Return on investment

Return on investment and harvesting rate
 
Current return Harvesting rate P&L return Comprehensive return
 
31.12.2011 31.12.2010 31.12.2011 31.12.2010 31.12.2011 31.12.2010 31.12.2011 31.12.2010
Fixed income instruments 4.5% 4.4% -0.5% 0.6% 4.0% 5.0% 0.8% 2.6%
Equities and equity-like investments 3.8% 3.1% -4.2% 1.5% -0.4% 4.6% -12.5% 3.7%
Real estate investments 7.3% 7.3% 1.7% 0.8% 9.0% 8.2% 8.7% 8.6%
Other investments 2.8% 2.2% -3.1% -0.6% -0.3% 1.6% -0.3% 1.6%
Total investments 4.5% 4.3% -0.8% 0.6% 3.7% 5.0% 0.2% 2.8%

Despite the difficult financial market situation, the strategy described above implemented by the Group allowed to increase the return on investments, which amounted to 4.5% (4.3% at 31 December 2010). By contrast, the contribution to the result of the period of harvesting operations was negative, falling from 0.6% at 31 December 2010 to -0.8%. In further detail, while the net realized gains recorded by the Group were largely stable, there was both an increase in impairment losses as of the second quarter on Greek bonds and a decline in value of bond and equity portfolios through profit or loss, primarily in the third quarter of the reporting year.

Another consequence of the aforementioned decline in the value of equity and bond portfolios, which was reflected in particular in shareholders’ equity, was a considerable decline in comprehensive return, which includes both the current return and changes in value of the period through both profit or loss and equity, to 0.2% (2.8% at 31 December 2010).

The actions implemented by the Group in the life segment on the bond portfolio, aiming at supporting adequate portfolio liquidity and a accurate selection of government and corporate bonds of issuers with solid valuations able to ensure adequate coupon returns, enabled the Group to sustain the growth of current returns, which amounted to 4.5% (4.4% at 31 December 2010).

By contrast, the contribution to the result for the period of the realized and unrealized gains and losses through profit or loss (harvesting rate), worsened from 0.6% at 31 December 2010 to -0.5%. Realized gains raised from € 1,755.2 million at 31 December 2010 to € 2,458.3 million, whereas an increase was recorded both in realized losses, achieved within the reduction of cross-border exposure, which amounted to € -1,009.4 million (€ -425.7 million at 31 December 2010), and impairment losses, which amounted to € -2,114.6 million (€ -11.5 million at 31 December 2010), especially recognized as of the second quarter of the year on Greek bonds.

The intensification of the sovereign debt crisis in the countries of the Euro Area with a high public sector debt, especially in the fourth quarter of the year, resulted in a significant decrease in the value of bond portfolios recognized through equity, while also negatively affecting the comprehensive return, which also includes the changes in value of the period recognized through both profit or loss and equity, which fell from 2.6% at 31 December 2010 to 0.8%.

Current return on equities grew to 3.8% (3.1% at 31 December 2010). In contrast, the overall harvesting rate fell from 1.5% at 31 December 2010 to -4.2%, affected by both the greater losses realized by the Group, especially in the fourth quarter, and the increase in impairment losses recognized through profit or loss due to exceptional equity market volatility, in particular impacting the third quarter of the current year, while nonetheless showing the first signs of a recovery in the fourth quarter.

Comprehensive return, which includes current return and changes in value of the period recognized through profit or loss and equity, was still heavily influenced by the performance of equity markets in the third quarter of the year recognized through equity, decreasing sharply to -12.5% (3.7% at 31 December 2010).

With reference to real estate investments, its incidence, calculated on book values increased, to 3.9% (3.3% at 31 December 2010) as a result of the de-risking strategy implemented by the Group, which aims to reduce the exposure to real estate investments within the non-life segment, while instead increasing these investments in the life segment. Finally, the current return on real estate investments was stable at 7.3%, whereas the return on investment resulting from realized gains, net of depreciation and impairment losses for the period (harvesting rate), improved from 0.8% at 31 December 2010 to
1.7%.

Business performace of life segment
(€ million) 31.12.2011 31.12.2010 Fourth quarter
2011
Fourth quarter
2010
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 -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 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 (inv estment properties)(***) -435.8 -130.1 -140.6 -13.7

(***) The amount is net of the share attributable to the policy holders

AttachmentSize
Life investment strategy and yields66.72 KB
Investment yields62.88 KB