Strategic Asset allocation

Venice, November 26, 2010

Generali Investor Day 2010

Strategic Asset Allocation & Risk Management Strategy

Amerigo BorriniChief Risk Officer

Salvatore ColottiChief

Life Actuary

Assicurazioni Generali Group – Investor Day 2010 – Investment Management of Insurance Assets

Disclaimer

Certain of the statements contained herein are statements of future expectations and other forward-looking statements.

These expectations are based on management's current views and assumptions and involve known and unknown risks and uncertainties.

The user of such information should recognise that actual results, performance or events may differ materially from such expectations because they relate

to future events and circumstances which are beyond our control including, among other things, general economic and sector conditions.

Neither Assicurazioni

Generali S.p.A. nor any of its affiliates, directors, officers employees or agents owe any duty of care towards any user of the information provided herein nor any obligation to update any forward-looking information contained in this document.

The manager in charge

of

preparing

the company’s financial

reports, Raffaele Agrusti, declares, pursuant

to

paragraph

2 of

article

154-bis of

the Consolidated

Law

on Financial Intermediation, that

the accounting information contained

in this

presentation

corresponds

to

document

results, books

and accounts

records.

2


II. Strategic Asset Allocation & Risk Management Strategy

II. Asset and Liabilities integration

III. Final remarks

I. Introduction: How we managed and performed

3


Agenda

I. Introduction: How we managed and performed Strategic Asset Allocation & Risk Management

Increased investment portfolio

Our track record on investment management

Group risk capital and financial risks

4


Asset Allocation

Strategic Asset Allocation & Risk Management

Insurance Liabilities

“Own Investments” including own use real estate(1)

Euro 331.1 bn

ALM Traditional

LifeReserves(4)

P&C

Reserves(4)30.5

258.1

(1)

Including own use real estate within own investments. Own investments include own capital and insurance funds (i.e. unit linked

excluded)(2)

Including investments in subsidiaries, associated companies and

JVs, derivatives, receivables from banks or customer(3)

Including

real estate mutual funds & own use real estate (4)

Net technical reserves; life reserves including investment contracts

Other(2)

BV

4.0%

MV

3.8%

Equity BV

8.4%

MV

8.1%

Fixed income instruments BV

79.1%

MV

78.1%

Real Estate (3)

BV

5.5%

MV

7.1%

“Own Investments” including

own

use

real

estate(1)

Cash & equival.BV

3.0%

MV

2.9%

I. INTRODUCTION: HOW WE MANAGED AND PERFORMED

At 30.09.2010

5


274.8 295.0 296.2 299.6 312.7 331.1

41.247.9 50.7 41.4 42.5

47.657.662.9 61.4 68.6

83.695.9

2005 2006 2007 2008 2009 9M10

We increased our investment portfolio

Strong growth trend of total Assets Under Management (Euro bn)

(1)

Acquisition

of

Toro Group impact Own

Investment

for

Euro 8.4 bn

and Unit

Linked

for

Euro 587 m(2)

Sale of

Nuova Tirrena impact Own

Investment

for

Euro 2.2 bn

and Unit

Linked

for

Euro 107m(3)

Acquisition of Banca

del Gottardo

impact Own Investment for Euro 8.2 bn

and Third parties AUM for Euro 14 bn

Acquisition of PPF Group impact Own Investment for Euro 5.4 bn, Unit Linked for Euro 67m and Third parties AUM for Euro 2.4 bn(4)

Sale of

Intesa Vita impact Own

Investment

for

Euro 13.5 bn

and Unit

Linked

for

Euro 8.6 bn

(1) (2) (3) (4)

AUM net of

sale and acquisition

(∆% YoY)

AUM (∆% YoY)


+ 8.6%+ 0.6% + 0.3%

+ 7.1%+ 8.1%+ 6.2%

+ 1.2% - 7.2%+ 13.1%

+ 8.1%

Third

parties

AUM

Unit Linked

Own

Investments(including

own

use

real estate)

6


Our investments – LifeI. INTRODUCTION: HOW WE MANAGED AND PERFORMED

Maintained an asset allocation consistent with the structure of our technical reserves

Increase in corporate bonds exposure has allowed Generali to benefit from narrowing in spreads and to sustain current return

Maintained high quality of corporate bond portfolio and improved portfolio diversification

Lengthened duration of bonds (from 6.0 at FY07 to 6.6 at 9M10)

Strategic decrease of equity exposure44.9%43.9%42.3%41.2%33.5% 34.4%

55.1%56.1%57.7%58.8%66.5% 65.6%

2005 2006 2007 2008 2009 9M10

8.5%9.1%7.7%12.3%12.2%10.9%

84.2%83.3%83.9%80.1%81.6%83.3%

3.7%2.6% 3.0% 3.8% 4.2% 4.0%1.7%2.0%1.7% 1.6%1.7%1.4% 2.0%1.8% 1.5% 2.1% 2.1% 1.9%

2005 2006 2007 2008 2009 9M10

CashOther

investmentInvestment properties

(incl. self-

used)

Fixed

Income Instruments

Equities

Government bonds

Corporate

Asset allocation (%) -

Eur

269.7 bn

at 9M10

Focus on bond portfolio (%) -

Eur 204.3 bn at 9M10

7


Own investments – P&C

Asset allocation (%) -

Eur 38.6 bn at 9M10


Increases in the share of corporate bonds within bond portfolio has allowed Generali to exploit the narrowing of spreads and to generate fixed income revenues

Increased diversification in corporate bond portfolio

Lengthened duration of bonds in P&C (from 2.9 at FY07 to 4.7 at 9M10), based on a ongoing portfolio approach, has allowed us to realise capital gains through a tactical reduction of duration started at the beginning of 4Q10

Active management of equity portfolio to cope with market volatility

Focus on bond portfolio (%) -

Eur 19.2 bn at 9M10

53.4%53.4%53.0%51.9%44.4%47.8%

46.6%46.6%47.0%48.1%55.6%52.5%

2005 2006 2007 2008 2009 9M10

11.4%12.1%13.3%17.3%17.7%18.8%

59.2%57.4%56.2%54.7%54.6%52.0%

20.9%20.3%20.7%17.8%20.3%22.6%2.8%2.4%3.8%3.3%2.7%2.5%

5.6%7.8%6.0%6.9%4.8%4.0%

2005 2006 2007 2008 2009 9M10

Government bonds

Corporate

CashOther

investmentInvestment properties

(incl. self-

used)

Fixed

Income Instruments

Equities

8


Our track record on investment managementI. INTRODUCTION: HOW WE MANAGED AND PERFORMED

Assets: diversification and prudent approach

Limited net exposure to structured finance: Euro 1.5 bn

No exposure to US subprime assets

Negligible exposure to credit default swaps: only hedging and

investment with no arbitrage activity

Limited net exposure to Lehman: Euro 110 m

Limited net exposure to Portugal, Ireland, Greece and Spain:

Euro 2.0 bn

No exposure to Dubai World

9



Group risk capital before diversification

Group risk capitalafter diversification

within business units

Group risk capitalafter diversification

Diversificationwithin business units

Group diversification

17%

19%

€18.1bn

(Euro bn

/ Percentage) €26.7bn

(4.5)

(4.1)

(1) Not under Internal Model refers to entities currently based on previous top-down model

Not under IM(1) 1.9 / 7%

Operational 2.1/ 8%

Non-life U/W 2.8 / 11%

Life U/W 2.9 / 11%

Credit & Currency

3.9 (of which 3.1 on Life and 0.8 on Non-life)

/ 15%

Interest rate 3.2 (of which 2.9 on Life and 0.3 on Non-life)

/ 12%

Real estate 3.3 (of which 1.5 on Life and 1.8 on Non-life)

/ 12%

Equity 6.6 (of which 5.0 on Life and 1.6 on Non-life)

/ 25%

Significant portion of Group risk capital related to financial risks (64%)

26.7 / 100%Total

Group risk capital and financial risks

At 31.12.2009

32%

10


Agenda

II. Asset and Liabilities integrationCentralised strategic investment framework

Life Liabilities existing business / new business

P&C asset liability management

Asset allocation process and Solvency II

11


OverviewII. ASSET AND LIABILITIES INTEGRATION

Current environment is characterised by the need for changes (Solvency II) at system level updating governance, processes, profitability metrics, products

Financial crisis has given an acceleration in renewing financial system processes

Local regulators are defining new set of rules aligned with this systemic change

12


Centralised strategic investment framework

Group Risk Guidelines (SAA, Credit, Market Risk Concentration, Derivative & Structured Products, Alternative Investments,...)

Committees structure governance (Group Risk Committee, Group Investment committee, Company Investment committees,...)

II. ASSET AND LIABILITIES INTEGRATION

Corporate Centre coordination and control of strategic investment

Strategic asset allocation activity

Coordinate the deployment of the group strategic investment objectives to the companies

Guarantee coherency of risk and performance metrics

Centralise the distribution of the market financial scenarios

Create a platform allowing for the enforcement of:

Homogeneous asset classification

Uniform definition of the investment objectives

13


Life liabilities: Existing business(1)

By Product (%) By Premium type (%)

FY 2009 Total Reserves: Area/Product

By Area (Euro bn)

0102030405060708090

Italy Germany France CEE RoE RoW

Unit SavingUnit PensionTraditional SavingTraditional RiskTraditional Pension

Unit Saving

14%

Unit Pension 6%

Traditional Pension 10%

Traditional Risk

5%

Traditional Saving

65%

By Area (Euro bn)

0102030405060708090


Single

Regular

Single

45%

Regular

55%

FY 2009 Total Reserves: Area/Premium type

(1) Perimeter life/health EV, net of minorities


14


Life liabilities existing business(1): Guarantees

2.20

2.40

2.60

2.80

3.00

3.20

31.12.03 31.12.05 31.12.07 31.12.09

Yearly basisAt maturity

Yearly basis (Cliquet) Guarantee

Profit sharing granted and consolidated every year

At Maturity GuaranteeProfit sharing granted only at event (maturity, death)

Yearly discretionary bonuses not guaranteed

2009 Average Guarantee: 2.37%Yearly basis (Cliquet): 2.4%

At maturity: 2.3%

Total Reserves by type of guarantee

NIL 22%

Matched

3%

At maturity

9%

Yearly

basis

66%



15


Life liabilities: new business(1)

By Product (%) By Premium type (%)

FY 2009 APE: Area/ProductBy Area (Euro m)

0200400600800

1,0001,2001,4001,6001,800


Unit SavingUnit PensionTraditional SavingTraditional RiskTraditional Pension

Unit Saving

14%

Unit Pension 11%

Traditional Pension 10%

Traditional Risk

14%

Traditional Saving

51%

By Area (Euro m)

0200400600800

1,0001,2001,4001,6001,800


Single

Regular

Single

42%

Regular

58%

FY 2009 APE: Area/Premium type



16


Life liabilities(1): new business guarantees

Total APE by type of guarantee

NIL 30%

Matched

3%

At maturity

11%

Yearly

basis

56%

FY 2008 2008 Average Guarantee: 1.56%

Yearly basis: 1.5%

At maturity: 1.9%

NIL 30%

Matched

2%

At maturity

19%

Yearly

basis

49%

FY 2009 2009 Average Guarantee: 1.56%

Yearly basis: 1.4%

At maturity: 2.0%

NIL 31%

Matched

1%

At maturity

20%

Yearly

basis

48%

9M 2010 2010 Average Guarantee: 1.54%

Yearly basis: 1.3%

At maturity: 2.0%



17


Absence of volatility absorbers (beyond book accounting) in Italian traditional business, as opposed to Germany and France,

that use policyholder/capital gains funds

Penalised NBV computation due to widening of spread between Italian bonds and Swap rate

The solution implemented:Higher portion in terms of APEof “at maturity”

guarantees:From 31% at FY08to 55% at 9M10

Cliquet guarantees reduction: From 1.99% at FY08 to 1.27% at 9M10 37% of APE with 0% guarantee

Results:Improved profitability thanks to lower cost of guarantees Reduction in Solvency II capital strain

Life liabilities: focus on Italian new productionII. ASSET AND LIABILITIES INTEGRATION

0%2%4%6%8%

10%12%14%16%

0% 1% 2%

CliquetMaturity

Cost of Guarantee: Cliquet vs. Maturity(1)

Cost of guarantee(in terms of NBM, expressed in % of APE)

Minimum guarantee

18

(1) Illustrative example based on FY09 financial assumptions


1.50

1.75

2.00

2.25

2.50

Life liabilities: Portfolio guarantees development(1)

Expected guarantees development (%) Reserves composition (%)

0.00

20.00

40.00

60.00

80.00

100.00

2009 2011 2013 2015 2017 2019

New BusinessOld Business

Based on expected run off, future new production included

Strong reduction in the average guarantee thanks to back book run off and new production


Higher cliquet guarantees developmentBreakdown cliquet guarantees at FY09weight on total reserves


By 2020:

Average guarantee at 1.7%

Portfolio with ≥ 2.75% guarantee ≤10% of total

12.6%

5.2%

15.0%

19.2%

13.1%

0.6%

0%-0.99%

1%-1.99%

2%-2.99%

3%-3.99%

4%-4.99%

>5% 0%10%20%30%40%50%60%70%80%90%

100%

2009 2011 2013 2015 2017 2019

>=4.5%

4%-4.49%

3.5%-3.99%

3%-3.49%

weight on total reserves

19

31.12.09 31.12.20


P&C asset liability management

29.328.429.024.2

29.6

2005 2006 2007 2008 2009

Lengthened duration on bonds (from 2.9 at FY07 to 4.7 at 9M10)

P&C liabilities duration at 3.3

Duration mismatch on P&C is based on a ongoing view of the business with net technical Reserves stable over years

Dynamic management of portfolio’s duration is implemented according to market expectations

Net technical Reserves (Euro bn)

Reserving ratio (%)

145%145%175%157% 149%

2005 2006 2007 2008 2009


20


Asset allocation process in a Solvency II environment

Investment strategies defined coherently with capital allocation and risk profiles

New regulatory framework and the changing market environment are

strengthening the focus on a liability driven approach where asset liability management is the cornerstone

Group Risk guidelines enforced

to align and control investments

Stochastic approach in portfolio modeling in order to consider options embedded in the insurance products

Centralisation of economic capital methodologies, financial assumptions and AM mandate structure


21


Corporate CentreLevel

Strategic Asset Allocation process

Asset allocation at portfolio/product level is coherent with Group Investment Strategy and is based on:

Liability profileFeatures of in-force and future productsRisk toleranceCapital efficiencyALM coherency

Financial assumptionsStrategic Plan targetsGuidelines and model definitionCapital allocationGroup Investment Strategy

Consolidation of bottom up strategiesCoherency with group targets and risk tolerance

Strong Corporate Centre Coordination and Enhancement of granularity improve efficiency in the investment process

Portfolio Level


22

SAA Life ProcessII. ASSET AND LIABILITIES INTEGRATION

Strategic Allocation definition that maximizes investment contribution to value creation

Investment targetsMarket expected returnGroup/Company risk tolerance

Portfolio assets mapped into SAA categoriesRegulatory constraints and Group Risk Guidelines coherency

Analysis of reserves split by guarantee level and structureNew production volumesAnalysis of shareholder’s financial profit vs. fund returns

Cash flow matching analysisAsset & Liabilities projectionsAsset mix optimisation

Analysis of the Market Consistent Present Value of Future Profit (MC PVFP) and Risk Adjusted Capital (RAC) at segregated fund level

MC PVFP sensitivity analysis with respect to different allocation scenariosImpact of liabilities risk mitigation in different loss scenarios

ALM Analysis Value and Risk Analysis MC PVFP sensitivity and liabilities migation

Strategic Plan coherency and market outlook

Portfolio analysis Liability portfolio structure

23

SAA Non-life Process II. ASSET AND LIABILITIES INTEGRATION

Define SAA portfolio targets with the optimal risk/return profile

Optimisation process based on risk / return target profileAnalysis of Economic Balance Sheet (EBS) indicators

Quantitative Analysis

Strategic Plan coherency and market outlook

Investment targetsMarket expected returnGroup/Company risk tolerance

Portfolio assets mapped into SAA categoriesRegulatory constraints and Group Risk Guidelines coherency

Portfolio analysis

24


Return on capital optimisation: Life

Government bonds are a very attractive asset class in order to better manage duration mismatch.

Short term and high quality corporate bonds look most interesting at the expense of long corporate bonds, owing to thebetter return in respect to capital requirements.

Equity exposure will be cyclical.

Real Estate looks attractive based on long-term value creation capacity

Short / Long

Exposure Trend

Real EstateEquitiesCorporate BondsGovt Bonds

Optimise risk / return profile

Guaranteeexcess returnover minimum guaranteed level

Manage exposure to risky assets due to higher capital requirements


25


Preference for government bond and short / high quality corporate bond

Equities look relatively unattractive due to the high capital requirement

Real Estate exposure should decrease

Liquidity is a key consideration

Reduce exposure to riskyasset classeswith high capital requirement

Maximise returnon capital

Begin a de-risking process in order to reduce risk capital

Short / Long

Exposure Trend

Real EstateEquitiesCorporate BondsGovt Bonds


Return on capital optimisation: P&C 26


Agenda

III. Final remarks

27


Strong Corporate Centre coordination in the definition of asset allocation strategy

Liability driven management approach

More transparent and flexible investment process in a clear governance structure

ALM as cornerstone in the definition of investment constraints related to profitability and capital

SAA as function to integrate market outlook and ALM in order to define investment strategy optimising capital efficiency

Portfolio tailored asset allocation in order to increase capital

efficiency

III. FINAL REMARKS

Final remarks 28

Venice, November 26, 2010

Generali Investor Day 2010

Strategic Asset Allocation & Risk Management Strategy

Amerigo BorriniChief Risk Officer

Salvatore ColottiChief

Life Actuary

Strategic Asset allocation

Business

Transcript of Strategic Asset allocation