Insurance risks

Risks arising from the non-life underwriting are classified as pricing risk (or subscription) and reserve risk. The Group is also exposed to catastrophe risks.

Pricing risk

The pricing risk derives from the possibility that premiums are not sufficient to cover future claims, contracts expenses and extreme volatility events. 

In order to quantify this risk, the Group assesses its exposure to attritional claims, large claims and catastrophes, gross and net of reinsurance, for the most relevant part of its portfolio.

Regarding this risk, the Group:

  • has developed stochastic or deterministic bottom-up simulation models, which are validated by sensitivity analyses and stress tests;
  • determines for frequency risks, large risks and catastrophe risks (such as earthquake, flood, windstorm, etc.) possible loss scenarios and risk capital requirements, also in consideration of reinsurance structures (proportional, excess of loss, etc.), net retention and cover;
  • adopts, also for evaluating reinsurance cessions, models that are consistent with Value Based Management principles, which consider value creation estimated from risk capital as the metric to be used to evaluate the efficiency and adequacy of the solutions to be chosen.

Reinsurance structures are based on a detailed risk analysis that allows identifying, for each class of business, the structure type, the retention level and the total amount of cover needed to mitigate exposures from single risks and, for some classes, events that derive from the accumulation of risks existing within a portfolio.

Treaty reinsurance provides a risk transfer mechanism for the greatest portion of each portfolio, while facultative reinsurance is used to cover individual additional exposure peaks. 

Regarding treaty reinsurance, the most important lines of business are best covered by excess of loss contracts, which allow setting precise retentions for each class. This makes it possible to retain those risks that are marked by a lower volatility and higher expected returns.

In this field, the Group has significantly changed its strategy and business model for the purchase of the contractual reinsurance: coordination and governance of the Parent Company has been strengthened, entrusting to it the role of primary reinsurer of other Italian and foreign companies.

The new model expects that the Parent Company subscribes – at market conditions – a significant part of all major treaties of the subsidiaries, leaving them the responsibility of the local placement of any remaining share. This approach allows to manage the reinsurance cycle more efficiently than in the past because it gives the possibility to adjust the levels of the Parent Company risk retention through its retrocession treaties, retaining more risk in the hard market phases and less risk in the soft market phases.

The placement of facultative reinsurance is instead managed by the individual companies, as it is a type of protection strongly related to individual risk assessment carried out by the underwriting unit.

Reinsurance counterparties are chosen in accordance to the criteria defined by the Corporate Centre (as described in paragraph 4.2).

With specific reference to the Parent Company, these principles have been confirmed by the Board of Directors on 23rd February 2011 and the structures in place during the year in course reflect the new business model for the purchase of the contractual reinsurance described above both in the structures and levels of retention.

Reserving risk

Reserving risk relates to the uncertainty in reserves run-off and considers the possibility that insurance provisions are not sufficient to meet the final obligations towards policyholders and injured parties.

The assessment is closely related to the valuation of  technical provisions, in particular to the uncertainty of the claims provisions in respect to their expected value. Consequently, the risk assessment properly considers the reserving processes, by using claim triangles and all other relevant information collected and analyzed according to specific guidelines.

The following table shows the cumulative claim payments and the ultimate cost of claims by accident year and their development from 2002 to 2011. The ultimate cost includes paid losses, outstanding reserves on reported losses, estimated reserves for IBNR claims and ULAE. The amounts refer to direct business gross of reinsurance and recoveries (the latter amounting to € 567.4 million in 2011).

The difference between the ultimate cost of claims and the cumulative paid losses for calendar year 2011 constitutes the claim reserve for accident years 2002 to 2011. The reserve reported in the balance sheet also includes a residual claim reserve that is composed almost exclusively by the accident years not reported in the development triangle.

The observed trend in the ultimate cost for generations 2002-2011 indicates the adequate level of prudence adopted by the Generali Group in its reserving policy.

Cliams development
(€ million)  2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 Total
Cumulative claim payments










at the end of accident year 4,987.0 4,820.3 4,986.3 5,303.1 5,504.4 5,931.6 6,233.1 6,464.5 6,283.8 5,914.9  
one year later 8,353.9 8,066.3 8,472.4 8,930.8 9,302.1 10,091.9 10,622.5 10,658.0 10,445.3  
 
two years later 9,285.8 8,988.0 9,488.0 9,986.2 10,407.7 11,245.3 11,761.4 11,893.4  
 
 
three years later 9,739.2 9,494.0 10,003.0 10,494.3 10,910.3 11,820.1 12,334.2  
 
 
 
four years later 10,026.6 9,804.1 10,273.6 10,755.2 11,221.4 12,171.6  
 
 
 
 
five years later 10,231.5 10,016.9 10,450.4 10,951.8 11,443.7  
 
 
 
 
 
six years later 10,409.1 10,160.3 10,614.4 11,112.6  
 
 
 
 
 
 
seven years later 10,534.7 10,291.0 10,744.6  
 
 
 
 
 
 
 
eight years later 10,678.1 10,411.7  
 
 
 
 
 
 
 
 
nine years later 10,740.9  
 
 
 
 
 
 
 
 
 
Estimate of ultimate cumulative claims costs:










at the end of accident year 11,984.4 11,935.7 12,407.3 12,695.9 13,261.5 13,954.7 14,432.4 14,577.8 14,377.7 13,831.3 133,458.7
one year later 11,700.9 11,626.9 12,195.3 12,629.5 13,151.7 13,834.8 14,286.4 14,435.1 14,252.6  
 
two years later 11,575.4 11,416.4 11,913.1 12,350.4 12,884.5 13,601.3 14,053.3 14,313.8  
 
 
three years later 11,550.8 11,285.6 11,758.2 12,183.9 12,735.7 13,453.6 13,981.5  
 
 
 
four years later 11,459.3 11,263.3 11,653.4 12,104.0 12,644.1 13,388.8  
 
 
 
 
five years later 11,364.3 11,182.6 11,586.0 12,028.1 12,573.9  
 
 
 
 
 
six years later 11,337.2 11,138.8 11,534.1 11,980.3  
 
 
 
 
 
 
seven years later 11,305.6 11,104.8 11,495.3  
 
 
 
 
 
 
 
eight years later 11,310.0 11,080.8  
 
 
 
 
 
 
 
 
nine years later 11,277.1  
 
 
 
 
 
 
 
 
 
Estimate of ultimate cumulative claims costs at reporting date 11,277.1 11,080.8 11,495.3 11,980.3 12,573.9 13,388.8 13,981.5 14,313.8 14,252.6 13,831.3 128,175.2
Cumulative payments to date -10,740.9 -10,411.7 -10,744.6 -11,112.6 -11,443.7 -12,171.6 -12,334.2 -11,893.4 -10,445.3 -5,914.9 -107,212.9
Provision recognised in the balance sheet 536.1 669.1 750.6 867.6 1,130.2 1,217.2 1,647.3 2,420.3 3,807.3 7,916.4 20,962.3
Provision not included in the claims development table  
 
 
 
 
 
 
 
 
 
6,254.7
Total provision included in the balance sheet









27,217.1

The differences with the amounts published in previous reporting periods are mainly due to changes in exchange rates.

The underwriting policy

In the non-life branches, the Group underwriting embraces all lines of business, while targeting the development of retail and small/medium enterprise business, both in Property and Casualty.

The focus is mainly on products characterized by low or medium volatility, with only a minor and selective presence in market segments such as, for example, energy and accepted reinsurance. 

The underwriting guidelines are particularly prudent with reference to emerging risks (electromagnetic fields, genetically modified organisms, nanotechnologies, etc.), while asbestos related covers are generally excluded.

The underwriting activity is geographically diversified, although mainly concentrated in continental Europe, which accounts for 93.2% of direct gross written premiums.

The following table shows the concentration of non-life direct gross written premiums split by line of business and geographical area.

Gross direct premiums by Line of Business – non-life segment
 
 
Motor Non motor
(€ million) 31.12.2011 

Personal Commercial/Industrial Accident/Health(*) Total
Italy  
3,264.21 860.64 1,917.22 1,313.44 7,355.50
Germany  
1,112.54 1,439.06 756.65 476.84 3,785.09
Germany  
1,092.91 1,211.14 282.25 472.19 3,058.50
Central and Eastern Europe  
1,010.55 347.76 552.97 309.14 2,220.42
Rest of Europe  
1,553.74 992.77 976.76 650.25 4,173.52
of which Spain  
367.84 387.16 412.58 170.83 1,338.41
of which Austria  
526.27 310.87 344.57 143.65 1,325.36
of which Switzerland  
315.61 186.66 3.24 150.30 655.81
Rest of World  
871.72 56.14 456.89 114.49 1,499.24
Total  
8,905.67 4,907.51 4,942.74 3,336.35 22,092.28

 

(*) Life segment includes health insurance with life features

 

  MotorNon motor 
(€ million) 31.12.2010
Personal Commercial/Industrial  Accident/Health Total
Italiy   3,155.78 833.95 1,965.79 1,372.43 7,327.95
Germany   1,088.51 1,352.53 736.56 480.96 3,658.56
France   1,079.93 1,177.04 278.12 458.53 2,993.63
Central and Eastern Europe   1,128.11 326.29 505.78 251.89 2,212.07
Rest of Europe   1,486.95 903.66 1,054.53 613.19 4,058.34
of which Spain  369.12 359.33 446.05 166.65 1,341.15
of which Austria  527.86 273.85 375.73 145.04 1,322.49
of which Switzerland   276.50 163.57 2.88 135.15 578.10
Rest of World   780.97 49.99 363.17 72.14 1,266.27
Total   8,720.25 4,643.47 4,903.96 3,249.13 21,516.82