Business performance

Operating result - life segment
(€ million) 31.12.2011 31.12.2010 Fourth quarter
2011
Fourth quarter
2010
Operating result - life segment 2,541.7 3,025.9 563.6 724.1
Net premiums 42,076.0 45,452.5 10,751.9 12,597.7
Net insurance benefits and claims -40,769.8 -53,265.0 -12,413.1 -15,279.6
of which change in the provisions for unit and index-linked policies 2,131.6 -6,157.8 -865.1 -2,583.6
Acquisition and administration costs -5,176.3 -5,136.6 -1,444.7 -1,389.4
Acquisition and administration costs related to insurance business (*) -5,137.3 -5,115.1 -1,433.5 -1,384.8
Other acquisition and administration costs -38.9 -21.5 -11.2 -4.7
Net fee and commission income and net income from financial service activities 177.7 108.9 51.7 16.9
Net operating income from financial instruments at fair value through profit or loss -3,054.9 4,728.2 1,166.8 1,819.0
of which net income from financial assets and liabilities related to unit and index-linked policies -3,158.7 3,823.3 988.0 2,046.8
Net operating income from other financial instruments 9,336.2 11,212.4 2,473.9 2,963.8
Interest income and other income 11,029.8 10,457.8 2,787.8 2,640.0
Net operating realized gains on other financial instruments and land and
buildings (investment properties)
2,018.5 1,838.5 553.5 572.5
Net operating impairment losses on other financial instruments and land and
buildings (investment properties)
-2,967.4 -365.5 -666.8 -19.4
Interest expense on liabilities linked to operating activities -269.0 -209.1 -66.3 -52.0
Other expenses from other financial instruments and land and buildings
(investment properties)
-475.8 -509.4 -134.3 -177.2
Net other operating expenses (**) -47.3 -74.6 -23.0 -4.2
Non-operating result - life segment -743.6 -183.1 -261.7 36.6
Net non-operating income from other financial instruments -578.7 -72.8 -188.5 14.9
Net non-operating realized gains on other financial instruments and land and buildings (investment properties) (***) -142.9 57.3 -47.9 28.6
Net non-operating impairment losses on other financial instruments and land and buildings (investment properties) (***) -435.8 -130.1 -140.6 -13.7
Net other non-operating expenses (****) -164.9 -110.3 -73.2 21.7
Earnings before taxes - life segment 1,798.1 2,842.8 301.9 760.7

(*) Commissions related to investment contracts, which amounted to € 122.5 million (€ 113.7 million at 31 December 2010), are included in net fee and commission income and net income from financial service activities.

(**) At 31 December 2011 the amount is net of operating taxes for € 64.1 million (€ 40 million at 31 December 2010) and of non-recurring taxes shared with the policyholders in Germany for € 45.7 million.

(***) The amount is net of the share attributable to the policyholders.

(****) The amount is net of the share attributable to the policyholders in Germany and Austria.

 

Operating result in the life segment went from € 3,025.9 million at 31 December 2010 to € 2,541.7 million. The decrease (down 16.0%) was entirely attributable to the decline of the net investment result, defined as the difference between operating income from investments and the related policyholders' interests. By contrast, the technical margin continued to develop and, net of total operating expenses, increased by 28.4%.

Net investment result, despite the growth in current return and Group’s higher realized gains, was affected by the deterioration of the conditions of financial markets, which worsened as of the second half of the year, resulting in gross impairment losses amounting to € 2,905.2 million.

In further detail, the latter was attributable for € 1,970.4 million to the impairment losses recognized as of the second quarter on Greek bonds and for € 934.8 million to those on the equity portfolio, of which € 443.2 million refered to the investment in Telco.

Considering the share of financial profits attributable to the policyholders’ interests of the life segment, overall the afrorementioned impairment losses had an impact on the operating result of
€ 411.6 million of which € 377.5 attributable to the Greek government bonds and € 34.1 million to the equity portfolio, net of the releases from surplus funds allowed for these purposes by some local jurisdictions and classified as technical provisions. Such impairment losses led to an important reduction in the level of absorption of the technical provisions at local level. Within the exceptional market, as a matter of fact, from a strategic standpoint the Group preferred to favour, taking into account the characteristics of the life product placed, the stability of policyholders’ returns by guaranteeing an essentially stable bonus rate.

Furthermore, with reference to the impairment losses on equity investments, their low incidence on the life operating result derive from the fact that the writedown of Telco, whose investment is mainly concentrated in Italy, had no effect on the formation of local technical provisions as not yet realized and, therefore, it mainly affected the non-operating result.

The adverse conditions of the financial markets determined both the decrease of the value of investments at fair value through profit or loss, especially in the second half of the year, with a higher impact on the operating result of about € 100 million compared to 31 December 2010, and a reduction in the market value of linked assets and therefore lower management fees, particularly performance fees, compared to the previous year of about € 80 million.

Lastly, the current low interest rate scenario resulted in an increase in technical allocations to the financial risk provision during the year of approximately € 120 million.

Consequently, the overall impact on the operating result of the exceptional economic and financial situation described thus amounted to approximately € 700 million.

Also, the comparison of the operating result for the fourth quarter of the reporting year and previous year, which showed a decline of € 160.5 million, was also affected by the foregoing dynamics. In detail, greater operating impairment losses amounting to about € 650 million had a greater impact on operating result of about € 180 million.

The operating return of investments in the life segment(1)  amounted to 0.80% of investments in the segment (0.97% at 31 December 2010); without considering the above-mentioned exceptional financial conditions it would have exceeded 1%.

Operating result by country
(€ million) 31.12.2011 31.12.2010 Fourth quarter
2011
Fourth quarter
2010
Operating result - life segment 2,541.7 3,025.9 563.6 724.1
Italy 969.5 1,188.1 36.0 184.0
France 294.8 596.1 86.7 234.1
Germany 378.5 354.0 140.3 92.5
Central and Eastern Europe 195.4 177.1 85.7 40.8
Rest of Europe 444.4 417.3 144.0 82.0
of which Spain 113.8 110.0 33.8 27.5
of which Austria 60.9 64.0 8.5 0.4
of which Switzerland 116.0 127.6 15.0 38.3
Rest of World 259.1 293.4 70.7 91.0
The operating result of the main countries was affected by the negative trend of the net investment result. In particular, the operating result of France was influenced to a greater extent by the mentioned volatility and the impairment losses recorded on Greek government bonds. 
Non-operating result
The non-operating result of the life segment went from € -183.1 million at 31 December 2010 to
€ -743.6 million. The worsening was attributable both to the higher impairment losses and lower net realized gains on financial instruments. In detail, net impairment losses – considered as non-operating as they relate to financial instruments of shareholders' funds or instruments, the impairment of which did not affect the statutory reserves to the extent they were not included in the deferred policyholder liabilities – amounted to € -435.8 million (€ -130.1 million at 31 December 2010), attributable in particular for € 130.3 million to the impairment of the Greek government bonds, and for € 277.6 million to the impairment losses on equities, of which € 181.6 million related to the investment in Telco.

 

(1) Equal to the ratio between the operating result and the average investments calculated based on the financial statement figures of the life segment, as described in the Methodological Note annexed to this Report.