Generali Deutschland Group: Market position further expanded in the business year 2008 - Group earnings affected by financial crisis

Generali Deutschland Group: Market position further expanded in the business year 2008 - Group earnings affected by financial crisis

* Total premium income rose by 3.4% to more than € 14.2 bn – excellent new business in life and health insurance
* Earnings dropped to € 4 m following the capital-market crisis – financial strength allows stable dividend of € 2.90 per share
* Group business model implemented – further premium growth above market average and result improvements announced for 2009

Aachen – The Generali Deutschland Group continues its growth development. In the business year 2008, the second-largest primary insurer was again able to expand its position in the German market in a difficult environment. The earnings of the Generali Deutschland Group were, however, affected by the continuing crisis in capital markets. In particular due to write-downs on securities, the Group net profit dropped to € 4 m. Yet, the sound financial strength of Generali Deutschland makes it possible to distribute a dividend at the previous year’s level of € 2.90 per share.

“The financial crisis has left a visible trace in our financial statements. With regard to insurance business, however, the business year 2008 was very successful for our Group”, said Dietmar Meister, Chief Executive Officer of Generali Deutschland. He added that this development was particularly positive in the light of the merger of Generali and Volksfürsorge completed in 2008. Dietmar Meister went on: “The fact that we achieved market-share gains despite the merger illustrates our good distribution strength. I am therefore convinced that we will continue to expand our market position even in today’s difficult environment. The crisis also means opportunities for us: safety aspects are more important to people than ever. And with our crisis-proof products, our competency in advisory services and our unique diversity of distribution channels we have the right answers to the safety requirements of customers.”

Above-average premium growth in all lines of insurance business
The Generali Deutschland Group again achieved above-average growth in insurance business. In the business year 2008, total premiums increased by 3.4% to € 14,240 m. The rise in the Group’s premium income is thus three times stronger than market growth, which was about 1% only in the year 2008.
The successful development in distribution was evident in all insurance segments. Growth continues to be supported by life and health insurance. In life insurance, the Group companies witnessed growth of 3.3% (market: +0.8%). Including savings portions and the premiums of investment contracts, premium income increased to € 9,362 m (previous year: 9,067 m). In health insurance the Group experienced growth of 5.9% (market: +2.9%). The premium volume rose to € 1,845 m (previous year: 1,741 m). In property and casualty insurance, too, the Generali Deutschland Group reached stronger growth than the market. While the German Insurance Association forecasts an increase of 0.2%, the premium income of the companies of Generali Deutschland rose by 0.8% to € 3,063 m.

Strong new business in life and health insurance
The new business of the life and health insurers also witnessed a very successful development in 2008. In life insurance, new business grew by 12.1% in terms of regular premiums and by 9,5% in terms of single premiums. For comparison: the market only saw growth of 6.4% in terms of regular premiums and 1.4% in terms of single premiums. With an increase of the APE (annual premium equivalent1) by 11.9% (market: 5.6%), the Generali Deutschland Group was again the number 1 in new business in 2008.
In this context, the Generali Deutschland Group benefited above all from its strong market position in the business of old-age provision with a state incentive. The Group is the market leader in Riester business. But even without taking into account the pure Riester impacts – in 2008 the last Riester incentive step came into force – the Group’s total new business of 4.0% was above the average in the market where new business dropped by 1.3%.
In 2008, the number of Riester contracts taken out increased by more than 351,000 contracts to a portfolio of 1.64 m Riester policies with a regular annual premium income of more than € 765 m. In this context, about 70,000 existing customers opted for a changeover to new attractive Riester tariffs providing for even higher yield opportunities through dynamic investments.
The demand for basic pensions also remains high. In the business year 2008 more than 62,000 new contracts were produced across the Group. Since the launch of this product, about 170,000 customers of the Generali Deutschland Group have taken out basic pension covers representing a regular annual premium of more than € 278 m.
In health insurance in particular, the Generali Deutschland Group achieved an extraordinarily strong new business. While in the market the healthcare reform led to a decrease in production, which in some areas was significant, the health insurers of the Generali Deutschland Group achieved new business growth of 28.5%. The companies succeeded in gaining a large number of new customers both in full health covers and in supplementary health insurance. The number of persons insured under full health covers in the Generali Deutschland Group rose by 5.2% to more than 451,000 persons. In supplementary health insurance, the number of persons insured even increased by 6.5% to more than 1.4 million.
Deutsche Vermögensberatung, the longstanding strategic distribution partner of the Generali Deutschland Group, again made a significant contribution to the successful development in distribution activities in the closed business year and to the Group being number 2 in the primary insurance market in Germany.

Further enhancements in technical business
Besides the above-average growth in premium income, the Generali Deutschland Group again achieved a positive development of its technical profitability in 2008. In this context, the measures already initiated in previous years with a view to increasing competitiveness are producing the desired effect. Despite dynamic business growth, total costs (personnel and material expenses) reduced further by € 103 m to € 1,641 m. The combined ratio improved by 0.9%-points to 94.4% in 2008.

Net investment income affected by worldwide financial crisis – Group net profit of € 4 m
The basically positive development in insurance business, however, was affected by severe turmoil in capital markets worldwide. As a big investor with assets under management of about € 85 bn, the Generali Deutschland Group has been hit by the financial crisis to the corresponding extent. While ordinary net investment income witnessed a positive development and rose by € 120 m to 3,487 m, realized capital gains did not reach the good level of previous years due to the market situation. In addition, the Generali Deutschland Group had to make extraordinarily significant write-downs in 2008 caused by capital-market turmoil which led to a decrease in net investment income to € 858 m (previous year: 3,684 m).
The adverse impact of the capital-market crisis on Group earnings totalled € 481 m. Nevertheless the Group succeeded in reaching a net profit of € 4 m (previous year: 417 m without 2007 impact from tax-rate change). Due to its sound financial strength Generali Deutschland is, however, in a position to maintain the dividend at the previous year’s level of € 2.90. This is subject to shareholder approval at the General Meeting to be held on May 19, 2009.

“Our earnings are affected by the turmoil in financial markets. But what counts for our customers is that on the basis of the guarantees and profit bonuses granted by us they can earn a good yield and that, above all, their invested capital is safe “, underlined Group Executive Dietmar Meister. The assets managed by the Group’s insurance companies are broadly spread and mainly invested in fixed-income securities. In an environment of great uncertainty, Generali Deutschland has actively and extensively reduced its equity exposure. At year-end 2008 the share of equity investments was only 5%, of which about 30% were hedged in addition.

New business model as the basis for future success – Earnings continue to depend on capital-market development
The Generali Deutschland Group will again witness a better development than the market average in 2009. “We are excellently positioned with our insurance companies and – even in this difficult environment – we will benefit from the strong advisory capacity of our fieldstaff and distribution partners”, Dietmar Meister underlined.
At the start of the year, with the completed merger of Generali and Volksfürsorge Versicherungen, the Generali Deutschland Group implemented its target business model through which the Group will be successful in the coming years. The strategic approach of Generali Deutschland is based on a sales-channel model consisting of three pillars: the multi-channel distribution of Generali Versicherungen, AachenMünchener’s exclusive distribution through its close strategic partnership with Deutsche Vermögensberatung and direct-selling with CosmosDirekt as the leader in this business in the German market. In addition, the Group focuses on the strength and competency of its specialist providers Advocard, Badenia, Central, Dialog and Generali Investments. “In previous years we have laid the foundations enabling us to sustainably enhance our competitive position in the German market of insurance and financial services. Our optimistic outlook for the future development of the Generali Deutschland Group is primarily based on our organizational structure being consistently aligned to our distribution channels and on the market proximity thus created”, the Group Chief Executive stated.

Nevertheless in 2009 the consolidated net profit of the Generali Deutschland Group will again depend to a significant extent on net investment income. In the light of the extremely difficult situation of capital markets it is currently not possible to make reliable forecasts. For the coming years, however, the Group expects a basic improvement of its earnings position. “Due to our positive technical development and the success achieved in insurance business we are looking at the future with confidence”, Dietmar Meister added. “Provided that capital markets are not affected by further extreme impacts in the current year, our 2009 earnings will be markedly more positive than in 2008, even if, as already said, it is too early to make reliable forecasts.”

Under IFRS, according to the German regulation, technical items of the Balance Sheet and Income Statement are presented based on US-GAAP.

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