Accounting principles

Basis of presentation

The Generali Group’s consolidated financial statements at 31 December 2012 was drawn up taking into account the IAS/IFRS issued by the IASB and endorsed by the European Union, in accordance with the Regulation (EC) No. 1606 of 19 July 2002 and the Legislative Decree No. 58/1998, as amended by Legislative Decree No 259/2010, as well with the Legislative Decree No 209/2005.

The Legislative Decree No. 209/2005 empowered ISVAP (now IVASS) to give further instructions for financial statements in compliance with the international accounting standards.

In this yearly report the Generali Group prepared its consolidated financial statements and Notes in conformity with the ISVAP (now IVASS) Regulation No. 7 of 13 July 2007, as amended by Measure ISVAP (now IVASS)  No. 2784 of 8 March 2010, and information of the Consob Communication No. 6064293 of 28 July 2006.

As allowed by the aforementioned Regulation, the Generali Group believed it appropriate to supplement its consolidated financial statements with detailed items and to provide further details in the Notes in order to meet also the IAS/IFRS requirements.

The consolidated financial statements at 31 December 2012 were approved by the Board of Directors on 13 March 2013.

The consolidated financial statements at 31 December 2012 is audited by Reconta Ernst&Young S.p.A., the appointed audit firm from 2012 to 2020.

Consolidated financial statements

 The set of the consolidated financial statements is made up of the balance sheet, the profit and loss account, the comprehensive income, the statement showing changes in equity and the cash flow statement, as required by the ISVAP (now IVASS) Regulation No. 7 of 13 July 2007, as amended by measure ISVAP (now IVASS)  No. 2784 of 8 March 2010. The financial statements also include special items that are considered significant for the Group.

The Notes, which are mandatory as minimum content established by ISVAP (now IVASS), are presented in the appendices  to the notes to this report.

Comparative figures are restated compared to those presented in the financial statements at 31 December 2011 in order to harmonize them with data in this report.

This yearly report is drawn up in euro (the functional currency used by the entity that prepares the financial statement) and the amounts are shown in millions, unless otherwise stated with the consequence that the rounded amounts may not add to the rounded total in all cases.

Consolidation area

 Based on the IAS 27, the Consolidated financial statements include the figures for both the Parent company and the subsidiaries directly or indirectly controlled.

At 31 December 2012, the consolidation area decrease from 523 to 498 companies, of which 451 are subsidiaries consolidated line by line and 47 associated companies valued at equity.

Changes in the consolidation area compared to the previous year and the table listing companies included in the new consolidation area are attached to these Notes.

Consolidation methods

 Investments in subsidiaries are consolidated line by line, whereas investments in associated companies and interests in joint ventures are accounted for using the equity method.

The balance sheet items of financial statements denominated in foreign currencies is translated into euro based on the exchange rates at the end of the year.

Instead, the profit and loss account items are translated based on the average exchange rates of the year. They reasonably approximate the exchange rates at the dates of the transactions.

The exchange rate differences arising from the translation of the statements expressed in foreign currencies  are accounted for in equity in an appropriate reserve and recognised in the profit and loss account only at the time of the disposal of the investments.

Exchange rates of the balance sheet
  Exchange rate at the end of the period (€) 
Currency 31.12.2012 31.12.2011
US dollar 1.318 1.298
Swiss franc 1.207 1.214
British pound  0.811 0.835
Israeli shekel 4.919 4.964
Argentine peso 6.481 5.587
Czech koruna  25.096 25.503
Exchange rates of the income statement
  Average exchange rate (€) 
Currency 31.12.2012 31.12.2011
US dollar 1.286 1.392
Swiss franc 1.205 1.233
British pound  0.811 0.868
Israeli shekel 4.953 4.977
Argentine peso 5.849 5.747
Czech koruna  25.136 24.583

Line-by-line consolidation method

The subsidiaries as well as the special purpose entities where the requisites of effective control are applicable are consolidated line by line.

Control is presumed to exist when the Parent Company owns, directly or indirectly through subsidiaries, more than half of the voting power of an entity or, in any event, when it has the power to govern the financial and operating policies of an investee. In the assessment of the control potential voting rights are also considered, where present.

The consolidation of a subsidiary ceases commencing from the date when the Parent Company loses control.

In preparing the consolidated financial statements:

the financial statements of the Parent Company and its subsidiaries are consolidated line by line. For consolidation purposes, if the financial year-end date of a company differs from that of the Parent Company, the former prepares interim financial statements at December 31st of each financial year;

  • intra-group balances are eliminated in full;
  • the carrying amount of the Parent Company’s investment in each subsidiary and the Parent Company’s portion of equity of each subsidiary are eliminated at the date of acquisition;
  • minority shareholders’ interests, together with their share of profit are shown as separate items.

Subsidiaries consolidated line by line are acquired using the acquisition method. The acquisition cost is represented by the sum of the consideration transferred, including contingent consideration, liabilities assumed towards the previous owners,  the fair value of non-controlling interests as well as, in a business combination achieved in stages, the fair value of the acquirer’s previously held equity interests in the acquiree. Any contingent consideration to be transferred or received by the acquirer will be recognised at fair value at the acquisition date. Contingent consideration classified as an asset or liability that is a financial instrument and within the scope of IAS 39 Financial Instruments: Recognition and Measurement, is measured at fair value with changes in fair value recognised either in either profit or loss or as a change to other comprehensive income. If the contingent consideration is not within the scope of IAS 39, it is measured in accordance with the appropriate IFRS.

The assets acquired and liabilities assumed in a business combination are initially recognized at acquisition current value. The excess of the acquisition cost over the net value of the identifiable assets acquired and liabilities assumed is accounted for as goodwill. In the case of the acquisition is lower than the net value of assets acquired and liabilities, the difference is recognised in the profit and loss account.

Based on the IAS 27, the acquisitions of further minority interests of subsidiaries already consolidated line by line do not imply the booking of additional goodwill and the difference between the purchase price of the abovementioned minorities and the related minority shareholders’ interest shall be booked as reduction of the Group equity.

Similarly, in line with what it has been stated above concerning the purchase of further minority shares, the difference between the transaction value and the book value of the ceded share doesn’t affect the profit and loss account, but it is recognised in equity since such transactions are managed in the same way of transactions among shareholders.

Consolidation using the equity method

Investments in associates and joint ventures are consolidated using the equity method.

An associate is an entity over which the investor has significant influence. Significant influence is the power to participate in the financial and operating policy decisions of the investee but is not control or joint control over those policies. If an investor holds, directly or indirectly through subsidiaries, 20% or more of the voting power of the investee, it is presumed that the investor has significant influence.

A joint venture is a contractual arrangement whereby two or more parties undertake an economic activity that is subject to joint control. A joint venture is a contractual arrangement whereby two or more parties undertake an economic activity that is subject to joint control.

Under the equity method, the investment in an associate is initially recognized at cost (including goodwill) and the carrying amount is increased or reduced to recognize the change in the investor’s share of the equity of the investee after the date of acquisition,. as well as the investor’s share of the profit or loss of the investee the latter is recognised in its profit and loss account.

Dividends received reduce the carrying amount of the investment. After application of the equity method, the Group determines whether it is necessary to recognise an impairment loss on its investment in its associate. At each reporting date, the Group determines whether there is objective evidence that the investment in the associate is impaired. If there is such evidence, the Group calculates the amount of impairment as the difference between the recoverable amount of the associate and its carrying value, then recognises the loss as ‘Share of losses of an associate’ in the income statement.

Upon loss of significant influence over the associate, the Group measures and recognises any retained investment at its fair value. Any difference between the carrying amount of the associate upon loss of significant influence and the fair value of the retained investment and proceeds from disposal is recognised in profit or loss.

Foreign currency transactions and balances

Transactions in foreign currencies are initially recorded by the Group’s entities at their respective functional currency spot rates at the date the transaction first qualifies for recognition.

Monetary assets and liabilities denominated in foreign currencies are translated at the functional currency spot rates of exchange at the reporting date.

Differences arising on settlement or translation of monetary items are recognised in profit or loss with the exception of monetary items that are designated as part of the hedge of the Group’s net investment of a foreign operation. These are recognised in other comprehensive income until the net investment is disposed of, at which time, the cumulative amount is reclassified to profit or loss. Tax charges and credits attributable to exchange differences on those monetary items are also recorded in other comprehensive income.

Non-monetary items that are measured in terms of historical cost in a foreign currency are translated using the exchange rates at the dates of the initial transactions. Non-monetary items measured at fair value in a foreign currency are translated using the exchange rates at the date when the fair value is determined. The gain or loss arising on translation of non-monetary items measured at fair value is treated in line with the recognition of gain or loss on change in fair value of the item (i.e., translation differences on items whose fair value gain or loss is recognised in other comprehensive income or profit or loss are also recognised in other comprehensive income or profit or loss, respectively).