Alleanza Assicurazioni 2004 Results and 2005 Plan

1
Alleanza Assicurazioni2004 Results and 2005 Plan
Milan, May 2nd, 2005
2
Agenda

• 2004 at a glance
• Market scenario and Alleanza business model
• 2004 results
• 2005 plan
• Conclusions

3
Key 2004 results
EUR million
New business value
Gross premiums
New business sale (APE)
8.705
603,9
6.778
498,6
185,8
181,7
2003
2004
2003
2004
2003
2004
Embedded value
Net profits
Dividends
5.451,1
5.359,5
390
357
304
237
2003
2004
2003
2004
2003
2004
Div. yield
EPS
2,8
3,6
0,42
0,46
After minorities
4
Agenda

• 2004 at a glance
• Market scenario and Alleanza business model
• 2004 results
• 2005 plan
• Conclusions

5
Market trends and expectations
EU market
2005E
2004
1

• Market scenario
• Continued low financial markets returns
• Moderate economic growth and low inflation (still
  below long-term trends)

• Real GDP

1,5
1,8

• Inflation

1,8
2,0

• Equities

4,0
5,5

• 10-yr bonds

3,8
3,8

• Money market

2,3
2,2
Gross direct premiums growth

• Life insurance scenario in Italy
• Slower life GDWP growth
• Uncertainty on the pension reform

2
2003-05E
2006-08E
Life (Italy)
7,4
5,0
Family savings market
2005E
2004

• Household sav-ings (EUR billion)

3.350
3.140
Sizeable and growing market among the mass market
segment
3

• Liquidity share of family assets

39
39
Source Eurisko
Excluding dividends
6
Alleanza key figures
2004, EUR million
Alleanza network
Intesa Vita
Consolidated
New business sales APE
273,7
330,2
603,9
New business value
38,2
147,6
185,8
New business margin
14,0
44,7
30,8
VIF
187,6
2.303,7
2.491,3
Core business
After minorities
7
Alleanza business model
Description
Strengths

• Traditional life products
• Focus on annual premiums

• Profitable long term saving product range
• Market leader in annual premiums
• Long duration contracts

Product range

• Mass market, young customers
• High penetration in
• Rural areas
• Southern Italy

• Ability to serve core need (protected savings) of
  target market
• Untapped opportunity in North Italy

Market

• Core channel direct agent network
• IntesaVita (50-50 jv on bancassurance with Banca
  Intesa)

• Excellent agent network by
• Coverage
• Dimension
• Loyalty
• Competence at senior level

Distribution
8
New business sales by product
New business sales (APE) EUR million
Type of product
Product range
Annual premiums
251,3
Single recurrent premiums
16,5
Market
Single premiums 
62,4
273,7
Bancassurance
Distribution
Total
603,9
After minorities
9
Alleanza client base
Core agent channel only
Alleanza client base and penetration

• Clients
• Average annual premium
• Average single premium 

1,9 million 1.250 EUR 8.260 EUR
Product range
Social and economic indicators
Alleanza
Italian market
43
38

• Clients younger than 40 years old

Market
37
45

• Geographic distribution
• North
• Center
• South/islands

20
19
43
36
100
100
42
33

• Living in small towns (lt10.000 people)

Distribution

• Education
• Lower secondary degree or less
• Upper secondary degree
• University degree

55
53
41
35
4
12
100
100
Source Istat OECD, Education at glance 2004
10
Alleanza network market share on annual premiums
Market share
Less than 5
Product range
North
Center
Market
South
Distribution
11
Marketing proposition
Product range

• Security and loyalty
• Geographical coverage and convenience
• Strong awareness (80)

Market

• Focus on annual premium products
• Product flexibility and accessibility
• Wide coverage availability
• Safe returns to policyholders
• Sales-oriented advertising to sustain growth

Distribution
12
Alleanza share in the life insurance market
Italy, 2004
Alleanza competes in the low-risk savings market
fulfilling the protected saving need through
annual premium products
GDWP life
GDWP annual premiums
Product range
100 8,4 EUR billion
100 66,5 EUR billion
Alleanza
Alleanza
Others
Market
Others
Families low-risk savings (stock 2003)
Life share of low-risk savings market
100 1.120 EUR billion
Bank deposits
23,8
21,7
Distribution
Alleanza
Other deposits
Other life reserves
Pension funds
BOT/CCT
2002
2003
Does not include Intesa Vita Source ANIA,
Bank of Italy
13
Agent network structure
Average number of individuals
Average Turnover Percent
Product range
2003
2004
Agents
301
307
7-8
Salaried
12-15
1.901
1.923
Market
Sales Manager
869
810
45-55
Inde-pendent
Distribution
Sales force
13.774
13.174
80-90
14
Agent network activities
Activities

• Sales planning and control
• Sales force management
• Recruiting/training/career planning
• Local marketing

Product range
Agents

• Sales
• Coaching
• Territory coverage
• Customer care

Sales Manager
Market

• Collection
• 90 of annual premiums cashed monthly
• 80 monthly collection in cash (door to door)
• Lead generation

Sales force
Distribution
15
Network compensation scheme
Comments
Components of the compensation scheme
Agents
Sales managers
Sales force
Product range

• Fixed salary

• Enhance loyalty and network control

Market

• Commissions on new sales

• Payout closely correlated to NBV thanks to the
  internal unit of measure (Quote)

• Align network incentives to company target (total
  compensation aligned to NBV and portfolio
  quality)

• Performance bonus

Distribution

• Steep variable pay performance based

16
Agent network productivity analysis
2004
Agencies productivity by quartiles Percent
Comments

• Potential to further increase sales productivity
  by acting on the two bottom quartiles
• More managerial flexibility to improve sales
  performance thanks to the employee status of our
  agents

1st quartile
25
33
39
2nd quartile
25
25
26
3rd quartile
25
22
20
4th quartile
25
20
15
Agencies
NBV
Number of sales managers
17
Agenda

• 2004 at a glance
• Market scenario and Alleanza business model
• 2004 results
• 2005 plan
• Conclusions

18
Premium evolution
EUR million
Gross total premiums GDWP
New business sales APE
Comments
603,9

• Significant above market growth both in total
  premiums and new business sales (APE)
• Good performance of both channels

8.705
21,1
28,4
498,6
Bancas-surance
6.778
273,7
42,8
5.761
191,6
45,6
3.957
Bancas-surance
330,2
Agents
7,5
307,0
2.821
2.944
Agents
4,4
2003
2004
2003
2004
After minorities
19
VIF and NBV main assumptions
2003 Alleanza
2004 Alleanza
Intesa Vita
Intesa Vita

• Discount rate
• Benchmark returns
• on bonds
• on equities
• Average projected returns (traditional)
• Tax rate
• Inflation on GA expenses

7,25 4,50 7,25 4,56 24,80 2,00
7,25 4,50 7,25 4,60 41,20 2,00
6,57 3,82 6,57 4,26 23,71 1,95
6,57 3,82 6,57 4,20 41,73 1,95
20
New business value
EUR million
NBM 2004
Comments
185,8
2,3
30,8

• Lower profitability in 2004 on bancassurance
  products
• Agent network
• Unchanged profitability on annual premiums
• Low profitability on new recurrent premiums
  product(revised in first 1Q 2005)

181,7
14,0
Bancassurance
7,9
Agents
0,9
44,7
2003
2004
After minorities
21
Embedded value
EUR million
Change 2003-2004
Comments
5.451,1
5.359,5

• Due to real estate asset disposal

Unrealized capital gain
9,7
NAV

• Book equity increase offset by higher dividends

Adjusted share-holder equity
0,2
2.053,1
2.048,5

• ltDetailed on next pagegt

0,4
VIF
2.500,1
2.491,3
2003
2004

• Lower NAV (see above)
• Higher risk capital due to business growth (delta
  3 billion euro in reserves)

Excess Capital (NAV risk capital )
1.400,9
1.104,9
Adjusted for goodwill and other
intangibles Risk capital consistent with
Generali Group methodology (unchanged)
22
VIF Roll Forward
EUR million
-281
189
186
-105
28
-25
2.500
2.491
2003 VIF
NBV
Unwinding
Expected industrial result
Operating variance and change in assumptions
Release CSM
Economic experience and change in assumptions
2004 VIF
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Consolidated income statement
EUR million
2004
2003
Change
Net technical result Net investment results after
write down/up Gross operating result Other
income net of expenses Ordinary result
Extraordinary items Pre-tax profit Taxes
Consolidated result (pre minorities) Minority
interest Net profit
375,6 266,8 642,4 119,0 523,4 12,0 535,4 112,6 4
22,8 32,5 390,3
426,9 178,6 605,5 175,9 429,6 21,6 451,2 91,7 35
9,5 2,1 357,4
-12,0 49,4 6,1 -32,3 21,8 -44,4 18,7 22,8
17,6 - 9,2
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Comparison of net profit on homogeneous basis
EUR million
2004
2003
Comments
57,3
55,0
390,2
30,5
390,3
390,0
0,3

• On homogeneous basis net profit has remained flat

357,4
Conso-lidated
La Venezia disposal
Delta allocations and provisions between 2003 and
2004
Adjusted
Conso-lidated
Adjusted
CONSAP litigation settle-ment
CONSAP litigation settle-ment
25
Agenda

• 2004 at a glance
• Market scenario and Alleanza business model
• 2004 results
• 2005 plan
• Conclusions

26
2005 outlook
EUR million
Target 2005
Indicator
Comments
NBV
205215

• Growth of long duration annual premiums (enhanced
  sales management process)
• Lower investment book yield
• Range depending on financial management choices

Net income target
350400
Expected dividend pay out 100 of net income
Based on Italian GAAP
27
Strategy

• 1. Boost value creation from core business
• 2. Enhance bancassurance value contribution
• 3. Effective capital management
• End of reinsurance treaty with parent company
• Higher dividend policy
• 4. Open communication policy

28
1. Boost value creation from core business
Implemented
Projects ongoing

• Product focus
• Traditional annual premiums and pension products
  pillar III
• Redesign of recurring premium product to restore
  profitability
• Market approach
• Aggressive development of low-risk savings mass
  market
• Focus on market share increase in urban areas and
  northern Italy
• Agent network development
• Introduction of new compensation system to
  increase performance rewarding
• Modernization of the collection process
• Productivity enhancement through refocusing from
  collection to sales and through active turnover
  management

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2. Enhancing bancassurance value contribution
Shareholder participation
Product distribution
Alleanza Assicurazioni
Banca Intesa
Shareholders
50
50

• Technical support in product design
• Joint definition and monitoring of financial
  targets

Intesa Vita
Product factory
100
Intesa branch network
Distribution channel
30
3. Effective capital management
End of reinsurance treaty with parent company

• Effective no later than Jan 1, 2006
• Limited to new business sales
• Expected impact 10 NBV of agent network
• Marginal increase on risk capital

Higher dividend policy

• Target dividend pay-out 100 of consolidated
  net income

Based on Italian GAAP
31
4. Open communication policy
Communication calendar
Quarterly
Semi-Annually
Annually
Premiums Net profit NBV Embedded value Conference
call Analyst meeting
Strategic plan 2006-08 to be presented at the
beginning of 2006, consistently with parent
company time line
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Agenda

• 2004 at a glance
• Market scenario and Alleanza business model
• 2004 results
• 2005 plan
• Conclusions

33
Conclusions

• Our strategy
• Aggressive growth in the low-risk savings
  market
• Performance improvement (growth combined with
  value) in our core agent network
• Effective risk and capital management
• 2005 outlook
• Positive value creation (NBV)
• Net profit consistent with low return financial
  environment
• 100 dividend pay-out policy

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Back-Up
35
Consolidated income statement (1/2)
EUR million
Change
2004
2003

Gross Written Premiums
8.704,6
6.777,6
1.927,0
28,4
Premiums ceded
-890,0
-876,0
-14,0
1,6
Net Premiums
7.814,6
5.901,6
1.913,0
32,4
Claims incurred and maturities
-3.693,9
-2.714,7
-979,2
36,1
Change in tecnichal reserves
-4.712,0
-3.725,2
-986,8
26,5
Total claims and reserves charges
-8.405,9
-6.439,9
-1.966,0
30,5
Total expenses
-393,8
-318,9
-74,9
23,5
Investment income transferred from non tech.
984,8
990,4
-5,6
-0,6
Net Gains on Unit Linked
354,4
238,3
116,1
48,7
Other tecnichal income
21,5
61,0
-39,5
-64,8
Profit sharing
0,0
-5,6
5,6
Life technical result
375,6
426,9
-51,3
-12,0
36
Consolidated income statement (2/2)
EUR million
37
Consolidated balance sheet
EUR million
38
Investments
EUR million
Change Percent
2004
Properties
257,5
 
Fixed income
26.269,4
Equities and participations
3.378,4
Bond mutual funds
628,8
Equity mutual funds
3.621,5
Credits
455,9
Other financial investments
516,1
Cash and equivalents
319,7
Total class C investment and cash equivalent
35.447,3
Class D investment
7.912,5
Total investment
43.359,8
39
Backup Information (1/5)
Backup information regarding value of in-force
business as at 31 December 2004 and value added
by new business written in 2004 INTRODUCTION The
Alleanza group, in common with most insurance
undertakings, reports the profits from its life
insurance business in its published financial
statements on the statutory basis required by
Italian regulations. The bases used to report the
company's assets and liabilities are principally
concerned with the demonstration of the financial
strength of the company, and this may give rise
to implicit profits within the business in
force. An alternative method of reporting the
value and determining the performance of a life
insurance company is to use embedded value
accounting. This method is used by a number of
European insurance groups to provide
supplementary information to that shown in their
published accounts. On 5 May 2004, the CFO Forum,
a group of Chief Financial Officers drawn from 19
major European insurance companies, published the
European Embedded Value Principles (the EEV
Principles) with the aim of improving the
consistency and transparency of life insurance
reporting. The Alleanza group, as part of the
Generali group, which is a member of the CFO
Forum, is committed to adopting the EEV
Principles for calculating embedded values in its
supplementary financial reporting from the end of
2005. An embedded value is an actuarially
determined estimate of the value of the company,
excluding any value attributable to future new
business. For the purposes of this disclosure,
and to avoid unnecessary changes prior to the
adoption of the EEV Principles, the Alleanza
group has maintained the same approach to the
determination of the value of in-force business
and the value added by new business as used in
the past, and in particular has adopted the same
framework for setting economic assumptions. The
valuations therefore make use of actuarial
methodology typically used in traditional
embedded value reporting, based on deterministic
projections of future after-tax profits, with an
allowance for risk through the use of a single
risk discount rate and an explicit assumption for
the level and cost of holding solvency capital.
The allowance for risk may not correspond to a
capital markets valuation of such risk, or to
that required to comply with the EEV Principles.
40
Backup Information (2/5)
DEFINITIONS The value of in-force life insurance
business is the present value of the projected
stream of future after-tax profits that are
expected to be generated by the policies in force
at the valuation date, assuming assets at book
value equal to the technical reserves, less a
charge for the cost of holding an amount of
solvency capital. Account is taken, therefore, of
the impact of unrealised gains and losses on
assets backing technical reserves. Calculations
have been performed separately for Alleanza and
Intesa Vita, based on local statutory reserving
regulations. The projected profits include the
after-tax value of intragroup reinsurance, and of
fee income, net of costs, expected to emerge in
the group's asset management company (Fondi
Alleanza Sgr) related to life insurance. New
business comprises new policies issued in the
year and the net impact of new policy conversions
during the year. The value added by new business
is the present value, determined at the point of
sale, of after-tax profits expected to be
generated by the new business written in the
year, allowing for the actual acquisition costs
incurred and the cost of setting up and
maintaining a level of solvency capital. Values
have been calculated on end-year assumptions, but
account is taken of the effects of actual
experience in the year of sale, in particular as
regards investment returns and policyholder
participation. ASSUMPTIONS The calculation of
in-force and new business values, in common with
any valuation method based on projections of
future earnings, necessarily involves a degree of
subjectivity when establishing the assumptions to
be used. The Alleanza group, with the assistance
of Tillinghast, has sought to employ appropriate
assumptions, in a consistent fashion, for all its
lines of business. Following common practice in
traditional embedded value reporting, assumptions
have generally been set in a deterministic
fashion which does not therefore reflect the
consequences of the natural volatility of certain
experience assumptions, particularly those for
investment returns. The stream of future
after-tax profits is determined using realistic
assumptions for future operating conditions as
regards such items as investment returns,
inflation, profit sharing arrangements, expenses
and commissions, taxation, lapse, disinvestment,
surrender, mortality and annuity take-up rates.
41
Backup Information (3/5)
The benchmark return on government bonds was set
equal to the return on ten-year bonds (3.82 in
Italy) and the returns on other classes of asset
using a series of spreads, net of defaults for
corporate bonds. Total return on equities was
thus set at 6.57 and the average return on bonds
was 3.83 for Alleanza and 3.84 for Intesa
Vita. The projected allocation between major
asset classes such as equities and bonds has been
based on the current asset allocation the
returns on bonds have been set taking account of
the average duration of the liabilities. Basic
investment returns have been set in the first
instance on a market reinvestment return basis,
using each company's asset allocation between
government and corporate bonds, equities,
properties and other asset classes. Book returns
have then been determined by making adjustments
to the basic returns to reflect the emergence
over an appropriate period of unrealised gains
and losses on assets backing technical reserves.
The assumptions used to project future profits on
in-force business and new business are both set
using the same methodology. The average projected
returns are 4.26 for Alleanza and 4.20 for
Intesa Vita. The discount rates used to
calculate the present values are determined with
reference to the prevailing levels of interest
rates, and include a loading to reflect the risk
that the assumptions chosen to project the future
profits may not be borne out in practice. The
discount rates have been set 2.75 above the
benchmark 10-year government bond rate, equal to
6.57. Policyholder profit-sharing has been based
on current company practice. For traditional
Italian revaluable business, allowance is made
for the impact of unrealised gains and losses
with respect to the segregated fund values, in
determining the future projected rates of
policyholder participation. The assumptions for
future taxation are based on the Italian tax
rates (Ires and Irap) as at 31 December 2004.
Account has been taken of the beneficial tax
treatment of income on certain asset classes
backing both technical reserves and solvency
capital, including any tax reductions on dividend
income tax credits on investment returns on
Italian mutual funds and tax-exemptions on
certain strategic shareholdings in Italy.
Allowance has been made for loss of interest
which is associated with the taxes payable in
advance on reserves (DL. 168/2004). The effective
average tax rate is 23.71 for Alleanza and
41.73 for Intesa Vita. In consolidating the
results, no allowance is made for the effects of
any taxation effected on dividends either at
source or on remittance.
42
Backup Information (4/5)
Full allowance has been made for all expenses
within the life insurance businesses in the
group. The value of new business at point of sale
is shown after the deduction of all acquisition
costs. Maintenance expenses expressed as
per-policy amount are assumed to inflate at 1.95
per annum. Commissions and other payments to
distribution channels have been projected based
on the agreements in-force at the valuation
date. Operating assumptions for demographic
experience such items such as mortality, lapses
and surrenders and annuity take-up rates, have
been based on each companys current experience
where credible, or on appropriate industry
benchmarks where insufficient company-specific
information is available. Life insurance and
asset management contract charges, terms and
conditions, including surrender value bases,
management fees, and other charges, have been
assumed to remain unaltered at the levels
prevailing at the valuation date, as have all
infra-group arrangements. SOLVENCY CAPITAL Life
insurance undertakings are generally required to
maintain a level of capital in excess of
technical reserves in order to demonstrate
solvency. For the purposes of this disclosure,
the Alleanza group has determined the cost of
solvency capital based on a level of 100 of the
EU minimum solvency requirements. Shareholder
assets backing solvency capital can be considered
as being locked-in and are projected to earn an
after-tax rate of investment return, which is
less than the risk-adjusted discount rates used
in the calculation of the value of in-force
business. The projected rate of investment return
on solvency capital for each company is based on
the actual distribution of assets backing net
worth, with appropriate allowance for their tax
treatment. The annual charge for the cost of
maintaining solvency capital is represented by
the difference between the after-tax amount
earned on assets backing solvency capital and the
amount expected in accordance with the risk
adjusted discount rate the average difference
for the Group is projected to be 2.12. The cost
of solvency capital is the present value at the
risk discount rate of these annual charges over
the outstanding life of the policies in force.
The cost of solvency capital on this basis
which has been allowed for in the consolidated
value of in-force life business is 185 million
as at 31 December 2004, and that in the value
added by 2004 new life business is 28 million.
43
Backup Information (5/5)
SENSITIVITY TESTS The sensitivity of the results
to changes in key parameters such as the discount
rate, investment conditions and lapse rates is
conducted separately for each test, leaving all
other assumptions unchanged. The change in
investment yield sensitivity simulates the impact
of a shift in the fixed-interest yield curve for
future investments, and also a change in
unrealised gains on fixed-interest assets held at
book value the projected return on other asset
classes is also changed by the amount of the
shift. DISCLAIMER The calculation of the value
of in-force and new business requires the use of
numerous assumptions with respect to future
business, operating, and economic conditions, and
other factors, many of which are beyond the
control of the Alleanza group. Although the
assumptions used represent estimates which the
Alleanza group and Tillinghast consider to be
reasonable, actual future operating conditions
and actual future experience may vary from that
assumed in the calculation of these values, and
such variations may be material. Consequently,
the inclusion herein of these values should not
be regarded as a representation by the Alleanza
group, Tillinghast, or any other person, that the
stream of future after tax profits used to
determine the values will be achieved.
44
Disclaimer
Certain of the statements contained herein are
statements of future expectations and other
forward-looking statements. These expectations
are based on management's current views and
assumptions and involve known and unknown risks
and uncertainties. The user of such information
should recognise that actual results, performance
or events may differ materially from such
expectations because they relate to future events
and circumstances which are beyond our control
including, among other things, general economic
and sector conditions. Neither Alleanza
Assicurazioni SpA nor any of its affiliates,
directors, officers employees or agents owe any
duty of care towards any user of the information
provided herein nor any obligation to update any
forward-looking information contained in this
document.