The Generali Group’s strategy

Generali Group Strategy

During the second half of 2012 Generali undertook a comprehensive strategic, operational and financial review, aimed at identifying Group’s excellence areas as well as areas needing improvements, where to focus within the strategic plan 2013-2015.

Generali Group’s strategy in the next three years is based on some key strengths:

  • Highly strong brand both in Italy and abroad;
  • Enviable wide and diversified international presence,  with some excellent competitive positioning in both mature and emerging markets;
  • A total amount of premiums and assets that make us one of the first insurance groups worldwide;
  • a consolidated leadership  in life and strong performance in non life segment;
  • Starting from the abovementioned points, Generali developed a turnaround strategy to improve shareholders returns and maximize the profitability of its existing business, based on following three key points: discipline, simplicity and focus on core insurance business.

The strategy has been developed considering the current market’s environment, characterized by limited households’ savings, especially in mature markets, as well as generally low interest rates, leading to lower financial returns reported in the income statement.

In this context, the management of the core insurance business, on which the Group is focusing, is even more important, with the main lead of maximizing the business profitability, rather than volumes.

The aim is to lead the Group with a clear orientation towards value creation, with a strong attention to capital, to its optimal allocation and to the business’ cash flow generation.

Foundamental of the strategy

Strengthening Group Governance

Since the second half of 2012, Generali Group has experienced an extensive organizational restructure, started with the appointment of Mario Greco as Group CEO.

In this context, the functions and roles of the Group’s first-line managers have been redefined and rationalized, and an international Group Management Committee was created, which members are Group CEO, Chief Insurance Officer, country heads for main markets Italy, France and Germany, head of global business lines, Chief Operations Officer, Chief Financial Officer, Chief Investment Officer and Chief Risk Officer. The new committee is in charge of identifying Group’s strategic priorities and monitoring business and financial performances, while ensuring Group wide operational cohesiveness.

The reorganizational process will continue within the single Group’s functions and operating companies over the next three years, with the aim to ensure the operational coherence and efficiency, essential to achieve the goal of revenues and cost synergies.

Optimization of capital strength

Generali’s objective is to strongly increase its capital position, in terms of Solvency 1, Economic Capital and Rating Capital Adequacy. In order to use calculation methods that enable a more meaningful comparison to its peers, in terms of Solvency 1, for example, our target is to reach a solvency ratio of above 160%. In terms of Rating Capital Adequacy, in our internal models and pricing system, we already use the capital and leverage ratios at levels consistent with an AA rating

To achieve this goals, the following initiatives will be put in place in following three years:

  • Disposal of non-core and non-strategic assets, with a stronger focus on insurance business
  • Further harmonization of duration and risk profile between assets and insurance liabilities, through an accurate review of the assets side, driven by the principles of risk/return matching profiles with the insurance liabilities;
  • Capital structure efficiency through the optimization of the debt structure and a comprehensive evaluations of Group’s refinancing needs, taking into account the ordinary dues of issued instruments, as well as possible favorable market conditions;
  • Strong attention on some main financial functions within the Group, also thanks to a greater centralization of the decision process and management of subsidiary companies. About this aspect, in the organization turnaround, some new central functions have been created, with key responsibilities on the capital optimization: Group Reinsurance, Group Treasury, Capital and Value Management, Investment Monitoring;
  • Increase of results: through the implementation of the cost savings program (target to deliver € 600 million from cost saving initiatives by 2015), the reduction of the structures’ complexity, the pursuing of processes’ efficiency as well as the diffusion of best practices among all Group entities.

It is our intention to adopt these actions in order to improve our solvency ratio, while keeping our profitability target (operating ROE(1)) over the cycle to at least 13%.

Optimization of geographical footprint

The rationalization of the Group’s presence within the global market means optimizing the presence and operations in the mature markets, while investing to enhance its competitive position and profitability in the high growth markets.

In the strategic plan 2013-2015 Generali will concentrate on the profitable growth and the strategy will aim to take the potential growth opportunities in specific growing markets. Owing to the deal with PPF on Generali PPF holding, Generali consolidated its position in Central Europe market. In the next future, the Group will direct its interests also in some profitable markets in Asian Far East (particularly in China, where Generali already has a top competitive position comparing to its international peers) and in some Latin America countries.

As part of this positioning review, the Group’s strategy has been stated for every single country: a relevant example is the business’ reorganization in Italy, a market highly affected by the current national economic situation and subject to a process of concentration and consolidation by many local insurance companies. In this framework, the Group has taken the opportunity of restructuring its Italian business, simplifying the organizational and governance models, in order to deliver higher performances:

  • Business model simplification:
    • Consolidation of businesses and brands with similar characteristics and target customers, product ranges and distribution models, in order to exploit market’s competitive position; 
    • Concentration of technical skills to maximize the performance in both Life and Non life segment
    • Economies of scale arising from the merger of Operations, IT structures and other support functions into one single highly performing operating platform.
  • Organizational and company simplification
    • Governance and defined responsibilities, with the clear separation of business units and Corporate center structures
    • Strong reduction of number of companies
    • Business unit with direct responsibilities and operational instruments for the achieving of target result.

Strengthening of Operating Model

The Group’s objective is to optimize the operating model, pursuing a strong and continuous efficiency and greater integration of the main processes of Groups’ subsidiaries (“One Group approach”), attracting and investing in the best talents and developing their skills.

The Group identified significant opportunities to pursue savings opportunities in the area of procurements, ICT expenses and Real Estate facility management. These estimated savings amounts at least to € 600 million at Group level.

Last but not least, Generali will put continuously greater emphasis on talents and their competences, through a renewed talent management program. The Group will preside and enhance it human capital, investing in programs for professional growth and continuous improvement, achieved also by a centralized development coordination, career opportunities, international mobility and incentive systems balanced between individual needs and Group’s results.

Improvement of Life business performance

The profitability of Life business – which remains crucial for Generali Group – should be further increased, optimizing returns on absorbed capital, through a punctual monitoring of key metrics of business value generation as well as through a strengthened central supervision on the new products’ development.

With reference to the Life business, a “through the cycle” approach has been adopted, because in spite of the current adverse financial market conditions  (low interest rates, high volatility, sovereign debt crisis), Generali aims to ensure the possibility to benefit from future return, following the expected market improvement.

In order to guarantee transparency and measurability of value creation in the Life business, appropriate evaluation metrics will be used, such as RORAC,  pay-back period, new business value. The incentive schemes of networks and operating companies’ performance management will be aligned with those metrics. The approval process of new products will benefit from a tighter central supervision.

Increase of the Property & Casualty activity

The increase will be achieved through a strong monitor of technical profitability levers (including the total centralization of reinsurance activities) by means of a gradual expansion in Corporate & Commercial and Accident & Health segments.

The aim is to progressively and continuously increase the Property & Casualty business, in order to assure to the Group all the benefits deriving from an higher degree of diversification and cash flows stability as well as lower volatility of operating results along the time. The growth of the Property & causality business will occur through the balance over time of organic levers, within the current Group scope in some geographical areas, as well as through external growth on new business lines or customers segments in other geographical areas.

Lastly, Generali will further enforce the technical performance, introducing tighter Group standards in relation to all existing best practices at local level (for example tariffs, risks selection, claims management) and their diffusion and adoption in all geographical areas.

Customer led business approach

That means:

  • Put the customer always at the center of every initiative in order to catch new market opportunities, enforcing its brand loyalty and offering the complete range of product for its insurance needs and developing new customer segments, in particular in the Affluent segment in the emerging markets;
  • Generali Group has around 65 million customers globally, mainly in the Retail segment;
  • Generali aim to maximize the value creation for current customer base, improving their retention and increasing up-sell and cross-sell ratio. Thus, we will invest in acquiring greater knowledge and profile of our customers, in order to achieve a better understanding of their specific needs and create appropriate solutions.
  • The Group will focus on the Affluent segment, considering it is a growing customer segment and for which we can completely satisfy the specific insurance needs, particularly in emerging markets.

Excellence in sales channels’ management

It refer to the pursue of excellence in the management of sales channels, strengthening both traditional (agency) and direct sales channels; this will allow the increase of the distribution capabilities also through third parties’ channels (for example through  bancassurance agreements).

The strategy on distribution channels:

  • to work with Group’s agents, implementing and disseminating internal and external best practices, in order to achieve the operational excellence in all the core activities of this channel, that is very important for the Group. New distribution opportunities will be caught in the market, for example the role of bancassurance will increase within our multi-channel strategy, paying particular attention on those aspects (operating model, processes, incentives schemes, etc.) needed to fully satisfy our clients, increasing the retention rate and ensuring stability in the relationship with the bank partner.
  • a range of insurance solutions will be adopted for the customers’ specific needs to deploy with an multi-channel strategy that best suits the client’s access preferences.

(1)For a definition of this indicator see as described in the methodological note.