Operating result

60_a_uk_0.png

 

The operating result of the life segment amounted to € 2,658 million (€ 2,542 million at 31 December 2011). On equivalent consolidation area, the 9.7% increase was due to the improvement in the technical margin, boosted by the protection lines trend and the contribution of the production increasingly focused on recurring premium products. Positive the contribution of net investment result, which benefited from both the decrease in impairment losses compared to the same period of the previous year, characterized by Greek sovereign debt crises, and the recovery of value of investments recognized through profit or loss. Underwriting operating expenses instead decreased.

The result of the fourth quarter 2012 amounted to € 462 million (€ 564 million in the fourth quarter of 2011). The decline during the same period in 2011 was attributable to the reduction in the net investment result, characterized by reduced current incomes and a decline in realized gains given an essentially stable bonus rate.

Finally, the operating return of life segment investments increased slightly to 0.84%.

Technical margin
(€ million) 31.12.2012 31.12.2011 Fourth quarter
2012
Fourth quarter
2011
Technical margin 6,094 6,225 1,729 1,666
Net earned premiums 42,138 42,076 12,054 10,752
Fee and commission form financial service activities 199 303 29 83
Net insurance claims adjusted for financial interests and bonuses credited to policyholders -36,306 -36,158 -10,375 -9,170
Other insurance items 64 3 21 1

The technical margin increased by 2.0% on equivalent consolidation area, achieving € 6,094 million (€ 6,225 million at 31 December 2011). In detail, the technical margin improved as a result of the greater contribution of the recurring premiums and the constant profitability of the protection lines, consistently with the performance of written premiums in this segment.

The technical margin does not include insurance operating expenses, which are reported in Total operating expenses and other operating items.

Net investment result
(€ million)  31.12.2012 31.12.2011 Fourth quarter
2012
Fourth quarter
2011
Net investment result 1,744 1,715 246 407
Operating income from investments 14,536 6,281 2,900 3,641
Net income from investments 9,090 9,841 1,443 2,654
Current income from investments 10,932 11,535 2,711 2,968
Net operating realized gains on investments 967 2,019 455 553
Net operating impairment losses on investments -1,979 -2,967 -1,469 -667
Other operating net financial expenses -830 -745 -254 -201
Net income from financial instruments at fair value through profit or loss 5,447 -3,560 1,457 987
Net income from financial instruments related to unit and index-linked policies 4,563 -3,159 1,155 988
Net other income from financial instrumensts at fair value through profit or loss 883 -401 303 -1
Policyholders' interests on operating income from investments -12,792 -4,566 -2,654 -3,234

Net investment result amounted to € 1,744 million (€ 1,715 million at 31 December 2011). The strong increase on equivalent consolidation area was essentially due to both the reduced impairment impact and the increased income from investments at fair value through profit or loss thanks to the recovery in value of all asset classes. This growth was only partially offset by the reduction of net realized gains and current incomes.

In particular:

  • current income from investments amounted to € 10,932 million (€ 11,535 million at 31 December 2011), with related current return, calculated based on the total investments book value, which decreased to 4.1% (4.5% at 31 December 2011). In detail, among the main components, current income from fixed income instruments went from € 9,736 million on 31 December 2011 to € 9,390 million, as it was affected by both lower reinvestment rates following the derisking strategy  and the on-going high weight of liquidity instruments in the life portfolios. There was a significant decline in the current income from the equity portfolio, which went from € 628 million on 31 December 2011 to € 427 million given the reduced exposure to this asset class in this segment as well as following the exit of Migdal group. Current income from investment properties increased from € 696 million at 31 December 2011 to € 712 million as a result of the policy aimed at increasing real estate exposure in this segment;
  • net operating realized gains on investments amounted to € 967 million (€ 2,019 million to 31 December 2011) given a reduced realized gains on both the bond and stock portfolio. In detail, the decline in net realized gains on government bonds was due to the effects of the cross-border exposure reduction strategy, particularly in France and Germany;
  • net operating impairment losses on investments went from € −2,967 million on 31 December 2011 to € −1,979 million due to reduced impairments, particularly on Greek bonds. In detail, the impairments recognised during 2012 were essentially on the stock portfolio and investment in subsidiaries, associated companies and joint ventures, among which the additional impairment of Telco. Considering that such impairments didn’t affect the revaluation of the local insurance provisions, the corresponding impact on the operating result, net of the share of financial profits attributable to the policyholders’ interests, has to be considered limited;
  • other operating net financial expenses, which include interest expenses on liabilities linked to operating activities and investment management expenses, amounted to € -830 million (€ −745 million at 31 December 2011);
  • net income from financial instruments related to unit- and index-linked policies went from € −3,159 million at 31 December 2011 to € 4,563 million. The € 7,722 million change benefitted from the recovery of the value of investments classified to this item due both to the upturn in equity prices and the improvement in bond market conditions, which during the same period of the previous year had been affected by the widening of spreads on the bonds issued by countries of the Euro Area with an high public sector debt;
  • net income from financial instruments at fair value through profit or loss also benefitted of the already mentioned positive financial market performance compared to the same period of 2011, reaching € 883 million (€ −401 million at 31 December 2011) and, in particular, of the value recovery of bond portfolios.

Along with the improved net investment result, there is a growth in the policyholders' interests on operating income from investments, which went from € −4,566 million as of 31 December 2011 to € −12,792 million, recording a change of € −8,226 million. This change was essentially attributable to the higher result attributable to policyholders’ interests on operating income from investments related to linked contracts for € −7,477 million and the recovery of the value of investments at fair value through profit or loss.

Total operating expenses
(€ million)  31.12.2012 31.12.2011 Fourth quarter
2012
Fourth quarter
2011
Total operating expenses -5,180 -5,398 -1,513 -1,510
Acquisition and administration costs related to insurance business -5,127 -5,263 -1,473 -1,465
Net other operating expenses -53 -135 -40 -44

Total operating expenses went from € −5,398 million at 31 December 2011 to € −5,180 million.

In particular, the acquisition and administration costs related to insurance business increased by 2.2% on equivalent terms, totalling € −5,127 million as a reusult of the increase in both acquisition costs, totalling € 4,119 million, due to the increase in written premiums and the administrative expenses, totalling € 1,008 million.

The ratio of acquisition costs and administration costs to net premiums totalled 11.2%, with a decline of −0.4 pps compared to 31 December 2011 due to the contraction of the acquisition component, observed particularly in Germany. Finally, the ratio of the total administration costs related to the insurance business on the average insurance reserves showed a limited decline of 0.32%.

AttachmentSize
Life profitability – Operating result118.44 KB
Operating ratio on investments76.82 KB