Strategic Asset allocation

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Strategic Asset allocation

  1. 1. Generali Investor Day 2010Strategic Asset Allocation &Risk Management StrategyAmerigo BorriniChief Risk OfficerSalvatore ColottiChief Life Actuary Venice, November 26, 2010
  2. 2. Disclaimer 2 Certain of the statements contained herein are statements of future expectations and other forward-looking statements. These expectations are based on managements 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 Assicurazioni Generali S.p.A. 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. The manager in charge of preparing the company’s financial reports, Raffaele Agrusti, declares, pursuant to paragraph 2 of article 154-bis of the Consolidated Law on Financial Intermediation, that the accounting information contained in this presentation corresponds to document results, books and accounts records.Assicurazioni Generali Group – Investor Day 2010 – Investment Management of Insurance Assets
  3. 3. II. Strategic Asset Allocation & Risk Management Strategy 3 I. Introduction: How we managed and performed II. Asset and Liabilities integration III. Final remarksAssicurazioni Generali Group – Investor Day 2010 – Investment Management of Insurance Assets
  4. 4. Agenda 4 I. Introduction: How we managed and performed Strategic Asset Allocation & Risk Management Increased investment portfolio Our track record on investment management Group risk capital and financial risksAssicurazioni Generali Group – Investor Day 2010 – Investment Management of Insurance Assets
  5. 5. I. INTRODUCTION: HOW WE MANAGED AND PERFORMEDStrategic Asset Allocation & Risk Management 5At 30.09.2010 “Own Investments” including own use real estate(1) Euro 331.1 bn Asset Allocation Insurance Liabilities Fixed income Cash & equival. instruments BV 3.0% BV 79.1% MV 2.9% MV 78.1% Equity BV 8.4% MV 8.1% Traditional Life ALM 258.1 Real Estate (3) Reserves(4) BV 5.5% MV 7.1% Other(2) “Own Investments” BV 4.0% including own use real MV 3.8% estate(1) 30.5 P&C Reserves(4) (1) Including own use real estate within own investments. Own investments include own capital and insurance funds (i.e. unit linked excluded) (2) Including investments in subsidiaries, associated companies and JVs, derivatives, receivables from banks or customer (3) Including real estate mutual funds & own use real estate (4) Net technical reserves; life reserves including investment contractsAssicurazioni Generali Group – Investor Day 2010 – Investment Management of Insurance Assets
  6. 6. I. INTRODUCTION: HOW WE MANAGED AND PERFORMEDWe increased our investment portfolio 6Strong growth trend of total Assets Under Management (Euro bn) + 8.1% AUM net of sale and + 13.1% acquisition (∆% YoY) + 1.2% - 7.2% + 6.2% + 8.1% AUM (∆% YoY) + 7.1% + 0.6% + 0.3% + 8.6% 95.9 83.6 62.9 61.4 68.6 Third parties AUM 57.6 47.6 42.5 47.9 50.7 41.4 41.2 Unit Linked Own Investments (including own use real estate) 312.7 331.1 295.0 296.2 299.6 274.8 (1) (2) (3) (4) 2005 2006 2007 2008 2009 9M10 (1) Acquisition of Toro Group impact Own Investment for Euro 8.4 bn and Unit Linked for Euro 587 m (2) Sale of Nuova Tirrena impact Own Investment for Euro 2.2 bn and Unit Linked for Euro 107m (3) Acquisition of Banca del Gottardo impact Own Investment for Euro 8.2 bn and Third parties AUM for Euro 14 bn Acquisition of PPF Group impact Own Investment for Euro 5.4 bn, Unit Linked for Euro 67m and Third parties AUM for Euro 2.4 bn (4) Sale of Intesa Vita impact Own Investment for Euro 13.5 bn and Unit Linked for Euro 8.6 bnAssicurazioni Generali Group – Investor Day 2010 – Investment Management of Insurance Assets
  7. 7. I. INTRODUCTION: HOW WE MANAGED AND PERFORMEDOur investments – Life 7Asset allocation (%) - Eur 269.7 bn at 9M10 1.4% 1.8%1.7%1.5%1.7%2.1%2.0%2.1%1.7%1.9% 2.0% Maintained an asset 2.6% 1.6% Cash 3.0% 3.8% 4.2% 4.0% 3.7% allocation consistent with the Other structure of our technical investment reserves Investment 83.3% 81.6% 80.1% 83.9% 83.3% 84.2% properties Increase in corporate bonds (incl. self- used) exposure has allowed Generali to benefit from Fixed Income 10.9% 12.2% 12.3% Instruments narrowing in spreads and to 7.7% 9.1% 8.5% sustain current return 2005 2006 2007 2008 2009 9M10 Equities Maintained high quality ofFocus on bond portfolio (%) - Eur 204.3 bn at 9M10 corporate bond portfolio and improved portfolio diversification 58.8% 57.7% 56.1% 55.1% Lengthened duration of 66.5% 65.6% Government bonds bonds (from 6.0 at FY07 to 6.6 at 9M10) Strategic decrease of equity 41.2% 42.3% 43.9% 44.9% Corporate 33.5% 34.4% exposure 2005 2006 2007 2008 2009 9M10Assicurazioni Generali Group – Investor Day 2010 – Investment Management of Insurance Assets
  8. 8. I. INTRODUCTION: HOW WE MANAGED AND PERFORMEDOwn investments – P&C 8Asset allocation (%) - Eur 38.6 bn at 9M10 4.0% 4.8% 6.9% 6.0% 7.8% 5.6% Increases in the share of 2.5% 2.7% 3.8% 2.8% Cash 3.3% 2.4% corporate bonds within bond 22.6% 20.3% 17.8% 20.7% 20.3% 20.9% Other portfolio has allowed Generali investment to exploit the narrowing of Investment properties spreads and to generate 52.0% 54.6% 54.7% 56.2% 57.4% 59.2% (incl. self- fixed income revenues used) Increased diversification in Fixed Income 18.8% 17.7% 17.3% corporate bond portfolio 13.3% 12.1% 11.4% Instruments Lengthened duration of 2005 2006 2007 2008 2009 9M10 Equities bonds in P&C (from 2.9 atFocus on bond portfolio (%) - Eur 19.2 bn at 9M10 FY07 to 4.7 at 9M10), based on a ongoing portfolio approach, has allowed us to 47.0% 46.6% 46.6% realise capital gains through 52.5% 55.6% 48.1% Government a tactical reduction of bonds duration started at the beginning of 4Q10 51.9% 53.0% 53.4% 53.4% Active management of equity 47.8% 44.4% Corporate portfolio to cope with market volatility 2005 2006 2007 2008 2009 9M10Assicurazioni Generali Group – Investor Day 2010 – Investment Management of Insurance Assets
  9. 9. I. INTRODUCTION: HOW WE MANAGED AND PERFORMEDOur track record on investment management 9 Assets: Limited net exposure to structured finance: Euro 1.5 bn diversification and prudent No exposure to US subprime assets approach Negligible exposure to credit default swaps: only hedging and investment with no arbitrage activity Limited net exposure to Lehman: Euro 110 m Limited net exposure to Portugal, Ireland, Greece and Spain: Euro 2.0 bn No exposure to Dubai WorldAssicurazioni Generali Group – Investor Day 2010 – Investment Management of Insurance Assets
  10. 10. I. INTRODUCTION: HOW WE MANAGED AND PERFORMEDGroup risk capital and financial risks 10At 31.12.2009 Significant portion Diversification (Euro bn / Percentage) within business units of Group risk capital €26.7bn Not under IM(1) 1.9 / 7% related to financial Group (4.5) risks (64%) Operational 2.1/ 8% diversification 32% Non-life U/W 2.8 / 11% 17% (4.1) Life U/W 2.9 / 11% €18.1bn Credit & 3.9 (of which 3.1 on Life and 19% Currency 0.8 on Non-life) / 15% 3.2 (of which 2.9 on Life and Interest rate 0.3 on Non-life) / 12% 3.3 (of which 1.5 on Life and Real estate 1.8 on Non-life) / 12% 6.6 (of which 5.0 on Life and Equity 1.6 on Non-life) / 25% Total 26.7 / 100% Group risk capital Group risk capital Group risk capital before diversification after diversification after diversification within business units (1) Not under Internal Model refers to entities currently based on previous top-down modelAssicurazioni Generali Group – Investor Day 2010 – Investment Management of Insurance Assets
  11. 11. Agenda 11 II. Asset and Liabilities integration Centralised strategic investment framework Life Liabilities existing business / new business P&C asset liability management Asset allocation process and Solvency IIAssicurazioni Generali Group – Investor Day 2010 – Investment Management of Insurance Assets
  12. 12. II. ASSET AND LIABILITIES INTEGRATIONOverview 12 Financial crisis has given an acceleration in renewing financial system processes Current environment is characterised by the need for changes (Solvency II) at system level updating governance, processes, profitability metrics, products Local regulators are defining new set of rules aligned with this systemic changeAssicurazioni Generali Group – Investor Day 2010 – Investment Management of Insurance Assets
  13. 13. II. ASSET AND LIABILITIES INTEGRATIONCentralised strategic investment framework 13Corporate Centre coordination and control of strategic investment Group Risk Guidelines (SAA, Credit, Market Risk Concentration, Derivative & Structured Products, Alternative Investments,...) Committees structure governance (Group Risk Committee, Group Investment committee, Company Investment committees,...)Strategic asset allocation activity Coordinate the deployment of the group strategic investment objectives to the companies Guarantee coherency of risk and performance metrics Centralise the distribution of the market financial scenarios Create a platform allowing for the enforcement of: Homogeneous asset classification Uniform definition of the investment objectivesAssicurazioni Generali Group – Investor Day 2010 – Investment Management of Insurance Assets
  14. 14. II. ASSET AND LIABILITIES INTEGRATIONLife liabilities: Existing business(1) 14FY 2009 Total Reserves: Area/Product FY 2009 Total Reserves: Area/Premium type By Area (Euro bn) By Area (Euro bn) 90 Unit Saving 90 Single 80 Unit Pension 80 70 Regular Traditional Saving 70 60 Traditional Risk 60 50 Traditional Pension 50 40 40 30 30 20 20 10 10 0 0 Italy Germany France CEE RoE RoW Italy Germany France CEE RoE RoW By Product (%) By Premium type (%) Unit Saving Traditional Single Regular 14% Pension 10% 45% 55% Traditional Risk 5% Unit Pension Traditional 6% Saving 65%(1) Perimeter life/health EV, net of minoritiesAssicurazioni Generali Group – Investor Day 2010 – Investment Management of Insurance Assets
  15. 15. II. ASSET AND LIABILITIES INTEGRATIONLife liabilities existing business(1): Guarantees 15Total Reserves by type of guarantee NIL At maturity Yearly basis (Cliquet) 22% 9% Guarantee Profit sharing granted and consolidated every year Matched Yearly basis At Maturity Guarantee 3% 66% Profit sharing granted only at event (maturity, death) 3.20 Yearly basis Yearly discretionary bonuses not 3.00 At maturity guaranteed 2.80 2009 Average Guarantee: 2.37% 2.60 Yearly basis (Cliquet): 2.4% 2.40 At maturity: 2.3% 2.20 31.12.03 31.12.05 31.12.07 31.12.09(1) Perimeter life/health EV, net of minoritiesAssicurazioni Generali Group – Investor Day 2010 – Investment Management of Insurance Assets
  16. 16. II. ASSET AND LIABILITIES INTEGRATIONLife liabilities: new business(1) 16FY 2009 APE: Area/Product FY 2009 APE: Area/Premium type By Area (Euro m) By Area (Euro m) 1,800 Unit Saving 1,800 Single 1,600 Unit Pension 1,600 1,400 Regular Traditional Saving 1,400 1,200 Traditional Risk 1,200 1,000 Traditional Pension 1,000 800 800 600 600 400 400 200 200 0 0 Italy Germany France CEE RoE RoW Italy Germany France CEE RoE RoW By Product (%) By Premium type (%) Unit Saving Traditional Single Regular 14% Pension 10% 42% 58% Traditional Risk 14% Unit Pension Traditional 11% Saving 51%(1) Perimeter life/health EV, net of minoritiesAssicurazioni Generali Group – Investor Day 2010 – Investment Management of Insurance Assets
  17. 17. II. ASSET AND LIABILITIES INTEGRATIONLife liabilities(1): new business guarantees 17Total APE by type of guarantee FY 2008 NIL At maturity 2008 Average Guarantee: 1.56% 30% 11% Yearly basis: 1.5% Matched Yearly basis At maturity: 1.9% 3% 56% FY 2009 NIL At maturity 2009 Average Guarantee: 1.56% 30% 19% Yearly basis: 1.4% Matched Yearly basis At maturity: 2.0% 2% 49% 9M 2010 NIL At maturity 2010 Average Guarantee: 1.54% 31% 20% Yearly basis: 1.3% Matched Yearly basis At maturity: 2.0% 1% 48%(1) Perimeter life/health EV, net of minoritiesAssicurazioni Generali Group – Investor Day 2010 – Investment Management of Insurance Assets
  18. 18. II. ASSET AND LIABILITIES INTEGRATIONLife liabilities: focus on Italian new production 18 Absence of volatility absorbers (beyond book accounting) in Italian traditional business, as opposed to Germany and France, that use policyholder/capital gains funds Penalised NBV computation due to widening of spread between Italian bonds and Swap rate Cost of Guarantee: Cliquet vs. Maturity(1) Cost of guarantee The solution implemented: (in terms of NBM, expressed in % of APE) Higher portion in terms of APE 16% Cliquet 14% of “at maturity” guarantees: Maturity 12% From 31% at FY08 10% to 55% at 9M10 8% 6% Cliquet guarantees reduction: 4% From 1.99% at FY08 2% to 1.27% at 9M10 0% 37% of APE with 0% guarantee 0% 1% 2% Minimum guarantee Results: Improved profitability thanks to lower cost of guarantees Reduction in Solvency II capital strain(1) Illustrative example based on FY09 financial assumptionsAssicurazioni Generali Group – Investor Day 2010 – Investment Management of Insurance Assets
  19. 19. II. ASSET AND LIABILITIES INTEGRATIONLife liabilities: Portfolio guarantees development(1) 19Expected guarantees development (%) Reserves composition (%)2.50 New Business Old Business 100.002.25 Strong reduction 80.00 in the average2.00 60.00 guarantee1.75 40.00 thanks to back 20.00 book run off and1.50 31.12.09 31.12.20 0.00 new production 2009 2011 2013 2015 2017 2019Based on expected run off, future new production includedBreakdown cliquet guarantees at FY09 Higher cliquet guarantees development weight on total reserves weight on total reserves By 2020: 100% 19.2% 90% Average 80% >=4.5% 15.0% guarantee 12.6% 13.1% 70% 4%-4.49% 60% at 1.7% 3.5%-3.99% 50% 3%-3.49% Portfolio with 5.2% 40% 30% ≥ 2.75% 0.6% 20% guarantee 10% 0%- 1%- 2%- 3%- 4%- >5% 0% ≤10% of total 0.99% 1.99% 2.99% 3.99% 4.99% 2009 2011 2013 2015 2017 2019(1) Perimeter life/health EV, net of minoritiesAssicurazioni Generali Group – Investor Day 2010 – Investment Management of Insurance Assets
  20. 20. II. ASSET AND LIABILITIES INTEGRATIONP&C asset liability management 20Net technical Reserves (Euro bn) 29.0 29.3 29.6 28.4 24.2 Lengthened duration on bonds (from 2.9 at FY07 to 4.7 at 9M10) P&C liabilities duration at 3.3 Duration mismatch on P&C is 2005 2006 2007 2008 2009 based on a ongoing view of the business with net technical Reserving ratio (%) Reserves stable over years 175% 157% 149% Dynamic management of 145% 145% portfolio’s duration is implemented according to market expectations 2005 2006 2007 2008 2009Assicurazioni Generali Group – Investor Day 2010 – Investment Management of Insurance Assets
  21. 21. II. ASSET AND LIABILITIES INTEGRATIONAsset allocation process in a Solvency II environment 21 New regulatory framework and the changing market environment are strengthening the focus on a liability driven approach where asset liability management is the cornerstone Investment strategies defined coherently with capital allocation and risk profiles Group Risk guidelines enforced to align and control investments Stochastic approach in portfolio modeling in order to consider options embedded in the insurance products Centralisation of economic capital methodologies, financial assumptions and AM mandate structureAssicurazioni Generali Group – Investor Day 2010 – Investment Management of Insurance Assets
  22. 22. II. ASSET AND LIABILITIES INTEGRATIONStrategic Asset Allocation process 22 Strong Corporate Centre Coordination and Enhancement of granularity improve efficiency in the investment process Financial assumptions Consolidation of bottom up Strategic Plan targets strategies Corporate Centre Guidelines and model definition Coherency with group targets Level Capital allocation and risk tolerance Group Investment Strategy Asset allocation at portfolio/product level is coherent with Group Investment Strategy and is based on: Liability profile Portfolio Level Features of in-force and future products Risk tolerance Capital efficiency ALM coherencyAssicurazioni Generali Group – Investor Day 2010 – Investment Management of Insurance Assets
  23. 23. II. ASSET AND LIABILITIES INTEGRATIONSAA Life Process 23 Strategic Plan coherency Portfolio analysis Liability portfolio structure and market outlook Investment targets Portfolio assets mapped Analysis of reserves split by Market expected return into SAA categories guarantee level and structure Group/Company risk Regulatory constraints and New production volumes tolerance Group Risk Guidelines Analysis of shareholder’s coherency financial profit vs. fund returns ALM Analysis Value and Risk Analysis MC PVFP sensitivity and liabilities migation Cash flow matching Analysis of the Market MC PVFP sensitivity analysis analysis Consistent Present Value with respect to different Asset & Liabilities of Future Profit (MC PVFP) allocation scenarios projections and Risk Adjusted Capital Impact of liabilities risk Asset mix optimisation (RAC) at segregated fund mitigation in different loss scenarios level Strategic Allocation definition that maximizes investment contribution to value creation
  24. 24. II. ASSET AND LIABILITIES INTEGRATIONSAA Non-life Process 24 Strategic Plan coherency Portfolio analysis and market outlook Investment targets Portfolio assets mapped Market expected return into SAA categories Group/Company risk Regulatory constraints and tolerance Group Risk Guidelines coherency Quantitative Analysis Optimisation process based on risk / return target profile Analysis of Economic Balance Sheet (EBS) indicators Define SAA portfolio targets with the optimal risk/return profile
  25. 25. II. ASSET AND LIABILITIES INTEGRATIONReturn on capital optimisation: Life 25 Manage exposure to risky assets due to higher capital requirements Corporate Govt Bonds Equities Real Estate Bonds Short / Long Exposure Trend Government bonds are a very attractive asset class in order to better manage duration mismatch. Optimise risk / Short term and high quality corporate bonds look most return profile interesting at the expense of long corporate bonds, owing to the better return in respect to capital requirements. Guarantee excess return over minimum Equity exposure will be cyclical. guaranteed level Real Estate looks attractive based on long-term value creation capacityAssicurazioni Generali Group – Investor Day 2010 – Investment Management of Insurance Assets
  26. 26. II. ASSET AND LIABILITIES INTEGRATIONReturn on capital optimisation: P&C 26 Begin a de-risking process in order to reduce risk capital Corporate Govt Bonds Equities Real Estate Bonds Short / Long Exposure Trend Preference for government bond and short / high quality corporate bond Reduce exposure to risky Equities look relatively unattractive due to the high capital asset classes requirement with high capital requirement Real Estate exposure should decrease Maximise return on capital Liquidity is a key considerationAssicurazioni Generali Group – Investor Day 2010 – Investment Management of Insurance Assets
  27. 27. Agenda 27 III. Final remarksAssicurazioni Generali Group – Investor Day 2010 – Investment Management of Insurance Assets
  28. 28. III. FINAL REMARKSFinal remarks 28 More transparent and flexible investment process in a clear governance structure Liability driven management approach Portfolio tailored asset allocation in order to increase capital efficiency Strong Corporate Centre coordination in the definition of asset allocation strategy ALM as cornerstone in the definition of investment constraints related to profitability and capital SAA as function to integrate market outlook and ALM in order to define investment strategy optimising capital efficiencyAssicurazioni Generali Group – Investor Day 2010 – Investment Management of Insurance Assets
  29. 29. Generali Investor Day 2010Strategic Asset Allocation &Risk Management StrategyAmerigo BorriniChief Risk OfficerSalvatore ColottiChief Life Actuary Venice, November 26, 2010

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