the reserves of Mediolanum Assicurazioni was conferred as

mandate to the Company Mediolanum Gestione Fondi, by resolution of March 17, 2004 (effective from January 1,

2005) proxy for the management of securities, technical reserves and cash and cash equivalents of the Company, the

proxy contract of which defines the investment objectives, policies related to the achievement of the mandate and

information of the extent to which said operations are carried out.

In this context, the Risk Management unit is the function that:

• Provides support to the line structures of the Company in the definition of methods for measuring risks, gradu-

ating the approach according to the group’s strategies and in light of the provisions of law;

• oversees the evolution of operational risks by carrying out the processes of identification, measurement and

control of the same, as regulated by internal regulations and in compliance with the risk appetite defined by the

Company;

• measure and control risks in support of management activities;

• verifies, collects and reconciles with the support of the responsible organizational units of the Company losses

arising from operational risks;

• analyzes the losses arising from operational risks, define action plans and verify completion;

225


• supports the Company’s functions in charge of developing and processing mathematical and statistical models

for risk analysis by gathering financial data, all in accordance with best market practices;

• defines the risk management policies and proposes to the Administrative Body of the Company risk limits, con-

sistent with the risk appetite;

• is responsible for implementing the policy of active market and monthly pricing of the securities portfolio of the

Company.

As for the assets assigned to free equity and to cover technical provisions the prevalence of Italian government secu-

rities characterizes the portfolio of the Company, confirming as highlighted in the previous year as well. The following

table shows the breakdown by rating class:

Mediolanum Assicurazioni securities portfolio - RATING COMPOSITION (S&P Equivalent)Spot data December 2015 vs. December 2014

E/t 2015 % 2014 % change (%)

Total portfolio 124,705 100% 117,361 100% 6%

AAA - - - - n.s.

AA+ to AA- - - - - n.s.

A+ to A- - - - - n.s.

BBB+ to BBB- 123,642 99% 109,926 94% 12%

BB+ or lower - - 6,370 5% n.s.

Unrated 1,063 1% 1,065 1% -

NOTE: The value of the portfolio does not consider the residual portion of Funds, Shares and Rights. Issuer Rating.

Floating5.0%

Fixed95.0%

Variable0.0%

Zero Coupon0.0%

FloatingFixed

VariableZero Coupon

Analysis of type of Mediolanum Assicurazioni S.p.A. asset portfolio (2015)

226


2015

The analysis of the Mediolanum Assicurazioni S.p.A. portfolio by IAS category is set out below:

Mediolanum Assicurazioni securities portfolio - POSITIONSpot data December 2015 vs. December 2014

E/t 2015 2014

HFT

Nominal 25,500 43,600

Market value 26,526 48,413

AFS

Nominal 81,800 49,750


HTM

Nominal 10,500 9,500


L&R

Nominal 1,820 5,829


TOTAL

Nominal 119,620 108,679

Market value 124,705 117,361

NOTE: The value of the portfolio does not consider the marginal portion of Funds, Shares and Rights.

Below is a representation of the portfolio of Mediolanum Assicurazioni S.p.A. by maturity:

35,000

30,000

25,000

20,000

15,000

0

MATURITY

10,000

5,000

AFSHFTL&RHTM

0 - 2 yr 2 - 3 yr 3 - 5 yr 5 - 10 yr > 10 yr

CA

PIT

AL

FLO

WS

AN

D I

NTE

RE

ST (

€/0

00)

Analysis of Mediolanum Assicurazioni portfolio (December 31, 2015)

227


Other risks – Operational Risks




In line with the model already used by other companies of the Mediolanum Group, the Company adopted and regu-

larly updated a specific framework for the management of operational risk.

The reference framework for the management and control of operational risk is composed of four basic processes:





Each of these processes is characterized by specific objectives, models, methodologies and tools.







• qualitative and quantitative assessments of the risk exposure of key business processes, as part of the annual Risk

Self-Assessment conducted on the basis of specific outsourcing contracts with the Company by the Compliance

Assessment and Controls Unit of the Legal and Compliance Function of Banca Mediolanum S.p.A. on behalf of

the Risk Management Function of the Company;

• internal loss data, together with all information relevant to the measurement and management of risks (includ-

ing recoveries from insurance and direct), collected through the process of Loss Data Collection by the Risk

Management Function of the Company;

• preliminary analysis, by the Compliance Assessment and Controls unit of the Legal and Compliance Function

of Banca Mediolanum S.p.A., in coordination with the Risk Management Function of the Company, of the risk

exposure to the entry into new businesses or new contracts/commercial agreements, as well as a result of organ-

izational changes/regulations.

Measurement is the activity of analysis and optimization of risk. It is an activity aimed at the complete knowledge

of the overall risk profile of the company leading to the quantification of:

• regulatory capital;

• economic capital.

The “Monitoring, Control and Reporting” process is a direct result of the preliminary processes of identification

and measurement that allow analyzing the overall exposure to operational risks of the various business units and

promptly reporting any problems found. The main tool used in the conduct of this process is the drafting of periodic

information to the company functions involved, Top Management and the Board of Directors.

228


2015

The “Management” process entails the periodic assessment of risk control and mitigation strategies. Depending on

the nature and size of risk, in accordance with the risk appetite approved by management, the bank decides whether

it can take the risk, adopt risk mitigation or transfer the risk to third parties.


and depth graded according to the expected risks and the nature of the units, summary assessments did not highlight

elements of criticality.

Other risks – Compliance Risk control

As part of the Mediolanum Group, to which the Company belongs, a unitary model was defined for monitoring

compliance risk, which attributes to the Legal and Compliance Function of Banca Mediolanum S.p.A. the task of

ensuring the direct supervision of compliance activities.

The scope of work of the Legal and Compliance Function has been defined taking account of the responsibilities

given to other functions within the organization based on the above Group Compliance Model and in relation to

specific regulatory areas.

In this regard, Mediolanum Assicurazioni S.p.A. signed a specific service agreement with Banca Mediolanum S.p.A.

for the outsourcing of activities carried out by the regulatory compliance function, in order to benefit from the struc-

ture of the same as a center of professionalism and expertise within the Group.

The different phases of the Compliance process, provided by the Compliance Policy, include the following activities:









• Valuation of residual risk;








229


Other risks – Reputational Risk

Reputational risk, in line with the indications received by the Parent Company, is the current or prospective risk of

impact on earnings or capital arising from the negative perception of the Company’s image by customers, counter-

parties, shareholders, investors or supervisory authorities.

Reputational risk may arise from internal or external events. Internal events may include, but are not limited to:


in check;

• the occurrence of operational risk events (e.g. malfunctioning, disservice) with impact on the stakeholders’ per-

ception of the bank;






conducted by the company as well as any management or operational choices made by the Bank (e.g. external

communications, materialization of operational risk events, failure to comply with legislation).


communication with circulation of information or opinions that damage the reputation of the company. These

events are not directly associated with processes in place or business conducted by the Company, but are related to

the circulation of negative opinions or information about the Company or its management (e.g. debates on blogs

or social networks, newspaper articles or opinions about the Company and its management).


Mediolanum Assicurazioni S.p.A. recognizes the reputation of the Bank is the bedrock on which the trust-based

relationship with customers and market credibility are built. Hence, reputation is managed and protected in accord-

ance with the Group’s guidelines, through:











complaints and inquiries received by the Supervisory Authority, etc.




230


2015

Solvency II assessment of the Company’s risk profile

Mediolanum Assicurazioni has completed the project aimed at the implementation of Solvency II regulations.

The project involved all company departments.

Solvency II is based on three fundamental pillars. The first pillar relates to quantitative requirements for the risk-

based calculation of solvency capital, the second pillar to qualitative and quantitative requirements and involves Own

Risk and Solvency Assessment (ORSA), and the third pillar to reporting and disclosure to the various stakeholders.

Mediolanum Assicurazioni has completed the infrastructure for the calculation of the first pillar capital require-

ment. Also with particular reference to the second pillar of Solvency II regulations, in 2015 there were several

interventions to improve and complete the adequacy and efficiency of the risk management system in terms of both

governance and constant monitoring of the risk profile.

During the year 2015, the Company sent the reports required by the Solvency II legislation - Interim Phase. The

underlying objective was to rationalize the system by placing at its center the concept of solvency in accordance with

the new regulatory requirements of Solvency II.

231


PART F - INFORMATION ON CONSOLIDATED CAPITAL

SECTION 1 - CONSOLIDATED CAPITAL

A. Qualitative information

The Banca Mediolanum Group attributes a priority role to the monitoring of equity. In order to comply with the

regulatory requirements of the international and national Supervisory boards, the Banca Mediolanum Group adopts

suitable measures to meet said requirements. By continuously monitoring capital levels the Group prevents any ten-

sions that may arise in the future. This activity is assigned to the body with strategic supervision function (Board of

Directors) which is attributed the guidance functions of the Group’s operations and is responsible for defining the

guidance guidelines of the various operating functions with related definitions of acceptable risk profile (formalized

in the Risk Appetite Framework – RAF document). The RAF, revised periodically, provides the framework that de-

termines the risk appetite, tolerance thresholds, risk limits, risk governance policies, processes of reference to define

and implement them, consistent with the maximum assumable. As at December 31, 2015, the ratios of the Banca

Mediolanum Group are clearly above the regulatory thresholds.

232


2015

B. Quantitative information

B.1 Analysis of consolidated equity by type of company

E/tBanking

GroupInsurance

companiesOther

companies

Elisions and adjustments from

consolidation Dec. 31, 2015

1. Share capital 596,715 114,915 517 (112,147) 600,000

2. Share premium reserve account (16,220) 50,000 - (33,780) -3. Reserves 666,226 374,172 7,249 (220,086) 827,5613.bis Interim dividend (118,206) - - - (118,206)4. Capital instruments - - - - -5. (Treasury shares) - - - - -6. Valuation reserves 178,556 17,499 - 7,906 203,961

- Available for sale financial assets 178,869 17,598 - 8,010 204,477

- Tangible assets - - - - -- Intangible assets - - - - -- Hedges of investments in foreign operations - - - - -- Cash flow hedges - - - - -- Exchange differences - - - - -- Non-current assets and disposal groups - - - - -

- Actuarial gains (losses) related to defined benefit plans

(313)

(203)

-

-

(516)

- Share of reserves on investments accounted for by the equity method

-

-

-

-

-

- Special revaluation statutes - 104 - (104) -

7. Profit (Loss) 415,233 49,786 (131) (26,275) 438,613

Total 1,840,510 606,372 7,635 (384,382) 2,070,135

B.2 Analysis of valuation reserves relating to available for sale financial assets

E/t

Banking Group Insurance companies Other companies Elisions and adjustments from consolidation Dec. 31, 2015

Positive reserve

Negative reserve

Positive reserve

Negative reserve

Positive reserve

Negative reserve

Positive reserve

Negative reserve

Positive reserve

Negative reserve

1. Debt securities 163,441 (20) 48,673 (32,480) - - 8,010 - 220,124 (32,500)

2. Equity2. investments

9,131 - - - - - - - 9,131 -

3. Holdings in3. UCITS

6,317 - 2,141 2,141 - - - - 8,458 (736)

4. Loans - - - - - - - - - -

Total Dec. 31, 2015 178,889 (20) 50,814 (33,216) - - 8,010 - 237,713 (33,236)

233


B.3 Year’s movements in the valuation reserve relating to available for sale financial assets

E/t Debt securities Equity

investmentsHoldings in

UCITS Loans

1. Initial balance 140,357 1,468 3,607 -

2. Increases 85,155 7,780 6,257 -

2.1 Increases in fair value 48,403 7,781 3,992 -

2.2 Reclassification to the income statement from negative 2.2 reserves

584 - 2,229 -

- impairment - - 2,216 -

- realized gains 584 - 13 -

2.3 Other changes 36,168 1 36 -

3. Decreases 37,888 117 2,142 -

3.1 Decrease in fair value 20,722 32 849 -

3.2 Impairment - - - -

3.3 Reclassification to the income statement from positive 3.3 reserves

17,166

-

1,293 -

3.4 Other changes - 85 - -

4. Final balance 187,624 9,131 7,722 -

B.4. Year’s movements in valuation reserves relating to defined benefit plans

During the year, the reserves in question decreased by Euro -928 million over the previous year.

SECTION 2 – CAPITAL AND CAPITAL REQUIREMENTS

2.1 Legal framework

Own Funds were determined according to the regulations relating to prudential supervision in force since January 1, 2014.

These reforms have been introduced in order to strengthen the banks’ ability to absorb shocks arising from financial and

economic stress, regardless of their origin, to improve risk management and governance and to strengthen the transparen-

cy and disclosure of the banks. The new harmonized rules define for banks and investment firms more stringent rules for

the calculation of Own Funds and higher levels of capital adequacy. These rules will be implemented in stages to allow the

banking system to meet the new requirements.

The innovations of the Basel 3 regulations have been translated into law in Europe through two separate legislative instru-

ments: a Directive (Capital Requirements Directive IV – CRD IV) and a Regulation (Capital Requirements Regulation

– CRR). The Regulation (EU) 575/2013 (CRR) includes most of the provisions on capital requirements that are directly

binding and applicable in each Member State of the European Union.

In December 2013 the Bank of Italy issued “Circular 285” that implements the rules of the CRD IV/CRR and introduces

supervisory rules on aspects not harmonized at EU level. The regulatory provisions related to own funds include the intro-

duction of the new regulatory framework gradually, through a transitional period, usually up to 2017, during which some

elements that under the scheme will be computable or deductible in full in the Common Equity, impact Tier 1 Core Capital

only for a percentage portion; normally the residual percentage with respect to that applicable is calculated/deducted from

the additional capital of Tier 1 (AT1) and Tier 2 (T2) or considered in the risk-weighted assets.

With the entry into force of the Directive and the Regulation, the Italian banks must comply with a minimum CET1 ratio

234


2015

of 4.5%, Tier 1 6% and a Total Capital Ratio of 8%. These minimum regulatory requirements have been integrated with

the Capital Conservation reserve (buffer) of 2.5%. The non-compliance of the sum of these requirements (Combined

Requirement) by the supervised Entity, determines limitations on dividend distributions, variable remuneration and other

elements useful to form the regulatory capital beyond predetermined limits. The Entity will also be required to develop

measures necessary to restore the level of capital required through the adoption of a capital conservation plan.

In the calculation of Own funds on the basis of article 467 paragraph 2 of the CRR, implemented by the Bank of Italy in

Circular 285 Second Part – Chapter 14 – Section II – Paragraph 2, Banca Mediolanum S.p.A. adopted by resolution

of the Board of Directors January 16, 2014, the option to exclude from own funds unrealized gains or losses related to

exposures to the central government classified as available for sale financial assets (AFS) for the entire period covered

by the CRR.

In determining Own Funds as at December 31, 2015, the adoption of this option led to the sterilization of the net profits

related to the exposures above amounted to Euro 152.6 million.

2.2 The regulatory capital of banks


Own Funds were determined according to the regulations relating to prudential supervision in force since January 1,

2014. These rules consist of a Directive (Capital Requirements Directive IV - CRD IV) and a Regulation (Capital

Requirements Regulation - CRR) issued by the European Parliament in June 2013 and transposed in Italy by Bank

of Italy Circular no. 285 of December 17, 2013. This new regulatory scheme includes a transitional period during

which some elements that under the scheme will be computable or deductible in full in the Common Equity, impact

Tier 1 Core Capital only for a percentage portion; normally the residual percentage with respect to that applicable

is calculated/deducted from the additional capital of Tier 1 (AT1) and Tier 2 (T2) or considered in the risk-weighted

assets.

For the determination of the Own Funds as at December 31, 2015, the operating profit was calculated net of div-

idends, the distribution of which will be submitted to the next General Meeting for approval. For this purpose, it

has been requested to the Independent Auditors to issue a specific letter of provisional certificate (comfort letter)

as provided by Bank of Italy communication of January 22, 2016 (Ref. Art. 26 paragraph 2 of EU Regulation

575/2013 (CRR)).

Given the above, Total Own Funds as at December 31, 2015 amounted therefore to Euro 1,505.9 million and consist

of:

• Tier 1 Core Capital (Common Equity Tier 1 – CET 1) equal to Euro 1,500.4 million;

• Additional Tier 1 Capital (Additional Tier 1 – AT1) equal to zero;

• Tier 2 Capital (Tier 2 – T2) equal to Euro 5.5 million, including subordinated loans subject to Grandfathering

provisions of Euro 4.4 million.

235


1. Tier 1 Core Capital 1 (Common Equity Tier 1 – CET 1)

As at December 31, 2015, Tier 1 Core Capital consists of the following positive elements: share capital (Euro 600

million) net of Tier 1 Core capital instruments held indirectly (Euro -1.9 million), equity reserves net of the interim

dividend of Euro 118.2 million (Euro 827.6 million) and profit for the period net of dividends to be distributed

(Euro 335.2 million), the other components of Income Statement Accumulated mainly made up of reserves of

available for sale financial assets (Euro 204.1 million) and the following negative components: goodwill (Euro

-169.11 million), intangible assets (Euro -60.1 million), deferred tax assets based on future profitability and do

not arise from temporary differences, net of related tax liabilities (Euro 9.7 million) and defined benefit pension

funds (Euro -0.2 million, amount before the tax effect). From Tier 1 core Capital significant investments in CET1

instruments of other entities of the financial sector are deducted (Euro -58.9 million). The Tier 1 core capital thus

determined was adjusted by the provisions of the transitional scheme set out in Part 10 of EU Regulation 575/2013

(Euro -166.6 million). These impacts are mainly from the sterilization of unrealized gains related to exposures

to the central government classified as “available for sale financial assets” of IAS 39 approved by the EU (Euro

-152.6 million), the non-computability of unrealized gains on securities classified as “available for sale financial

assets” (Euro -33.2 million), the adjustment provided for deferred tax assets that rely on future profitability and

do not arise from temporary differences (Euro 5.8 million) and the adjustment relating to deferred tax assets that

rely on future profitability and arise from temporary differences and CET1 tools of subjects of the financial sector

in which the institution has a significant investment (Euro 13.4 million). As at December 31, 2015, Tier 1 Core

Capital (Common Equity Tier 1 – CET 1) is equal to Euro 1,500.4 million.

2. Additional Tier 1 capital (Additional Tier 1 – AT1)

As at December 31, 2015, there are no instruments classified in additional Tier 1 Capital.

3. Tier 2 capital (Tier 2 – T2)

As at December 31, 2015, Tier 2 capital of Banca Mediolanum consisted of Level 2 subordinated liabilities subject

to Grandfathering (Euro 4.4 million) net of Tier 2 capital instruments held indirectly (Euro -0.7 million). The Tier

2 capital thus determined was adjusted by the impacts expected from the transitional scheme (Euro 1.8 million)

consisting of the portion calculated of unrealized gains on securities classified as “available for sale financial as-

sets” (Euro 16.7 million) and the portion to be deducted from own funds instruments of the financial sector in which

the entity has a significant investment in CET1 Instruments (Euro -14.9 million). As at December 31, 2015, Tier

2 Capital (Tier 2 – T2) is equal to Euro 5.5 million.

236


2015


E/t Dec. 31, 2015 Dec. 31, 2014

A. Core capital (Common Equity Tier 1 – CET1) before the application of prudential filters 1,964,997 1,712,735

CET1 Tools subject to transitional provisions - -

B. CET1 prudential filters (+/-) - -

C. CET1 before items to be deducted and effects of the transitional scheme (A +/- B) 1,964,997 1,712,735

D. Deductions from CET1 298,008 307,492

E. Transitional scheme – Impact on CET1 (+/-) (166,613) (118,870)

F. Total Tier 1 Core Capital (Common Equity Tier 1 - CET1) (C – D +/-E) 1,500,376 1,286,373

G. Additional Tier 1 – AT1 before items to be deducted and effects of the transitional scheme

- 1,270

of which AT1 tools subject to transitional provisions - -

H. Deductions from AT1 - 1,270

I. Transitional scheme – Impact on AT1 (+/-) - -

L. Total Additional Tier 1 – AT1 (G - H +/- I) - -

M. Additional Tier 2 – AT1 before items to be deducted and effects of the transitionalM. scheme

4,422

20,148

of which T2 tools subject to transitional provisions 4,422 18,879

N. Deductions from T2 743 1,151

O. Transitional scheme - Impact on T2 (+/-) 1,853 (18,997)

P. Total Tier 2 capital (Tier 2 –T2) (M - N +/- O) 5,532 -

Q. Total capital (F + L + P) 1,505,908 1,286,373

It is recalled that, for the determination of the Own Funds as at December 31, 2015, the operating profit was cal-

culated net of dividends, the distribution of which will be submitted to the next General Meeting for approval. For

this purpose, it has been requested to the Independent Auditors to issue a specific letter of provisional certificate

(comfort letter) as provided by Bank of Italy communication of January 22, 2016 (Ref. Art. 26 paragraph 2 of EU

Regulation 575/2013 (CRR)).

237


2.3 Capital adequacy


Capital adequacy assessment is aimed at identifying the amount of free capital, i.e. the portion of capital that is not

absorbed by credit and counterparty risk, credit assessment adjustment risk, regulation risk, market risk (trading

book risk, currency risk and concentration risk) and operational risk.

As at December 31, 2015, the free capital of the Mediolanum Bank Group amounted to Euro 895.2 million.

The ratio between Tier 1 Core Capital and risk-weighted assets (CET1 Capital Ratio) amounts to 19.66%; the ratio

of Tier 1 Capital and risk-weighted assets (Tier 1 Capital Ratio) amounts to 19.66% and the ratio of Total Own

Funds and risk-weighted assets (Total Capital Ratio) is equal to 19.73%. All Capital Ratios are higher than the

minimum levels of own funds required by the regulations in force equal to 4.50% for CET1 Capital Ratio, 6% for

Tier 1 Capital Ratio and 8.00% for Total Capital Ratio.

The minimum levels of own funds shall be increased by the reserve of capital preservation that for banking groups is

2.5%. This reserve, consisting of Tier 1 Core Capital, is aimed at preserving the minimum level of regulatory capital

in times of adverse market through the provision of high-quality capital resources in periods not characterized by

market tensions.

Bank of Italy – Banking and Financial Supervisory Department – announced on 28/12/2015 the minimum capital-

ization limits for the Mediolanum Banking Group, as a result of the periodic review process and prudential assess-

ment (SREP1). These requirements are binding from the Report on own funds as at Dec. 31, 2015.

The specific capital requirements attributed to the Banca Mediolanum Group are as follows:

• Tier 1 Core Capital Ratio (CET1 ratio) of 7.3%, binding to the same extent (of which 4.5% with respect to the

minimum regulatory requirements and 2.8% with respect to additional requirements determined following the

SREP); this measure also includes the capital conservation reserve component (2.5%);

• Tier 1 Capital Ratio (Tier1 ratio) of 9.8%, binding to the same extent (of which 6.0% with respect to the

minimum regulatory requirements and 3.8% with respect to additional requirements determined following the

SREP); this measure also includes the capital conservation reserve component (2.5%);

• total Capital Ratio of 13.1%, binding to the same extent (of which 8.0% with respect to the minimum regu-

latory requirements and 5.1% with respect to additional requirements determined following the SREP); this

measure also includes the capital conservation reserve component (2.5%).

As at December 31, 2015, the ratios of the Mediolanum Banking Group are well above the regulatory thresholds also

considering the last limits imposed by the Supervisory Authority through the SREP process.

1 “The SREP is the process by which the European Central Bank and the Bank of Italy review and evaluate the ICAAP; they analyse the risk profiles of the bank individually and in aggregate perspective, even under stress conditions, and their contribution to systemic risk; they assess the corporate governance system, functions of the bodies, organizational structure and the system of internal controls; they monitor compliance with all the prudential rules. The conduct of such activities is through the use of systems that define the general criteria and methodologies for the analysis and evaluation of the banks (company analysis system). This system allows the European Central Bank and the Bank of Italy to identify and analyse relevant risks assumed by banks and to evaluate the management and control systems, also for the review of the determination of internal capital made by the same. Bank of Italy Circular no. 285 of December 17, 2013 - 14th Update of November 24, 2015”.

238


2015

Own Funds and Coefficients for Supervisory purposes as at December 31, 2015 - Banking Group (*)

E/m Dec. 31, 2015 Dec. 31, 2014 Var. %

Shareholders’ equity** 1,506 1,286 17%

RWA (risk weighted assets) 7,633 6,978 9%

Total assets 27,734 26,592 4%(*) Total assets determined in accordance with regulatory provisions of the Bank of Italy (Circular of the Bank of Italy no. 285 of

December 17, 2013) provide a different consolidation criterion. Compared to the approach adopted in the Consolidated Financial Statements, insurance investments are consolidated according to the equity method while the jointly controlled entity (Banca Esperia) using the proportionate line by line method.


E/t

Not weighted Not weightedWeighted/

requirementsWeighted/

requirements

Dec. 31, 2015 Dec. 31, 2014 Dec. 31, 2015 Dec. 31, 2014

A. RISK ASSETS

A.1 Credit and counterparty risk 34,598,866 27,788,376 5,869,719 5,362,090

1. Standardized approach 34,598,866 27,788,376 5,869,719 5,362,090

2. Approach based on internal ratings - - - -

3. Securitization - - - -

B. REGULATORY CAPITAL REQUIREMENTS

B.1 Credit and counterparty risk 469,577 428,967

B.2 Credit assessment adjustment risk 1,078 685

B.3 Regulatory risk - -

B.4 Market risk 13,603 6,492

1. Standard approach 13,603 6,492

2. Internal models - -

3. Concentration risk - -

B.5 Operational Risk 126,407 122,113

1. Basic approach 5,642 6,170

2. Standardized approach 120,765 115,943

3. Advanced approach - -

B.6 Other computational elements - -

B.7 Total prudential requirements 610,665 558,257

C. RWA AND CAPITAL RATIOS

C.1 Risk-weighted assets (RWA) (*) 7,633,313 6,978,229

C.2 Tier 1 Core Capital/RWA (CET 1 Capital Ratio) 19.66% 18.43%

C.3 Regulatory capital/RWA (Tier 1 Capital Ratio) 19.66% 18.43%

C.4 Total capital/RWA (Total Capital Ratio) 19.73% 18.43%

(*) RWA are determined by multiplying total prudential requirements (B.7) by 12.5 (reciprocal of the min. coefficient equal to 8%).

239


The capital ratios as at December 31, 2015 shown in the table above, were determined on the basis of the Own

Funds as at December 31, 2015 implementing the 2015 profit net of the next dividend distribution, and will

be reported to the Supervisory Body upon receipt of the letter of provisional certificate (comfort letter) by the

Independent Auditors.

It is noted that the capital ratios as at December 31, 2015 reported to the Bank of Italy on February 11, had

been determined provisionally, including in the Own Funds the 2015 net profit only for the part already audited

(September 30, 2015) the previous year, also net of the next dividend distribution. These ratios determined as such

amounted to CET1 capital ratio 18.01% Tier 1 capital ratio 18.01% and Total Capital Ratio 18.01%.

SECTION 3 – INSURANCE CAPITAL AND CAPITAL REQUIREMENTS

Below is a list of the Mediolanum Group’s insurance companies subject to supervision:

• Mediolanum Vita and Mediolanum Assicurazioni subject to IVASS supervision;

• Mediolanum International Life subject to the supervision of the Bank of Ireland.

The solvency margin of the above companies, calculated in accordance with the rules in force is presented in the

following table:

E/tSolvency margin to be

constitutedConstituting

elementsEquity surplus (loss) Hedging index

Mediolanum Vita S.p.A. 224,171 425,977 201,806 1,90

Mediolanum Assicurazioni S.p.A. 10,295 32,814 22,519 3,19

Mediolanum International Life Ltd 4,144 65,600 61,456 15,83

SECTION 4 – CAPITAL ADEQUACY OF THE FINANCIAL CONGLOMERATE

E/m Dec. 31, 2015

A. Total conglomerate equity 1,484

B. Capital requirements of the banking components 920

C. Solvency margin required of the insurance components 239

D. Total capital requirements of the conglomerate (B+C) 1,159

E. Surplus (deficit) of the conglomerate (A-D) 325

As at December 31, 2015, the capital adequacy of the financial conglomerate Mediolanum, determined in accord-

ance with the related regulations of reference for the bank-oriented financial conglomerates. In particular, for

the conglomerate capital requirements amounted to Euro 1,159 million, the conglomerate’s assets to cover the

required margin amounted to Euro 1,484 million with a surplus of Euro 325 million.

240


2015

PART G – BUSINESS COMBINATIONS

1.1 Business combinations

During the year, there were no business combinations, as regulated by IFRS 3, which involved the acquisition of

control of business or legal entity.

On December 30, the extraordinary intra-group transaction was concluded (under common control) concerning the

reverse merger of Mediolanum S.p.A. into Banca Mediolanum S.p.A..

For further details, reference shall also be made to as outlined in the Report on Operations.

Section 2 - Post-balance sheet date transactions

2.1 Business combinations

No transaction was concluded after the end of the financial year under review.

Section 3 – Retrospective adjustments

There were no adjustments recognized in the current related to business combinations that occurred in previous

years.

241


PART H – RELATED PARTY TRANSACTIONS

On September 23, 2015, the Board of Directors of Banca Mediolanum resolved to adopt the “Group Regulations

for the management of transactions with related parties of Banca Mediolanum and Associated Entities of the Me-

diolanum Banking Group” (the “Regulation regarding Related Parties and Associated Entities”), effective as at the

start date of trading of the Company’s Shares on the electronic stock exchange (MTA). The Regulation concerning

Related Parties and Associated Entities, drafted in accordance with the standards set out, inter alia, in the Related

Parties Regulation, and in Consob communication no. DEM/10078683 of September 24, 2010 and in Circular 263

of the Bank of Italy, governs the preliminary investigation preparatory to the approval of the relevant transactions

(i) with entities associated with the Banca Mediolanum Banking Group and (ii) made by the Company, also through

subsidiaries pursuant to art. 2359 of the Civil Code, with related parties of Banca Mediolanum, in order to ensure

the substantial and procedural correctness of the same, as well as correct information to the market.

During the year 2015, the Mediolanum Group undertook transactions with related parties. Said transactions are

part of the ordinary business of companies within the Mediolanum Group. These transactions are made at arm’s

length and in the interests of the individual entities.

In accordance with IAS 24, the following parties are Mediolanum Group related parties:

• associates and joint-ventures (Banca Esperia Group, Mediobanca Group);

• Fin. Prog. companies wholly-owned by the Doris Family and Fininvest.

The following parties also fall within the definition of related parties:

• the members of the Boards of Directors of Mediolanum Group companies;

• Banca Mediolanum S.p.A. key management officers.

As part of its ordinary business, the Group has commercial and financial relationships with Group companies and

related parties as identified above. As part of its distribution and solicitation of investment business, the Group made

contracts for the sale of asset management, insurance and banking products and services through the sales networks

of Group companies. As part of its banking business, the Group made bank account, custodian, administration and

brokerage service contracts. As part of its asset management business, the Group made asset management contracts.

In addition, the Group made contracts for the organization of events, television communication, IT and administra-

tive services, rental, personnel secondment and other minor activities with Mediolanum Group companies.

1. Information on related party transactions

The following are the creditor and debtor balances outstanding as at December 31, 2015 in the consolidated ac-

counts with respect to related parties other than intra-group.

The scope of the related parties considered for the purposes of the tables of this section has been extended, starting

with as provided by IAS 24.

242


2015

E/t Associates Other related parties

Assets

Financial assets held for trading 9,132 -

Financial assets measured at fair value 148,528 -

Available for sale financial assets 3,479 21,581

Held to maturity financial assets - -

Loans to banks 50,000 -

Loans to customers - 9,342

Other assets - 16

Liabilities

Amounts due to banks (249) -

Payables due to customers (3,204) (50,227)

Securities issued - -

Financial liabilities held for trading (10,935) -

Financial liabilities measured at fair value - -

Other liabilities (181) (2,943)

Guarantees issued and commitments 88 340


Income statement

Interest income and similar income 292 1,110

Interest expense and similar charges (1,275) (109)

Net interest income (983) 1,001

Fee income 8 2

Commission expense (2,797) (823)

Net commission (2,790) (822)

Net income from trading (248) -

Profit (loss) from sale or repurchase of: receivables, AFS, HTM, financial liabilities - -

Net result from financial assets and liabilities measured at fair value 4,053 -

Impairment/reversal of impairment of: receivables, AFS, HTM, other fin. trans. - -

Premiums written 8 1,762

Administrative expenses (2) (12,672)

Other operating income and expenses - 67

2. Key management compensation

E/t

Directors, Executives, General Deputy

Executives and Auditors Other key management

Emoluments and social security contributions (11,854) (1,656)

Other compensation (568) (79)

243


PART I – EQUITY-SETTLED SHARE-BASED PAYMENT TRANSACTIONS

A. QUALITATIVE INFORMATION

1. Description of equity-settled share-based payment transactions

On March 9, 2010, after consulting with the Compensation Committee, the Board of Directors of Mediolanum S.p.A.

approved the guidelines for the Stock Options Plan reserved to the Directors and Executives of the Company and

its subsidiaries (“Top Management Plan 2010”) as well as the guidelines for the Stock Options Plan for Contract

Workers – i.e. the members of the sales network – of the Company and its subsidiary (“Contract Workers Plan

2010”), collectively the “Plans”. The Plans were submitted to the Extraordinary General Meeting of April 27, 2010

for approval.

Pursuant to section 84-bis, paragraph 3 of the Regulation for Issuers, readers are informed that:

• The Top Management Plan 2010 is the stock options plan reserved to the Directors and other key management

of the Company and/or its subsidiaries. The Contract Workers Plan 2010 is the stock options plan reserved to

the financial advisors working for the Company and its subsidiaries, as may be selected from time to time for

their individual role and contribution to business growth.

The Plans entail annual awards of rights to subscribe to newly issued ordinary shares of the Company (the “Op-

tions”). The implementation of the Plans entails two new share capital increases reserved to each of the two cate-

gories of Beneficiaries, pursuant to art. 2441, paragraph five, of the Italian Civil Code, as resolved by the Board of

Directors pursuant to art. 2443 of the Italian Civil Code. The Options under the Top Management Plan 2010 shall

vest over a period of three to five years of the grant date and be exercisable for a period of three years after the date

of vesting. The Stock Options under the Contract Workers Plan 2010 shall vest over a period of five to ten years

of the grant date and be exercisable for a period of three years after the date of vesting. The plans also anticipate

that the exercise of the Options is subject to certain performance targets of the Company and/or the individual. The

details of the Plans shall be laid down by the Board of Directors after consultation with the competent bodies of the

Company and its subsidiaries.

The Plans are designed to provide incentives to the beneficiaries and at the same time promote value creation and

growth for the Company and, accordingly, its shareholders. The Top Management Plan 2010 is believed to be an

adequate scheme to link key management incentives to both medium-term performance of the Company/Group and

individual performance, align goals and maximize the creation of value for the shareholders. The Contract Work-

ers Plan 2010 is an adequate scheme to link sales network incentives to both medium-term performance of the

Company/Group and individual performance, align goals and maximize the creation of value for the shareholders.

Considering the length of the vesting period, the Contract Workers Plan 2010 is also a powerful way to enhance the

sales network loyalty.

On July 8, 2010, after consulting with the Compensation Committee, by virtue of the authorities delegated to it by

the Ordinary and Extraordinary General Meetings of April 27, 2010, the Board of Directors of Mediolanum S.p.A.

resolved to:

• approve the Rules for the Stock Options Plan reserved to the Directors and Executives of the Company and the

Group (“Top Management Plan 2010”) and the Rules for the Stock Options Plan for the Contract Workers of

the Company and the Group (“Contract Workers Plan 2010”);

• increase the Company’s share capital by a maximum amount of Euro 160,000.00, for a consideration, by issuing

up to 1,600,000 shares for the allotment of stock options under the Top Management Plan 2010;

244


2015


up to 1,317,442 shares for the allotment of stock options under the Contract Workers Plan 2010;

On May 12, 2011, after consulting with the Compensation Committee, by virtue of the authorities delegated to it by


resolved, inter alia:

• to approve the amendments to the Rules for the Stock Options Plan reserved to the Directors and Executives of

the Company and the Group (“Top Management Plan 2010”) and the Rules for the Stock Options Plan for the

Contract Workers of the Company and the Group (“Contract Workers Plan 2010”);

• to increase the share capital, in partial execution of the delegation conferred to the Extraordinary General

Meeting on April 27, 2010 for a maximum amount of Euro 188,200.00, for a consideration, by issuing up to

1,882,000 ordinary shares for the allotment of Stock Options under the Top Management Plan 2010;

• to increase the share capital, in partial execution of the delegation conferred to the Extraordinary General

Meeting on April 27, 2010 for a maximum amount of Euro 67,427.50, for a consideration, by issuing up to

674,275 ordinary shares for the allotment of stock options under the Contract Workers Plan 2010.

On May 10, 2012, by virtue of the authorities delegated to it by the Extraordinary General Meeting of April 27,

2010, as amended by resolution passed by the shareholders at the Ordinary and Extraordinary General Meeting of

April 19, 2012, the Board of Directors of Mediolanum S.p.A. resolved:

• to increase the share capital for a maximum amount of Euro 186,405.00, for a consideration, by issuing up to



708,400 ordinary shares for the allotment of Stock Options under the Contract Workers Plan 2010.



April 19, 2012, the Board of Directors of Mediolanum S.p.A. resolved to:

• approve some amendments and updates of the Regulations of the Plan for Directors and Executives of the

Company and the Group (Top Management Plan 2010) and the plan for the Employees of the Company and

the Group (Contract Workers Plan 2010) for certain performance targets relating to the Company and/or on

an individual basis, in the exercise of the option. The proposed changes to the operating conditions also apply in

respect of Options previously allotted in previous allocation cycles;




up to 951,000 shares for the allotment of stock options under the Contract Workers Plan 2010.





up to 973,350 shares for the allotment of stock options under the Top Management Plan 2010;


up to 1,214,250 shares for the allotment of stock options under the Contract Workers Plan 2010.

245


On February 25, 2015, pursuant to the power conferred by the shareholders during the Extraordinary General Meet-

ing held on April 27, 2010, as amended by the Ordinary and Extraordinary General Meeting on April 19, 2011, the

Board of Directors resolved to:



The issue price was determined in execution and full compliance with objective criteria already approved by the

General Meeting resolution of delegation and already the subject of a fairness opinion by the Independent Auditors.

2. Fair value measurement of stock options

For measurement of stock options, the Group applies the Black-Scholes model for European call options which is

a standard, easily replicable model. The options under the Group stock options plan, however, differ from Europe-

an-style call options in certain features such as the vesting period, the exercise conditions and the exercise period. The

method applied by the Group was to price the options like plain vanilla options, analyze each specific plan feature and

measure the relevant impact on the final value of the option. The results of the analysis of the stock option exercise

period were such that the stock options could be treated like European-style call options expiring on the first day of

exercise. A European-style call option is priced using the Black-Scholes model and the value thus obtained is then

reduced, if necessary, by a certain percentage based on the analysis of the exercise conditions.

246


2015

B. QUANTITATIVE INFORMATION

1. Changes occurred in the year

In 2015, 1,349,859 new Banca Mediolanum (Mediolanum S.p.A. prior to the merger by incorporation) divi-

dend-bearing ordinary shares were issued following the exercise of stock options by Directors and sales network

collaborators of companies within the Mediolanum Group.

This entailed a Euro 134.9 thousand increase in Mediolanum S.p.A ordinary share capital and a Euro 1,641.6

thousand increase in the share premium account.

The year’s movements in option holdings are set out in the table below. The table includes information required as

per Bank of Italy’s Circular 262/2005 and subsequent updates.

B. Quantitative information: changes occurred in the year

2. Other information

The year’s cost of stock options, which corresponds to the year’s share of the fair value of financial instruments

over the vesting period, amounted to Euro 3,371 thousand and entailed a corresponding increase in equity reserves

(December 31, 2014: Euro 2,370 thousand).

Items/Number of options and prices in the year

Dec. 31, 2015 Dec. 31, 2014

Number of options

Average prices in the year

Average maturity

Number of options


Average maturity

A. Opening balance 8,691,183 1,344 Sept-21 9,143,364 1,551 July-16

B. Increases - - - 2,185,600 - -

B1 New issues 1,258,500 1,773 Feb-27 2,185,600 1,727 Aug-23

B2 Other changes - - - - - -

C. Decreases - - - 2,637,781 - -

C1 Cancelled 626,290 1,104 - 999,810 1,077 -

C2 Exercised 1,349,859 1,302 - 1,436,941 2,773 -

C3 Maturities 62,319 2,891 - 201,030 6,012 -

C4 Other changes - - - - - -

D. Closing balance 7,911,215 1,424 June-23 8,691,183 1,344 Sept-21

E. Options exercisable at year end

167,919

1,064

-

304,577

2,391

-

247


PART L - SEGMENTAL INFORMATION

This section presents consolidated financial data reported by operating segment. In compliance with IFRS 8, seg-

ment reporting reflects the management reporting approach of the Mediolanum Group (so-called “management

reporting approach”), and is consistent with the information disclosed to the market and to the various stakeholders.

Segment reporting of consolidated financial data for the period enables readers and users to assess the quality and

sustainability over time of the financial results generated by the Mediolanum Banking Group in its different operat-

ing segments.

Note on the method applied to segment reporting

Pursuant to IFRS 8, for the purpose of segment reporting of consolidated results the Mediolanum Group identified

the following operating segments:

• ITALY – INSURANCE

• ITALY – BANKING

• ITALY – ASSET MANAGEMENT

• SPAIN

• GERMANY

For the purpose of segment reporting income and expense items were directly assigned to the specific operating seg-

ment by product. Indirect costs and other residual items were spread over the various segments applying allocation

policies.



The Chairman

Ennio Doris

248


2015

INCOME STATEMENT DATA BY OPERATING SEGMENT AS AT DECEMBER 31, 2015

E/t

ITALY ABROAD

Consolidation adjustments TotalBankingAsset

Management Insurance OtherConsolidation

adjustments Total Spain Germany

Entry fees - 87,731 - - - 87,731 13,660 598 - 101,989

Management fees - 453,901 319,487 - - 773,388 34,143 7,541 - 815,072

Performance fees - 191,041 115,196 - - 306,237 13,377 6,337 - 325,951

Banking service fees and revenues 67,132 - - - - 67,132 5,309 14,015 (51) 86,405

Other fees 421 32,978 2,005 - - 35,404 1,125 470 - 36,999

Fee income 67,553 765,651 436,688 - - 1,269,892 67,614 28,961 (51) 1,366,416

Interest income 220,564 32 11,754 (1) - 232,349 20,983 (493) - 252,839

Net income (loss) on investments at fair value (2,175) - 512 - - (1,663) 455 88 - (1,120)

Net financial income 218,389 32 12,266 (1) - 230,686 21,438 (405) - 251,719

Net insurance income (excluding commissions) - - 28,247 - - 28,247 14,311 1,377 - 43,935

Equity method valuation - - - 22,260 - 22,260 - - - 22,260

Realized gains (losses) on other investments 5,057 259 3,186 - - 8,503 43 - - 8,546

Impairment of loans (12,541) - (17) - - (12,558) (483) (123) - (13,164)

Impairment of other investments (930) (198) (3,043) - - (4,171) (9) - - (4,180)

Net income (loss) on other investments (8,414) 61 126 - - (8,226) (449) (123) - (8,798)

Other revenues 11,450 408 12,399 - - 24,257 2,286 298 (139) 26,702

TOTAL REVENUES 288,979 766,152 489,726 22,259 - 1,567,116 105,200 30,108 (190) 1,702,234

Network commission expenses (42,432) (271,278) (147,853) - - (461,563) (29,909) (4,219) - (495,691)

Other commission expenses (15,352) (15,984) (8,832) - - (40,168) (5,498) (11,930) 52 (57,544)

Administrative expenses (246,497) (94,767) (109,801) - - (451,064) (33,901) (19,948) 138 (504,775)

Amortization and depreciation (16,448) (933) (6,769) - - (24,150) (1,605) (295) - (26,050)

Net provisions for risks (4,349) (25,824) (13,899) - - (44,072) (12,887) - - (56,959)

TOTAL COSTS (325,078) (408,786) (287,153) - - (1,021,017) (83,800) (36,392) 190 (1,141,019)

GROSS PRE-TAX PROFIT (36,099) 357,366 202,573 22,259 - 546,099 21,400 (6,284) - 561,215

Taxes for the period - - - - - 120,466) (1,421) (715) - (122,602)

NET PROFIT FOR THE PERIOD - - - - - 425,633 19,979 (6,999) - 438,613

249



E/t

ITALY ABROAD




Entry fees - 87,731 - - - 87,731 13,660 598 - 101,989

Management fees - 453,901 319,487 - - 773,388 34,143 7,541 - 815,072



Other fees 421 32,978 2,005 - - 35,404 1,125 470 - 36,999

Fee income 67,553 765,651 436,688 - - 1,269,892 67,614 28,961 (51) 1,366,416

Interest income 220,564 32 11,754 (1) - 232,349 20,983 (493) - 252,839

Net income (loss) on investments at fair value (2,175) - 512 - - (1,663) 455 88 - (1,120)

Net financial income 218,389 32 12,266 (1) - 230,686 21,438 (405) - 251,719



Realized gains (losses) on other investments 5,057 259 3,186 - - 8,503 43 - - 8,546

Impairment of loans (12,541) - (17) - - (12,558) (483) (123) - (13,164)

Impairment of other investments (930) (198) (3,043) - - (4,171) (9) - - (4,180)

Net income (loss) on other investments (8,414) 61 126 - - (8,226) (449) (123) - (8,798)

Other revenues 11,450 408 12,399 - - 24,257 2,286 298 (139) 26,702

TOTAL REVENUES 288,979 766,152 489,726 22,259 - 1,567,116 105,200 30,108 (190) 1,702,234




Amortization and depreciation (16,448) (933) (6,769) - - (24,150) (1,605) (295) - (26,050)


TOTAL COSTS (325,078) (408,786) (287,153) - - (1,021,017) (83,800) (36,392) 190 (1,141,019)

GROSS PRE-TAX PROFIT (36,099) 357,366 202,573 22,259 - 546,099 21,400 (6,284) - 561,215

Taxes for the period - - - - - 120,466) (1,421) (715) - (122,602)


250


2015


E/t

ITALY ABROAD




Entry fees - 87,733 - - - 87,733 10,551 646 (1) 98,929

Management fees - 390,473 250,784 - - 641,257 24,400 6,472 - 672,129



Other fees 259 30,595 1,964 - - 32,818 1,002 281 - 34,101

Fee income 82,259 610,900 317,613 - - 1,010,772 47,399 23,617 (31) 1,081,757

Interest income 198,076 347 11,874 8 - 210,305 24,238 40 - 234,583

Net income (loss) on investments at fair value (15,964) (6) 6,681 1 - (9,288) 761 (52) - (8,579)

Net financial income 182,112 341 18,555 9 - 201,017 24,999 (12) - 226,004



Realized gains (losses) on other investments 86,481 274 5,518 - - 92,273 3,669 - - 95,942

Impairment of loans (16,128) - 90 - - (16,038) (1,047) (169) - (17,254)

Impairment of other investments (8,631) (246) (2,880) - - (11,757) - - - (11,757)

Net income (loss) on other investments 61,722 28 2,727 - - 64,478 2,622 (169) - 66,931

Other revenues 10,629 281 14,581 - - 25,491 1,687 489 (119) 27,548

TOTAL REVENUES 336,722 611,551 390,288 18,703 - 1,357,263 94,642 26,209 (150) 1,477,964




Amortization and depreciation (12,524) (1,534) (6,479) - - (20,538) (1,466) (264) - (22,268)


TOTAL COSTS (300,867) (374,524) (246,336) - - (921,727) (69,460) (34,033) 150 (1,025,070)

GROSS PRE-TAX PROFIT 35,856 237,026 143,951 18,703 - 435,536 25,182 (7,824) - 452,894

Taxes for the period - - - - - (127,475) (4,210) (592) - (132,277)


251



E/t

ITALY ABROAD




Entry fees - 87,733 - - - 87,733 10,551 646 (1) 98,929

Management fees - 390,473 250,784 - - 641,257 24,400 6,472 - 672,129



Other fees 259 30,595 1,964 - - 32,818 1,002 281 - 34,101

Fee income 82,259 610,900 317,613 - - 1,010,772 47,399 23,617 (31) 1,081,757

Interest income 198,076 347 11,874 8 - 210,305 24,238 40 - 234,583

Net income (loss) on investments at fair value (15,964) (6) 6,681 1 - (9,288) 761 (52) - (8,579)

Net financial income 182,112 341 18,555 9 - 201,017 24,999 (12) - 226,004



Realized gains (losses) on other investments 86,481 274 5,518 - - 92,273 3,669 - - 95,942

Impairment of loans (16,128) - 90 - - (16,038) (1,047) (169) - (17,254)

Impairment of other investments (8,631) (246) (2,880) - - (11,757) - - - (11,757)

Net income (loss) on other investments 61,722 28 2,727 - - 64,478 2,622 (169) - 66,931

Other revenues 10,629 281 14,581 - - 25,491 1,687 489 (119) 27,548

TOTAL REVENUES 336,722 611,551 390,288 18,703 - 1,357,263 94,642 26,209 (150) 1,477,964




Amortization and depreciation (12,524) (1,534) (6,479) - - (20,538) (1,466) (264) - (22,268)


TOTAL COSTS (300,867) (374,524) (246,336) - - (921,727) (69,460) (34,033) 150 (1,025,070)

GROSS PRE-TAX PROFIT 35,856 237,026 143,951 18,703 - 435,536 25,182 (7,824) - 452,894

Taxes for the period - - - - - (127,475) (4,210) (592) - (132,277)


252


2015

BALANCE SHEET DATA BY BUSINESS AREAS AS AT DECEMBER 31, 2015

E/t

ITALY ABROAD




Goodwill - - 22,794 - - 22,794 102,831 - - 125,625

Equity investments - - - 433,281 - 433,281 - - - 433,281

HTM investments + LR - 2,563,332 336,142 - - 2,899,474 - - - 2,899,474

AFS securities 63,579 12,238,272 917,728 39 - 13,219,618 1,719,605 32,263 - 14,971,486

Financial assets liabilities at FV through the income statement, net

- 214,316 697,141 - - 911,457 8,766 2,571 - 922,794

Financial assets where the risk is borne by policyholders

- - 15,405,918 - - 15,405,918 502,446 147,353 - 16,055,717

Net treasury position (101,556) 143,481 (235,485) (1,391) - (194,951) 140,521 (114,067) - (168,497)

- of which intercompany 22,388 250,235 225,530 1,390 - 499,543 (251,810) 13,235 - 260,968

Loans to customers 108,705 6,853,562 2,570 - - 6,964,837 197,660 12,149 - 7,174,646

Banking inflows 11,966 21,321,576 65 - - 21,333,607 1,575,863 101,522 - 23,010,992

- of which intercompany (13,142) (549,651) (130) - - (562,923) (2,968) (3,897) - (569,788)

Net technical reserves - - 17,334,385 - - 17,334,385 517,311 151,156 - 18,002,852


E/t

ITALY ABROAD




Goodwill - - 22,794 - - 22,794 102,831 - - 125,625



AFS securities 40,331 12,731,522 1,395,906 15,975 - 14,183,734 1,313,533 19,573 - 15,516,840

Financial assets/liabilities at FV throughthe income statement, net

- (56,276) 503,918 - - 447,642 20,885 4,920 - 473,447

Financial assets where the risk is borneby policyholders

- - 12,239,165 - - 12,239,165 587,517 137,015 - 12,963,697

Net treasury position (47,960) 6,264,788 (199,390) (240,783) - 6,258,221 486,036 (120,945) - (6,623,312)

- of which intercompany 15,426 (28,050) 280,386 10,118 - 277,880 14,950 13,092 - 305,922

Loans to customers - 5,961,645 - - - 5,961,645 177,875 7,743 - 6,147,263

Banking inflows - 14,240,914 - - - 14,240,914 833,111 86,694 - 15,160,719

- of which intercompany - (635,022) - - - (635,022) 2,903 979 - 638,904


253



E/t

ITALY ABROAD




Goodwill - - 22,794 - - 22,794 102,831 - - 125,625



AFS securities 63,579 12,238,272 917,728 39 - 13,219,618 1,719,605 32,263 - 14,971,486

Financial assets liabilities at FV through the income statement, net

- 214,316 697,141 - - 911,457 8,766 2,571 - 922,794

Financial assets where the risk is borne by policyholders

- - 15,405,918 - - 15,405,918 502,446 147,353 - 16,055,717

Net treasury position (101,556) 143,481 (235,485) (1,391) - (194,951) 140,521 (114,067) - (168,497)

- of which intercompany 22,388 250,235 225,530 1,390 - 499,543 (251,810) 13,235 - 260,968

Loans to customers 108,705 6,853,562 2,570 - - 6,964,837 197,660 12,149 - 7,174,646

Banking inflows 11,966 21,321,576 65 - - 21,333,607 1,575,863 101,522 - 23,010,992

- of which intercompany (13,142) (549,651) (130) - - (562,923) (2,968) (3,897) - (569,788)



E/t

ITALY ABROAD




Goodwill - - 22,794 - - 22,794 102,831 - - 125,625



AFS securities 40,331 12,731,522 1,395,906 15,975 - 14,183,734 1,313,533 19,573 - 15,516,840

Financial assets/liabilities at FV throughthe income statement, net

- (56,276) 503,918 - - 447,642 20,885 4,920 - 473,447

Financial assets where the risk is borneby policyholders

- - 12,239,165 - - 12,239,165 587,517 137,015 - 12,963,697

Net treasury position (47,960) 6,264,788 (199,390) (240,783) - 6,258,221 486,036 (120,945) - (6,623,312)

- of which intercompany 15,426 (28,050) 280,386 10,118 - 277,880 14,950 13,092 - 305,922

Loans to customers - 5,961,645 - - - 5,961,645 177,875 7,743 - 6,147,263

Banking inflows - 14,240,914 - - - 14,240,914 833,111 86,694 - 15,160,719

- of which intercompany - (635,022) - - - (635,022) 2,903 979 - 638,904


ResponsibilityStatements


2015

Certification of the Consolidated Financial Statements pursuant to article 81-ter of Consob Regulation no. 11971

of May 14, 1999, as amended

1. We, the undersigned Ennio Doris, Chairman, and Luigi Del Fabbro, Chief Financial Officer responsible for

Banca Mediolanum S.p.A. accounting and financial reporting, declare that, also pursuant to article 154-bis,

paragraphs 3 and 4, of Legislative Decree 58 of February 24, 1998, the administrative and accounting proce-

dures for the formation of the consolidated financial statements:

• were defined in a manner consistent with the administrative/accounting system and structure of the company;

• the adequacy thereof was assessed;

• were actually applied during the period to which the consolidated financial statements refer.

2. The assessment of the adequacy and effective application of administrative and accounting procedures for the

preparation of the Consolidated Financial Statements as at December 31, 2015 was carried out as part of the

reverse merger that involved Banca Mediolanum S.p.A. and the parent company Mediolanum S.p.A..

3. It is also attested that the Consolidated Financial Statements:

a) correspond to the information contained in the accounting ledgers and records;

b) have been prepared in accordance with the International Accounting and Financial Reporting Standards adopt-

ed by the European Commission pursuant to the European Parliament and Council Regulation (EC) no. 1606

of July 19, 2002 as well as the regulations implementing art. 9 of Legislative Decree No. 38/2005;

c) provide a true and fair representation of the equity, economic and financial situation of the issuer and the whole

of the companies included in the scope of consolidation.


The Chairman Chief Financial Officer responsible

(Ennio Doris) for account and financial reporting

(Luigi Del Fabbro)

256

IndependentAuditors’Report

Annex 1

Reportingrequiredpursuant toprudentialregulations

262

Company

E/t

Geographic location of

establishment Nature of activity Turnover

Number of employees

based on full-time equivalent

(Units) Pre-tax profit Taxes

Banca Mediolanum S.p.A. Italy Banking 785,756 1,981 349,125 2,001

Mediolanum Assicurazioni S.p.A. Italy Insurance 39,932 39 8,341 (2,975)

Mediolanum Vita S.p.A. Italy Insurance 2,701,796 61 67,612 (30,543)

Mediolanum Gestione Fondi SGR p.A. Italy Financial 82,481 35 71,129 (23,545)

Mediolanum Fiduciaria S.p.A. Italy Financial 183 2 (812) 228

Mediolanum Comunicazione S.p.A. Italy Non-financial (1) 16 324 (141)

PI Servizi S.p.A. Italy Non-financial - - (285) 154

Fermi e Galeno Real Estate S.r.l. Italy Non-financial - - 1,159 (120)

Banco Mediolanum SA Spain Banking 55,417 212 11,524 2,834

Mediolanum Gestion S.G.I.I.C. SA Spain Financial 2,166 9 1,389 (389)

Mediolanum Pensiones S.G.F.P. SA Spain Financial 761 2 590 (165)

FIBANC SA Spain Financial 2 - (9) -

Mediolanum Asset Management Ltd Ireland Financial 27,949 42 19,153 (2,416)

Mediolanum International Funds Ltd Ireland Financial 531,637 26 527,955 (66,010)

Mediolanum International Life Ltd Ireland Insurance 209,818 - 10,788 (1,509)

Bankhaus August Lenz & Co. AG Germany Banking 16,450 83 (2,076) -

Gamax Management AG Luxembourg Financial 10,341 2 9,238 (679)

Consolidation adjustments - - - - (513,257) -

Total - - 4,464,688 - 561,888 (123,275)

ANNEX 1

Mediolanum Banking Group: Reporting required pursuant to prudential regulations

A. Country by country reporting

Government Grants

The Mediolanum Group did not receive government grants in FY 2015. It shall be noted that in accordance with

the provisions for the completion of the disclosure in question, said grants do not include transactions entered into

with Central Banks for purposes of financial stability or transactions with the objective of facilitating the trans-

mission mechanism of monetary policy.

B. Publication of return on assets

Net profit 438,613 0.98%Total assets 44,710,171


2015

SeparateAnnualFinancialStatements

2015

264

2015 Financial Highlights1

Data for inflows and assets E/m Dec. 31, 2015 Dec. 31, 2014 Change %

Total customer assets 58,034.2 53,033.0 9%

Net inflows 4,662.9 4,081.9 14%

Net inflows AuM 3,729.0 3,855.3 (3%)

of which mutual funds and Unit Linked 4,687.4 4,827.6 (3%)

Net inflows AuA 933.9 226.7 n.s.

Balance sheet figures E/m Dec. 31, 2015 Dec. 31, 2014 Change %

Total assets 24,653.5 23,801.0 4%

Available for sale financial assets (AFS) 12,238.3 12,747.5 (4%)

Held to maturity financial assets (HTM) 2,257.4 2,204.2 2%

Financial assets held for trading (HFT) 493.2 314.0 57%

Loans to customers net of L&R securities (Loans)

6,916.1

6,180.7

12%

Payables to customers and securities issued net of Cassa di Compensazione e Garanzia (Funding)

13,801.9

12,474.4

11%

Loans ratio on customer inflows 50% 50% 1%

Income statement figures E/m Dec. 31, 2015 Dec. 31, 2014 Change %

Profit before tax 349.1 372.0 (6%)

Taxes 2.0 (26.2) n.s.

Net profit 351.1 345.8 2%

Resources Dec. 31, 2015 Dec. 31, 2014 Change %

Financial advisors 4,387 4,386 -

Average workforce 1,933 1,861 4%

Current accounts 840,696 774,449 9%

Equity coefficients (*)

Dec. 31, 2015 Dec. 31, 20142

CET1 Capital Ratio 17.13% 13.90%

Tier 1 Capital Ratio 17.13% 13.90%

Total capital ratio 17.13% 14.30%

(*) ��At�the�date�of�drafting�of�this�report,�the�Capital�Ratios�were�determined�taking�into�account�the�profit�as�at�December�31,�2015,�net�of�dividends�according�to�the�proposed�2015�profit�allocation�as�outlined�below,�and�will�be�subject��to�reporting�to�the�Bank�of�Italy�following�the�approval�of�the�draft�financial�statements�by�the�Board�of�Directors�and�upon�receipt�of�the�comfort�letter�from�the�independent�auditors.�The�aforementioned�solvency�coefficients�were�determined�according�to�the�new�harmonized�framework�for�banks�and�investment�firms�contained�in�Directive�2013/36/EU�(CRD�IV)�and�in�Regulation�(EU)�575/2013�(CRR)�June�26,�2013,�which�transpose�the�EU�standards�set�by�the�Basel�Committee�on�Banking�Supervision�(the�so-called�Basel�3�framework),�and�on�the�basis�of�the�Bank�of�Italy�Circulars�no.�285�and�no.�286�(enacted�in�2013)�and�no.�154�(updated�in�2013).

1 Following�the�merger�by�incorporation�of�Mediolanum�S.p.A.�into�Banca�Mediolanum�S.p.A.�with�effect�for�accounting�and�tax�purposes�as�at�January�1,�2015,�the�comparative�figures�as�at�December�31,�2014�have�been�restated.

2 The�figures�for�December�31,�2014�refer�to�the�Company�Banca�Mediolanum�S.p.A.�and�correspond�to�as�reported�to�the�Supervisory�Authority.

SEPARATE ANNUALFINANCIAL STATEMENTS

2015

265

Reclassified income statement as at December 31, 20151

E/t Dec. 31, 2015 Dec. 31, 2014

Difference

value %

10. Interest income and similar income 385,170 424,883 (39,713) (9%)

20. Interest expense and similar charges (164,902) (226,807) 61,905 (27%)

30. Net interest income 220,268 198,076 22,192 11%

80. Net income from trading (13,040) (10,564) (2,476) 23%

90. Net income from hedging 10,740 (5,400) 16,140 n.s.

100. Gains (losses) on sale or buyback of: 1,767 81,202 (79,435) (98%)

a) loans (3) (5) 2 (30%)

b) available for sale financial assets 2,429 81,267 (78,838) (97%)

d) financial liabilities (659) (60) (599) n.s.

Net financial income (30+80+90+100) 219,736 263,314 (43,578) (17%)

40. Fee income 558,722 479,477 79,245 17%

50. Commission expense (472,814) (424,047) (48,767) 12%

60. Net commission 85,908 55,430 30,478 55%

70. Dividends and similar income 480,116 478,099 2,017 -

120. Banking income 785,760 796,843 (11,083) (1%)

130. Net impairment/reversal of impairment of: (13,470) (24,759) 11,289 (46%)

a) loans (12,541) (16,102) 3,561 (22%)

b) available for sale financial assets (857) (7,235) 6,378 (88%)

d) other financial instruments (73) (1,422) 1,349 (95%)

140. Net income from financial operations 772,290 772,084 206 n.s.

150. Administrative expenses: (392,667) (356,898) (35,769) 10%

a) personnel expenses (141,552) (131,137) (10,415) 8%

b) other administrative expenses (251,115) (225,761) (25,354) 11%

160. Net provisions for risks and charges (46,443) (33,315) (13,128) 39%

170. Impairment/reversal of impairment of tangible assets (4,765) (4,106) (659) 16%

180. Impairment/reversal of impairment of intangible assets (11,002) (9,134) (1,868) 20%

190. Other operating income/expenses 15,255 10,063 5,192 52%

200. Operating costs (439,622) (393,390) (46,232) 12%

210. Profit (loss) on equity investments 16,457 (6,638) 23,095 n.s.

240. Profits (losses) on disposal of investments 1 (60) 61 n.s.

250. Profit (loss) before tax on continuing operations 349,125 371,996 (22,871) (6%)

260. Income tax expense on continuing operations 2,001 (26,223) 28,224 n.s.

270. Profit (loss) after tax on continuing operations 351,126 345,773 5,353 2%

290. Profit (loss) for the year 351,126 345,773 5,353 2%1 Following�the�merger�by�incorporation�of�Mediolanum�S.p.A.�into�Banca�Mediolanum�S.p.A.�with�effect�for�accounting�and�tax�purposes�as�at�January�

1,�2015,�the�comparative�figures�as�at�December�31,�2014�have�been�restated.

266266

Summary of Business Performance for FY 2015

E/m Dec. 31, 2015 Dec. 31, 2014 Diff. Change %

Net profit 351.1 345.8 5.3 2%

Of which:

Net financial income 219.7 263.3 (43.6) (17%)

The decrease in net financial income (Euro -43.6 million) is mainly due to lower gains realized on the sale of AFS

securities (Euro -78.8 million). This change was only partly offset by the improvement in net interest income (Euro

+22.2 million) and the net result of hedging activities (Euro +16.1 million).

Net commission 85.9 55.4 30.5 55%

Net commission income recorded an increase of Euro +30.5 million compared to the previous year; commission

income grew by Euro +79.2 million both for the growth in assets and for the increase in the fee rate relegated

from Irish subsidiary and the Italian subsidiary (Euro +30.9 million); commission expense increased by Euro

+48.8 million.

Dividends 480.1 478.1 2.0 -

Dividends are substantially in line with the previous year (Euro +2 million).

Net (impairment)/reversal of impairment (13.5) (24.8) 11.3 (46%)

Decrease in net impairment of Euro 11.3 million and in particular of available for sale financial assets (Euro +6.4

million) and receivables (Euro +3.6 million).

Administrative expenses (392.7) (356.9) (35.8) 10%

Personnel expenses (141.6) (131.1) (10.5) 8%

Other administrative expenses (251.1) (225.8) (25.3) 11%

Increase in personnel expenses mainly due to the growth in the average workforce in the year (+72 units compared

to the previous year) and an increase in administrative expenses primarily related to higher expenses regarding

entry into force of the so-called “Save Banks” decree (Euro +19.3 million).

Provisions for risks and charges (46.4) (33.3) (13.1) 39%

The increase is essentially due to higher charges arising from the discount of indemnity funds to the sales network

following the reduction in market interest rates at year end and the progressive reduction in the turnover rate of

the sales network promoters (Euro +16.3 million).

Profits/Losses on equity investments 16.5 (6.6) 23.1 n.s.

The year benefited in particular from the write-back on the investment in Mediobanca for a total amount of Euro

19.3 million recognized following the impairment test procedure.

Taxes 2.0 (26.2) 28.2 n.s.

The tax burden reduction is mainly determined by the lower taxable income in addition to the contributions arising

from new implementing disciplines related to IRAP and the ACE tax facilitation.


2015

267

REPORTON OPERATIONS

267

Report on operations to the Separate Annual Financial Statements as at December 31, 2015

The year ended as at December 31, 2015 shows a net profit of Euro 351.1 million compared to a net profit the

pro-forma as at December 31, 2014 of Euro 345.8 million.

To allow homogeneous comparison of the economic and assets data as at December 31, 2015, in the following

comments in the Report on Operations, the comparative figures were restated taking account of the effects of the

transaction reported below.

Macroeconomic scenario

The moderate economic recovery, the weak price trend, the overall expansionary orientation of the monetary policy of

major central banks, the renewed Greek financial crisis and the resurgence of unresolved geopolitical tensions were the

issues that influenced the performance of financial markets during 2015.

In 2015, the international economic cycle remained positive, supported by good fundamentals and, above all, by the

accommodative policies of the major central banks. Despite the profound efforts, global growth remains, however, far

from its potential: the International Monetary Fund estimates that world growth in 2015 was 3.1% (3.4% in 2014),

with rising contribution of industrialized countries at 2.0% from 1.8% in 2014 and declining of emerging countries

at 4.0% from 4.6% in 2014. In detail, the change in GDP in 2015 is estimated in the US at 2.6% (2.4% in 2014),

the Eurozone at 1.5% (0.9% in 2014), in Japan at 0.6% (-0.1% in 2014). In the period, in Spain there was confir-

mation of exit from the recession already highlighted in 2014 (+1.4% and +3.1% growth rates in 2014 and 2015

respectively) and in Italy at the end of the economic slowdown of the last three years (-0.4% in 2014 and +0.8% in

2015); gross domestic product is expected to stand at +1.5% in Germany (+1.6% in 2014) and +1.2% in France

(+0.2% in 2014).

In advanced economies, the continued support by the monetary policies has contributed to the improvement of pro-

duction and employment; in particular, the recovery has proved more robust and sustainable in the US and UK, where

the Federal Reserve and Bank of England are gradually abandoning the expansionary monetary policy, while it is still

uncertain in the Eurozone and Japan, where analysts estimate needed further increases in quantitative easing programs

of the European Central Bank and Bank of Japan, also in light of the persistent deflationary pressures. The year just

ended was in fact the year of normalization of US monetary policy: on December 16, 2008, the Federal Reserve zeroed

reference rates in order to counter the concurrent recession; after exactly seven years, on December 16, 2015, the

emergency ended with the first rise in interest rates, justified by a return of the unemployment rate to 5% from the

peak of 10% in 2009.

In the Eurozone, on the other hand, the expansionary monetary policy of the European Central Bank, focused on a

vigorous securities purchase program launched in March, counters deflationary pressures and keeps interest rates at

low levels, favoring both the refinancing of the high public debts accumulated during the crisis, and the weakness of the

single currency to the main currencies (thus fostering exports). At its meeting on December 3, the ECB also decided to

further reduce the interest rate on deposits with the Central Bank, to -0.30% from -0.20% and to extend the securities

purchase program up to the end of March 2017 from the previous deadline of September 2016. In the area, the eco-

nomic recovery is also based on growth in domestic demand, supported by retail sales and household consumption, and

268


2015

is more prevalent in the service sector rather than in manufacturing. Specifically, Germany is experiencing an increase

in public spending in order to offset the decline in exports and fixed investments with respect to previous years; in Italy,

as already mentioned, the economy is re-emerging from a prolonged recession in the wake of elements such as the

reduction of oil prices, the weakness of the Euro to the main currencies, the economic and institutional reforms being

implemented and the reduction in yields produced by the quantitative easing of the ECB. The data and surveys confirm

the economic inversion and improvement in the confidence of consumers and entrepreneurs: the initial conservative

estimates of the beginning of the year (+0.4%) of the IMF regarding the economic recovery of our country significantly

underestimated the potential expressed in 2015.

From Japan, new signs of weakness and stalling emerged of the actual transmission of fiscal stimulus (of the Shinzo

Abe government) and monetary stimulus (of the Bank of Japan of Haruhiko Kuroda) to the economy, which prelude

new intervention measures in 2016.

In emerging and developing markets, the fifth consecutive year of growth slowdown is justified by several factors: the

fall in the price of raw materials, the excessive growth of debt and the persistence of unresolved idiosyncratic social,

political, financial and military issues. Some of the major emerging economies show serious criticality: the international

scenario is burdened by the recession of some big countries (Brazil and Russia) and the slowdown in China. In Brazil,

the simultaneous presence of economic recession (-3.0% in 2015 from +0.1% in 2014), inflation, public deficit and

political corruption limit the effectiveness of resorting to the counter-cyclical fiscal policies and the monetary policy

instruments. Russia is affected by the drastic reduction in the prices of raw materials (oil and gas) and the effects of

the economic sanctions imposed by the US and the European Union, following the political and military crisis with

Ukraine. If Russia’s entry into recession (-3.8% in 2015 from +0.6% in 2014) is a political success for the interna-

tional community as part of the sanctions regime, one should not underestimate the risks of a further slowdown for the

financial stability of several countries, including the Eurozone, with significant trade with Russia. China’s transition

to lower growth rates (7.3% in 2014, 6.8% in 2015, 6.3% in 2016), although in line with expectations, had greater

external repercussions than expected, as evidenced by the increase in financial market volatility in the second half of

2015, following the devaluation of the Yuan in August by the People’s Bank of China. The next intervention of monetary

easing by the Chinese central bank on October 23, with the surprise reduction of the interest rate on loans and deposits

and the obligatory reserve coefficient, clearly showed the attention of the Chinese authorities on the issue of domestic

growth. While on one hand in China exponential growth of the debt of non-financial companies could represent a serious

risk factor, it is also necessary to underline that the Beijing authorities have, also thanks to low inflation, a wide range

of monetary and fiscal levers to address the soft landing of the country. On November 30, 2015, the International Mon-

etary Fund announced the addition of the Renminbi in the basket of reserve currencies, which determines the value of

Special Drawing Rights (SDR). The special drawing rights are the reference currency of the IMF and an international

reserve instrument. The value of the SDR is determined by a basket of the most representative currencies of the global

economy: with effect from October 1, 2016, the Renminbi will be included with a weight of 10.92%, alongside the US

dollar (41.73%), Euro (30.93%), British pound (8.09%) and Japanese yen (8.33%). The IMF decision confirms the

integration of the Chinese economy in the international financial system and represents a tangible recognition of the

progress made by the Beijing authorities in reforming the country’s monetary and financial system.

At international level, the declines in commodity prices keep away the achievement of inflation targets, allowing the

passing of the baton in the orientation of monetary policy among the major central banks.

During the year, the third bailout of Greece was characterized by approximate handling of the negotiations by the Greek

authorities, by a prolonged conflict between governments of the Eurozone and the International Monetary Fund on

the procedures for application of the program and probable output possibility of a member country from the monetary

269

REPORTON OPERATIONS

union. The achievement of the agreement has avoided Greece exit from the Euro and an irreversible crisis, transferring

in time the identification of a definitive solution.

The European political scenario was characterized by some major electoral events in 2015: the British general elec-

tions, held on May 7, amply reconfirmed the outgoing Prime Minister David Cameron (Conservative Party), despite the

high uncertainty detected by the preliminary polls. On September 20, in Greece, the Syriza party and its leader Tsipras

re-established leadership of the government and are called upon to ensure compliance with the objectives set in the new

bailout program. In September, Spain was involved with regional elections in Catalonia, with the victory of the inde-

pendence front, and, in December, the general elections, won by the outgoing Prime Minister Mariano Rajoy (Partido

Popular), however without reaching the absolute majority. Similarly, in Portugal, the outgoing center-right party has

been confirmed to lead the country, ensuring the relative majority of votes (38.5%), but not absolute in Parliament.

Among other notable events, we recall the outbreak of the scandal on diesel engine emissions produced by the German

automotive group Volkswagen, after the US Environmental Protection Agency (EPA) ordered the recall of about 500

thousand vehicles on which software designed to circumvent controls on toxic gas emissions was installed; the matter

had a significant impact on market sentiment, and in particular on the automotive sector. In the final period of the year,

public opinion was badly shaken by the attacks perpetrated by the Islamic State (ISIS), including those in Paris on No-

vember 13, which led to a tightening of international geopolitical tensions and resulted in a deterioration in confidence

also on the financial markets. With particular reference to the Italian market, we also report the crisis emerged in late

November in relation to the arrangements made for the rescue of four banks (Banca delle Marche, Banca Popolare

dell’Etruria e del Lazio, Cassa di Risparmio di Ferrara e Cassa di Risparmio di Chieti), which resulted in losses for

investors who had purchased subordinated securities of the same.

Financial Markets

In 2015, global equity markets were down -2.7% (MSCI World in US dollars). In the US, the S&P500 record-

ed negative performance of -0.7%, the Nasdaq Composite positive of +5.7%; in Europe, stock markets fared

well, too, on average (STOXX Europe 600 +6.8%). In detail, the stock markets in Italy (+12.0% FTSE MIB),

Germany (+9.6% DAX), France (+8.5% CAC 40) and the Netherlands (+5.8% AEX) outperformed the stock

markets in Spain (-6.2% IBEX 35), England (-4.9% FTSE 100) and Switzerland (-1.8% SMI); in Asia, the

Japanese market (+9.1% Nikkei 225) outperformed the stock markets in Australia (-1.8% S&P/ASX 200) and

Hong Kong (-6.9% HANG SENG). Emerging stock markets achieved on average a negative -17.1% (MSCI

Emerging Markets index in Dollars).

In 2015, the German government curve recorded reductions in yields compared to the previous year on the shortest

maturities (2 years -0.35% from -0.10%, 5 years -0.05% from 0.02%, 10 years 0.63% from 0.54%, 30 years

1.49% from 1.39%) offering negative yields up to 5 years. The spread between Italian and German debt on the

ten-year maturity went from an initial 135 basis points to 97 as at December 31, while on two-year maturity it

went from an initial 63 basis points to 31 as at December 31. In 2015, the Italian government curve registered

the following reductions in yields: from 0.29% to -0.04% at 1 year, from 0.53% to -0.03% at 2 years, from

0.95% to 0.50% at 5 years, from 1.89% to 1.60% at 10 years and from 3.23% to 2.70% at 30 years. The

spread between Spanish and German debt on the ten-year maturity went from an initial 107 to 114 as at December

31. During the last session in 2015, the US government showed a two-year yield of 1.05%, an increase compared

to 0.66% at the beginning of the year, while the 10-year yield of 2.27% showed only a marginal increase from

2.17% at the beginning of the year.

270


2015

Starting April, there was a substantial increase in yields in high yield markets and emerging markets. The aver-

age yield of emerging markets changed on average from 6.15% at the beginning of 2015 to 6.71% at year-end

(JPMorgan Emerging Markets Global Sovereign Index, JPEGSOYD Index), recording a minimum of 5.68% on

April 24 and maximum of 6.82% on September 29; in high yield markets, yields rose from 6.61% at the beginning

of the year to 8.74% at December 31 (Barclays US Corporate High Yield Index, LF98YW Index) with a minimum

of 5.88% on February 27 and a maximum of 9.00% on December 14.

In 2015, the listing of the USD towards the Euro went from 1.2098 at the beginning of the year to 1.0862 as at

December 31, recording a minimum of 1.2109 during the first session and maximum of 1.0458 during the session

on March 16. Continuing the trend started in 2014, the US dollar has steadily and significantly strengthened

towards the common currency in the first quarter of the year, incorporating the economic differential between the

US and the Eurozone, and the divergent phase of monetary policy between Federal Reserve and European Central

Bank; subsequently, accomplices the uncertainty regarding the timing of the first rate hike by the Fed and the

downward revision of US domestic growth, changes in the exchange rate have had less unidirectional character,

mostly staying within the 1.05-1.15 range. Despite the volatility generated by the uncertainty regarding the out-

come of the general elections in the UK on May 7 and the referendum on English membership of the European

Union proposed by 2017, the pound has showed a gradual strengthening towards the single currency since the

beginning of the year (the listing went from 0.78 at the start of the year to 0.74 as at December 31). The per-

formance of the Euro-Yen exchange rate was in turn greatly influenced by expectations and the actual monetary

policy actions of the respective central banks, both characterized by an expansionary orientation, with an overall

weakening of the Euro, from 144.85 at the start of the year to 130.64 as at December 31. Following the unex-

pected decision of the Central Bank of Switzerland adopted on January 15 to remove the minimum level of 1.20 on

the Euro-Swiss franc exchange rate, there was a rapid and significant depreciation and a phase of high volatility,

followed by only a partial recovery and year end at a level of 1.088.

The reference market

Total financial assets of families in Italy amounted to Euro 4,018 billion in Q2 2015, with an annual increase of

0.6%. The main performance of its components compared to the same period of the previous year may be sum-

marized as follows.

Stable and growing:

• the dynamics of notes, coins and bank deposits (both on demand and term), which marked a positive growth

rate of 1.8%. The amount of this aggregate on total household financial assets amounted to 30.9% (a slight

increase compared to a year before);

• mutual fund units were up 33.0% yoy and amounted to 10.9% of financial assets of households (8.2% in the

same period the previous year);

• life insurance, pension funds and severance funds that were up 10.1%. The amount of this aggregate amounted

to 19.9% (18.2% in the same period of the previous year).

271

REPORTON OPERATIONS

Down:

• shares and investments, down by 1.1% yoy, were equal to 23.7% of all financial assets (24.1% in the second

quarter of 2014);

• bonds showed a negative change (-28.2%) and was shared by both the banking item (-32.3%) and public bonds

(-34.1%). The amount of this aggregate on total household financial assets amounted to 10.8% (15.2% the

previous year).

Inflows

In 2015, in Italy banking funding slightly declined. In detail, according to preliminary estimates by SI-ABI at

year end 2015, deposits in Euro from customers of all Italian banks, represented by resident customer deposits1

and bonds (net of those repurchased by banks) was equal to Euro 1,697 billion, recording an annual change of

-0.6% (-1.69% in November 2015; -1.2% at year-end 2014) and a decline in the stock of inflows of about Euro

10.3 billion yoy.

The analysis of the various components shows deposits of resident customers (net of operations with central coun-

terparties and term deposits connected with sales of receivables) were up +3.7% at the end of 2015 (+2.4% in

November 2015), an increase in absolute value on an annual basis of over Euro 47 billion. The amount of funds

reached a level of 1,311.2 billion at the end of December.

The annual change of the bonds amounted to -13.0% (-13.2% in November 2015), showing a decrease in absolute

value on an annual basis of Euro 57.6 billion. The amount of bonds amounted to Euro 386.1 billion.

Before the start of the crisis – in late 2007 – the amount of bank deposits was about Euro 1,513 billion (+184

billion from the end of 2007 to date); as follows: 1,000.5 billion of customer deposits (+258 billion from the end

of 2007 to date) and 512.2 billion of bonds (-70 billion since 2007).

Lending

At year-end 2015, loans to households and companies recorded a slightly positive change.

Based on preliminary estimates, at year-end 2015, total loans to Italian residents (private sector and public authori-

ties, net of repurchase agreements with central counterparts) stood at Euro 1,830.2 billion, with a change of +0.1%

yoy (+0.8% the previous month). At the end of 2007 – before the start of the crisis – said loans amounted to 1.673

billion; since then marking a growth of over Euro 157 billion in absolute value.

Loans to Italian residents to the private sector2 were also slightly positive (+0.1% at year-end 2015, +0.8% the

previous month). At the end of 2015, volumes of loans to residents amounted to Euro 1,559 billion (1,450 million

at the end of 2007, about +109 billion since then until the end of 2015).

Loans to households and non-financial companies as at December 2015 amounted to Euro 1,420.5 billion, recording

a slightly positive change year on year (of +0.5%), the best result since April 2012 (+0.7% in November 2015;

+1.5% approximately in the Eurozone average in November 2015). At the end of 2007, these loans amounted to

1,279 billion, with an increase in the period of nearly 142 billion in absolute value.

1� �Deposits� in� current� accounts,� time� deposits,� excluding� those� related� to� operations� of� transfers� of� loans,� deposits� redeemable� with� notice� and�repurchase�agreements;�deposits�are�net�of�transactions�with�central�counterparties.

2� Other� Italian� residents:� Non-financial� companies,� consumer� households,� family� businesses,� non-profits,� insurers,� pension� funds,� other� financial��institutions�net�of�repos�with�central�counterparties.

Maturity analysis shows that short-term lending (due within one year) was down -4.8% (-2.4% in November 2015),

while medium/long-term lending (due after more than one year) was down +2.2% (-1.8% in November 2015).

The trend dynamic of total loans to households increased (+0.8% in November 2015, +0.6% the previous month).

Non-performing

In November 2015, gross non-performing loans aggregated to Euro 201 billion, increasing by Euro 2 billion over

October 2015 and about 20 billion versus the end of November 2014, up 11% year on year; +21.1% in November

2014.

The ratio of non-performing loans to total loans came to 10.4% in November 2015 (9.5% a year earlier and 2.8%

at the end of 2007, prior to the start of the crisis), reaching 17.3% for smaller operators (16% in November 2014),

17.8% for companies (15.9% a year earlier) and 7.2% for households (6.9% in November 2014).

With regard to non-performing loans net of write-downs (non-harmonized statistics, figures not homogeneous with

the harmonized statistics as a result of the different criteria in the reporting of write-downs), in November 2015

they amounted to about Euro 88.8 billion, an increase of 1.6 billion compared to October and approximately 4

billion compared to the same month of the previous year (+4.7% annual increase, slowing compared to +12.2% a

year earlier).

Interest and yields

The average rate on deposits from customers1 (which includes the return of deposits, bonds and repurchase agree-

ments in Euro applied to households and non-financial companies) was 1.19% in December 2015 (1.50% in

December 2014). In the year under review, interest rates on repurchase agreements also declined, from 1.14% in

December 2014 to 0.91% in December 2015, and yields on bank bonds decreased (from 3.16% in December 2014

to 2.94% in December 2015).

In terms of bank interest rates, in 2015 there was a slight decrease in the rate on deposits in Euro applied to house-

holds and non-financial companies: this rate, in fact, went from 0.73% at year-end 2014 to 0.53% at year-end

2015.

In 2015, the weighted average rate applied to total loans extended to households and non-financial companies cal-

culated by the Italian Bankers’ Association decreased from 3.62% at the end of 2014 to 3.26% at the end of 2015.

In the year under review, interest on active bank accounts and Euro-denominated revolving loans to households and

non-financial companies decreased (from 4.95% in December 2014 to 4.34% in December 2015).

Taxes on new loans decreased: in December 2015, the rate applied to Euro-denominated loans extended to non-fi-

nancial companies was 1.99% (2.57% in December 2014), while interest on Euro-denominated home loans to

households (average for both fixed and floating-rate loans, considering all the various types of loans) decreased to

2.51% (2.83% in December 2014), recording the lowest value since June 2010.

In the last month, fixed-rate lending accounted for 61% (vs. 27.4% in December 2014).

The yearly average spread between lending and funding interest rates applied to households and non-financial com-

BILANCIO DI ESERCIZIO

2015

272

1� Consumers�households�and�family�business.

273

REPORTON OPERATIONS

panies increased slightly to 212 bps in 2015, +2 bps vs. the 2014 average; before the beginning of the financial crisis

the average spread between lending and funding interest rates exceeded 300 percentage points.

Merger by incorporation of Mediolanum S.p.A. in Banca Mediolanum S.p.A.

Following the reverse merger Banca Mediolanum became parent company of the Mediolanum Banking Group and

Parent Company of the Financial Conglomerate having banking prevalence. The merger of Mediolanum S.p.A. into

Banca Mediolanum S.p.A. has produced legal effects towards third parties, pursuant to art. 2504-bis, paragraph

2, Civil Code, as at December 30, 2015. The accounting effects of the merger shall instead be effective from the

first day of the current fiscal year to the Date of Effectiveness of the merger (January 1, 2015).

At the same time of the effectiveness of the merger, the Banca Mediolanum ordinary shares were admitted to

listing on the electronic stock market (MTA).

The merger was carried out through the distribution and allocation to the shareholders of Mediolanum of Banca

Mediolanum ordinary shares, resulting from prior fractionation of the ordinary shares of Banca Mediolanum to the

extent necessary to permit the satisfaction of the Exchange Ratio. Under art. 2504-ter, paragraph 1, of the Civil

Code, Banca Mediolanum shares in exchange for treasury shares held by Mediolanum have not been assigned. At

the Effective Date of the merger, and following fractionation, therefore, the share capital of Banca Mediolanum

amounts to Euro 600,000,000.00, fully subscribed and paid-in, divided into 738,401,857 ordinary shares with

no par value, assigned in exchange of the 738,401,857 Mediolanum shares held by third parties of Mediolanum.

The merger was realized for the rationalization of the structure of the Mediolanum Banking Group following the

recent assumption of the role of the parent by the former parent company Mediolanum S.p.A. The merger therefore

aimed at shortening the chain of investors, streamlining organization and management processes, while improving

the level of profitability and safeguarding the brands and commercial vocation of the Mediolanum Banking Group

that have always been characterized by customer-focus and the values of solidity and security.

It is also noted also that at the deadline provided for by art. 2437-bis Civil Code namely as at October 20, 2015

the right of withdrawal was exercised for a total of 54,390 Mediolanum shares, for a total liquidation value of

Euro 359,572.29. However, the total value of shareholders’ equity remained unchanged since all the shares were

repurchased by the previous minority shareholders through the option offering, under art. 2437-quater Civil Code.

On the basis of the international accounting standards applied by the Company in preparing the separate financial

statements, the mergers by incorporation mother-daughter are not classifiable as business combinations as they

do not involve any exchange with third parties with respect to the assets combined or acquisition in the economic

sense. The only change compared to the situation before the merger concerns the procedure for exercising control

over the assets and liabilities.

The merger only involves the Companies concerned with a totalitarian control relation. For all the reasons stated,

the merger was therefore excluded from the scope of application of IFRS 3. Considering the special nature of this

transaction and the fact that the IAS/IFRS do not regulate it specifically, it is believed that the choice of the most

appropriate accounting policy must be guided by the general standards of IAS 8.

273

274


2015

As clearly indicated by IAS 8, the system of the IAS/IFRS standards can be defined as a “closed” system; it follows

that the treatment of the above transaction was sought in the first instance within the body of the IAS/IFRS stand-

ards. In particular, IAS 8 provides that, in the absence of an IAS/IFRS standard or interpretation that specifically

applies to a transaction, other event or condition, an entity must use its judgment in developing and applying an

accounting standard that provides information that is:

(a) relevant for the economic decisions of users; and

(b) reliable, so that the financial statements:

• faithfully represent the equity – financial situation, the economic result and financial flows of the entity;

• reflect the economic substance of transactions, other events and circumstances, and not merely the legal form;

• are neutral, i.e. free from bias;

• are prudent; and

• are complete with reference to all material respects.

In making said judgment, the applicability of the following sources in descending order was considered: (a) the

applicable requirements and guidance contained in the standards and interpretations that deal with similar and

related cases; and (b) the definitions, recognition criteria and measurement concepts for the accounting of assets,

liabilities, revenues and expenses contained in the so-called systematic framework. In expressing the aforesaid

judgment, management may also consider the most recent provisions issued by other entities in charge of establish-

ing the accounting standards that use a similar conceptual systematic framework to develop accounting standards,

other accounting literature and consolidated industry practices, to the extent that these do not conflict with the

sources described above.

In the search for an accounting treatment that falls within the conceptual scope of the Framework and that meets

the criteria of IAS 8, the key element is the fact that the accounting standard chosen to represent the mergers must

reflect the economic substance of the same, regardless of their legal form.

Given the elements characterizing the merger (the absence of economic exchange with third parties, no additional

influence on the merged group cash flows), accounting standards have been adopted that give priority to principles

such as to ensure the continuity of values.

In mother-daughter mergers with shareholding of 100% in the merged company, the application of the principle

of continuity of values therefore follows the absence of an exchange with third-party economies and an acquisition

in an “economic” sense.

The following is the reconciliation scheme used in preparing the financial statements of Banca Mediolanum as at

January 1, 2015 after the merger, with a separate indication of the main equity adjustments made.

275

REPORTON OPERATIONS

Assets

E/t

BancaMediolanum S.p.A.

Dec. 31, 2014Mediolanum S.p.A.

Dec. 31, 2014 Adjustments

SituationJan 1, 2015

Post merger

10. Cash and cash equivalents 1,027 10 - 1,037

20. Financial assets held for trading 327,760 - (13,802) 313,958

30. Financial assets measured at fair value - - - -

40. Available for sale financial assets 12,732,115 15,936 (593) 12,747,458

50. Held to maturity financial assets 2,204,200 - - 2,204,200

60. Loans to banks 489,389 8,852 (8,844) 489,397

70. Loans to customers 6,518,675 120,074 - 6,638,749

80. Hedge derivatives 1,287 - - 1,287

100. Equity investments 353,953 1,168,564 (600,239) 922,278

110. Tangible assets 17,032 2 - 17,034

120. Intangible assets 35,824 1 - 35,825

130. Tax assets 135,042 107,200 (50,819) 191,423

150. Other activities 237,607 650 (369) 237,888

TOTAL ASSETS 23,053,911 1,421,289 (674,665) 23,800,535

Liabilities and Shareholders’ equity

E/t

BancaMediolanum S.p.A.

Dec. 31, 2014Mediolanum S.p.A.

Dec. 31, 2014 Adjustments

SituationJan 1, 2015

Post merger

10. Amounts due to banks 6,755,202 250,919 - 7,006,121

20. Payables due to customers 13,954,591 - (8,844) 13,945,747

30. Securities issued 288,805 68,344 (13,802) 343,347

40. Financial liabilities held for trading 370,259 - - 370,259

60. Hedge derivatives 100,218 - - 100,218

80. Tax liabilities 125,890 105,238 (50,856) 180,272

100. Other liabilities 278,975 2,085 (368) 280,692

110. Employee completion-of-service entitlements 8,643 344 - 8,987

120. Provisions for risks and charges 184,030 31 - 184,061

130. Valuation reserves 101,634 1,584 - 103,218

150. Capital instruments - - - -

160. Reserves 141,227 590,266 (399,654) 331,839

Of which merger reserve - - - 305,880

180. Share capital 600,000 73,744 (73,744) 600,000

200. Profit (Loss) for the year 144,437 328,734 (127,398) 345,773

TOTAL LIABILITIES AND SHAREHOLDERS’ EQUITY

23,053,911 1,421,289 (674,665) 23,800,535

276


2015

Description of key impacts deriving from the merger

In the reconciliation scheme used in preparing the financial statements of Banca Mediolanum as at January 1, 2015

after the merger, the equity differences made to the individual aggregate situation of Banca Mediolanum S.p.A. and

Mediolanum S.p.A. as at Dec. 31, 2014 were highlighted in the “Adjustments” column.

In particular:

• all intercompany equity balances between Banca Mediolanum S.p.A. and Mediolanum S.p.A. were netted;

• shareholders’ equity items of Mediolanum S.p.A. were cancelled, excluding the valuation reserve, and including

the reversal of the carrying value of the shareholding of Banca Mediolanum, in balancing entry of the “Merger

Reserve”;

• the item “Payables to shareholders” was identified for the balance of the dividend from the profit of Mediolanum

S.p.A. for the year 2014.

Reconciliation Pro Forma Accounts as at December 31, 2014 – Statement of Financial Position

The following are the balance sheet figures as at December 31, 2015 compared with the balances as at December

31, 2014 made comparable to reflect the merger.

Assets

E/t

Banca Mediolanum

S.p.A.Dec. 31, 2015

Banca Mediolanum

S.p.A.Dec. 31, 2014

Pro forma Change Change %

Banca Mediolanum

S.p.A.Dec. 31, 2014

10. Cash and cash equivalents 1,805 1,037 768 74% 1,027

20. Financial assets held for trading 493,151 313,958 179,193 57% 327,760

40. Available for sale financial assets 12,238,342 12,747,458 (509,116) (4%) 12,732,115

50. Held to maturity financial assets 2,257,369 2,204,200 53,169 2% 2,204,200

60. Loans to banks 671,274 489,397 181,877 37% 489,389

70. Loans to customers 7,222,040 6,638,749 583,290 9% 6,518,676

80. Hedge derivatives 892 1,287 (395) (31%) 1,287

100. Equity investments 1,063,015 922,278 140,737 15% 353,953

110. Tangible assets 49,063 17,034 32,029 n.s. 17,032

120. Intangible assets 46,166 35,825 10,341 29% 35,824

130. Tax assets 183,122 191,423 (8,301) (4%) 135,042

150. Other activities 427,241 237,888 189,354 80% 237,606

TOTAL ASSETS 24,653,480 23,800,535 852,945 4% 23,053,911

277

REPORTON OPERATIONS

Liabilities and Shareholders’ equity

E/t

Banca Mediolanum

S.p.A.Dec. 31, 2015

Banca Mediolanum

S.p.A.Dec. 31, 2014

Pro forma Change Change %

Banca Mediolanum

S.p.A.Dec. 31, 2014

10. Amounts due to banks 818,811 7,006,121 (6,187,310) (88%) 6,755,202

20. Payables due to customers 21,100,322 13,945,747 7,154,575 51% 13,954,591

30. Securities issued 223,504 343,347 (119,843) (35%) 288,805

40. Financial liabilities held for trading 278,860 370,259 (91,399) (25%) 370,259

60. Hedge derivatives 64,512 100,218 (35,706) (36%) 100,218

80. Tax liabilities 90,439 180,272 (89,834) (50%) 125,890

100. Other liabilities 326,763 280,692 46,072 16% 278,975

110. Employee completion-of-service entitlements 9,605 8,987 618 7% 8,643

120. Provisions for risks and charges 192,201 184,061 8,140 4% 184,030

130. Valuation reserves 121,629 103,218 18,411 18% 101,634

160. Reserves 593,915 442,448 151,467 34% 141,227

175. Interim dividend (118,206) (110,608) (7,598) 7% -

180. Share capital 600,000 600,000 - n.s. 600,000

200. Profit (Loss) for the year 351,126 345,773 5,353 2% 144,437

TOTAL LIABILITIES AND SHAREHOLDERS’ EQUITY 24,653,480 23,800,535 852,945 4% 23,053,911

As shown in the above statement, the Statement of Financial Position item that most reflects the merger realized

was Item 100 related to the investments, equal to Euro 1,063 million as at December 31, 2015 (Euro +140.7

million compared to the period of homogeneous comparison). In fact, following the merger, the subsidiaries of Me-

diolanum S.p.A. became, as at December 31, 2015, subsidiaries of Banca Mediolanum.

Pro Forma Accounts Jan. 1, 2015 – Dec. 31, 2015 – Income statement

In order to allow more immediate and representative reading of the accounting results, reported below are the

income statements restated to reflect the merger of Mediolanum S.p.A. into Banca Mediolanum.

278


2015

E/t

Banca Mediolanum

S.p.A.Dec. 31, 2015

Banca Mediolanum

S.p.A.Pro Forma

Dec. 31, 2014 Change Change %

Banca Mediolanum

S.p.A.Dec. 31, 2014

10. Interest income and similar income 385,170 424,883 (39,713) (9%) 420,226

20. Interest expense and similar charges (164,902) (226,807) 61,905 (27%) (216,608)

30. Net interest income 220,268 198,076 22,192 11% 203,618

40. Fee income 558,722 479,477 79,245 17% 479,816

50. Commission expense (472,814) (424,047) (48,767) 12% (424,047)

60. Net commission 85,908 55,430 30,478 55% 55,769

70. Dividends and similar income 480,116 478,099 2,017 - 251,859

80. Net income from trading (13,040) (10,564) (2,476) 23% (10,700)

90. Net income from hedging 10,740 (5,400) 16,140 n.s. (5,400)

100. Gains (losses) on sale or buyback of 1,767 81,202 (79,435) (98%) 81,202

120. Banking income 785,760 796,843 (11,083) (1%) 576,348

130. Impairment/Reversal of impairment (13,470) (24,759) 11,289 (46%) (24,759)

140. Net income from financial operations 772,290 772,084 206 - 551,589

150. Administrative expenses (392,667) (356,898) (35,769) 10% (348,523)

160. Net provisions for risks and charges (46,443) (33,315) (13,128) 39% (33,284)

170. Impairment/Reversal of impairment of tangible assets

(4,765)

(4,106)

(659)

16%

(4,097)

180. Impairment/Reversal of impairment of intangible assets

(11,002)

(9,134)

(1,868)

20%

(9,133)

190. Other operating income/expenses 15,255 10,063 5,192 52% 11,230

200. Operating costs (439,622) (393,390) (46,232) 12% (383,807)

210. Profit (loss) on equity investments 16,457 (6,638) 23,095 n.s. (6,668)

240. Profits (losses) on disposal of investments

1

(60)

61

n.s.

(60)

250. Profit (loss) before tax on continuing operations

349,125

371,996

(22,871)

(6%)

161,054

260. Income tax expense on continuing operations

2,001

(26,223)

28,224

n.s.

(16,617)

270. Profit (loss) after tax on continuing operations

351,126 345,773 5,353 2% 144,437

290. Profit (loss) for the year 351.126 345.773 5.353 2% 144.437

279

REPORTON OPERATIONS

Business Review

Total net inflows (managed assets and administered assets) amounted to Euro +4,662.9 million versus Euro

+4,081.9 million in the prior year (+14%). Net inflows into asset management products and sales of third-party

structured bonds recorded a positive balance of Euro +3,729.0 million versus a balance in 2014 of Euro +3,855.3

million (-3%).

As to administered assets, Mediolanum Plus policies associated with Freedom bank accounts had net outflows of

Euro -471.2 million versus Euro -747.3 million at December 31, 2014.

As at December 31, 2015, total balance sheet assets amounted to Euro 24,653.5 million, up Euro 852.9 million

over December 31, 2014.

Loans to customers, excluding securities, amounted to Euro 6,916.1 million versus Euro 6,180.7 million at Decem-

ber 31, 2014.

The comments related to the economic performance below refer to the most significant

changes between the 2015 financial year and the year 2014, the latter restated for com-

parative purposes.

Net interest income amounted to Euro 220.3 million, up Euro +22.2 million (+11%)

versus the prior year balance (2014: Euro 198.1 million) as a result of the growth in the

differential between the lending rates, primarily in terms of mortgages and loans, and the

funding rates.

Net commission went from Euro 55.4 million as at December 31, 2014 to 85.9 million

at the end of the current year, primarily due to the increase in fee relegations by the group

management companies.

In view of the conclusion of the dispute with the tax office and taking account of the latest

analysis on the subject of transfer pricing, it was decided to modify the rate of relegation

of management fees by the Group companies, from 50% to 57.43%, with retroactive effect as at January 1, 2015.

Fee income rose by Euro +79.2 million both thanks to the growth in assets and due to higher relegations from the

subsidiaries Mediolanum International Funds and Mediolanum Gestione Fondi.

In detail, fee income amounted to Euro 558.7 million versus Euro 479.5 million at the end of the same period the

prior year (+17%). In particular, fund management fees went from Euro 193.8 million as at December 31, 2014 to

Euro 257.6 million for the year under review (Euro +63.8 million); fund subscription fees amounted instead to Euro

91.6 million compared to Euro 90.5 million in the comparative period (Euro +1.1 million). Commissions from the

distribution of insurance products went from Euro 111.6 million as at December 31, 2,014 to Euro 140.6 million

in the reporting period (Euro +29 million).

250

300

200

150

100

50

02014 2015

Net interest income €/m

198.1220.3

280


2015

Commission expenses went from Euro 424 million as at December 31, 2014 to Euro 472.8 million, an increase of

approximately Euro +48.8 million mainly due to higher relegation fees related to management fees of mutual funds

(Euro +53.5 million) and insurance products (Euro +29.1 million).

Dividends amounted to Euro 480.1 million (Dec. 31, 2014: Euro 478.1 million). Within this item, it is noted that

the increase in dividends received from the Irish subsidiary Mediolanum International Funds (Euro +70.5 million)

was offset by lower dividends received from the companies Banco Mediolanum, Mediolanum International Life, Me-

diolanum Asset Management and Mediolanum Vita (for a total of Euro -69.1 million compared to the comparable

period).

The net profits from the sale of available for sale financial assets decreased by Euro -78.8 million as in the previous

year, significant profits had been realized from the disposal of part of said compartment.

The item impairment/reversal of impairment recorded a negative balance of Euro -13.5 million (December 31,

2014: Euro -24.8 million), an improvement of Euro 11.3 million in the face of lower adjustments on AFS securities

(Euro +6.4 million) and impaired loans (Euro +3.6 million).

Operating expenses went from Euro 393.4 million in 2014 to Euro 439.6 million as at December 31, 2015.

In particular, personnel expenses increased mainly due to the growth in average workforce in the year (+72 com-

pared to the previous period). There was also an increase in other administrative expenses, particularly for expenses

relating to the entry into force of the so-called “Save Banks” decree (Euro +19.3 million).

Regarding the item Provisions for risks and charges, the increase is essentially due to higher charges arising from the

discount of indemnity funds to the sales network following the reduction in market interest rates at year end (Euro

+16.3 million) and the reduction in the turnover rate of the sales network.

The sector regulatory scenario “Bank Recovery and Resolution Directive 2014/59/EU” and “Deposit Guarantee Schemes 2014/49/EU”

To supplement the single supervisory mechanism, Directive 2014/59, known as “BRRD” (Banking Resolution and

Recovery Directive) was enacted, which provides a single mechanism for resolving banking crises.

In particular, pursuant to art. 27 of the decree implementing said directive independently from the start of resolution

or compulsory administrative liquidation or in combination with a resolution action, there will be the introduction

of measures for reduction or conversion of shares, other investments or equity instruments. The directive also in-

troduces the principle of “bail-in” or “internal save”. Under this principle, the regulator may provide that, in the

management of a banking crisis, all the bank’s stakeholders incur losses based on their seniority with the exclusion,

among other liabilities, of deposits guaranteed by the Interbank Deposit Protection Fund. The regime introduced by

Directive 2014/59 will come into force in Italy on January 1, 2016, as provided by Legislative Decree 180/2015 by

means of which said Directive was implemented, and therefore, the Issuer will also be among the banks subject to

such requirements.

More specifically, the Bank of Italy, if a bank was in distress or at risk of collapse, can apply various measures to

remedy the situation, as an alternative to its compulsory administrative liquidation, such as:

• the sale of part of the assets to a private entity;

• the temporary transfer of a block of assets and liabilities to an entity (bridge bank) specially set up and managed

by public authorities;

• the transfer of impaired assets to an entity (bad bank) that liquidates them in due time;

281

REPORTON OPERATIONS

• the bail-in, i.e. the devaluation of the shares and/or loans to the bank with their conversion into shares, to absorb

losses and recapitalize the bank in difficulty or a new entity that continues the essential functions.

The bail-in is applied following a hierarchy, which is inspired by the principle according to which those who invest in

riskier financial instruments, must bear before the others any losses or conversion into shares. Only after exhausting

all the resources of the riskiest category, there is advancement to the next category. First, the interests of “owners”

of the bank are affected, i.e. the existing shareholders, reducing or eliminating the value of their shares. Second, there

is action on certain categories of creditors, whose assets can be transformed into shares – in order to recapitalize the

bank – and/or reduced in value if the zeroing of the value of the shares is not sufficient to cover the losses.

The order of participation in losses for the bail-in is as follows: i) shareholders; ii) the holders of other equity invest-

ments; iii) the holders of hybrid capital instruments; iv) holder of subordinated loans; v) the bondholders and other

creditors; vi) natural persons and small and medium businesses holders of deposits for the amount exceeding Euro

100,000. The bail-in does not include the liabilities indicated in art. 49 of Legislative Decree no. 180/2015, including

deposits protected by the deposit guarantee fund in Euro 100,000 limits per depositor (not all deposits are protected

by the fund: those indicated in art. 96-bis of the Consolidated Banking Act are excluded). If the measure of the bail-

in is provided with respect to a bank, the Deposit Guarantee Fund will intervene paying an amount sufficient to cover

the deposits protected in limits of Euro 100,000 per depositor, provided that the sum needed for this purpose does

not exceed 50% of fund assets (i.e. the higher amount established by the Bank of Italy).

To implement the resolution measures one or more National Resolution Funds, with ordinary and extraordinary

contributions of banks, are also established in Member States participating in the single supervisory mechanism. The

National Resolution Funds are intended to flow over time in the Single Resolution Fund at European level. Bank

of Italy, as national resolution authority, informed the Company that the ordinary annual contribution for the year

2015 due to the National Resolution Fund amounts to Euro 3.9 million.

Bank of Italy also requested banks to provide an extraordinary contribution for the year 2015 equal to three times

the annual ordinary contribution, above, to support the cost of the bailout of Banca Marche S.p.A., Banca Popolare

dell’Etruria e del Lazio Scpa, Cassa di Risparmio della Provincia di Chieti S.p.A. and Cassa di Risparmio di Ferrara

S.p.A. Therefore, this extraordinary contribution for Banca Mediolanum is equal to Euro 11.7 million, recorded

entirely in the year 2015.

Finally, with Directive 2014/49 of April 16, 2014 (so-called Deposit Guarantee Schemes Directive), the single

deposit guarantee scheme was established, which provides for the obligation to establish, if not already present,

national funds specifically aimed at protecting bank deposits within the limit of Euro 100,000, in the case of bail-in

and in case of application of other resolution measures or in the event of compulsory liquidation of the bank. These

Funds must receive bank contributions.

In Italy, the Council of the Interbank Deposit Protection Fund resolved that the total contribution due for 2015

by Banca Mediolanum is equal to Euro 3.7 million, only applying for said year, a reduction of 50% of the annual

contribution due.

The total cost of the contributions payable by the Company to the National Resolution Fund and the Interbank

Deposit Protection Fund for the year 2015 is therefore equal to Euro 19.3 million (amount inclusive of the extraor-

dinary contribution of Euro 11.7 million).

282


2015

The items mentioned above have been recorded in the income statement in the year 2015 in accordance with the

treatment of the interpretation IFRIC 21. This interpretation clarifies that:

• an entity recognizes a liability for a levy when the asset that triggers the payment, required by a rule of law,

occurs;

• a liability for levies is gradually allocated only if the asset that triggers the payment occurs over a certain period

of time;

• for a levy the payment of which is triggered by the achievement of a minimum level, no liability is recorded before

the achievement of said level.

In light of the interpretation of IFRIC 21, it is believed that both contributions to the funds in question shall be

accounted for gradually, on the basis of the annual amount, as the condition that implies the contribution obligation

for the Bank is verified according to said frequency.

Customers

As at December 31, 2015, the Mediolanum customer base holder of at least one product of the group amounted to

1,127,828 customers, of which 943,357 first holders, an increase of 4.0% compared to 907,105 as at December

31, 2014. In the year 2015, Banca Mediolanum acquired 88,592 customers (vs. 83,666 in 2014, +5.9%), and lost

52,340 (vs. 54,688 in 2014, -4.3%) with a positive net balance of 36,252 customers.

Increase in the number of customers first holders of current accounts (672,586 vs. 619,052), credit cards (228,816

vs. 208,870), credit lines (124,987 vs. 110,858) and mutual funds (345,174 vs. 324,763).

Average assets per customer increased from Euro 57,918 at year end 2014 to Euro 61,954 at year-end 2015. The

retention figure also improved, which went from 93.8% in December 2014 to 94.2% in December 2015.

The data on the Customer Base confirms the ability of Banca Mediolanum in knowing how to attract new prospects

and in managing the satisfaction of existing customers by offering products and services that aim to ensure customer

investment security and asset growth.

Assets under management and under administration

For financial year 2015, total net inflows amounted to Euro +4,662.9 million versus Euro +4,081.9 million in the

prior year.

Net inflows into asset management products and sales of third-party structured bonds recorded a positive balance

of Euro +3,729.0 million versus a balance in 2014 of Euro +3,855.3 million.

As to administered assets, Mediolanum Plus policies associated with Freedom bank accounts had net outflows of

Euro -471.2 million versus Euro -747.3 million as at December 31, 2014. Other AuA products recorded net inflows

of Euro +1,405.1 million versus Euro +974 million the prior year.

The excellent results achieved in terms of net inflows also allowed Banca Mediolanum to remain among the Italian

market leaders in terms of net inflows, placing 3rd in the rankings by Assoreti for 2015.

Total assets under administration by Banca Mediolanum amounts, at the end of 2015, to Euro 58,034.2 million,

compared to a balance of 53,033.0 in 2014, an increase of about 9%.

283

REPORTON OPERATIONS

Funding

In 2015, funding from customers (bank accounts, deposit accounts, repurchase agreements and bonds) continued

to grow.

Freedom Più bank account

The Freedom Più bank account was launched in March 2012. As at December 31, 2015, there were about 158,000

of these accounts, accounting for about 22% of all bank accounts. At year end, Freedom Più account balances ag-

gregated to Euro 4.40 billion, of which Euro 3.30 billion remunerated at the current account interest rate.

Freedom One bank account

The Freedom One bank account was launched in September 2012. As at December 31, 2015, there were about

236,000 of these accounts, accounting for about 33% of all bank accounts. Of the latter, about 7% activated the

Term Deposit service, introduced on March 7, 2013 for this type of current account. At year end, Freedom One ac-

count balances aggregated to Euro 1.59 billion, of which Euro 426 million locked up in the Term Deposit accounts.

MyFreedom current account

In April 2015, the MyFreedom current account was launched. It includes three custom current account profiles for

customers: MyFreedom One, MyFreedom Premium, MyFreedom Young; as at December 31, 2015, there were about

33,200 of these accounts, accounting for about 5% of all bank accounts, of which:

• 13,500 MyFreedom One

• 12,900 MyFreedom Premium

• 6,500 MyFreedom Young

At year end, Freedom One assets under management totaled about Euro 562,000, of which about Euro 142,000

locked up in the Term Deposit accounts.

InMediolanum deposit account

As at December 31, 2015, there were about 109,000 InMediolanum deposit accounts, the deposit account launched

in May 2011. With reference to 2015, 8,500 new deposit accounts were opened, of which about 70% opened by

new customers of Banca Mediolanum.

At year end, balances on InMediolanum deposit accounts aggregated to about Euro 1.95 million, of which 1.58

billion locked up.

284


2015

Lending

At year-end 2015, loans to customers (item 70) recorded good growth with a balance of Euro 7,222.1 million (De-

cember 31, 2014: Euro 6,518.7 million), an increase of 11%. The dynamics of the growth in lending was, however,

differentiated depending on the types of funding and the type of customer: in fact, with respect to a substantial

growth in retail lending, net of impaired items, driven by personal loans (+31%), by residential mortgages (+13%)

and opening of credit on current accounts (+5%), on the contrary there was a sharp decline in the stock of repur-

chase agreements (-74%) and the balance of the positions in debt securities loans and receivables (-33%).

Specifically, excluding impaired positions, residential loans were Euro 4,822.8 million as at December 31, 2015 (De-

cember 31, 2014: Euro 4,250.1 million), with an increase of 13% year on year. Not offered to customers for several

years now, pure fixed-rate home loans accounted for less than 10% of the total home lending book. It is underlined

that there are no mortgage loans in the portfolio defined subprime or denominated in currency, while the intention

of the Bank is confirmed also for the year in question, strengthened through a targeted pricing strategy, to adopt a

particularly prudent credit policy and oriented to not entering into any transactions carrying a high level of credit

risk. In addition, it can count on key risk mitigation factors in its lending operations, namely: average LTV (Loan

to Value) of the mortgages portfolio below 60%, predominance of borrowers who are long-standing consolidated

customers of the Bank, average size of loans around Euro 114 thousand, average residual maturity just above 20

years and customer base/collateral properties largely present in historically low-risk areas and in cities that have

been less affected by the decline in housing prices in the past four years.

The balance of current account overdraft facilities with ordinary customers (mainly individuals and in small part

companies) amounted to Euro 417 million, recording a very limited increase of +5% compared to the same pe-

riod the previous year (Euro 396 million) result in part of the strategy to prefer technical forms with installment

reimbursement to optimize credit management and related monitoring. Overdrafts granted on current accounts

involve, excluding marginal lending so-called “double monthly payments” (14% of the total, however subject to

strict selection criteria in addition to ongoing channeling of customer fees on the account at the Bank and average

limited amounts, Euro 2.8 thousand), the conferment by the customer of an irrevocable mandate to sell in relation

to products held by the latter at Banca Mediolanum Group. This important factor makes it possible to mitigate,

together with the careful selection procedures, the preventive monitoring and the timely management of positions in

collection, the possible risk of default by the debtor, and in any case the losses in case of default.

Personal loans, net of impaired positions, amounted to Euro 1,067.8 million as at December 31, 2015, up 31%

compared to the prior year (Euro 815.6 million).

Such forms of loan were disbursed to natural persons for very low average amounts (Euro 21 thousand) and dura-

tions, after careful analysis of creditworthiness, providing in analogy with cash exposures and for most of them, with

the exclusion of certain loans with “property restructuring” purpose, the guarantee of the “irrevocable mandate to

sell”.

Other lending (excluding dealings on the MTS market and receivables from Group counterparties) aggregating to

about Euro 113 million consisted of short/medium-term loans extended to prime Italian financial/institutional coun-

terparties and other exposures to companies related to high net worth customers of the Bank.

As to the quality of the loan portfolio, at year-end 2014, net impaired loans, after write-downs, amounted to Euro 54

million up about Euro 4.9 million over the closing balance of 2014 (Euro 49.1 million). The final levels of coverage

285

REPORTON OPERATIONS

on impaired loans (59% on non-performing loans, 37% total on other impaired loans with the following break-

down by type: 36% on “likely defaults not forborne”, 51% on the “likely defaults forborne” – though influenced

by the position of the financial Group Delta -, 21% on past-due loans), are higher than the system average also in

light of the fact that 63% of these are mortgages on residential property. All these factors confirm the prudent

and extremely realistic approach of the Bank consistent also with changes and dynamics of the current and future

macroeconomic context.

The impact of impaired loans, net of write-downs, on total year-end loans stood at 0.75% in line with the figure of

2014 positively affected by the profitable management, containment and recovery of impaired loans, as well as the

loan balance growth. The Bank’s credit risk level expressed by these indicators is much lower than the level expressed

by the Italian banking system.

In addition to the characteristic of the Bank’s customers, on average capitalized, the excellent quality of the loan

portfolio of the Bank is the result of careful and intensive monitoring and timely reminder for the return of slightly

past due and/or default positions on the one hand and, on the other, the continuous developments and refinements

of credit policies and support tools for the credit assessment in origination together with careful management and

selection of mitigation tools employed.

These factors, combined with the low level of impaired loans, are reflected in a cost of credit risk equal to 17 bps,

compared to 24 bps in 2014.

Exploring the analysis on the credit quality, if we compare the rate of “gross NPLs” of credit lending, Banca Me-

diolanum amounted to a value slightly higher than 0.58%, substantially in line with the previous year, against the

System data that is significantly higher.

Securities brokerage

The Italian stock market was characterized in 2015 by a first phase of price growth, with a maximum of +33%

reached in late June, and then followed by a sideways trend with increased volatility, and closing the year with a total

increase of +18%.

As for the bond markets and in particular government bonds, 2015 saw a further reduction in yields in the first

quarter, followed by a recovery up to a maximum yield of the ten-year bond of 2.40% and by a further reduction

closing the year with a yield of 1.60%.

The spread compared to German government bonds, went from 133 bp at the beginning of the year to 100 bp as at

December 31, 2015.

Traded volumes and values of customer assets reflected market trends. In the first half, the volume traded on the

stock market was higher than in the second half of the year (about Euro 1,600 million against 1,200 million). Even

in the bond market, there was a phase of higher operations in the first half of the year on government securities and

domestic bonds.

The counter-value of the assets held by retail customers at the end of 2015 increased overall from Euro 3,221

million compared to 3,080 million. The increase notably affected equity assets due to a favorable market trend and

transfers from other institutions, while there was a decline in bonds (-21%), due in particular to sales flows on bank

and corporate bonds and a reduction in stocks of instruments placed exclusively by the Bank.

In detail, the stock of government securities increased from Euro 654 million at the end of 2014 to 709 million. Eu-

robonds remained substantially unchanged from Euro 244 million at year end 2014 to Euro 241 million at year-end

2015, while bonds issued by Italian banks decreased from Euro 125 million in 2014 to Euro 115 million at year end.

286


2015

Holdings of Mediolanum Group bonds and MedPlus Certificates decreased further from Euro 1,316 million in De-

cember 2014 to 1,040 million at year-end 2015.

In the course of 2015, no new placements of bonds of the Mediolanum Group and MedPlus Certificates were ini-

tiated intended for retail customers, while certificates for professional customers were placed for about 4 million.

Holdings of Italian and international equities increased from 735 million to 1,114 million (+51%).

In 2015, the total number of orders executed was 297,346, unchanged over the prior year figure. The total value

traded on regulated and OTC markets was 4,169 million, an increase compared to 2014 of 3,924 million.

Banca Mediolanum participated as placement agent in the IPO of the shares of OVS, Zanetti, Banca Sistema, Poste

Italiane, Inwitt and the placement of the bonds Autostrade and Cassa Depositi e Prestiti.

Orders executed on the Italian equity market aggregated to Euro 2,812 million, up about 19% compared to 2014.

Total orders executed on foreign stock markets remained unchanged at Euro 169 million.

As at December 31, 2015, discretionary accounts (no longer sold since the end of 2007) amounted to 26.3 million

versus 28.85 million as at December 2014.

Multi-channel approach, the Banking Services Center and the Internet

In 2015, the use of Direct Channels by customers hit about 46.5 million accesses (+14.3% vs. 2014); 84% of

these accesses were made by bank account holders, with a significant increase in transaction orders (10.8 million

transactions, +26% vs. 2014).

This confirms again the customer appreciation of the bank’s multi-channel approach. As customers increasingly

prefer to operate on their own, about 94.9% of accesses were made through the Bank’s automatic systems: the

Internet, the new Mediolanum mobile apps for smartphones (Apple, Android and Window Phone 7), the new applica-

tion dedicated to tablets, launched in March 2015 (to date available for iPad) and the voice portal (B.Med Voice).

Internet accesses were 50% of total accesses, but absolute value was down by 4% compared to 2014, returning to

2013 values.

Accesses through mobile apps account for approximately 37% of total accesses (27% in 2014). In particular, in

2015 accesses made by bank customers through mobile apps aggregated to 17,273,000 (up 57% compared to

10,906,000 in 2014); 59% of these contacts were made through Android applications, 37% through iOS appli-

cations and the remaining 4% through Windows Phone applications. Transactions made through mobile apps for

smartphones in 2015 were 1,840,000: +82% against 1,012,000 transactions in 2014.

In addition, there were 91,000 transactions made by the tablet channel (not present in 2014).

The voice portal instead recorded a decrease in accesses of 6%.

The increasing usage of “self-banking” services by customers, however, did not bring about a decline in phone calls

handled by the Banking Services Center, that were up 8.7% over 2014, confirming the Banking Services Center as

the main channel for more complex enquiries. The level of service was about 92% of phone calls answered in 20

seconds (customers were kept on hold for 9.7 seconds on average).

Text messaging continues to be much used with over 84 million text messages sent to customers, up +32.7% on the

prior year. Customers especially appreciate the use of text messaging services as a means to enhance security, e.g.

alerts for ATM withdrawals and payments, website log-ins, bank transfers.

287

REPORTON OPERATIONS

The Sales Network

As at December 31, 2015, the network of financial advisors, i.e., Family Bankers, consisted

of 4,387 people versus 4,386 at year-end 2014.

In general, under the recruitment policy adopted by Banca Mediolanum, people with the

potential to become a Family Banker are internally trained at Mediolanum Corporate

University. Only those candidates who pass the state exam and become licensed financial

advisors can practice as Mediolanum Family Bankers.

Sales network offices and bank branches

As at December 31, 2015, the total number of Family Banker Offices was 485, broken down as follows:

Resources 2015 2014

Family Banker Offices 253 248

Traditional Offices 232 234

Total 485 482

The distribution of Family Banker Offices (FBO) is homogeneous in all the Italian regions,

proportionally reflecting the presence of Family Bankers in Italy. The regions with the

most Family Banker offices are: Lombardy (42), Veneto (38), Emilia Romagna (29),

Tuscany (22), Lazio (22), Sicily (20), and Piedmont (17).

The Bank branches available to Private Bankers are located in: Milan, Rome and Bologna.

These Branches are located on high floors of prestigious buildings in the heart of the city

center, and are particularly dedicated to Private customers.

Overall, also taking into account the small branch at the registered office in Basiglio (MI),

as at December 31, 2015, Banca Mediolanum had 3 bank branches.

ATM (automated branches) totaled 4 (3 at the registered office in Basiglio and 1 at the

Family Banker Office in Assago).

The situation of the physical structure of distribution represented hitherto incorporates a

development path inspired by a new policy presence on the territory able to support and

enable even better achievement of the objective to become the leading Retail Bank in Italy.

The new program was launched in late 2014 and as part of a three-year horizon involves

in a joint effort all the main functions of the Bank in addition to a large number of Family

Bankers at their FBO.

Agents

5,000

4,500

4,000

3,500

3,000

2,500

2,000

1,500

1,000

500

02014 2015

4,386 4,387

Family BankerOffices e Traditional

Offices

150

300

250

200

100

50

02014 2015

Traditional Offices

Family Banker Offices

232

248

234

253

Agents

5,000

4,500

4,000

3,500

3,000

2,500

2,000

1,500

1,000

500

02014 2015

4,386 4,387

Family BankerOffices e Traditional

Offices

150

300

250

200

100

50

02014 2015

Traditional Offices

Family Banker Offices

232

248

234

253

288


2015

For Banca Mediolanum, territorial presence is another key lever to further enhance the business model and increase

the added value to customers and to the market through the relationship with the Family Bankers.

The main objectives of the development action carried out were the need for better planning of physical presence on

the territory through the identification of a defined number of priority markets and the creation of a new homogene-

ous image on the territories and above all consistent with the value of our brand, the subject of a well-known action

of renewal and evolution.

Thus, the need arose for the definition of a new model of Family Banker Office (FBO) in terms of presence, image

and functionality, the development of which was influenced by the following guidelines:

• The FBO responds to the latent need for “physicality” of prospects, customers and potential FB.

• The FBO is the operating office where the FB works and meets customers and prospects

• The FBO is the place where to meet potential FB and activate more effective recruiting and growth processes

of the Sales Network.

• The FBO have a uniform image and the types identified vary depending on the priorities of the territory and on

the presence of Family Bankers.

The realization of the development program brings with it some major benefits to customers (current and prospects),

of Family Bankers and Bank itself (“the 3 yes of BM”):

Expected benefits for current and prospective customers:

• Increase the perception of security by the customer knowing where to physically turn in case of difficulty or for

any clarification;

• Reduce the difficulty for potential customers to find the Bank throughout the territory and make use of its ser-

vices.

Expected benefits for the Network:

• Actively support the Managers, Private Bankers and Family Bankers in activities with Customers, potential

Customers, competitors and potential Private and Family Bankers.

Expected benefits for BM:

• Significantly improve the local image of the Bank through FBO that enhance the image of the Brand and at the

same time offer high functionality;

• Ensure presence throughout the territory and better compete with local banks in the daily exercise of strategic

presence throughout the territory.

The new model was being designed and developed in the first half of 2015 and through a pilot phase lasting 3-4

months at 3 locations in the territory, it become operational and was implemented starting autumn last year.

The new distribution structure thus provides a structure with three different types of FBO realized by Banca Medio-

lanum through a policy of co-partnership in investments that also variably involve the Family Bankers that use them:

• The Special FBO, realized at street image locations to communicate the presence of Banca Mediolanum

throughout the territory and intended as an operational office to provide customers, in addition to the usual

consulting, underwriting and recruiting activities to be conducted in appropriate and renovated spaces, also with

innovative services through new technological equipment.

• The Standard FBO, also realized at street locations, but smaller, with space and equipment exclusively dedicated

to consulting, underwriting and recruiting activities.

289

REPORTON OPERATIONS

• The Base Territorial Office, realized at prestigious locations on the top floors, for the sole support of the activ-

ities of Family Bankers.

The development program thus created and tested with the latest realization of 2015 (Alexandria, Rho, Gallarate,

Mantova, Bassano del Grappa in northern Italy, Parma, Modena, Forlì, Rimini, Prato and Perugia in central Italy),

will continue over the next three years with activities on two fronts:

1. the opening of a defined number of Special and Standard FBO according to the growth plan of the structures;

2. the conversion of existing FBO to the new model through gradual actions based on the priorities of the markets

and territories.

Sales Network Training

Mediolanum Corporate University

Mediolanum Corporate University is the educational institution created to hold and reaffirm the values that have

made the company great. A company within the company to train professionals of excellence in Customer relations,

equity planning and successors of households, financial consulting and asset management.

Mediolanum Corporate University relies on a class of speakers, selected from the most qualified professional and

managerial figures of the business structure, which is supported by leading academics and business consultants cho-

sen in the best national and international panorama.

Mediolanum Corporate University aims to be an important point of reference for:

• Family Bankers® and all employees of Banca Mediolanum in their continuous professional and personal growth;

• Banca Mediolanum Customers or simply savers and investors, to enhance their economic and financial education;

• the university and academic world, as the ideal partner with which to discuss the issues of negotiation between

the parties, the sale and management of the Customer Relationships;

• the partners with which it collaborates and all those who are close to the Mediolanum Community.

Mediolanum Corporate University is located in the Milano 3 Campus, in Basiglio (Milan), where the headquarters

of Banca Mediolanum is also based. More than 4,000 square meters entirely dedicated to students with spacious

classrooms, a Museum – where “the roots” of Banca Mediolanum are located – and a Media library featuring a wide

international collection of books and video, also thanks to advanced multimedia stations. To reorder the information

acquired during the study day and prepare for the next training commitment, the Mens Sana area was created, an

ideal place to find internal balance.

A leading player in the inspiration of the values and corporate culture, Mediolanum Corporate University is the only

Italian reality to have received in 2013 the second prize in the category “Best Corporate University embodying the

identity, the culture and the brand of the organization in ITS stakeholders” at the Global Council of Corporate Uni-

versities, a prestigious international award for the best Corporate Universities.

290


2015

The training offer, which accompanies over time the different professional and managerial figures of the Sales net-

work, has been enriched by an important initiative: the Master in Family Banking, designed in collaboration with the

Faculty of Banking, Financial and Insurance Science of Università Cattolica del Sacro Cuore. The two-year Master

is aimed at a highly selected group of Private Bankers and Family Bankers.

In support of the role of “conveying values”, Mediolanum Corporate University has decided to undertake, towards

Customers of Banca Mediolanum and savers in general, value events related to financial planning, the values of

technology and innovation and new social changes that new technologies are bringing into our lives.

Mediolanum Corporate University, true to its vision, “to provide relations of excellence”, launched in 2015 the pro-

ject Centodieci fatto di due anime (One hundred and ten made of two souls): one online that lives in the magazine

centodieci.it and one offline with a rich offer of 5 formats of events throughout the territory. The digital magazine

offers daily insights on different topics related to the areas of education, technology, creativity and innovation thanks

to a number of internal and external Bank authors who write their thoughts daily. In 2015, there were about 200

events throughout the territory that involved more than 20,000 Customers.

Learning: an integrated approach

Training courses are developed based on an approach that integrates different teaching methods and tools in order to

make learning as effective and practical as possible. An advanced Learning Management System supports and facil-

itates self-directed study. Self-study provides fundamental preparation prior to entering the classroom where all the

ideas and knowledge acquired during the self-study phase turn into a shared experience. On-the-job training follows

theoretical training so that what was learned in the structured training sessions is then put to practice in the field.

291

REPORTON OPERATIONS

Education and training dialogue and sharing

The following are the main activities and data that have characterized training activity in 2015 intended for the

commercial structure of the Bank.

The Master in Family Banking, designed in collaboration with the Faculty of Banking, Finance and Insurance of

Università Cattolica del Sacro Cuore, has entered its second year. The quality of teaching is guaranteed by a faculty

composed of professors of Università Cattolica, which is flanked by interventions from managers of Banca Mediola-

num and testimonials from prominent industry professionals. The Master aims to increase and maintain high stand-

ards of specialization in finance matters, strengthen the skills useful to asset management and financial planning,

extend skills in matters of succession planning and enhance social skills, fundamental to build strong and trusting

relationships with Customers, ensuring advisory services of the highest level.

In 2015, alongside the institutional training program, the series of Mediolanum Business Meeting continued on a

fortnightly basis and involved the entire sales network. The sessions are intended to train the Bank’s commercial

structure on issues related to market scenarios and trends, corporate strategies, as well as provide technical and

commercial in-depth information on the offer of products and services. The provision of the same cycle of session

also continued for the professional segment of Global Bankers, which is characterized by a different level of study of

certain areas and the frequency which in this case is monthly. For the training of class speakers, selected to carry out

the provision of this format, the process oriented to enhancing technical and communication skills continued, which

also in 2015 alternated monthly classroom training sessions with digital training sessions (Webinars and company

TV). Mediolanum Business Meeting, in both types, involved the participation of 4,083 Family Bankers® with the

provision of 177,702 hours of classroom training in the territory.

Since 2011, Banca Mediolanum has been supporting the Commercial Network offering its Family Bankers® the

opportunity to participate in training courses aimed at obtaining the EFPA certification both for the EFA (European

Financial Advisor) level and for the advanced EFP (European Financial Planner) level.

In 2015, 7 editions were provided, including one for the advanced level EFP.

In late December 2015, the Banca Mediolanum Family Bankers® EFA certified totaled 187, while the EFP certified

totaled 42, for a total of 229 Family Bankers® EFPA certified.

As part of the enhancement of knowledge in financial matters, a cycle of Conferences was organized “Bond markets:

these known – The right perspective”. It was a moment of technical study, designed to consolidate the knowledge

on market dynamics, particularly regarding bonds and strengthening social skills, to adequately manage Customer

expectations, through the discussion of behavioral finance issues. The initiative involved 2,052 Family Bankers® in

11 editions carried out on the whole Italian territory.

The educational activities of the internal Faculty of MCU, even in 2015, continued to play an important role through

a careful process of selection and training. The provision of targeted paths, in respect of each type of course, was

aimed at strengthening technical and social skills, as well as communication and management of the classroom.

292


2015

Training of the commercial structure: performance 2015

During 2015, total training hours amounted to 602,932, an increase of 40.12% compared to 2014. This figure

shows an increase in classroom hours of 7% and 130.33% of online learning activities. This latter increase is mainly

due to the activity of self-training on the platform MyFreedom, for digital signing of banking services, on the plat-

form iMonitor, for portfolio analysis, on the platform My Events, for the management of local events. Other training

activities carried out in online mode focused on the issues of legislative changes – in particular, MiFID Directive,

Voluntary Disclosure, IVASS.

Unit 2015 2014

Total training hours

Total Classroom 336,781 314,762

of which MCU classroom hours 55,677 49,481

Total OnLine Hours 266,151 115,550

Overall total 602,932 430,312

The item “professional and product technical update” recorded a total of training hours of 262,164 (+7.75% vs.

2014). Over time, specialist training activities of products and services became increasingly integrated with insights

on technical-financial and macroeconomic issues, also to meet the demand expressed by the commercial structure.

With reference to management training, for 2015, a number of 27,879 hours were provided, down from the previous

year. The hours provided relate to specialist training activities to strengthen communication and interpersonal skills

and to strengthen the managerial skills needed to support new recruits in the initial phase of their career. In light of

the professional context and future scenarios, throughout 2015 the redesign project continued of the training pro-

gram for managers, aimed at achieving a real management school that will aim to enhance the technical knowledge

and managerial skills useful to exercise the role of leader.

In terms of training related to regulatory compliance, in 2015, a total of 294,361 hours were provided, a sharp

increase compared to the previous year (+121.15%) for the reasons stated above.

The hours provided for digital media and tools amounted to 18,527 in line with the total hours of 2014.

Unit 2015 2014

Total hours of training by categoryProfessional and product technical update 262,164 243,313

Managerial training 27,879 35,945

Fulfilment regulatory obligations 294,361 133,107

Digital media and tools 18,527 17,947

Overall total 602,932 430,312

293

REPORTON OPERATIONS

Training for the evaluation test of enrolment in the Register of Financial Advisors

In the three-year period 2013-2015, there was a significant increase in the total number of candidates expressed by

the market (+21.5%), mainly due to a restructuring of the traditional idea of the bank, and more precisely the teller,

which is leading to increasing flexibility and increasing involvement of Customers in banking operations, through a

strong digitization of banking services. This change requires the banking system to re-train employees; this is sig-

nificantly influencing the trend in the number of candidates intending to take the evaluation test for qualification as

financial advisor.

In the same period of observation, there was a counter-trend in the number of aspirants prepared by Banca Medio-

lanum that has chosen to place greater and more careful attention in the selection of candidates, with the search for

high professional standard figures.

For Banca Mediolanum, the year 2015 closed with a percentage of passed out of present equal to 92.11% (2.86

percentage points higher than the same figure of 2014 and well 8.27 percentage points more than 2013).

The national average percentage of 2015 of passed out of enrolled of 36.28%, 55.38 points lower than the figure

recorded by Banca Mediolanum (92.11%).

If referring to the ratio between past and present, the figure of Banca Mediolanum, 92.11%, compared with a

national percentage, which stood at 42.98%, shows the level of quality achieved by the Bank in training, careful

preparation of the candidate, the meticulous teaching methodology adopted and the attention of the management

structure in the selection of candidates to be submitted to evaluation test.

unit 2015 2014 2013

Enrolled

MKT 5,708 5,610 4,696

BM 114 94 242

Rest MKT 5,594 5,516 4,454

Present

MKT 4,818 4,935 4,005

BM 114 93 198

Rest MKT 4,704 4,842 3,807

Passed

MKT 2,071 2,078 1,675

BM 105 83 166

Rest MKT 1,966 1,995 1,509

% Passed/Enrolled

MKT 36.28% 37.04% 35.67%

BM 92.11% 88.30% 68.60%

Rest MKT 35.14% 36.17% 33.88%

% Passed/Present

MKT 42.98% 42.11% 41.82%

BM 92.11% 89.25% 83.84%

Rest MKT 41.79% 41.20% 39.64%

294


2015

Training of employees

In 2015, the area of human resources training for employees maintained the high levels of activity achieved in the

previous year. The technical-professional and managerial training provided substantially confirmed the volumes of

2014 (-0.8%). The total number of training hours (29% reduction), is therefore totally attributable to the section

related to training new recruits, which reflects less hires.

Participants in training activities in the classroom totaled 77% of the workforce.

There was a very significant (+ 29%) increase in hours of training through remote learning, which allows greater

efficiency and organizational flexibility in the involvement of participants in the training modules.

There was also an increase in the investment in training provided by external companies (+13%) used mainly to en-

rich and customize high-profile individual paths and to ensure the exchange of experiences and stimulate confronta-

tion with competitors in our industry, universities and professions through participation in seminars and conferences,

observatories and inter-company working groups.

The number of courses offered, internal and external, reached the figure of 134 initiatives.

In terms of projects and individual initiatives, we highlight the conclusion, during , of the first edition of the Certifi-

cate in Banking and Finance addressed to executives and employees of the Group, an initiative that incorporates, in

a more agile format, the path and methodologies of the Executive Master in Banking and Finance of the previous

two-year periods.

This initiative was designed with the aim of transferring the basic knowledge of business and business management

in order to build a common and widespread approach on economic issues.

In this case, as in the past, some participations were “put out to tender” and entrusted to an internal selection open

to all employees with minimum requirements of corporate seniority.

The teachers came from the most accredited Business Schools (SDA Bocconi and MIP - Politecnico di Milano).

More than a third of courses were taught by corporate managers, also engaged in numerous testimonies and insights

related to the Group’s specificities. The use of internal teachers has been a constant growing phenomenon in recent

years; about 2/3 of the training provided is managed directly by experienced managers, specialists and corporate

resources, trained for this specific activity.

The first edition of Mediolanum Brain Marathon was completed in June, which involved 39 resources including

employees and executive of the Group involved in analyzing real business issues with an innovative approach and,

through the application of methodologies and project management tools, propose and set concrete solutions, some

of which were subsequently included in specific company projects.

This original training and development program aims to identify and enhance the professional and managerial skills

of company resources promoting the value of collaboration, teamwork and cross-functional integration. The initia-

tive, realized in collaboration with the MIP-Politecnico di Milano, referred to the Olympics in the denomination for

the enhancement of the values of fair competition, sacrifice and search for excellence.

The specialization programs for different professional groups continued. Several colleagues of the areas of organiza-

tion and information technology have successfully completed a challenging course of international specialization of

Project Management knowledge and skills acquiring the Project Management Professional Certificate recognized

by the US Project Management Institute.

295

REPORTON OPERATIONS

An articulated training program has been initiated called Mediolanum Team Management aimed at all those respon-

sible for team coordination. The path, which will continue in 2016, focuses on the development of human resource

management skills and effectiveness of team work as an element of personal development and process improvement,

in functional and inter-functional terms.

Also in the coordination and management of resource, workshops have been organized with the aim to inform on and

discuss with the heads the main features and innovations introduced in the evaluation, management and development

process of employee performance.

The offer of training modules of the ambitious path of training and update on financial and banking issues was

extended for operating and specialist areas (banking services and credit area in particular), using both educational

modules “in presence” and “remote”. The structural review was established regarding self-training modules to con-

solidate the fundamental knowledge in banking, finance and insurance through the creation of original self-training

packages.

The training and education commitment continues for Customer Care structures both in terms of technical and

professional skills and sharing of corporate guidelines in support of the consolidation strategy of the central service

and assistance to customers and the sales network through greater finalization of all the training offer on the theme

of “looking after customers”

In the year, numerous initiatives have been initiated to develop the knowledge and maintenance of language skills. In

addition to specific programs targeted at the company figures most involved, numerous initiatives were launched to

create opportunities of use, even informal, of the English language.

More and more attention is dedicated to the educational and training use of digital and social tools and logic (sup-

port to the training activities, professional and transversal communities on projects and themed) and the creation of

awareness and familiarity with the productive use of said technological support.

Employees

In 2015, the trend in the workforce of Banca Mediolanum is summarized in the following table:

Dec. 31, 2015 % of tot. Dec. 31, 2014 changes average age

Executives 78 3.9% 71 7 51.5

Middle managers 287 14.3% 269 18 44.5

White collars 1,648 81.9% 1,634 14 36.4

Total 2,013 100.0% 1,974 39 38.0

Employees increased by 39 people over the previous year; most (21 resources) are from the merger of Mediolanum

S.p.A. into Banca Mediolanum S.p.A. on December 30, 2015.

296


2015

The increases in personnel (18 resources) were concentrated in structures of direct support

of the business, mainly dedicated to the creation of the area of wealth management, and in

the areas of ICT technological development. In these areas, as well as in control functions,

high-level managerial and professional profiles have been inserted.

Average age of employees was 38 years. Women accounted for 53% of total headcount.

Graduates accounted for 47% of total headcount.

In 2015, the personnel development programs saw the continuation of courses related to

the enhancement of managerial skills, also at middle management level, with a strong focus

on the management methodologies of work teams.

Talent management paths were also defined, based on “project work”, which high-poten-

tial groups of resources attended and concluded with the implementation of new solutions

regarding service or process improvement. Numerous assessments of personnel develop-

ment were conducted, with the aim of certifying the possession of professional skills or to

assess potential developments into new roles or levels. The job rotation plans, also with

the contribution of the internal job posting system, have enabled the development of career

paths, vertical and horizontal, for employees.

The performance appraisal methods, digitized, made possible the verification and orientation of organizational

conduct with respect to the objectives set, in order to identify best practices and excellent performance to be

rewarded.

The remuneration positioning of the organization and individual structures was monitored, in correspondence with

the variability in the labor market, pursuing the best market practices, both in terms of competitiveness towards

competitors and internal equity.

A major investment was made in the company by creating an Innovation Lab, which at different levels, aims to

develop a culture of innovation, both through the search for solutions for the continuous improvement of processes,

and through the development of disruptive ideas, also developed at locations outside the company.

Initiatives and teams have also been established dedicated to knowledge management, while the bloom of digital

communities, both with a purpose and for experiential sharing, have determined the development of new operating

and information methods, and in functional and inter-functional terms.

Organizational performance was synergistically monitored by the HR and Organization functions, through bench-

marks set to business goals and aimed at measuring the organizational efficiency and quality in service.

Investments increased further related to the training development of company resources, also through new method-

ologies for empowerment of individuals and their acquisition of soft skills, with the aim of achieving organizational

flexibility and professional developments.

Professional certification paths were also introduced, even international, and significant initiatives were organized

related to the learning ofthe English language, with the use of collective aggregation methods and techniques.

The set of training activities, both internal and external, are however detailed in the dedicated chapter.

The Recruiting sector concluded its process of renewal in personnel recruitment and selection methodologies,

with the review of assessment methods, individual and group, and increasing presence in innovative recruitment

channels.

New employee branding policies were also defined, focused on targets of talent necessary for the company, i.e.

oriented to attracting new emerging professionals.

The agreements with the main national universities have been expanded, with specific attention to the best univer-

sities of the Lombardy area and managerial economic and financial schools.

2014 2015

Number of employees

0

200

400

600

800

1,000

1,200

1,400

1,600

1,800

2,000

2,200

1,9742,013

297

REPORTON OPERATIONS

Also in 2015, the Bank proposed internship programs and training internships, which saw the participation of stu-

dents attending University or Master courses related to areas such as: Finance, Organization, Marketing, Human

Resources and Control Functions.

In 2015, in addition to the consolidated activities for employee satisfaction at work and work/life balance, provid-

ed at the company for over 15 years (such as: sale of fresh bread, tailoring service, shoe repair, license renewal,

sale of tickets for events, preventive health campaigns, possibility of voluntary blood donation at the company,

extra-professional training courses, conventions, etc.), an articulated Corporate Welfare Plan (WellMed) was

also set up, which allowed the employees to use expense vouchers or services in the sectors of: education (training

courses, workshops, shopping vouchers for textbooks, etc.), health care and family care), leisure (gym member-

ships, cinemas, theatres, events, etc.).

For some of the above services, the collaboration of social cooperatives was also used. The company nursery has

seen the average attendance of 118 children of employees, at the excellent facilities at the headquarters, with cut-

ting-edge organization in the structuring of educational-assistance plans and recreational activities.

In October 2015, there was the survey on the company climate “Employee Engagement Survey 2015”: periodic

initiative for the whole population of the headquarters, in which all employees can express their opinion about the

company, through an anonymous questionnaire arranged by a leading consulting firm, internationally specialized

in said surveys.

On this occasion, the survey included 91 items analyzed, grouped into 15 major categories, able to express the

perception of individuals with respect to their organization. The survey results showed, first of all, voluntary par-

ticipation of 90% of the workforce, which expressed a level of “engagement” with respect to the company equal

to 85%: far above the market benchmarks, both general and financial.

There was also an improvement in the company climate in 10 categories out of 15, compared to the previous sur-

vey, which was already over the average references of the market.

Organization and operations

From an organizational standpoint, the 2015 course was characterized by a constant commitment in studies and

projects related to legislative and regulatory changes in the banking and insurance sectors, and support to business

projects for the creation of new services for the sales network and customers in addition to the institutional activity

in defense and efficiency of processes and structures.

Support continued for the program of renewal and transformation of the Bank’s operating model, which provides an

enrichment of the offer model and customer relations model, hinging:

• on the customer relationship – Family Banker

• on the strengthening of operational and commercial support to the sales network, also in terms of territorial

presence

• on the digitization of operating processes through the adoption of digital signatures

• on strengthening Customer “Caring” using CRM tools.

298


2015

The program saw the start of implementation projects from 2014 and will be completed in the next two years.

In 2015, Demand and Corporate PortfolioManagement activities were initiated, which supported the company’s

process of definition of the project priorities and allocation of investments in relevant company projects.

The overallproject activity carried out by the Organization, has seen an increase of 29% of projects completed over

the previous year and 26% of project portfolios under management in the year. The commitment was shared among

projects for:

• Regulations (28%);

• Analysis and modification of organizational structures (17%);

• Transformation and evolution of the operating model (11%);

• Support to products and commercial campaigns (21%);

• Internal projects and support to IT initiatives (8%);

• Optimization of processes (15%).

The project activities have seen a total commitment of 15 full time equivalent (FTE) compared to the the Division

of personnel of 37 resources, in addition to the manager and secretary, substantially in line with the previous year.

The remaining resources have been engaged in organizational performance measures, logical security management

(user profiling for access to company applications) and other continuing specialist activities.

The Major projects conducted in 2015 included:

• The reverse merger of Banca Mediolanum with Mediolanum S.p.A. and Banca Mediolanum listing;

• The reorganization of the Control Functions in compliance with specific requirements of the Supervisory

Authority;

• The project for the introduction of Strong Authentication based on the use of extended one-time password

(OTP) in Internet banking and mobile banking and other formalities required by the 15th update of Circular

263 of the Bank of Italy;

• Organizational support and project management for projects:

– development of the new Freedom platform for the placement and subscription of the offer of current accounts

in digital mode;

– development of advisory tools for the Sales Network and portfolio reporting;

– development of the credit management process, renewing the roles exercised by the sales network and by the

headquarters and supporting instrumentation;

– redefinition of models at the service of customers and clustering of the customer portfolio;

• Introduction of the new EMIR regulation for the management of derivatives transactions (in progress);

• Initiation of a study in preparation for the entry into force of MiFID 2 (ongoing).

Internal Audit

The Internal Audit Function carries out “third-level” verifications to ensure regular performance of operations

and evolution of risks and evaluates the completeness, adequacy, functionality and reliability of the Company’s

organizational structure and other components of the Internal Control System. The Function draws to the attention

of Corporate Bodies the possible areas for improvement with particular reference to the Internal Control System

(hereinafter, for short, “SCI”), the Risk Appetite Framework (RAF), the risk management process as well as

299

REPORTON OPERATIONS

instruments to measure and control them. Based on the results of the verifications conducted, it formulates rec-

ommendations to the Corporate Bodies.

The Head of the Internal Audit Function has the necessary autonomy and independence from the operating struc-

tures; the Function has free access to the activities, data and documents of all Corporate Functions. The Function

operates with personnel who possess the appropriate knowledge and skills.

To ensure complete coverage of the areas of intervention, appropriate monitoring of company risk and assessment

of the Internal Control System at Bank and Group level, the Internal Audit Function, using a risk-based approach,

prepares a multi-annual strategic plan (so-called multi-annual program) and an annual plan of activities to be

carried out each year. Both are submitted for examination and approval of the competent corporate bodies.

During the year 2015, the Function conducted, on the basis of the approved plan, its activities for both Banca

Mediolanum and Group Companies that have delegated to the Bank, through specific service contracts, the per-

formance of internal audit activities (Mediolanum Gestione Fondi SGR p.A., Mediolanum Fiduciaria S.p.A.,

Mediolanum Comunicazione S.p.A. and, as part of the Insurance Group, Mediolanum Vita S.p.A. and Mediolanum

Assicurazioni S.p.A.).

The results of the audit work carried out were communicated to the relevant corporate structures which, where

necessary, promptly activated the resulting improvement actions, subject to regular monitoring by the Function

(“audit tracking” and “Follow Up” activities).

The Internal Audit Function periodically reported to the Corporate Bodies in regard to its activities, preparing

special Reports that summarize the synthesis of completed actions, the progress of the audit plan, audit tracking

of ongoing improvement actions.

With regard to subsidiaries that have their own internal audit function (Banco Mediolanum SA, Bankhaus

August Lenz & Co AG, Mediolanum International Funds Ltd, Mediolanum Asset Management Ltd and Gamax

Management AG and, in the insurance group, Mediolanum International Life Ltd), the Internal Auditing Function

of Banca Mediolanum exercised its tasks of direction and supervision by issuing specific guidelines for the conduct

of activities, the monitoring of the progress of the plan of activities of the “Local” Internal Audit Functions, as

well as through the organization of periodic meetings, and the implementation of specific interventions on site.

Risk Management

The Risk Management Function is responsible for monitoring the exposure of the Bank to financial and credit risks

and assessing the capital impact on operational and reputational risks, keeping under constant control the capital

adequacy in relation to the activity performed exercising a role of guidance and coordination on issues related to the

management and control of risks, in respect of subsidiaries in which there are specific Risk Management Functions.

The Risk Management Function therefore defines and maintains the framework of the control and management of

all the risks of the bank; it is responsible for the supervision of the first pillar risks (credit, market and operational)

of Banca Mediolanum and conducts qualitative and quantitative assessment of second pillar risks of Basel II, in

compliance with the guidelines of the Board of Directors and the current law provisions.

It also defines the methods for assessing and monitoring reputational risks in coordination by the Compliance

Function. Prepares internal regulations, or policies and regulations relating to all relevant risks and identifies and

develops quantitative methods aimed at managing the relevant first and second pillar risks of the Bank.

300


2015

Continuous verification of the adequacy of the Risk Appetite Framework of the Bank and the Group and coordinates

the Internal Capital Adequacy Assessment Process (ICAAP) for those activities specifically attributed to them and

falling within the scope of the ICAAP Regulation. Reports to the Board of Directors about the overall risk situation

in its various aspects.

In 2015, the Risk Management Function proceeded with the update of the proposal and definition of quantitative

and qualitative parameters necessary for the definition of the Risk Appetite Framework, the document adopted by

the Bank and the Group, in addition to continuing with the activities covered by the ICAAP Regulation (Internal

Capital Adequacy Assessment Process). The report prepared in 2015 confirms the substantial capital stability of the

Mediolanum Banking Group, even in the face of an outbreak of stress scenarios.

Like the entire national banking system, the Mediolanum Group was subject to evaluation by the National Supervi-

sory Authority relatively to the capital and organizational oversights deemed appropriate with respect to the risks

assumed (SREP). The comparison between the Bank and the supervisory authorities therefore developed on the

integrated system of assessment of the risk profiles and the internal processes of evaluation of capital adequacy and

on the results of the stress tests through the correlation of risks assumed in its management activities. The outcomes

of this contradictory confirmed in fact the capital and financial solidity and adequacy of the Mediolanum Banking

Group.

The experience gained from participation in impact exercises of Basel 3 to the new requirements of capitalization

and liquidity management allowed the Risk Management Function to have the necessary tools and related skills

for the ongoing operational monitoring of variables and relative limits concerning periodic supervisory reporting of

liquidity requirements required by the Supervisory Authorities.

The Risk Management Function, in accordance with the Supervisory provisions in force, systematically oversees

and monitors second-level controls on credit risk with the consequent preparation of detailed reports periodically

brought to the attention of the Top Management.

Compliance

The Compliance Function oversees the management of non-compliance risks, according to a risk-based approach,

with regard to all corporate activities, using, for oversight of certain regulatory areas for which there are forms of

specialized oversight, to specifically identified specialist units which are attributed certain stages of the compliance

process. In addition to overseeing the regulatory framework, the Function is responsible for specialist consulting,

regulatory alert and gap analysis, verification of adequacy of company structures and processes with respect to the

existing regulatory framework and identification of actions to mitigate non-compliance risks.

The Compliance Function of Banca Mediolanum S.p.A. also oversees the risks of non-compliance also on behalf of

the Italian Group companies, by means of specific service agreements, and outsources, for the Risk Management

functions of the Mediolanum Group and other Italian companies of the Group, assessments on operational and

reputational risks, as part of the integrated assessment activities and periodically sends the results to the functions,

based on the schedule agreed with them.

The Function reports to the Board of Directors about the overall situation of non-compliance risk in its various

aspects.

301

REPORTON OPERATIONS

During 2015, the Function regularly fulfilled its mission according to the model provided by the current “Group

Compliance policy”, updated during the year and in use at all the companies of the Mediolanum Group.

In particular, as part of its assessment activities, the Compliance Function has carried out controls aimed at evalu-

ating the adequacy of the organizational oversights (structures, processes, operational and commercial procedures);

within the Mediolanum Group, 285 operational, non-compliance or reputational risk assessments were carried out

in the year.

In the verification of operation concerning the effective respect of company conduct in relation to the requirements

of internal and external regulations, in 2015, 908 controls were carried out on the Italian companies of the Medio-

lanum Group. More than 200 operational, non-compliance and reputational risk indicators were also monitored on

a monthly basis, in addition to the complaints received by customers. Said indicators can be symptomatic of possible

anomalies in company processes or conduct.

Anti-Money Laundering

The Anti-Money Laundering Unit, as a second-level control function, regularly fulfilled its mission during the year

through the verification of suitability of the system of internal controls and procedures adopted by the Bank, and

proposing organizational and procedural changes necessary in order to ensure adequate monitoring of risks in terms

of combating money laundering and terrorist financing.

The Anti-Money Laundering Unit, which employs 16 resources, also analyzed more than 9,200 “positions to be

evaluated” – generated by automatic oversights or detected by employees, collaborators and Family Bankers – that

were subjected to the Delegate of Reporting of Suspicious Transactions or Deputy to assess any suspects pursuant

to art. 41 Legislative Decree 231/2007.

In collaboration with the Human Resources Division and Mediolanum Corporate University, the Anti-Money Laun-

dering Unit has provided more than 50 training sessions to employees, collaborators and Family Bankers.

Network Inspection

During the year under review, the Network Inspection continued to carry out second level controls and checks on

the sales network members to make sure their off-premises activities were in full compliance with the regulations

in force.

Checks and inspections were conducted at the Family Banker private offices in the field as well as at the archives

and corporate Headquarters. Additional checks were conducted via ad-hoc quantitative and statistical indicators

monitoring potential operational and reputational risks related to the Sales Network activities.

The Network Inspection staff also availed themselves of the support of Banking Center resource, for the conduct

of supplementary direct control activities on customers, also by means of remote communication and information.

Upon completion of checks, actions were planned to remedy any irregularities found and, where necessary, sanc-

tions were applied to the financial advisors involved or their mandate was revoked.

As at December 31, 2015, the Network Inspection team consisted of a total of 26 resources, with productivity in

line with the previous year. The Banking Services Center staff providing assistance to Network Inspection unit,

even by means of remote communication, consisted of 4-6 people.

302


2015

In 2015, the cases of fault committed by Family Bankers and reported to the Supervisory Board amounted to

10 against 9 cases in 2014, with the confirmation of a stable and reduced frequency of claims in relation to the

average over the past 10 years.

As further protection, in 2015, the Bank renewed the policy taken out to cover any illegal actions committed by

the sales force to the detriment of customers.

Treasury management

At year-end 2015, loans to banks aggregated to Euro 671 million compared to Euro 489 million at year-end

2014 (published data). Interbank lending is concentrated with other group companies or leading Italian financial

institutions.

Investments in securities in nominal value amounted to Euro 14,389 million at year-end 2015, down Euro 481

million from Euro 14,870 million at year end 2014:

E/m 2015 2014

Held to maturity financial assets 2,254 2,226

Available for sale financial assets 11,549 12,191

Financial assets held for trading 479 304

Financial liabilities held for trading (198) (307)

Loans and Receivables (banks and customers) 305 457

Total 14,389 14,870

The investment activity in securities focused strategically on the reinvestment of maturing securities favoring

Italian government bonds; in consideration of the sharp drop in yields to maturity, there has not been complete

reinvestment of the maturities thereby reducing the total value of the portfolio by 481 million. Tactically these

guidelines have been reached: 1) anticipating the investment of securities maturing in December to take advantage

of more attractive yields; 2) taking advantage of volatility phases to implement a precise timing to maximize matu-

rity yields particularly for fixed-rate securities on 3-year maturities. During 2015, gains on disposal were realized

for just Euro 2 million (Euro 82 million in 2014).

Following the reduction of the portfolio, the weight of government securities on the total went from 98.6% in

2014 to 96.8% at year-end 2015. Similarly, the composition by interest rate type saw an increase in the weight

of floating rate securities from 40.6% at year-end 2014 to 41.3% at year-end 2015.

Italian treasuries accounted for 99.5% of total government securities held, followed by Spanish treasuries that

accounted for 0.06%.

The portfolio is largely made up of Euro-denominated instruments with no exposure to currency risk. In support of

the low risk rate, it is noted that the average duration of the portfolio is substantially in line with the previous year.

The consistency of the AFS portfolio was down Euro 642 million. The balance of the revaluation reserve included

in equity, net of taxes, was positive for Euro 121.8 million, with an improvement from the previous year of Euro

20.4 million with respect to the previous year when the reserve was positive for Euro 101,4 million.

The securities contained in the portfolio “Held to maturity financial assets” experienced a slight increase of Euro

28 million as a result of the reinvestment of Euro 400 million in CCT maturing in 2018 and 2019 in replacement

of Euro 372.45 million in CCT expiring in the year: the balance between “Financial assets held for trading” and

“Financial liabilities for trading” rose by Euro 284 million compared to the previous year.

303

REPORTON OPERATIONS

Finally, the category “Loans and Receivables” represented by ABS securities and private banking and government

issues in the Euro zone not quoted on active markets, reported a year-end balance of Euro 305.6 million, with a

marked decrease (Euro -150 million compared to the end of 2014 when the balance stood at 457.4 million) related

to natural maturity of the securities.

Net interest income increased from Euro 198 million in 2014 to Euro 220.2 million at the end of the year under

review (Euro +22 million). Net financial income stood at Euro 220 million compared to Euro 263 million at year

end 2014 (Euro -43 million).

The analysis of the components of net financial income is set out in the table below:

E/m 2015 2014

Net interest income 220 198

Net income from trading (13) (11)

Net income from hedging 11 (5)

Net gains (losses) on sale of financial assets 2 81

Total 220 263

Impairment Test

The Board of Directors of the Bank approved the procedures for impairment test as at December 31, 2015 to

ascertain that the carrying amount as at December 31, 2015 of its equity investments in Banco Mediolanum,

Gamax Management AG (Gamax) and Bankhaus August Lenz & Co AG (BAL) is stable, or that the same prevent

impairment losses in accordance with IAS 36.

For the purpose of the impairment test as at December 31, 2015, Banca Mediolanum requested the assistance of

a primary specialist firm. The valuations were based on future cash-flow estimates derived from the 2016-2018

Plans approved by the Board of Directors of Banca Mediolanum and its subsidiaries, and applying industry standard

methods best suited for the purposes of the exercise in the specific cases, in accordance with applicable accounting

standards.

The report issued by the independent reports that, on the basis of analyzes carried out, taking into account the limita-

tions of the use of forward-looking information, at the moment there are no conditions for a loss for the impairment

of such investments compared to the book value as at December 31, 2015.

In addition, since following the merger Banca Mediolanum holds a stake in Mediobanca (previously held by Medio-

lanum S.p.A.) equal to 2.6%, the impairment test was carried out to verify the maintenance of the carrying value

or the loss of the prerequisites which led to an impairment in previous years.

Ernst & Young Financial-Business Advisory S.p.A. has been assigned the upgrading of the impairment test as at

December 31, 2015. As done in prior years, the recoverable amount of the CGUs was determined by calculating their

value in use.

In line with the approach taken by the Group in previous years, the recoverable value of the investment in Medioban-

ca has been calculated using a value in use and the reference date of the valuation considerations is December 31,

2015.

With regard to prospective economic and financial data, analyzes therefore made reference to:

• Financial statements of Mediobanca for the years ended June 30, 2013, 2014 and 2015.

• Presentation referred to as: “Annual results as at June 30, 2015”.

• Quarterly Reports of Mediobanca as at September 30, 2013, 2014 and 2015;

304


2015

• Press release of August 4, 2015 on the approval of the Annual Report as at June 30, 2015;

• Press release of October 27, 2015 on the approval of the Quarterly Report as at September 30, 2015;

• Press release of November 27, 2015 concerning the minimum capital required by the ECB (SREP “Supervisory

Review and Evaluation Process”);

• Analyst reports covering the Mediobanca stock published after the publication of the results as at September 30,

2015 and up to the valuation reference date;

• Macroeconomic, market and industry data, as well as interest rates, stock prices, volatility indices and other

market variables publicly available on primary information providers.

Applying this method, a value in use was reached of the investment in Mediobanca for the Mediolanum Group, on the

reference date of December 31, 2015, which can reasonably be placed in an average interval of Euro 12.4 - 14.4

per share, with a central value of Euro 13.4 per share. Sensitivity analyses were also carried out regarding the main

parameters adopted (estimated net profit, cost of equity, CET1 ratio, long-term growth rate). Adopting the most

prudential assumptions, among those mentioned above, a recoverable value emerged which, in the lower end, stood

at Euro 10.9 per share.

Based on all of the elements above, it was decided to perform a recovery in value up to the lower value of the more

prudent interval and in any case for an amount less than the value adjustment made in previous years. The carrying

value of the investment was thus adjusted from Euro 10.05 per share to Euro 10.9 per share and the recovery of

value accounted for as a whole amounted to Euro 19,248 thousand.

Impairment testing details are set out in section 10, Part B, of the Notes.

With reference to the management performance of the subsidiaries of Banca Mediolanum, below is a brief summary

of the main results as at December 31, 2015.

Banco Mediolanum S.A.

For financial year 2015 the Spanish Group reported net profit of Euro 15.8 million compared to Euro 20.9 million

in the prior year.

Gross inflows of asset management products showed an increase over the previous year recording a balance of Euro

+905.3 million (December 31, 2014: Euro +777.1); net inflows for AuM products recorded a positive balance of

Euro +343.2 million, down versus the previous year (Euro -20.8 million).

Assets under administration recorded inflows of Euro +256.1 million (Dec. 31, 2014: Euro +157.9 million).

At year end, total assets under management and under administration amounted to Euro 3,546 million versus Euro

2,983.1 million as at December 31, 2014.

The sales network consisted of 789 people (December 31, 2014: 749), of whom 755 tied advisors (December 31,

2014: 712 people).

305

REPORTON OPERATIONS

Bankhaus August Lenz & Co. AG

For financial year 2015 the company reported a net loss of Euro -2.1 million versus Euro -6.1 million in the prior

year.

Net inflows of assets under management were positive for Euro +21.2 million (December 31, 2014: Euro +26.8

million), while net inflows of assets under administration were positive for Euro +13 million (December 31, 2014:

Euro +6 million).

At year end, total assets under management and under administration amounted to Euro 308.5 million (December

31, 2014: Euro 274.6 million).

As at December 31, 2015, the sales network consisted of 48 people (60 the previous year).

Gamax Management AG

At year-end 2015, this Luxembourg-based company reported net profit of Euro 8.6 million, an increase of Euro 3.8

million compared to the prior year’s balance.

In 2013 in the retail segment, the company recorded net outflows of Euro -41.2 million versus net outflows of Euro

-28.3 million in the prior year. At year-end 2015, assets under management amounted to Euro 197.2 million versus

Euro 209.4 million at the end of 2014.

Mediolanum Gestione Fondi SGR p.a.

The financial statements as at December 31, 2015 show a net profit of Euro 47.6 million, in line with the previous

year (December 31, 2014: Euro 31.6 million).

The company reported positive net inflows of Euro +661.2 million (December 31, 2014: Euro +2,709.8 million),

while total assets under management directly by the Company amounted to Euro 7,475.0 million compared to Euro

6,506.3 million as at December 31, 2014 (+9%).

Assets managed on mandates from fellow subsidiaries amounted to Euro 607.2 million, a decrease of 559.3 com-

pared to December 31, 2014.

Mediolanum International Funds Ltd

As at December 31, 2015, the Company reported net profit of Euro 461.9 million, increasing by Euro 123.8 million

over the prior year (December 31, 2014: Euro 338.1 million), largely due to the increase in performance fees earned

in the period (Euro +138.8 million).

For the year 2015, net inflows were positive for Euro +2,823.2 million, up compared to the previous year of Euro

+1,746.4 million.

As at December 31, 2015, total assets under management amounted to Euro 31,643.3 million compared to Euro

28,920.7 million as at December 31, 2014 (+9.4%).

In October, the company resolved to distribute an interim dividend for a total amount of Euro 289.8 million versus

Euro 235 million in the prior year.

306


2015

Mediolanum Asset Management Ltd

As at December 31, 2015, the company reported a net profit of Euro 16.7 million, a decrease of Euro -1.3 million

compared to the result recorded as at December 31, 2014 (Euro 18.0 million).

In 2015, the company has not approved the distribution of interim dividends for 2015 while the previous year had

distributed about Euro 5 million.

Mediolanum Fiduciaria S.p.A.

For financial year 2015 the company reported a net loss of Euro -583.7 thousand versus Euro -532.9 thousand in

the prior year. This loss was largely determined by start-up and operating costs.

The number of mandates finalized as at December 31, 2015 was equal to 113 compared to 74 at the end of the

previous year. Assets under management and under administration amounted to Euro 154.8 million (December 31,

2014: Euro 94.5 million).

Mediolanum Vita S.p.A.

The situation of the IAS/IFRS accounts as at December 31, 2015 shows a net profit of Euro 37.1 million compared

to net income of Euro 24.8 million the previous year.

On the basis of GAAP net income amounted to Euro 40.3 million compared to a net profit of Euro 28.6 million in

2014.

The result for the year determined in accordance with international accounting standards generates a decrease in

net income, compared to the value calculated in accordance with GAAP, for a total amount of Euro 3,266 thousand.

The decrease is primarily attributable to the valuation of the financial instruments at fair value for Euro -6,536

thousand (Euro -4,293 thousand net of tax) and higher depreciation and amortization of tangible assets for Euro

+1,489 thousand (Euro +1,082 thousand net of tax). The item Other adjustments, positive for Euro +1,653 thou-

sand, including recovery under IAS/IFRS of the depreciation of the property in Via C. Colombo in Rome, carried out

solely for statutory purpose as a result of the appraisal by an independent expert.

Mediolanum Assicurazioni S.p.A.

The situation of the IAS/IFRS accounts as at December 31, 2015 showed a net profit of Euro 5,366 thousand, down

by Euro 1,289 thousand compared to the result as at December 31, 2014 of Euro 6,655 thousand.

The statutory balance went from Euro 6,210 thousand as at December 31, 2014 to Euro 6,048 thousand as at

December 31, 2015 (Euro -162 thousand), substantially in line with the previous year.

The difference between the IAS value and the statutory value is mainly due to the valorization of the securities port-

folio owned related to lower income of Euro 681 thousand (net of the related tax effect).

307

REPORTON OPERATIONS

Mediolanum International Life Ltd

For financial year 2015, the company reported net profit of Euro 9.3 million versus Euro 9.8 million in the prior year.

For financial year 2015, this Company reported net inflows of Euro 209.8 million versus Euro 234 million in the

prior year.

As at December 31, 2015, commitments to policy holders amounted to Euro 1,543 million (2014: Euro 2,094

million).

Mediolanum International Life Ltd policies are distributed in Italy by Banca Mediolanum, in Spain by Banco Medi-

olanum and in Germany through Bankhaus August Lenz & Co.

Closure of fiscal litigation and adaptation fee rebate agreements

With reference to the tax dispute regarding transfer prices that affected Banca Mediolanum – summarized below – it

is hereby informed that it has been permanently closed following a settlement agreement, finalized by the company

with the Inland Revenue on December 1, 2015. Making use of deflation instruments of the tax dispute envisaged by

national legislation, not only the litigation annuities – from 2005 to 2009 – but also the subsequent annuities until

2014 inclusive have been defined, with higher taxes for a total of Euro 65.6 million plus interest for Banca Medio-

lanum. Considering the allocations already made by the company in recent years, the net cost for the year 2015 is

reported to be 20.4 million. The higher taxes are resulting from a recalculation of the amount of the management

fees paid to Banca Mediolanum.

In relation to the foregoing, also on the basis of recent insights and analysis in transfer pricing, the percentages of

relegation of management fees were updated by the asset management companies of the Group. In particular, the

fee rebates recognized by Mediolanum International Funds and Mediolanum Gestione Fondi have been defined to the

extent of 57.43% (instead of the previous 50%). Both agreements provide for the application of the new economic

conditions as at January 1, 2015.

Shareholders’ equity, Own Funds and the Coefficients relevant for Supervisory purposes as at December 31, 2015

As at December 31, 2015, the value of equity, excluding profit for the year, amounted to Euro 1,197.3 million, com-

pared to Euro 1,035.1 million according to the data recalculated pro-forma as at December 31, 2014 (Euro 842.9

million the value as at December 31, 2014 of Banca Mediolanum).

The total amount of shareholders’ equity of the Bank amounted to Euro 1,548.5 million compared to the previous

year amount pro-forma of Euro 1,380.9 million, the increase represents the portion of retained earnings.

As at December 31, 2015, Own Funds of Banca Mediolanum amounted to Euro 1,169.6 million versus Euro 715.2

million as at December 31, 2014.

308


2015

As for the prudential supervisory requirements, according to the new regulations in force (Basel 3) Capital Ratios

of the Bank as at December 31, 2015 are well above the minimum thresholds established by the new regulatory

provisions and amounted to:

• Common Equity Tier 1 Ratio (CET1)1 17.127%

• Tier 1 Ratio 17.127%

• Total Capital Ratio 17.127%

Social and environmental responsibility

For information on the Group’s policy on social and environmental responsibility, readers are referred to the Social

Report 2015.

Disclosures pursuant to Document No. 4 of March 3, 2010 jointly issued by the Bank of Italy, CONSOB and ISVAP

In document no. 4 dated March 3, 2010 jointly issued by the Bank of Italy (Italy’s Central Bank), CONSOB (stock

market regulator) and ISVAP (insurance market regulator), Italian regulators called upon Senior Management to

adhere strictly to international accounting and financial reporting standards and applicable legislation and provide

complete, clear and timely information about the risks and uncertainties to which their companies are exposed, the

capital their companies have to cover those risks and their earnings generation ability. In connection therewith man-

agement is making the following disclosures:

• As to the entity’s ability to continue as a going concern, the management of Banca Mediolanum S.p.A. confirms

they reasonably expect the Company will continue in operation in the foreseeable future and therefore the finan-

cial statements for the year ended December 31, 2015 were prepared based on the going concern assumption.

Following their examination of the financial position, result of operations and cash-flows, they also confirm they

did not find any evidence of uncertainties in relation to the ability of the entity to continue in operation as a

going concern.

• In relation to “Impairment of Assets” (IAS 36), as illustrated above, the impairment method used by Banca

Mediolanum included assessment by an independent expert based on current multi-year business plans previously

approved by the Board of Directors of the Bank. The process of impairment was subsequently approved by the

Board of Directors. In addition to as already reported in the previous paragraph “Impairment test on invest-

ments”, for further details, readers are referred to section 10 in Part B of the Notes.

• With regard to information on the criteria used to measure equity instruments classified as “available for sale”

and the requirements set out in paragraph 61 of IAS 39, the Bank assesses separately if there is a “significant”

or “prolonged” decline in the value of the assets. If it finds out that there has been a “significant” or a “pro-

longed” decline in value, the Group recognizes the impairment loss on the equity investments irrespective of any

1 At the date of submission of this report, the Capital Ratios were determined taking into account the profit as at December 31, 2015, net of dividends according to the proposed 2015 profit allocation as outlined below, and will be subject to reporting to the Bank of Italy following the approval of the draft financial statements by the Board of Directors and upon receipt of the comfort letter from the independent auditors.

309

REPORTON OPERATIONS

other considerations. Specifically, for equity investments the Group considers there is evidence of impairment

when the decline in the original fair value exceeds one third or is prolonged for over 36 months. For details on

disclosures to be made in the notes, readers are referred to Parts A, B and E of the Notes. Information on “fair

value hierarchy” for positions held as at December 31, 2015, including prior year’s comparative information,

is given in Part A of the Notes.

Finally, no disclosure is made in relation to financial debt contract clauses (IFRS 7) or debt restructuring (IAS 39),

since the Bank is not engaged in any of these.

Other information

It is recalled that on September 7, 2015, an inspection was initiated by the Bank of Italy concerning “Governance

Structure; operational risk control and management”.

At the date of preparation of this report, we are awaiting the completion of the process with the delivery of the

inspection report.

Main risks and uncertainties

Readers can find information about the risks and uncertainties to which Banca Mediolanum is exposed in this Report

and in the Notes.

Specifically, information about the risks related to the performance of the world’s economies and financial markets

is set out in this Report, under “Macroeconomic Environment”, “Financial Markets” and “Outlook”. Information

on financial risk and operational risk is detailed in Part F of the Notes.

The significant market volatility that affected the beginning of the year 2016 and the possible continuation in 2016

could result in a decrease in the Company’s profitability.

Key corporate events subsequent to the end of the year

With the exception of as mentioned above, after December 31, 2015, there was no event which could have a signifi-

cant impact on the financial position, result of operations and cash flows of the Bank.

Outlook

While considering the risks associated with the sector and subject to the occurrence of events of an exceptional

nature or substantially dependent on variables that cannot be controlled by the Directors and the Management

(however, currently not conceivable), a positive evolution in operations is expected for the year 2016.

Acknowledgements

For all the activities profitably conducted and the results achieved, we would like to express sincere and heartfelt

thanks to Family Bankers and Employees of all qualifications and levels who have contributed to the achievement

of these important goals through their activities. A special appreciation and thank you for our Customers for their

trust in us. Finally, a respectful greeting to the Bank of Italy, who accompanied us and continues to do so with at-

tention and suggestions that are always useful and appreciated, and the European Central Bank, responsible for the

European banking supervision.

Appropriation of profit

Dear Shareholders,

We assure you that the financial statements for the year ended December 31, 2015 presented to you for examination

and approval were prepared in compliance with the law in force. In requesting your approval of the financial state-

ments including this report, we propose the following appropriation of the year’s net profit of Euro 351,126,380.76:

• 5% to the legal reserve in the amount of Euro 17,556,319.04,

• distribution to shareholders of a dividend for 2015 of Euro 0.30, of which Euro 0.16 already distributed in

November 2015 by Mediolanum S.p.A. and of Euro 0.14 per share that will be distributed as at April 20, 2016,

with ex-dividend April 18, 2016;

• the remainder to the extraordinary reserve.

It is also proposed, as a result of the merger, to allocate the Merger Reserve to the Extraordinary Reserve.



The Chairman

Ennio Doris

310


2015

Accounts

2015

312


2015

Statement of Financial PositionAssets

Euro Dec. 31, 2015 Dec. 31, 2014

10. Cash and cash equivalents 1,805,236 1,026,916

20. Financial assets held for trading 493,151,147 327,760,139

40. Available for sale financial assets 12,238,342,121 12,732,114,507

50. Held to maturity financial assets 2,257,369,014 2,204,200,071

60. Loans to banks 671,274,164 489,388,359

70. Loans to customers 7,222,039,934 6,518,674,746

80. Hedge derivatives 891,932 1,287,110

100. Equity investments 1,063,015,199 353,953,592

110. Tangible assets 49,063,228 17,032,131

120. Intangible assets 46,166,096 35,824,367

of which:

- goodwill - -

130. Tax assets 183,122,087 135,041,918

a) current 115,656,521 66,036,090

b) deferred 67,465,566 69,005,828

b1) pursuant to Law 214/2011 - -

150. Other assets 427,240,272 237,607,444

Total assets 24,653,480,430 23,053,911,300

313

ACCOUNTS

Liabilities and Shareholders’ equity Euro Dec. 31, 2015 Dec. 31, 2014

10. Amounts due to banks 818,810,759 6,755,202,685

20. Payables due to customers 21,100,321,884 13,954,590,677

30. Securities issued 223,504,094 288,804,794

40. Financial liabilities held for trading 278,859,672 370,259,192

60. Hedge derivatives 64,512,277 100,218,401

80. Tax liabilities 90,439,012 125,890,602

a) current 18,921,894 64,353,330

b) deferred 71,517,118 61,537,272

90. Liabilities associated with assets held for sale - -

100. Other liabilities 326,763,046 278,974,667

110. Employee completion-of-service entitlements 9,604,709 8,643,397

120. Provisions for risks and charges: 192,200,588 184,029,737

a) severance benefits and similar obligations - -

b) other provisions 192,200,588 184,029,737

130. Valuation reserves 121,629,239 101,633,926

160. Reserves 593,914,602 141,226,538

165. Interim dividend (-) (118,205,833) -

180. Share capital 600,000,000 600,000,000

200. Net Profit (Loss) for the year (+/-) 351,126,381 144,436,684

Total liabilities and shareholders’ equity 24,653,480,430 23,053,911,300

314


2015

Income statement Euro Dec. 31, 2015 Dec. 31, 2014

10. Interest income and similar income 385,170,182 420,225,307

20. Interest expense and similar charges (164,901,868) (216,608,691)

30. Net interest income 220,268,314 203,616,616

40. Fee income 558,722,037 479,815,627

50. Commission expense (472,814,185) (424,046,848)

60. Net commission 85,907,852 55,768,779

70. Dividends and similar income 480,116,055 251,859,254

80. Net income from trading (13,039,591) (10,700,296)

90. Net income from hedging 10,740,375 (5,399,664)

100. Gains (losses) on sale or buyback of: 1,767,021 81,202,600

a) loans (3,488) (4,974)

b) available for sale financial assets 2,429,009 81,267,391

c) held to maturity financial assets 3 (1)

d) financial liabilities (658,503) (59,816)

120. Banking income 785,760,026 576,347,289

130. Net impairment/reversal of impairment of: (13,469,834) (24,759,326)

a) loans (12,540,663) (16,102,079)

b) available for sale financial assets (856,650) (7,235,201)

d) other financial instruments (72,521) (1,422,046)

140. Net income from financial operations 772,290,192 551,587,963

150. Administrative expenses: (392,667,386) 348,522,802)

a) personnel expenses (141,552,251) 126,516,585)

b) other administrative expenses (251,115,135) 222,006,217)

160. Net provisions for risks and charges (46,442,676) (33,284,454)

170. Impairment/reversal of impairment of tangible assets (4,764,870) (4,096,549)

180. Impairment/reversal of impairment of intangible assets (11,002,272) (9,132,720)

190. Other operating income/expenses 15,255,051 11,230,098

200. Operating costs (439,622,153) 383,806,427)

210. Profit (loss) on equity investments 16,456,625 (6,667,971)

240. Profits (losses) on disposal of investments 794 (59,743)

250. Profit (loss) before tax on continuing operations 349,125,458 161,053,822

260. Taxes on income from continuing operations 2,000,923 (16,617,138)

270. Profit (loss) after tax on continuing operations 351,126,381 144,436,684

280. Profit (loss) after tax of non-current assets pending disposal - -

290. Profit (loss) for the year 351,126,381 144,436,684

315

ACCOUNTS

Statement of Other Comprehensive Income as at December 31, 2015 Euro Dec. 31, 2015 Dec. 31, 2014

10. Profit (Loss) for the year 351,126,381 144,436,684

Other income components net of taxes without reversal to the income statement

40. Defined benefit plans (431,823) 313,097

Other income components net of taxes with reversal to the income statement


130. Total other income components net of taxes 18,573,647 28,038,743

140. Comprehensive income (Captions 10+130) 369,700,028 172,475,427

316


2015

Statement of changes in equity

as at December 31, 2014

Changes in the year

Appropriationof prior year’s profit

Equitytransactions

EuroBalance as at

Dec. 31, 2013Changes to opening

balancesBalance as at

Jan 1, 2014 ReservesDividends and other

allocationsChanges in

reservesIssue

of new shares

Purchaseof treasury

shares

Extraordinary distribution of

dividends

Changes in equity

instruments


shares Stock optionsComprehensive

Income FY 2014


December 31, 2014

Share capital:

a) ordinary shares 600,000,000 - 600,000,000 - - - - - - - - - - 600,000,000

b) other shares - - - - - - - - - - - - - -

Share premium account - - - - - - - - - - - - - -

Reserves:

a) retained earnings 128,834,652 - 128,834,652 7,701,398 - - - - - - - 1,505,446 - 138,041,496

b) others 3,185,042 - 3,185,042 - - - - - - - - - - 3,185,042

Valuation reserves 73,595,183 - 73,595,183 - - - - - - - - - 28,038,743 101,633,926

Equity instruments - - - - - - - - - - - - - -

Treasury shares - - - - - - - - - - - - - -

Profit (Loss) for the year 134,703,398 - 134,703,398 (7,701,398) (127,002,000) - - - - - - - 144,436,684 144,436,684

Shareholders’ equity 940,318,275 - 940,318,275 - (127,002,000) - - - - - - 1,505,446 172,475,427 987,297,148


Changes in the year


Equitytransactions

EuroBalance as at





reservesIssue

of new shares

Purchaseof treasury

shares

Extraordinary dividends

distrib.

Changes in equity

instruments



Income FY 2015


December 31, 2015

Share capital:


b) other shares - - - - - - - - - - - - - -

Share premium reserve - - - - - - - - - - - - - -

Reserves:

a) of profits 138,041,494 - 138,041,494 7,936,684 - 442,379,708 - - (118,205,833) - - 2,371,673 - 472,523,726

b) others 3,185,042 - 3,185,042 - - - - - - - - - - 3,185,042

Valuation reserves 101,633,926 - 101,633,926 - - 1,421,666 - - - - - - 18,573,647 121,629,239

Capital instruments - - - - - - - - - - - - - -

Treasury shares - - - - - - - - - - - - - -

Profit (Loss) for the year 144,436,684 - 144,436,684 (7,936,684) - (136,500,000) - - - - - - 351,126,381 351,126,381

Shareholders’ equity 987,297,148 - 987,297,148 - - 307,301,374 - - (118,205,833) - - 2,371,673 369,700,028 1,548,464,388

317

ACCOUNTS

Statement of changes in equity


Changes in the year


Equitytransactions

EuroBalance as at





reservesIssue

of new shares

Purchaseof treasury

shares

Extraordinary distribution of

dividends

Changes in equity

instruments



Income FY 2014


December 31, 2014

Share capital:


b) other shares - - - - - - - - - - - - - -

Share premium account - - - - - - - - - - - - - -

Reserves:

a) retained earnings 128,834,652 - 128,834,652 7,701,398 - - - - - - - 1,505,446 - 138,041,496

b) others 3,185,042 - 3,185,042 - - - - - - - - - - 3,185,042

Valuation reserves 73,595,183 - 73,595,183 - - - - - - - - - 28,038,743 101,633,926

Equity instruments - - - - - - - - - - - - - -

Treasury shares - - - - - - - - - - - - - -

Profit (Loss) for the year 134,703,398 - 134,703,398 (7,701,398) (127,002,000) - - - - - - - 144,436,684 144,436,684

Shareholders’ equity 940,318,275 - 940,318,275 - (127,002,000) - - - - - - 1,505,446 172,475,427 987,297,148


Changes in the year


Equitytransactions

EuroBalance as at





reservesIssue

of new shares

Purchaseof treasury

shares

Extraordinary dividends

distrib.

Changes in equity

instruments



Income FY 2015


December 31, 2015

Share capital:


b) other shares - - - - - - - - - - - - - -

Share premium reserve - - - - - - - - - - - - - -

Reserves:

a) of profits 138,041,494 - 138,041,494 7,936,684 - 442,379,708 - - (118,205,833) - - 2,371,673 - 472,523,726

b) others 3,185,042 - 3,185,042 - - - - - - - - - - 3,185,042

Valuation reserves 101,633,926 - 101,633,926 - - 1,421,666 - - - - - - 18,573,647 121,629,239

Capital instruments - - - - - - - - - - - - - -

Treasury shares - - - - - - - - - - - - - -

Profit (Loss) for the year 144,436,684 - 144,436,684 (7,936,684) - (136,500,000) - - - - - - 351,126,381 351,126,381

Shareholders’ equity 987,297,148 - 987,297,148 - - 307,301,374 - - (118,205,833) - - 2,371,673 369,700,028 1,548,464,388


2015

318

Statement of cash flowsIndirect Method

Euro Dec. 31, 2015 Dec. 31, 2014

A. OPERATIONS1. Operations 350,823,436 261,783,612- result for the period (+/-) 351,126,381 144,436,684- gains/losses on financial assets held for trading and on financial assets- liabilities at fair value

15,917,864

14,464,077

- gains/losses on hedges (+/-) (10,740,375) 5,399,664- net impairment/reversal of impairment (+/-) 13,469,834 24,759,326- net write-downs/write-backs of tangible and intangible assets (+/-) 15,767,142 13,229,269- net provisions for risks and charges and other costs/revenues (+/-) 46,442,676 38,021,767- taxes, duties and unpaid tax credits (+/-) (83,531,759) 16,617,138- other adjustments (+/-) 2,371,673 4,855,6872. Cash generated/absorbed by financial assets (1,949,971,621) (3,681,345,970)- financial assets held for trading (165,391,008) 129,147,289- financial assets measured at fair value 395,178 1,130,414- available for sale financial assets 512,346,036 (3,212,178,864)- loans to banks: on demand 12,345,267 475,499- loans to banks: other loans (194,231,072) 810,963,388- loans to customers (703,365,188) (1,106,734,083)- other assets (1,412,070,834) (304,149,613)3. Cash generated/used by financial liabilities 1,038,151,176 3,326,551,708- due to banks: on demand 80,144,512 (17,462,753)- due to banks: other amounts due (6,016,536,438) 2,310,771,547- payables due to customers 7,145,731,207 806,330,753- securities issued (65,300,700) 101,250,678- financial liabilities held for trading (91,399,520) 123,122,654- financial liabilities measured at fair value (24,965,749) 35,691,511- other liabilities 10,477,864 (33,152,682)

Net cash generated by/used in operating activities (560,997,009) (93,010,650)B. INVESTMENT ACTIVITIES

1. Cash generated by 858,217,513 303,706,551- sale of investments - -- dividends collected on investments 480,116,055 251,859,254- sales of held to maturity financial assets 372,374,300 51,847,297- sales of tangible assets 5,727,158 -2. Cash used for (485,537,723) (84,431,268)- purchases of investments (including payments to cover losses) (4,280,000) (936,910)- purchase of held to maturity financial assets (412,279,732) (51,293,880)- purchases of tangible assets (47,643,659) (1,974,231)- purchases of intangible assets (21,334,332) (30,226,247)- purchases of company branches - -

Net cash generated by/used in investing activities 372,679,790 219,275,283C. FINANCING ACTIVITIES

- issue/purchase of equity instruments(*) 307,301,372 -- dividend distribution and other (118,205,833) (127,002,000)

Net cash generated by/used in financing activities 189,095,539 (127,002,000)NET CASH GENERATED/USED IN THE PERIOD 778,320 (737,367)

RECONCILIATION STATEMENTEuro Dec. 31, 2015 Dec. 31, 2014

Balance sheet itemsCash and cash equivalents at beginning of the year 1,026,916 1,764,283Total net cash generated/used in the period 778,320 (737,367)Cash and cash equivalents at the end of the period 1,805,236 1,026,916(*) It is an increase in the equity relating to the item “Reserves” following the reverse merger of Mediolanum S.p.A. into Banca Mediolanum S.p.A..


2015

Notes to theSeparateFinancialStatements

2015

320


2015

Notes to the Separate Financial Statements as at December 31, 2015

These notes are structured as follows:

Part A - Accounting policies

Part B - Information on the statement of financial position

Part C - Information on the income statement

Part D - Information on comprehensive income

Part E - Information on risks and risk management

Part F - Information on capital

Part G - Business combinations

Part H - Related party transactions;

Part I - Equity-settled share-based payment transactions

Part L - Segmental information

PART A – ACCOUNTING POLICIES

A.1 – GENERAL

Section 1 – Compliance with the international accounting and financial reporting standards

The financial statements for the year ended December 31, 2015 were prepared pursuant to Legislative Decree

February 28, 2005 no. 38 and with application of the international accounting and financial reporting standards

issued by the International Accounting Standards Board (IASB) and the related interpretations of the International

Financial Reporting Interpretations Committee (IFRIC) as adopted by the European Commission under European

Parliament and Council Regulation (EC) no. 1606 of July 19, 2002 and subsequent updates.

The financial statements for the year ended December 31, 2015 were prepared in accordance with the “Instructions

for the preparation of the consolidated financial statements of companies and the consolidated financial statements

of banks and financial companies that are parent companies of banking groups” issued by the Bank of Italy through

Circular 262 of December 22, 2005 and subsequent updates.

Section 2 – Accounting basis

The Financial Statements have applied the IAS/IFRS in force as at December 31, 2015 (including accounting

standard SIC e IFRIC), as endorsed by the European Commission, as well as the new compliance with the general

framework for the preparation and presentation of financial statements prepared by the IASB.

In applying IAS/IFRS, no departure was made from requirements therein.

These separate financial statements consist of the Statement of financial position, the Income Statement, the State-

321

NOTES TO THE SEPARATEFINANCIAL STATEMENTS

ment of Other Comprehensive Income, the Statement of changes in Equity, the Statement of cash flows and the

Notes in addition to the Report on Operations.

In accordance with Art. 5 of Legislative Decree 38/2005 the separate financial statements were prepared using the

Euro as reporting currency.

The amounts set out in the Accounts are presented in units of Euro, while the amounts set out in the Notes and the

Report on Operations are presented in thousands of Euro except where otherwise stated.

The Accounts and the Notes also include comparative information for the year ended December 31, 2014.

Contents of accounting statements

Statement of financial position and income statement

The Statement of financial position and income statement set out items, sub-items and further details (“of which”

under the various items and sub-items). In accordance with Bank of Italy’s requirements, items with a nil balance

for both the year under review and the prior year are not indicated. In the income statement, revenues are indicated

with no sign, while costs are shown within parentheses.

Statement of Other Comprehensive Income

The Statement of other comprehensive income presents gains and losses relating to the year’s changes in the value

of assets, stated net of related taxation. Negative amounts are shown within parentheses.

Statement of changes in Equity

The Statement of changes in equity shows the composition of shareholders’ equity as well as the movements in the

various equity accounts (i.e. share capital, capital reserves, retained earnings, assets and liabilities revaluation re-

serves and net profit and reserves for the year) in the year under review and the prior year. The Bank did not issue

any equity instruments other than ordinary shares.

Statement of cash flows

The Statement of cash flows provides information on cash flows for the period under review and the prior period.

It is prepared using the indirect method whereby in reporting cash flows from operating activities profit or loss is

adjusted for the effects of non-cash transactions. Cash flows are classified by operating, investing and financing

activities. The cash flows generated in the period are indicated with no sign, while the cash flows used in the period

are shown within parentheses.

322


2015

Content of the Notes

The Notes set out the information required under the international accounting and financial reporting standards and

Bank of Italy’s Circular Letter 262/2005 and subsequent updates.

In accordance with Bank of Italy’s requirements, no notes are provided for items with a nil balance for both the year

under review and the prior year. In the income statement, revenues are indicated with no sign, while costs are shown

within parentheses.

Section 3 – Post Balance Sheet Date Events

In the period between the end of financial year 2015 and the date on which these financial statements were prepared,

there was no event – other than those set out in the corresponding section of the Report on Operations to which

readers are referred – which could materially impact the business or result of operations of the Bank.

Section 4 – Other information

The separate financial statements of Banca Mediolanum S.p.A. were audited by Deloitte & Touche S.p.A., as per the

resolution passed at the General Meeting of April 20, 2011, as integrated in the proposed Resolution by the General

Meeting of September 29, 2015.

A.2 – SIGNIFICANT ACCOUNTING POLICIES

ACCOUNTING POLICIES

This section presents the accounting policies applied in the preparation of the separate financial statements for the

year ended December 31, 2015.

The accounting policies applied in the preparation of the separate financial statements, with respect to the classifi-

cation, measurement, recognition and derecognition of the various items of assets and liabilities as well as the vari-

ous items of income and expense, are consistent with those applied in the preparation of the consolidated financial

statements for the year ended December 31, 2014.

323


Accounting standards, amendments and IFRS interpretations applied starting from january 1, 2015

The following accounting standards, amendments and IFRS interpretations were applied for the first time by the

Group from January 1, 2015:

On May 20, 2013 the interpretation IFRIC 21 – Levies, was published, which provides clarification on when recogni-

tion of a liability related to taxes (other than income taxes) imposed by a government agency. The standard address-

es both the liabilities for taxes that fall within the scope of IAS 37 – Provisions, contingent liabilities and assets,

both for the taxes where the amount and timing are certain. The interpretation is applied retrospectively for annual

periods commencing no later than June 17, 2014 or later. The adoption of this new interpretation was used for the

purposes of accounting of costs related to provisions of the so-called “bail-in” mechanism (DGS and SRF) charging

as annual cost the requested contribution for the year 2015 (ordinary and extraordinary item). It is specified that

with the 2016 Stability Law, a solidarity Fund was set up aimed at distributing provisions for investor performance

(individuals, individual entrepreneurs, agricultural entrepreneurs or farmers) which, at the date of entry into force

of Decree law no. 183 of November 22, 2015, held subordinated financial instruments issued by the four banks in

resolution.

The Solidarity Fund will have up to Euro 100 million and will be supported by the interbank deposit protection fund;

regarding the matter, the enactment of special ministerial decrees is envisaged. In this regard, in view of the adoption

of said decrees that will make the provision applicable, the company decided to exclusively provide only information

in the financial statements as it does not deem the conditions apply for the registration of the allocation.

On December 12, 2013, the IASB published the “Annual Improvements to IFRS: 2011-2013 Cycle” which incor-

porates amendments to some standards in the context of the annual improvement process thereof (among which:

IFRS 3 Business Combinations – Scope exception for joint ventures, IFRS 13 Fair Value Measurement – Scope of

portfolio exception, IAS 40 Investment Properties – Interrelationship between IFRS 3 and IAS 40). The changes

shall apply beginning the years that start January 1, 2015 or after. The application of the other amendments had no

impact on the financial statements of the Company.

Accounting standards, amendments and IFRS and IFRIC interpretations approved by the European Union, not yet obligatorily applicable and not adopted by the group in advance as at december 31, 2015

The Company has not applied the following standards, new and amended, issued but not yet effective.

Amendment to IAS 19 “Defined Benefit Plans: Employee Contributions” (published on November 21, 2013): con-

cerning the accounting of the contributions made by employees or third parties to the defined benefit plans. The

amendment shall apply at the latest beginning the years that start February 1, 2015 or after.

Amendment to IFRS 11 Joint Arrangements – “Accounting for acquisitions of interests in joint operations” (pub-

lished on May 6, 2014): relating to the accounting for the purchase of stakes in a joint operation whose activity

constitutes a business. The amendments are applicable starting from January 1, 2016. However, earlier application

is permitted.

324


2015

Amendments to IAS 16 Property, plant and equipment and IAS 41 Agriculture – “Bearer Plants” (published on

June 30, 2014): the bearer plants, or fruit trees that shall produce annual crops (such as vines, plant nuts) shall be

accounted for in accordance with the requirements of IAS 16 (rather than IAS 41). The amendments are applicable

starting from January 1, 2016. However, earlier application is permitted.

Amendments to IAS 16 Property, plant and Equipment and IAS 38 Intangibles Assets – “Clarification of acceptable

methods of depreciation and amortization” (published on May 12, 2014): according to which a criterion of depreci-

ation based on revenues is considered generally inappropriate, since revenues generated by an activity that includes

the use of the asset depreciated generally reflect factors other than only consumption of economic benefits of the

asset, requirement that is, instead, required for depreciation. The amendments are applicable starting from January

1, 2016. However, earlier application is permitted.

Amendment to IAS 1 – “Disclosure Initiative” (published on December 18, 2014): the objective of the amendments

is to provide clarification to disclosure elements that may be perceived as impediments to a clear and intelligible

drafting of financial statements. The amendments are applicable starting from January 1, 2016. However, earlier

application is permitted.

Amendment to IAS 27 – Equity Method in Separate Financial Statements (published on August 12, 2014): intro-

duces the option of using in the separate financial statements of an entity the equity method for the evaluation of

investments in subsidiaries, jointly ventures and associates. The amendments are applicable starting from January 1,

2016. However, earlier application is permitted.

The directors do not expect a significant impact on the Company’s financial statements from the adoption of said

amendments, except for the right to evaluate subsidiaries, associates and joint ventures with the equity method.

Lastly, as part of the annual process of improvement of the standards, on December 12, 2013, the IASB published

the documents “Annual Improvements to IFRSs: 2010-2012 Cycle” (among which IFRS 2 Share Based Payments

– Definition of vesting condition, IFRS 3 Business Combination – Accounting for contingent consideration, IFRS

8 Operating segments – Aggregation of operating segments and Reconciliation of total of the reportable segments’

assets to the entity’s assets, IFRS 13 Fair Value Measurement – Short-term receivables and payables) and on Sep-

tember 25, 2014 “Annual Improvements to IFRSs: 2012-2014 Cycle” (among which: IFRS 5 – Non-current Assets

Held for Sale and Discontinued Operations, IFRS 7 – Financial Instruments: Disclosure and IAS 19 – Employee

Benefits), which partially integrate the existing standards. The amendments apply at the latest respectively for an-

nual periods beginning on or after February 1, 2015 or later date and for annual periods beginning on January 1,

2016 or later date.

The directors do not expect a significant impact on the Company’s financial statements from the adoption of said

amendments.

Accounting standards, amendments and ifrs interpretations not yet approved by the European Union

At the date of reference of this document [document name], the EU competent authorities have not yet completed

the standardization process required to adopt the accounting principles and amendments described below.

Standard IFRS 14 – Regulatory Deferral Accounts (published on January 30, 2014) that allows only those that

adopt IFRS for the first time to continue to recognize the amounts related to activities subject to regulated tariffs

(“Rate Regulation Activities”) under previous accounting standards adopted. As the Company is not a first-time

adopter, said standard is not applicable.

325


Standard IFRS 15 – Revenue from Contracts with Customers (published on May 28, 2014), which is destined to

replace IAS 18 – Revenue and IAS 11 – Construction Contracts, as well as the interpretations of IFRIC 13 – Cus-

tomer Loyalty Programs, IFRIC 15 – Agreements for the Construction of Real Estate, IFRIC 18 – Transfers of

Assets from Customers and SIC 31 – Revenues-Barter Transactions Involving Advertising Services. The standard

establishes a new model of revenue recognition shall apply to all contracts with clients except those that fall within

the scope of application of other IAS/IFRS principals such as leasing, insurance contracts and financial instruments.

The fundamental steps for the recognition of revenues according to the new model are:

• identification of the contract and with the client;

• identification of the performance obligations of the contract;

• determination of the price;

• allocation of the price to the performance obligations of the contract;

• criteria for recognition of revenues when the entity meets each performance obligation.

The principle is applicable starting from January 1, 2018. However, earlier application is permitted. At present,

based on the information available and the current characteristics of the Company’s products, it is reasonable not to

expect significant changes on the accounting methods adopted to date. The matter in question will however be subject

to detailed analysis in 2016 also in light of possible interpretations that may arise.

Final version of IFRS 9 – Financial Instruments (published on July 24, 2014). The document includes the results

of the phases relating to Classification and measurement, impairment and hedge accounting, of the IASB’s project

aimed at replacing IAS 39:

• introduces new criteria for classifying and measuring financial assets and liabilities;

• with reference to the impairment model, the new standard requires the estimate of losses on receivables to be

made on the basis of the model of expected losses (and not on the model of incurred losses used by IAS 39) using

supportable information, available without unreasonable effort or expense that include current and prospective

historical data;

• introduces a new hedge accounting model (increase in the types of transactions eligible for hedge accounting,

changes in the accounting method of forward contracts and options when included in a hedge accounting report,

changes in the effectiveness test).

The new standard, which replaces the previous version of IFRS 9, shall be applied for financial statements beginning

on January 1, 2018 or later.

Banca Mediolanum is planning the development of administrative and accounting procedures to better meet the

information requirements that will be introduced by the new international accounting standard applicable as at

January 1, 2018, i.e. IFRS 9.

In this context, an analysis was conducted to verify the major impacts with particular reference to the new account-

ing standard on financial instruments.

In this assessment, emphasis was attributed in the first instance to the new impairment model that goes from “in-

curred” logics to an “expected” model. The main new elements with respect to the current accounting standard are

related to the fact that:

• financial assets are classified into 3 buckets depending on the deterioration of the creditworthiness with respect

to the origin where the last bucket includes impaired loans;

326


2015

• provisions relating to instruments that are in bucket 1 are defined on the basis of the expected loss over the next

12 months, while those in buckets 2 and 3 consider the “lifetime expected loss”;

• the use of the best information available giving more importance to predictions of future conditions (forward

looking approach) allows anticipating the recognition of losses;

• any change, favorable or unfavorable, of the expectations of recoverability of cash flows is to be recognized in


Within the mentioned project phase, Banca Mediolanum launched a simulation activity with the purpose of estimat-

ing the potential impact of adopting the new standard IFRS 9 in order to highlight possible areas of intervention.

This analysis was conditioned by significant simplifications adopted as well as the purposes of the simulation which

was to provide a macro-estimate of potential issues.

The analyzes carried out in line with market expectations and with the stringent new rules imposed, showed:

• an increase in provisioning on credit exposures, including those in securities, particularly for positions included

in bucket 2;

• an increase in variability of the loss estimates due to inclusion in the same of scenarios with reference to infor-

mation to predict future conditions (“forward looking”).

The second area of analysis concerned the classification of the financial instruments portfolio. The main change in-

troduced by IFRS 9, is therefore the alignment of the business model adopted by the Company for the management

of a portfolio of financial instruments and their classification, further subject to the technical characteristics of the

instrument. The analysis highlighted the need to explore the requirements of the business model analysis and test to

be carried out to verify the characteristics of the financial instrument.

On January 13, 2016, the IASB published the standard IFRS 16 – Leases, which is intended to replace the standard

IAS 17 – Leases, as well as the interpretations IFRIC 4 Determining whether an Arrangement contains a Lease,

SIC-15 Operating Leases – Incentives and SIC-27 Evaluating the Substance of Transactions Involving the Legal

Form of a Lease.

The new standard provides a new definition of lease and introduces a criterion based on control (right of use) of

an asset to distinguish lease contracts from service contracts, identifying as discriminants: the identification of the

asset, the right to replace the same, the right to obtain substantially all of the economic benefits arising from the use

of the asset and the right to direct the use of the asset underlying the contract.

The standard establishes a single model of recognition and evaluation of lease agreements for the lessee, which

involves registration of the leased asset to also operational in assets with financial debt balancing entry, while also

providing the opportunity to not recognize as leases contracts concerning “low-value assets” and leases with a con-

tract term equal to or less than 12 months. By contrast, the Standard does not include significant changes for lessors.

The directors do not expect that the application of IFRS 16 may have a significant impact on the accounting of lease

contracts and the related disclosure in the Company’s financial statements. However, it is not possible to provide

a reasonable estimate of the effect until the Company has completed a detailed analysis of the related contracts.

The standard is applicable as at January 1, 2019. However, earlier application is permitted only for companies that

proceeded with early application of IFRS 15 – Revenue from Contracts with Customers. Document “Investment

Entities: Applying the Consolidation Exception (Amendments to IFRS 10, IFRS 12 and IAS 28)” (published on

December 18, 2014), containing amendments relating to issues raised following the application of the consolidation

327


exception granted to investment entities. The amendments introduced by the document shall be applied beginning

the years that start January 1, 2016 or after. However, early adoption is permitted. The directors do not expect a

significant impact on the Company’s financial statements.

On August 12, 2014, the IASB published the amendment to IAS 27 – Equity Method in Separate Financial State-

ments. The document introduces the option of using in the separate financial statements of an entity the equity

method for the evaluation of investments in subsidiaries, jointly ventures and associates. Consequently, following the

introduction of the amendment an entity may record said investments in the separate financial statements either:

• measured at cost; or

• as required by IFRS 9 (or IAS 39); or

• using the equity method.

The amendments are applicable starting from January 1, 2016. However, earlier application is permitted.

On September 11, 2014, the IASB published an amendment to IFRS 10 and IAS 28 Sales or Contribution of Assets

between an Investor and its Associate or Joint Venture. The document was published in order to resolve the current

conflict between IAS 28 and IFRS 10.

According to the provisions of IAS 28, the gain or loss resulting from the sale or transfer of a non-monetary asset

to a joint venture or associate in exchange for a share in the capital of the latter is limited to the shareholding in

the joint venture or associate by other investors extraneous to the transaction. In contrast, IFRS 10 requires the

recording of the entire gain or loss in the event of loss of control of a subsidiary, even if the entity continues to hold

a non-controlling stake in it, including in this case also the sale or transfer of a subsidiary to a joint venture or as-

sociate. The amendments introduced require that for a sale/transfer of an asset or a subsidiary to a joint venture or

associate, the measure of the gain or loss to be recognized in the financial statements of the seller/transferor depends

on whether the asset or subsidiary sold/transferred constitutes a business, under the meaning of IFRS 3. If the assets

or the subsidiary sold/transferred represent a business, the entity shall recognize the gain or loss on the entire invest-

ment held; otherwise, the portion of the gain or loss related to the share still held by the entity shall be eliminated. The

amendments will apply from January 1, 2016; however, a postponement of the date of initial application is expected.

On September 25, 2014, the IASB published the document “Annual Improvements to IFRSs: 2012-2014 Cycle”.

The amendments introduced by the document shall be applied beginning the years that start January 1, 2016 or after.

The document introduces amendments to the following standards:

IFRS 5 – Non-current Assets Held for Sale and Discontinued Operations. The amendment introduces specific guide-

lines to the standard in the case in which an entity reclassifies an asset (or disposal group) from the held-for-sale

category to the held-for-distribution category (or vice versa), or when the classification requirements no longer apply

of an asset as held-for-distribution. The amendments define that (i) such reclassification shall not be considered as a

change to a sales plan or a distribution plan and that the same criteria for the classification and evaluation shall re-

main valid; (ii) the assets that no longer meet the classification criteria for the held-for-distribution shall be treated

the same way as an asset no longer classified as held for sale;

328


2015

IFRS 7 – Financial Instruments: Disclosure. The amendments govern the introduction of additional guidelines to

clarify whether a servicing contract constitutes residual involvement in a transferred asset for the purposes of the

disclosure required in relation to the assets transferred. Moreover, it is clarified that the disclosure on the compen-

sation of financial assets and liabilities is normally not explicitly required for interim financial statements. However,

said disclosure may be necessary to fulfill the requirements of IAS 34, in the case of significant information;

IAS 19 – Employee Benefits. The document introduces amendments to IAS 19 to clarify that the high quality cor-

porate bonds used to determine the discount rate of post-employment benefits shall be in the same currency used for

the payment of the benefits. The amendments clarify that the scope of the market of high quality corporate bonds to

be considered shall be the one in terms of currency;

IAS 34 – Interim Financial Reporting. The document introduces amendments in order to clarify the requirements to

be met in the event that the disclosure required is presented in the interim financial report, however outside of the in-

terim financial statements. The amendment specifies that said disclosure is included through a cross-reference from

the interim financial statements to other parts of the interim financial report and that said document is available to

readers of the financial statements in the same manner and with the same timing of the interim financial statements.

On December 18, 2014, the IASB published the amendment to IAS 1 – Disclosure Initiative. The objective of the

amendments is to provide clarification to disclosure elements that may be perceived as impediments to a clear and

intelligible drafting of financial statements.

Non performing exposures (NPE) and forborne exposuresLastly, it should be noted that with respect to the 2014 consolidated financial statements, is applicable from January

1, 2015 the new notion of impaired assets adopted by the Bank of Italy in the 7th update of January 20, 2015 of

Circular 272 “Accounts Matrix”, following the transposition of the new definitions of non-performing exposures

(NPE) and forborne exposures introduced by the implementing technical standards concerning statistical supervi-

sory consolidated harmonized reports defined by the European Banking Authority and approved by the European

Commission on January 9, 2015 (hereinafter ITS ).

Impaired financial assets are divided into the categories of non-performing, likely defaults (unlikely to pay) and past

due and/or overdue impaired exposures; all these categories correspond to all the non-performing exposures referred

to in ITS. The definition was also introduced of forborne exposures, transverse to “performing” and “non-perform-

ing” exposures. The previous notions of watch list exposures and restructured exposures are repealed.

Cash assets (loans and debt securities) and “off balance sheet” assets (guarantees issued, irrevocable and revocable

commitments to disburse funds) fall within the scope of the new categories of impaired financial assets, other than

the financial instruments allocated to the accounting portfolio “Financial assets held for trading” and derivative

contracts.

For further details, reference shall be made to as outlined in Part E.

329



Financial assets held for trading consist mainly of debt securities, equities and trading derivatives with positive fair

value.

Financial assets held for trading are initially recognized on the settlement date if they are debt securities and equi-

ties, and on the trade date if they are derivatives. On initial recognition financial assets held for trading are measured

at cost, i.e. the fair value of the instrument, without adding directly attributable transaction costs or income.

After initial recognition financial assets held for trading are measured at their fair value.

The fair value of a financial instrument quoted in an active market, is determined using its market quotation (bid/

ask or average price). If the market for a financial instrument is not active, fair value is determined using estimation

and valuation techniques which measure all instrument-related risks and use market data, e.g. the quoted price of

instruments with similar characteristics, discounted cash flow analysis, option pricing models, recent comparable

transactions.

Reclassification to other categories of financial assets is not allowed except for rare circumstances which are unlike-

ly to occur again in the near term.

In such rare circumstances debt securities and equities that are no longer held for trading can be reclassified to

the other categories under IAS 39 (Held to maturity financial assets, Available for sale financial assets, Loans and

Receivables), provided that they satisfy the relevant requirements. The carrying amount of the reclassified financial

instrument is its fair value on the date of reclassification. The existence of any embedded derivative contracts that

require unbundling is assessed upon reclassification.



Financial assets measured at fair value through the income statement

Financial assets measured at fair value through the income statement mainly include funds and debt securities

(structured and unstructured).

Financial assets measured at fair value through the income statement are initially recognized on the settlement date

if they are debt securities, and on the subscription/trade date if they are derivatives and funds.

On initial recognition, financial assets measured at fair value through the income statement are measured at cost, i.e.

the fair value of the instrument, without adding directly attributable transaction costs or income.

After initial recognition, financial assets measured at fair value through the income statement are measured at their

fair value.

The fair value of a financial instrument quoted in an active market is determined using its market quotation. If the

market for a financial instrument is not active, fair value is determined using estimation and valuation techniques

which measure all instrument-related risks and use market data, e.g. the quoted price of instruments with similar

characteristics, discounted cash flow analysis, option pricing models, recent comparable transactions.



330


2015


Available for sale financial assets include non-derivative financial assets that are not classified as Loans and Receiv-

ables, Financial assets held for trading or Held to maturity financial assets.

In particular, shareholdings that are not held for trading and those that do not qualify as investments in subsidiaries,

associates or joint ventures are also classified under this category.

Available for sale financial assets are initially recognized on the settlement date if they are debt or equity instru-

ments and on the trade date if they are loans or receivables.

On initial recognition available for sale financial assets are measured at cost, i.e. the fair value of the instrument,

plus any directly attributable transaction costs or income. When reclassified out of the held to maturity financial

assets category, available for sale financial assets are re-measured at their fair value on such reclassification.

After initial recognition available for sale financial assets continue to be measured at fair value, and debt instru-

ments are amortized through profit or loss, while gains or losses arising from a change in their fair value are recog-

nized in a specific equity reserve until the financial asset is derecognized or impaired. At the time of their dismissal

or impairment, the cumulative gain or loss previously recognized in equity is recognized in the income statement.

Equity investments whose fair value cannot be reliably measured as set out above are measured at cost.

At each interim and annual balance sheet date the Group assesses whether there is objective evidence of any im-

pairment loss.

If the fair value of a previously impaired asset increases and the increase can be objectively related to an event


the income statement if the asset is a loan or receivable or a debt instrument, and in equity if the asset is an equity

investment. The reversal shall not result in a carrying amount of the financial asset that exceeds what the amortized

cost would have been had the impairment loss not been recognized at the date the impairment is reversed.




Held to maturity financial assets consist of debt securities with fixed or determinable payments and fixed maturity

which the Group intends or has the ability to hold to maturity. If, as a result of a change in intention or ability, it is

no longer appropriate to classify an investment as held to maturity, it is reclassified as a available for sale financial

asset.

Held to maturity financial assets are initially recognized on settlement date.

Held to maturity financial assets are initially measured at cost, including any directly attributable costs or income.

When reclassified out of the available for sale financial assets category, the fair value on such reclassification is the

value of the amortized cost at which held to maturity financial assets are carried amortizing the valuation reserve

previously recognized.

After initial recognition held to maturity financial assets are measured at amortized cost using the effective interest

method. In case of sale of significant quantities of securities not close to maturity recorded in this class, the so-called

“tainting rule” is applied, i.e. the prohibition of classification in this item for two years.

Gains or losses of held to maturity financial assets are recognized in the income statement when the financial asset

is derecognized or impaired, and due to the recognition of the amortized cost.

331


At each interim and annual reporting date the Group assesses whether there is objective evidence of any impairment

loss.

If any such evidence exists, the amount of the impairment loss is measured as the difference between the carrying

amount of the asset and the present value of estimated future cash flows, discounted at the financial asset’s original

effective interest rate. The amount of the impairment loss is recognized in the income statement.






Loans and receivables

This category includes loans to customers and to banks with fixed or determinable payments, that are not quoted

in an active market and that, upon initial recognition, were not classified as available for sale financial assets.

Loans and receivables also include trade receivables, repurchase agreements and securities purchased under a

public offering or private placement, with fixed or determinable payments, that are not quoted in an active market.

A loan or receivable is initially recognized at fair value on the trade date or, in the case of a debt instrument, on

the settlement date on the basis of the fair value of the financial instrument, equal to the amount disbursed, or

the subscription price, including any directly attributable costs or income determinable on the trade date, even if

settled at a later date. Costs that are reimbursed by the borrower/debtor or are internal administrative expenses

are excluded.

Carryovers and repurchase agreements which entail the obligation for a future resale/repurchase are recognized as

funding or lending transactions. Specifically, the amount received for the sale of an asset under an agreement to

repurchase it at a future date is recognized in the statement of financial position as a debt, while the amount paid

for the purchase of an asset under an agreement to resell it at a future date is recognized as a loan.

After initial recognition, loans and receivables are measured at amortized cost. Amortized cost is the amount at

which the financial asset is measured on initial recognition minus principal repayments, plus or minus the cumula-

tive amortization using the effective interest method of any difference between that initial amount and the maturity

amount, plus or minus any directly attributable costs/income and minus/plus any reduction/reversal for impairment.

The effective interest rate is identified by calculating the rate that equates the present value of the future cash flows

of the loan, by capital and interest, to the amount disbursed, including any costs/income attributed to the loan.

The effective interest rate is the rate that exactly discounts estimated future cash flows (principal and interest) to

the net carrying amount of the asset, i.e. the carrying amount plus/minus any directly attributable costs/income,

through the expected life of the asset.

Amortized cost is not applied to short-terms loans and receivables for which the effect of discounting is immaterial.

At each interim and annual reporting date the Group assess whether there is objective evidence of any impairment

loss as a result of one or more events that occurred after initial recognition. If there is objective evidence of impair-

ment, the loan or receivable is classified as follows:

332


2015

• non-performing: these are formally impaired loans i.e. exposures to borrowers that are unable to meet their

payment obligations, even if their insolvency has not been established by a court of law, or in equivalent con-

ditions. The evaluation is generally on an analytical basis (even through the comparison with coverage levels

defined statistically for some loan portfolios below a predefined threshold) or, if the amounts are not individually

significant, on a flat-rate basis for homogeneous categories of loans;

• likely defaults (“unlikely to pay”): represent on- and off-balance sheet exposures, therefore the conditions do

not apply for classification of the debtor as non-performing and for which there is an improbability assessment

which, in the absence of actions such as enforcement of collateral, the debtor is able to fully meet (principal and/

or interest) its credit obligations. This assessment is carried out independently of the presence of any amount (or

installment) past due and unpaid. The classification as likely default is not necessarily linked to the explicit pres-

ence of anomalies (non-reimbursement) but is indeed linked to the existence of elements indicative of a situation

of risk of debtor default. Likely defaults are generally assessed analytically (even through the comparison with

coverage levels defined statistically for some loan portfolios below a predefined threshold) or applying flat-rate

percentages for homogeneous categories of loans;

• past due and/or overdrawn impaired loans: represent on-balance sheet exposures, other than those classified as

non-performing or likely default which, at the reporting date, are past due or overdrawn. Past due and/or over-

drawn impaired loans can be determined by reference, alternatively, to the individual debtor or to the individual

transaction. Impaired past due loans and/or overdrawn loans are valued analytically, through flat-rate methods,

which use historical/statistical basis, applying where available the risk detected by the appropriate risk factor

used for the purposes of Regulation (EU) no. 575/2013 (CRR) related to prudential requirements for credit

institutions and investment firms (LGD – Loss Given Default).

Impaired loans are individually assessed and the amount of the impairment loss is measured as the difference

between the asset’s carrying amount (measured at amortized cost) at the time of assessment and the present value

of estimated future cash flows discounted at the financial asset’s original effective interest rate.

Future cash flows are estimated taking into account the expected time of recovery, the realizable value of any

collaterals as well as any costs of recovery which are recorded, limited to legal fees, in the risk fund. Future cash

flows of receivables which are expected to be recovered in the short term are not discounted.

The asset’s original effective interest rate remains unchanged over time also in the event of a restructuring as a

result of which the interest rate changes or the loan or receivable actually carries no interest.

The amount of the impairment loss is recognized in the income statement.

If the value of a previously impaired loan or receivable increases and the increase can be objectively related to

an event occurring after the impairment loss was recognized, the impairment loss is reversed and the reversal

recognized in the income statement. The reversal shall not result in a carrying amount of the financial asset that

exceeds what the amortized cost would have been had the impairment loss not been recognized at the date the

impairment is reversed.

Receivables for which no objective evidence of loss individually identified, usually loans not impaired, are assessed

on a collective impairment. For the purpose of a collective evaluation of impairment, loans and receivables are

grouped on the basis of similar credit risk characteristics and the related loss probability is estimated using histor-

ical loss rates based on observable data at the time of assessment that can reliably estimate the loss probability of

each loan group. In case of significant loans not impaired, an analytical assessment can be made.

333


Any collectively assessed impairment loss is recognized in the income statement. At each interim and annual

reporting date any additional impairment loss or reversal thereof is calculated in relation to the entire portfolio of

loans not impaired on that same date.

Hedging transactions

Hedging transactions are intended to offset changes in the fair value or cash flows of an item or group of items,

which are attributable to a particular risk, in the event that risk materializes.

Pursuant to IAS 39, the Company adopted fair value hedging to cover exposure to changes in the fair value of a

financial item that is attributable to a particular risk.

In particular, the Company entered into fair value hedges of the interest rate exposure of a portfolio of fixed-rate

mortgages. The Company decided to cover baskets of fixed-rate mortgages.

Only instruments that involve a party external to the Company can be designated as hedging instruments. A hedge of

an overall net position in a portfolio of financial instruments does not qualify for hedge accounting.

Hedging derivatives are measured at fair value. As they are accounted for as fair value hedges, the changes in the

fair value of the hedged item are offset by the changes in the fair value of the hedging instrument. Hedge accounting

recognizes the offsetting effects on profit or loss of changes in the fair values of the hedging instrument and the

hedged item (in relation to changes generated by the underlying risk). Any resulting difference, which represents the

partial ineffectiveness of the hedge, is the net effect on profit or loss.

Fair value is determined on the basis of quoted prices in an active market, prices quoted by market participants or

internal valuation models commonly used in financial practice, which take into account all risk factors associated

with the instruments and based on market information.

Derivatives are recognized as hedging derivatives if there is formal documentation of the hedging relationship be-

tween the hedging instrument and the hedged item and if, at the inception of the hedge and prospectively, the hedge

is expected to be effective during the period for which the hedge is designated.

A hedge is effective if it achieves offsetting changes in the fair value of the hedged risk.

The hedging relationship is considered effective if, at the inception of the hedge and in subsequent periods, the chang-

es in the fair value of the hedged item are offset by the changes in fair value of the hedging instrument and if the

actual results of the hedge are within a range of 80% – 125%.

Hedge effectiveness is assessed at the date the entity prepares its annual or interim financial statements, using:

• prospective tests which support hedge accounting in terms of expected effectiveness;

• retrospective tests which show the degree of hedge effectiveness in the relevant past periods. In other words, they

measure how much actual results differed from perfect hedging.

The aforementioned hedges are periodically balanced.

If the tests do not confirm hedge effectiveness, hedge accounting is discontinued, the hedging derivative is reclassified

into trading instruments while the hedged item is again recognized according to its usual classification in the state-

ment of financial position and the changes in the fair value of the hedged item up until the date hedge accounting

was discontinued are amortized applying the effective interest rate.

334


2015

Equity investments

This account relates to investments in subsidiaries and associates which are measured at cost.

If there is evidence that an investment may be impaired, its recoverable amount is calculated by estimating the

present value of future cash flows expected to be generated by the subsidiary or associate, including the proceeds on

the ultimate disposal of the investment.

If the recoverable amount is lower than the carrying amount, the resultant difference is recognized in the income

statement.






Investment property and other tangible assets

Tangible assets include land, Group-occupied property, investment property, furnishings, fixtures, fittings, plant and

equipment.

These are tangible items that are held for use in the production or supply of goods or services, for rental to others,

or for administrative purposes and that are expected to be used during more than one period.

This account also includes assets held under finance leases even when the lessor retains title thereof.

Tangible assets are initially measured at cost, which comprises the purchase price of the asset and all costs directly

attributable to the asset’s acquisition and operation.

The costs of major repairs which increase the future economic benefits associated with the asset are recognized in

the carrying amount of the asset, while the costs of day-to-day servicing are recognized in the income statement.

Tangible assets, including investment property, are measured at cost less any accumulated depreciation and impair-

ment losses.

Tangible assets are systematically depreciated on a straight-line basis over their useful lives except for land, be it

acquired separately or together with buildings, which has an indefinite useful life. Under the international accounting

standards land and buildings are separable assets and are to be accounted for separately. When the value of land is

embedded in the value of the building, only for land on which a building stands, their respective value is determined

by independent experts.

At each interim and annual reporting date, if there is an indication that an asset may be impaired the carrying

amount of the asset is compared to its recoverable amount. The recoverable amount of an asset is the higher of its

fair value less costs to sell and its value in use. Any reduction is recognized as impairment loss in the income state-

ment.

If the value of a previously impaired asset increases, the impairment loss is reversed. The reversal shall not result in

a carrying amount that exceeds what the asset value would have been net of accumulated depreciation less previous

impairment.

A tangible asset is derecognized from the statement of financial position on disposal or when no future economic

benefits are expected from its use or disposal.

335


Intangible assets

Intangible assets relate to goodwill and software applications for long-term use, as well as intangible assets gen-

erated during the acquisition of a business. Goodwill is the excess of the cost of the acquisition over the acquirer’s

interest in the fair value of the identifiable assets and liabilities acquired.

Other intangible assets are recognized if they are identifiable as such and arise from contractual or other legal rights.

An intangible asset can be recognized as goodwill when the excess of the cost of the acquisition over the acquirer’s

interest in the fair value of the identifiable assets and liabilities acquired (including any accumulated impairment

losses) is representative of the future earnings capabilities of the investee.

If this difference is negative (badwill), the difference is recognized directly in the income statement, if it does not

depend on provisions for risks not reflected in the situation of the accounts of the business being acquired.

Other intangible assets are measured at cost less any accumulated amortization and impairment losses only if it is

probable that future economic benefits attributable to the asset will flow to the entity and the cost of the asset can

be measured reliably. Otherwise, the cost is recognized as an expense in the income statement in the year in which

it was incurred.

Intangible assets are amortized on a straight-line basis over their useful lives. Intangible assets with indefinite useful

lives are not amortized, but periodically tested for impairment by comparing their recoverable amount with their

carrying amount.

At each reporting date, if there is evidence of impairment, the recoverable amount of the asset is estimated. If the

recoverable amount of the asset is less than its carrying amount, the carrying amount of the asset is reduced to its

recoverable amount.

An intangible asset is derecognized on disposal or when no future economic benefits are expected from it.

Current and deferred taxation






extent that the company which adhered to Italy’s tax consolidation regime is expected to continue to generate suffi-

cient taxable income against which temporary differences can be utilized.








deductible temporary difference and the carry-forward of unused tax losses and unused tax credits can be utilized.



336


2015

Other assets

Other assets include expenditure on the renovation of leasehold property.

Expenditure on the renovation of leasehold property is capitalized since during the lease term the lessee controls the

assets and obtains future economic benefits from them.

Expenditure on the renovation of leasehold property is amortized over a period which does not exceed the lease term.

Debt and securities issued/Other financial liabilities

Other financial liabilities include the various forms of funding from banks and customers as well as bonds issued net

of any buybacks.

These financial liabilities are initially recognized when amounts are received or bonds are issued.

They are initially measured at fair value, i.e. generally the amount received or the issue price, plus any additional

costs/income directly attributable to the individual funding transaction or bond issue and not reimbursed by the

creditor. Internal administrative expenses are not added.



After initial recognition, financial liabilities are measured at amortized cost using the effective interest method.

Except for short-term liabilities for which the time value of money is immaterial that are measured on the basis of

the contractual cash flows and related costs are recognized in the income statement over the contractual term of

the liability.

Financial liabilities are derecognized when they have expired or extinguished. Notes are derecognized also when they

are bought back. The difference between the carrying amount of the liability and the amount paid to buy it back is


Financial liabilities held for trading

Financial liabilities held for trading include:

• trading derivatives with negative fair value;

• short positions on securities trading.

These financial liabilities are initially recognized at the time amounts are received or settlement of the financial

instruments underlying the transaction.



After initial recognition, financial liabilities are measured at fair value.

Financial liabilities are derecognized when they have expired or extinguished.

337


Assets/Liabilities associated with disposal groups held for sale

This account relates to non-current assets/liabilities and disposal groups held for sale. They are measured at the

lower of their carrying amount and fair value less cost to sell.

Related income and expenses (after taxes) are separately recognized in the Income statement.

Employee termination indemnity

Completion-of-service entitlements are recognized at the present value of the benefit obligations calculated using

actuarial techniques in accordance with the rules governing “defined benefit plans”. Future disbursements are es-

timated on the basis of past data (such as employee turnover and retirement) and demographic patterns, including

assumptions for pay hikes pursuant to section 2120 of the Italian Civil Code (application of a fixed rate of 1.5

percent and a rate equal to 75 percent of ISTAT inflation rate where applicable). To determine the present value of

benefit obligations the Projected Unit Credit Method is used. The rate used for discounting is determined on the basis

of market rates of high-quality bonds, in line with the estimated residual timing of commitments.

Such values involve the recognition in the income statement of expenses related to work performance and net finan-

cial expense and the inclusion of actuarial gains and losses arising from the remeasurement of liabilities in Other

comprehensive income/(loss).

Entitlements accrued from January 1, 2007 allocated to either INPS or private pension plans are defined contribu-

tion payment obligations, since the company’s obligation is limited to the amount it agrees to contribute to the fund.

The defined contribution obligations for each period are the amounts to be contributed for that period.

Provisions for risks and charges

Provisions for risks and charges relate to amounts set aside for present obligations resulting from a past event for

which it is probable that an outflow of resources embodying economic benefits will be required to settle the obliga-

tion, provided that a reliable estimate can be made of the obligation.

When the effect of the time value of money is material, the amount of the provision is discounted at current market

rates consistent with the risk of the liabilities. Provisions for risk and charges are recognized in the income state-

ment.

Employee pension plan

For the defined contribution pension plan under which the company’s obligation is limited to the amount it agrees

to contribute to the fund, the amount of the contribution payable for the year is recognized in the income statement.

338


2015

Assets and liabilities denominated in foreign currencies

Assets and liabilities denominated in foreign currencies are initially recognized in the functional currency, applying

to the foreign currency amount the exchange rate in effect at the date of the transaction.

At each interim or annual reporting date, assets and liabilities denominated in foreign currencies are measured as

follows:

• monetary items are translated using the closing rate;

• non-monetary items measured at historical cost are translated applying the exchange rate in effect at the date

of the transaction;

• non-monetary items measured at fair value are translated applying the exchange rate in effect at the reporting date.

Exchange differences arising on the settlement of monetary items or on translating monetary items at rates different

from those at which they were translated on initial recognition during the period or in previous financial statements

are recognized in the income statement in the period in which they arise.

When a gain or loss on a non-monetary item is recognized directly in equity, the exchange difference component of

that gain or loss is also recognized in equity. Conversely, when a gain or loss on a non-monetary item is recognized

in the income statement, the exchange difference component of that gain or loss is also recognized in the income

statement.

Tax assets and liabilities

The Italian companies that are part of the Mediolanum Group adhere to the so-called “tax consolidation regime”

regulated by articles 117-129 of the Consolidated Income Tax Act introduced into Italy’s tax legislation by Legis-

lative Decree 344/2003. Under said regime the taxable profits or tax losses, including any withholding taxes, tax

deductions and tax credits, of all participating Group companies are consolidated into the Parent Company. The

Parent Company, as reporting entity, calculates the consolidated taxable profit by adding the taxable profits/losses

of all participating Group companies to its own taxable profit/tax loss.

Under this option, Group companies which acceded “tax consolidation” to generate a tax burden and the corre-

sponding portion of its taxable income is transferred to the Parent Company. In case of tax losses of one or more

Group companies against which consolidated taxable profit for the current year is available or against which there is

a high probability that future taxable profits will be available, those tax losses are also consolidated into the Parent

Company.

The Group recognizes current and deferred taxes applying the tax rates in effect in the countries where consolidated

subsidiaries are incorporated.






extent that the Company – or the Parent Company under Italy’s tax consolidation regime – is expected to continue

to generate sufficient taxable income against which temporary differences can be utilized.



339







deductible temporary difference and the carry-forward of unused tax losses and unused tax credits can be utilized,

unless:

• the deferred tax asset arises from the initial recognition of an asset or liability in a transaction that is not a

business combination and, at the time of the transaction, affects neither accounting profit nor taxable profit

(tax loss);

• a deferred tax asset is also recognized for all deductible temporary differences associated with investments in

subsidiaries, associates and joint ventures, only to the extent that it is probable that the temporary difference

will reverse in the foreseeable future and taxable profit will be available against which the temporary difference

can be utilized.



Income statement

Revenue is recognized when received or when it is probable that future economic benefits will flow to the entity and

the amount of those benefits can be measured reliably.

In particular:

• commissions are measured on an accrual basis;

• interest income and interest expense are recognized on an accrual basis applying the effective interest method;

• dividends are recognized in the income statement when their distribution to shareholders is established;

• any default interests, in accordance with the terms of the relevant agreement, are recognized in the income

statement only when actually received.

340


2015

OTHER INFORMATION

Use of estimates

These consolidated financial statements entailed the use of complex valuations and estimates which had an impact

on assets, liabilities, revenues and costs recognized as well as on the identification and quantification of potential

assets and liabilities. These estimates primarily related to:

• estimates and assumptions used to determine the fair value of financial instruments that are not quoted in an

active market (fair value hierarchy levels 2 and 3);

• identification of loss events as per IAS 39 – IAS 36;

• assumptions used for the identification of any objective evidence of impairment of intangible assets and equity

investments recognized in the statement of financial position;

• determination of impairment losses on loans and other financial assets;

• estimates to determine technical reserves;

• determination of provisions for risks, including the estimate of the discounting rate and other key parameters

(network turnover rate);

• estimates and assumptions for the determination of the probability of utilization of deferred tax assets;

• assumptions used to determine the costs of stock options plans for top management and employees.

Senior management regularly check valuations and estimates made on the basis of past experience and other reason-

able factors. Due to the uncertainty typically related to these financial items, actual values may differ from estimates

due to the occurrence of unexpected events or changes in operating conditions.

Impairment

When upon assessment at the reporting date there is any indication that an asset may be impaired, the tangible or

intangible assets with the exception of any goodwill are tested for impairment in accordance with IAS 36.

An asset is impaired when its carrying amount exceeds its recoverable amount, which is the higher of its fair value

less cost to sell (the amount obtainable from the sale of the asset in an arm’s length transaction between knowledge-

able, willing parties) and its value in use (i.e. the present value of the future cash flows expected to be derived from

the permanent use of the assets and its disposal at the end of its useful life).

If an asset is impaired, the relevant impairment loss is recognized in profit or loss and the depreciation (amortiza-

tion) charge for the asset shall be adjusted accordingly in future periods.

If, in a subsequent period, there is any indication that the impairment loss recognized in prior periods no longer exists,

the previously recognized impairment loss is reversed.

If there is objective evidence that a financial asset is impaired, the Group applies the provisions of IAS 39, except

for financial assets carried at fair value through profit or loss.

Indications of possible impairment include events such as significant financial difficulties of the issuer, default or de-

linquency in interest or principal payments, the possibility that the borrower will enter bankruptcy or other financial

reorganization and the disappearance of an active market for that financial asset.

341


A significant or prolonged decline in the market value of an investment in an equity instrument or holdings in UCITS

below its cost is also objective evidence of impairment.

Specifically, for capital instruments, there is evidence of impairment where the decline in the original fair value ex-

ceeds one-third or is prolonged for over 36 months.

If there is objective evidence of impairment, the amount of the impairment loss is measured:

• As the difference between the asset’s carrying amount and the present value of estimated future cash flows dis-

counted at the financial asset’s effective interest rate computed at initial recognition, for financial assets carried

at amortized cost;

• As the difference between cost (for equity investments) or amortized cost (for debt instruments) and current

market value, for available for sale financial assets.

If, in a subsequent period, the reasons for the impairment loss no longer exist, the impairment loss is reversed and

the reversal recognized in the income statement if the asset is a debt instrument, and in equity if the asset is an

equity investment.

Goodwill is tested for impairment annually (or any time there is evidence of impairment). To that end goodwill is al-

located to the cash-generating unit (CGU). If the recoverable amount of the unit is less than its carrying amount, an

impairment loss is recognized. The recoverable amount of a cash-generating unit is the higher of the cash-generating

unit’s fair value less cost to sell and its value in use. The impairment loss on goodwill is recognized in the income

statement and cannot be reversed in subsequent periods.

Share-based payments

IFRS 2 is the accounting standard governing share-based payments.

Stock option plans currently in force are considered “equity settled” share-based payments; consequently the Stock

options granted, and the corresponding increase in equity, are measured by reference to the fair value of the stock

option at grant date, and accounted for during the vesting period.

The fair value of the stock option is determined using a valuation technique that takes into account the specific terms

and conditions of the stock option plan in place, in addition to information such as the exercise price and the life of

the option, the current price of underlying shares, the expected volatility of the share price, dividends expected on

the shares and the risk-free interest rate for the life of the option. The pricing model separately measures the stock

option and the probability that the market conditions upon which vesting is conditioned be satisfied. The combination

of the two values is the fair value of the stock option.

The cumulative expense recognized at each annual reporting date up until the vesting date takes account of the

vesting period and is based on the best available estimate of options that are going to be exercised upon vesting. The

reversal recognized in the income statement for each year represents the change in the cumulative expense over the

amount recognized in the prior year. No expense is recognized for options that do not vest.

Incentive systems are also provided for key personnel based on share-based payments of the Group in compliance

with the rules on the remuneration of said personnel. Currently, said obligations are accounted for as “cash settled”

share-based payment, as the physical delivery of the financial instruments (so-called “performance shares”) is sub-

ject to the necessary General Meeting resolution.

342


2015

A.3 – INFORMATION ON TRANSFERS BETWEEN PORTFOLIOS OF FINANCIAL ASSETS

A.3.1 Reclassified financial assets: book value, fair value and impact on profit or loss

E/t

Type of financial

instrument (1)Reclassified

from (2) Reclassified

to (3) Book Value

(4) Fair Value

(5)

Income components in the absence of the transfer

(before tax)

Income components recorded in the year

(before tax)

Valuation (6) Other (7)

Valuation (8) Other (9)

A. Debt securities

5,425 5,331 (1) 5 - 5

HFT Loans to customers

5,425 5,331 (1) 5 - 5

The reclassification of assets outlined in the table above relates exclusively to portfolio transfers made in 2008 which

were, in part, sold in the following years. In the year under review, there was no reclassification of assets.

A.3.2 Reclassified financial assets: impact on profit or loss before transfer

This table is not compiled as in the current year there were no portfolio transfer to report.

A.4 – FAIR VALUE DISCLOSURES


Fair Value disclosuresThis section includes the fair value disclosure as required by IFRS 13. The fair value is defined as the amount that

could be received to sell an asset or paid to transfer a liability in an orderly transaction between counterparties,

on the relevant market at the measurement date. A financial instrument is considered listed on an active market

if quoted prices are promptly and regularly available on the regulated market (intended as a platform for trading,

dealers or brokers) and such prices are the actual market transactions on a regular basis. If such market prices or

other observable inputs are not available, alternative valuation models are used (Mark to Model). The Group uses

valuation methods in line with methods that are generally accepted and used by the market. Valuation models include

techniques based on discounted future cash flow (and on volatility estimates) and are reviewed regularly in order to

ensure full keeping with the valuation objectives.

Fair value hierarchyThe IFRS13 standard establishes a fair value hierarchy according to the degree of observability of the inputs and

parameters used for the assessments. In particular, there are three levels:

• Level 1: the fair value of instruments classified in this level is determined on the basis of price quotes observed

in active markets;

343


• Level 2: the fair value of instruments classified in this level is determined based on valuation models that use

mainly inputs observable in active markets;

• Level 3: the fair value of instruments classified in this level is determined based on valuation models that pri-

marily use significant unobservable inputs in active markets.

The Company adopts a policy, defined at the level of Mediolanum Group, for the recognition of the fair value level




Securities that do not belong to the previous categories are considered part of an inactive market.

This definition exclude securities to hedge third-class policies for which there is a repurchase agreement with the

issuer.

The Risk Management function of Banca Mediolanum, as part of the coordination for all Group companies, provides

methodological and/or operating support to the corresponding risk structures of the conglomerate companies also

with regard to the definition of active market.

The Mediolanum Group considers listed in an active market:

• Securities traded on Italian regulated markets (ex. MTS, MOT).

• Securities traded on organized trading systems authorized or recognized by Consob (so-called MTF), for which

the price significance was determined through the following procedure.

• Securities for which there is an executable listing that meets the criteria defined below:

– Completeness of the historical series of reference;

– Tolerance thresholds between Money and Letter price differentiated according to the financial instrument;

– Significant variability of the daily price in the reference month;

– Maximum limit of monthly price deviation;

– Maximum limit of the price deviation relative to a benchmark price.

Securities that meet the aforementioned criteria are classified as listed in an active market and the “fair value” is

determined based on the type of financial instrument:

• for equity securities listed on Italian and Foreign Stock Exchanges, the closing price on the last trading day of

the reference month;

• for bond securities, the Money price will be considered (for long positions) and the Letter price (for short posi-

tions) from executable source.

For financial instruments not within the active market, valuation of the same is through the assignment process of

fair value level 2 or level 3 as outlined below.

344


2015

Description of migration between the valuation levels of assetsThe Company adopts a policy, defined at the level of Mediolanum Group, for the recognition of the fair value level




As at December 31, 2015, no transfers of securities from level 1 to level 2 were observed.

Description of the process used to measure the fair value of classified instruments as level 2 and 3 of the fair value hierarchyThe level 2 instruments of the Company are represented by bonds issued by third parties and by Hedge Fund of

Funds (HFoF) units as well as certain derivative instruments. The securities belonging to this category are valued on

the basis of market data inputs, either directly or indirectly observable.

The fair value of the bonds is calculated as the sum of the current values at the end of the year of the related cash

flows. The discounting rate is calculated as the sum of two components:

• the risk-free rate;

• the credit spread

The risk-free rate is deducted from the implicit value in IRS contracts (interest rate swap), while the credit spread is

deducted from the price of bonds of the same issuer, with fixed coupon and a maturity comparable with the security

valued. If there are no securities of the same issuer, and for own bonds, a credit spread is used derived from a weight-

ed average of the observed values for bonds listed on institutional markets of major Italian banks.

If the forecast cash flows are not determined but are dependent on market variables, they are identified on the basis

of:

• implicit forward rates in the values of the risk-free rate for different maturities;

• implicit volatility in the swaption, cap and floor option prices.

Expected cash flows on the basis of implied volatility are determined (where relevant) using the Black model.

The value of the positions in HFoF is instead determined on the basis of the latest available amount. The fair value

of level 2 derivative financial instruments (represented by Amortizing Interest Rate Swap) is determined by taking

into account their level of collateralization: in particular, the value of the contracts is calculated by discounting the

cash flows arising from them at rates derived from the implicit values in OIS contracts (Overnight Interest Swap)

and the relevant Basis Swap contracts.

Level 3 assets are from holdings in Property UCITS and positions in unlisted shares. Level 3 of the fair value of

assets and liabilities that are not measured at fair value on a recurring basis include receivables and payables with

customers and banks, as well as properties.

The logic underlying property assessments aims to determine a fair value through a mark-to-model, which is a

theoretical value derived from assumptions that can descend on distinct asset classes regardless of counterparty or

property specifications (intrinsic peculiarities, sector, geographical location and so on).

345


The starting point for the determination of the fair value of property (included in property funds) is the lease fee

(contractually fixed) that the lessee of the property agrees to pay the lessor for an agreed number of years. These

fees are discounted and capitalized using:

• initial value of the fee paid;

• discount rate of the fee paid;

• capitalization rate of net profit, after an initial start-up of operations.

The first rate is obtained through a linear combination of a market indicator, a spread for the risk of illiquidity, a

spread for the risk associated with the property investment and a spread for the industry/urban planning risk (re-

corded in the discount rates following an asset-dependent logic). The marginal effect of each of the 4 components

will therefore reflect the market sensitivity of the evaluator, as well as related predictions and expectations. The

capitalization rate (Exit rate), by contrast, is the factor that allows converting an indication of future income into an

indication of present value. It is also determined through a linear combination: the inputs are taken from the finan-

cial market and the market of reference of the property, in particular the Risk Out rate is derived from the assessor

observing the transactions identified in the relevant market.

In accordance with the provisions of existing law, the assets in the property funds are valued by independent experts

every six months. The evaluations, assumptions and inputs used by the independent experts are then subject to vali-

dation by the risk management of the Company. The price of the shares, in consideration of their low incidence in the

portfolios of competence, is assumed to be equal to historical cost.

The fair value of property owned directly by the Company was determined with reference, in general, to the “com-

parative” method.

For receivables and payables to banks and customers with short-term maturities, the fair value is assumed to be

equal to the book value, as it is considered a good approximation. For medium/long-term performing loan expo-

sures, mainly represented by loans for mortgage contracts to customers, the fair value measurement considered the

discounting of contractual flows. For non-performing exposures, a fair value corresponding to the book value was

assumed.



346


2015


A.4.5 Fair value hierarchy

A.4.5.1 Assets and liabilities measured at fair value on a recurring basis: breakdown by fair value levels

E/t

Dec. 31, 2015 Dec. 31, 2014

L1 L2 L3 L1 L2 L3

1. Financial assets held for trading 488,500 4,651 - 302,808 24,949 3

3. Available for sale financial assets 12,103,626 49,001 85,715 12,585,239 72,775 74,101

4. Hedge derivatives - 892 - - 1,287 -

Total 12,592,126 54,544 85,715 12,888,047 99,011 74,104

1. Financial liabilities held for trading

216,974

61,886 -

331,201

39,058

-

3. Hedge derivatives - 64,512 - - 100,218 -

Total 216,974 126,398 - 331,201 139,276 -

Legend:L1 = Level 1L2 = Level 2L3 = Level 3

347


A.4.5.2 Annual changes in financial assets measured at fair value on a recurring basis (level 3)

E/tFinancial assets held for trading

Financial assets



assets Hedge

derivativesTangible

assetsIntangible

assets

1. Opening balance 3 - 74,101 - - -

2. Increases 1,030 - 13,281 - - -

2.1. Acquisitions 994 - 480 - - -


2.2.1. Income statement 36 - - - - -

- Gains - - - - - -

2.2.2. Shareholders’ equity X X 1,583 - - -

2.3. Transferred from other levels - - - - - -

2.4. Other increases - - 11,218 - - -

- of which business combinations - - 11,218 - - -

3. Decreases 1,033 - 1,667 - - -

3.1. Sales 998 - 35 - - -

3.2. Redemption 34 - - - - -


3.3.1. Income statement 1 - 857 - - -

- of which: losses - - 857 - - -

3.3.2. Shareholders’ equity X X 775 - - -

3.4. Transferred to other levels - - - - - -

3.5. Other decreases - - - - - -

- of which business combinations - - - - - -

4. Closing balance - - 85,715 - - -

348


2015

A.4.5.4 Assets and liabilities not measured at fair value or measured at fair value on a non-recurring basis: breakdown by fair value levels

E/t

Dec. 31, 2015 Dec. 31, 2014

BV L1 L2 L3 BV L1 L2 L3

1. Held to maturity financial assets 2,257,369 2,302,377 - - 2,204,200 2,270,329 - -

2. Loans to banks 671,274 - - 671,274 489,388 - - 489,388

3. Loans to customers 7,222,039 55,353 248,360 7,971,250 6,518,675 107,365 342,233 6,060,585

Total 10,150,682 2,357,730 248,360 8,642,524 9,212,263 2,377,694 342,233 6,549,973

1. Amounts due to banks 818,811 - - 818,933 6,755,203 - - 6,755,203

2. Payables due to 2. customers

21,100,322 - - 21,102,898 13,954,591 - - 13,954,601

3. Securities issued 223,504 - 233,261 - 288,805 - 300,543 -

Total 22,142,637 - 233,261 21,921,831 20,998,599 - 300,543 20,709,804

Legend:BV = Book ValueL1 = Level 1L2 = Level 2L3 = Level 3

349


PART B - INFORMATION ON THE STATEMENT OF FINANCIAL POSITION

ASSETS

Section 1 – Cash and cash equivalents – Caption 10

1.1 Analysis of cash and cash equivalents

E/t Dec. 31, 2015 Dec. 31, 2014

a) Cash 1,805 1,027

b) Demand deposits at Central Banks - -

Total 1,805 1,027

Cash and cash equivalents amounted to Euro 1,805 thousand, of which Euro 65 thousand in foreign currencies.

Cash and cash equivalents consisted of cash balances in Euro and foreign currencies held at the Milano 3 branch as

well as banknotes at ATMs located at the Head Office and at the offices of Banca Mediolanum financial advisors.

Section 2 – Financial assets held for trading – Caption 20

2.1 Analysis of financial assets held for trading

E/t

Dec. 31, 2015 Dec. 31, 2014


A. Non-derivatives

1. Debt securities 488,496 2 - 302,778 18,782 3

1.1 Structured notes 1,995 2 - - 18,782 3

1.2 Other debt securities 486,501 - - 302,778 - -

2. Capital securities - - - - - -

3. Holdings in UCITS - - - - - -

4. Loans - - - - - -

4.1 Repurchase agreements - - - - - -

4.2 Others - - - - - -

Total A 488,496 2 - 302,778 18,782 3

B. Derivatives

1. Financial derivatives 4 4,649 - 30 6,167 -

1.1 held for trading 4 4,649 - 30 6,167 -

1.2 associated with fair value option - - - - - -

1.3 others - - - - - -

2. Credit derivatives - - - - - -

2.1 held for trading - - - - - -

2.2 associated with fair value option - - - - - -

2.3 others - - - - - -

Total B 4 4,649 - 30 6,167 -

Total (A+B) 488,500 4,651 - 302,808 24,949 3

350


2015

2.2 Analysis of Financial assets held for trading by debtor/issuer

E/t Dec. 31, 2015 Dec. 31, 2014

A. On-Balance Sheet

1. Debt securities 488,498 321,563



c) Banks 343,577 111,682

d) Other issuers - 19,225


a) Banks - -





- others - -

3. Holdings in UCITS - -

4. Loans - -



c) Banks - -


Total A 488,498 321,563

B. Derivativesa) Banks 4,099 34

- Fair value 4,099 34

b) Customers 554 6,163

- Fair value 554 6,163

Total B 4,653 6,197

Total (A + B) 493,151 327,760

351


Section 4 – Available for sale financial assets – Caption 40

4.1 Analysis of available for sale financial assets

E/t

Dec. 31, 2015 Dec. 31, 2014


1. Debt securities 12,087,443 - - 12,573,995 - -

1.1. Structured notes - - - - - -1.2 Other debt securities 12,087,443 - - 12,573,995 - -

2. Equity investments 4,725 - 41,517 24 - 29,936

2.1 Measured at fair value 4,725 - 1,518 24 - -2.2 Measured at cost - - 39,999 - - 29,936

3. Holdings in UCITS 11,458 49,001 44,198 11,220 72,775 44,165

4. Loans - - - - - -

Total 12,103,626 49,001 85,715 12,585,239 72,775 74,101

4.2 Available for sale financial assets: breakdown by debtors/issuers

E/t Dec. 31, 2015 Dec. 31, 2014

1. Debt securities 12,087,443 12,573,995



c) Banks 80,863 37,701



a) Banks - -

b) Other issuers: 46,242 29,960

- insurance companies 4,683 -

- financial companies 5,474 5,474

- non-financial companies 36,085 24,486

- others - -

3. Holdings in UCITS 104,657 128,160

4. Loans - -



c) Banks - -


Total 12,238,342 12,732,115

352


2015

Section 5 – Held to maturity financial assets – Caption 50

5.1 Analysis of held to maturity financial assets

E/t

Dec. 31, 2015 Dec. 31, 2014

BVFair Value

BVFair value


1. Debt securities 2,257,369 2,302,377 - - 2,204,200 2,270,329 - -

- structured - - - - - - - -- others 2,257,369 2,302,377 - - 2,204,200 2,270,329 - -

2. Loans - - - - - - - -

Total 2,257,369 2,302,377 - - 2,204,200 2,270,329 - -

Legend:FV = fair valueBV = book value

During the year, securities matured for a total of approximately Euro 372 million. Purchases were also made for

approximately Euro 412 million.

It should be noted that the exposure of Banca Mediolanum S.p.A. in sovereign debt securities refers mainly to Italian

government securities.

5.2 Analysis of held to maturity financial assets by debtor/issuer

E/t Dec. 31, 2015 Dec. 31, 2014

1. Debt securities 2,257,369 2,204,200



c) Banks 46,011 45,998


2. Loans - -



c) Banks - -


Total 2,257,369 2,204,200

Total fair value 2.302.377 2.270.329

353


Section 6 – Loans to banks – Caption 60

6.1 Analysis of loans to banks

E/t

Dec. 31, 2015 Dec. 31, 2014

BVFair Value

BVFair Value


A. Loans to Central Banks 114,047 - - 114,047 192,299 - - 192,299

1. Time deposits - X X X - X X X

2. Reserve requirements 114,047 X X X 192,299 X X X

3. Repurchase agreements - X X X - X X X

4. Others - X X X - X X X

B. Loans to banks 557,227 - - 557,227 297,089 - - 297,089

1. Loans 557,227 - - 557,227 297,089 - - 297,0891.1 Current accounts and demand1.1 deposits

7,732 X X X 20,077 X X X

1.2 Time deposits 50,001 X X X - X X X

1.3 Other loans: 499,494 X X X 277,012 X X X

- Repurchase agreements 442,655 X X X 253,515 X X X

- Finance leases - X X X - X X X

- Others 56,839 X X X 23,497 X X X

2. Debt securities - - - - - - - -

2.1 Structured notes - X X X - X X X

2.2 Other debt securities - X X X - X X X

Total 671,274 - - 671,274 489,388 - - 489,388

Legend:FV = fair valueBV = book value

354


2015

Section 7 – Loans to customers – Caption 70

7.1 Analysis of loans to customers by type

E/t

Dec. 31, 2015 Dec. 31, 2014

Book Value Fair value Book Value Fair value

Not impaired

ImpairedNot

impaired

Impaired

Pur. Others L1 L2 L3 Pur. Others L1 L2 L3

Loans 6,862,066 - 54,010 - - 7,971,250 6,011,458 - 49,127 - - 6,060,585

1. Current accounts 416,974 - 3,915 X X X 395,735 - 5,118 X X X

2. Repurchase agreements 47,452 - - X X X 181,379 - - X X X

3. Mortgages 4,822,832 - 41,647 X X X 4,250,143 - 35,440 X X X

4. Credit cards, personal 4. loans and salary4. guaranteed loans 1,067,844 - 5,073 X X X 815,628 - 4,357 X X X

5. Finance leases - - - X X X - - - X X X

6. Factoring - - - X X X - - - X X X

7. Other loans 506,964 - 3,375 X X X 368,573 - 4,212 X X X

Debt securities 305,963 - - 55,353 248,360 - 458,090 - - 107,365 342,233 -

8. Structured notes - - - X X X - - - X X X

9. Other debt securities 305,963 - - X X X 458,090 - - X X X

Total 7,168,029 - 54,010 55,353 248,360 7,971,250 6,469,548 - 49,127 107,365 342,233 6,060,585

As at December 31, 2015, impaired loans amounted to Euro 54,010 thousand, up Euro 4,883 thousand over the

prior year (“non performing” exposures of 2014 identified on the basis of the definition in force at the time).

355


7.2 Analysis of loans to customers by debtor/issuer

E/t

Dec. 31, 2015 Dec. 31, 2014

Impaired Impaired

Not impaired Purchased Others Not impaired Purchased Others

1. Debt securities 305,963 - - 458,090 - -

a) Governments 300,538 - - 350,718 - -

b) Other government agencies - - - - - -

c) Other issuers 5,425 - - 107,372 - -

- non-financial companies - - - - - -

- financial companies 5,425 - - 107,372 - -

- insurance companies - - - - - -

- others - - - - - -

2. Loans to 6,862,066 - 54,010 6,011,458 - 49,127

a) Governments 22 - - - - 16

b) Other government agencies 29 - - 166 - -

c) Other issuers 6,862,015 - 54,010 6,011,292 - 49,111

- non-financial companies 196,998 - 3,684 190,726 - 4,737

- financial companies 357,520 - 3,375 367,403 - 4,212

- insurance companies 13,587 - - 12,419 - -

- others 6,293,910 - 46,951 5,440,744 - 40,162

Total 7,168,029 - 54,010 6,469,548 - 49,127

7.3 Loans to customers: micro-hedging

E/t Dec. 31, 2015 Dec. 31, 2014

1. Fair value micro-hedging loans 376,855 467,874

a) Interest rate risk 376,855 467,874


c) Credit risk - -

d) Multiple risks - -

2. Cash flows micro-hedging loans - -

a) Interest rate risk - -


c) Other - -

d) Other hedges - -

Total 376,855 467,874

356


2015



E/t

Dec. 31, 2015 Dec. 31, 2014

Fair valueNV

Fair valueNV

L1 L2 L3 L1 L2 L3

A) Financial derivatives

1) Fair value - 892 - 69,092 - 1,287 - 72,502

2) Cash flows - - - - - - - -


B) Credit derivatives

1) Fair value - - - - - - - -

2) Cash flows - - - - - - - -

Total - 892 - 69,092 - 1,287 - 72,502

Legend:NV = notional valueL1 = Level 1L2 = Level 2 L3 = Level 3


E/t


Fore

ign

inve

stm

entsMicro-hedging

Mac

ro-

hedg

ing

Mic

ro-

hedg

ing

Mac

ro-

hedg

ing

Interest rate risk

Currency risk

Creditrisk

Pricing risk

Multiple risks


2. Receivables 892 - - X - X - X X3. Held to maturity financial

assets X - - X - X - X X4. Portfolio X X X X X - X - X5. Other transactions - - - - - X - X -

Total assets 892 - - - - - - - -

1. Financial liabilities - - - X - X - X X2. Portfolio X X X X X - X - X


1. Forecast transactions X X X X X X - X X2. Portfolio of financial assets2. and financial liabilities X X X X X - X - -

357


Section 10 – Equity investments – Caption 100

10.1 Investments: disclosures on holdings

Company Name Registered office Operative office Shareholding % Voting rights %

A. Wholly-controlled companies

Mediolanum Vita S.p.A. Basiglio Basiglio 100.00% 100.00%

Mediolanum Comunicazione S.p.A. Basiglio Basiglio 100.00% 100.00%

PI Servizi S.p.A. Basiglio Basiglio 100.00% 100.00%

Mediolanum International Life Ltd Dublin Dublin 100.00% 100.00%

Mediolanum Assicurazioni S.p.A. Basiglio Basiglio 100.00% 100.00%

Mediolanum Gestione Fondi SGR p.A. Basiglio Basiglio 100.00% 100.00%

Fermi & Galeno Real Estate S.r.l. Basiglio Basiglio 100.00% 100.00%

Mediolanum Fiduciaria S.p.A. Basiglio Basiglio 100.00% 100.00%

Mediolanum International Funds Ltd Dublin Dublin 92.00% 92.00%

Mediolanum Asset Management Ltd Dublin Dublin 100.00% 100.00%

Banco Mediolanum S.A. Barcelona Barcelona 100.00% 100.00%

Bankhaus August Lenz & Co. AG Munich Munich 100.00% 100.00%

Gamax Management AG Luxembourg Luxembourg 100.00% 100.00%

B. Joint ventures

Banca Esperia S.p.A. Milan Milan 50.00% 50.00%

C. Companies under significant influence

Mediobanca S.p.A. Milan Milan 2.60% 2.60%

10.2 Subsidiaries, joint ventures and companies over which significant influence is exercised: book value, fair value and dividends received

For the information referred to in this item, reference is made to as described in the Consolidated Financial

Statements.

10.3 Subsidiaries, joint ventures and companies over which significant influence is exercised: key financial informationFor the information referred to in this item, reference is made to as described in the Consolidated Financial

Statements.

358


2015

10.5 Year’s movements in equity investments

E/t Dec. 31, 2015 Dec. 31, 2014


B. Increases 711,853 6,177

B.1 Acquisitions - -

of which: Transactions of business combinations 688,325 -

B.2 Reversal of impairment 19,248 -

B.3 Write-ups - -

B.4 Other changes 4,280 6,177

C. Decreases (2,791) (11,908)

C.1 Disposals - (79)

C.2 Value adjustments (2,791) (6,668)

C.3 Other changes - (5,161)

D. Closing balance 1,063,015 353,954

E. Total write-ups - -

F. Total adjustments - -

As at December 31, 2015, investments amounted to Euro 1,063.0 million, a sharp increase versus the correspond-

ing figure of the previous year of Euro 354.0 million. The change during the year was mainly due to the merger of

Mediolanum S.p.A. into Banca Mediolanum. In particular, in 2015, all companies that were directly and indirectly

controlled by Mediolanum S.p.A. as at December 31, 2014 have become subsidiaries of Banca Mediolanum.

This section provides disclosures on impairment testing conducted on equity investments as at December 31, 2015,

in accordance with IAS 36 and the instructions set forth in the document jointly issued by the Bank of Italy, CON-

SOB and ISVAP on March 3, 2010.

The purpose of impairment testing is to ascertain that the carrying amount of each investment does not exceed its

recoverable amount, i.e. the benefit that can be derived from it, either through future use (value in use) or by its

disposal (fair value less cost to sell), whichever is the higher.



359


EQUITY INVESTMENTS TESTED FOR IMPAIRMENT

The impairment test was conducted on the equity investments listed below:

• Banco Mediolanum S.A.;

• Gamax Management AG (“Gamax”);

• Bankhaus August Lenz A.G.

E/m % holding Carrying amount to be tested for impairment

Banca Mediolanum 100% 272.8

Gamax 99.996% 24.2

Bankhaus August Lenz A.G. 100% 30.2

METHODS USED Like in prior years, the recoverable amount of the investments above was determined by calculating their value in use.

Under IAS 36 value in use can be calculated applying the Discounted Cash Flow (DCF) method. The DCF method

determines the value in use of an equity investment, or an entity, by computing the present value of future cash flows

(from operations) it is expected to generate over time.

For lenders, it is common practice to apply the Free Cash Flow to Equity (FCFE) model known in Anglo-Saxon

countries as Dividend Discount Model (DDM), in the Excess Capital variant, that determines the value of the entity

on the basis of the future cash flows it expects to be capable of distributing to the shareholders, without impacting

the assets supporting its future growth, in compliance with regulatory capital requirements, and applying a discount

rate which reflects the specific risk. Please note that although the name Dividend Discount Model contains the term

“dividend”, the cash flows it calculates are not the dividends the entity expects to distribute to its shareholders, but

the cash flows potentially available to equity holders net of the assets needed for business operation.



BANCO MEDIOLANUM The recoverable amount of Banco Mediolanum was determined based on value in use calculated by applying the

DDM method to the information set out in the 2016-2018 Business Plan (the 2016-2018 Plan) approved by the

Boards of Directors of Banco Mediolanum and Banca Mediolanum S.p.A..


of the possible future business developments of Banco Mediolanum.

The 2016-2018 Plan is an update of the previous 2015-2017 plan according to the new macroeconomic and specific

national and sector scenario. In particular, the plan to develop the business model of Banca Mediolanum in Spain in

order is confirmed and based on the experience and track record of the management of the Mediolanum Group, with

sustained development of the sales network and a consequent growth in net inflows and assets under management.

The previous plan was updated to incorporate most recent expectations in relation to interest rate developments over

the plan period and inflows forecasts on the basis of volumes and sales network numbers as at December 31, 2015.

360


2015

Net profit of Banco Mediolanum in 2015 amounted to approximately Euro 18.1 million (approximately Euro 21

million in 2014), also thanks to the contribution of income components related to corporate treasury activities, with

760 financial advisors (740 in 2014) and Euro 3,563 million in assets under management and administration (Euro

2,925 million in 2014).


• Family Bankers (FB) network growth from 760 people to 1,249 people estimated at year end 2018;

• Growth in assets under management and administration at an average annual rate of 18.7%.

To determine the value in use of the investment two scenarios were considered:

• base scenario: developed using the projections set out in the 2016-2018 Plan;

• prudential scenario: developed using the projections set out in the Plan with the exclusion of income components

related to corporate treasury activities.

In both scenarios cash-flows were estimated assuming a minimum Capital Ratio (CET 1 ratio) of 12.1% of RWA,

in line with the SREP Decision communicated by the Supervisory Authority.


(ke) was estimated at 10.7%, based on the following parameters:

• risk-free rate of 1.9% calculated on the basis of average historical 6-month yields on 10-year Spanish treasuries;


torical 2-year beta of a panel of comparable entities operating in the Spanish banking market;





The value of Banco Mediolanum at the end of the plan period was calculated based on cash flows available in 2018,

prudentially excluding in both evaluation scenarios, the contribution of corporate treasury activities, and assuming

2% long-term growth in line with long-term inflationary expectations.


• Discount rate;

• Long-term growth rate;

• Net profitability.


recoverable amount of the investment was equal to the related book value.

In both scenarios, the exercise did not reveal any impairment losses of the investment.

361


GAMAX The recoverable amount of Gamax was determined based on value in use calculated by applying the DDM method to

the information set out in the 2016-2018 Business Plan (the 2016-2018 Plan) approved by the Board of Directors

of Gamax and Banca Mediolanum S.p.A..


of the possible future business developments of Gamax.

The previous plan was updated to incorporate most recent expectations in relation to financial market performance

and interest rate developments over the plan period.

As at December 31, 2015, the profitability of Gamax amounted to Euro 7.8 million, higher than the figure recorded

in 2014 (Euro 4.8 million).


• slight decrease in assets under management providing a prudentially average annual decrease of 1.6% in the

period up to Euro 735 million at the end of 2018;

• revenues expected to decrease at a rate of 14.2%, amounting to Euro 11 million in 2018;

• net income is expected to stabilize at around Euro 3.4 million at the end of the projection period.


(Ke) was estimated at 9.1% for the Italian Division and 8% for the German Division. Calculations were based on

the following parameters:

• risk-free rate of 1.8% calculated on the basis of average historical 6-month yields on 10-year Italian treasuries

for the Italian Division, and of 0.6% calculated on the basis of average historical 6-month yields on 10-year

German treasuries for the German Division;


torical 2-year beta of a panel of comparable entities;





The value of Gamax at the end of the plan period was calculated based on cash flows available in 2018, and assuming

1.5% long-term growth in line with long-term inflationary expectations.


• discount rate;

• long-term growth rate;

• net profitability.


recoverable amount of the investment was equal to the related book value.

The exercise did not reveal any impairment losses of the investment in Gamax.

362


2015

BANKHAUS AUGUST LENZ A.G.The recoverable amount of BAL was determined based on value in use calculated by applying the DDM method to

the information set out in the 2016-2018 Business Plan (the 2016-2018 Plan) approved by the Boards of Directors

of BAL and Banca Mediolanum S.p.A..

As at December 31, 2015, BAL recorded a loss of Euro 2.2 million, an improvement compared to the figure recorded

in the previous year (Euro -6.1 million).


• growth in net business margin at an average annual rate of 32.6%;

• increase in administrative expenses at an average annual rate of 6%;


(ke) was estimated at 10.5%. Calculations were based on the following parameters:

• risk-free rate of 0.6% calculated on the basis of average historical 6-month yields on 10-year German treasuries;


torical 2-year beta of a panel of comparable entities;


line with best practice;

• specific risk premium conservatively estimated at 3.5% to take into account the risk of missing plan targets in

the light of negative historical data.

The value of BAL at the end of the plan period was calculated based on expected profit in the long term, and assum-

ing 1.5% long-term growth in line with long-term inflationary expectations.

The recoverable amount of the investment in BAL was found to be equal to the carrying amount of the CGU for the

following elements:

• discount rate of 12.9% (increase by 240 bps);

• long term growth of -2.7% (decline by 423 bps);

• long-term profitability 33% lower than expected.

The values obtained show no additional impairment losses on the investment compared to the impairments already

recorded (Euro 2.1 million).

MEDIOBANCA S.P.A.With regard to investment in Mediobanca S.p.A., Ernst & Young Financial-Business Advisory S.p.A. has been as-

signed the upgrading of the impairment test as at December 31, 2015. As done in prior years, the recoverable amount

of the CGUs was determined by calculating their value in use.

The recoverable amount of the investment in Mediobanca S.p.A. as at December 31, 2015 was determined on the

basis of publicly available information and on the basis of analysts’ consensus, taking into account the final results

as at September 30, 2015 and the objectives of the 2014-2016 strategic lines.

For the valuation of the shareholding, the Dividend Discount Model (Excess Capital variant) was used. This method

is usually used in practice nationally and internationally for the purpose of determining the economic value of com-

panies operating in the financial sector and subject to compliance with the minimum capitalization, and has been

applied in continuity with the previous years.

The value of Mediobanca S.p.A. has been subject to sensitivity analysis in relation to possible changes in the under-

lying assumptions that affect the value, represented in particular by the cost of capital, the growth rate of long-term

results and estimated net income with reference to the 2014-2016 strategic guidelines, in consideration of projec-

363


tions made on the basis of the consensus of analysts published following the presentation of the strategic guidelines.

Ernst & Young Financial-Business Advisory S.p.A. issued the report on the impairment test at December 31, 2015

relating to the investment in Mediobanca, which found that on the basis of the current expected evolution of the

macroeconomic scenario and sector, of the results at September 30, 2015 of Mediobanca S.p.A., of the 2014-2016

strategic guidelines, trends in the consensus of analysts and valuation analysis developed, as reported in the afore-

mentioned report, there is a recoverable amount of the investment of about Euro 13.4 per share (Euro 12.4 – Euro

14.4).

For considerations relating to the sensitivity analysis and value recoverability, as the investment is measured at cost

in the Banca Mediolanum separate financial statements, adjusted for write-downs made in previous years, amounting

to Euro 10.05 per share as at December 31, 2014, a recovery in value is made up to the amount of the lower end

of the sensitivity analysis of the recoverable value identified by the independent expert (Euro 10.9 per share), as it

is deemed the assumptions no longer apply that had resulted in an impairment loss and that had consequently led to

the devaluation of these investments in previous years. Therefore, a reversal of impairment was recorded amounting

to Euro 19.2 million.

From the first days of 2016, the Mediobanca stock recorded a significant decrease in prices. From the analyzes

carried out, this decline was on average lower than that of other Italian bank stocks. In the same period, the vola-

tility of the stock, estimated over the time horizon of two years, remained broadly stable. Therefore, the information

elements collected did not show a significant deterioration in the economic and financial fundamentals adopted for

the purposes of the impairment test, confirming the validity of the estimate.

Investments in subsidiaries, except as disclosed in “Investments subject to impairment tests” are recorded in the

financial statements at historical values, below their equity amounts.

Section 11 – Property and equipment – Item 110

11.1 Analysis of tangible assets measured at cost

E/t Dec. 31, 2015 Dec. 31, 2014

1.1 owned 49,063 17,032

a) land 18,780 5,440

b) buildings 16,088 4,450

c) furnishings 2,993 2,823

d) electronic equipment 11,202 3,582

e) other - 737

1.2 acquired under finance leases - -

a) land - -

b) buildings - -

c) furnishings - -

d) electronic equipment - -

e) other - -

Total 49,063 17,032

364


2015

11.5 Property and equipment held for own use: annual changes

E/t Land Buildings FurnishingsElectronic equipment Others Total

A. Gross opening balance 5,440 8,751 14,752 21,908 875 51,726

A.1 Total net write-downs - (4,301) (11,929) (18,209) (255) (34,694)

A.2 Net opening balance 5,440 4,450 2,823 3,699 620 17,032

B. Increases 13,340 22,099 2,063 16,838 - 54,340

B.1 Acquisitions 13,340 21,814 1,987 10,501 - 47,642

- of which business combinations - - 2 - - 2

B.2 Capitalized improvement costs - 285 - - - 285

B.3 Reversal of impairment - - - - - -


a) equity - - - - - -



B.6 Reclassified from investment property - - - - - -

B.7 Other changes - - 76 6,337 - 6,413

C. Decreases - 10,461 1,893 9,335 620 22,309

C.1 Disposals - - 39 5,688 - 5,727

- of which business combinations - - - - - -

C.2 Depreciation - 1,514 1,705 1,545 - 4,764

C.3 Impairment: - - - - - -

equity - - - - - -

income statement - - - - - -


a) equity - - - - - -



C.6 Reclassified to: - - - - - -

a) tangible assets held for investment - - - - - -

b) assets held for sale - - - - - -

C.7 Other changes - 8,947 149 2,102 620 11,818

D. Net closing balance 18,780 16,088 2,993 11,202 - 49,063

D.1 Total net write-downs - (9,599) (13,557) (14,037) (255) (37,448)

D.2 Gross closing balance 18,780 25,687 16,550 25,239 255 86,511

E. Measured at cost - - - - - -

Tangible assets with unit value lower than Euro 516.46 were fully depreciated in the year.

365


Section 12 – Intangible assets – Caption 120

12.1 Analysis of intangible assets

Dec. 31, 2015 Dec. 31, 2014

E/t Defined life Undefinedlife Defined life Undefined life

A.1 Goodwill X - X -

A.2 Other intangible assets 46,166 - 35,824 -

A.2.1 Assets measured at cost: 46,166 - 35,324 -


b) Other assets 46,166 - 35,324 -

A.2.2 Assets measured at fair value: - - 500 -


b) Other assets - - 500 -

Total 46,166 - 35,824 -

12.2 Intangible assets: annual changes

GoodwillOther internally generated

intangible assets Other intangible assets Total

E/t Defined Undefined Defined Undefined

A. Gross opening balance - - - 35,824 - 35,824

A.1 Total net write-downs - - - - - -

A.2 Net opening balance - - - 35,824 - 35,824

B. Increases - - - 21,344 - 21,344

B.1 Acquisitions - - - 21,333 - 21,333

B.2 Increases in internal intangible assets X - - - - -

B.3 Reversal of impairment X - - - - -


- equity X - - - - -



B.6 Other changes - - - 11 - 11

C. Decreases - - - 11,002 - 11,002

C.1 Disposals - - - - - -

C.2 Value adjustments - - - 11,002 - 11,002

- amortization X - - 11,002 - 11,002

- impairment - - - - - -

+ equity X - - - - -

+ income statement - - - - - -


- equity X - - - - -

- income statement X - - - - -C.4 Reclassified to non-current assets held

for sale - - - - - -C.5 Negative exchange differences - - - - - -

C.6 Other changes - - - - - -

D. Net closing balance - - - 46,166 - 46,166D.1 Total net write-downs - - - - - -

E. Gross closing balance - - - 46,166 - 46,166F. Measured at cost - - - - - -

366


2015

The increase in other intangible assets, amounting to Euro 21,333 thousand, is due to higher costs for IT systems

related to the development of new technologies.

Section 13 - Tax assets and liabilities - Caption 130 (assets) and Caption 80 (liabilities)

The “Current tax assets” include the tax advances paid in 2015.

13.1/13.2 Analysis of deferred tax assets and tax liabilities

E/t Dec. 31, 2015 Dec. 31, 2014

Deferred tax assets


Charge to equity 6 495

Total deferred tax assets 67,465 69,006

Deferred tax liabilities

Charge to the income statement (11,914) (10,955)

Charge to equity (59,602) (50,582)

Total deferred tax liabilities (71,517) (61,537)

13.3 Changes in deferred tax assets (balancing item in income statement)

E/t Dec. 31, 2015 31.12.204


2. Increases 25,706 25,911



b) due to changes in accounting criteria - -

c) reversal of impairment - -

d) other 25,260 25,911


2.3 Other increases 446 -

- business combinations 446 -

3. Decreases 26,758 29,549


a) reversals - -



d) other 26,692 29,549


3.3 Other decreases 66 -

a) turned into tax credit under Act 214/2011 - -

b) others 66 -

- of which business combinations 66 -


367


13.4 Changes in deferred tax liabilities (balancing item in income statement)

E/t Dec. 31, 2015 Dec. 31, 2014

1. Initial balance (10,955) (9,993)

2. Increases (1,202) (1,226)

2.1 Deferred tax liabilities arisen in the year (1,196) (1,226)



c) other (temporary differences arisen in the year) (1,196) (1,226)


2.3 Other increases (6) -

- of which business combinations (6) -

3. Decreases 243 264

3.1 Deferred tax liabilities cancelled in the year 243 264

a) reversals - -


c) other 243 264



- of which business combinations - -

4. Final balance (11,914) (10,955)

13.5 Changes in deferred tax assets (balancing item in shareholders’ equity)

E/t Dec. 31, 2015 Dec. 31, 2014

1. Initial balance 495 4,887

2. Increases 317 476

2.1 Deferred tax assets arisen in the year 317 476


b) due to changes in accounting policies - -

c) other 317 476




3. Decreases (806) (4,868)

3.1 Deferred tax assets cancelled in the year (806) (4,868)

a) reversals - -



d) other (806) (4,868)




4. Final balance 6 495

368


2015

13.6 Changes in deferred tax liabilities (balancing item in shareholders’ equity)

E/t Dec. 31, 2015 Dec. 31, 2014

1. Initial balance (50,582) (41,170)

2. Increases (23,090) (32,584)

2.1 Deferred tax liabilities arisen in the year (23,069) (32,584)



c) other (23,069) (32,584)


2.3 Other increases (21) -

- of which business combinations (21) -

3. Decreases 14,070 23,172

3.1 Deferred tax liabilities cancelled in the year 14,070 23,172

a) reversals - -


c) other 14,070 23,172




4. Final balance (59,602) (50,582)

369


Section 15 – Other assets – Caption 150

15.1 Other assets

E/t Dec. 31, 2015 Dec. 31, 2014

Receivables from tax authorities 93,450 87,110

Receivables from financial advisors 2,669 2,528

Advances to suppliers and professionals 4,578 4,304

Security deposits 461 2,809

Receivables from employees 461 483

Other receivables 136,477 44,652

Assets for items in transit 128,103 36,927

Accrued assets 43,303 39,837

Deferred assets 5,316 4,509

Receivables from subsidiaries and associates 4,092 4,544

Other assets 8,330 9,904

Total 427,240 237,607

Assets for items in transit are primarily related to miscellaneous items settled in January 2016. Other receivables

include on the other hand, the utilities to be charged to customers’ current accounts that have not yet reached ma-

turity (Euro 128,698 thousand).

Deferred income relates to the portion of charges for different services which accrue in the coming years.

An analysis of Receivables from Tax Authorities, including prior year’s comparative information, is set out in the

table below:

E/t Dec. 31, 2015 Dec. 31, 2014

Virtual stamp duties 57,436 57,273

Tax authorities for advance assets under administration 29,153 29,728

Others 6,861 109

Total 93,450 87,110

Virtual Stamp duties is related to the prepayment of the stamp duty advance for the year 2016 net of the balance

of stamp duty relating to the current year.

370


2015

LIABILITIES

Section 1 – Amounts due to banks – Caption 10

1.1 Analysis of amounts due to banks

E/t Dec. 31, 2015 Dec. 31, 2014

1. Amounts due to central banks - 6,047,481

2. Amounts due to banks 818,811 707,722

2.1 Current accounts and demand deposits 101,644 21,499

2.2 Time deposits 503,524 685,424

2.3 Loans 209,088 -

2.3.1 Repurchase agreements 209,088 -

2.3.2 Others - -

2.4 Commitments to buy back own equity instruments - -

2.5 Other payables 4,555 799

Total 818,811 6,755,203



Fair Value - Level 3 818,933 6,755,203

Total Fair Value 818,933 6,755,203

Amounts due to banks amounted to Euro 818.8 million compared to Euro 6,755.2 million in the comparative period.

The change is mainly due to the closure of the loans with Central Banks.

Section 2 – Payables due to customers – Caption 20

2.1 Analysis of payables due to customers

E/t Dec. 31, 2015 Dec. 31, 2014

1. Current accounts and demand deposits 10,186,533 8,065,980

2. Time deposits 3,174,261 3,913,254

3. Loans 7,521,621 1,769,280

3.1 Repurchase agreements 7,521,621 1,769,280

3.2 Others - -

4. Commitments to buy back own equity instruments - -

5. Other payables 217,907 206,077

Total 21,100,322 13,954,591



Fair Value - Level 3 21,102,898 13,954,601

Fair Value 21,102,898 13,954,601

371


Payables due to customers were up by Euro 7,145.7 million compared to the figure as at December 31, 2014. This

change is mainly due to the increase in the balance of repurchase agreements with Cassa Compensazione e Garanzia.

Section 3 – Securities issued – Caption 30

3.1 Analysis of securities issued

E/t

Dec. 31, 2015 Dec. 31, 2014

Book ValueFair value

Book ValueFair value


A. Securities

1. Bonds 223,504 - 233,261 - 288,805 - 300,543 -

1.1 structured - - - - - - - -

1.2 other 223,504 - 233,261 - 288,805 - 300,543 -

2. Other securities - - - - - - - -

2.1 structured - - - - - - - -

2.2 others - - - - - - - -

Total 223,504 - 233,261 - 288,805 - 300,543 -

3.2 Analysis of caption 30 “Securities issued”: subordinate securities

E/t Dec. 31, 2015 Dec. 31, 2014

Securities issued: subordinate securities 154,242 219,237

Total 154,242 219,237

372


2015

Section 4 – Financial liabilities held for trading – Caption 40

4.1 Analysis of financial liabilities held for trading

E/t

Dec. 31, 2015 Dec. 31, 2014

NVFV

FV* NVFV


A. Non-derivatives liabilities

1. Amounts due to banks 158,198 171,306 - - 171,306 249,346 264,198 - - 264,199

2. Payables due to customers 39,880 45,668 - - 45,668 57,611 66,999 - - 66,999

3. Debt securities - - - - - - - - - -

3.1 Bonds - - - - - - - - - -

3.1.1 Structured - - - - X - - - - X

3.1.2 Other bonds - - - - X - - - - X

3.2 Other securities - - - - - - - - - -

3.2.1 Structured - - - - X - - - - X

3.2.2 Others - - - - X - - - - X

Total A 198,078 216,974 - - 216,974 306,957 331,197 - - 331,198

B. Derivatives

1. Financial derivatives X - 61,886 - X X 4 39,058 - X

1.1 Held for trading X - 61,886 - X X 4 39,058 - X

1.2 Associated with fair value option X - - - X X - - - X

1.3 Others X - - - X X - - - X

2. Credit derivatives X - - - X X - - - X

2.1 Held for trading X - - - X X - - - X

2.2 Associated with fair value option X - - - X X - - - X

2.3 Others X - - - X X - - - X

Total B X - 61,886 - X X 4 39,058 - X

Total A+B X 216,974 61,886 - X X 331,201 39,058 - X


373


4.4 Year’s movements in financial liabilities (excluding “short positions”)held for trading

Financial liabilities consist entirely of short positions. Therefore, no information is provided under this heading.



E/t

Dec. 31, 2015 Dec. 31, 2014

Fair valueNV

Fair valueNV

L1 L2 L3 L1 L2 L3

A. Financial derivatives - 64,512 - 242,766 - 100,218 - 341,219

1) Fair value - 64,512 - 242,766 - 100,218 - 341,219

2) Cash flows - - - - - - - -


B. Credit derivatives - - - - - - - -

1) Fair value - - - - - - - -

2) Cash flows - - - - - - - -

Total - 64,512 - 242,766 - 100,218 - 341,219

Legend:NV = nominal valueL1 = Level 1L2 = Level 2L3 = Level 3


E/t


Fore

ign

inve

stmen

tsMicro-hedging

Mac

ro-h

edgi

ng

Spec

ifica

Mac

ro-h

edgi

ng

Interest rate risk

Exchange rate risk Credit risk

Pricing risk

Multiple risks

1. Available for sale financial assets X - X X

2. Receivables 64,512 - - X - X - X X




Total assets 64,512 - - - - - - - -





2. Portfolio of financial assets and financial2. liabilities X X X X X - - - -

374


2015

Section 8 – Tax liabilities – Caption 80

For information on Deferred tax liabilities readers are referred to Section 13 – Statement of Financial Position

Assets - of these notes.

Section 10 – Other liabilities – Item 100

10.1 Analysis of other liabilities

E/t Dec. 31, 2015 Dec. 31, 2014

Agents’ severance benefits 5,349 4,945

Payables to promoters, advisors and dealers 39,023 35,924

Payables to suppliers 52,196 56,911

Payables to subsidiaries and associates 7,058 7,118

Payables to tax authorities 11,330 10,496

Payables to social security agencies 6,573 5,547

Payables to employees 14,844 12,187

Payables to professionals, directors and auditors 3,655 5,145

Security deposits 13 -

Payables for items in transit 154,817 115,068

Deferred liabilities 13,326 21,839

Other liabilities 18,579 3,795

Total 326,763 278,975

Liabilities for items in transit include the provisions for RID direct debit payment (Euro 40,861 thousand), bank

transfers arranged by customers and regulated in Interbank Network in the first days of 2016 (Euro 23,676 thou-

sand) and other items in transit regularly closed during in the first days of the New Year.

Payables to suppliers relate to services received, but not yet paid at the balance sheet date.

Tax payables refer to amounts owed for the substitute tax and other deductions.

Payables to employees related to overtime payments, reimbursement of expenses, amounts set aside for bonuses

accrued at year end, statutory leaves and vacations unused as at December 31, 2015.

Agents’ severance benefits relate to the severance entitlements of financial advisors as accrued at balance sheet date.

The amounts due will be paid into the related Mediolanum Vita S.p.A. policy account in accordance with the terms

of the collective agreement.

Payables to tax authorities mainly relate to substitute taxes and withholding taxes payable.

375


Section 11 – Employee termination indemnity – Item 110

11.1 Year’s movements in employee completion-of-service entitlements

E/t Dec. 31, 2015 Dec. 31, 2014


B. Increases 7,100 5,001

B.1 Provisions for the year 5,419 4,737

B.2 Other changes 1,681 264

- of which business combinations 344 -

C. Decreases (6,138) (5,658)

C.1 Funds used in the year (6,042) (5,658)

C.2 Other changes (96) -



The discount rate used for the employee termination indemnity provision is consistent with the riskiness of the cash

flows to be discounted of liabilities by maturity and reflects current market conditions.

The discount rate used is consistent with the riskiness of the cash flows to be discounted of liabilities by maturity

and reflects current market conditions. Given the current market situation with the discount rates at historic lows,

a further significant reduction cannot be assumed. An increase in the discount rate would result in a reduction in

provisions with a positive impact on the income statement.

Section 12 – Provisions for risks and charges – Caption 120

12.1 Analysis of provisions for risks and charges

E/t Dec. 31, 2015 Dec. 31, 2014

1. Company severance entitlements - -

2. Other provisions for risks and charges 192,201 184,030

2.1 legal disputes 12,266 9,229

2.2 personnel costs - -

2.3 others 179,935 174,801

Total 192,201 184,030

376


2015

12.2 Year’s movements in provisions for risks and charges

E/tSeverance

entitlementsOther provisions Total

A. Opening balance - 184,030 184,030

B. Increases - 62,795 62,794

B.1 Provisions for the year - 62,764 62,764

B.2 Time-related changes - - -

B.3 Discount rate changes - - -

B.3 - of which business combinations - 31 31

B.4 Other changes - 31 31

C. Decreases - (54,624) (54,624)

C.1 Used in the year - (38,303) (38,303)

C.2 Discount rate changes - - -

C.3 Other changes - (16,321) (16,321)

B.3 - business combinations - - -

D. Closing balance - 192,201 192,201

12.4 Analysis of other provisions for risks and charges: other

E/tBalance at

Dec. 31, 2014Amounts set aside

in the year Other changes Used in the yearBalance at

Dec. 31, 2015

Provision:

- legal disputes 9,229 2,930 (2,546) (1,072) 8,541

- other:

Managerial allowance 51,917 11,790 (3,445) (11,524) 48,738

Risks related to FA illegal actions 33,726 5,481 (5,600) (7,632) 25,975

Customer base entitlements 43,933 27,523 (1,044) (3,092) 67,320

Portfolio allowance 20,059 2,693 (1,072) (2,091) 19,589

Future expenses on distributed products 10,500 1,834 - (2,466) 9,868

Other provisions 14,666 10,512 (2,582) (10,426) 12,170

Total 184,030 62,763 (16,289) (38,303) 192,201

The table above shows the analysis of other provisions and the year’s movements.

The Provision for legal disputes mainly includes legal liabilities (litigation and pre-litigation) relating to the Com-

pany.

The Provision for risks related to FA illegal actions covers the Bank’s risk of future liabilities for claims below the

deductible threshold of the insurance policy taken out to cover damage suffered by Customers as a result of the

misconduct of the Bank’s financial advisors. Based on historical data and the claims received by the Bank at balance

sheet date, the amount of the provision adequately covers those risks. The provision also includes amounts set aside

to cover the risk of liabilities arising from legal claims made by customers against the Bank in relation to securities

defaults.

377


The Provision for Customer base entitlements covers the related entitlements of financial advisors. The provision was

calculated on the basis of reaching retirement age in the next five years and future liabilities estimated on the basis

of the Bank’s historical data in accordance with the requirements of IAS 37.

In addition to contractual benefits, the Bank voluntarily, unilaterally and discretionarily rewards its financial advi-

sors with additional allowances.

These are: the Portfolio and/or Structure Allowance, and the Managerial Allowance.

The Portfolio and Structure Allowance is paid to financial advisors in relation to the value of their customer portfo-

lio or their agents’ organization, as applicable.

The adopted regulation governs transfers between financial advisors of the responsibility in the management of

portfolios of bank customers or entrustment and assistance of a structure of financial advisors. The types of transfer

are realized with the release of a financial advisor, due to the termination of the agency and the takeover of another

financial advisor, and with the reallocation of portfolios and/or facilities between financial advisors. The Bank main-

tains an active role in the process of finding a successor advisor.

At the time of transfer, the regulation requires:

• payment to the financial advisor originator – subject to the possession of certain personal qualifications and to

the non-performance of competitive activities in the two years following the termination of the appointment – of

compensation arising from the valuation of the portfolio sold or of the structure disposed, according to prede-

termined criteria and

• the corresponding debit to the financial promoter successor of a charge of an equivalent amount equal to the

value of the portfolio and/or structure acquired under management.

The Bank pays the outgoing FA at the end of the third year after the date the contract is terminated and charges the

same amount to the substitute FA in 3 or 5 years. No interest is applied in either case.

If there is no substitute FA, no allowance is paid to the outgoing FA.

The actuarial calculation took account of the effect of any future cash-flow mismatches (due to the different timing

between payment and collection and no interest being applied), and also of counterparty risk through the application

of a discount rate.

The Managerial Allowance is paid to sales network members having managerial roles whose compensation is based

on specific commercial parameters. This allowance is paid when the FA meets old age pension requirements – pro-

vided that he does not engage in any competitive activities in the two years after he retires – or in the event of full

permanent disability or death of the FA. Similarly to the portfolio and/or structure allowance, the Managerial Al-

lowance is paid within 3 years of the date on which the FA left the sales network.

The actuarial calculation is based on the estimated probability of payment of the allowance for retirement of FAs

in managerial roles at year end, as well as the risk of death or full permanent disability of FAs, and takes account

of the relationship between the FA’s length of service at the date of the calculation and the length of service at the

date of occurrence of the events that trigger the payment (pro-rata basis) with the application of a discount rate.

The Provision for product distribution relates to amounts set aside to cover expected future liabilities in connection

with commissions payable to the sales force primarily on Tax Benefit New sales. The figure shown under other chang-

es relates to adjustments made to amounts set aside in prior years.

The discount rate used for the aforementioned provisions is consistent with the riskiness of the cash flows to be dis-

counted of liabilities by maturity and reflects current market conditions. Given the current market situation with the

discount rates at historic lows, a further significant reduction cannot be assumed. An increase in the discount rate

would result in a reduction in provisions with a positive impact on the income statement.

378


2015

Section 14 Company net equity – Captions 130, 150, 160, 170, 180, 190 and 200

14.1 Analysis of “Share” and “Treasury shares

For further information on this section, reference is made to the description in section 14.3.

14.2 Year’s movements in share capital - number of shares

Resources Ordinary Others

A. Shares at year start 600,000,000 -

- fully paid 600,000,000 -


A.1 Treasury shares (-) - -

A.2 Shares outstanding: initial balance 600,000,000 -

B. Increases 138,401,857 -

B.1 New issues - -

- payment: - -

- business combinations - -

- conversion of bonds - -

- warrants exercised - -

- other - -

- bonus issues: - -

- employees - -

- directors - -

- other - -

B.2 Sale of treasury shares - -

B.3 Other changes 138,401,857 -

C. Decreases - -

C.1 Cancellation - -

C.2 Purchase of treasury shares - -

C.3 Sale of businesses - -


D. Shares outstanding: final balance 738,401,857 -

D.1 Treasury shares (+) - -

D.2 Shares at year end 738,401,857 -

- fully paid 738,401,857 -


As at December 31, 2015, the share capital amounted to Euro 600,000 thousand, divided into 738,401,857 ordi-

nary shares, all without indication of nominal value. The increase refers to the fractionation further specified in the

paragraph “Merger by incorporation of Mediolanum S.p.A. into Banca Mediolanum S.p.A.”.

379


14.3 Share capital: other information

As at December 31, 2015, the share capital amounted to Euro 600.0 million, divided into 738,401,857 ordinary

shares, without par value. The Company does not hold any treasury shares.

14.4 Retained earnings: other information

Retained earnings include: the legal reserve, the extraordinary reserve, the FTA reserve and other earnings reserves.

An analysis of the company’s shareholders’ equity by account and utilization is set out in the table below.

E/t AmountPossibility of use

(A, B, C) Portion available

Summary of utilization

to cover losses for over reason

Share capital: 600,000 - - - -

Capital reserves of which:

Retained earnings of which:

- legal reserve 49,605 B 49,605 - -

- extraordinary reserve 283,116 A B C 283,116 - -

- FTA reserve (65,524) - (65,524) - -

Other reserves: stock options 17,653 A B 17,653 - -

Other reserves of which:

- merger reserve 309,065 - 309,065 - -

Valuation reserve (*) 121,629 - - - -

Quarterly dividend (118,206) - -

Total 1,197,338 - 593,915 - -

Of which non-distributable - - 67,258 - -

Of which distributable - - 526,657 - -

Legend:A = Capital increaseB = Loss coverageC = Distribution to shareholders(*) Reserve not available pursuant to art. 6 of Legislative Decree NO. 38/2005

380


2015

OTHER INFORMATION

1. Guarantees issued and commitments

E/t Dec. 31, 2015 Dec. 31, 2014

1) Financial guarantees: - 30,571

a) Banks - 30,571

b) Customers - -

2) Commercial guarantees: 66,732 55,325

a) Banks 15,088 10,771

b) Customers 51,644 44,554

3) Irrevocable commitments to disburse funds 66,589 130,408

a) Banks 23 74,885

i) with certain drawdown 23 74,885

ii) with possible drawdown - -

b) Customers 66,566 55,523

i) with certain drawdown 51 647

ii) with possible drawdown 66,515 54,876

4) Commitments under credit derivatives: protection sales - -

5) Assets pledged to secure third-party obligations - -

6) Other commitments - -

Total 133,321 216,304

2. Assets pledged to secure own liabilities and commitments

E/t Dec. 31, 2015 Dec. 31, 2014

1. Financial assets held for trading 68,774 79,749

2. Financial assets measured at fair value - -


4. Held to maturity financial assets 843,881 1,373,131

5. Loans to banks - -

6. Loans to customers 221,645 386,326


Total 9,130,706 8,422,923

381


4. Brokerage and asset management on behalf of third parties

E/t Dec. 31, 2015

1. Orders executed on behalf of customers

a) Purchases

1. settled 2,462,863

2. not settled -

b) Sales

1. settled 2,576,838

2. not settled -

2. Portfolio management

a) Individual 30,725

b) Collective 24,742,884

3. Securities in custody and under administration

a) custodian bank services (other than managed assets) -

1. securities issued by the bank that prepares the financial statements -

2. other securities -

b) custodian bank services (other than managed assets): other -

1. securities issued by the bank that prepares the financial statements 150,235

2. other securities 5,972,622

c) third-party securities held by other custodians 5,657,927

d) own securities held by other custodians 14,966,430

4. Other transactions -

382


2015

PART C – INFORMATION ON THE INCOME STATEMENT

Section 1 - Interest - Captions 10 and 20

1.1 Analysis of interest income and similar income

E/t Debt securities LoansOther

transactions

Total

Dec. 31, 2015

Total

Dec. 31, 2014

1. Financial assets held for trading 10,133 - - 10,133 9,432

2. Available for sale financial assets 153,176 - - 153,176 199,472

3. Held to maturity financial assets 51,225 - - 51,225 53,726

4. Loans to banks - 389 - 389 1,943

5. Loans to customers 2,331 167,902 - 170,233 155,557

6. Financial assets measured at fair value - - - - -

7. Hedge derivatives X X - - -

8. Other assets X X 14 14 96

Total 216,865 168,291 14 385,170 420,226

1.3.1 Interest income on financial assets denominated in foreign currencies

E/t Dec. 31, 2015 Dec. 31, 2014

Interest income on assets denominated in foreign currencies 31 19

1.4 Analysis of interest expense and similar charges

E/t Payables SecuritiesOther

transactionsDec. 31, 2015 Dec. 31, 2014

1. Amounts due to central banks (233) X - (233) (5,305)

2. Amounts due to banks (6,472) X - (6,472) (2,398)

3. Payables due to customers (122,177) X - (122,177) (175,138)

4. Securities issued X (10,646) - (10,646) (10,550)

5. Financial liabilities held for trading (11,701) - - (11,701) (9,103)

6. Financial liabilities measured at fair value - - - - -

7. Other liabilities and funds X X (1,076) (1,076) (345)

8. Hedge derivatives X X (12,596) (12,596) (13,769)

Total (140,582) (10,646) (13,672) (164,901) (216,608)

1.5 Interest expense and charges expenses: differentials on hedging transactions

E/t Dec. 31, 2015 Dec. 31, 2014

A. Positive differences arising on hedging transactions 29 760

B. Negative differences arising on hedging transactions (12,625) (14,529)

C. Balance (A-B) (12,596) (13,769)

1.6.1 Interest expense on foreign currency liabilities

E/t Dec. 31, 2015 Dec. 31, 2014

Interest expense on foreign currency liabilities (440) (357)

383


Section 2 – Commission – Captions 40 and 50

2.1 Analysis of fee income

E/t Dec. 31, 2015 Dec. 31, 2014

a) guarantees issued - -

b) credit derivatives - -

c) management, brokerage and consulting services: 517,972 441,236

1. financial instruments brokerage 98 120


3. portfolio management 213 263

3.1. individual 213 263

3.2. collective - -

4. securities in custody and under administration 2,824 3,267

5. custodian bank - -


7. receipt and transmission of orders 6,084 6,379

8. consulting activities - -

8.1 investment consulting - -

8.2 financial structure consulting - -

9. services to third parties 498,841 405,340

9.1 portfolio management 349,174 284,388

9.1.1. individual - -

9.1.2. collective 349,174 284,388

9.2 insurance products 140,651 111,551

9.3 other products 9,016 9,401

d) collection and payment services 8,728 8,023

e) servicing for securitization transactions - -

f) factoring services - -

g) tax collection services - -

h) management of multilateral trading systems - -

i) bank accounts custodian and management services 14,686 14,848

j) other services 17,333 15,709

Total 558,722 479,816

384


2015

2.2 Fee income: distribution channels of products and services

E/t Dec. 31, 2015 Dec. 31, 2014

a) at own branches

1. portfolio management - -

2. sale of securities - -

3. third-party services and products - -

b) off-premises sales

1. portfolio management 213 263


3. third-party services and products 498,841 405,340

c) other distribution channels

1. portfolio management - -

2. sale of securities - -

3. third-party services and products - -

2.3 Analysis of commission expense

E/t Dec. 31, 2015 Dec. 31, 2014

a) Guarantees received - -


c) Management and brokerage services (443,333) (395,028)

1. financial instruments brokerage - -


3. portfolio management: (1,255) (1,024)

3.1 own (1,075) (854)

3.2 delegated by third parties (180) (170)

4. securities in custody and under administration (497) (428)

5. financial instruments brokerage - -

6. off-premises sales of financial instruments, products and services (441,581) (393,576)

d) Collection and payment services (14,006) (12,373)

e) Other services (15,475) (16,646)

Total (472,814) (424,047)

Section 3 – Dividends and similar income – Caption 70

3.1 Dividends and similar income

E/t

Dec. 31, 2015 Dec. 31, 2014

DividendsIncome from

holdings in UCITS DividendsIncome from

holdings in UCITS

A. Financial assets held for trading - - - -

B. Available for sale financial assets 1,757 1,362 2,119 914

C. Financial assets measured at fair value - - - -

D. Equity investments 476,997 - 248,826 -

Total 478,754 1,362 250,945 914

385


Section 4 – Net income from trading – Caption 80

4.1 Analysis of net income from trading

E/tGains

(A)Trading gains

(B)Losses

(C)Trading losses

(D)

Net income [(A+B) - (C+D)]

Dec. 31, 2015

1. Financial assets held for trading 3,072 3,628 (3,213) (5,218) (1,731)

1.1 Debt securities 3,072 3,616 (3,213) (5,085) (1,610)

1.2 Equity investments - 10 - (130) (120)

1.3 Holdings in UCITS - 2 - (3) (1)

1.4 Loans - - - - -

1.5 Others - - - - -

2. Financial liabilities held for trading 1,806 8,383 (545) (802) 8,842

2.1 Debt securities 1,806 8,382 (545) (797) 8,846

2.2 Payables - - - - -

2.3 Others - 1 - (5) (4)

3. Other financial assets and liabilities: 3. exchange differences

X

X

X

X

259

4. Derivatives 4 11,702 (17,042) (16,859) (20,410)

4.1 Financial derivatives: 4 11,702 (17,042) (16,859) (20,410)

- debt securities and interest rates - 11,586 (17,042) (16,857) (22,313)

- equity investments and stock indices 4 116 - (2) 118

- currencies and gold X X X X 1,785

- others - - - - -

4.2 Credit derivatives - - - - -

Total 4,882 23,713 (20,800) (22,879) (13,040)

386


2015

Section 5 – Net income from hedging – Caption 90

5.1 Analysis of net income from hedging

E/t Dec. 31, 2015 Dec. 31, 2014

A. Income from:

A.1 Fair value hedging derivatives 35,705 -

A.2 Hedged financial assets (fair value) 345 37,038

A.3 Hedged financial liabilities (fair value) - -

A.4 Cash-flow hedging financial derivatives - -

A.5 Assets and liabilities denominated in foreign currencies - -

Total income from hedging (A) 36,050 37,038

B. Expenses related to:

B.1 Fair value hedging derivatives (395) (42,438)

B.2 Hedged financial assets (fair value) (24,915) -

B.3 Hedged financial liabilities (fair value) - -

B.4 Cash-flow hedging financial derivatives - -

B.5 Assets and liabilities denominated in foreign currencies - -

Total expense from hedging (B) (25,310) (42,438)

C. Net income from hedging (A-B) 10,740 (5,400)

Section 6 – Gains (losses) on sale/buyback – Caption 100

6.1 Analysis of gains (losses) on sale/buyback

E/t

Dec. 31, 2015 Dec. 31, 2014

Gains Losses Net result Gains Losses Net result

Financial assets

1. Loans to banks - - - - - -

2. Loans to customers 5 (8) (3) 6 (11) (5)

3. Available for sale financial assets 2,457 (28) 2,429 81,273 (6) 81,267

3.1 Debt securities - - - 80,411 (6) 80,405

3.2 Equity investments - (28) (28) 341 - 341

3.3 Holdings in UCITS 2,457 - 2,457 521 - 521

3.4 Loans - - - - - -

4. Held to maturity financial assets - - - - - -

Total assets 2,462 (36) 2,426 81,279 (17) 81,262


1. Amounts due to banks - - - - - -

2. Payables due to customers - - - - - -

3. Securities issued - (659) (659) 5 (65) (60)

Total liabilities - (659) (659) 5 (65) (60)

387


Section 8 – Net impairment – Caption 130

8.1 Analysis of net impairment of loans

E/t


Write-backs(2)

TotalIndividual

Portfolio


Cancellations Others A B A B

Dec. 31,

2015

Dec. 31,

2014

A. Loans to banks

- Loans - - - - - - - - -


B. Loans to customers

Impaired loans acquired

- Loans - - X - - X X - -

- Debt securities - - X - - X X - -

Other receivables

- Loans (1,100) (16,411) (715) - 4,480 - 1,205 (12,541) (16,102)


C. Total (1,100) (16,411) (715) - 4,480 - 1,205 (12,541) (16,102)

8.2 Analysis of net impairment of available for sale financial assets

E/t


Write-backs(2)

Individual Individual Total

Cancellations Others A B Dec. 31, 2015 Dec. 31, 2014

A. Debt securities - - - - - -

B. Equity investments - (82) X X (82) (50)

C. Holdings in UCITS - (775) X - (775) (7,185)

D. Loans to banks - - - - - -

E. Loans to customers - - - - - -

F. Total - (857) - - (857) (7,235)


388


2015

8.4 Analysis of net impairment of other financial items

E/t


Write-backs(2)

TotalIndividual

Portfolio


Cancellations Others A B A B

Dec. 31,

2015

Dec. 31,

2014

A. Guarantees issued - - (73) - - - - (73) (1,422)

B. Credit derivatives - - - - - - - - -

C. Commitments to disburseC. funds

- - - - - - - - -

D. Other transactions - - - - - - - - -

E. Total - - (73) - - - - (73) (1,422)


Section 9 – Administrative expenses – Caption 150

9.1 Analysis of personnel expenses

E/t Dec. 31, 2015 Dec. 31, 2014

1) Employees (135,606) (117,112)

a) salaries and wages (94,931) (80,134)

b) social security (26,896) (24,922)

c) completion of service entitlements - -

d) pensions - -

e) provision for employee termination indemnity (5,419) (4,737) f) provisions for severance benefits and similar obligations: - - - defined contribution plan - - - defined benefit plan - - g) external supplementary pension funds: (1,534) (1,106) - defined contribution plan (1,534) (1,106) - defined benefit plan - - h) expenses in connection with equity-settled share-based payment transactions - - i) other employee benefits (6,826) (6,213)

2) Other personnel (4,641) (4,898)

3) Directors and Statutory Auditors (4,456) (2,055)

4) Retired personnel - -

5) Recovery of expenses for employees seconded to other companies 6,147 7,092

6) Reimbursement of expenses for seconded third-party employees at the Company (2,996) (2,451)

Total (141,552) (126,516)

389


9.2 Average number of employees by category

Resources Dec. 31, 2015 Dec. 31, 2014

1) Employees 1,933 1,838

a) executives 75 67

b) middle managers 280 242

c) other employees 1,578 1,529

2) Other personnel 118 2

Total 2,051 1,840

9.5 Analysis of other administrative expenses

E/t Dec. 31, 2015 Dec. 31, 2014

IT systems (80,309) (83,060)

Infoprovider services (6,609) (5,371)

Financial Services fees and expenses (3,059) (2,915)

Miscellaneous services (20,640) (19,746)

Intercompany services (36) (121)

Taxes and duties (1,543) (975)

Television and internet communication services (4,433) (4,721)

Network advisory services and consulting (181) (939)

Rentals (15,781) (14,292)

Maintenance and repairs (4,603) (2,777)

Telephone and postal expenses (11,156) (10,554)

Other consulting and collaboration (20,699) (18,226)

Contributions to “Family Banker Offices” (775) (1,287)

Consumables (5,322) (5,410)

Insurance (2,297) (1,947)

Member fees (20,703) (806)

Advertising and promotional expenses (25,504) (25,574)

Organization of conventions (13,010) (11,653)

Consulting, education and training for sales network (2,128) (2,165)

Company canteen (74) (147)

Energy utilities (1,730) (1,591)

Business expenses, gifts and other (6,451) (4,046)

Market research (1,004) (1,175)

Recruitment and selection of employees (265) (1,114)

Travel expenses (1,085) (787)

Recruitment and selection of financial advisors (230) (141)

Other administrative expenses (1,488) (467)

Total (251,115) (222,007)

390


2015

Section 10 – Net provisions for risks and charges – Caption 160

10.1. Analysis of net provisions for risks and charges

E/t Dec. 31, 2015 Dec. 31, 2014

Portfolio allowance (1,621) (3,937)

Supplementary customer allowances (26,479) (14,154)

Risks for financial advisor offences 119 (4,692)

Future expenses on distributed products (1,834) (2,355)

Legal proceedings (352) 4,824

Managerial allowance (13,801) (8,970)

Risks for disposal of investments - -

Portion of future charges - -

Coverage of future charges of investees - -

Revocatory risks and pending litigation - -

Accidents and disputes: - -

- Of personnel - -

- Not of personnel - -

Charges for tax litigation risks - -

Allocations to the contingent liabilities provision - -

Other allocations to the provisions for risks and charges (2,475) (4,000)

Allocations pursuant to article 7, paragraph 3 Law 218/90 - -

Allocations pursuant to article 13, paragraph 6, Legislative Decree 124/93 - -

Other allocations to special reserves - -

Total (46,443) (33,284)

Section 11 – Depreciation and net impairment of tangible assets – Caption 170

11.1. Analysis of depreciation and net impairment of tangible assets

E/tAmortization

(a)Impairment

(b)Write-backs

(c)

Net result(a + b + c)

Dec. 31, 2015

A. Tangible assets

A.1 Owned (4,765) - - (4,765)

- held for use (4,765) - - (4,765)



- held for use - - - -


Total (4,765) - - (4,765)

391


Section 12 – Amortization and net impairment of intangible assets – Caption 180

12.1 Analysis of amortization and net impairment of intangible assets

E/tAmortization

(a)Impairment

(b)Write-backs

(c)

Net result(a + b + c)

Dec. 31, 2015

A. Intangible assets

A.1 Owned (11,002) - - (11,002)

- internally generated - - - -

- other (11,002) - - (11,002)


Total (11,002) - - (11,002)

Section 13 – Other operating income/expenses – Caption 190

13.1/13.2 Analysis of other operating income and expenses

E/t Dec. 31, 2015 Dec. 31, 2014

Recovery of expenses for contracts and services rendered 11,756 12,326

Rental income on properties owned 278 363

Recharge of costs to customers 4,274 3,587

Recharge of costs to promoters 33 52

Other income 7,159 6,606

Total “Other operating income” 23,500 22,934

Other operating expenses

Transactions and compensation (6,842) (5,663)

Reimbursements to Previgest customers - -

Amortization of expenses for improvements of third-party assets (1,188) (1,401)

Adjustments of conditions related to prior years - -

Other expenses (215) (4,640)

Total “Other operating expenses” (8,245) (11,704)

392


2015

Section 14 – Profit (loss) on equity investments – Caption 210

14.1 Analysis of profit (loss) on equity investments

E/t Dec. 31, 2015 Dec. 31, 2014

A. Income - -

1. Write-ups - -

2. Gains on disposal - -

3. Reversal of impairment 19,248 -

4. Other income - -

B. Expenses (2,791) (6,668)

1. Write-downs (2,791) (6,668)

2. Impairment - -


4. Other expenses - -

Net income 16,457 (6,668)

Section 17 – Profit (loss) on disposal of investments – Caption 240

17.1 Analysis of profit (loss) on disposal of investments

E/t Dec. 31, 2015 Dec. 31, 2014

A. Property - -

- Gains on disposal - -

- Losses on disposal - -

B. Other assets 1 (60)

- Gains on disposal 4 4

- Losses on disposal (3) (64)

Net profit (loss) 1 (60)

Section 18 – Income tax expense on continuing operations – Caption 260

18.1 Analysis of income tax expense on continuing operations

E/t Dec. 31, 2015 Dec. 31, 2014

1. Current taxes (-) 4,087 (13,905)

2. Change in current tax prior years (+/-) 348 1,888

3. Change in current tax for the year (+) - -

3. bis Change in current tax for the year for tax credits under law no 214/2011 (+) - -

4. Change in deferred tax assets (+/-) (1,481) (3,638)

5. Change in deferred tax liabilities (+/-) (953) (962)

6. Income tax expense for the year (-) (-1+/-2+3+3bis+/-4+/-5) 2,001 (16,617)

393


18.2 Reconciliation between the theoretical and the effective tax expense

E/t Rate % Value Tax

Calculation of taxable IRES

Pre-tax result - 349,125 -

Theoretical tax expense 27.50 - 96,010

Temporary differences - (10,228) -

Permanent differences - (459,112) -

Total taxable income - (120,215) -

Current income taxes for the year - - (33,059)

Tax consolidation adjustment - - -

Income taxes related to previous years - - (391)

Other changes - - (4,029)

Current income taxes - Income statement - - (37,479)

Current income taxes - Income statement - IRAP - - -

Value of production less production costs - 298,668 -

Income/Costs not significant for the purpose of IRAP calculation - (123,900) -

Theoretical tax expense 5.57 - -

Temporary differences from previous years (27,485) -

Permanent differences - 19,524 -

Net production value - 166,806 -

Total taxable income - 201,131 -

Current income taxes for the year - - 9,291

Income taxes related to previous years - - 43

Other changes - - -

Current income taxes - Income statement - - 9,334

Average rate on value added 5.32% - -

Provision for legal disputes - - 23,710

Total taxes charged to income statement - (4,435) -

Section 21 – Earnings per share

As at December 31, 2015, earnings per share amounted to Euro 0.476.

394


2015

PART D - INFORMATION ON COMPREHENSIVE INCOME

STATEMENT OF OTHER COMPREHENSIVE INCOME

Euro

Dec. 31, 2015

Gross amount Income tax Net amount

10. Profit (Loss) for the year X X 351,126,381

Other income components without reversals to the income statement

20. Tangible assets - - -

30. Intangible assets - - -

40. Defined benefit plans (431,823) - (431,823)


60. Share of valuation reserves on investments accounted for by the equity method - - -

Other income components with reversals to the income statement

70. Hedges of investments in foreign operations: - - -




80. Exchange differences: - - -




90. Cash flow hedges: - - -




100. Available for sale financial assets: 28,409,381 (9,403,910) 19,005,470

a) changes in fair value 48,388,904 (16,011,147) 32,377,758

b) reversals to the income statement (19,979,524) 6,607,229 (13,372,295)

- impairment 774,972 (256,283) 518,689

- realized gains/losses (20,754,496) 6,863,512 (13,890,984)

c) other changes - 8 8





120. Share of valuation reserves on investments accounted for by the equity method: - - -



- impairment - - -

- realized gains/losses - - -


130. Total other income components 27,977,558 (9,403,910) 18,573,647

140. Comprehensive income (Captions 10+130) 369,700,028

395


PART E – INFORMATION ON RISKS AND RISK MANAGEMENT

Introduction

The Internal Audit system of Banca Mediolanum meets the need to ensure sound and prudent management of the

activities, while reconciling the achievement of company objectives, proper and accurate risk monitoring and opera-

bility based on criteria of correctness.

To this end, the Bank has adequate risk assessment and control systems, in line with the complexity and characteris-

tics of the present and future activities by adopting and formalizing a series of criteria and rules for the definition of

their risk appetite through the adoption of the Risk Appetite Framework (hereinafter also RAF). The RAF, approved

by the Board of Directors, summarizes the strategies of risk assumption representing the overall structure within

which it is intended to manage the risks undertaken, also through the definition of maximum tolerance to risk, with

consequent articulation of the oversight adopted overall and divided for each significant risk. The RAF as a tool able

to focus attention on the risk profile of the Bank through an integrated vision of risks has significant relations and

synergies with the ICAAP process, ideally “upstream” with respect to the latter.

The Internal Capital Adequacy Assessment Process (ICAAP)

The assessment of the risk profile and the periodic review is carried out continuously and is reported at least once

a year through the ICAAP (Internal Capital Adequacy Assessment Process) report, which represents the self-as-

sessment process of capital adequacy according to the internal rules. Under Basel II Pillar 2 (Title III of Bank of

Italy’s Circular 285/2013) banks are required to have a process to estimate their own internal capital requirements

to cover all risks, including those not captured by the total capital requirement (Pillar 1) as part of the assessment

of the bank’s current and future exposure, taking account of the bank’s strategies and possible developments in the

environment in which it operates. Supervisory regulations detail the steps, the frequency and the main risks to be

considered and, for certain risks, set out indications on methods that should be used in the assessment. In applica-

tion of the proportionality principle, banks are classified into three categories that generally identify intermediaries

according to their size and the complexity of their activities. Responsibility for the ICAAP rests with corporate

governance bodies of the parent company.

The Supervisory Review Process (SERP)

As at 2014, The Supervisory Review Process (SREP) requires that the supervision of intermediaries defined as

significant be carried out by the European Central Bank (hereafter referred to as the ECB) in close collaboration

with national supervisory authorities. To this end, it has established the single supervisory mechanism (MVU), com-

posed of members of the ECB and the National Competent Authorities of the EU member states, responsible for the

prudential supervision of all credit institutions of the member states and aims to ensure that the EU policy relating

to the prudential supervision of credit institutions is implemented in a consistent and effective way in all EU coun-

tries. The supervision of the remaining banks will remain under the responsibility of the Authorities of each member

country that will proceed on the basis of uniform criteria. Banca Mediolanum, according to the criteria established

by the ECB, is part of this second group of banks. Supervision is thus divided into two distinct phases, the first of

396


2015

which is represented by the Internal Capital Adequacy Assessment Process (ICAAP), the second consisting of the

Supervisory Review and Evaluation Process (SREP).

The first of the two phases is carried out independently by individual banks to assess their capital adequacy, current

and future, in relation to the risks assumed and corporate strategies, while the second is the competence of the su-

pervisory Authority, which reviews the ICAAP, formulates an overall judgment on the bank and activates corrective

measures, where necessary.

The SREP hinges on the collaboration and exchange of information between the Banking Supervisor and banks,

allowing on one hand, the Bank of Italy to gain a deeper understanding of the ICAAP and underlying assumptions,

on the other allowing banks to detail the assumptions underlying their assessment.

Banks define strategies and put in place procedures and tools to maintain adequate capital level – in terms of value

and composition – to cover all the risks to which they are or may be exposed, including those risks for which a capital

charge is not required.

The ICAAP hinges on the bank’s sound risk management framework, robust corporate governance mechanisms, an

organizational structure with well-defined lines of responsibilities and effective internal control systems.

Board and senior management are responsible for the ICAAP. They are responsible for designing and organizing it

in accordance with respective competences and prerogatives. They are responsible for the implementation and for

regular reviews of the ICAAP to ensure it is commensurate with the operational and strategic environment in which

the bank operates.

The ICAAP must be documented, shared and known across the organization and subject to internal audit.

The Supervisory Review Process reflects the principle of proportionality, i.e.:

• the bank’s corporate governance, risk management framework, internal control system and capital assessment

process are commensurate with the nature, size and complexity of its activities;

• the frequency, the level of detail and sophistication of the SREP depend on the systemic relevance, the nature,

size and complexity of the bank’s business.

Classification of intermediaries in relation to the ICAAP

The principle of proportionality applies to:

• the methods used to measure/assess risks and related internal capital adequacy;

• the type and characteristics of stress tests;

• the treatment of correlations between risks and overall internal capital requirements;

• organization of the risk management system;

• level of detail and sophistication of ICAAP reports to the Bank of Italy.

To facilitate the implementation of the proportionality principle, banks are classified into three categories accord-

ing to their size and the complexity of their activities. The Mediolanum Banking Group falls within category 2, i.e.

banking groups or banks applying the standardized approach, with consolidated or separate assets in excess of Euro

3.5 billion.

Banks apply a consistent approach to deriving capital requirements from the bank’s risk measurement under the

first pillar and overall internal capital requirements.

397


Banca Mediolanum’s ICAAP

In accordance with supervisory requirements and in line with best practices, Banca Mediolanum’s ICAAP entails

the following steps:

1. identification of risks for assessment;

2. measurement/assessment of individual risks and related internal capital level;

3. measurement of the overall internal capital level;

4. determination of overall capital level and reconciliation to regulatory capital.

Key Risks Mapping

In accordance with Bank of Italy’s Circular 285 of December 2013 and subsequent updates, the process for the

identification of the key risks for the Mediolanum Banking Group starts from the analysis of the Bank’s and Group’s

statutory lines of business and activities conducted in each of these lines.

Risk mapping therefore starts from the macro lines that make up the Banking Group’s business.

In the Mediolanum Banking Group, the following main business segments can be identified:

• Lending (Retail and Commercial Banking)

• Treasury activities (Trading and Sales)

• Asset Management

• Retail Brokerage

The starting point is risk measurement followed by the definition of relevant risk thresholds for risks for which there

is a capital charge requirement as well as for other risks for which there is no capital charge requirement but must

be analyzed and monitored.

First pillar risks

Credit Risk (including counterparty risk)Credit risk is the risk of loss arising from the deterioration in the creditworthiness up to default of retail, corporate

and institutional counterparties of whom the bank is a creditor in its investment or lending business, as a result of

which debtors fail to meet all or part of their contractual obligations.

Market RiskFor banks using the standardized approach the capital requirement for market risk is the sum of capital require-

ments for position risk, settlement risk, concentration risk and commodity risk.

398


2015

Operational RiskBanca Mediolanum defines operational risk as “the risk of economic loss or damage to assets, and sometimes legal



Second pillar risks

Concentration RiskConcentration risk is the risk arising from exposure to individual counter-parties, groups of related counter-parties

or counter-parties in the same industry, business segment or geographical area.

Interest rate riskInterest rate risk arising on activities other than trading: the risk of potential changes in interest rates.

Liquidity RiskLiquidity risk is typically the risk that arises from the difficulty of liquidating assets. More specifically, it is the

risk that a financial instrument cannot be bought or sold without a material decrease/increase in its price (bid-ask

spread) due to the potential inability of the market to settle the transaction wholly or partly. Liquidity risk is also

the potential risk that an entity will be unable to obtain adequate funding.

Residual RiskThe risk that the credit risk mitigation techniques adopted by the Bank turn out to be less effective than anticipated.

Strategic RiskStrategic risk is the current or prospective risk of impact on earnings or capital arising from changes in the industry,


Compliance Risk (or Non-Conformity Risk)It is the risk of legal penalties or fines, financial losses or reputational damage resulting from failed compliance with

statutes, regulations, codes of conduct, self-discipline or internal rules.

Reputational RiskReputational risk is the current or prospective risk of impact on earnings or capital arising from the negative percep-

tion of the bank’s image by customers, counterparties, shareholders, investors or Supervisory Authorities.

399


SECTION 1 – CREDIT RISK


1. General aspects

Lending, be it the provision of home loans or consumer credit, or in other forms to meet other financing needs, is part

of Banca Mediolanum’s business. Consistently with the company mission, lending complements the Group primary

business i.e. the distribution of banking, asset management, insurance and retirement savings products. The bank ap-

plies prudent credit policies, which are geared to develop and strengthen the relationship with customers who invest

in products managed by the companies within the Group.

The Lending Division is responsible for ensuring adequate implementation of the Bank’s credit policy in compliance

with laws and regulations in force. Currently the Credit Division is divided into the following Units: Ordinary Loans,

Special Loans, Corporate Loans, Credit Quality Monitoring and Watch List and Credit Operations.

The Short-term lending team is responsible for all processes relating to approval and granting of overdrafts, loans,

endorsements as well as for management of guarantees.

The team exercises credit approvals under delegated authorities. For credit that is outside the scope of the authori-

ties delegated to it, the team prepares all information and documentation relating to the loan application including

a non-binding opinion and submits it to superior bodies.

The Medium/Long-term lending team is responsible for approval and granting of mortgage loans in accordance with

Credit Management Guidelines and Rules. This team prepares and submits reports to the Head of the Division and

collaborates with the Credit Policy and Monitoring unit in the preparation of Medium/Long-term Lending Policy

and Rules.

The Credit Operations Sector collaborates with the Credit Quality Monitoring and Watchlist Unit in the drafting of

Corporate Credit Rules and Policies and also deals with the collection of applications and documentation relating to

corporate credit (mortgages and ordinary loans) and assessment in accordance with the company’s risk policies and

risk appetite, manages relationships with Customers, the Sales Network and the other units of the Bank, providing

assistance for setting the application of corporate credit. The team also sees to the formal and substantive review

of credit application and deals with the preliminary investigation and the investigation of all the corporate credit

claims, in coordination with the Relevant Customer unit for the specific segment.

The Credit Quality Monitoring and Watch List Unit is the unit that oversees the supervision and monitoring of credit

activities of the Bank, overseeing the proper performance of first-level controls by operational offices, with particu-

lar reference to credit risk. Processes and analyzes the periodic reporting (both management and operational) and

contributes to the definition of the guidelines of the banking group in relation to forecasting policies and models

and overall credit risk also for foreign banking companies belonging to the Group in accordance with the Guidelines

established by the Board of Directors of the Parent Company, supporting the Risk Management Function in this

activity. The team deals with customers in difficulty ensuring that suitable solutions are found and implemented in

a timely manner in accordance with policies and rules. The Watchlist team is informed of any amounts in arrears

collected by foreign lenders that are part of the Group.

400


2015

The Credit Operations team manages the relationships with Customers and the sales network providing all-round

assistance across the credit application process for all types of lending. The team has also approval authority for low

risk, limited-amount credit applications.

2. Credit risk management

2.1 Organizational aspects

The credit risk management framework includes policies that set out general principles and instructions on lending

as well as on monitoring the quality of the loan portfolio. The Parent Company of the Banking Group is responsible

for assessing overall exposure to credit risk and defining credit risk measurement policies for Banca Mediolanum.

Credit risk exposure is also assessed at the level of individual companies in their respective areas of responsibility, by

measuring and monitoring the risk associated with the various categories of financial instruments. Capital adequacy

and, in particular, compliance with solvency ratios and exposure limits for credit risk as set by local supervisory

authorities are periodically monitored by the competent offices of the respective companies.

2.2 Risk measurement, management and control

Credit quality is monitored by regularly assessing, in each stage of the lending process, whether there is evidence of

risk in accordance with specific operating procedures.

In the lending process it is fundamental to have a comprehensive understanding of the financial condition of the

borrower and the type of financing which best meets his needs, the loan purpose, the borrower creditworthiness and

earnings capacity. To that end, the Bank, as part of its loan application analysis, gathers all information needed to as-

sess the consistency of the borrower’s income and exposure (including existing commitments) with the type and pur-

pose of the loan or other financing. In that examination, the entity uses performance and financial analysis tools as

well as intelligence obtained from private and public Credit Bureaus. Particular focus is on valuation of guarantees.

All loans are subject to regular review by the competent units within the Bank. Outstanding loans are continuously

monitored focusing especially on riskier positions. Regular reports on credit protection actions taken are submitted

to the Board of Directors of the respective companies.

The second-level monitoring process prepared by the Risk Management Function aims to analyze the credit quality

and the dynamics of risk exposure along the fundamental regulations and management guidelines by calculating

summary risk indicators and representing progress over time in order to prepare action plans necessary to mitigate

or avoid risk factors.

401


In particular, the Risk Management Function prepares the following types of audits:

• “Massive” audits:

Such audits are applied to the loan portfolio as a whole or its relevant subsets (ex: customer segment, geograph-

ical area and type of entrustment, etc.) that allow highlighting potentially “abnormal” behavior of the portfolio

analyzed. Exceeding attention thresholds defined in correspondence with massive audits can activate the conduct

of sample audits that allow analyzing the anomalies found on individual positions.

• “Sample” audits:

Such audits are carried out on individual credit positions that fall within the samples selected by the Risk

Management Functions based on specific criteria. Sample audits can be activated both after carrying out the

massive audits and independently of the latter. As the audits in question are focused on individual credit positions,

they may result in the acquisition of documentation to accompany the claim and assessments on the realizable

value of guarantees associated with credit exposure.

As part of the sample audits, the Risk Management Function verifies registration in the automatic internal

procedures of all the information necessary for the assessment of the credit and traceability of the recovery pro-

cess. Furthermore, the documentation available is verified on the basis of which the competent structure of the

first-level assessment conducted its own analysis.

In particular, massive and sample audits were defined in order to verify:

• Performance of the loan portfolio:

The Risk Management Function prepares periodic reporting in order to monitor the quality of the loan portfolio

through the calculation of Key Risk Indicators and for the representation of certain risk variables/parameters.

• Correct classification of positions:

Based on the internal classification policies of impaired loans and the rules relating to the performance monitor-

ing process, the Risk Management Function verifies whether the classification rules of positions (both performing

and in default) are applied appropriately on the basis of indicators able to detect a potential misclassification.

For example, negative external events are assessed (ex.: Risk Control Unit) that cause a further deterioration in

the creditworthiness of the position, including signals that can lead to overt cases of non-recoverability.

Said verifications are carried out through sample audits, as part of which, for each position verified, the assess-

ments carried out and the results thereof are documented.

• Adequacy of provisions:

The Risk Management Function verifies, for homogeneous loan portfolios, the correct application of impairment

logics indicated in internal policies. Such verifications are carried out at both massive level considering the

totality of the performing/non-performing portfolio, and sample level.

• Adequacy of the recovery process:

The Risk Management Function contributes to the definition of the recovery process and verification that the

relevant procedures are actually complied with by the operating units: the adequacy is assessed by identifying

critical issues and collaborating with the relevant structures for the identification of corrective actions. In

addition, Risk Management carries out an independent verification of the evidence represented by the first-level

structures in terms of management time and amounts recovered.

402


2015

2.3 Credit risk mitigation techniques

Loans extended by Banca Mediolanum are secured by collaterals received from borrowers. Collaterals primarily

consists of mortgages over property and pledge over financial instruments, plus conditional sale, endorsements,

patronage letter and other forms of security, such as surety bonds. Although secondary to the assessment of the

borrower’s creditworthiness, in the assessment of credit risk great emphasis is placed on the appraised value of the

collateral received from the obligor and the prudential adjustments applied are properly differentiated according

to the type of collateral whose value is subject to regular review against its market value.

Banca Mediolanum does not offset credit risk exposures against positive balances of on- or off-balance sheet items.

Credit risk mitigation (CRM) techniques consist of loan-related contracts or other instruments and techniques that

reduce credit risk whose risk mitigating effect is recognized in the calculation of regulatory capital, as well as,

for risk management purposes, in the internal policies of Banca Mediolanum. Credit risk is inherent in the Credit

Division’s lending business and in Financial Management division’s liquidity management.

Eligible CRM techniques fall into two broad categories:

1. real guarantees;

2. personal guarantees.

Real guarantees are:

1. financial collateral, i.e. cash, certain financial instruments, pledged or transferred, repurchase/reverse repur-

chase and securities lending/borrowing transactions;

2. master netting agreements;

3. on-balance sheet netting;

4. mortgages.

Personal guarantees include personal guarantees and credit derivatives.

Currently, within Banca Mediolanum, the use of credit derivatives is allowed only for trading purposes and not for

banking book credit risk mitigation.

Eligible CRM techniques are mortgages and pledges or other equivalent security interests in assets with a reason-

able degree of liquidity and a reasonably stable market value. This category includes guarantees provided by such

lien.

Conversely, although taken into account when deciding whether or not to extend a loan, “irrevocable orders to sell

other Group financial products” are not eligible for CRM purposes.

As to pledges, the financial asset that is directly or indirectly pledged as security must be one of the following:

• bank account balances held with our bank;

• treasuries or securities guaranteed by governments, and securities that are accepted as guarantee by central

banks;

• holdings in mutual funds and open-end investment companies;

• liens on insurance policies issued by the Mediolanum Banking Group;

• assets in discretionary accounts managed by our Bank;

403


• bonds and certificates of deposit issued by our Bank or other Banks;

• repo transactions relating to listed bonds, treasuries or accepted as guarantee by central banks, with retail

customers;

• listed bond securities;

• equity securities listed on the Stock Exchange.

When the borrower’s guarantee, net of haircuts required by internal policies, does not cover entirely the loaned

amount, the loan is recognized at full risk.

Credit risk on mortgage loans is mitigated by the property given as collateral. Properties given as loan collateral

must be located in Italy and be residential properties.

Semi-residential properties are accepted provided that they satisfy the following requirements:

• the non-residential portion does not exceed 40% of the estimated property value;

• the property is located in a residential area;

• the borrower is self-employed and intends to use the property as his/her primary residence.

In all these instances Loan-to-Value shall not exceed 70%.

The bank applies a disciplined approach to lending and adequate checks e.g. it checks the accurateness and com-

pleteness of the property appraisal as this is crucial to get a true view of risk. The bank requires than any request

for mortgage loan approval be accompanied by a valid property appraisal setting out a true estimate of the value

of the property for which the loan is sought and certifying to the highest possible degree that a valid building per-

mit and any other authorizations for the property have been obtained. If not so, the loan will not be extended or

the loan amount reduced to be commensurate with the true property value (which depends on its location, on how

easily it can be resold, etc.).

The appraisal is carried out by external referenced experts affiliated with Banca Mediolanum and in any case must

fulfill the requirements of independence and professionalism.

The relevant technical unit within the Special Loans Sector of the Lending Division is responsible for ensuring that

internal procedures for the preparation of property appraisals are thoroughly and properly applied. The first-level

structure also conducts a periodic verification (due diligence on the appraisals) involving a second and different

expert company for a predefined sample of claims: this verification allows conducting a verification of the validity

of the process in place and a revaluation consistent with the state and market of the property provided as collateral.

As part of the second-level monitoring process, the Risk Management Function carries out quarterly checks on the

revaluation of properties provided as guarantee. In particular, in agreement with the Lending Division, monitoring

is performed of the deviation (variation) between the property value revalued and the last appraisal value available

in order to identify the properties for which there is a significant reduction in value.

In addition, the Risk Management Function periodically checks the consistency of the appraisal value of the

secured property in the context of the IT procedures used by the Bank and that there is a connection between the

mortgage relation and the corresponding mortgage guarantee.

404


2015

Evaluating the quality of the portfolio

Banca Mediolanum assesses the quality of the loan portfolio applying the following two-step approach in view of

identifying any possible impairment:

• identification of assets to be individually or collectively tested for impairment;

• measurement and recognition of the impairment loss in accordance with the specific impairment rules.

The first step is preliminary to the impairment test that assesses and measures the impairment loss, if any.

Banca Mediolanum tests for impairment loans and endorsements with fixed or determinable payments extended

to retail/corporate and institutional clients. Loans and endorsements to retail/corporate clients typically consist of

arranged overdraft facilities, loans and credit lines repayable in installments, while those extended to institutional

clients (banks and other financial institutions) are made up of deposits, repurchase agreements (amount paid for

the purchase of the asset under an agreement to resell it at a future date) and hot money facilities.

To identify loans and endorsements to be individually/collectively tested for impairment it is necessary to analyze

the significance of the exposure and check whether there is objective evidence of any losses.

For Banca Mediolanum, the process for the identification of loans to be subjected to collective/analytical assess-

ment involves subjecting “performing loans” to collective assessment.

In particular, for performing loans for amounts greater than Euro 1,000,000 characterized by objective evidence

of high risk, or for which there will be subsequent passing in default, it is possible to involve impairment greater

than as shown by the collective assessment.

Loans classified as “non-performing” (past due and/or overdrawn impaired exposures, likely default and non-per-

forming) according to reporting criteria under the current Supervisory provisions, regardless of the significance

of individual exposure, are subject to analytical assessment, which differs between “analytical-forfeit” assessment

and “analytical-individual assessment”. In fact, these are exposures for which there is objective evidence of impair-

ment as per §64 of IAS 39.

For impaired exposures (forbearance non-performing) subject to grants, even if they do not form a separate cat-

egory of loans in default since they are classified as non-performing, likely defaults or past due and/or overdrawn

impaired exposures, depending on the case, there shall be an analytical-forfeit or analytical-individual assessment

depending on the class and the presence of overdrafts/past due/overdue.

For exposures that are individually assessed for impairment the recoverable amount of the individual exposure is

determined on the basis of:

• estimated recoverable cash flows;

• timing of recoveries;

• the interest rate used to discount future cash flows.

Non-performing loans have a different estimate/treatment approach depending on the class of belonging, the

technical form, the value of the collateral backing the loan, the economic-equity assets of the counterparty and

all information, internal and external, collected as part of the recovery process that management considered most

significant and indicative of the level of potential risk.

Exposures that are not individually assessed are grouped on the basis of similar risk characteristics and collectively

assessed for impairment.

405


The collective impairment loss is obtained by adding up the losses of each group. The collective impairment amount

is compared with the previous carrying amount of loans to determine the amount of provisions to set aside or use.

The process for the identification of the groups of loans to be collectively assessed under IAS is in line with

the credit risk approach under Bank of Italy’s Circular 285 of December 17, 2013 and subsequent updates.

Specifically, the risk parameters under said regulation, i.e. probability of default (PD) by rating class and Loss

Given Default (LGD), are significant parameters for the classification of loans into groups with similar credit risk

characteristics and for the calculation of provisions.

At present, the grouping of loans for the purpose of collective assessment is by rating and client segment (Retail/

Corporate).

The calculation of the impairment loss is made applying a Basel-oriented approach, i.e. impairment is approxi-

mated to the concept of Expected Loss (EL) as set out in the relevant regulations. Expected Loss is the average

loss the Bank expects to incur in a year on an exposure as a result of the deterioration of credit quality or default

of the borrower.

Banca Mediolanum’s loan loss provision for collectively assessed exposures is therefore determined by calculating

the Expected Loss (EL) on all exposures in a given rating class, applying the following formula:

EL Class exposure = Balanceratio × PD class × LGD

where:

• Balanceratio: is the book value for short-term financing and amortized cost for loans repayable in installments;

• PDclass: is the probability of default over 1 year for performing loans in a given rating class.

• LGD: is the failed recoveries rate to be applied to performing loans.

The loan loss provision for collectively assessed exposures is thus obtained by adding up expected losses on each

exposure:

Total provision = SELexposure, class

Counterparty Risk

Counterparty risk is part of credit risk. Counterparty risk is the risk that a party to a derivative contract may fail to

perform on its contractual obligations and, when marked to market, the value of the derivative contract turns out to

be positive for Banca Mediolanum. Exposure to counterparty risk is measured applying the present value method to

OTC derivative contracts. The replacement cost of each contract is its fair value, if positive. Fair value is positive if

the bank is a net creditor of the counterparty.

To protect against counterparty risk arising from said derivatives contracts the Group entered into ISDA Master

Agreements. It should be noted that Banca Mediolanum has adequate procedures and tools for the management

of collateral in respect of derivative transactions. The activity on the negotiation of the relevant agreements of the

Credit Support Annex is the main exercise on the mitigation of counterparty risk.

406


2015

Concentration Risk

Concentration risk is defined by regulations as the risk arising from exposure to individual counterparties,

groups of related counterparties or counterparties in the same industry, business segment or geographical area.

Concentration risk thus falls within the wider category of credit risk.

As required by the Banking Supervisor (Bank of Italy), in relation to the capital requirement of the single name

risk, Banca Mediolanum’s exposure to concentration risk is monitored only for the ‘Business and Others’ Portfolio.

The exposure in that portfolio is of limited size and relevance. By contrast, the capital requirement on the geo-sec-

tor concentration risk is monitored on the entire portfolio of Banca Mediolanum in accordance with the policy in

force.

In addition, the Company put in place a system for monitoring concentration risk on a weekly basis in accordance

with rules governing management of large exposures.

Banca Mediolanum has defined operating licenses and limits in accordance with the Institutional Counterparty

Credit Risk Policy. These operating licenses and limits represent the Group’s risk tolerance based on the Bank’s

risk appetite. Operating licenses and limits are closely monitored on an ongoing basis to ensure they are not exceed-

ed and are regularly reviewed, generally on an annual basis. Derogation from said limits is subject to delegated

authorities of the Chief Executive Officer and the Head of Finance.

2.4 Impaired financial assets

Banca Mediolanum has effective tools for prompt detection of any problem loans.

The rules set forth by the Basel Committee introduced significant changes in the general definitions of problem

loans and the discretionary guidance of national supervisory authorities. The most significant change relates to the

definition of default. A default is considered to have occurred with regard to a particular obligor when either or

both of the two following events have taken place:

• the Bank considers that the obligor is unlikely to pay its credit obligations in full, without recourse by the bank

to actions such as realizing security (if held);

• the obligor is past due more than 90 days on any material credit obligation to the bank.

In accordance with the discretionary guidance of national supervisory authorities, each entity within the Group

classifies troubled positions according to their level of risk.

Each entity has dedicated problem loan management units that apply operating procedures and take action accord-

ing to the severity of the problem.

To determine default Banca Mediolanum refers to the definition of “impaired loans” used for the purpose of finan-

cial reporting. Impaired loans include:

• overdue and/or past due impaired exposures;

• likely defaults;

• non-performing loans.

407


Overdue and/or past due impaired exposures refer to on-balance sheet exposures, other than those classified as

non-performing or likely default, which are past due or overdrawn continuously more than 90 days and the higher

of the following two values is equal to or higher than the 5% threshold: a) average of amounts past due and/or

overdrawn on the entire exposure recorded on a daily basis in the last previous quarter; b) amount past due/over-

drawn on the entire exposure referred to the reference date of the report.

In particular, in the case of exposures to installment repayment, the unpaid installment is considered to represent

the most delay and, if a counterparty has several past due and/or overdrawn exposures for more than 90 days, the

highest delay is considered.

In the case of overdrafts on current accounts “revoked” in which the credit limit granted has been exceeded

(although due to the capitalization of interest), the calculation of days of overdraft begins, depending on the fact

that occurs first, starting from the first date of failure to pay interest that determines the overdraft or from the

date of the first request for return of capital.

Past due and/or overdrawn impaired exposures include loans to individuals who fulfill the conditions for their

classification among past due and/or overdrawn impaired exposures and which have one or more credit lines that

meet the definition of “Non-performing exposures with forbearance measures”.

Likely defaults refer to on and “off-balance” exposures towards the same debtor against whom the Bank deems

complete fulfillment unlikely (principal and/or interest) to its credit obligations without recourse to actions such

as enforcement of guarantees. This assessment is carried out independently of the presence of any amounts (or

installments) past due and not paid if there are elements that imply a situation of risk of default of the debtor (for

example, a crisis in the industry in which the debtor operates).

Likely defaults include, unless the conditions for their classification as non-performing apply: the overall exposures

to persons who fulfill the conditions for their classification as likely default and that have one or more credit lines

that meet the definition of “Non-performing exposures with forbearance measures”.

In addition, on-and off-balance sheet exposures are allocated in the category of likely defaults for which, due to

the deterioration of the economic and financial conditions of the debtor, the bank agreed to modify the original

contractual terms that gave rise to a loss (former restructured loans). This classification is guided by the principle

that, at the time of granting, the previous past due is “zeroed” and allocation of the renegotiated exposure among

impaired assets implies an evaluation of the status of the debtor on the basis of the principle of the likely default.

Non-performing loans consist of on and off-balance sheet exposures to borrowers that are unable to meet their pay-

ment obligations – even if their insolvency has not been established by a court of law – or in equivalent conditions,

regardless of any losses estimated by the lender and irrespective of any security taken.

They also include exposures to persons who fulfill the conditions for their classification as non-performing and that

have one or more credit lines that meet the definition of “Non-performing exposures with forbearance measures”.

Excludes exposures whose anomalous situation is caused by factors related to country risk.

408


2015

Credit Risk Stress Testing Procedures

Credit risk exposures are essentially gauged using three key parameters: Exposure at Default (EAD), Probability of

Default (PD) and Loss Given Default (LGD).

As to exposure classes for which the credit risk capital charge is calculated, based on the qualitative and quantitative

considerations set out below, it was decided to focus attention exclusively on:

• exposures to regulated financial institutions;

• unsecured retail exposures;

• exposures secured by property.

The portfolios above (i.e. the portfolios to which stress testing can be applied) include assets in which the Bank

intends to continue to invest in the near future while keeping its exposure to other asset classes contained.

Stress testing is applied also to past due positions. So, for each asset class and for each portfolio, all exposures, both

performing and impaired, at a given baseline date are considered and stressed to see how they would perform under

various crisis scenarios.

Despite the unsecured credit portfolios to the retail sector and regulated financial institutions having limited amounts

in terms of exposure, it is however considered necessary to assess the effect that adverse macroeconomic conditions

and extreme events would have in the management of banking operations. It is therefore important to proceed to the

stress tests for this type of use in order to understand, after hypothetical extreme events, the evolutionary dynamics

of the intrinsic risk of this type of asset.

409



A. CREDIT QUALITY

A.1 Impaired and not impaired loans: balance, impairment, developments, business and geographical distribution

A.1.1 Analysis of credit exposures by category and credit quality (book value)

E/tNon-

performing Likely defaultsPast due impaired

Past due not impaired

Other not impaired Total

1. Available for sale financial assets - - - - 12,087,443 12,087,443

2. Held to maturity financial assets - - - - 2,257,369 2,257,369

3. Loans to banks - - - - 671,274 671,274

4. Loans to customers 17,437 29,695 6,878 62,997 7,105,033 7,222,040

5. Financial assets measured at fair value - - - - - -

6. Financial assets being disposed of - - - - - -

Total Dec. 31, 2015 17,437 29,695 6,878 62,997 22,121,119 22,238,126

Total Dec. 31, 2014 13,146 30,739 5,242 70,533 21,666,599 21,786,259


E/t

Impaired assets Non-impaired assets

Total (Net exposure)Gr

oss

expo

sure

Spec

ific

adju

stm

ents

Net

exp

osur

e

Gros

s ex

posu

re

Port

folio

ad

just

men

ts

Net

exp

osur

e1. Available for sale financial assets - - - 12,087,443 - 12,087,443 12,087,443

2. Held to maturity financial assets - - - 2,257,369 - 2,257,369 2,257,369

3. Loans to banks - - - 671,274 - 671,274 671,274

4. Loans to customers 101,025 (47,014) 54,011 7,176,507 (8,478) 7,168,029 7,222,040

5. Financial assets measured at fair value - - - X X - -

6. Financial assets being disposed of - - - - - - -

Total Dec. 31, 2015 101,025 (47,014) 54,011 22,192,593 (8,478) 22,184,115 22,238,126

Total Dec. 31, 2014 89,423 (40,296) 49,127 21,746,098 (8,968) 21,737,130 21,786,259

E/t

Assets with evident poor credit quality Other assets

Accumulated losses Net exposure Net exposure

1. Financial assets held for trading - - 493,151

2. Hedge derivatives - - 892

Total Dec. 31, 2015 - - 494,043

Total Dec. 31, 2014 - - 329,047

410


2015

A.1.2.1 Distribution of performing loans renegotiated and not renegotiated by related portfolio

E/t

Exposures subject to renegotiation as part of Collective Agreements

Other Exposures

Total (Net exposures)Pa

st d

ue u

p to

3 m

onth

s

Past

due

3 to

6 m

onth

s

Past

due

up

to 6

mon

ths

with

in 1

yea

r

Past

due

1 y

ear

Not

ove

rdue

Past

due

up

to 3

mon

ths

Past

due

3 to

6 m

onth

s

Past

due

up

to 6

mon

ths

with

in 1

yea

r

Past

due

1 y

ear

Not

ove

rdue

1. Financial assets held for trading - - - - - - - - - 493,151 493,151

2. Available for sale financial assets - - - - - - - - - 12,087,443 12,087,443

3. Held to maturity financial assets - - - - - - - - - 2,257,369 2,257,369

4. Loans to banks - - - - - - - - - 671,274 671,274

5. Loans to customers 1,205 1,101 94 - 96,714 53,690 6,683 204 21 7,008,317 7,168,029

6. Financial assets measured at fair value - - - - - - - - - - -

7. Financial assets being disposed of - - - - - - - - - - -

8. Hedge derivatives - - - - - - - - - 892 892

Total Dec. 31, 2015 1,205 1,101 94 - 96,714 53,690 6,683 204 21 22,518,446 22,678,158

A.1.3 On and off-balance sheet loans to banks: gross and net values and past due ranges

E/t

Gross exposure

Non-impaired assets

Individual impair-

mentCollective

impairment Net exposure

Impaired assets

Up

to 3

mon

ths

3 to

6 m

onth

s

6 to

12

mon

ths

Over

1 y

ear

A. On-Balance sheet

a) Non-performing - - - - X - X -


b) Likely defaults - - - - X - X -


c) Past due impaired - - - - X - X -


d) Past due not impaired X X X X - X - -


e) Other not impaired X X X X 1,141,726 X - 1,141,726


Total A - - - - 1,141,726 - - 1,141,726

B. Off-Balance sheet

a) Impaired

b) Not impaired

- - - - X - X -

X X X X 229,179 X - 229,179

Total B - - - - 229,179 - - 229,179

Total (A+B) - - - - 1,370,905 - - 1,370,905

411


A.1.6 On and off-balance sheet loans to customers: gross and net values and past due ranges

E/t

Gross exposure

Non-impaired assets


Collective impairment Net exposure

Impaired assets

Up

to 3

mon

ths

3 to

6 m

onth

s

6 to

12

mon

ths

Over

1 y

ear

A. On-balance sheet

a) Non-performing - - 698 41,863 X (25,123) X 17,438

- of which: exposures subject to grants - - - 485 X (194) X 291

b) Likely defaults 13,947 4,639 13,116 18,070 X (20,077) X 29,695

- of which: exposures subject to grants 10,380 950 1,466 1,265 X (7,131) X 6,930

c) Past due impaired 2,295 4,855 1,015 527 X (1,814) X 6,878

- of which: exposures subject to grants 1,219 262 15 11 X (214) X 1,293

d) Past due not impaired X X X X 64,193 X (1,196) 62,997


e) Other not impaired X X X X 21,475,175 X (7,283) 21,467,892


Total A 16,242 9,494 14,829 60,460 21,539,368 (47,014) (8,479) 21,584,900

B. Off-balance sheet - - - - - - - -

a) Impaired

b) Not impaired

23 - - - X - X 23

X X X X 7,640,544 X (222) 7,640,322

Total B 23 - - - 7,640,544 - (222) 7,640,345

Total (A+B) 16,265 9,494 14,829 60,460 29,179,912 (47,014) (8,701) 29,225,245

On-balance sheet exposures include all on-balance sheet financial assets regardless of the category into which they

are classified, i.e. financial assets held for trading, available for sale financial assets, held to maturity financial

assets, loans and receivables.

412


2015

A.1.7 On-balance sheet credit exposures to customers: analysis of gross impaired exposures


A. Opening gross balance 35,673 47,821 5,930


B. Increases 13,377 25,938 17,496

B.1 reclassified from performing loans 104 20,025 15,430

B.2 reclassified from other impaired loan categories 8,858 3,006 616

B.3 other increases 4,415 2,907 1,450

C. Decreases 6,489 23,987 14,734

C.1 reclassified to performing loans (including past due not impaired)

-

2,643

5,434


C.3 receipts 2,142 11,720 6,294

C.4 proceeds from sale - - -

C.5 losses from sale - - -

C.6 reclassified to other impaired loan categories - 9,474 3,006

C.7 other decreases - - -

D. Closing gross balance 42,561 49,772 8,692


On-balance sheet exposures include all on-balance sheet financial assets regardless of the category into which they

are classified, i.e. financial assets held for trading, available for sale financial assets, held to maturity financial

assets, loans and receivables.

413


A.1.8 Banking Group – On-balance sheet credit exposures to customers: analysis of net impairment


A. Net impairment at beginning of the year 22,527 17,081 688


B. Increases 7,934 8,377 1,784

B.1 impairment 5,604 8,205 1,738

B.2 losses from sale - - -

B.3 reclassified from other impaired loan categories 2,330 171 46

B.4 other increases - 1 -

C. Decreases 5,337 5,381 658

C.1 reversal of impairment from revaluations 381 827 189

C.2 reversal of impairment from receipts 610 2,024 273

C.3 gains on disposal - - -


C.5 reclassified to other impaired loan categories - 2,351 196

C.6 other decreases - - -

D. Net impairment at year end 25,124 20,077 1,814


A.2 Analysis of exposures by internal and external rating

A.2.1 Analysis of on and off-balance sheet exposures by external rating

E/t

External rating classes

Unrated TotalClass 1 Class 2 Class 3 Class 4 Class 5 Class 6

A. On-balance sheet 174,816 187,871 15,378,923 142,037 69,675 4,543 6,873,419 22,831,284

B. Derivatives - - - - - - 5,544 5,544

B.1 Financial derivatives - - - - - - 5,544 5,544

B.2 Credit derivatives - - - - - - - -

C. Guarantees issued - - 84 437 - 39 66,173 66,733

D. Commitments to disburseD. funds - 13 10 71 2 - 66,442 66,538

E. Other - - 7,730,709 - - - - 7,730,709

Total 174,816 187,884 23,109,726 142,545 69,677 4,582 7,011,578 30,700,808

A.2.2 Analysis of on and off-balance sheet exposures by internal rating

The Bank does not have internal rating models.

414


2015

A.3 Analysis of secured exposures by type of collateral

A.3.1 Secured loans to banks

E/tNet

exposures

Real guarantees (1)


Total (1)+(2)


CLN

Other derivatives

Gove

rnm

ents

and

cen

tral

ban

ks

Othe

r go

vern

men

t age

ncie

s

Bank

s

Othe

r su

bjec

ts

Prop

erty

, mor

tgag

es

Prop

erty

, fina

nce

leas

es

Secu

ritie

s

Othe

r re

al g

uara

ntee

s

Gove

rnm

ents

and

cent

ral b

anks

Othe

r go

vern

men

t age

ncie

s

Bank

s

Othe

r su

bjec

ts

1. Secured on-balance sheet credit1. exposures 442,656 - - 442,656 - - - - - - - - - - 442,656

1.1 Entirely secured 442,656 - - 442,656 - - - - - - - - - - 442,656


1.2 Partly secured - - - - - - - - - - - - - - -


2. Secured off-balance sheet credit2. exposures - - - - - - - - - - - - - - -

2.1 Entirely secured - - - - - - - - - - - - - - -


2.2 Partly secured - - - - - - - - - - - - - - -


415


A.3.2 Secured loans to customers

E/tNet

exposures

Real guarantees (1)


Total (1)+(2)


CLN

Other derivatives

Gove

rnm

ents

and

cen

tral

ban

ks

Othe

r go

vern

men

t age

ncie

s

Bank

s

Othe

r su

bjec

ts

Prop

erty

, mor

tgag

es

Prop

erty

, fina

nce

leas

es

Secu

ritie

s

Othe

r re

al g

uara

ntee

s

Gove

rnm

ents

and

cent

ral b

anks

Othe

r go

vern

men

t age

ncie

s

Bank

s

Othe

r su

bjec

ts

1. Secured on-balance sheet1. credit exposures:

4,964,486

4,854,820 - 47,452 3,752 - - - - - -

531

-

49,307

4,955,862

1.1. Entirely secured 4,936,565 4,828,714 - 47,452 3,752 - - - - - - - - 48,487 4,928,405

- of which impaired 39,499 39,308 - - - - - - - - - - - 191 39,499

1.2. Partly secured 27,921 26,106 - - - - - - - - - 531 - 820 27,457

- of which impaired 2,355 2,145 - - - - - - - - - 31 - 179 2,355

2. Secured off-balance sheet2. credit exposures:

8,891

5,071 - - 1,598 - - - - - -

-

-

1,767

8,436

2.1. Entirely secured 6,827 5,071 - - - - - - - - - - - 1,756 6,827


2.2. Partly secured 2,064 - - - 1,598 - - - - - - - - 11 1,609


416


2015


B.1 Analysis of loans to customers (on- and off-balance sheet positions) by borrower category (book value)

E/t

Governments Other government agencies Financial companies Insurance companies Non-financial companies Other subjects

Net

exp

osur

e

Spec

ific

valu

e ad

just

men

ts

Port

folio

val

ue a

djus

tmen

ts

Net

exp

osur

e

Spec

ific

valu

e ad

just

men

ts

Port

folio

val

ue a

djus

tmen

ts

Net

exp

osur

e

Spec

ific

valu

e ad

just

men

ts

Port

folio

val

ue a

djus

tmen

ts

Net

exp

osur

e

Spec

ific

valu

e ad

just

men

ts

Port

folio

val

ue a

djus

tmen

ts

Net

exp

osur

e

Spec

ific

valu

e ad

just

men

ts

Port

folio

val

ue a

djus

tmen

ts

Net

exp

osur

e

Spec

ific

valu

e ad

just

men

ts

Port

folio

val

ue a

djus

tmen

ts

A. On-balance sheet

A.1 Non-performing - - X - - X - - X - - X 178 (1,686) X 17,260 (23,437) X

- of which exposures subject to grants - - X - - X - - - - - - - - - 291 (194) -

A.2 Likely defaults - - X - - X 3,375 (5,758) X - - X 3,489 (1,664) X 22,831 (12,655) X

- of which exposures subject to grants - - - - - - 3,375 (5,758) - - - - 2 - - 3,554 (1,373) -

A.3 Past due impaired - - - - - - - - X - - X 18 (2) X 6,860 (1,812) X

- of which exposures subject to grants - - - - - - - - - - - - 2 - - 1,291 (214) -

A.4 Not impaired 14,652,696 X - 29 - - 362,945 X (11) 13,587 X - 207,722 X (2,348) 6,293,910 X (6,120)

- of which exposures subject to grants - - - - X - - - - - - - - - - - - -

Total A 14,652,696 - - 29 - - 366,320 (5,758) (11) 13,587 - - 211,407 (3,352) (2,348) 6,340,861 (37,904) (6,120)



B.2 Likely defaults - - X - - X - - X - - X - - X 1 - X

B.3 Other impaired assets - - X - - X - - - - - X - - X 22 - X

B.4 Not impaired 10 X - - X - 638 X - 19,176 X (111) 9,604 X (26) 89,274 X (85)

Total B 10 - - - - - 638 - - 19,176 - (111) 9,604 - (26) 89,297 - (85)

Total Dec. 31, 2015 14,652,706 - - 29 - - 366,958 (5,758) (11) 32,763 - (111) 221,011 (3,352) (2,374) 6,430,158 (37,904) (6,205)

Total Dec. 31, 2014 15,299,739 (2) - 166 - - 504,376 (5,699) (7) 31,595 - (111) 209,503 (3,659) (1,498) 5,558,152 (30,935) (7,501)

417



B.1 Analysis of loans to customers (on- and off-balance sheet positions) by borrower category (book value)

E/t

Governments Other government agencies Financial companies Insurance companies Non-financial companies Other subjects

Net

exp

osur

e

Spec

ific

valu

e ad

just

men

ts

Port

folio

val

ue a

djus

tmen

ts

Net

exp

osur

e

Spec

ific

valu

e ad

just

men

ts

Port

folio

val

ue a

djus

tmen

ts

Net

exp

osur

e

Spec

ific

valu

e ad

just

men

ts

Port

folio

val

ue a

djus

tmen

ts

Net

exp

osur

e

Spec

ific

valu

e ad

just

men

ts

Port

folio

val

ue a

djus

tmen

ts

Net

exp

osur

e

Spec

ific

valu

e ad

just

men

ts

Port

folio

val

ue a

djus

tmen

ts

Net

exp

osur

e

Spec

ific

valu

e ad

just

men

ts

Port

folio

val

ue a

djus

tmen

ts

A. On-balance sheet

A.1 Non-performing - - X - - X - - X - - X 178 (1,686) X 17,260 (23,437) X

- of which exposures subject to grants - - X - - X - - - - - - - - - 291 (194) -

A.2 Likely defaults - - X - - X 3,375 (5,758) X - - X 3,489 (1,664) X 22,831 (12,655) X

- of which exposures subject to grants - - - - - - 3,375 (5,758) - - - - 2 - - 3,554 (1,373) -

A.3 Past due impaired - - - - - - - - X - - X 18 (2) X 6,860 (1,812) X

- of which exposures subject to grants - - - - - - - - - - - - 2 - - 1,291 (214) -

A.4 Not impaired 14,652,696 X - 29 - - 362,945 X (11) 13,587 X - 207,722 X (2,348) 6,293,910 X (6,120)

- of which exposures subject to grants - - - - X - - - - - - - - - - - - -

Total A 14,652,696 - - 29 - - 366,320 (5,758) (11) 13,587 - - 211,407 (3,352) (2,348) 6,340,861 (37,904) (6,120)



B.2 Likely defaults - - X - - X - - X - - X - - X 1 - X

B.3 Other impaired assets - - X - - X - - - - - X - - X 22 - X

B.4 Not impaired 10 X - - X - 638 X - 19,176 X (111) 9,604 X (26) 89,274 X (85)

Total B 10 - - - - - 638 - - 19,176 - (111) 9,604 - (26) 89,297 - (85)

Total Dec. 31, 2015 14,652,706 - - 29 - - 366,958 (5,758) (11) 32,763 - (111) 221,011 (3,352) (2,374) 6,430,158 (37,904) (6,205)

Total Dec. 31, 2014 15,299,739 (2) - 166 - - 504,376 (5,699) (7) 31,595 - (111) 209,503 (3,659) (1,498) 5,558,152 (30,935) (7,501)

418


2015

B.2 Geographical distribution of on-balance sheet and off-balance sheet loans to customers (book value)

E/t


Net exposureNet

impairmentNet

exposureNet

impairmentNet

exposureNet

impairmentNet

exposureNet

impairmentNet

exposureNet

impairment

A. On-balance sheet

A.1 Non-performing 17,437 (25,123) - - - - - - - -

A.2 Likely defaults 29,693 (20,075) 1 (1) 1 (1) - - - -

A.3 Past due impaired 6,874 (1,810) 4 (4) - - - - - -

A.4 Not impaired 21,302,835 (8,450) 224,254 (23) 1,585 (5) 1,832 - 383 (1)

Total A 21,356,839 (55,458) 224,259 (28) 1,585 (6) 1,832 - 383 (1)


B.1 Non-performing - - - - - - - - - -

B.2 Likely defaults 1 - - - - - - - - -

B.3 Other impaired assets 21 - - - - - - - - -

B.4 Not impaired 117,766 (221) 936 (1) - - - - - -

Total B 117,788 (221) 936 (1) - - - - - -

Total A+B Dec. 31, 2015 21,474,627 (55,679) 225,195 (29) 1,586 (6) 1,832 - 383 (1)

Total A+B Dec. 31, 2014 21,231,343 (49,390) 370,050 (21) 1,301 (1) 815 - 23 -

419


B.3 Geographical distribution of on-balance sheet and off-balance sheet bank loans (book value)

E/t


Net exposure

Net impairment

Net exposure

Net impairment

Net exposure

Net impairment

Net exposure

Net impairment

Net exposure

Net impairment

A. On-balance sheet

A.1 Non-performing - - - - - - - - - -

A.2 Likely defaults - - - - - - - - - -

A.3 Past due impaired - - - - - - - - - -

A.4 Not impaired 704,774 - 436,113 - 816 - 23 - - -

Total A 704,774 - 436,113 - 816 - 23 - - -

B. Off-balance sheet - - - - - - - - - -

B.1 Non-performing - - - - - - - - - -

B.2 Likely defaults - - - - - - - - - -

B.3 Other impaired assets - - - - - - - - - -

B.4 Not impaired 89 - 20,002 - - - - - - -

Total B 89 - 20,002 - - - - - - -

Total A+B Dec. 31, 2015 704,863 - 456,115 - 816 - 23 - - -

Total A+B Dec. 31, 2014 485,099 - 241,430 - 896 - 7 - - -

B.4 Large exposures

Nominal Weighted

a) Book Value (E/t) 24,778,073 1,067,283

c) Number 8

The number and amount of large risks was determined according to EU and national regulations. Said rules require

reporting of large exposures at nominal value.

C. SECURITIZATION TRANSACTIONS AND SALE OF ASSETS




In 2015, there were no exposures arising from securitization transactions.

420


2015

C.2 Analysis of exposures arising from third-party securitizations by type of securitized asset and by type of exposure

E/t

On-balance sheet exposures Guarantees issued Credit facilities

Senior Mezzanine Junior Senior Mezzanine Junior Senior Mezzanine Junior

Book

valu

e

Impa

irmen

t/rev

ersa

l of

impa

irmen

t

Book

valu

e

Impa

irmen

t/rev

ersa

l of

impa

irmen

t

Book

valu

e

Impa

irmen

t/rev

ersa

l of

impa

irmen

t

Book

valu

e

Impa

irmen

t/rev

ersa

l of

impa

irmen

t

Book

valu

e

Impa

irmen

t/rev

ersa

l of

impa

irmen

t

Book

valu

e

Impa

irmen

t/rev

ersa

l of

impa

irmen

t

Book

valu

e

Impa

irmen

t/rev

ersa

l of

impa

irmen

t

Book

valu

e

Impa

irmen

t/rev

ersa

l of

impa

irmen

t

Book

valu

e

Impa

irmen

t/rev

ersa

l of

impa

irmen

t

F-E Mortgages srl 1,211 - - - - - - - - - - - - - - - - -

Cordusio RMBS/UNICREDIT BANCA 874 - - - - - - - - - - - - - - - - -

VELA/BANCA NAZIONALE DEL LAVORO 1,140 - - - - - - - - - - - - - - - - -

BPM SECURITIZATION / BANCA POPOLARE MILANO

2,201

-

-

-

-

-

-

-

-

-

-

-

-

-

-

-

-

-

C.3 SPV for securitizationAt the reporting date, there were no amounts related to this item.

C.4 SPV for securitization not consolidatedAt the reporting date, there were no amounts related to this item.

C.5 Servicer activities – own securitizations: collection of securitized loans and redemption of securities issued by the SPV for securitization At the reporting date, there were no amounts related to this item.

D. DISCLOSURE OF STRUCTURED ENTITIES NOT CONSOLIDATED FOR ACCOUNTING PURPOSES (OTHER THAN SPV FOR SECURITIZATION)

At the reporting date, there were no amounts related to this item.

421


E. SALE TRANSACTIONS

A. Financial assets sold and not derecognized entirely


E.1 Banking Group - Financial assets sold but not derecognized: book value and full value

E/t


Financial assets




Loans to banks

Loans to Customers

A B C A B C A B C A B C A B C A B C

A. Non-derivatives - - - - - - 7,264,567 - - 161,546 - - - - - - - -

1. Debt securities - - - - - - 7,264,567 - - 161,546 - - - - - - - -

2. Equity investments - - - - - - - - - X X X X X X X X X

3. UCI - - - - - - - - - X X X X X X X X X

4. Loans - - - - - - - - - - - - - - - - - -

B. Derivatives - - - X X X X X X X X X X X X X X X

Total Dec. 31, 2015 - - - - - - 7,264,567 - - 161,546 - - - - - - - -

of which impaired - - - - - - - - - - - - - - - - - -

Total Dec. 31, 2014 17,081 - - - - - 1,687,781 - - 62,913 - - - - - - - -

of which impaired - - - - - - - - - - - - - - - - - -

Key:A = Financial assets sold, fully recognized (book value)B = Financial assets sold, partly recognized (book value)C = Financial assets sold, partly recognized (full value)

E.2 Analysis of financial liabilities against financial assets that are sold but not derecognized

E/t


Financial assets



assets

Held to maturity financial

assetsLoans to

banksLoans to

customers Total

1. Payables due to customers 36,416 - 7,319,023 166,181 - - 7,521,620

a) against financial assets fully recognized 36,416 - 7,319,023 166,181 - - 7,521,620

b) against financial assets partly recognized - - - - - - -

2. Amounts due to banks - - 209,088 - - - 209,088

a) against financial assets fully recognized - - 209,088 - - - 209,088


3. Securities issued - - - - - - -

a) against financial assets fully recognized - - - - - - -


Total Dec. 31, 2015 36,416 - 7,528,111 166,181 - - 7,730,708

Total Dec. 31, 2014 17,075 - 1,687,406 64,799 - - 1,769,280

E.3 Sale transactions with liabilities having recourse only to the assets sold: fair value

At the reporting date, there were no amounts related to this item.

422


2015

SECTION 2 – MARKET RISK

2.1 Interest rate risk and pricing risk – Trading book


A. General aspects

Banca Mediolanum’s trading book, as defined by supervisory authorities, consists of financial instruments subject

to capital requirements for market risk.

Specifically, the trading book consists of positions held by those Bank’s functions authorised to take market risk

exposures within the limits and the authorities delegated to them by the Board of Directors, in accordance with

internal policies. The trading book primarily consists of positions in bonds, equities, derivatives and money market

instruments.

The reduced credit rating of underlying assets was exclusively due to domestic sovereign debt exposure and Italy’s

credit rating downgrade in recent years. Given the predominance of domestic treasuries, however, the risk of default

for the Bank’s securities portfolio is relatively low.

Rating analysis of Banca Mediolanum’s entire securities portfolio, including both the trading book and the banking

book, is set out below.

Bank’s Securities Portfolio – RATING COMPOSITION (S&P equivalent)Year-end spot data (2015 vs. 2014)

E/t 2015 % 2014 % Change (%)

Total Portafoglio 14,801,174 100% 15,278,865 100% (3%)

AAA (67,339) (0.5%) (122,399) (0.8%) (45%)

da AA+ a AA- 86,882 0.6% 91,593 0.6% (5%)

da A+ a A- 26,100 0.18% 7,329 - 256%

da BBB+ a BBB- 14,628,620 98.83% 15,277,515 100.0% (4%)

BB+ o inferiore 162,034 1.1% 12,297 0.1% (100%)

Senza Rating (35,122) (0.2%) 12,530 0.1% (380%)

NOTE: the value of the securities portfolio does not include the irrelevant portion of Funds, Shares and Rights.

423


B. Interest rate risk measurement and management

Banca Mediolanum’s Risk Management Function is responsible for ensuring that the various units use consistent

methods in assessing financial risk exposure. The team also contributes to the definition of lending and operating

limits. Banca Mediolanum is directly responsible for the control of the risks assumed. Risks are to be in accordance

with the policies approved by the Board of Directors and consistent with the complexity of managed assets.

Exposure to interest rate risk is measured by applying portfolio analyses (e.g. exposure limits, characteristics of the

instruments and of the issuers) as well as by estimating the risk of maximum loss on the portfolio (Value at risk).

VaR TablesHFT Securities Portfolio - MARKET RISKYear-end spot data (2015 vs. 2014)

E/t 2015 2014 Change (%)

Nominal 255,681 51,920 392%

Market value 226,694 45,910 394%

Duration 0.49 0.37 32%

VaR 99% - 1 d 1,308 946 38%

UnratedBB+ or lowerBBB+ to BBB-A+ to A-AA+ to AA-AAA

A+ to A-0.18%

AA+ to AA-0.6%

AAA-0.5%

Unrated-0.2%

BB+ or lower1.1%

BBB+ to BBB-98.83%

Portfolio Rating Composition - Banca Mediolanum S.p.A.

424


2015




3 to 6 months

6 to 12 months 1 to 5 years

5 to 10 years

Over 10 years

Inde-finite

1. On-balance sheet assets 2,772,213 5,483,391 6,766,647 2,738,836 4,079,628 111,631 220,695 -

1.1 Debt securities 648,164 572,423 6,760,022 2,687,461 3,981,832 - 874 - - with early redemption option - 2,351 - - - - 874 - - others 648,164 570,072 6,760,022 2,687,461 3,981,832 - - - 1.2 Loans to banks 64,571 606,704 - - - - - - - obligatory reserve X 114,047 X X X X X X - others 64,571 492,657 - - - - - - 1.3 Loans to customers 2,059,478 4,304,264 6,625 51,375 97,796 111,631 219,821 - - current accounts 419,696 21 33 78 306 754 - - - other loans 1,639,782 4,304,244 6,592 51,297 97,491 110,876 219,821 - - with early redemption option 1,222,402 4,254,639 6,321 11,072 86,333 106,743 219,821 - - others 417,380 49,604 270 40,225 11,158 4,133 - -2. On-balance sheet liabilities 10,510,183 6,135,775 2,422,221 2,809,068 228,518 - - - 2.1 Payables due to customers 10,403,983 5,619,927 2,318,656 2,711,289 9,595 - - - - current accounts 9,824,427 709,949 674,880 564,797 6,083 - - - - other payables 579,556 4,909,978 1,643,775 2,146,492 3,512 - - - - with early redemption option - - - - - - - - - others 579,556 4,909,978 1,643,775 2,146,492 3,512 - - - 2.2 Amounts due to banks 106,199 511,266 103,566 97,779 - - - - - current accounts 56,636 - - - - - - - - other payables 49,563 511,266 103,566 97,779 - - - - 2.3 Debt securities - 4,581 - - 218,923 - - - - with early redemption option - - - - - - - - - others - 4,581 - - 218,923 - - - 2.4 Other liabilities - - - - - - - - - with early redemption option - - - - - - - - - others - - - - - - - -3. Financial derivatives 1,842 481,874 21,633 27,867 410,667 623,951 872,716 - 3.1 With underlying securities - - - - - - - - - Options - - - - - - - - + Long positions - - - - - - - - + Short positions - - - - - - - - - Other derivatives - 83 33 - 51 - - - + Long positions - 10 23 - 51 - - - + Short positions - 73 10 - - - - - 3.2 Without underlying securities 1,842 481,874 21,633 27,867 410,667 623,951 872,716 - - Options 1,842 236,088 18,579 21,664 360,329 559,989 756,528 - + Long positions - 17,107 5,839 21,264 232,368 301,380 399,552 - + Short positions 1,842 218,981 12,740 400 127,961 258,609 356,977 - - Other derivatives - 245,786 3,054 6,203 50,339 63,962 116,188 - + Long positions - 242,766 - - - - - - + Short positions - 3,020 3,054 6,203 50,339 63,962 116,188 -4. Other off-balance sheet transactions - - - - - - - - + Long positions - (45,467) - - - - - - + Short positions - 45,467 - - - - - -

425


2. Regulatory trading portfolio: distribution of exposures in equity investments and equity indices for the main countries of the listing market

E/t

Listed

UnlistedItaly Germany Luxembourg Spain Others

A. Equity investments

- long positions - - - - - -

- short positions - - - - - -

Total A - - - - - -

B. Transactions not yet settled on equityB. investments



Total B - - - - - -

C. Other derivatives on equity investments

- long positions 4 - - - - -


Total C 4 - - - - -

D. Share index derivatives



2.2 Interest rate risk and pricing risk - Banking book


A. General aspectsBanca Mediolanum’s banking book1 is made up of those financial instruments that are not part of the trading book,

in particular inter-bank loans, available for sale financial assets and held to maturity financial assets (IAS category:

Held to Maturity).

Banking book interest rate risk exposures are measured and managed by Banca Mediolanum using an ALM model.

Risk management activities include, inter alia, controls for credit risk inherent in transactions with institutional

counterparties according to the operating procedures and limits approved by the Board of Directors of Banca Me-

diolanum S.p.A.

Interest rate risk is the risk of potential impact of unexpected interest rate changes on the Bank’s current earnings

and equity. This risk is typical of banking book positions.

The banking book consists of on- and off-balance sheet items that are not held for trading.

1 The generic definition of “Banking book” are therefore includes financial assets/liabilities held to maturity or at least in the medium/long term (“buy and hold”), loans, deposits (retail, corporate, financial institutions).

426


2015

The targets to be pursued process to support proper management of interest rate risk are:

• ensure the stability of net interest income, minimizing any adverse impact of changes in interest rates (earnings

perspective), largely with near-term focus. The stability of net interest income is mainly influenced by Repricing

Risk, Yield Curve Risk, Basis Risk, Refixing Risk and Optionality Risk;

• protect the economic value, i.e. the present value of expected cash flows from assets and liabilities. The economic

value perspective is focused on the potential medium/long-term effects of changes in interest rates and is mainly

associated with re-pricing risk;

• ensure that interest rate risk that has been taken or can be taken be properly identified, measured, monitored

and managed in accordance with uniform methods and procedures shared;

• make sure that risk measurement models are commensurate with actual earnings generated by the various risk

owners;

• ensure that the quality of risk measurement and management systems is aligned with market standards and best

practices;

• define risk limits and licenses for the various levels of responsibility;

• ensure the generation of accurate data and reports by the various officers responsible for risk management and

control at the different levels within the organization;

• ensure compliance with requirements established by domestic and international supervisory authorities.

The definition of limits and licenses reflects the risk appetite of the organization and permits to control that practices

at the various levels within the organization are aligned with the strategic guidelines and policies adopted by the

Board of Directors.

The application of the principles above led to the definition of the following indicators:

• Net interest income sensitivity to parallel shifts in the yield curve;

• Economic value sensitivity to parallel shifts in the yield curve.

Management of the interest rate risk in the banking book is part of Asset Liability Management (ALM). Banca

Mediolanum has in place an ALM system that measures performance of annual Net Interest Income and the Bank’s

Economic Value in relation to regulatory capital. The ALM system is also used by management to assess the impact

of funding and lending policies on the entity’s financial condition and earnings.

Asset Liability ManagementThe Ermas application is the system used for managing banking book’s Assets and Liabilities against the risk of

adverse movements in interest rates. As such, the Ermas application assists management in assessing the bank’s

funding and lending policies and their possible impact on the bank’s financial condition and earnings. Banca Me-

diolanum regularly updates the dedicated ALM policy including limits and procedures for monitoring annual Net

Interest Income and the Economic Value of the Bank.

427


Movements in annual net interest incomeSpot data as at December 31, 2015

E/t Balance +100bps -100bps

Total assets (*) 21,106,136 96,325 (84,179)

Total liabilities (*) (25,390,942) (114,823) 99,717

Off-balance sheet (hedging derivatives) 69,092.18 2,149.55 (209.89)

CHANGES OCCURRED IN THE YEAR (4,215,714) (16,348) 15,328

(*) Excludes the values of statement of financial position items insensitive to the change in interest rate.

B. Fair Value Hedges

The introduction of IAS 39 brought about profound changes in the way derivatives and related hedged balance sheet

assets/liabilities are accounted for.

Under IAS 39 all derivatives, either trading or hedging derivatives, are to be recognized in the statement of financial

position at their Fair Value and any change, either increase or decrease, in their fair value is to be recognized through

profit or loss.

When the hedged item is measured at historical (amortized) cost the asymmetry resulting from the different meas-

urement method may lead to income statement information volatility. IAS 39 addresses this issue allowing entities

to apply consistent measurement methods to the hedging instrument and to the hedge item (Hedge Accounting).

To qualify for Hedge Accounting under IAS 39 the hedging relationship must satisfy certain conditions relating to

hedge effectiveness and related documentation.

The use of hedge accounting engages various structures of Banca Mediolanum. The Treasury Committee provides

guidance on hedging policies. Banca Mediolanum Financial Management function handles all aspects relating to

the identification and operation of IAS compliant hedges. The Risk Management Function works across the process

ensuring the alignment of systems and proper management of hedges. The Accounting and Financial Reporting func-

tion records and monitors hedges on an ongoing basis and prepares Hedge Accounting documentation.

As shown in the table below, back-testing of hedge effectiveness proved the hedge ratio met the requirement |0.8| ≤

HR ≤ |1.25|:

Hedging RatioYear-end spot data (2015 vs. 2014)

2015 2014 Change (%)

Hedging ratio changes on hedged portfolio 101% 112% (10%)

C. Cash Flow Hedges


428


2015



3 to 6 months

6 to 12 months 1 to 5 years

5 to 10 years

Beyond 10 years

Inde-finite

matu-rity

1. Cash assets 2,719,117 5,212,464 6,766,647 2,738,836 4,079,628 111,631 220,695 -

1.1 Debt securities 648,164 572,423 6,760,022 2,687,461 3,981,832 - 874 - - with early redemption option - 2,351 - - - - 874 - - others 648,164 570,072 6,760,022 2,687,461 3,981,832 - - - 1.2 Loans to banks 63,802 335,784 - - - - - - - reserve requirements X 114,047 X X X X X X - others 63,802 221,737 - - - - - - 1.3 Loans to customers 2,007,150 4,304,257 6,625 51,375 97,796 111,631 219,821 - - current accounts 419,696 21 33 78 306 754 - - - other loans 1,587,454 4,304,236 6,592 51,297 97,491 110,876 219,821 - - with early redemption option 1,222,402 4,254,639 6,321 11,072 86,333 106,743 219,821 - - others 365,052 49,597 270 40,225 11,158 4,133 - -2. Non-derivatives 10,420,083 6,121,764 2,422,221 2,808,568 228,518 - - - 2.1 Due to customers 10,323,577 5,619,927 2,318,656 2,710,789 9,595 - - - - current accounts 9,744,021 709,949 674,880 564,297 6,083 - - - - other payables 579,556 4,909,978 1,643,775 2,146,492 3,512 - - - - with early redemption option - - - - - - - - - others 579,556 4,909,978 1,643,775 2,146,492 3,512 - - - 2.2 Amounts due to banks 96,506 497,256 103,566 97,779 - - - - - current accounts 46,943 - - - - - - - - other payables 49,563 497,256 103,566 97,779 - - - - 2.3 Debt securities - 4,581 - - 218,923 - - - - with early redemption option - - - - - - - - - others - 4,581 - - 218,923 - - - 2.4 Other liabilities - - - - - - - - - with early redemption option - - - - - - - - - others - - - - - - - -3. Financial derivatives 1,842 481,957 21,666 27,867 410,718 623,951 872,716 - 3.1 With underlying securities - 83 33 - 51 - - - - Options - - - - - - - - + Long positions - - - - - - - - + Short positions - - - - - - - - - Other derivatives - 83 33 - 51 - - - + Long positions - 10 23 - 51 - - - + Short positions - 73 10 - - - - - 3.2 Without underlying securities 1,842 481,874 21,633 27,867 410,667 623,951 872,716 - - Options 1,842 236,088 15,579 21,664 360,329 559,989 756,528 - + Long positions - 17,107 5,839 21,264 232,368 301,380 399,552 - + Short positions 1,842 218,981 12,740 400 127,961 258,609 356,977 - - Other derivatives - 245,786 3,054 6,203 50,339 63,962 116,188 - + Long positions - 242,766 - - - - - - + Short positions - 3,020 3,054 6,203 50,339 63,962 116,188 -4. Other transactions off-balance sheet - - - - - - - - + Long positions - (45,467) - - - - - - + Short positions - 45,467 - - - - - -

429


2.3 Currency risk


A. Currency Risk - General information, Measurement and Management

The Group is exposed to currency risk on all its foreign-currency denominated assets and liabilities (both on- and

off-balance sheet) including euro-denominated positions linked to the performance of foreign exchange rates. Cur-

rency exposure limits were set by reference to the net value of positions in the main operating currencies.

B. Currency Risk-Hedges


1. Internal models and other supervisory methodologies: year-end and average notional amounts



430


2015


1. Analysis of assets, liabilities and derivatives by currency denomination

E/t Us Dollar Swiss Franc Uk PoundCzech Republic

KorunaSingapore

DollarOther

Currencies

A. Financial assets 859 305 89 144 92 550

A.1 Debt securities - - - - - -

A.2 Equities - - - - - -

A.3 Loans to banks 857 305 89 144 92 550

A.4 Loans to customers 2 - - - - -

A.5 Other financial assets - - - - - -

B. Other assets 62 1 36 - - 1

C. Financial liabilities 81,721 13 106 - - 7

C.1 Amounts due to banks 45,008 - - - - 7

C.2 Due to customers 36,713 13 106 - - -

C.3 Debt securities - - - - - -

C.4 Other financial liabilities - - - - - -

D. Other liabilities - - - - - -

E. Financial derivatives 80,727 (229) (34) - - 5

- Options - - - - - -

+ Long positions - - - - - -

+ Short positions - - - - - -

- Others 80,727 (229) (34) - - 5

+ Long positions 402,671 5 - - - 17

+ Short positions 321,944 234 34 - - 12

Total assets 403,592 311 125 144 92 568

Total liabilities 403,665 247 140 - - 19

Unbalance (+/-) (73) 64 (15) 144 92 549

2. Internal models and other sensitivity analysis methods



431


2.4 Derivative financial instruments

A. Financial derivatives

A.1 Trading book: year-end notional amounts

E/t

Dec. 31, 2015 Dec. 31, 2014

Over the counterCentral

counterparties Over the counterCentral

counterparties

1. Debt securities and interest rates 181,162 58,025 103,257 34,052

a) Options - - - -

b) Swap 181,162 - 103,257 -

c) Forwards - - - -

d) Futures - 58,025 - 34,052

e) Others - - - -

2. Equity investments and stock indices - 4 - -

a) Options - - - -

b) Swap - - - -

c) Forwards - - - -

d) Futures - - - -

e) Others - 4 - -

3. Currencies and gold 724,918 - 373,533 -

a) Options - - - -

b) Swap 633 - 125,982 -

c) Forwards 724,285 - 247,551 -

d) Futures - - - -

e) Others - - - -



Total 906,080 58,029 476,790 34,052

432


2015

A.2 Banking book: year - end and average notional amounts

A.2.1 Hedging derivatives

E/t

Dec. 31, 2015 Dec. 31, 2014



counterparties

1. Debt securities and interest rates 311,858 - 413,721 -

a) Options 69,092 - 72,502 -

b) Swap 242,766 - 341,219 -

c) Forwards - - - -

d) Futures - - - -

e) Others - - - -


a) Options - - - -

b) Swap - - - -

c) Forwards - - - -

d) Futures - - - -

e) Others - - - -


a) Options - - - -

b) Swap - - - -

c) Forwards - - - -

d) Futures - - - -

e) Others - - - -



Total 311,858 - 413,721 -

433


A.2.2 Other derivatives

E/t

Dec. 31, 2015 Dec. 31, 2014



counterparties

1. Debt securities and interest rates 83 - 75,533 9,985

a) Options - - - -

b) Swap - - - -

c) Forwards 83 - 75,533 9,985

d) Futures - - - -

e) Others - - - -


a) Options - - - -

b) Swap - - - -

c) Forwards - - - -

d) Futures - - - -

e) Others - - - -


a) Options - - - -

b) Swap - - - -

c) Forwards - - - -

d) Futures - - - -

e) Others - - - -



Total 83 - 75,533 9,985

434


2015

A.3 Financial derivatives: positive gross fair value - analysis by type of product

E/t

Positive fair value

Dec. 31, 2015 Dec. 31, 2014



counterparties

A. Trading book 4,648 4 6,163 -

a) Options - - - -


c) Cross currency swaps - - 3,368 -


e) Forwards 4,648 - 2,795 -

f) Futures - - - -

g) Others - 4 - -

B. Banking book - hedging derivatives 892 - 1,287 -

a) Options 892 - 1,287 -




e) Forwards - - - -

f) Futures - - - -

g) Others - - - -

C. Banking book - other derivatives - - 34 -

a) Options - - - -




e) Forwards - - 34 -

f) Futures - - - -

g) Others - - - -

Total 5,540 4 7,484 -

435


A.4 Financial derivatives: negative gross fair value – analysis by type of product

E/t

Negative fair value

Dec. 31, 2015 Dec. 31, 2014



counterparties

A. Trading book 61,885 - 39,058 -

a) Options - - - -


c) Cross currency swaps - - 76 -


e) Forwards 8,636 - 2,775 -

f) Futures - - - -

g) Others - - - -


a) Options - - - -




e) Forwards - - - -

f) Futures - - - -

g) Others - - - -

C. Banking book - other derivatives - - - 4

a) Options - - - -




e) Forwards - - - 4

f) Futures - - - -

g) Others - - - -

Total 126,397 - 139,276 4

436


2015

A.5 Trading book – OTC financial derivatives: notional amount, gross positive and negative fair value by counter-party – contracts that do not fall under netting arrangements

E/t


banks

Other government


companiesInsurance

companies

Non-financial

companiesOther

subjects

1. Debt securities and interest rates - notional amount - - 181,162 - - - -




2. Equity investments and stock indices - notional amount - - - - - - -




3. Currencies and gold - notional amount - - 345,529 379,352 - - 37

- positive fair value - - 4,098 550 - - -

- negative fair value - - 1,257 7,380 - - -

- future exposure - - 3,446 3,794 - - -

4. Others - notional amount - - - - - - -




A.7 Banking book – OTC financial derivatives: notional amount, gross positive and negative fair value by coun-terparty – contracts that do not fall under netting arrangements

E/t


banks

Other government


companiesInsurance

companies

Non-financial

companiesOther

subjects

1. Debt securities and interest rates - notional amount - - 311,880 51 - - 10




2. Equity investments and stock indices - notional amount - - - - - - -




3. Currencies and gold - notional amount - - - - - - -




4. Others - notional amount - - - - - - -




437


A.9 Residual life of OTC financial derivatives: notional amount

E/t Up to 1 year 1 to 5 years Beyond 5 years Total

A. Trading book 734,142 37,409 134,529 906,080

A.1 Financial derivatives on debt securities and interest rates 9,224 37,409 134,529 181,162

A.2 Financial derivatives on equity investments and stock indices - - - -

A.3 Financial derivatives on currencies and gold 724,918 - - 724,918

A.4 Financial derivatives on other values - - - -

B. Banking book 12,360 50,339 249,242 311,941

B.1 Financial derivatives on debt securities and interest rates 12,360 50,339 249,242 311,941

B.2 Financial derivatives on equity investments and stock indices - - - -

B.3 Financial derivatives on currencies and gold - - - -

B.4 Financial derivatives on other values - - - -

Total Dec. 31, 2015 746,502 87,748 383,771 1,218,021

Total Dec. 31, 2014 469,614 87,461 408,968 966,043

Credit derivatives

During the year the Bank did not trade in credit derivatives and as at December 31, 2015, it did not hold any posi-

tions in those instruments.

438


2015

SECTION 3 – LIQUIDITY RISK


A. Liquidity Risk – General information, Measurement and Management

Banca Mediolanum’s liquidity management model is structured in a manner that ensures adequate levels of liquidity

in the short term as well as in the medium and long term. Given the types of assets held, their duration as well as the

type of funding, there are no short-term liquidity concerns. From a structural viewpoint, Banca Mediolanum can rely

on a stable core funding and is only marginally exposed to volatility. This is evidenced also by Bank’s econometric

projections of “on demand positions”. In addition to its core funding, Banca Mediolanum implements short-term

funding policies through repurchase agreements and medium-term through bond issues, term deposits and Long Term

Refinancing Operations.

Liquidity risk management, which is through the definition of guidelines and indicators in the Risk Appetite Frame-

work document, is monitored by the Risk Management unit applying dedicated policies and procedures, including

operating and structural limits and definition and constant monitoring of the maturity ladder. The liquidity risk policy

also defines a contingency funding plan under the broader Asset Liability Management model of the Banking Group.

Under the liquidity risk management policy Banca Mediolanum implemented a control procedure which entails the

generation of daily reports for monitoring operational liquidity limits in treasury management and quarterly reports

for monitoring the bank’s structural liquidity in the aggregate, also with a view to compliance with the indicators

defined within the RAF. The method used to manage operational liquidity is derived from the Maturity Mismatch

Approach and is based on the monitoring of cumulative gaps generated by Net Flows and Counterbalancing Capacity

as assessed using an operational Maturity Ladder. Structural liquidity is monitored by determining the long term

ratio (Net Stable Funding Ratio) in accordance with the rules defined by the European Banking Authority (EBA) in

relation to the new Basel III liquidity risk requirements.

Also in 2015, Banca Mediolanum continued its quarterly monitoring as promoted by the EBA aimed at completion

of the implementation of Basel 3 rules for liquidity risk management and determination of capital requirements of

Banks.

439


Liquidity Risk Stress Testing

In addition to monitoring liquidity on a daily basis, Banca Mediolanum also conducts stress scenario simulations.

Stress scenarios are run for both systemic events (Market Stress Scenarios) and bank specific events (Bank Specific

Stress Scenarios) in relation to the macroeconomic environment, commercial policies and customer behavior.

Generally, the systemic events tested in stress scenario simulations may include:

• a financial market shock that brings about a significant change in interest rates and exchange rates;

• a systemic shock like the one after September 11 which significantly restricts access to money markets;

• scarce liquidity in the interbank market.

Bank specific events may include:

• significant withdrawals of deposits by customers;

• reputational damage with subsequent difficulty to renew financing sources in the money market;

• default of a major market counterparty or source of funding;

• deterioration in loan quality;

• steep increase in draw-downs on committed credit lines;

• significant decline in the ability to roll over short-term funding;

• bigger haircuts on assets included in Counter Balancing Capacity (CBC).

Simulations are run under the different stress scenarios to evaluate the effects on the expected behavior of inflows

and outflows over a given time horizon, both in terms of estimated cash-flows and timing. The Maturity Ladder is

redefined for each scenario simulation.

440


2015


1. Time-to-maturity of financial assets and liabilities

E/t On demand1 to 7

days7 to 15

days

15 days to 1

month1 to 3

months3 to 6

months6 to 12 months 1 to 5 years

Beyond 5 years Indefinite

Non-derivatives assets 1,049,993 47,456 286,881 292,067 202,744 975,658 4,732,284 10,977,866 3,926,100 114,047

A.1 Government securities 1,148 - 309 - 102,744 819,952 4,300,350 9,116,530 40,506 -

A.2 Other debt securities 431 - 15,619 44,590 1,001 7,964 100,559 266,799 49,534 -

A.3 Holdings in UCITS 104,657 - - - - - - - - -

A.4 Loans 943,757 47,456 270,953 247,477 98,999 147,742 331,375 1,594,537 3,836,060 114,047

- Banks 64,571 - 270,952 221,818 - - - - - 114,047

- Customers 879,186 47,456 - 25,660 98,999 147,742 331,375 1,594,537 3,836,060 -

Non-derivatives liabilities 10,576,503 2,141,433 515,094 867,872 2,951,776 2,536,053 2,922,324 384,780 60,595 -

B.1 Deposits and current accounts 10,354,041 59,947 109,538 204,721 1,050,003 1,148,857 1,116,267 9,595 - -

- Banks 167,508 13,526 18,040 11,022 259,685 103,614 97,847 - - -

- Customers 10,186,532 46,421 91,498 193,699 790,318 1,045,243 1,018,420 9,595 - -

B.2 Debt securities - - - - 1,899 1,206 3,105 220,574 - -

B.3 Other liabilities 222,462 2,081,486 405,556 663,151 1,899,874 1,385,990 1,802,952 154,611 60,595 -

Off-balance sheet 53,249 133,153 - - 1,380,518 - - - - -

C.1 Financial derivatives with capital C.1 exchange - 42,219 - - 1,380,518 - - - - -

- Long positions - 21,023 - - 711,342 47,483 - 6,090 - -

- Short positions - 21,196 - - 669,176 47,436 - 28,587 23,407 -

C.2 Financial derivatives without C.2 capital exchange 53,249 - - - - - - - - -

- Long positions - - - - - - - - - -

- Short positions 53,249 - - - - - - - - -

C.3 Deposits and loans to be received - 90,934 - - -

- Long positions - 45,467 - - - - - - - -

- Short positions - 45,467 - - - - - - - -

C.4 Irrevocable commitments to C.4 disburse funds - - - - -

- Long positions - - - - - - - - - -

- Short positions - - - - - - - - - -

C.5 Financial guarantees issued - - - - - - - - - -

C.6 Financial guarantees received - - - - - - - - - -

C.7 Credit derivatives with capital C.7 exchange - - - - -

- Long positions - - - - - - - - - -

- Short positions - - - - - - - - - -

C.8 Credit derivatives without capital C.8 exchange - - - - -

- Long positions - - - - - - - - - -

- Short positions - - - - - - - - - -

441


SECTION 4 – OPERATIONAL RISK


Operational Risk – General information, Measurement and Management

Banca Mediolanum defines operational risk as “the risk of economic loss or damage to assets, and sometimes legal



In line with what is required by industry regulations, Banca Mediolanum adopted and regularly updates a specific

framework for the management of operational risk.

The Risk Management Function is responsible for supervising operational risk, assigning to the Compliance As-

sessment and Controls Unit of the Legal and Compliance Function the conduct of risk assessment activities. It also

collaborates with the Network Inspectorate Sector for the control and management of operational risks arising from

the work of the Sales Network and the Accounting and Financial Reporting Sector for the verification of capital

adequacy, for the requirements of supervisory requirements regarding operational risks.

The Risk Management Function and Compliance Function is separate and independent of operating units and re-

ports directly to the Top Management of Banca Mediolanum S.p.A.

In consideration of the characteristics and the type of business conducted by the company, special attention is given

to risks associated with the operation of the Sales Network and the multiple channels, i.e. also those channels which

enable access and transactions from a remote location. These risks are managed, inter alia, through local controls

and procedures for risk assessment, management, prevention and mitigation.

The reference framework for the management and control of operational risk is composed of four basic phases:





Each of the above phases is characterized by specific objectives, models, methodologies and tools.







• qualitative and quantitative assessments of the risk exposure of key business processes, as part of the annual

Risk Self-Assessment conducted by the Compliance Assessment and Controls Unit of the Compliance Function

on behalf of the Risk Management Function;

•

442


2015

• internal loss data, together with all information relevant to the measurement and management of risks (includ-

ing recoveries from insurance and direct), collected through the process of Loss Data Collection by the Risk

Management Function;

• preliminary analysis, by the Compliance Assessment and Controls Unit of the Legal and Compliance Function, of

the risk exposure to the entry into new businesses or new contracts/commercial agreements, as well as a result

of organizational changes/regulations;




tors”.

Measurement is the activity of analysis and optimization of risk.

It is an activity aimed at the complete knowledge of the overall risk profile of the company leading to the quantifi-

cation of:

• regulatory capital: capital requirement defined on the basis of supervisory regulation provisions (EU 575/2013

Regulation). For the measurement of regulatory capital for operational risk, Banca Mediolanum S.p.A. adopts

the “standardized” method calculating individual capital requirement and contributing to the total one of the

Banking Group;

• economic capital: measurement of risk for internal purposes, performed using an integrated approach that

reflects both the actual losses from operational risks and potential one valued net of the effectiveness of controls

in place to mitigate them. This measurement activity is therefore based on the outcome of risk identification

analyses, applies an actuarial statistical model and is a means of verifying the adequacy of regulatory capital

for operational risks.

The Monitoring, Control and Reporting is a direct result of the preliminary phases of identification and measure-

ment that allow analyzing the overall exposure to operational risks of the various business units and promptly re-

porting any problems found. The main tool used in the conduct of this process is the drafting of periodic information

to the company functions involved, Top Management and the Board of Directors.

The Management phase entails the periodic assessment of risk control and mitigation strategies. Depending on the

nature and size of risk, in accordance with the risk appetite approved by management, the bank decides whether it

can take the risk, adopt risk mitigation or transfer the risk to third parties.


and depth graded according to the expected risks and the nature of the units, summary assessments highlighted a

situation of risk, in line with the results of the previous year. However, certain activities were carried out to strengthen

the oversight, even by automating specific processes.

In 2015, the risk assessment process covered nearly all of the activities, identifying some 1,400 operational risk

checkpoints. About 89% of checkpoints were judged to be effective or in need of being just better formalized. Mit-

igation actions were taken in relation to controls that were judged to be unsatisfactory or in need of improvement.

443


SECTION 5 – OTHER RISKS


General aspects, measurement and management

In addition to the above risks, Banca Mediolanum has identified and monitors the following other risks.

Strategic Risk

Strategic risk is the current or prospective risk of impact on earnings or capital arising from changes in the industry,


All Group companies are potentially exposed to strategic risk, each at different levels according to the volume of

business they manage and their operations.

Strategic risk may arise from:

• business decisions relating to the entry into new (local or international) markets or new product lines or changes

in the distribution model or channels;

• external events, changes in the competitive environment or unexpected market scenarios due to macroeconomic

events, or changes in the regulatory environment.

Strategic risk identification processes are part of usual management planning and control, entail analyses of market

scenario and changes in the competitive environment resulting from macroeconomic events or regulatory devel-

opments. These analyses are typically conducted upon budgeting and planning as well as upon the occurrence of

external events that may have a significant impact on the group’s business.

Compliance Risk

Across the Mediolanum Banking Group, of which the company is the Parent Company, a single compliance risk

management framework has been defined that entrusts the Legal and Compliance Function of Banca Mediolanum

S.p.A. with the responsibility of ensuring compliance as well as supervision, guidance and control of Group compa-

nies within its remit.

The scope of work of the Compliance Function has been defined taking account of the responsibilities given to other

functions within the organization based on the above Group Compliance Model and in relation to specific regulatory

areas.

The different steps of the main cycle of Compliance, provided by the Group Compliance Policy, updated during the

year and implemented by the company, include the following activities:








•

444


2015


• Valuation residual risk;








Reputational Risk

Reputational risk is the current or prospective risk of impact on earnings or capital arising from the negative per-

ception of the company’s image by customers, counterparties, shareholders, investors or supervisory authorities.

Reputational risk may arise from internal or external events.

Internal or external events may include, but are not limited to:


in check;

• the occurrence of operational risk events (e.g. malfunctioning, disservice) with impact on the stakeholders’ per-

ception of the bank;














Banca Mediolanum S.p.A. recognizes the reputation of the Bank is the bedrock on which the trust-based relationship






445









complaints and inquiries received by the Supervisory Authority, satisfaction surveys, etc.




446


2015

PART F – INFORMATION ON CAPITAL

SECTION 1 - CORPORATE CAPITAL


Equity is the main protection for the stability of a bank. The international and local supervisory bodies have es-

tablished for said purpose rigorous rules for calculating regulatory capital and minimum capital requirements that

banks must comply with. In order to comply with the provisions of the Supervisory Authorities, Banca Mediolanum

adopts the measures needed to ensure adequate capital levels and controls thereof. The continuous monitoring of

capital levels of the Bank prevents any tensions that may arise in the future. By continuously monitoring capital

levels the Group prevents any tensions that may arise in the future. This activity is assigned to the body with strategic

supervision function (Board of Directors) which is attributed the guidance functions of the company’s operations

and is responsible for defining the guidance guidelines of the various operating functions with related definitions of

acceptable risk profile (formalized in the Risk Appetite Framework – RAF document). The RAF, revised periodically,

provides the framework that determines the risk appetite, tolerance thresholds, risk limits, risk governance policies,

processes of reference to define and implement them, consistent with the maximum assumable.

As at December 31, 2015, the ratios of Banca Mediolanum, calculated with the new regulations in force since Jan-

uary 1, 2014, are above regulatory thresholds.

447



B.1 Analysis of corporate equity

E/t Dec. 31, 2015 Dec. 31, 2014

1. Share capital 600,000 600,000

2. Share premium account - -

3. Reserves 593,915 141,226

- gains 590,730 138,041

a) legal 49,605 42,383

b) statutory - -

c) treasury shares - -

d) other 541,125 95,658

- other 3,185 3,185

3bis. Interim dividend 118,206 -

4. Equity instruments - -

5. (Treasury shares) - -


- Available for sale financial assets 121,798 101,371

- Tangible assets - -

- Intangible assets - -

- Hedges of investments in foreign operations - -

- Cash flow hedges - -

- Exchange differences - -

- Non-current assets and disposal groups - -

- Actuarial gains (losses) related to defined benefit plans (169) 263

- Share of reserves on investments accounted for by the equity method - -

- Special revaluation statutes - -

7. Net profit (Loss) 351,126 144,437

Total 1,548,464 987,297

448


2015

B.2 Analysis of valuation reserves relating to available for sale financial assets

E/t

Dec. 31, 2015 Dec. 31, 2014

Positive reserve Negative reserve Positive reserve Negative reserve

1. Debt securities 116,115 (12) 97,920 (1,002)

2. Equity investments 1,391 - 1 -

3. Holdings in UCITS 4,303 - 4,453 -

4. Loans - - - -

Total 121,809 (12) 102,373 (1,002)

B.3 Year’s movements in the valuation reserve relating to available for sale financial assets

E/t Debt securities Equity investments Holdings in UCITS Loans

1. Initial balance 96,918 1 4,452 -

2. Increases 45,410 1,508 1,662 -

2.1 Increases in fair value 45,372 1 1,143 -

2.2 Reclassification to the income statement from 2.2 negative reserves

39 - 519 -

- impairment - - - -

- realized gains 39 - - -

2.3 Other changes - 1,507 - -

3. Decreases 26,224 118 1,811 -

3.1 Decrease in fair value 13,587 32 519 -

3.2 Impairment - - - -

3.3 Reclassification to the income statement from 3.3 positive reserves

12,637 - 1,293 -

3.4 Other changes - 86 - -

4. Final balance 116,104 1,391 4,303 -

B.4. Year’s movements in valuation reserves relating to defined benefit plans

During the year, the reserves in question decreased by Euro -432 thousand (Dec. 31, 2014: Euro +263 thousand).

449


SECTION 2 – CAPITAL AND CAPITAL REQUIREMENTS

2.1 Own Funds

Own Funds were determined according to the regulations relating to prudential supervision in force since January

1, 2014. These reforms have been introduced in order to strengthen the banks’ ability to absorb shocks arising

from financial and economic stress, regardless of their origin, to improve risk management and governance and to

strengthen the transparency and disclosure of the banks. These harmonized rules define for banks and investment

firms more stringent rules for the calculation of Own Funds and levels of capital adequacy of the banks. The new

rules will be implemented in stages to allow the banking system to meet the new requirements.

The innovations of the Basel 3 regulations have been translated into law in Europe through two separate legislative

instruments: a Directive (Capital Requirements Directive IV – CRD IV) and a Regulation (Capital Requirements

Regulation – CRR).

In December 2013 the Bank of Italy issued “Circular 285” that implements the rules of the CRD IV/CRR and

introduces supervisory rules on aspects not harmonized at EU level. The regulatory provisions related to own funds

include the introduction of the new regulatory framework gradually, through a transitional period, usually up to

2017, during which some elements that under the scheme will be computable or deductible in full in the Common

Equity, impact Tier 1 Core Capital only for a percentage portion; normally the residual percentage with respect to

that applicable is calculated/deducted from the additional capital of Tier 1 (AT1) and Tier 2 (T2) or considered in

the risk-weighted assets.

With the entry into force of the Directive and the Regulations with effect from January 01, 2014, the Italian banks

must comply with a minimum CET1 ratio of 4.5%, Tier 1 6% and a Total Capital Ratio of 8%. These minimum regu-

latory requirements have been integrated with the Capital Conservation reserve (buffer) of 2.5%. For banks belong-

ing to banking groups, from the act of issuance of Bank of Italy Circular No. 285 of December 17, 2013, there was

a transitional application of the Capital Preservation Reserve. The transitional regime requires that until December

31, 2016 Banks belonging to banking groups maintain a Capital Preservation Reserve equal to 0.625%. Failure to

comply with these requirements (Combined Requirement) results in limitations on dividend distributions, variable

remuneration and other useful elements to form the regulatory capital beyond set limits, and will need to outline the

steps needed to restore the level of capital required through the adoption of a plan of capital preservation.

In the calculation of Own funds on the basis of article 467 paragraph 2 of the CRR, implemented by the Bank of

Italy in Circular 285 Second Part – Chapter 14 – Section II – Paragraph 2, Banca Mediolanum S.p.A. adopted by

resolution of the Board of Directors January 16, 2014, the option to exclude from own funds unrealized gains or

losses related to exposures to the central government classified as available for sale financial assets (AFS) for the

entire period covered by the CRR.

In the determination of Own Funds as at December 31, 2015, the adoption of this option resulted in a decrease of

Own Funds amounting to Euro 115.5 thousand resulting in a decrease of Own Funds of the same amount at De-

cember 31, 2014.

450


2015


Own Funds were determined according to the regulations relating to prudential supervision in force since January

1, 2014. The rules consist of a Directive (Capital Requirements Directive IV - CRD IV) and a Regulation (Capital

Requirements Regulation - CRR) issued by the European Parliament in June 2013 and transposed in Italy by Bank

of Italy Circular no. 285 of December 17, 2013. The regulatory scheme includes a transitional period during which

some elements that under the scheme will be computable or deductible in full in the Common Equity, impact Tier 1

Core Capital only for a percentage portion; normally the residual percentage with respect to that applicable is calcu-

lated/deducted from the additional capital of Tier 1 (AT1) and Tier 2 (T2) or considered in the risk-weighted assets.

For the determination of the Own Funds as at December 31, 2015, the operating profit was calculated net of div-

idends, the distribution of which will be submitted to the next General Meeting for approval. For this purpose, it

has been requested to the Independent Auditors to issue a specific letter of provisional certificate (comfort letter)

as provided by Bank of Italy communication of January 22, 2016 (Ref. Art. 26 paragraph 2 of EU Regulation

575/2013 (CRR)).

In light of the foregoing, total Own Funds as at December 31, 2015 therefore amounted to Euro 1,169.6 million

and consist of:

• Tier 1 Core Capital (Common Equity Tier 1 – CET 1) equal to Euro 1,169.6 million;

• Additional Tier 1 Capital (Additional Tier 1 – AT1) equal to zero;

• Tier 2 Capital (Tier 2 – T2) equal to zero.

Tier 1 Core Capital (Common Equity Tier 1 – CET 1)

As at December 31, 2015, Tier 1 Core Capital consists of the following positive elements: share capital (Euro 600.0

million) net of Tier 1 Core Capital instruments held indirectly (Euro -1.9 million), equity reserves net of the interim

dividend of Euro 118.2 million (Euro 475.7 million) and profit for the period net of dividends to be distributed (Euro

247.7 million), the other components of Income Statement Accumulated mainly made up of reserves of available

for sale financial assets (Euro 121.6 million) and the following negative components: intangible assets (Euro -46.2

million) and deferred tax assets based on future profitability and do not arise from temporary differences, net of

related tax liabilities (Euro -0.3 million) From Tier 1 Core Capital Significant investments in CET1 instruments of

other subjects of the financial sector (Euro -114.7 million) and the portion exceeding the threshold set out in Art.

48 of EU Regulation 575/2013 (CRR) were deducted, relating to deferred tax assets that rely on future profitability

and arise from temporary differences and significant investments in Tier 1 Core Capital instruments of subjects of

the financial sector (Euro -17.0 million). Tier 1 Core Capital was also reduced of the deduction of the excess of the

elements to be deducted from additional Tier 2 capital (Euro -25.4 million). The Tier 1 Core Capital thus determined

was adjusted for the expected impacts from the transitional regime (Euro -69.9 million); these impacts are mainly

from the sterilization of unrealized gains related to exposures to the central government classified as “available for

sale financial assets” of IAS 39 approved by the EU (Euro -115.5 million), the non-computability of unrealized

gains on securities classified as “available for sale financial assets” (Euro -3.8 million), the adjustment provided for

deferred tax assets that rely on future profitability and do not arise from temporary differences (Euro 0.2 million)

and the adjustment relating to deferred tax assets that rely on future profitability and arise from temporary differ-

ences and CET1 tools of subjects of the financial sector in which the institution has a significant investment (Euro

49.2 million).

451


Additional Tier 1 Capital (Additional Tier 1 – AT1)

As at December 31, 2015, there are no instruments classified in additional Tier 1 Capital.

Tier 2 Capital (Tier 2 – T2)

As at December 31, 2015, Tier 2 capital of Banca Mediolanum consisted of Level 2 subordinated liabilities subject

to grandfathering transitional provisions (Euro 4.4 million) net of Tier 2 capital instruments held indirectly (Euro

-0.7 million). The Tier 2 capital thus determined was adjusted by the impacts expected from the transitional scheme

(Euro -29.1 million) consisting of the portion calculated of unrealized gains on securities classified as “available for

sale financial assets” (Euro 1.9 million) and the portion to be deducted from own funds instruments of the financial

sector in which the entity has a significant investment in CET1 Instruments (Euro -31.0 million). As a result of the

deductions and the transitional scheme, Tier 2 Capital would assume a negative value of Euro 25.4 million; as it

cannot assume a negative value, said amount was deducted before the additional Tier 1 capital (AT1) and as there

are no computable instruments in this aggregate, it was decided to deduct this value from Tier 1 Capital (CET1).


E/t Dec. 31, 2015 Dec. 31, 2014

A. Core Primary Capital (Common Equity Tier 1 – CET1) before the application of A. A. prudential filters

1,443,156

832,432

CET1 Tools subject to transitional provisions - -

B. CET1 prudential filters (+/-) - -

C. CET1 before items to be deducted and effects of the transitional scheme (A +/- B) 1,443,156 832,432

D. Deductions from CET1 203,642 35,824

E. Transitional scheme – Impact on CET1 (+/-) (69,867) (101,371)

F. Total Tier 1 Core Primary Capital (Common Equity Tier 1 - CET1) (C – D +/-E) 1,169,647 695,237

G. Additional Tier 1 – AT1 before items to be deducted and effects of the transitionalG. scheme

25,431

-

of which AT1 tools subject to transitional provisions - -

H. Deductions from AT1 25,431 -

I. Transitional scheme – Impact on AT1 (+/-) - -

L. Total Additional Tier 1 – AT1 (G - H +/- I) - -

M. Additional Tier 2 – AT1 before items to be deducted and effects of the transitionalM. scheme

29,853

18,879

of which T2 tools subject to transitional provisions 4,442 18,879

N. Deductions from T2 743 1,153

O. Transitional scheme – Impact on T2 (+/-) (29,110) 2,267

P. Total Tier 2 capital (Tier 2 –T2) (M - N +/- O) - 19,993

Q. Total capital (F + L + P) 1,169,647 715,230

452


2015

It is recalled that, for the determination of the Own Funds as at December 31, 2015, the operating profit was cal-

culated net of dividends, the distribution of which will be submitted to the next General Meeting for approval. For

this purpose, it has been requested to the Independent Auditors to issue a specific letter of provisional certificate

(comfort letter) as provided by Bank of Italy communication of January 22, 2016 (Ref. Art. 26 paragraph 2 of EU

Regulation 575/2013 (CRR)).

2.2 Capital adequacy


Capital adequacy assessment is aimed at identifying the amount of free capital, i.e. the portion of capital that is not

absorbed by credit and counterparty risk, credit assessment adjustment risk, regulation risk, market risk (trading

book risk, currency risk and concentration risk) and operational risk.

As at December 31, 2015, the free capital of the Mediolanum Bank Group amounted to Euro 623.3 million.

The ratio between Tier 1 Core Capital and risk-weighted assets (CET1 Capital Ratio) amounts to 17.13%; the ratio

of Tier 1 Capital and risk-weighted assets (Tier 1 Capital Ratio) amounts to 17.13% and the ratio of Total Own

Funds and risk-weighted assets (Total Capital Ratio) is equal to 17.13%. All Capital Ratios are higher than the

minimum levels of own funds required by the regulations in force equal to 4.50% for CET1 Capital Ratio, 6.00%

for Tier 1 Capital Ratio and 8.00% for Total Capital Ratio.

The minimum levels of own funds shall be increased by the reserve of capital preservation that for banks belonging

to banking groups is 0.625% until December 31, 2016. This reserve, consisting of Tier 1 Core Capital, is aimed at

preserving the minimum level of regulatory capital in times of adverse market through the provision of high-quality

capital resources in periods not characterized by market tensions.

453



E/t

Not weighted Weighted/requirements

Dec. 31, 2015 Dec. 31, 2014 Dec. 31, 2015 Dec. 31, 2014

A. Risk assets

A.1 Credit and counterparty risk 31,736,267 24,406,340 5,037,969 3,752,439

1. Standardized approach 31,736,267 24,406,340 5,037,969 3,752,439

2. Approach based on internal ratings - - - -

3. Securitization - - - -

B. Regulatory capital requirements

B.1 Credit and counterparty risk 403,038 300,196

B.2 Credit assessment adjustment risk 1,078 685

B.3 Regulatory risk - -

B.4 Market risk 12,255 5,791

1. Standard approach 12,255 5,791

2. Internal models - -

3. Concentration risk - -

B.5 Operational Risk 129,965 93,334

1. Basic approach - -

2. Standardized approach 129,965 93,334

3. Advanced approach - -

B.6 Other computational elements - -

B.7 Total prudential requirements 546,336 400,006

C. RWA and capital ratios

C.1 Risk-weighted assets (RWA) (*) 6,829,194 5,000,075

C.2 Tier 1 Core Capital/RWA (CET 1 Capital Ratio) 17.13% 13.90%

C.3 Regulatory capital/RWA (Tier 1 Capital Ratio) 17.13% 13.90%

C.4 Total capital/RWA (Total Capital Ratio) 17.13% 14.30%

(*) RWA are determined by multiplying total prudential requirements (B.7) by 12.5 (reciprocal of the min. coefficient equal to 8%).

The capital ratios as at December 31, 2015 shown in the table above, were determined on the basis of the Own Funds

as at December 31, 2015 implementing the 2015 profit net of the next dividend distribution, and will be reported

to the Supervisory Body upon receipt of the letter of provisional certificate (comfort letter) by the Independent

Auditors.

It is noted that the capital ratios as at December 31, 2015 reported to the Bank of Italy on February 11, had been

determined provisionally, not taking into account the Own Funds of the profit as at December 31, 2015. These ratios

determined as such had amounted to CET1 capital ratio 13.21%, Tier 1 capital ratio 13.21% and Total Capital

Ratio 13.21%.

454


2015

PART G – BUSINESS COMBINATIONS

SECTION 1 – TRANSACTIONS CONCLUDED DURING THE YEAR

In 2015, there were no transactions requiring disclosure under IFRS 3.

With regard to the merger of Mediolanum S.p.A. into Banca Mediolanum, reference is made to as already described

in the Report on Operations in the specific paragraph: “Merger by incorporation of Mediolanum S.p.A. in Banca

Mediolanum S.p.A.”.

SECTION 2 – POST-BALANCE SHEET DATE TRANSACTIONS

No transaction was concluded after the end of the financial year under review.

SECTION 3 – RETROSPECTIVE ADJUSTMENTS

There are no significant retrospective adjustments to report.

455


PART H – RELATED PARTY TRANSACTIONS

On September 23, 2015, the Board of Directors of Banca Mediolanum resolved to adopt the “Group Regulations

for the management of transactions with related parties of Banca Mediolanum and Associated Entities of the Me-

diolanum Banking Group” (the “Regulation regarding Related Parties and Associated Entities”), effective as at the

start date of trading of the Company’s Shares on the electronic stock exchange (MTA). The Regulation concerning

Related Parties and Associated Entities, drafted in accordance with the standards set out, inter alia, in the Related

Parties Regulation, and in Consob communication no. DEM/10078683 of September 24, 2010 and in Circular 263

of the Bank of Italy, governs the preliminary investigation preparatory to the approval of the relevant transactions

(i) with entities associated with the Banca Mediolanum Banking Group and (ii) made by the Company, also through

subsidiaries pursuant to art. 2359 of the Civil Code, with related parties of Banca Mediolanum, in order to ensure

the substantial and procedural correctness of the same, as well as correct information to the market.

During the year 2015, Banca Mediolanum undertook transactions with related parties. Said transactions are part of

the ordinary business of companies within the Mediolanum Group and made at arm’s length.

In accordance with IAS 24, the following parties are Banca Mediolanum S.p.A. related parties:

• associates and joint-ventures (Banca Esperia Group, Mediobanca Group);

• Fin. Prog. companies wholly-owned by the Doris Family and Fininvest headed by Silvio Berlusconi.

The following parties also fall within the definition of related parties:

• Members of the Board of Directors;

• Key Managers.


The following are the creditor and debtor balances outstanding as at December 31, 2015 with respect to related

parties other than intra-group.

The scope of the related parties considered for the purposes of the tables of this section has been extended, starting

with as provided by IAS 24.

456


2015



AssetsFinancial assets held for trading 3,574 -Financial assets measured at fair value - -Available for sale financial assets - 10,724Held to maturity financial assets - -Loans to banks 50,000 271,688Loans to customers - 73,787Other assets - 47,525

LiabilitiesAmounts due to banks (249) (23,814)Payables due to customers (3,204) (599,126)Securities issued - -Financial liabilities held for trading (10,935) -Financial liabilities measured at fair value - -Other liabilities - (8,180)Guarantees issued and commitments 88 -


Income statementInterest income and similar income 110 2,780Interest expense and similar charges (1,275) (436)

Net interest income (1,165) 2,344

Fee income 8 481,510Commission expense - (24)

Net commission 8 481,486

Net income from trading (424) -Profit (loss) from sale or repurchase of: receivables, AFS, HTM, financial liabilities

- -

Net result from financial assets and liabilities measured at fair value - -Impairment/reversal of impairment of: receivables, AFS, HTM, other fin. trans. - -Premiums written - -Administrative expenses (2) (11,733)Other operating income and expenses - (30,405)

2. Key management compensation

E/t

Directors, Executives, General Deputy Executives

and AuditorsOther key management

Emoluments and social security contributions (3,642) (1,656)Other compensation - (79)

457


PART I – EQUITY-SETTLED SHARE-BASED PAYMENT TRANSACTIONS

A. QUALITATIVE INFORMATION

2. Description of equity-settled share-based payment transactions

On March 9, 2010, after consulting with the Compensation Committee, the Board of Directors of Mediolanum S.p.A.

approved the guidelines for the Stock Options Plan reserved to the Directors and Executives of the Company and

its subsidiaries (“Top Management Plan 2010”) as well as the guidelines for the Stock Options Plan for Contract

Workers – i.e. the members of the sales network – of the Company and its subsidiary (“Contract Workers Plan

2010”), collectively the “Plans”. The Plans were submitted to the Extraordinary General Meeting of April 27, 2010

for approval.

Pursuant to section 84-bis, paragraph 3 of the Regulation for Issuers, readers are informed that:

• The Top Management Plan 2010 is the stock options plan reserved to the Directors and other key management

of the Company and/or its subsidiaries. The Contract Workers Plan 2010 is the stock options plan reserved to

the financial advisors working for the Company and its subsidiaries, as may be selected from time to time for

their individual role and contribution to business growth.

• The Options under the Top Management Plan 2010 shall vest over a period of three to five years of the grant

date and be exercisable for a period of three years after the date of vesting.

• The Stock Options under the Contract Workers Plan 2010 shall vest over a period of five to ten years of the

grant date and be exercisable for a period of three years after the date of vesting. The plans also anticipate

that the exercise of the Options is subject to certain performance targets of the Company and/or the individual.

• The Plans are designed to provide incentives to the beneficiaries and at the same time promote value creation

and growth for the Company and, accordingly, its shareholders. The Top Management Plan 2010 is believed to

be an adequate scheme to link key management incentives to both medium-term performance of the Company/

Group and individual performance, align goals and maximize the creation of value for the shareholders.

The Contract Workers Plan 2010 is an adequate scheme to link sales network incentives to both medium-term per-

formance of the Company/Group and individual performance, align goals and maximize the creation of value for the

shareholders. Considering the length of the vesting period, the Contract Workers Plan 2010 is also a powerful way

to enhance the sales network loyalty.

On July 8, 2010, after consulting with the Compensation Committee, by virtue of the authorities delegated to it by


resolved to:

• approve the Rules for the Stock Options Plan reserved to the Directors and Executives of the Company and the

Group (“Top Management Plan 2010”) and the Rules for the Stock Options Plan for the Contract Workers of

the Company and the Group (“Contract Workers Plan 2010”);





458


2015

On May 12, 2011, after consulting with the Compensation Committee, by virtue of the authorities delegated to it by


resolved, inter alia:

• to approve the amendments to the Rules for the Stock Options Plan reserved to the Directors and Executives of

the Company and the Group (“Top Management Plan 2010”) and the Rules for the Stock Options Plan for the

Contract Workers of the Company and the Group (“Contract Workers Plan 2010”);

• to increase the share capital by payment, in partial implementation of the powers conferred by the Extraordinary

General Meeting on April 27, 2010, for a maximum of Euro 188,200.00 by issuing a maximum of 1,882,000

ordinary shares for the allotment of Stock Options under the 2010 Top Management Plan;

• increase the share capital by payment, in partial implementation of the powers conferred by the Extraordinary

General Meeting on April 27, 2010, for a maximum of Euro 67,427.50, by issuing up to 674,275 ordinary

shares for the allotment of Stock Options under the Contract Workers Plan 2010.



April 19, 2012, the Board of Directors of Mediolanum S.p.A. resolved:




708,400 ordinary shares for the allotment of Stock Options under the Contract Workers Plan 2010.

On May 9, 2013, by virtue of the authorities delegated to it by the Extraordinary General Meeting of April 27, 2010,

as amended by resolution passed by the shareholders at the Ordinary and Extraordinary General Meeting of April

19, 2012, the Board of Directors of Mediolanum S.p.A. resolved to:

• approve some amendments and updates of the Regulations of the Plan for Directors and Executives of the

Company and the Group (Top Management Plan 2010) and the plan for the Employees of the Company and

the Group (Contract Workers Plan 2010) for certain performance targets relating to the Company and/or on

an individual basis, in the exercise of the option. The proposed changes to the operating conditions also apply in

respect of Options previously allotted in previous allocation cycles;




up to 951,000 shares for the allotment of stock options under the Contract Workers Plan 2010.

459






up to 973,350 shares for the allotment of stock options under the Top Management Plan 2010;



On February 25, 2015, pursuant to the power conferred by the shareholders during the Extraordinary General Meet-

ing held on April 27, 2010, as amended by the Ordinary and Extraordinary General Meeting on April 19, 2011, the

Board of Directors resolved to:



The issue price was determined in execution and full compliance with objective criteria already approved by the

General Meeting resolution of delegation and already the subject of a fairness opinion by the Independent Auditors.

2. Fair value measurement of stock options

For measurement of stock options, the Group applies the Black-Scholes model for European call options which is

a standard, easily replicable model. The options under the Group stock options plan, however, differ from Europe-

an-style call options in certain features such as the vesting period, the exercise conditions and the exercise period. The

method applied by the Group was to price the options like plain vanilla options, analyze each specific plan feature and

measure the relevant impact on the final value of the option. The results of the analysis of the stock option exercise

period were such that the stock options could be treated like European-style call options expiring on the first day of

exercise. A European-style call option is priced using the Black-Scholes model and the value thus obtained is then

reduced, if necessary, by a certain percentage based on the analysis of the exercise conditions.


2015

460

B. QUANTITATIVE INFORMATION

1. Changes occurred in the year

In 2015, 1,349,859 Banca Mediolanum (Mediolanum S.p.A. prior to the effective date of the reverse merger)

dividend-bearing ordinary shares were issued following the exercise of stock options by Directors and sales network

collaborators of companies within the Mediolanum Group. This entailed a Euro 134.9 thousand increase in Banca

Mediolanum ordinary share capital and a Euro 1,641.7 thousand increase in the share premium account.

E/t

Dec. 31, 2015 Dec. 31, 2014

Number of options


Average maturity

Number of options


Average maturity

A. Opening balance (*) 5,776,868 1.329 apr-23 5,128,599 2.1890 nov-17

B. Increases - - - 1,425,400 - -

B.1 New issues 1,258,500 1.773 feb-27 1,425,400 1.7270 june-25B.2 Other changes - - X - - -

C. Decreases - - - 1,134,131 - X

C.1 Cancelled 8,660 1.104 X 206,270 1.0659 XC.2 Exercised 744,699 1.332 X 718,481 3.3616 XC.3 Past due 48,319 3.028 X 112,030 5.7425 XC.4 Other changes 200 1.104 X 97,350 2.1102 X

D. Closing balance 6,233,490 1.410 june-24 5,419,868 1.3314 apr-23

E. Options exercisable at year end 97,594 1.036 X 201,172 1.904 X

(*) Opening balances as at December 31, 2015 were modified to take into account the merger of Mediolanum S.p.A. into Banca Mediolanum.

2. Other information

The year’s cost of stock options, which corresponds to the year’s share of the fair value of financial instruments over

the vesting period, amounted to Euro 2,372 thousand and entailed a corresponding increase in the bank’s equity

reserves.



The Chairman

Ennio Doris


2015

Fees paidto theindependentauditors


2015

462

Fees paid to the independent auditors

The fees paid to the independent auditors Deloitte & Touche S.p.A. and entities that are part of their network are

set out in the table below.

Mediolanum Group(In Euro, excluding VAT and expenses)

Type of services Party that provided the service Fees

AuditingDeloitte & Touche S.p.A. and other entities that are part of their network 1,410,799

Signing tax return Deloitte & Touche S.p.A. 16,032

CertificationDeloitte & Touche S.p.A. and other entities that are part of their network 848,230

Other servicesDeloitte & Touche S.p.A. and other entities that are part of their network 995,753

Total 3,270,814

It is noted that the Euro 829,356 fee included in the certification services was charged to mutual funds, segregated

funds and Unit Linked policies as set out in the relevant statements and is not a cost that remains charged to the

company that gave the audit mandate.

Banca Mediolanum S.p.A.(In Euro, excluding VAT and expenses)

Type of services Party that provided the service Fees

Auditing Deloitte & Touche S.p.A. 552,611


CertificationDeloitte & Touche S.p.A. and other entities that are part of their network -

Other servicesDeloitte & Touche S.p.A. and other entities that are part of their network 733,060

Total 1,292,817


2015

Responsibilitystatements


2015

464

Certification of the Annual Separate Financial Statements pursuant to article 81-ter

of Consob Regulation no. 11971 of May 14, 1999, as amended

1. We, the undersigned Ennio Doris, Chairman, and Luigi Del Fabbro, Chief Financial Officer responsible for Banca

Mediolanum S.p.A. accounting and financial reporting, declare that, also pursuant to article 154-bis, para-

graphs 3 and 4, of Legislative Decree 58 of February 24, 1998, the administrative and accounting procedures

for the formation of the annual separate financial statements:

• were defined in a manner consistent with the administrative/accounting system and structure of the company;

• the adequacy thereof was assessed;

• were actually applied during the period to which the annual separate financial statements refer.

2. The assessment of the adequacy and effective application of administrative and accounting procedures for the

preparation of the Annual Separate Financial Statements as at December 31, 2015 was carried out as part of

the reverse merger that involved Banca Mediolanum S.p.A. and the parent company Mediolanum S.p.A..

3. It is also attested that the annual separate financial statements:

a) correspond to the information contained in the accounting ledgers and records;

b) have been prepared in accordance with the International Accounting and Financial Reporting Standards adopt-

ed by the European Commission pursuant to the European Parliament and Council Regulation (EC) no. 1606

of July 19, 2002 as well as the regulations implementing art. 9 of Legislative Decree No. 38/2005;

c) are able to give a true and fair view of the issuer’s financial position, results and cash flows.


The Chairman Chief Financial Officer responsible

Ennio Doris for accounting and financial reporting

Luigi Del Fabbro


2015

IndependentAuditorsReport


2015

466


2015

Reportof the Boardof StatutoryAuditors

470


2015

Dear Shareholders,

In accordance with art. 153 of Legislative Decree 58 of 24.02.1998 and art. 2429, paragraph 2, of the Civil

Code, the Board of Statutory Auditors, at the meeting convened to approve the financial statements for the year

ended 31 December 2015, presented the following Report to report on the activities carried out in observance of

the duties assigned by art. 149 of the aforementioned legislative decree.

First of all, it is recalled that, following the reverse merger described by the Directors in the note in the Report

on Operations, Banca Mediolanum became Parent Company of the Mediolanum Banking Group and Parent

Company of the Financial Conglomerate having banking prevalence.

The merger by incorporation of Mediolanum S.p.A. into Banca Mediolanum S.p.A. has produced legal effects

towards third parties, pursuant to art. 2504-bis, paragraph 2) of the Civil Code, as of 30 December 2015, while

the accounting and tax effects of the merger elapsed from the first day of the current financial year to the date

of effectiveness of the merger and, therefore, from 1 January 2015.

Supervision and control

In fulfilment of our mandate, which due to the aforementioned merger was performed until 30 December 2015

only regarding Banca Mediolanum, we carried out the supervisory and control activities by referring, as in

previous years, to the rules dictated by the Civil Code, by Legislative Decree no. 385 of 1 September 1993, by

Legislative Decree no. 58 of 24 February 1998 and by Legislative Decree no. 39 of 27 January 2010, the stat-

utory ones, those issued by the Authority exercising Supervisory and Control activities and the rules of conduct

recommended by the National Council of Certified Accountants and Accounting Experts taking into account, to

the extent possible, information requirements contained in Consob communication no. DEM/1025564 of 6 April

2001 for listed companies.

In particular, during the year:

• we monitored compliance with the law, the by-laws and the principles of correct administration, and also

acquired knowledge and supervised the adequacy of the organizational, administrative and accounting proce-

dures adopted by the company.

In this regard, we also verified, in observance of our duties, the actual implementation by the company, of the

requirements of specific provisions issued by Supervisory Authorities;

Report of the Board of Statutory Auditors to the general meeting convened to approve the financial statements for the year ended 31 december 2015 (pursuant to art. 153 of legislative decree no. 58/1998 and art. 2429 of the civil code)

471

REPORT OF THE BOARDOF STATUTORY AUDITORS

• we attended General and Board of Directors’ Meetings and based on the information obtained, we did not

become aware of any violations of the law or the by-laws, nor of any transactions which could represent a

conflict of interest, were manifestly imprudent or risky or put the company’s equity at risk;

• we regularly obtained information from Directors on the company’s operations, outlook and transactions that

were significant for their size and characteristics;

• we examined the activities conducted by the Compliance team and assessed the adequacy and effectiveness of

the internal control system, especially in relation to risk management. Assisted by Internal Audit staff and the

independent auditors we satisfied ourselves of the effective operation of the main operational and management

units;

• we have seen the adoption of the principals to manage the risk of money laundering and financing of terrorism

prepared on the basis of the measures adopted by the Bank of Italy in accordance with Legislative Decree 21

November 2007 no. 231 and

• we have taken note of the activities of the Supervisory Body also for the introduction of amendments and addi-

tions to the organization, management and control model pursuant to requirements introduced by Legislative

Decree 8 June 2001 no. 231.

During the course of supervision described above, no significant facts emerged that require reporting to the

external competent supervisory bodies or mention in this report.

We acknowledge that we have been constantly updated by the department heads on the resolutions and decisions

adopted by the Committees on actions taken with respect to any irregularity found in business management.

We had the usual mutual exchange of information on our respective supervisory and control activities with the

independent auditors Deloitte & Touche S.p.A. responsible for auditing the accounting records and the financial

statements, in accordance with art. 2409-septies of the Civil Code, and art. 19 of Legislative Decree no. 39 of

27 January 2010.

The independent auditors reported to us on their audit work in accordance with art. 155, paragraph 2, of

Legislative Decree 58/1998 and advised us that they did not become aware of any irregularities or events which

required reporting to the control functions or to the Supervisory Authorities.

The independent auditors also sent us their report on key matters under art. 19, paragraph 3 of Legislative Decree

39/2010, the conclusions of which are in line with as outlined above; reference is made to the results thereof.

In compliance with the recommendations and indications required by Consob communication mentioned above

and taking into account both the activities performed directly by us during the year 2015, which from as emerged

through an exchange of information with the Board of Auditors of Mediolanum S.p.A. and the examination of

their interventions, we highlight the following:

1. Most significant transactions with regard to the company’s financial position, results of operations and cash flows. The Board of Auditors, as already mentioned, noted that during the year, the Directors provided regularly infor-

mation on the activities carried out by the Bank and Group companies during the year, including transactions

which could have a significant impact on the financial position, result of operations and cash flows.

In the Report on Operations and in the Notes to the financial statements, the Directors have comprehensively

illustrated said transactions.

Based on the information acquired through its supervisory activities, the Board of Statutory Auditors did not

become aware of transactions not conducted with respect for the principles of good management, resolved and

472


2015

implemented not in accordance with the law and the By-laws, in contrast with the resolutions passed by the

General Meeting, manifestly imprudent or risky, lacking the necessary information in case of existence of inter-

ests of the Directors or such to affect the integrity of corporate assets.

For more detailed information on the characteristics of the transactions and their recognition in the accounts you

are referred to the Report on Operations.

As set out in the Report on Operations, after year-end there were no other events which could have a significant

impact on the financial position, results of operations and cash flows of the Company.

2. Atypical and/or unusual intra-group or related party transactions.During the year, we did not detect or receive any indications from the Board of Directors, the Executive respon-

sible for preparing the company’s accounting and financial reporting, the management, the independent auditors,

the Head of the Internal Audit and the Boards of Statutory Auditors, where present, and subsidiaries of the

existence of any atypical and/or unusual third-party, intra-group or related party transactions.

Related party transactions, which mainly relate to the exchange of services with Group companies, as illustrated

by the Directors in the Notes to the Financial Statements, were carried out at arm’s length. Staff secondment

and centrally managed services were charged on the basis of actually incurred costs.

We satisfied ourselves that the aforementioned transactions, which are of an ordinary nature, were fair and in

the best interests of the company, and were in connection and expedient to the achievement of the company’s

purpose.

3. Appropriateness of the information disclosed in the Directors’ Report on atypical and/or unusual, intercompa-ny or related party transactions.In addition to as stated in paragraph 2, the Board of Auditors noted that, with regard to transactions with related

parties and/or connected parties, pursuant to article 2391-bis of the Civil Code, in accordance with the provisions

introduced by CONSOB with resolution no. 17221 of 12 March 2010 and in accordance with the requirements

in terms of related parties, pursuant to the 15th update of 3 July 2013 to Circular no. 263 of the Bank of Italy,

the Bank has established appropriate internal regulations, specific procedures and information systems, in force

and operating with effect from 10 November 2010 and revised on 13 November 2014 and 23 September 2015,

which ensure the management and continuous monitoring of said transactions.

Regarding the required reporting related to the transactions carried out by relevant parties and persons closely

associated with them, in accordance with article 114, paragraph 7, of the Consolidated Finance Act and articles

152-sexies, septies and octies of the CONSOB Issuers’ Regulation (provisions on “Internal Dealing”), the Board

of Auditors has ascertained that the Company has adopted specific rules and procedures for such reports through

the adoption of the “Internal Dealing Regulation”.

4. Oversight of the Consolidated Law of Statutory Auditing.The Board of Statutory Auditors, identified by the Consolidated Law of statutory auditing as “Audit and statu-

tory audit committee”, oversaw: (i) the financial reporting process; (ii) the effectiveness of audit, internal audit

and risk management systems; (iii) the statutory audit of annual accounts and consolidated accounts; (iv) the

independence of the statutory auditor, in particular as regards the provision of non-audit services.

It shall be recalled that the company Deloitte & Touche S.p.A. has been assigned the statutory audit for the

period 2011-2019 by the General Meeting of 21 April 2011, pursuant to the CFA.

The Board of Auditors examined the plan of audit activities, as well as reports from the independent auditor

473


Deloitte & Touche S.p.A., whose activities integrate the overall picture of the control functions introduced by the

rules in relation to the financial reporting process.

Said reports, issued on 7 March 2016 pursuant to article 14 of Legislative Decree 39/2010, show that the indi-

vidual financial statements and the consolidated financial statements of the Group were prepared in accordance

with International Financial Reporting Standards IAS/IFRS in force as at 31 December 2015, issued by the

International Accounting Standards Board and adopted by the European Union, comply with the measures issued

in implementation of article 9 of Legislative Decree 38/2005 and were prepared on the basis of instructions

issued by the Bank of Italy with Circular 262/2002 and subsequent amendments and additions.

Therefore, they are drafted clearly and provide a true and fair view of the financial position, results of operations

and cash flows for the year ended 31 December 2015. The independent auditor has also represented that the

method of restatement of comparative figures for 2014, according to the schemes required by the aforementioned

Bank of Italy Circular no. 262, and related disclosures presented in the notes, have been examined, without

remarks, for the purpose of the opinion on the financial statements for the year ended 31 December 2015.

Furthermore, in the opinion of the independent auditor, the Report on Operations and the information referred

to in paragraph 1, letters c), d), f), l), m) and paragraph 2, letter b), article 123-bis of the CFA contained in the

Corporate Governance Report are consistent with the documents of the financial statements.

With reference to IAS 36, the joint Bank of Italy/CONSOB/ISVAP 4 document of 3 March 2010, and the inter-

nal regulations which implemented the law 262/2005, the Board of Auditors acknowledges that the Board of

Directors approved the impairment procedure independently and prior to approval of the financial statements.

5/6. Notices or complaints under art. 2408 of the Italian Civil Code.In 2015, the Board of Statutory Auditors did not receive any notices, complaints or claims under article 2408

of the Civil Code.

7/8. Conferral of further appointments to the independent auditors or other parties linked to them and related costs.We have reviewed evidence of the fees paid by the company to the independent auditors Deloitte & Touche S.p.A.,

and entities that are part of their international network as detailed below.

Mediolanum Group(in Euro, excluding VAT and expenses)

Type of services Party that provided the service Fee

Auditing Deloitte & Touche S.p.A. and other entities that are part of their network 1,410,799


Attestation services Deloitte & Touche S.p.A. and other entities that are part of their network 848,230

Other services Deloitte & Touche S.p.A. and other entities that are part of their network 995,753

Total 3,270,814

474


2015

It is noted that the Euro 829,356 fee was charged to mutual funds, segregated funds and unit-linked policies

as set out in the relevant statements and is not a cost that remains charged to the company that conferred the

audit mandate.

Mediolanum S.p.A.(in Euro, excluding VAT and expenses)

Deloitte & Touche S.p.A. provided appropriate declaration of assurance that there is no situation that could

affect the independence or be cause of incompatibility.

9. Opinions given pursuant to the law.During the year, the Board of Statutory Auditors expressed its opinion, in the cases provided by law, without

remarks and in relation to the following main matters:

• appointment of the Officer responsible for preparing accounting and financial reporting documents pursuant

to art. 154-bis CFA and the Head of Internal Audit;

• approval of the “Coordination Protocol between Mediolanum S.p.A. and Banca Mediolanum S.p.A.” of the

“Risk Appetite Framework” of the Group Coordination Policy between the Risk Management Functions of the

“Policy for the control and management of Operational Risks” and the “Group Policy for the outsourcing of

business functions”.

10. Frequency and number of meetings of the Board of Directors, the Executive Committee and the Board of Statutory Auditors.During the year 2015, the members of the Board of Statutory Auditors attended 16 meetings of the Board of

Directors and 11 meetings of the Board of Auditors with an average duration of about 3 hours.

No Executive Committee has been established.

11. Remarks on adherence to principles of proper management.On the basis of the information obtained or received from directors and the independent auditors, and also by

attending the meetings of the Board of Directors and of the Audit and Risk Committee, we have monitored adher-

ence to principles of proper management, checking compliance of management choices with general criteria of

economic rationality and the directors’ observance of their duty of diligence in fulfilling their mandate. We have

no remark to make in this respect.

Type of services Party that provided the service Fee

Auditing Deloitte & Touche S.p.A. 552,611


Attestation services Deloitte & Touche S.p.A. and other entities that are part of their network -

Other services Deloitte & Touche S.p.A. and other entities that are part of their network 733,060

Total 1,292,817

475


12. Remarks on the adequacy of the organisational structure.We have examined the company’s organisational structure and reviewed its adequacy within the scope of our

authority by means of inspections, collection of information and exchanges with the independent auditors Deloitte

& Touche S.p.A. No material aspect requiring disclosure emerged from our examination.

13. Adequacy of the internal control system.The internal control system, i.e. the system designed to verify compliance with the internal operational and

administrative procedures adopted to ensure proper management, prevent possible financial and operational risks

as well as any frauds against the company, is in substance adequate to the size of the company.

In particular, the Board of Auditors: (i) regularly collected information on activities at the meetings of the

Audit and Risks Committee and meetings with the Head of the Internal Audit, (ii) acknowledged the Corporate

Governance Report on the adequacy and effectiveness of the internal audit system, and (iii) examined the 2015

Report of the Internal Audit Function that evaluated the internal audit system as adapted to the needs of the

Mediolanum Group overall.

Lastly, the Board of Auditors examined the 2015 Report of the Supervisory Body on the implementation of the

organizational and management Model adopted by Mediolanum S.p.A. pursuant to Legislative Decree 231/2001.

From the results of the activities carried out by the Supervisory Board in 2015, there were no violations of the

internal regulations.

Lastly, the Board acknowledges that the Organization, management and control Model pursuant to Legislative

Decree 231/2001 adopted by the company is constantly updated based on the new offences introduced by the

legislation.

14. Administrative-Accounting system adequacy and reliability.The Board of Auditors, on the basis of its findings and ascertainments, found no significant deficiencies in oper-

ating and control processes that may affect the assessment of the adequacy and effective application of admin-

istrative and accounting procedures, in order to fairly present the economic and financial position of operating

facts in accordance with international accounting standards.

15. Adequacy of the instructions given to subsidiaries.The Board considers that the provisions provided by the company to its subsidiaries, pursuant to art. 114, para-

graph 2, of Legislative Decree 58/1998 are adequate to promptly provide the parent the information necessary

for the fulfilment of reporting obligations required by law.

16. Remarks on meetings with the independent auditors.From the exchanges we had with the representatives of the independent auditing firm Deloitte & Touche S.p.A.,

pursuant to art. 150 of Legislative Decree 58/1998, the independent auditor did not report significant criticality

of the internal audit system relevant to the financial reporting process and no significant aspects emerged of that

require reporting in this Report.

476


2015

17. Adhesion to the Corporate Governance Code of the Governance Committee of listed companies.By resolutions dated 23 September 2015 that became effective with the aforementioned merger on 30 December

2015, the company adhered to and complied with the Corporate Governance Code prepared by the Corporate

Governance Committee of listed companies to Borsa Italiana and updated its governance system as resulting

from the specific report of the Board of Directors on Corporate Governance.

The Board of Auditors monitored the procedures for effective implementation of corporate governance rules

contained in the codes of conduct which Banca Mediolanum S.p.A. declares to follow.

Information on corporate bodies.Regarding the corporate bodies, the Board of Auditors noted that:

• the Board of Directors, by resolution of the Board, positively assessed the adequacy of its size, composition

and operation;

• evaluated the correct application of the verification criteria and procedures adopted by the Board of Directors

regarding the independence requirements of its members, and provided complete disclosure in the Report on

corporate governance;

• regularly verified the independence requirements for every one of its members, both under the CFA, and pur-

suant to the Corporate Governance Code;

• with reference to the provisions of art. 36 Decree Law 201/2011 – assumption or exercise of offices in manage-

ment supervision or control bodies in companies or groups of competitors operating in the credit insurance or

financial markets – that Board Directors and members of the Board of Auditors have assessed their situation

and taken the resulting decisions in order to comply with the indicated legislation.

Relations with the corresponding bodies of subsidiaries.The Board of Auditors exchanged information with the Boards of Auditors of direct subsidiaries as required by

art. 151, paragraph 2 of the CFA and the Supervisory Instructions of the Bank of Italy, without receiving evi-

dence of significant facts to be reported specifically in this Report.

18. Final remarks on our supervisory work.Following the supervisory activity performed by the Board of Auditors no reprehensible facts, omissions, or

irregularities arose that require disclosure in this Report.

19. Eventual proposals of the Board of Statutory Auditors to the General Meeting.The Board of Auditors does not consider it necessary to exercise the right to make proposals to the General

Meeting in accordance with article 153, paragraph 2 of the CFA.

Considerations regarding the Consolidated Financial StatementsThe consolidated financial statements were prepared in accordance with the “Instructions for the preparation

of the financial statements of companies and the consolidated financial statements of banks and financial com-

panies that are parent companies of banking groups” issued by the Bank of Italy through Circular no. 262 of 22

December 2005 and subsequent updates in application of Legislative Decree 28 February 2005 no. 38.

The financial statements consist of the Consolidated Balance, Consolidated Income Statement, Consolidated

477


Comprehensive Income Statement, Consolidated Statement of Changes in Equity, Consolidated Statement of

Cash Flows and Consolidated Notes in addition to the Directors’ Report on Operations.

The consolidated financial statements at 31 December 2015 closed with a net profit of Euro 438.613 million

versus Euro 320.617 million in the previous year.

Deloitte & Touche S.p.A. are the independent auditors responsible for auditing the Banca Mediolanum S.p.A.

consolidated financial statements for the year ended 31 December 2015. Upon completion of their audit work,

on 7 March 2016, the independent auditors issued the independent auditors’ report without any remarks

(unqualified opinion).

Observations regarding the annual financial statements and their approvalIn relation to the annual financial statements for the year ended 31 December 2015, which show a net profit

of Euro 351,126,380.76 and the related annexes, which are presented to you for approval, we assure you that:

a. the financial statements were prepared in compliance with the law, in terms of both form and structure, apply-

ing the International Accounting and Financial Reporting Standards (IAS/IFRS) in force at 31 December

2015;

b. the financial statements and the contents of the notes are in accordance with the circular no. 262 issued by

the Bank of Italy on 22 December 2005 integrated with the subsequent updates and therefore consist of the

Statement of financial position, the Income Statement, the Statement of Other Comprehensive Income, the

Statement of Changes in Equity, the Statement of Cash Flows, all comparative with the previous year, the

Notes in addition to the Report on Operations;

c. the Directors’ Report sets out information on the bank’s operations including subsidiaries, with details on

actions, transactions and projects involving the bank and the entire banking group;

d. the independent auditors completed their audit of the annual financial statements, including the consistency

of information set out in the Report on Operations, and on 7 March 2016 issued their report without any

remarks (unqualified opinion).

In consideration of the foregoing, we express our favourable opinion on the approval of the financial statements

for the year ended 31 December 2015, which show a net profit of Euro 351,126,380.76 and allocation thereof

as proposed by the Board of Directors.

Milan, 7 March 2016

Board of Statutory Auditors

Arnaldo Mauri (Chairman)

Adriano Alberto Angeli (Standing Auditor)

Marco Giuliani (Standing Auditor)


2015

Ordinary General Meetingof April 5, 2016

480


2015

RESOLUTIONS ABSTRACT

At the General Meeting, shareholders representing 87.717% of share capital by majority of votes resolved:

• to approve the financial statements for the year ended December 31, 2015, which reported net profit of Euro

351,126,380.76 and include the Directors’ Report;

• to appropriate net profit for the year amounting to Euro 351,126,380.76 as follows:

– to shareholders, as total dividend, Euro 0.30 per eligible ordinary share, and thus for a total of Euro

221,520,827.10 (taking into account the number of shares currently outstanding and the fact that to date,

the bank does not have treasury shares in the portfolio), thus considering the 2015 interim dividend of Euro

0.16 distributed in November, a balance of Euro 0.14 per share gross of tax withholdings;

– Euro 17,556,319.04 to legal reserve;

– the remaining Euro 112,049,234.62 to extraordinary reserve;

– the final dividend will be due for payment from April 18, 2016 (coupon no. 1) through intermediaries, record

date April 19, 2016;

– to allocate the surplus reserve resulting from the merger by incorporation of Mediolanum S.p.A. into the bank,

with statutory effectiveness as of 30 December 2015, and equal to Euro 305,879,706.48 to the extraordinary

reserve;

• to approve – also pursuant to art. 123-ter, paragraph 6, of the Consolidated Finance Act and any other effect

of law and regulation – the “Report of the Board of Directors on Group Remuneration Policies”;

• A) to approve, pursuant to and for the effects of art. 114-bis of Legislative Decree 58/1998, as subsequent-

ly amended, and Circular no. 285 of the Bank of Italy of December 17, 2013, and in implementation of the

“Group Remuneration Policies” relating to the year 2015 approved, on March 26, 2015, in compliance with

the “Supervisory Provisions for Banks”, Bank of Italy Circular no. 285 of December 17, 2013, by the Ordinary

General Meeting of Mediolanum S.p.A. (company merged into its subsidiary Banca Mediolanum S.p.A. with

statutory effectiveness as of December 30, 2015):

(I) the establishment of a new performance share plan referred to as “2015 Top Management Plan – Key

Personnel” and a new performance share plan referred to as “2015 Top Management Plan – Other

Personnel”, both for the directors and executives of Banca Mediolanum S.p.A. and/or its subsidiaries within

the scope of the Mediolanum Banking Group pursuant to art. 23 of Legislative Decree no. 385/1993 as sub-

sequently amended (the “CBA”) and/or other companies controlled by Banca Mediolanum S.p.A. pursuant

to art. 2359, paragraph 1, Civil Code although not belonging to the Mediolanum Banking Group;

Ordinary General Meetingof April 5, 2016

481

ORDINARYGENERAL MEETING

(II) the establishment of a new performance share plan referred to as “2015 Contract Workers Plan – Key

Personnel” and a new performance share plan referred to as “2015 Contract Workers Plan – Other

Personnel”, both for contract workers – considered to be components of the sales network of Banca

Mediolanum S.p.A. and/or its subsidiaries within the scope of the Mediolanum Banking Group pursuant

to art. 23 of the Banking Act, and/or companies controlled by Banca Mediolanum S.p.A. pursuant to art.

2359, paragraph 1, Civil Code, although not belonging to the Mediolanum Banking Group, having the char-

acteristics (including conditions and implementation assumptions) respectively indicated in the Report of the

Board of Directors, (together the plans referred to in this point under A (I) and A (II), the “Performance

Share Plans”);

• (B) to confer to the Board of Directors and the Chairman, Chief Executive Officer and Vice Chairmen, severally, all

powers necessary or appropriate for the execution and implementation of the Performance Share Plans.

• (A) to authorize transactions for the purchase and disposal of ordinary treasury shares for the purposes indicated

in the Report of the Board of Directors and thus:

(I) to authorize, pursuant to and for the effects of art. 2357 Civil Code, the purchase, on one or more

occasions for the period of eighteen months from the date of this resolution, the ordinary shares of the

Bank, up to a maximum of 3,500,000 ordinary shares of Banca Mediolanum S.p.A., and, in any case,

considering the ordinary shares of Banca Mediolanum S.p.A. from time to time held in the portfolio by

the Bank and its subsidiaries, within the maximum limit established by the applicable regulations in force,

conferring mandate to the Board of Directors to identify the amount of shares to be purchased prior to

the opening of each individual purchase program at a price that does not exceed the higher of the price

of the last independent trade and the current highest independent bid for trading where the purchase is

made, provided that the unit price shall not be less than the minimum of 15% and higher by a maximum

of 15% than the official price recorded by the Banca Mediolanum S.p.A. stock the trading day before

each single purchase transaction and that, in any case, the maximum total amount of purchases made

under this resolution may not exceed Euro 26,250,000;

(II) to confer mandate to the Board of Directors, and the Chairman, Chief Executive Officer and Vice

Chairmen, severally, to purchase shares under the conditions and for the purposes referred to above,

attributing the broadest powers for the execution of the purchases under this resolution and any other

formalities relating to the same, including the possible allocation of assignments to intermediaries qual-

ified in accordance with law and with the power to appoint special proxies; purchases will be made with

unsuitable methods to ensure equal treatment of shareholders, with graduality deemed appropriate in

the interest of Banca Mediolanum S.p.A., and as permitted by law, with the provisions of art. 144-bis,

paragraph 1, lett. b) of Consob Regulation 11971/1999, as subsequently amended, and 14 15 taking into

account market practices allowed by Consob pursuant to art. 180, paragraph 1, lett. c) of the CFA with

resolution no. 16839 of March 19, 2009 and EC Regulation no. 2273/2003 of December 22, 2003 where

applicable;

(III) to authorize the Board of Directors, and its Chairman, Chief Executive Officer and Vice Chairmen, sever-

ally, so that, pursuant to and for the effects of art. 2357-ter Civil Code, they may dispose of at any time,

in whole or in part, on one or more occasions, the treasury shares purchased pursuant to this resolution,

or in any case in the Banca Mediolanum S.p.A. portfolio, through the free allocation of these treasury

shares in favour of the recipients of the Performance Share Plans, if the regulatory requirements and con-

ditions apply as laid down by the Group Remuneration Policies for the payment of the variable remuner-

ation related to the incentive system, attributing to the same, also severally, the broadest powers for the

482


2015

execution of disposals contained in this resolution, as well as any other formalities relating to the same,

including the possible conferment of assignments to intermediaries qualified in accordance with law and

with the power to appoint special proxies. It is specified that any treasury shares of Banca Mediolanum

S.p.A. purchased under this authorization which may exceed those actually used for the aforementioned

Performance Share Plans can be used for (a) the allocation of the same for any future incentive plans

and/or (b) the provision of the same on or off the stock exchange, possibly also through the transfer of

real and/or personal rights, with the terms, procedures and conditions of the disposal of treasury shares

deemed most appropriate in the interests of Banca Mediolanum S.p.A., in compliance with the provisions

of law and regulations currently in force. The authorization referred to in this point under (III) is granted

without time limits;

• (B) to provide, by law, that purchases under this authorization be within the limits of the distributable profits

and available reserves resulting from the last financial statements (even interim) approved at the time of the

transaction and that, during the purchase and disposal of treasury shares, the necessary accounting entries will

be made in compliance with legal provisions and applicable accounting standards.

GRUP

PO M

EDIO

LANU

M –

BIL

ANCI

O20

15

GRUPPO MEDIOLANUM

BILANCIOCONSOLIDATO2015

MEDIOLANUM GROUP CONSOLIDATED FINANCIAL · Mediolanum Group – Consolidated Financial Statements...

Documents

Transcript of MEDIOLANUM GROUP CONSOLIDATED FINANCIAL · Mediolanum Group – Consolidated Financial Statements...