E.10. Capital management

The objectives of the Generali Group’s as well as the Company’s capital management policy are:
a) to guarantee the accomplishment of solvency requirements as defined by the specific laws of the sector where the Company operates;
b) to safeguard the going concern and the capacity to develop the own activity;
c) to continue to guarantee an adequate remuneration of the shareholders’ capital;
d) to determine adequate pricing policies that are suitable for the risk level of each sector’s activity.

E.10.1. Solvency I

The Company carries out business in the insurance sector, which is a regulated industry. The Company has to comply with all regulations set in the Insurance Act No 277/2009 Coll. and regulation No 434/2009 Coll., fully harmonised with EU regulation, including prudential rules relating to the capital. The prudential rules set the method for calculating Required solvency margin (minimum regulatory capital) and Available solvency margin (actual regulatory capital) which are both calculated separately for life and non-life insurance.

The industry’s lead regulator is the Czech National Bank which sets and monitors the capital requirements for the Company.

XLS

The Company closely monitors its compliance with regulatory capital requirements. The current approach for calculating capital requirements is based on Solvency I principles which are to be replaced by a new system of regulatory capital calculation – Solvency II. The Company is gradually implementing the Solvency II standards into its own risk capital management procedures.

E.10.2. Solvency II

The Generali Group makes use of an internal approach to determine the available financial resources and the capital requirements for risks which it is exposed to (Group Internal Model), while maintaining consistency with the basic framework of Solvency II, which comes effective from 2016. During 2015, activities aimed at enhancing the Risk Management System have continued, in accordance with the project aimed at fulfilling Solvency II requirements. The application for the regulatory approval of Group Internal Model was also finalized and submitted to the College of Supervisors representing the Supervisory Authorities from all the countries in scope of the Group Internal Model. The Group Internal Model was approved on 7 March 2016 and it will be effective for the Company as Solvency II comes to force in Czech Republic.

This development was linked to the refinement of the methodology concerning the assessment of available financial resources and the variety of associated risks, consistently with an economic approach. Within risk assessment and monitoring enhancement activities, focus has been given to improve the overall validation activity of the overall risk assessment process, in order to fulfil the tests and standard requirements of the forthcoming regulatory regime. Finally, activities aimed at a wider and more transparent disclosure of risks have been carried out, in light of Solvency II Pillar II (Own Risk and Solvency Assessment) and Pillar III requirements (regulatory and market disclosure).

The Company, as a part of the Generali Group, follows the Group approach. In this phase of legislative and market changes, the Capital Management Policy integrates the internal economic logic with the necessary considerations about existing capital constraints, with reference in particular to current local and the Group solvency requirements and Rating Agency requirements.