Insurance risks

The Group companies life portfolios have a prevailing component of saving contracts, but there are also pure risk covers (death plus riders, such as accident, disability, dread disease, etc.) and some annuity portfolios, with the presence of the longevity risk.

The risks related to policies with a prevailing saving component and with minimum interest rate guarantee are adequately measured in a prudent way in the pricing process in accordance with the particular situation of the local financial markets, and taking also into account any relevant regulatory constraint. In the recent past a policy of re-definition of the structure of minimum guarantees has been pursued by the Group in order to lower risks and associated cost. In this perspective the structure of the product has been redefined, connecting in many cases the level of guarantees with the length of staying inside the contract.

The table below shows the distribution of insurance provisions of life gross direct business by level of financial guarantee.

Life insurance provisions: financial guarantee
 
Gross direct insurance
(€ million) 31.12.2011 31.12.2010
Liabilities with guaranteed interest 234,605.7 228,713.5
between 0% and 1% 43,828.2 40,681.5
between 1% and 3% 94,078.6 88,134.5
between 3% and 4% 56,729.4 57,879.0
between 4% and 5% 36,716.1 39,367.8
between 4% and 5% 3,253.5 2,650.7
Provisions without guaranteed interest 60,376.6 61,631.6
Provisions matched by specific assets 8,152.2 8,657.5
Total 303,134.5 299,002.6

The total insurance provisions include the gross direct amount of mathematical provisions, provisions for policies where the investment risk is borne by the policyholders and for pension fund, the ageing provision for life segment, which is included in other provisions of life segment, and financial liabilities related to investment contracts.

The insurance provisions above are grouped in three macro classes:

  • contracts with a minimum guarantee level: this group considers both yearly cliquet and at event (death and maturity) guarantees;
  • contracts without interest guarantee: in this category, together with standard unit linked policies are also included contract whose benefits and premiums can be adjusted by Companies in order to mitigate interest rate risk. With regard to this second class of contracts, comparative information have been consistently restated;
  • contracts matched by specific assets: this category includes contracts where the liabilities are totally matched by specific assets.

The table above shows a gradual shift of the exposures towards ‘less than 3%’ guarantee classes, also due to the new business. It also shows a slight increase of ‘in addition to 5%’ class related to the portfolio management of extra-European Group companies where the nominal rates are higher than those in the Eurozone. Lastly, the liabilities without interest rate guarantee increased from € 61,631.6 million to € 60,376.6 million.

From a quantitative point of view regarding the life underwriting risk and according to the parameters indicated by the CFO Forum, the Group performs the following Embedded Value sensitivities:

  • maintenance expenses -10%: sensitivity to a 10% decrease of maintenance expenses;
  • lapse rate -10%: sensitivity to a 10% decrease of lapse rates;
  • mortality/morbidity for risk business -5%: sensitivity to a 5% decrease of mortality/morbidity for all product lines except annuities (e.g. term assurance, whole life, annuity during the accumulation period);
  • mortality for annuity business -5%: sensitivity to a 5% decrease of mortality for annuity business only (e.g. annuities in payment).
Gross direct premiums by Line of Business- life segment
31.12.2011
(€ million) 
Individual
savings and protection
Individual
unit/index
linked
Health Group Total
Italy 10,494.7 248.3 0.0 1,580.5 12,323.5
France 5,980.1 1,258.7 898.0 658.2 8,795.0
Germany 6,985.9 3,249.9 2,400.7 896.8 13,533.4
Central and Eastern Europe 1,019.3 447.5 188.2 22.4 1,677.4
Rest of Europe 1,964.8 2,562.3 269.0 761.9 5,558.1
of which Spain 682.7 13.4 0.0 355.0 1,051.1
of which Austria 670.3 276.1 230.3 0.0 1,176.7
of which Switzerland 272.4 818.6 9.0 1.7 1,101.7
Rest of World 896.8 454.8 151.0 1,611.8 3,114.4
Total 27,341.6 8,221.6 3,907.0 5,531.7 45,001.9
31.12.2010
(€ million)
Individual savings and protection Individual
unit/index
linked
Health Group Total
Italy 11,715.1 262.9 0.0 1,490.5 13,468.5
France 7,945.9 1,646.4 864.5 721.1 11,177.9
Germany 6,948.9 3,215.6 2,370.5 1,220.4 13,755.4
Central and Eastern Europe 1,089.1 483.3 174.0 19.8 1,766.1
Rest of Europe 1,874.8 3,783.6 260.7 729.8 6,649.0
of which Spain 566.9 16.7 0.0 336.6 920.1
of which Austria 644.9 289.9 221.6 0.0 1,156.4
of which Switzerland 204.9 762.6 8.7 2.0 978.2
Rest of World 865.4 400.6 117.7 1,612.8 2,996.5
Total 30,439.2 9,792.4 3,787.4 5,794.5 49,813.4

The table above shows the major importance of savings and protection contracts (60.8% of the total), while the unit/index linked portfolio accounts for 18.3% of the total written premiums. Concerning the health business, the Group has a strong presence in markets such as Germany and Austria where operate companies dedicated to this segment; while in all the other geographical areas health premiums refers to life insurance rider covers.

With reference to the distribution by geographical area, the Group, in the life and health market, is present in various countries with a relative stability in term of written premiums. However it is worth noting that the 93.1% of the total written life and health premiums refers to the European market.