Accounting principles

Consolidated financial statements | Consolidation area | Consolidation methods

The Generali Group’s consolidated financial statements at 31 December 2011 is drawn up taking into account the IAS/IFRS issued by the IASB and endorsed by the European Union, in accordance with the Regulation (EC) No. 1606 of 19 July 2002 and the Legislative Decree No. 58/1998, as amended by Legislative Decree No 259/2010, as well with the Legislative Decree No 209/2005.

The Legislative Decree No. 209/2005 empowered ISVAP to give further instructions for financial statements in compliance with the international accounting standards.

In this yearly report the Generali Group prepared its consolidated financial statements and Notes in conformity with the ISVAP Regulation No. 7 of 13 July 2007, as amended by Measure ISVAP  No. 2784 of 8 March 2010, and information of the Consob Communication No. 6064293 of 28 July 2006.

As allowed by the aforementioned Regulation, the Generali Group belivied it appropriate to supplement its consolidated financial statements with detailed items and to provide further details in the Notes in order to meet also the IAS/IFRS requirements.

The consolidated financial statements at 31 December 2011 is audited by Pricewaterhouse Coopers, the appointed audit firm from 2006 to 2011.

Consolidated financial statements

The set of the consolidated financial statements is made up of the balance sheet, the profit and loss account, the comprehensive income, the statement showing changes in equity and the cash flow statement, as required by the ISVAP Regulation No. 7 of 13 July 2007, as amended by measure ISVAP  No. 2784 of 8 March 2010. The financial statements also include special items that are considered significant for the Group.

The Notes, which are mandatory as minimum content established by ISVAP, are presented in the appendices  to the notes to this report.

Comparative figures are restated compared to those presented in the financial statements at 31 December 2010 in order to harmonize them with data in this report.

Reclassifications are explained in the ‘Changes in the presentation of consolidated financial statement’ of the Notes.

This yearly report is drawn up in euro (the functional currency used by the entity that prepares the financial statement) and the amounts are shown in millions, rounded to the first digit, unless otherwise stated with the consequence that the rounded amounts may not add to the rounded total in all cases.up.png

Consolidation area

Based on the IAS 27, the Consolidated financial statements include the figures for both the Parent company and the subsidiaries directly or indirectly controlled.

At 31 December 2011, the consolidation area decrease from 528 to 523 companies, of which 478 are subsidiaries consolidated line by line and 45 associated companies valued at equity.

Changes in the consolidation area compared to the previous year and the table listing companies included in the new consolidation area are attached to these Notes.up.png

Consolidation methods

Investments in subsidiaries are consolidated line by line, whereas investments in associated companies and interests in joint ventures are accounted for using the equity method.

The balance sheet items of financial statements denominated in foreign currencies is translated into euro based on the exchange rates at the end of the year.

Instead, the profit and loss account items are translated based on the average exchange rates of the year. They reasonably approximate the exchange rates at the dates of the transactions.

The exchange rate differences arising from the translation of the statements expressed in foreign currencies  are accounted for in equity in an appropriate reserve and recognised in the profit and loss account only at the time of the disposal of the investments.

The exchange rates used for the translation of the main foreign currencies for the Generali Group into euro are shown below.

Exchange rates of the balance sheet
  Exchange rate at the end of the period (€)
Currency 31.12.2011 31.12.2010
US dollar 1.2982 1.3416
Swiss franc 1.2139 1.2505
British pound 0.8353 0.8569
Israeli shekel 4.9638 4.7511
Argentine peso 5.5873 5.3287
Czech koruna 25.5030 25.0900
Exchange rates of the income statement
  Average exchange rate (€)
Currency 31.12.2011 31.12.2010
US dollar 1.3922 1.3269
Swiss franc 1.2334 1.3822
British pound 0.8678 0.8584
Israeli shekel 4.9770 4.9506
Argentine peso 5.7465 5.1898
Czech koruna 24.5828 25.2926

Line-by-line consolidation method

The subsidiaries as well as the special purpose entities where the requisites of effective control are applicable are consolidated line by line.

Control is presumed to exist when the Parent Company owns, directly or indirectly through subsidiaries, more than half of the voting power of an entity or, in any event, when it has the power to govern the financial and operating policies of an investee. In the assessment of the control potential voting rights are also considered, where present.

The consolidation of a subsidiary ceases commencing from the date when the Parent Company loses control.

In preparing the consolidated financial statements:

  • the financial statements of the Parent Company and its subsidiaries are consolidated line by line. For consolidation purposes, if the financial year-end date of a company differs from that of the Parent Company, the former prepares interim financial statements at December 31st of each financial year;
  • intra-group balances are eliminated in full;
  • the carrying amount of the Parent Company’s investment in each subsidiary and the Parent Company’s portion of equity of each subsidiary are eliminated at the date of acquisition;
  • minority shareholders’ interests are shown as separate items.

Subsidiaries consolidated line by line are acquired using the acquisition method. The acquisition cost is represented by the sum of the price transferred,  the fair value of non-controlling interests as well as, in a business combination achieved in stages, the fair value of the acquirer’s previously held equity interests in the acquiree. The assets acquired and liabilities assumed in a business combination are initially recognized at acquisition current value. The excess of the acquisition cost over the net value of the identifiable assets acquired and liabilities assumed is accounted for as goodwill. In the case of the acquisition is lower than the net value of assets acquired and liabilities, the difference is recognised in the profit and loss account.

Based on the IAS 27, the acquisitions of further minority interests of subsidiaries already consolidated line by line do not imply the booking of additional goodwill and the difference between the purchase price of the abovementioned minorities and the related minority shareholders’ interest shall be booked as reduction of the Group equity.

Similarly, in line with what it has been stated above concerning the purchase of further minority shares, the difference between the transaction value and the book value of the ceded share doesn’t affect the profit and loss account, but it is recognised in equity since such transactions are managed in the same way of transactions among shareholders.

Consolidation using the equity method

Investments in associates and joint ventures are consolidated using the equity method.

An associate is an entity over which the investor has significant influence. Significant influence is the power to participate in the financial and operating policy decisions of the investee but is not control or joint control over those policies. If an investor holds, directly or indirectly through subsidiaries, 20% or more of the voting power of the investee, it is presumed that the investor has significant influence.

A joint venture is a contractual arrangement whereby two or more parties undertake an economic activity that is subject to joint control. A joint venture is a contractual arrangement whereby two or more parties undertake an economic activity that is subject to joint control.

Under the equity method, the investment in an associate is initially recognised at cost (including goodwill) and the carrying amount is increased or reduced to recognise the change in the investor’s share of the equity of the investee after the date of acquisition. The investor’s share of the profit or loss of the investee, net of dividends, is recognised in its profit and loss account.up.png