Statutory Annual Report & Account

Transcription

1 Statutory Annual Report & Account FY th YEAR OF BUSINESS 1

2 Consolidated performance highlights Five-year trend of key indicators Profit & Loss highlights (Amounts in millions) Total gross premiums written 920 1,442 2,768 3,351 3,731 Gross premiums written non-life direct & indirect business ,053 1,267 Gross premiums written life direct & indirect business ,012 2,298 2,464 Net premiums 779 1,291 2,559 3,075 3,428 Net investment income Class III (unit-/index-linked life) income and gains net of charges Other administrative costs Consolidated net income Group net income Balance Sheet highlights (Amounts in millions) Investments 2,153 3,239 6,699 8,644 11,075 Non-life and life technical provisions 2,074 3,033 6,418 8,495 10,972 Non-life technical provisions (premiums & claims) ,348 1,608 1,957 Life technical provisions (actuarial & Class D) 1,321 2,154 5,070 6,887 9,015 Net shareholders equity Group net equity Minority shareholders interests Performance/financial indicators and other data Performance/financial indicators Investments/Gross premiums written (%) (*) Other administrative costs/gross premiums written (%) Premiums per employee (in millions) Other data Number of employees (**) Number of agencies ,024 Number of distributor bank branches 1,539 2,066 2,653 2,717 2,748 Number of financial advisors Number of brokers Market share (%) Parent Company dividend (in euro) (*) Percentages rounded down or up to the nearest unit (**) Calculated on a full-time equivalent (FTE) basis 2

3 Key events in the year THE CATTOLICA GROUP - ITS MARKET SHARE CORPORATE REORGANISATION - ACQUISITIONS AND NEW COMPANIES THE GROUP SALES SYSTEM Today the Cattolica Group comprises 12 insurance companies i.e. the parent company, 4 non-life insurers, and 7 life insurers and 3 service companies. The Cattolica Group is ranked in sixth position in the Italian insurance market, with a market share of 4.37%. The Group s market share in the life segment is 4.65% and 3.9% in the non-life segment. December 2002: foundation of the real-estate company Cattolica Immobiliare (100% owned by Group companies) following spin-off of Cattolica s property division. November 2002: completion of acquisition of 50% of Eurosav, an insurance company active in the life business via a diversified sales network. October 2002: start of the operations for conferment on the parent company of the operating divisions of the subsidiaries Verona Assicurazioni, Cattolica Aziende, and Cattolica On Line. October 2002: foundation, jointly with Cassa di Risparmio di San Miniato, of a new life insurance company San Miniato Previdenza 66% owned by Cattolica. October 2002: acquisition from National Westminster International Holdings B.V. of the company RBS Asset Management SGR specialised in asset management for institutional investments the name of which was then changed to Verona Gestioni SGR. September 2002: foundation of Axa-Cattolica Previdenza in Azienda, a company specialised in corporate and employee benefits, 50/50 owned by Cattolica and Axa. The Group achieves its sales coverage via two main channels agents and bancassurance. As at December 31st 2002 the Group had 1,024 agencies, of which 60.55% in Northern Italy, 28.81% in Central Italy, and 10.64% in Southern Italy. There are 2,748 bank branches (including 100 Banca Popolare di Novara branches) selling life insurance products. 895 financial advisors sell Group companies products. The Group does business with 142 brokers. 3

4 Consolidated indicators NON-LIFE PREMIUMS FOR DIRECT AND INDIRECT BUSINESS (Euro/mn) LIFE PREMIUMS FOR DIRECT AND INDIRECT BUSINESS (Euro/mn) 1,500 1, ,053 1,267 3,000 2,500 2,000 1,500 1, ,012 2,298 2, PREMIUMS PREMIUMS TOTAL PREMIUMS FOR DIRECT AND INDIRECT BUSINESS (Euro/mn) NON-LIFE AND LIFE GROSS TECHNICAL RESERVES FOR DIRECT AND INDIRECT BUSINESS (Euro/mn) 4,000 3,500 3,000 2,768 3,351 3,731 12,000 9,000 8,613 11,102 2,500 2,000 1,500 1, ,442 6,000 3,000 2,101 3,076 6, PREMIUMS RESERVES 4

5 INVESTMENTS (Euro/mn) 12,000 10,000 8,000 6,000 4,000 2, ,699 5,446 7,232 8,644 9,504 1,658 2,153 2,617 3, ,075 NET SHAREHOLDERS EQUITY (Euro/mn) 1, Others * Land & Buildings Equity Fixed-Income Total * inclusive of banks, deposit accounts, mortgages and loans SHARE CAPITAL, EQUITY RESERVES AND NET PROFIT CAPITAL AND FINANCIAL INCOME (Euro/mn) NET INCOME (Euro/mn) TOTAL INCOME NET INCOME 5

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7 Mission The main objectives that Cattolica intends to pursue are to: Maintain its strong insurance focus, which has enabled the Company to achieve strong technical expertise and the ability to provide a highly qualified service; Aim for customer satisfaction via a customised service, consisting of assistance and advisory services, very close to and accessible by customers; Preserve asset integrity in order to consolidate and develop the business; Increase profitability to create value for shareholder members and investors; Promote the ethical values for which the Group has historically been a vehicle.

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9 Disclaimer This is a translation into English from the original in Italian, which alone is to be used for all legal purposes. The original text is at the disposal of the general public at the registered place of business of CATTOLICA and at Borsa Italiana S.p.A. The responsibility for the use of the information in the English language version is understood, within the maximum limits allowed by the law, as exclusively borne by those who decide to use it for any use, purpose or aim whatsoever. CATTOLICA shall not, however, be held responsible for any direct or indirect loss or damage, claimed by anybody and for whatever reason following the use of incomplete or inaccurate information.

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11 Table of contents Group structure 13 Notice of Shareholders Meeting 16 Statutory governance bodies 19 Powers of governance bodies and powers delegated 21 Management report 25 Balance sheet and income statement 109 Notes to accounts 137 Part A - Accounting policies 141 Part B - Information on balance sheet 157 and income statement Part C - Other information 205 Cash-flow summary 209 Property assets 211 Securities portfolio 215 Appendices to Notes to Accounts 255 Solvency margin charts 329 Charts showing assets covering technical provisions 349 9

12 Summary index of tables and charts Table Table 1 - Results gross and net of property spin-off 28 Table 2 - Summary data 29 Table 3 - Employees and sales network 30 Table business plan - key consolidated results expected and CAGR 41 Table 5 - P&L highlights - Italian insurance sector Table 6 - Balance-sheet highlights - Italian insurance sector Table 7 - FY2002 premiums 59 Table 8 - Investments - Breakdown 81 Table 9 - Investment income - Detail 85 Table 10 - Intercompany transactions 96 Table 11 - Key data of Group insurance companies 100 Table 12 - Intangible assets 159 Table 13 - Intangible assets - gross annual amortization 159 Table 14 - Intangible assets - cumulative amortization 159 Table 15 - Other long-term deferred costs 160 Table 16 - Land and buildings 162 Table 17 - Land and buildings - gross annual depreciation 162 Table 18 - Land and buildings - cumulative depreciation 162 Table 19 - Equity investments - Value summary 164 Table 20 - Summary data of subsidiaries 168 Table 21 - Summary data of associated companies 169 Table 22 - Summary data of other significant equity investments 170 Table 23 - Other financial investments - Breakdown 173 Table 24 - Technical provisions - Reinsurance amount 179 Table 25 - Receivables 179 Table 26 - Tangible assets and stocks 181 Table 27 - Tangible assets and stocks - gross annual depreciation 181 Table 28 - Tangible assets and stocks - cumulative depreciation 181 Table 29 - Other assets 182 Table 30 - Accrued income and prepayments 182 Table 31 - Net shareholder s equity

13 Table 32 - Taxes under article 105 of Italian Income Taxes Consolidated Text (TUIR) 184 Table 33 - Breakdown of technical provisions 184 Table 34 - Provisions for premium fractions - Direct business 185 Table 35 - Provisions for premium fractions - Indirect business 186 Table 36 - Provisions for risks and charges 188 Table 37 - Debt (payables) - Breakdown 189 Table 38 - Accrued employee severance indemnity provision 189 Table 39 - Other payables - Breakdown 190 Table 40 - Other liabilities - Breakdown 191 Table 41 - Guarantees, commitments and memorandum accounts 192 Table 42 - Other income - Breakdown 195 Table 43 - Other charges - Breakdown 196 Table 44 - Income taxes 197 Table 45 - Solvency margin 207 Table 46 - Technical provisions to be covered 207 Table 47 - Assets providing coverage 208 Charts Chart 1 - Shareholdings owned by directors and statutory auditors 90 Chart 2 - Directors and statutory auditors held by directors in listed and other unlisted companies 92 Chart 3 - Non-current (investment) securities 175 Chart 4 - Assets in Class C and Class D derivatives 198 Chart 5 - Remuneration of directors and statutory auditors

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15 Group Structure

16 99.97% Il Duomo Assicurazioni S.p.A. 100% Duomo Previdenza S.p.A % Verona Assicurazioni S.p.A. 68% Risparmio & Previdenza S.p.A. 2% 2% 83.71% Cattolica Aziende S.p.A. 50% Eurosav S.p.A. 98% Cattolica On Line S.p.A. 50.1% Lombarda Vita S.p.A. 2% 50% BPV Vita S.p.A. Legenda Non-life Insurance Life Insurance Banking Others Services 50% Axa Cattolica Previdenza in Azienda S.p.A. Notes: Il Duomo owns 55.56% of Sulda and 50% of Cosmi. 66% San Miniato Previdenza S.p.A. 14

17 3% dica S.p.A. 97% 1% Verona Gestioni SGR 94.01% 0.1% Cattolica Immobiliare S.p.A. 99.9% 49% VP Servizi Assicurativi S.r.l. 51% 2% Sopass S.r.l. 98% Cassa di Risparmio di San Miniato S.p.A. 25% Nuova Banca Mediterranea S.p.A % Prisma S.r.l. 20% 15

18 Notice of Shareholders Meeting Shareholders are invited to attend an Ordinary & Extraordinary Meeting of Shareholders at the company s registered offices in Lungadige Cangrande 16, Verona (Italy), at 4 pm on Thursday, April 24th 2003 on first call or, on second call, if the legal quorum were not to be met on that date, c/o the premises of Ente Autonomo delle Fiere di Verona, Viale del Lavoro 8, Verona at Pavilion 38 entering from Gate C2 located in Via Belgio, at 9 am on Saturday, April 26th 2003, to discuss and pass resolutions on the following Ordinary meeting AGENDA 1. Approval of FY2002 financial statements and accompanying annual report and consequent decisions; 2. Appointment of directors; 3. Appointment of the Statutory Auditors Committee and of its President and determination of relevant emoluments; 4. Conferment of assignment for independent auditing of statutory and consolidated year-end financial statements and of the statutory and consolidated first-half interim reports for the 3-year period 2003, 2004 and Extraordinary meeting 1. Proposal to increase share capital by 12,924,066 via allocation to capital of part of the extraordinary reserve available with proportional assignment to shareholders of one free share of the nominal value of 3.00 for every ten shares owned. Relevant and consequent decisions. The directors reports and the further documentation envisaged concerning agenda items will be lodged at the company s registered HQ and c/o Borsa Italiana SpA within the terms laid down in current regulations. Shareholders are reminded that, by law and according to company by-laws, attendance of shareholders meeting is open to those shareholders who have been registered in the Shareholders Register for at least three months and possess the relevant certification issued by intermediaries belonging to the centralised securities management system where their securities are lodged as per Article 85 of Italian Legislative Decree no. 58 dated February 24th 1998 and CONSOB (Italian listed corporate and stock-market surveillance commission) resolution no dated December 23rd Under the company by-laws, shareholders registered in the Shareholders Register after April 21st 2001 may attend the shareholders meeting on condition that the certification indicated above demonstrates ownership of at least 100 (one hundred) shares. 16

19 Shareholders holding shares that have not yet been dematerialised pursuant to the above-mentioned CONSOB resolution must deliver the share certificates promptly to a licensed intermediary for execution of the required dematerialisation process and release of the relevant certification. Pursuant to Article 45 of the company by-laws, the Statutory Auditors Committee will be elected on the basis of lists submitted by shareholders, which must indicate five candidates identified with consecutive numbers. Each list must be submitted by at least 250 shareholders eligible to vote at the Shareholders Meeting that elects the Committee and who document the said right as per current regulations. Each shareholder can take part in the submittal of just one list. If a shareholder does not observe this rule, he/she will not count for the submittal of any list. The signature of each submitting shareholder must be accompanied by a photocopy of a valid identity document. Each candidate can present him/herself in just one list and will otherwise become ineligible. The lists must be lodged at the company s registered offices at least fifteen days before the date fixed for the Shareholders Meeting on first call. Together with each list, within the deadline for lodging the latter at the company s registered offices, declarations must be lodged or otherwise cause all persons on the list to become ineligible in which the individual candidates accept their candidature and testify, under their own responsibility, to the absence of causes of ineligibility or incompatibility, as well as to existence of the requisites laid down by current regulations and by the company by-laws in order to hold office as a statutory auditor. Each person eligible to vote can only vote for one just. Whilst compliance with statutory provisions holds good, for the sake of greater clarity and parity of treatment and in order to facilitate exercise of the right to submit lists, the Board of Directors has decided to make the operational procedures to be followed in performing relevant activities explicit, lodging the procedures at the company s registered offices. Shareholders are invited to examine the company by-laws and the aforementioned operating procedures so as to be fully informed as regards appointment of the Statutory Auditors Committee. The Chairman (Giuseppe Camadini) 17

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21 Statutory governance bodies BOARD OF DIRECTORS Chairman Vice President Vice President Secretary Directors dott. GIUSEPPE CAMADINI* avv. ERMANNO RHO* avv. DANILO ANDRIOLI* dott. ing. GIUSEPPE NICOLÒ* dott. PIERLUIGI ANGELI avv. LUIGI BARAGGIA* p.a. PAOLO BEDONI* on. dott. CARLO CASINI prof. dott. ANGELO FERRO dott. STEFANO GNECCHI RUSCONE prof. dott. FELICE MARTINELLI dott. arch. GIUSEPPE MARTINENGO dott. GAETANO MIGLIARINI dott. CARLO ALBERTO PELLICIARDI prof. dott. GIORGIO PETRONI avv. LUIGI RIGHETTI avv. NICOLA ROTOLO dott. GIORDANO VERONESI STATUTORY AUDITORS COMMITTEE President Permanent statutory auditors Substitute statutory auditors dott. FRANCO GIAROLLI prof. dott. ALESSANDRO LAI dott. GIOVANNIMARIA SECCAMANI MAZZOLI dott. GABRIELE ALBERTINI dott. GIOVANNI PADOVANI GENERAL MANAGEMENT General Manager Deputy General Manager dott. EZIO PAOLO REGGIA dott. GIANCARLO BATTISTI sig.ra MARIA PAOLA BOSCAINI * The directors whose names are asterisked form the Executive Committee. 19

22 Statutory governance bodies BOARD OF DIRECTORS Chairman Vice President Vice President Secretary Directors dott. GIUSEPPE CAMADINI* avv. ERMANNO RHO* avv. DANILO ANDRIOLI* dott. ing. GIUSEPPE NICOLÒ* dott. PIERLUIGI ANGELI avv. LUIGI BARAGGIA* p.a. PAOLO BEDONI* on. dott. CARLO CASINI prof. dott. ANGELO FERRO dott. STEFANO GNECCHI RUSCONE prof. dott. FELICE MARTINELLI dott. arch. GIUSEPPE MARTINENGO dott. GAETANO MIGLIARINI dott. CARLO ALBERTO PELLICIARDI prof. dott. GIORGIO PETRONI avv. LUIGI RIGHETTI avv. NICOLA ROTOLO dott. GIORDANO VERONESI STATUTORY AUDITORS COMMITTEE President Permanent statutory auditors Substitute statutory auditors dott. FRANCO GIAROLLI prof. dott. ALESSANDRO LAI dott. GIOVANNIMARIA SECCAMANI MAZZOLI dott. MARCO BRONZATO dott. FRANCESCO PASSERINI GLAZEL GENERAL MANAGEMENT General Manager Deputy General Manager dott. EZIO PAOLO REGGIA dott. GIANCARLO BATTISTI sig.ra MARIA PAOLA BOSCAINI * The directors whose names are asterisked form the Executive Committee. As result after the Shareholders Meeting on April 26th

23 Powers of statutory governance bodies and powers delegated In line with the recommendation expressed by CONSOB with circular no dated February 20th 1997, below we indicate the powers and mandates conferred upon Directors, the Executive Committee and General Management. This document indicates membership of the company s Board of Directors, specifying the offices held by each director within the company. The Management Report also shows the offices of director or statutory auditor held by our directors in other companies listed on Italian and/or foreign regulated markets, in financial companies, banks, insurance companies, or companies of a significant size. The latter means those companies that match any one of the following criteria: (i) more than 500 employees, (ii) share capital exceeding 25 million, and (iii) annual sales exceeding 75 million. In the case of companies mandatorily obliged to draw consolidated year-end financial statements, the parameters mentioned refer to consolidated figures. The Board of Directors, based on an outright majority of attendees votes, appoints from among its members, individually, the Chairman, Senior Vice President, another Vice President, and a Secretary, who hold office until the end of their term of office as directors and can be re-elected. Together with two other directors appointed in the same manner, they form the Executive Committee. Pursuant to Article 38 of the Company by-laws, the powers of company signature are held by the Chairman and, in his absence, by the two Vice Presidents on an individual basis. The Board of Directors, however, can confer individual powers of signature also on other directors or also on other persons designated on a case-by-base basis. For acts of ordinary administration the powers of company signature pertain to the General Manager. The latter may delegate these, on an individual basis, to one or more managers designated by the Board of Directors, and also collectively as powers of joint signature, to other managers or staff employees, all designated by the Board of Directors. The General Manager can also delegate signature of policies on an individual basis to managers, staff employees or agents of the company. Powers of representation of the company in the courts pertain on a disjoined basis to the Chairman, Vice Presidents, and General Manager. The General Manager is also responsible for deciding and executing acts of ordinary and extraordinary administration reflecting all operations undertaken with the Deposits & Loans Bank (Cassa Depositi & Prestiti) and in relation to the Public Debt. For acts of ordinary administration execution can also be undertaken by managers, delegated with powers of company signature in the same way as envisaged in Article

24 Under Article 42 of the company by-laws, the Board of Administration decides on all matters of both ordinary and extraordinary administration not expressly reserved as being the prerogative of shareholders. Pursuant to the same article, the Board determines the powers of the Executive Committee. As regards this, the Board of Directors has delegated the Executive Committee for matters concerning investments and disinvestments of company resources (establishing the investment limits for individual operations); appointment of supervisors and office staff; creation of agencies and delegations and the appointment and revocation of agents; granting of interest-bearing loans to agents; plaintiff or defendant legal action; purchases of real estate assets; issues of funds for economic/social purposes and charity; and conventions to be signed with public or private entities. The Board of Directors has delegated the General Manager and Deputy General Managers with the power of suing the perpetrators of illegal activities undertaken to the detriment of the company. As regards the power to handle investments of company capital and of underwriting and equity reserves, the Board of Directors has established the quantitative and qualitative limits for execution of mandates for separate management of financial investments covering underwriting reserves (Framework Resolution). With the same resolution the Board of Directors delegated powers to the Executive Committee for the purchase of financial instruments designed to cover commitments connected with the issue of indexlinked and unit-linked products, establishing operational approaches, controls, and relevant rules. As specifically concerns abnormal and/or unusual transactions, on February 28th 2003 the Board of Directors also based on the guidelines indicated by CONSOB passed a specific resolution based on which: the Board of Directors has been assigned decision-making powers concerning abnormal and/or unusual transactions that, generally speaking, are believed to be such as to by virtue of their entity/importance, the nature of counterparts, and the subject of the transaction also in relation to ordinary management, method of determination of the price of transfer and timing of the event close to fiscal year-end cause problems concerning the accuracy/ completeness of year-end financial statements, conflict of interests, and the safeguarding of corporate assets; in assessing the existence or otherwise of the above conditions, reference will be made, as regards entity/importance to the transaction s incidence (also calculated using pro-forma methods or estimates) on (1) total consolidated assets, (2) consolidated net profit before extraordinary items and tax, and (3) consolidated net equity in excess of 5%. As regards determination of the price of transfer, reference will be made to reference markets and/or in any case prices and/or indicators accepted for assessment of its appropriateness. 22

25 Specific limits have been set for certain types of transaction, i.e.: a) acquisitions or divestitures of assets, liabilities and/or company divisions; b) loans; c) guarantees and commitments; d) operations on third-party capital; for which limited powers have been delegated to the Executive Committee. As specifically concerns transactions with related parties taking the latter to be those defined in CONSOB circular DEM/ dated September 30th 2002, has passed a resolution that, co-ordinated with the provisions concerning abnormal and/or unusual transactions outlined above, establishes that: if the abnormal and/or unusual transactions as described earlier, and also routine transactions, take place with related parties, when the relationship is with a company officer who would have the right to take part in or observe deliberations (director, statutory auditor or general manager) or with a related party via such an officer, the person concern limits himself to providing clarifications and then leaves the room prior to the decision; in order assure observance of conditions of consistency, in taking decisions when this is justified by possibly critical situations, among which the counterpart s related nature must be examined with special attention the opinion of one or more experts can be obtained choosing such experts according to criteria of expertise and independence concerning, depending on the various cases, on the economic terms, legitimacy, and technical features of the planned transaction; as regards reinsurance transactions with related parties, these have to be submitted to the Executive Committee and, in the case of treaties, to the Board of Directors; framework intercompany cost-allocation agreements must be decided upon by the Board of Directors and must be periodically checked by the Executive Committee. The Board of Directors is informed periodically on the activities performed by the officers and bodies delegated. 23

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29 Management report Management report Fellow Shareholders, Introductory overview The company s 107th fiscal year, for which we present the annual report to you, was one of the most intense and constructive in the company s 100+ years of history. During 2002 we in fact laid the foundations to adapt our corporate structure and operational models to the role acquired by the company as the 6th leading Italian insurer (1). Alongside intensive normal business activity, which enabled us to achieve net profit of 59.5 million (mn) (+36.44% vs. FY2001), we achieved a net profit, following demerger of the company s property division, of mn, leading to full-year net income of mn ( %), after taxes of 58.6 mn. During FY2002 we started and largely completed numerous extraordinary activities. Of these, particularly important was the corporate reorganisation plan that will channel some subsidiaries non-life divisions into the parent company and creation of Cattolica Immobiliare, 100% owned by group companies, to which the property division was spun off. The start of acquisition of the aforementioned divisions from the subsidiaries Cattolica On Line, Verona Assicurazioni and Cattolica Aziende will help to optimise the Group s organisational facilities, achieving further operating efficiency. Reorganisation is also intended to achieve better exploitation within the parent company of the skills and know-how built up by individual companies within their respective business sectors. Enhanced exploitation of the three company vehicles, following planned demerger operations, will assure an adequate initial structure for the start of strategically attractive business areas. As regards the newly incorporated property company, this move meets the following aims, i.e. (a) in capital terms, to fully surface the value of the Group s property assets and (b) in business terms, to facilitate more dynamic and efficient management of the assets in question. The primary objectives of the new company s business plan include improvement of investment profitability, enhanced exploitation of property assets value also via disposal, within the next three years, of some 75% of the properties included in the division spun off, and partial reinvestment of cash-in thus achieved in properties featuring high income potential. (1) Based on the ANIA (Italian national insurer association) 2001 ranking, taking into account the SAI/Fondiaria merger (direct Italian premiums elaborations by corporate groups in 2001 September 2002). 27

30 As anticipated, our company ended FY2002 with a positive bottom-line result. The following table summarises the impact of the property spin-off on the company s yearend results Net income millions Net income Effect of property spin-off Table 1 - Results gross and net of property spin-off Effect of Results net of Results Results as at property property (Amounts in 000) spin-off spin-off Pre-tax income 231, ,389 89,358 Taxes 58,640 28,778 29,862 Net income 173, ,611 59,496 The result achieved by the company makes it possible to propose distribution of an ordinary dividend of 1.00 per share, up by +28.2% over the previous year Dividend Euro 1.0 The overall amount proposed for distribution totals 43.1 mn As regards this, the Board of Director proposes, when approving allocation of FY2002 earnings, assignment to an extraordinary spin-off reserve of an amount equivalent to the capital gain on spin-off to the Cattolica Immobiliare subsidiary of the property division, net of related taxes and of the portion assigned by law to the legal reserve. This is because this positive income item stems from an intercompany transaction. Taking into account the above and the company s earning capability as highlighted in the company s Business Plan approved in November 28

31 Management report 2002, it is proposed to undertake a free capital increase envisaging assignment of one free share of the nominal value of 3.00 for every 10 shares owned, via use of 12,924, of the available extraordinary book, on the books at mn before the increase just mentioned. In Tables 2 and 3 below, we respectively show key operating figures and data concerning employees and the sales network, compared with those of FY2001. Table 2 - Summary data Summary data Change (Amounts in 000) Amount % Gross premiums written 1,222,689 1,233,099-10, Direct business - non life 833, , , Direct business - life 369, , , Indirect business - non-life 19,607 14,638 4, Indirect business - life Investments 5,241,585 4,843, , as % of premiums % % Non-life and life technical provisions 4,688,678 4,434, , Non-life technical provisions (premiums+claims) 1,291,101 1,064, , as % of premiums % % Life technical provisions (actuarial+class D) 3,397,577 3,370,031 27, as % of premiums % % of which provisions benefiting policyholders 1,505,947 1,446,331 59, Net investment income 113, ,375 2, Class III (unit/index-linked) income & gains net of charges 18,747-24,309 43, Other administrative expenses 43,586 40,675 2, as % of premiums 3.56% 3.30% Non-life insurance business-technical account result 19,759 34,949-15, Life insurance business-technical account result 16,971 22,330-5, Net income 173,107 43, ,

32 Table 3 - Employees and sales network Change Employees and sales network Amount % Employees No premiums per employee (in 000) 2,256 2,344 Direct network: Agencies No Partner networks: Branches No. 1,296 1, Financial advisors/promoters No ***** In its internal and external development orientations, the Cattolica Group has always maintained a strong focus on its core business, endowing the entire operating organisation with consolidated technical expertise and a strong image. The growth and fast-track development achieved in the last three years, the corporate operations and commercial agreements the result of widening of our strategic frontiers in terms of markets, product/service portfolio and channels are evolutionary choices made consistently with the strategic orientation highlighted above. Two primary channels assure sales coverage, i.e. agents and bancassurance. Agency network No. As at year-end agencies totalled 545 (+4.41% YoY) spread as follows: 332 in North Italy, 134 in Central Italy, 49 in Southern mainland Italy, and 30 in the Southern Italian islands. Going against the market trend, the company has continued to strengthen its agency set-up as a stable and profitable force for business development, continuing to seek new models featuring product innovation, support for recruiting and retaining agency staff, permanent training, reduction of administrative tasks, and optimisation of network remuneration, according to technical production results achieved. Northern Area Southern area Central Area Islands 49 30

33 Management report As regards bancassurance, in the last decade the company has steadily acquired a significant number of equity interests in medium/small, medium, and medium/large banks. The strategic objective of these deals was and is ongoing expansion of premiums collected via bancassurance with attractive returns on capital employed in terms of both dividends and sales margin. The model based on shareholdings in partner banks is confirmed. This approach has enabled the company to create stable relationships and to achieve a leadership position in the national panorama with 1,296 bank branches, up by 12.21% YoY and has enabled the Group to achieve a total of 2,748 bank branches. 1,400 1,200 1, ,155 Bank branches No. 1,296 The new alliances with Banca di Cividale 400 and Cassa di Risparmio di San Miniato 200 consolidate the Group s strategic stance in 0 this respect In December we set up a new life insurance company with Cassa di Risparmio di San Miniato San Miniato Previdenza that is 66% owned by Cattolica In November we completed acquisition of 50% of Eurosav, an insurance company active in the life business via a diversified sales network. The joint venture between Cattolica and Banca Popolare di Bari enables our company to strengthen its presence in a geographical area featuring strong development also featured the foundation of two other companies, i.e. Axa-Cattolica in Azienda, a company specialised in corporate welfare, 50/50 owned with Axa, and Cattolica Immobiliare into which, as already mentioned, the property division has flowed, thus permitting separation of the insurance and property businesses, with a view, in both cases to achieving greater efficiency and profitability. ***** 31

34 By way of confirmation of the trends already highlighted, the Group s market share was 4.37% (virtually unchanged vs. 4.28% in 2001). Non-life market share rose from 3.47% to 3.9% whilst market life share was 4.65% (vs. 4.96% in the previous year) (2) Group total market share (%) Group premium collection by channel (%) Non-life Life Total The Cattolica Group maintained its No. 6 slot in the national insurance ranking, with premium collections channelled as follows: banks 58.41%, agencies 37.45%, financial advisors 0.74%, brokers 0.76%, and direct 2.64%. Financial advisors Brokers Direct Agency network Bank branches Insurance operations ***** Total premium volume amounted to 1,223 mn, of which: non-life business 834 mn (+18.06%), life business 369 mn (-27.87%), and indirect business 20 mn (+30.25%). The downturn in life premiums was due to changes in bank sales networks. At group level this change, caused by constitution of joint ventures that previously sold products directly for Cattolica, is naturally counterbalanced. In non-life segment, motoring premiums continued their strong growth, increasing by 110 mn (+25.33%). Non-motoring non-life premiums grew by 6.42%, increasing by 17 mn in outright terms. (2) Based on final 2001 premiums and on estimates of 2002 direct Italian insurance premiums contained in the ANIA president s report (June 2002). 32

35 Management report Due to the effect of further acceleration of non-life business, the latter s incidence on direct business rose to 69.32% vs % in FY2001. Insurance operations also benefited from our selective approach, implemented via prudent underwriting policies in the non-life business. The ratio of claims made in the year to premiums pertaining to the year was 73.29%, whilst the ratio of claims pertaining to the year to premiums pertaining to the year was 76.64%. Non-life and life direct business - total indirect business millions Non-life direct business Life and non-life indirect business Life direct business 2,000 1,800 1,600 1,400 1,200 1, ,064 Technical provisions millions 1,924 1,892 1, Actuarial provisions amounted to 1,892 mn, whilst non-life technical provisions amounted to 1,291 mn. At year-end the total reinsurance balance was negative due to the increased cost of reinsurance coverage, also as a consequence of September-11th events. Non-life (premium provisions and claims) Life (actuarial provisions) Financial management At year-end net equity amounted to 1,010 mn. Net shareholders equity million 1,050 1,000 1,

36 As at December 31st 2002 investments exceeded 5,241 mn (+8.233%). Investments in land & buildings decreased due to spin-off to the new property company and accounted for 1.11% of total investments as opposed to 3.41% in FY % of the total consisted of shares and holdings in subsidiary, associated and other companies of which 24.19% accounted for by the newly incorporated companies Cattolica Immobiliare, Axa-Cattolica Previdenza, and San Miniato Previdenza % consisted of bonds and other fixed-income securities, 32.89% of shares in investment funds and index, and 3.11% of other types of investment. 5,500 5,250 5,000 4,750 4,500 4,843 Investments millions 5, The year featured a decrease in net capital and financial income, accompany by a decrease in net disposal income, which was not offset by the improvement in the balance between write-backs and write-downs. Besides the effects of the property spin-off, we also highlight the capital gains made on the sale of some properties, totalling 38.4 mn, together with disposal of some equity investments in group companies, functional to corporate reorganisation, with disposal profits of 5.8 mn. Work organisation and operating costs At year-end headcount totalled 542 employees (+3.04%). Employees No. Payroll costs, before allocation to specific areas, amounted to 30.8 mn with a 2.23% YoY decrease G&A costs, although up, showed the tendency to stabilise at a ratio of around 3.56% to premiums. The incidence of acquisition costs was 12.19% vs % in FY ***** 34

37 Management report In order to provide an overall picture of our activities, with special reference to shareholders, other individuals, groups and organisations that maintain relationships with the company and also to improve awareness of our corporate identity for the first time Cattolica has prepared a Social Report, which refers to FY2002, thus also responding to a request made in the past by shareholders. The report provides the qualitative and quantitative description of the results achieved by the Group and of their impact on those who have relationships with Group companies. Value-added generated and its distribution are the tangible expression of the Group s impact in economic and social terms. The document recalls the ethical values that Cattolica, together with all Group companies, conveys and highlights the consistency between our mission and the policies applied for its accomplishment. The Social Report is a particularly wide-ranging relationship medium, addressed to all stakeholders and that considers all the effects associated with the company s conduct. It maintains strong consistency with the accounting data shown in the Group s annual report, which it supplements and rounds off, and aids dialogue with stakeholders to whom it provides an overall representation of company performance. ***** In July The Wall Street Journal published the ranking of the top 500 European countries in which there were four new Italian companies, including Cattolica in 419th position. At the beginning of 2003 the US firm A.M. Best Co., one of the oldest and most authoritative rating firms, specialised in the insurance sector, confirmed an A rating for the Cattolica Group equivalent to excellent as regards the group s financial soundness. The same firm had already assigned our group an A rating in its previous four analyses, the last of which dated back to April The rating was accompanied by forecast of a stable near-term outlook Cattolica s rating reflects its excellent capitalisation model, based on careful risk analysis, its outstanding operational performance, and the stability of the company s positioning in the Italian market. And taking into account the foreseeable growth in premium volume the US firm believes that profits from the property spin-off will keep capitalisation at levels appropriate to the group s present rating. 35

38 BUSINESS PLAN 2002 marked the end of the third financial year considered in the business plan presented when the company was floated in The considerable expansion achieved by the organisation and the market scenario featuring growing competition have made it necessary for the Group to identify a new development path, able to further enhance its market position and consolidate its profitability. We have therefore elaborated the new Business Plan, which pinpoints the Group s mission and strategic guidelines for the next three years, together with the new business model and medium-/long-term operational and financial projections. Group mission The Group s mission confirms our strategic focus on the core insurance business, consistently with the market s new and wider strategic frontiers, continuing consolidation of existing businesses and developing new initiatives and strategic alliances in order to pursue: excellence in customer relationships with unified and integrated coverage of insurance, assurance and pension-planning requirements and with an offering of complete, customised and competitive services; ermanent creation of value, with the aim of development, stability, and soundness for shareholders and stakeholders, assuring a satisfactory risk/return trade-off with steady development of future profits, featuring limited volatility to the benefit of capital robustness, with an attractive payout; promotion of the ethical values that the Group has historically championed. Strategic objectives The plan identifies the guidelines that will make it possible to achieve our business and financial targets, i.e. full activation of intercompany synergies, strengthening governance functions and centralisation of activities and services; enhancement of the Group s insurance identities and of its technical riskmanagement capability, as levers to ensure consistent product/channel offerings to customers; maximisation of traditional networks commercial leverage in terms of territorial coverage (existing networks, new sales network) and integration of bank partners banking and financial products, also via creation of a sales brokerage house, whilst confirming the fundamental role played by the agency channel as the key lever in the Group s competitiveness. The main initiatives identified consist of (a) revision of organisational mechanisms and processes, (b) commitment in the recruitment, development and training of agency networks, and (c) development of a new physical network of single-card 36

39 Management report agents (Newco) that will further boost the Group s growth in terms of non-life market share and that will feature an innovative, efficient, and fast-acting distribution model, enhanced by the relationship factor typical of physical presence; strong coverage of banking partnerships, aiming to consolidate our position in the bancassurance market and monitor new business opportunities both in the same channel and also with other partners, capitalising on the experience built up in managing the partnership model. The leadership achieved by the Group in terms of banking sales outlets confirms the soundness of the partnership model. This will be consolidated in the next three years with further agreements of both the commercial and alliance types (acquisition of minority interests and joint ventures), albeit at a slower rate of growth than in the past. The stability now achieved in the bancassurance partnership market enables to project growth in the next three years aligned with that of the market, thus confirming our ability to cover it effectively; steady ongoing growth of future profits and a sound Group capital structure with attractive effects on return on equity. The drivers of business-plan growth The primary moves in the plan can thus be related to three main action areas, i.e. (1) the new business model (the parent company s new macro-organisation, Group reorganisation, management of equity investments, and centralisation of shared services, (2) commercial strategies (inauguration of new agencies, development of an innovative sales network, confirmation of banking JVs, and coverage of new markets), and (3) consolidation of operational mechanisms (infrastructures and application systems, risk-related tariffs, and commercial and operating processes). New business model Strengthening of commercial strategies and policies Consolidation of operational mechanisms Group reorganisation and management of equity investments Parent Company macro-organization and strengthening of governance functions Centralisation of common services Inauguration of new agencies (Duomo and Cattolica) Increase in agents capacity to sell life products Distribution brokerage company Newco Development of employee-benefit products (JV with Axa) Start of coverage of the non-profit market (Cattolica non-profit) Start of coverage of the health and accident & casualty market (Cattolica salute) Commercial processes Risk/tariff matching Operational processes (claims, back office rationalization) IT (infrastructures and applications systems) 37

40 The Group will adopt a new business model aiding immediately development of a customer orientation via segmentation of the production process (creation and product design/engineering sale) and assignment of clear responsibility by sales channel and specific organisational facilities, whilst at the same time assuring unitary management and full co-ordination at group level of all sales channels utilised. The coming on-stream of the business model will require further, gradual adaptation of the parent company s organisation in terms both of managerial functions and operating areas able to support the process of convergence of all group companies towards the chosen model. This will lead to evolution of the group s legal-entity and organisational structure and upgrading of the approach to managing equity investments. It is in this context that the legalentity reorganisation project is set, as already highlighted in the preliminary overview. This will cause some non-life activities currently managed by specific legal vehicles to move into the parent company s business units, thus freeing up company facilities for the development of new initiatives. Staff functions They enable the Parent Company to provide strategic direction and strategic, operational and technical/day-to-day co-ordination Central management Strategic planning Reinsurance Group auditing Human resources Channel coordination Budget control Investee companies External communication and investor relations Legal and corporate affair Strategic Group evolution Assures consistent business development by individual Group realities and ongoing pursuit of Group synergies Finance and investments Assurance Bancassurance Management and operating systems Ensures a growing contribution to results, supplementing pure insurance income Supervises the entire process concerning the agency channel. Acts as the non-life factory for the entire Group Supervises the entire process concerning the bancassurance channel. Acts as the life factory for the entire Group Governs the Group s organisational, administrative, and IT resources and achievement of common denominators in activities and/or services The new business model will also enable the Group to strengthen its focus on the market of reference via an offering diversified (in terms of products/services and channels) according to the various customer segments characteristics and specific needs. To this end, the plan envisages some strategic initiatives that will enable the Group to consolidate a customer culture and, when on stream, to achieve competitive positioning of our brands, with benefits in terms of both the quality 38

41 Management report of customer relationships and commercial penetration and effectiveness. Specifically, we envisage reinforcement of the mission as regards channel coordination and of the operational marketing facilities created within the Assurance and Bancassurance areas. These must receive commercial guidelines and orientations concerning the individual products/channels covered by each area of responsibility, plus identification of the customer segments to be targeted by products/services/sales channels. The new sales initiatives will, right from the start, be given a specific positioning (for example the Newco will focus on the mass and middle market). Product Manager - Non-life ASSURANCE Operational marketing Assurance Needs Typology product mix Expected economics Product design Guarantees Costs Engineering Guarantees Selling rules Tariffs Sales network Assurance Network development Sales supervision Product design Departures from rules when writing risks Product help desk Product Manager - Life BANCASSURANCE Operational marketing Bancassurance Needs Typology product mix Expected economics Product design Guarantees Costs Engineering Guarantees Selling rules Tariffs Product design Departures from rules when writing risks Product help desk Sales network Bancassurance Network development Sales supervision Within the strategic guidelines that the Group intends to follow, an important part is played by actions to consolidate operating mechanisms. These aim for (a) standardisation/optimisation of operating approaches in order to achieve economies of scale and scope, (b) savings/redeployment of resources to core business activities, and (c) homogeneous, linear and tightly managed processes. Consistently with the development thrusts indicated in the plan, we are now completing a master implementation plan. The latter creates the link between the strategic and operating phases via definition of project work to be launched, timing, and the main objectives to be pursued. 39