KPMG Insurance Reporting Roundup 2012 FINAL

FINANCIAL SERVICES
Insurance Reporting
Round-Up
Survey based on the 2011 year end
results of major European insurers
June 2012
kpmg.co.uk/insurance
The following people have made significant

contributions to this publication:
Danny Clark
Matthew Francis
Matthias Grsbrink
Bettina Hammers
David Holliday
Aleksandra Pomeranska
Alfons van der Vyver
Contents
Chapter 1: Summary
Chapter 2: At a Glance
Chapter 3: Key Performance Indicators
Chapter 4: Financial Performance
Chapter 5: Embedded Value
15
Chapter 6: Premiums and New Business
19
Chapter 7: Investments and Intangible Assets
23
Chapter 8: Capital, Risk and Solvency
33
Chapter 9: Basis of Preparation
41
Glossary
43
2012 KPMG LLP, a UK limited liability partnership, is a subsidiary of KPMG Europe LLP and a member firm of the KPMG network
of independent member firms affiliated with KPMG International Cooperative, a Swiss entity. All rights reserved.
1 | Insurance Reporting Round-Up 2012
Summary
Welcome to the latest edition of Insurance Reporting Round-Up.

This edition reviews the 2011 financial information published by
Europes largest insurers, seeking to identify trends in performance
and the way in which performance is reported.
The stalling economic recovery, lower interest rates,
increasing credit spreads, falling equity markets and record
levels of natural catastrophe losses made 2011 a challenging
year for European insurers. Yet against this background the
insurers in our survey produced a robust set of results, while
achieving an aggregate increase of 2.1 percent in total equity
compared to the prior year, further demonstrating the relative
stability of the European insurance industry.
New business
In general, as in 2010, companies reported stronger growth
in the developing markets of Asia and Latin America than in
more mature markets. Total net earned premiums for non-life
business increased by 1.4 percent, mainly as a consequence
of price increases.
Profitability
The aggregate IFRS profit or loss before tax earned by the
16 companies in our survey was 9.9 percent lower than in
the prior year, but individual results were mixed with the
majority of the companies in the survey reporting an
increase in their IFRS profit or loss before tax.
A number of the insurers reported increases in volumes

of savings-type products in the UK, but these increases
were generally more than offset by reduced sales volumes of
savings products in the rest of Europe and in North America.
Some insurers cited disinvestments or management actions
to withdraw or reduce sales of unprofitable or capital
intensive products as a reason for the reduction in sales
volumes of life insurance contracts.
Investment returns were adversely affected by higher

impairment losses on financial assets. However, the effects
of the increased volatility in financial markets were not all
negative. In addition, the full impact of the reduction in
investment returns was not reflected in IFRS profit
or loss because part of the reduction was attributed to
policyholders and part was recognised in other
comprehensive income.
Balance sheets
Most of the insurers reported increases in their total equity
over the year. Although some recognised significant losses
on Greek sovereign debt, most reported that the steps they
had taken to reduce their exposures prior to the announcement
of the restructuring of Greek government bonds meant that
they were able to absorb the consequential losses without
severely impacting their capital ratios.
Although the claims ratios of companies with significant

exposures to catastrophe risk were adversely affected
by the high level of accumulated losses in 2011,
most companies reported improvements in claims
experience in other areas.
At the end of 2011, the total value of Greek sovereign debt

(after incurred impairment losses) held by the surveyed
group was 2.7 billion. A more significant default, for example
by Spain, would have a significantly greater impact. At 31
December 2011, the surveyed insurers total direct exposure
to the sovereign debt of Spain was 42 billion, although it
must be remembered that a proportion of this exposure
would be borne by policyholders rather than shareholders.
Most companies reported little change in their regulatory
solvency levels (measured under Solvency I) compared with
the prior year.
Insurance Reporting Round-Up 2012 | 2
Financial reporting
Compiling this publication served to remind us of the diversity
in accounting and reporting practices that currently exist in the
European insurance industry. The lack of consistency in the way
that insurers report their financial results makes it more difficult
for analysts and investors to analyse and compare an insurers
performance. In an era where there is tough competition for
capital, the complexity and lack of comparability of insurers
financial information puts the industry at a disadvantage to
other sectors in which the financial position of a company is
easier to compare with its peers.
The proposed new International Financial Reporting Standard
for insurance contracts (IFRS 4 phase II) should go some way
to resolve this. We expect the final standard to be issued in the
second half of 2013, however, this is a best case scenario and
this timing could be under threat if stakeholders lose focus on
bringing the project to a conclusion.
Although IFRS 4 phase II is expected to improve both
transparency and consistency in financial reporting under
International Financial Reporting Standards, with benefits for
both investors and the insurance industry, this is only one of
the accounting bases under which insurers, and in particular
life insurers, currently report. We see external reporting by
insurers developing further in a number of other areas:
Non-GAAP profit measures are presented by all of the
insurers in our survey in their results presentation or annual
report. These measures are generally helpful because they
separate exceptional and other items from the insurers
underlying performance. This enables users to better
understand the insurers performance from year to year. The
down-side is that they do not necessarily aid comparability
between insurers because there is no consistent view within
the industry of what the non-GAAP profit measure should
include. We do not expect non-GAAP profit measures to
disappear completely when IFRS 4 phase II becomes
effective, but the extent to which they will be given
prominence, and the extent to which the adjustments
made to IFRS profit or loss become more standardised,
might be one way of gauging the success of the IASBs
insurance project.
Embedded value reporting is currently applied

inconsistently, with no timeline for convergence on a single
set of agreed principles. Our survey identified a decline in
the relative importance of embedded value metrics used
by the insurers in the survey. This would appear to be as
a consequence of Solvency II, which is driving companies
to reconsider how they measure value in their business.
Indeed, AEGON has decided to drop embedded value
reporting altogether from 2012 and replace it with
information based on Solvency II, including a marketconsistent measure of the value of its new business.
We would expect other insurers to consider whether
they should follow AEGONs lead.
Solvency measures have seen increasing prominence in
financial reporting since the start of the global financial crisis,
but they do not currently provide a reliable and comparable
measure of financial strength between different insurers
because of significant differences in assumptions and methods
used. We would expect that Solvency II will bring more
consistency to these measures with the group solvency
ratio becoming a market benchmark.
In the nearer term, we believe that Solvency II will continue
to drive developments in key performance metrics. Although we
have seen an increase in the use of solvency, cash generation
and return on capital metrics by insurers in the past few years,
the linkage between risk, capital, and cash generation is often
unclear. We believe that insurers might derive more of these
performance metrics from Solvency II in the future, because
of its explicit links between risk, capital requirements and
cash generation.
It will be fascinating to see how the Solvency II information and
IFRS phase II information come together and whether these
new metrics will help insurers to better explain their
performance to stakeholders. It is in the interests of all key
stakeholders, including insurance companies, trade bodies,
rating agencies, investors and accounting firms, that insurers
financial reporting becomes more transparent and comparable,
and that any differences between reporting bases are clearly
communicated and understood.
Danny Clark
Partner, Financial Services
2.
At a Glance
Total assets (m)
Total equity (m)
Net earned premiums (m)
Profit/(loss) after tax (m)
Dec 2011
Dec 2010
Dec 2009
Dec 2011
Dec 2010
Dec 2009
Dec 2011
Dec 2010
Dec 2009
Dec 2011
Dec 2010
Dec 2009
AEGON
345,577
332,222
298,540
25,734
23,543
18,993
16,114
19,238
17,746
872
1,760
204
Allianz
641,472
624,945
583,717
47,253
46,562
42,229
63,668
63,337
59,792
2,804
5,209
4,255
Aviva
372,790
441,686
422,930
18,334
21,153
18,004
34,641
39,545
37,629
69
2,179
1,514
AXA
730,085
731,390
708,252
50,932
53,868
50,192
80,021
82,939
84,408
4,516
3,091
4,033
CNP
321,011
319,609
301,877
13,217
13,178
12,426
29,919
32,241
32,523
1,141
1,288
1,122
Generali
423,057
422,430
423,817
18,121
20,065
19,924
62,739
65,727
64,036
1,153
1,968
1,670
ING
335,387
325,659
290,219
23,537
20,270
15,967
25,268
25,713
28,555
1,220
(1,540)
(584)
Legal & General
389,906
386,510
354,492
6,284
5,817
5,010
5,852
5,464
5,427
833
944
972
54,856
48,672
43,106
9,727
7,796
7,094
17,093
14,823
13,714
1,220
1,064
1,036
Munich Re
247,580
236,358
223,412
23,309
23,028
22,278
47,412
43,075
39,526
712
2,430
2,564
Old Mutual
193,790
230,985
195,486
12,958
13,693
12,783
3,753
3,639
3,171
1,114
(28)
(136)
Prudential
326,490
311,246
271,802
10,932
9,637
7,522
29,112
27,884
23,006
1,721
1,654
780
Standard Life
191,091
183,922
174,968
5,154
5,058
4,479
3,737
3,628
3,687
398
568
207
Swiss Re
174,462
176,396
179,751
24,163
20,780
19,573
15,291
14,108
16,270
2,009
1,532
356
Talanx
115,268
111,100
101,213
8,706
7,980
7,153
19,456
18,675
17,323
897
667
893
Zurich
298,007
290,094
285,108
26,271
25,672
23,961
30,797
32,676
33,904
2,722
2,518
2,859
5,160,829
5,173,224
4,858,690
324,632
318,100
287,588
484,873
492,712
480,717
23,401
25,304
21,745
Mapfre
Total
Net earned premiums are gross earned premiums less earned reinsurance premiums.
All balance sheet amounts are as at 31 December 2011, 2010 and 2009 and all income related amounts are for the year ending on the relevant balance sheet date.
3.
Key Performance Indicators
In last years survey we considered the key financial performance metrics highlighted
by the insurers in their presentations to analysts and investors as part of their
results announcements.
The content of these results presentations provides an indication of what the insurers
in our survey consider to be the most important and useful key financial performance
indicators (KPIs). We have repeated this exercise this year in order to identify changes
in the reported information and any emerging trends.
Approach
We have summarised these financial KPIs in the table on pages 7 and 8. In general,
we have used the same terminology as the source, although in a few instances, for
clarification, we have amended the terminology used. The overriding caveat for the
information presented is that it is limited to the financial metrics presented in the
first few pages of the financial performance section of the results presentations.
More insurers present

an alternative profit
measure within
their KPIs than an
IFRS profit measure
Our observations
The key metrics are presented in the order they appear in the results presentations.
IFRS (or US GAAP) profit or loss was presented as a key financial metric by only 10
(2010: 12) of the insurers in the survey. Although AEGON and AXA presented net
income as a key measure in 2010, they chose not to present an IFRS profit measure
as a headline measure this year. In 2010, only Mapfre and Swiss Re did not present a
non-GAAP profit measure as a key financial measure in their analyst presentations.
CNP and Munich Re also chose not to present a non-GAAP profit measure as a key
financial measure this year.
Gross volume information featured less prominently this year as AEGON, Munich Re,
Old Mutual and Prudential all appear to have dropped gross volume measures from their
headline metrics. It is worth noting, however, that only Talanx and Mapfre presented
gross written premiums, as reported in their IFRS income statements, as a key financial
metric in their results presentations. Most of the insurers included deposits received in
respect of investment contracts and mutual funds in their annual premium equivalent
(APE) and other sales measures.
Generali and Talanx

joined Allianz, AXA and
Prudential in reporting a
solvency measure as a
key financial measure
Increased focus on solvency measures

Generali and Talanx joined Allianz, AXA and Prudential in reporting at least one solvency
measure as a key financial measure in their analyst presentations. Allianz included an
economic solvency measure within its KPIs for the first time this year. Aviva, Legal &
General and Standard Life presented IGD surplus as a headline measure in their stock
exchange releases but did not present a solvency measure as a financial highlight in their
analyst presentations.
Unlike the prior year, AEGON, AXA and Generali did not include an embedded value
measure in their key financial highlights. Aviva chose to include an embedded value
new business measure this year, although it did not include an embedded value measure
in its key performance metrics in the prior year. The net effect continued the a trend
observed in previous years and in the current year only six of the insurers in the
survey included embedded value information as a financial highlight in their analyst
presentations. In any case, embedded value metrics were generally presented after
GAAP and alternative profit measures.
We observed that most insurers presented a different set of financial KPIs from
the prior year. Only Mapfre and Zurich made no changes to the key financial metrics
presented in their analyst presentations, while AEGON, Aviva, AXA, Generali and
Munich Re all made considerable changes this year.
It is not surprising that many of the insurers choose different headline metrics each
year in order to explain their performance in the best light. Insurers are no different from
other reporters in this respect. However, if one of the surveyed insurers decides to give
greater prominence to a particular performance measure in its analyst presentation
this does not necessarily mean that it has made wholesale changes to the key financial
information that it provides to investors. The analyst packs are generally comprehensive
and include a wide range of financial metrics. We have not lost sight of this, but
intentionally show only those metrics that enjoyed the greatest prominence in the
results presentations.
It remains to be seen whether the ongoing developments in insurance reporting,
including IFRS 4 Phase II and Solvency II, will lead to greater consistency in reported
KPIs. Both the IASBs new financial reporting standard and the public disclosure guidelines
under Solvency II are expected to increase comparability and consistency in the financial
information presented by European insurers, and may lead to the introduction of new
financial performance measures. As discussed further in chapter 8 Capital, Risk and
Solvency, it appears that insurers are slowly starting to prepare their stakeholders for
the forthcoming changes under Solvency II. It remains to be seen how different insurers
will approach the presentation and explanation of new metrics given the differences in
their strategies, business and drivers of performance.
Key financial performance indicators from results presentations

AEGON
Allianz
Aviva
AXA
CNP
Generali
ING
Legal &
General
Proposed
dividend
Total revenues
IFRS operating
profit
Underlying
earnings
Revenue &
new money
Operating result
Insurance
underlying result
before tax
Operational
cash generation
RoE
Operating profit
New business
internal rate of
return
Operating free
cash flows
Attributable
net profit
Net result
Insurance
operating result
Net cash
generation
Underlying
earnings
before tax
Net income
General business
combined
operating ratio
Solvency I ratio
Average
technical
reserves
Regulatory
solvency I ratio
Life general
account assets
and investment
spread
Worldwide
sales (APE)
Fee-based
earnings (as %
of underlying
earnings)
Proposed
dividend
Operating capital
generation
Debt gearing
Net assets
Economic
solvency ratio
Administrative
expenses /
operating income
Operating profit
Normalised
operational free
cash flow
Shareholders
equity
IFRS NAV
Economic
solvency ratio
Dividend
Dividend per
share
APE
RoE
FCD solvency
ratio
Dividend
Dividend
MCEV per share
Payout ratio
RoE
EEV operating
profit
Economic
solvency
EEV per share
Dividend
Volume information (excluding net measures)
EEV measures
Cash generation
Underlying earnings or operating profit
Solvency measures
Combined ratio
GAAP profit after tax
Capital market measures
Mapfre
Munich Re
Old Mutual
Prudential
Standard Life
Swiss Re
Talanx
Zurich
Revenues
Net profit
IFRS adjusted
operating profit
IFRS operating
profit
Operating profit
Net income
Gross written
premium
Business
operating profit
Gross written
premium
Shareholders'
equity
IFRS adjusted
operating EPS
Total profit
before tax
Assets under
administration
P&C
combined ratio
Net premium
earned
Net income
attributable to
shareholders
Managed savings
Dividend
Group RoE
Shareholders
funds
Third-party
assets under
administration
L&H benefit ratio
Combined ratio
General
insurance
combined ratio
Non-life
combined ratio
Return on
investments
Dividend
EEV new
business profit
Long-term
savings net flows
Return on
investments
Net investment
income
Global Life new

business value
Net result
Combined ratio
Embedded value
operating profit
Investment
management
third-party
net flows
RoE
Operating
profit (EBIT)
Farmers Mgmt
Services managed
GEP margin
Embedded value
shareholders'
funds
EEV operating
profit before tax
EPS
Net profit
(after tax)
Shareholders
equity
Underlying
free surplus
generation
EEV operating
capital and
cash generation
Shareholders
equity
Group net income

(after minorities)
RoE
Net remittances
Dividend
per share
Book value
per share
RoE
Business
operating profit
(after tax) RoE
EPS
IGD surplus
Group solvency
Dividend
4.
Financial Performance
The difficult financial

market conditions
and record levels of
catastrophe losses were
reflected in the lower
level of aggregate profits
IFRS profit or loss before tax

The unfavourable financial market conditions continued in 2011. The aggregate IFRS
profit or loss before tax across the companies surveyed amounted to 29.9 billion
(2010: 33.2 billion, 2009: 28.9 billion), a decrease of 9.9 percent over the prior year.
This represents a reversal of the trend observed in 2010, when the aggregate increase,
compared to 2009, was 14.9 percent.
Significant reductions in IFRS profit or loss before tax were reported by Munich Re, Aviva
and Allianz (3.0 billion, 2.7 billion and 2.3 billion respectively). However, the majority
of the surveyed insurers reported increases in IFRS profit or loss before tax, with ING,
AXA and Old Mutual reporting substantial increases of 2.8 billion, 1.6 billion and 1.0
billion respectively, primarily due to disinvestment activity.
The 2.8 billion increase in profit before tax reported by ING can be attributed in part
to the disposal of the bulk of its Latin-american operations, which recognised a profit
of 1.0 billion. AXAs increase was primarily due to an exceptional charge of 1.6 billion
incurred in the prior year on the partial disposal of its UK life & savings operations.
Old Mutual recognised an impairment loss of 1.0 billion in respect of its US Life
business in 2010. It completed the disposal of this business during 2011.
Most of the companies surveyed recognised reduced investment returns in IFRS
profit or loss before tax due to the difficult financial market conditions.
Profit before tax

m
8,000
7,000
6,000
5,000
4,000
3,000
2,000
1,000
0
(1,000)
(2,000)
AEGON
Allianz
December 2009
Aviva
AXA
CNP
December 2010
Generali
ING
Legal &
General
Mapfre Munich Re
Old Prudential Standard Swiss Re Talanx

Mutual
Life
Zurich
December 2011
Profit or loss before tax includes both continuing and discontinued operations and is stated after policyholder tax (for those companies that
separately present this measure).
Source: KPMG LLP (UK) 2012
This was the most significant contributory factor in the reduction in IFRS profit or loss before
tax reported by Aviva. It recognised 1.9 billion of negative investment return variances and
economic assumption changes in respect of its long-term business, compared with positive
variances of 0.9 billion in 2010. A large proportion of this turnaround (2.1 billion) was
attributed to movements in credit spreads in respect of its interest in Delta Lloyd.
A number of companies reported significant increases in impairment losses for financial
assets classified as available-for-sale. Allianzs reported 2.3 billion reduction in IFRS
profit before tax was largely attributable to a significant increase (2.9 billion) in such
impairment losses. These are discussed in more detail in chapter 7 Investments and
Intangible Assets.
Companies with significant exposure to natural catastrophe losses (Allianz, Mapfre,
Munich Re, Swiss Re, Talanx, and Zurich) all reported increases in losses from
these exposures.
Munich Re reported a 3.0 billion reduction in IFRS profit before tax compared to the
prior year. A significant part of the reduction can be attributed to the increase in incurred
claims in its reinsurance: property and casualty segment. Aggregate losses from
natural catastrophes were 4.5 billion, an increase of 2.9 billion over the prior year,
representing 28.8 percentage points of net earned premiums compared with 11.0
percent in the prior year. Its IFRS profit before tax was also impacted by write-downs
of investments of 4.6 billion, up from 2.2 billion in the prior year.
The impact of the high accumulation of natural catastrophe losses on the combined ratios
of the property and casualty insurers is discussed in more detail later in this chapter.
Underlying result
All of the insurance groups surveyed presented an alternative profit measure in their
result presentations and/or annual reports. These are mostly referred to as operating
profit, however we use the term underlying result to describe these measures in
this section. Underlying result is a non-GAAP measure and companies have different
definitions for this metric. For this reason, underlying results are not directly comparable
between companies, but they are helpful when analysing performance, and provide an
important insight into managements view of results as they develop over time.
Underlying result
m
10,000
8,000
6,000
4,000
2,000
0
(2,000)
AEGON
Allianz
December 2009
Aviva
AXA
CNP
December 2010
Generali
ING
Legal
Mapfre
& General
Munich
Re

Mutual
Life
Zurich
December 2011
The increase in aggregate underlying profit of 4.8 percent in 2010 was not repeated
this year. The aggregate underlying profit was 38.1 billion (2010: 40.1 billion, 2009:
38.2 billion), a decrease of 5.0 percent on the prior year. At an individual company level,
the results were mixed, with just over half (9 out of 16) of those companies surveyed
reporting an increase in their underlying result.
The most substantial reduction in underlying result was the 2.8 billion reduction
reported by Munich Re. Munich Res underlying result includes both underwriting
and investment returns in full, excluding only net foreign currency exchange losses
and finance costs incurred during the year.
Insurers based within continental Europe typically report an underlying measure

that excludes realised and unrealised gains on financial instruments. The convention
for UK based insurers is to include long term investment returns only within their
underlying measure, removing the impact of shorter term fluctuations. The measure
reported by Munich Re, includes the full investment return and is comparatively
more volatile. The substantial reduction in its underlying result, year on year, is broadly
consistent with the reduction in its IFRS profit before tax which is discussed in the
section above.
Combined ratio: non-life insurance business

The average1 combined ratio in 2011 across those companies that present this measure
was 97.9 percent (2010: 98.0 percent, 2009: 96.4 percent).
Combined ratio
%
120
110
100
90
80
70
60
50
Allianz
Aviva
December 2009
AXA
Generali
December 2010
Legal &
General
Mapfre
Munich Re
Primary
Munich Re
Reinsurance
Old
Mutual
Swiss Re
Talanx
Zurich
December 2011
The combined ratio is the sum of incurred losses and expenses divided by earned premiums in the period. The combined ratios presented are as
reported by the companies and have not been recalculated.
Munich Re presents separate combined ratios for its primary, reinsurance and health business segments. We have excluded the health business
ratios on the basis of materiality for the purposes of this graph.
The small reduction in the average combined ratio masks two distinct trends.
Companies with significant exposures to natural catastrophe losses (Allianz, Mapfre,
Munich Re, Swiss Re, Talanx, and Zurich) all reported that their claims ratios had
been adversely affected by the high level of accumulated losses experienced in 2011.
However, many of these companies reported improvements in their claims ratios for
other than catastrophe business and companies without significant exposure to this
type of losses (for instance Aviva, AXA, and Generali) reported improvements in their
claims ratios.
1. The average combined ratio is calculated using the ratios reported by insurers for their general
insurance business as a whole, with the exception of Munich Re, whose average combined
ratio is calculated based on the weighted (by gross premiums written) average of the separate
ratios reported for its primary, reinsurance and health business segments.
Increases in combined
ratios for catastrophe
business were offset
by decreases in
combined ratios for noncatastrophe business
Munich Re and Swiss Re reported the highest overall increases in their combined ratios
reflecting their relatively higher concentrations of exposure to natural catastrophe risk
arising from their reinsurance businesses.
Talanx reported only a small increase in its combined ratio (from 100.9 percent to 101.0
percent). Although the combined ratio of its non-life reinsurance business increased
from 98.3 percent to 104.2 percent, this increase was offset by a reduction in the
combined ratio of its direct business from 104.5 percent to 96.6 percent.
Legal & General reported the lowest combined ratio in 2011, in contrast to 2010 when
it reported the highest combined ratio due to a concentration of exposure to severe
weather incidents in the UK impacting its household book. Its general insurance
business is much smaller (measured in terms of written premiums) and its risk
coverage is less diverse than the other insurance groups which explains the relative
volatility of this performance measure.
5.
Embedded Value
AEGON announced
that it is to discontinue
publishing embedded
value metrics
As at 31 May 2012, 12 of the insurers included in our survey had published embedded
value supplementary information in respect of 2011.
As in previous years, six of these insurers (Allianz; Aviva; CNP; Munich Re; Old Mutual;
and Zurich) reported full compliance with the MCEV Principles2 although some of these
disclosed minor areas where they do not fully comply with MCEV Guidance. AXA and
Generali, while using market consistent methodology, continued to formally report
under the EEV Principles, whereas AEGON; Legal & General; Prudential; and Standard
Life continued to adopt a traditional real world approach, although, as in the prior year,
Prudential used a market consistent approach to derive an implied risk discount rate
for its UK shareholder-backed annuity business.
In May 2012 AEGON announced that it is to discontinue publication of traditional
embedded value metrics (EEV and VNB) and, in the future, will replace its EV report
with information based on Solvency II.
Changes in methodology
In April 2011, the CFO Forum announced that it had withdrawn its intention to make
the adoption of the MCEV Principles mandatory for its members for 31 December 2011
and subsequent year ends. In September 2011, responding to the lack of certainty about
Solvency II, it issued interim transitional guidance for companies reporting under the
MCEV principles for periods ending on or before 30 June 2012 clarifying that there is
no requirement to make allowance for Solvency II when applying the principles.
2. Copyright Stitching CFO Forum Foundation 2008

In the light of these announcements and taking into account ongoing industry
discussions, the insurers in our survey did not undertake any major changes to
the embedded value reporting methodologies that they apply.
A few MCEV reporters introduced minor adjustments to their approaches. Aviva made
restatements primarily to reflect modelling corrections to the valuation of certain US
life contracts and an overstatement of asset income identified in 2011. AXA made some
adjustments to its economic assumptions used in the stochastic modelling of options
and guarantees and included liquidity premiums on some additional products.
Zurich made a more significant change to its methodology. In order to achieve greater
consistency with generally applied industry standards, it included a liquidity premium
in its reference rates for its key major operating currencies and set the cost of capital
applied to residual non-hedgeable risks at 4.0 percent. A liquidity premium was also
applied by Zurich for the first time this year to the calculation of the time value of
financial options and guarantees.
Sensitivities to
movements in sovereign
debt spreads were
presented by some
EV reporters
Sovereign debt
In response to the widening of credit spreads of sovereign debt issued by some
European countries (see chapter 7 Investments and Intangible Assets), the CFO
Forum stated, in December 2011, that including an allowance for these conditions
as a component of the reference rate in EV reporting, or disclosing a sensitivity to
such parameters as additional information would represent an initial step towards
convergence of MCEV with Solvency II. A number of insurers addressed this statement
in their 2011 reports through sensitivity disclosures, but none explicitly made such
an allowance.
Allianz and AXA disclosed the impact of applying a government spread premium (GSP)
of 190 basis points to reference rates for its Euro denominated liabilities in place of
an illiquidity premium. Generali disclosed the sensitivity of adding a GSP of 177 basis
points to its reference rates instead of an illiquidity premium. Aviva calculated the
sensitivity of using the ECB AAA and other government curve in reference rates
for liabilities in Italy and Spain but did not disclose the level of the GSP applied.
EV of covered business
m
45,000
40,000
35,000
30,000
25,000
20,000
15,000
10,000
5,000
0
AEGON
Allianz
December 2009
Aviva
AXA
December 2010
CNP
Generali
Legal &
General
Munich Re
Old Mutual
Prudential Standard Life
Zurich
December 2011
Embedded value of covered business

In aggregate, the embedded value of covered business for the 12 reporting companies
decreased by 8.8 percent to 201.6 billion. This reversed an upwards trend in previous
years (2010: increase of 7.4 percent; 2009: increase of 23.2 percent) and reflected the
difficult conditions in financial markets.
The extent to which spreads widened between government bond yields in many
European countries and swap rates during the year was unparalleled. When combined
with higher corporate bond spreads, lower swap interest rates, poor equity market
performance and higher equity and interest rate volatilities, significant negative
economic variances and consequently lower embedded values of covered businesses
were recognised. The impact was less prominent in the results reported on a real world
basis than for market consistent reporters. Legal & General and Prudential were the
only two companies surveyed that reported an increase in the EV of their covered
businesses during 2011. Prudentials increase was primarily driven by the performance
of its Asian business.
EV operating earnings
EV operating earnings is a more stable measure than the movement in the
embedded value of covered business because it excludes, inter alia, economic
variances (comprising the difference between actual experience during the year
and that implied by economic assumptions at the start of the year, and the impact
of changes in economic assumptions at the end of the year), and the impact of
foreign currency translation effects.
EV operating earnings (net of tax)

m
7,000
6,000
5,000
4,000
3,000
2,000
1,000
0
AEGON
Allianz
December 2009
Aviva
AXA
December 2010
CNP
Generali
Legal &
General
Munich Re
Old Mutual
Zurich
December 2011
The aggregate EV operating earnings (net of tax) for the embedded value reporting
companies increased by 14.4 percent to 27.6 billion (2010: 24.1 billion, 2009: 21.8
billion). Most insurers reported a rising EV operating result, driven by positive experience
variances and positive effects of changes to non-economic assumptions.
The increase in Munich Res EV operating result, driven by an improved result in its
primary insurance segment, was mainly due to these factors. Its reinsurance segment
also achieved a higher EV operating result mainly due to an increase in the value
of new business. Allianz reported significant positive other operating variances
(1.4 billion), driven by management actions in response to economic changes, such
as changing crediting and investment strategies, and modelling changes. The significant
improvement in AEGONs EV operating result was driven by stronger in-force performance,
in particular in respect of its pensions business, which offset a reduction in the value
of new business. The increase also reflected a change from the recognition of high
negative changes in operating assumptions in the prior year to a small positive impact
in the current year.
On the other hand, AXA and Zurich reported a decrease in EV operating earnings
compared to the prior year. Zurich reported adverse experience and other operating
variances, as well as unfavourable assumption changes. For AXA the trend in EV
operating result was distorted in 2010 by a positive adjustment of 1.5 billion arising
from the use of lower loss ratio assumptions for its French group protection business.
6.
Premiums and New Business
For the 16 companies included

in the survey, total net earned
premiums (as presented in
chapter 2 At a Glance) were 484.9
billion (2010: 492.7 billion; 2009:
480.7 billion). This represents
a decrease of 1.6 percent when
compared to the prior year.
It is difficult from an analysis of total net earned premiums to obtain an overall view
of trends in the relative performance of non-life and life insurance segments. A better
understanding can be obtained by comparing the results on a segment by segment
basis, as demonstrated by our analysis.
The aggregate net earned premiums for the surveyed group for non-life business
increased compared to the prior year contrasting with the aggregate net earned
premiums for life business which decreased over the same period.
As in the prior year, insurers reported stronger growth in developing markets for both
non-life and life businesses than in more mature markets.
The developing markets

in Asia and Latin America
continued to drive
earned premium levels
but conditions in more
mature markets, in
particular for savings
products, were
more challenging
Non-life insurance
The separately reported aggregate net earned premiums for non-life business were
168.0 billion (2010: 165.6 billion; 2009: 159.8 billion). This represents an increase
of 1.4 percent compared to the prior year. At an individual company level the results
were mixed.
The decrease of 7.3 percent in net earned non-life premiums reported by Aviva was
due to the effects of foreign currency translation as the company otherwise experienced
an increase of 5.6 percent in its general and health insurance premiums. The company
attributed this growth to strong underwriting performance in the UK. In Europe, Aviva
attributed growth to successful rating actions in a number of markets.
Net earned premiums - Non-life

m
45,000
40,000
35,000
30,000
25,000
20,000
15,000
10,000
5,000
0
AEGON
Allianz
December 2009
Aviva
AXA
December 2010
CNP
Generali
ING
Mapfre
Munich Re
Old Mutual
Swiss Re
Zurich
December 2011
It was not possible to separate net earned premiums between life and non-life insurance for Legal & General and Talanx.
Prudential and Standard Life do not underwrite non-life insurance.
In spite of positive market pricing across its personal and commercial lines, AXA
reported lower net earned premiums compared with the prior year (decrease of 2.1
percent), driven primarily by business disinvestments.
Zurich reported a 4.1 percent decrease in non-life net earned premiums driven principally
by a decrease in its Farmers business which was partially offset by increases across
other general insurance lines.
Munich Re reported a 9.0 percent increase in net earned non-life premiums, highlighting
satisfactory outcomes in a difficult market of renewal negotiations for reinsurance
treaties. While acknowledging that pressures still persist in pricing, it identified that
prices were stabilising following the recent downward trend. Following the Australian
floods and the Japan earthquake, it reported that prices for natural hazard rose by up
to 50 percent. The company attracted new business in developing markets, mainly
in Asia, with treaties that provide capital relief through risk transfer contributing a
substantial portion.
Mapfre experienced a 13.7 percent increase in net earned non-life premiums benefitting
from the development of its international business, in particularly in Latin-american
markets, and in its reinsurance business, slightly offset by a decrease in domestic
premiums in Spain. The increase also reflected an appreciation of the Euro against
the US Dollar and other currencies.
Life insurance
The present value of new business premiums (PVNBP) was presented as a measure by
all those companies that reported EV supplementary information. For the 12 companies
that presented this measure, PVNBP in aggregate for 2011 was 331.7 billion (2010:
350.3 billion; 2009: 328.2 billion), a decrease of 5.3 percent when compared to the
prior year. Only Legal & General, Prudential, Standard Life and Zurich reported increases
in this measure. The movement in PVNBP was broadly consistent with the movement
in annual premium equivalent (APE) for the companies that reported both measures
indicating that any changes in discount rates were not likely to have been a significant
contributory factor in the reduction of PVNBP.
Present value of new business premiums

m
70,000
60,000
50,000
40,000
30,000
20,000
10,000
0
AEGON
Allianz
December 2009
Aviva
AXA
December 2010
CNP
Generali
Legal &
General
Munich Re
Old Mutual
Zurich
December 2011
Present value of new business premiums (PVNBP) represents the total of single premium sales and the discounted value of regular premiums expected
to be received over the term of new contracts. ING, Mapfre, Swiss Re and Talanx did not present PVNBP as a measure of new business written.
Although sales of
savings products were
generally diminished due
to challenging economic
conditions, sales
volumes in developing
markets continued to
grow and some of the
UK companies also
achieved growth in
their home market
Prudential increased its present value of new business premiums by 7.1 percent,
driven by significant growth of 18.9 percent in its Asian operations, offset by a decline
in its UK insurance operations. The increase was partially attributable to a decrease in
the weighted average of discount rates used to calculate PVNBP. Asia now makes up
32.1 percent of Prudentials PVNBP, up from 28.9 percent in the prior year.
Zurich reported that its global life business continued to diversify into higher growth
markets in Latin America, Asia-Pacific and the Middle East, and was the main driver of a
6.4 percent increase in PVNBP. It reported strong growth in sales in the UK, particularly
in its private banking client and its corporate protection and savings business, but
reduced volumes in Germany, Ireland and Spain due to challenging market conditions.
Increased sales volumes in the UK were the main driver behind the increases in PVNBP
achieved by both Legal & General and Standard Life.
The most significant reductions, in percentage terms, in PVNBP were reported by
AEGON, Old Mutual and Aviva.
AEGON reported a 19.9 percent decrease in PVNBP, primarily as a consequence of
re-pricing certain universal life products in the US and anticipated lower levels of sales
of individual pensions and new group pension schemes in the UK following reductions
in the commission levels paid to advisors on these products.
Old Mutuals 13.9 percent reduction in PVNBP included the impact of the sale of its US
Life business. Excluding this impact PVNBP fell by 7.2 percent. This was mainly attributed
to a reduction in sales volumes in its Wealth management business, marginally offset by
growth in its Nordic business.
Aviva reported a 13.0 percent decrease in PVNBP primarily due to lower sales of savings
and protection products in some European countries that were not fully offset by growth
in other lines and regions.
Generali reported the most significant decrease in PVNBP in absolute terms
(a decrease of 4.8 billion, or 10.0 percent). It suffered reductions in PVNBP in all of
its main markets, due to the effects of the financial crisis on its savings business, and
in particular on its single premium business in France. It reported a positive development
in its protection business.
7.
Investments and Intangible Assets
After a positive start to

2011, market sentiment
deteriorated significantly
over the second half of the
year resulting in increased
volatility over a range of
financial markets
2011 was another challenging year for the financial markets. The effects of the worsening
European sovereign debt crisis and Standard & Poors downgrading of the US federal
governments debt rating from AAA to AA+ were compounded by downward revisions
to growth forecasts in a number of major economies. Concerns about further recessions
in the US and Europe led to a worldwide fall on the stock markets in the third quarter
of the year, and as investors sought to reduce their exposure to higher risk assets the
increased demand caused yields of traditional safe haven sovereign bonds to decline
to historic lows.
Almost without exception, equity markets fell over the year. Germanys DAX and
Frances CAC 40 fell by 14.7 percent and 17.0 percent respectively, and in the UK, the
FTSE-100 index fell by 5.6 percent. In the Far East, the Nikkei 225 fell by 17.3 percent
and the Hang Seng by 20.0 percent. However, despite experiencing significant volatility
during the year, the S&P 500 index closed less than a point down on the year3.
The development of interest rates has probably a greater significance for the insurance
industry because of the relatively high asset allocation to fixed interest securities.
Yields on the diminishing number of safe haven government bonds fell over the
year but credit spreads on corporate bonds increased, partially offsetting the positive
impact on asset values of falling risk free yields. For example, the yield on a 10-year
German government bond fell to 1.83 percent from 2.92 percent at the start of the year.
Moreover, the European Central Bank lowered its key interest rate to 1.0 percent in
December 20113.
3. Source: markets.ft.com
European countries
with high budget deficits
and a negative economic
outlook continue to
be a major concern for
European insurers
In contrast, risk premiums on the sovereign bonds of some so called peripheral

European countries, in particular Greece and Portugal, increased significantly over the
year. The major European insurance groups have taken steps over the past few years to
reduce their exposure to these peripheral countries (and others such as Ireland, Hungary
and Cyprus) and by de-risking their portfolios in this way they appear to have been able to
absorb the impact of the restructuring of Greek government debt in March 2012 without
significantly impacting their capital reserves.
A more significant default, for example by Spain would be of greater concern, not only
to insurers but to the wider financial community because of the significant extent to
which both banks (and insurers) are exposed to larger economies. During the year when
the governments of both Italy and Spain came under increased pressure from financial
markets the European Central Bank (ECB) intervened by purchasing government bonds
of these countries in the secondary market.
When investing in bond markets, the insurance industry, like all other institutional
investors, has to accept credit risk in addition to market risk. Usually when an economic
crisis occurs there is shift away from higher risk assets into safe haven sovereign debt.
However, because countries such as the US and France have been downgraded, such
strategies are becoming less easy to apply. After a short period of relative calm following
the Greek debt restructuring in March 2012, the reaction to the election results in Greece
and France at the beginning of May 2012 and Spains 100 billion banking bailout in June
2012 have provided a timely reminder that there is still a long way to go before conditions
in the financial markets return to something like normality.
Given the deteriorating financial market conditions and decreases in interest rates,
further decreases in investment returns were to be expected this year. As can be
seen in the graph on the next page, investment returns have diminished for most of
the surveyed insurers in each of the last two years. It is noticeable that the companies
experiencing the most significant reductions in the current year include those companies
(ING, Legal & General, Old Mutual, Prudential and Standard Life) with the highest
proportion of equity securities compared to the other insurers in the surveyed group.
This reflects the relatively poor performance of equity markets in the second half of
2011 compared to the previous 18 month period.
Total investment returns

%
16
14
12
10
8
6
4
2
0
AEGON
Allianz
December 2009
Aviva
AXA
CNP
December 2010
Generali
ING
Legal &
General
Mapfre
Munich
Re

Mutual
Life
Zurich
December 2011
The total investment return ratios represent the total investment result divided by the average year-on-year value of the investment portfolios, as presented
in the insurers IFRS primary statements. Within the investment result we have included investment income recognised in profit or loss, as well as any movements
in fair values taken directly to other comprehensive income. Within the investment returns and portfolios we have included unit-linked funds, with the
exception of Allianz which only presents the changes in fair value of unit-linked assets and unit-linked liabilities on a net basis. We do not use the percentage
investment returns reported by the insurance groups in our survey because these are not calculated on a consistent basis across the companies surveyed.
The investment returns of many of the surveyed insurance groups with significant
holdings of available-for-sale financial assets were impacted by higher impairment
charges compared with the prior year. The insurance groups that suffered the largest
impairment losses in 2011 were Allianz, CNP and Generali.
Allianzs net impairment losses of 3.7 billion (2010: 0.8 billion) included a gross
impairment of 1.0 billion on Greek sovereign bonds. Additional impairment losses
of 1.9 billion on equity investments comprised the remainder of the increase.
CNP recognised cumulative impairment losses of 3.1 billion, compared with only
0.4 billion losses in the prior year. The impairment losses included 1.3 billion on Greek
debt securities. Like Allianz, it also recognised a significant increase in impairment
losses on equity securities, up from 0.2 billion to 1.6 billion in the current year.
Generali booked gross impairment losses of 4.2 billion, comprising losses on

available-for sale financial assets of 3.0 billion; investments in unconsolidated
subsidiaries, associates and joint ventures of 0.7 billion; and loans and receivables
of 0.5 billion. The impairment losses recognised on available-for-sale financial assets
increased from 0.6 billion in the prior year. The majority of this increase was attributable
to an impairment charge of 2.2 billion on its Greek sovereign debt. Impairments
recognised on equity securities increased from 0.5 billion to 0.7 billion.
A number of companies reported the extent to which they had impaired their Greek
sovereign debt. The majority of these companies (Allianz, Generali, ING and Talanx)
reported that they had written down the value of their Greek sovereign debt to
between 20 and 25 percent of its nominal value. CNP and Mapfre reported that
they had valued Greek sovereign debt at approximately 30 percent and 50 percent
of its face value, respectively.
Mapfre has experienced the most volatility in its total investment return over the
past three years. This is almost entirely due to volatility in the cumulative amounts
recognised in other comprehensive income for available-for-sale securities. The
investment return recognised in profit or loss increased marginally from its 2009
level, in both 2010 and 2011.
Sovereign debt
disclosures did
not always clearly
distinguish between
shareholders and
policyholders exposures
Exposures to sovereign debt and hybrid bank securities

Most of the surveyed insurance groups commented in their annual reports on the
developing European sovereign debt crisis, including the steps they had taken to
de-risk their investment portfolios. Most of the insurers also provided explicit disclosure
of their exposures to government bonds and other state-guaranteed securities issued
by the countries that had either applied for support from the European Financial Stability
Facility or received support from the European Central Bank via government bond
purchases in the secondary market (Portugal, Italy, Ireland, Greece and Spain, or PIIGS).
Only Swiss Re did not provide details of its exposures in its annual report although it did
include this information in its 2011 Q4 analyst pack.
The graph on the next page shows the exposure to sovereign debt in the PIIGS countries
for those insurers that reported a gross exposure (measured at fair value) of more than
5 billion at the end of 20114. De-risking actions continued in 2012 and therefore the
graph below may not be representative of the current exposures. The disclosures of
risk exposures were not always provided by the insurance groups on a consistent basis,
with some insurers reporting the exposures within their available-for-sale portfolios only,
and with others also separately presenting their exposures within other portfolios.
In case of Aviva, CNP, Generali and Zurich, the exposures reported included those
investments where the risk is borne by the policyholders, in addition to shareholders
assets. However, in many cases it was not possible to determine if the exposures were
presented gross or net of policyholder exposures.
4. Included are government and government agency bonds, and other state-guaranteed securities
Exposure to PIIGS sovereign debt

m
60000
50000
40000
30000
20000
Spain
Greece
Ireland
Italy
Zurich 2011
Zurich 2010
Munich Re 2011
Munich Re 2010
Mapfre 2011
Mapfre 2010
Generali 2011
Generali 2010
CNP 2011
CNP 2010
AXA 2011
AXA 2010
Aviva 2011
Aviva 2010
Allianz 2011
Allianz 2010
10000
Portugal
The exposures presented in the graph are the exposures disclosed by the insurers. For Allianz, AXA, Mapfre and Munich Re financial
assets classified as at fair value through profit or loss are excluded.
Although those companies with the most significant exposures all reported reductions
in their exposures this year, the reductions do not necessarily reflect the extent of their
de-risking activity because it also reflects falls in value due to increased credit spreads,
as well as impairments recognised on Greek sovereign bonds during the year. A number
of the companies with less significant exposures (Aviva, Mapfre and Zurich) reported
increases in their exposures to Spain and as a result reported increases in their total
exposures. Unsurprisingly, both Generali and Mapfre continued to report significant
exposures to their own countries sovereign debt.
The most significant exposures to the PIIGS economies continue to be in relation
to the larger economies of Italy and Spain. The impairments losses recorded on Greek
sovereign debt did not have a significant impact on the total level of exposures during
the year.
Many of the insurance groups provided more detailed information about their exposures
in their annual reports than in the prior year. The information provided by AEGON is
a good example of the more detailed disclosures provided by a number of the
surveyed companies.
Exposures to European peripheral countries

Central government
Banks
RMBS
Other corporates
2011 Total
Amortized
cost
Fair value
Amortized
cost
Fair value
Amortized
cost
Fair value
Amortized
cost
Fair value
Amortized
cost
Fair value
Portugal
13
28
22
66
48
95
80
202
157
Italy
46
38
243
206
54
50
752
654
1,095
949
Ireland
30
26
11
12
260
243
281
303
582
584
Greece
11
22
24
34
32
Spain
1,022
962
436
366
928
840
808
797
3,194
2,965
Total
1,112
1,034
729
613
1,308
1,181
1,958
1,858
5,107
4,687
Source: AEGON Annual Report 2011, page 213
Munich Res disclosures included a table showing the period to maturity of government
bonds and government-guaranteed securities of PIIGS issuers according to their
carrying amounts.
Period of maturity of government bonds and government-guaranteed securities of Greek, Irish , Italian, Portuguese and
Spanish issuers according to carrying amounts
Greece
Ireland
Italy
Portugal
Spain
Total
Up to one year
36
103
154
140
438
Over one year and up to two years
11
60
29
56
156
Over two years and up to three years
39
127
173
Over three years and up to four years
38
23
32
38
135
Over four years and up to five years
71
260
59
101
491
Over five years and up to ten years
75
712
617
155
455
2,014
Over ten years
168
237
1,293
121
914
2,733
Total
369
1,410
2,214
316
1,831
6,140
Source: Munich Re Group Annual Report 2011, page 99
The sovereign debt crisis is threatening to develop into a wider banking crisis. The
major European banks hold significant amounts of sovereign debt in their balance
sheets. Subordinated securities have been used widely by European banks as a
means of raising additional capital and the value of these securities has become
more volatile following successful attempts by the European Commission to impose
burden sharing on the subordinated securities of banks receiving significant state aid.
As in the prior year, only some of the surveyed insurers provided information about
exposures to subordinated securities issued by banks in their 2011 annual reports and
there was significant variety in the analysis provided. Some of the insurers, such as
Allianz, included more detailed information in their analyst packs. AEGONs annual
report included comprehensive disclosures about its credit risk exposures including
a section describing its exposures to the financial sector. This included a table analysing
its exposure to capital securities within the banking sector:
Americas
The Netherlands
United Kingdom
New markets
Total cost price
Total fair value
Hybrid
163
26
189
157
Trust Preferred
572
17
589
466
Tier 1
311
165
393
36
905
680
Upper Tier 2
438
24
126
10
598
394
1,484
189
562
46
2,281
1,697
Hybrid
183
38
222
196
Trust Preferred
566
50
616
495
Tier 1
480
195
490
48
1,213
1,038
Upper Tier 2
673
63
136
879
718
1,902
258
714
56
2,930
2,447
At December 31, 2011
At December 31, 2010
Source: AEGON Annual Report 2011, page 210
Fair value hierarchy disclosures

IFRS 7 requires that financial instruments carried at fair value in the statement of
financial position are classified using a fair value hierarchy that reflects the significance
of the inputs used in making the fair value measurements5.
5. The fair value hierarchy has the following levels:
Level 1: Financial instruments for which the fair value is determined by using quoted and
unadjusted prices in active markets for an identical asset or liability;
Level 2: Financial instruments for which the fair value is determined by using valuation methods
with significant inputs other than quoted prices that are observable for the assets or liabilities,
either directly (i.e. as prices) or indirectly (i.e. derived from prices); and
Level 3: Financial instruments for which the fair value is determined by using valuation techniques
with significant inputs for the asset or liability that are not based on observable market data.
The approach to hierarchy level identification involves the assessment of whether the
prices used to measure the financial assets are derived directly from quoted prices in
an active market, and if not, the significance to the overall measurement of any inputs
that are not based on observable market data.
On average, the surveyed insurers classified 61.8 percent of their fair valued assets
in level 1 (2010: 64.7 percent), 36.0 percent in level 2 (2010: 33.0 percent), and only
2.3 percent in level 3 (2010: 2.4 percent). In 2011, most of the insurers in the surveyed
group did not report any significant transfers between different levels in the hierarchy.
Only AXA and Talanx reported significant changes in the percentage of assets classified
to level 1 and level 2.
Fair value hierarchy

%
100
80
60
40
Level 1
Zurich 2011
Zurich 2010
Talanx 2011
Talanx 2010
Swiss Re 2011
Swiss Re 2010
Standard Life 2011
Standard Life 2010
Prudential 2011
Prudential 2010
Old Mutual 2011
Munich Re 2011
Old Mutual 2010
Mapfre 2011
Munich Re 2010
Mapfre 2010
Legal & General 2011
Legal & General 2010
ING 2011
ING 2010
Generali 2011
Generali 2010
CNP 2011
AXA 2011
Level 2
CNP 2010
AXA 2010
Aviva 2011
Aviva 2010
Allianz 2011
Allianz 2010
AEGON 2011
AEGON 2010
20
Level 3
AXA explained that it had transferred a large portion of its corporate and government
bonds from level 1 (2011: 48 percent; 2010: 71 percent) to level 2 (2011: 49 percent;
2010: 27 percent). The transferred securities included the government bonds of Italy
and Belgium, adding to the government bonds of Greece, Ireland, Portugal, and Spain
that had been classified in level 2 in the previous year. AXA cited the widening of yield
and bid ask spreads (presumably because it believes that they are indicative of an
inactive market) as the reason for the re-classification.
Talanx reported that it had re-classified securities both from level 1 to level 2 (1.0 billion)
and from level 2 to level 1 (0.2 billion) in the current year. The reduced liquidity of the
instruments was given as the reason for the transfers from level 1 into level 2.
Zurich reported the transfer of 1.2 billion of equity securities from level 3 to level 1.
The transfer arose because its investment in New China Life Insurance Company
Limited was listed on the Hong Kong Stock Exchange during the year. This reduced
the percentage of its holdings in level 3 securities from 6 percent to 3 percent.
Intangible and deferred participation assets
Intangible assets
The carrying value of intangible assets, including deferred acquisition costs and deferred
tax assets, remained relatively stable for most of the companies over the year.
Although most of the surveyed insurers reported increases in equity, the increases
were smaller than in previous years, primarily due to a higher level of unrealised losses
on available-for-sale assets recognised in other comprehensive income compared to the
prior years. As a consequence the ratio of intangibles to equity also generally remained
relatively stable for the group as a whole, although a number of the surveyed insurers
reported more significant movements on an individual basis.
Intangibles in relation to equity 2011

%
120
100
80
60
40
20
0
AEGON
Allianz
Goodwill
Aviva
AXA
CNP
Other intangibles
Generali
DAC
ING
Legal &
General
Mapfre
Munich
Re
Old Prudential Standard

Mutual
Life
Swiss
Re
Talanx
Zurich
DTA
Aviva, AXA, Generali and Old Mutual all reported reductions in equity over the year.
Both AXA and Generali recognised significant unrealised losses on available-for-sale
financial assets, and AXA also experienced a significant reduction in the level of its
minority interests due to the disposal of its majority stake in AXA APH. The reduction
in Avivas equity was principally due to the deconsolidation of Delta Lloyd following a
reduction in its shareholding. Old Mutual recognised a significant negative foreign
exchange movement on the retranslation of its overseas operations.
Generali and Mapfre both recognised significant increases in intangible assets, albeit
from a relatively low base in case the of Mapfre. Mapfres intangible assets increased
by 1.9 billion (44.9 percent) primarily due to portfolio acquisition intangible assets
recognised in business combinations. Generali reported an increase of 3.1 billion
(19.4 percent) mainly due to an increase in deferred tax assets of 3.2 billion.
In contrast significant decreases in intangible assets were recognised by Old Mutual
(2.2 billion, or 27.0 percent); Aviva (2.7 billion, or 18.9 percent); and CNP (0.2 billion,
or 15.3 percent). Approximately half of the reduction in Old Mutuals intangible assets
related to the transfer of the assets of its Nordic operations to non-current assets held
for sale. Old Mutual also recognised a goodwill impairment of 0.3 billion in respect of
its US asset management business. Avivas reduction in its intangible assets included
the effect of the deconsolidation of its interest in Delta Lloyd, and the sale of its RAC
business. Goodwill impairments amounted to 0.2 billion. For CNP, over half of the
reduction in its intangible assets related to goodwill impairments.
Deferred participation assets
In some European countries a deferred participation asset is recognised when IFRS
values of financial assets are lower than the local GAAP values used to determine the
participation amounts to be allocated to policyholders, and when, at the same time, local
GAAP permits the inclusion of such an asset so long as it is expected to be recovered.
As in the last two previous years only AXA disclosed a (net) deferred participation asset
which increased to 1.2 billion from 0.6 billion during the year.
8.
Capital, Risk and Solvency
Solvency II is
changing the game...
The capital and solvency disclosures included in the annual reports of the surveyed
insurers have tended to conform to a fairly predictable set of data and narrative mainly
relating to the insurers regulatory solvency levels.
A few companies have gone beyond presenting only their regulatory solvency ratios
and also present economic solvency ratios6. As the implementation of Solvency II
approaches, the challenge for insurers will be to determine when to introduce the most
relevant and insightful parts of their solvency reporting into their dashboard of key
performance metrics. It is interesting to note that AEGON has recently announced that
it will no longer provide embedded value information but will replace its EV report with
information based on Solvency II measures in the future (see chapter 5 Embedded Value).
Risk and capital disclosures
In chapter 3 Key Performance Indicators we note that two more companies included
a solvency measure as one of their key financial metrics in their results presentations
this year. The fact that less than half of the companies in our survey included a solvency
measure in their financial highlights dashboard could be ascribed to a number of factors.
6. The term does not imply a measure of capital as required by regulators or other third-parties.
It is a Groups own assessment of the amount of capital it needs to hold to meet its obligations
given its risk appetite. The capital requirement is based on an internal assessment and capital
management policies. Some insurers have equated it to a proxy for what their Solvency II capital
requirement might be.
As the implementation of
Solvency II approaches
we would expect risk
and capital disclosures to
become more prominent
Some of these might be entity-specific, and some might be attributed to market

conditions (for instance because current capitalisation levels are strong). Sometimes a
company bucking an economic trend in the current year might decide to display a
measure more prominently.
With the implementation of Solvency II we would expect to see at least one key
performance indicator relating to solvency being included fairly prominently in all
insurers results presentations.
We would also expect to see more extensive disclosures around Solvency II measures
included in annual reports.
Such disclosures might include:
Year-on-year comparisons, showing the most significant items contributing
to the movement in available capital resources or the surplus over minimum
capital requirements;
A break-down of capital requirements and solvency levels by product and/or line of
business/operating segment (without providing commercially sensitive information);
Sensitivities of available capital resources to market movements.
Regulatory solvency
ratios were lower, but
remain strong
Regulatory solvency ratios

Similar to the prior year, the overall solvency position of the surveyed companies
remains strong. While the average regulatory solvency ratio for the 15 companies that
reported this measure, or provided information that allowed us to calculate this measure,
decreased from 200.9 percent to 195.8 percent, most insurers had substantial amounts
of surplus capital over the current regulatory minimum requirements. As presented in
the graph on the next page, for most companies, the regulatory solvency levels were
very much in line with the prior year, although Prudential and Standard Life reported
markedly lower levels.
Solvency ratio
%
325
300
275
250
225
200
175
150
125
100
AEGON
Allianz
Aviva
AXA
CNP
Generali
ING
Legal &
General
Mapfre
Munich
Re
Old
Prudential Standard
Mutual
Life
Regulatory solvency ratio - 2010
Regulatory solvency ratio - 2011
Regulatory solvency ratio average - (2011)
Economic solvency ratio - 2010
Economic solvency ratio - 2011
Economic solvency ratio average - (2011)
Talanx
Zurich
Regulatory solvency ratio is the ratio of available regulatory capital resources to the regulatory required capital at group level. The economic
capital ratios are calculated using companies own internal models and direct comparison between insurers is not possible.
Swiss Re did not disclose its precise solvency ratios; as in the prior year it disclosed that its regulatory Solvency I model ratio was above 200
percent at the end of the year. The solvency ratio presented for Allianz is calculated including off-balance sheet reserves although Allianz has
not requested for these to be included in its formal solvency measure. If off-balance sheet reserves are excluded, the solvency ratio would
be 170 percent (2010: 164 percent). The solvency ratio of Aviva is calculated including its UK life funds. If the UK life funds are excluded (as
presented by Aviva) the solvency ratio would have been 130 percent (2010: 160 percent). For Zurich, the 2011 economic solvency ratio is shown
as at 1 July 2011. The ratios are calculated based on its Swiss Solvency Test ratio of 225 percent and a targeted coverage ratio of 1.8 times.
As in the prior year, AXA had the highest surplus capital in absolute terms at 21.0 billion
(2010: 19.0 billion), but Mapfre (287 percent) has overtaken Prudential (275 percent) as
the company with the highest regulatory solvency ratio.
Generally, the reasons provided for the lower levels of coverage related to lower
available capital levels, as opposed to significant changes in the capital requirements.
Capital levels were affected by lower interest rates, widening bond spreads, and in
some cases significant exposure to PIIGS economies (see chapter 7 Investments and
Intangible Assets), and lower equity market levels. There were exceptions: Munich Re,
for example, attributed the decrease in their regulatory solvency ratio chiefly to an
increase in the solvency requirement.
Prudentials solvency ratio would have been closer to the prior year level had it not
repaid a significant tranche of Euro denominated subordinated debt late in the year.
Standard Life attributed its decrease in its regulatory solvency level mainly to a
successful tender undertaken in respect of its Euro denominated lower tier 2
subordinated debt.
The adverse financial

markets conditions
had a greater impact
on economic solvency
ratios than on regulatory
solvency ratios
Economic solvency ratios

As in the prior year, seven of the insurers included in our survey disclosed an economic
solvency ratio. Aviva reported an economic solvency ratio for the first time this year
(including a comparative for the prior year), but ING chose not to make this disclosure
in the current year.
A number of these insurers equated their economic solvency ratios to the capital levels
which might be required under Solvency II. We expect other major insurance groups to
follow this trend, although those for whom key elements of Solvency II are still uncertain
may wait for clarity.
With the exception of Zurich, the economic capital ratios indicated significantly lower
levels of coverage (although all were in excess of 100 percent). The average economic
solvency ratio, for the seven companies reporting this measure, decreased from 171.0
percent to 150.1 percent.
Where companies disclosed more than one economic capital measure we used the
measure that most closely reflected the insurers expectations of its Solvency II capital
requirements. For example, Munich Re indicated that its economic capital represented
1.75 times the capital that is likely to be necessary under Solvency II, and we therefore
used their adjusted solvency ratio of 195 percent (2010: 238 percent) to provide a
more meaningful comparison.
AXA is one of the companies that provides useful additional information in their analyst
packs relating to their economic solvency position, including sensitivities to various
market factors, as well as the main drivers of change from the prior year to the current
year. Its economic capital model is calibrated based on adverse 1/200 years shock, and
therefore provides a reasonable indication of the impact of moving from the current
Solvency I basis to Solvency II. Its coverage level under this measure reduced from
178 percent to 148 percent in the current year. The reduction mainly arose from a
decrease in available capital, with the capital requirements increasing only marginally.
Extract from AXAs analyst presentation:
148%
148%
178%
178%
In Euro
billion
In Euro
billion
>150%
>150%
Credit
Credit
andand
government
government
bond
bond
spreads,
spreads,
net net
of liquidity
of liquidity
premium
premium
-15pts
-15pts
Interest
Interest
rates
rates
50.3
50.3
50 50
-20pts
-20pts
Sensitivities
Sensitivities
38.9
38.9
40 40
30 30
FY11
vs. FY10
FY11
vs. FY10
Main
riskrisk
drivers
Main
drivers
Economic
Economic
Solvency
Solvency
28.3
28.3
RatioRatio
as ofasDecember
31, 2011
of December
31, 2011
148%
148%
Interest
rate rate
+100bps
Interest
+100bps
165%
165%
Interest
Interest
rate rate
-100-100
bps bps
123%
123%
Equity
markets
+25%
Equity
markets
+25%
155%
155%
Equity
markets
-25%-25%
Equity
markets
141%
141%
Corporate
Corporate
spreads
spreads
+75 bps
+75 bps
130%
130%
26.3
26.3
20 20
10 10
0 0
December
31, 31,
20102010 December
31, 31,
20112011 January
31, 31,
20122012
December
December
January
Available
Available
capital
capital
Required
capital
Required
capital
Economic
Economic
solvency
solvency
ratioratio
Source: AXAs analyst presentation, page 36
Allianz, which has been providing similar disclosures for a number of years, presented
its required capital at different confidence levels (99.5 percent and 99.97 percent).
This year, there was a much stronger focus on confidence level disclosures, with most
companies comparing the confidence levels applied in their current internal model to the
future requirements under Solvency II. Examples include:
Allianz: Our objective is to maintain available capital at the Group level in excess of
the minimum requirements that are determined by our internal risk capital model
according to a 99.97% confidence interval over a holding period of one year. As we
take into account the benefits of single operating entities being part of a larger,
diversified Group we allow them to be capitalized at a lower confidence level of
99.93% over the same one-year holding period. These confidence levels are more
conservative than the anticipated confidence level of 99.5% to be used under
Solvency II.
MAPFRE RE uses the estimated Equity model, based on statistical generation

of the companys profit and loss account projections, obtained from various
scenarios prepared using combinations of different financial and reinsurance
based assumptions, which are applied bearing in mind the particularities of the
portfolio of probability of results and the economic capital necessary to ensure
the companys solvency with a confidence interval of 99.6% over one year. Use
of that model is framed within a global project for the implantation of statistical
models in the MAPFRE Group, in order to comply with the requisites of the future
European Solvency II Directive.
A strong focus on
confidence level
disclosures...
ING Insurance: The risk appetite is managed by Available Financial Resources
over Economic Capital Ratio (AFR/ECR). This ratio is defined as the Available
Financial Resources (AFR) over the amount of capital required for the current
net asset value to absorb unexpected losses in a scenario based on a 99.5%
confidence level with a one year time horizon. The confidence interval and
horizon are aligned to Solvency II.
Overall, there was a mix between those companies that disclosed economic capital
at the 1/200 confidence (BBB) level that will be required by Solvency II, and those
that disclosed economic capital at a higher confidence level. Insurance groups are
increasingly referring to the 1/200 figures as the economic capital recalculated at
Solvency II confidence levels. This would appear to indicate that the Solvency II basis
is not necessarily the measure that is used internally. Munich Res disclosures clearly
indicate how different a companys capital requirements might be under these different
measures. The internal basis on which insurers are making their key decisions, in our
view, should also be a core element of the future reporting framework for insurers.
Most of the groups presenting economic capital, disclosed their capital ratios as well as
an analysis of the required capital by risk category. However, less than half provided an
analysis by business segment.
Other Solvency II disclosures

Great strides have been made in recent years to explain how the regulatory surplus
measure has moved over the year, with clear bridges presented showing the main
drivers of the change, split between items such as market movements, underlying
earnings, and dividends. Some insurers also show reconciliations between their
embedded value and available capital. Swiss Re and Zurich explain the differences
between the Swiss Solvency Test regulatory economic capital basis and their internal
economic capital ratios. However, none of the companies included in our survey
presented a reconciliation explaining the differences between their Solvency I and
economic capital levels.
The controversial theme of US equivalence and expected negative capital impact for
insurers with major operations outside EEA is addressed by AEGON and AXA:
...competitors who are headquartered outside the European Economic Area may
not be subject to Solvency II requirements and may thereby be better able to
compete against AEGON, particularly in AEGONs businesses in the US and Asia.
the application of Solvency II to international groups is still unclear and there is
a risk of inconsistent application throughout Europe, which may place AXA at a
competitive disadvantage with regards to other European and non-European
financial services groups.
Solvency II
implementation
costs are rising
Solvency II implementation costs

The cost of Solvency II implementation has been widely reported in the media.
Recently, the European Commission estimated that the total costs of implementation
for the industry in Europe would amount to 2-3 billion over 5 years7, while the FSA
has suggested that the costs would exceed 2 billion for the UK industry alone8.
Our analysis is constrained by the fact that only five (Aviva, AXA, Legal & General,
Prudential and Standard Life) of the 16 companies in our survey explicitly disclosed
these costs. The aggregate spend for these five companies in the current year was
328 million. If a broad brush extrapolation is performed, this would amount to over
1 billion for the whole of the surveyed group, in the current year.
7. Source: European Commissions Solvency II Impact Assessment Report

8. Source: FSAs Consultation Paper 11/22: Transposition of Solvency II
9.
Basis of Preparation
The companies included

in the survey are:
Company (further referred to as)
Reporting basis
AEGON N.V. (AEGON)
IFRS
Allianz Group (Allianz)
IFRS
Assicurazioni Generali S.p.A. (Generali)
IFRS
Aviva plc (Aviva)
IFRS
AXA SA (AXA)
IFRS
CNP Assurances (CNP)
IFRS
ING Verzekeringen N.V. (ING)
IFRS
Legal & General Group plc (Legal & General)
IFRS
Mapfre S.A. (Mapfre)
IFRS
Munich Re Group (Munich Re)
IFRS
Old Mutual plc (Old Mutual)
2 IFRS
Prudential plc (Prudential)
IFRS
Standard Life plc (Standard Life)
IFRS
Swiss Re Group (Swiss Re)
US GAAP
Talanx AG (Talanx)
IFRS
Zurich Financial Services (Zurich)
IFRS
This survey summarises the 2011 results of the insurance groups set out in the table
opposite. Information has been obtained solely from the published preliminary results
announcements, annual reports and results presentations.
Where prior year period results have been adjusted, the restated numbers have been
used in our analysis. Where total amounts are presented, it is the total of the 16 insurers
in the survey, unless otherwise stated. Similarly, if an average number is presented, it is
the average of the 16 insurers in the survey, unless otherwise stated. Where amounts
are negative, these are shown in brackets.
The results have been presented in alphabetical order; companies not publishing a
specific measure (e.g. combined ratio for pure life insurers) in the current year have
been omitted from the graphs.
All amounts used in our survey that relate to income are for the year ended on the
relevant date (31 December), unless otherwise stated. Balance sheet amounts
presented are as at 31 December of each year.
For the purposes of this report, amounts (including prior years amounts) reported
in currencies other than euro have been converted to euro at the closing rate at 31
December 2011 for balance sheet amounts, and at the average rate for the period
from 1 January 2011 to 31 December 2011 for income statement amounts, in order
to maintain trends in companies presentational currencies.
The exchange rates used are obtained from publicly available information and are
as follows:
Balance sheet rate at

31 December 2011
Average rate for the period from

1 January 2011 to 31 December 2011
Euro: pound
1.193
1.152
Euro: US dollar
0.772
0.718
Euro: Swiss franc
0.822
0.813
We present some examples of disclosures from the companies annual reports and
results presentations. The survey is not intended to serve as an accounting manual for
insurance companies, nor should it be assumed that the treatments shown in all the
examples are recommended without reservation. Extracts from accounts included in
this survey omit note references and, in some cases, corresponding figures and other
information which is incidental to the purpose of the illustrations.
Abbreviations used
APE
CFO Forum
EBIT
ECB
EEA
EEV
EPS
EV
FGD
GAAP
GSP
IAS
IASB
IFRS
IGD
KPI
MCEV
PIIGS
PVNBP
ROE
SST
US GAAP
VNB
Annual premium equivalent

European Insurance Chief Financial Officers Forum
Earnings before interest and taxes
European Central Bank
European Economic Area
European Embedded Value
Earnings per share
Embedded value
Financial Groups Directive
Generally Accepted Accounting Principles
Government spread premium
International Accounting Standard
International Accounting Standards Board
International Financial Reporting Standard
Insurance Groups Directive
Key performance indicator
Market Consistent Embedded Value
Portugal, Italy, Ireland, Greece and Spain
Present value of new business premiums
Return on equity
Swiss Solvency Test
US Generally Accepted Accounting Principles
Value of New Business
Contact us
Danny Clark
+44 (0) 20 7311 5684
danny.clark@kpmg.co.uk
Frank Ellenbrger
Global Head of Insurance
+49 89 9282 1867
fellenbuerger@kpmg.com
KPMG in the UK
Drew Fellowes
Head of Insurance
+44 (0) 20 7311 5668
drew.fellowes@kpmg.co.uk
KPMG in Germany
Joachim Klschbach
+49 221 2073 6326
jkoelschbach@kpmg.com
KPMG in Switzerland
Daniel Senn
Head of Financial Services
+41 44 249 2757
dsenn@kpmg.com
KPMG in Spain
Antonio Lechuga Campillo
+34 932532947
alechuga@kpmg.es
KPMG in the Netherlands
Huub Arendse
+31 20 656 7462
arendse.huub@kpmg.nl
www.kpmg.co.uk/insurance
The information contained herein is of a general nature and is not intended to address the circumstances of any particular individual
or entity. Although we endeavour to provide accurate and timely information, there can be no guarantee that such information
is accurate as of the date it is received or that it will continue to be accurate in the future. No one should act on such information
without appropriate professional advice after a thorough examination of the particular situation.
2012 KPMG International Cooperative (KPMG International). KPMG International provides no client services and is a Swiss
entity with which the independent member firms of the KPMG network are affiliated. All rights reserved.
The KPMG name, logo and cutting through complexity are registered trademarks or trademarks of KPMG International.
RR Donnelley | RRD-269914 | June 2012

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FINANCIAL SERVICES

The following people have made significant

Chapter 3: Key Performance Indicators

Chapter 4: Financial Performance

Chapter 5: Embedded Value

Chapter 6: Premiums and New Business

Chapter 7: Investments and Intangible Assets

Chapter 8: Capital, Risk and Solvency

Chapter 9: Basis of Preparation

1 | Insurance Reporting Round-Up 2012

Welcome to the latest edition of Insurance Reporting Round-Up.

A number of the insurers reported increases in volumes

Investment returns were adversely affected by higher

Although the claims ratios of companies with significant

At the end of 2011, the total value of Greek sovereign debt

Insurance Reporting Round-Up 2012 | 2

Embedded value reporting is currently applied

3 | Insurance Reporting Round-Up 2012

Insurance Reporting Round-Up 2012 | 4

Total assets (m)

Total equity (m)

Net earned premiums (m)

Profit/(loss) after tax (m)

Legal & General

5 | Insurance Reporting Round-Up 2012

Key Performance Indicators

More insurers present

Insurance Reporting Round-Up 2012 | 6

Generali and Talanx

Increased focus on solvency measures

7 | Insurance Reporting Round-Up 2012

Key financial performance indicators from results presentations

MCEV per share

EEV per share

Volume information (excluding net measures)

Underlying earnings or operating profit

GAAP profit after tax

Capital market measures

Insurance Reporting Round-Up 2012 | 8

L&H benefit ratio

Global Life new

Group net income

9 | Insurance Reporting Round-Up 2012

The difficult financial

IFRS profit or loss before tax

Insurance Reporting Round-Up 2012 | 10

Profit before tax

Old Prudential Standard Swiss Re Talanx

11 | Insurance Reporting Round-Up 2012

Old Prudential Standard Swiss Re Talanx

Source: KPMG LLP (UK) 2012

Insurance Reporting Round-Up 2012 | 12

Insurers based within continental Europe typically report an underlying measure

13 | Insurance Reporting Round-Up 2012

Combined ratio: non-life insurance business

Insurance Reporting Round-Up 2012 | 14

15 | Insurance Reporting Round-Up 2012

2. Copyright Stitching CFO Forum Foundation 2008

Insurance Reporting Round-Up 2012 | 16

17 | Insurance Reporting Round-Up 2012

Prudential Standard Life

Source: KPMG LLP (UK) 2012

Embedded value of covered business

Insurance Reporting Round-Up 2012 | 18