OPERATING RESULT

Operating Result

The operating result in the life segment amounted to € 3,127 million, up 5.5% compared to the € 2,965 million at the end of 2015. In particular, there was positive development in the technical margin net of acquisition and administration costs, partially offset by the contraction in the net investment result.

Finally, the operating return on investments1 of the life segment stood at 0.74% (0.74% at 31 December 2015), despite the current financial market environment.

Operating result: Technical margin

Life segment operating result: technical margin

(€ million)31/12/201631/12/2015Change
Technical margin 6,027 5,909 2.0%
Net earned premiums 45,667 48,689 -6.2%
Fee and commission from financial service activities 191 236 -19.1%
Net insurance claims adjusted for financial interests and bonuses credited to policyholders -40,137 -43,205 -7.1%
Other insurance items 306 189 61.7%

The technical margin1, equal to € 6,027 million, is strongly up due primarily to the positive development of risk business profitability.

This margin does not include the insurance and other operating expenses, reported under the item total operating expenses.

The technical margin1, equal to € 6,027 million, is strongly up due primarily to the positive development of risk business profitability.

Operating result: Net Investment result

Life segment operating result: net investment result

(€ million)31/12/201631/12/2015Change
Net investment result 2,085 2,260 -7.7%
Operating income from investments 13,006 15,141 -14.1%
Net income from investments 11,345 12,416 -8.6%
Current income from investments 11,305 11,248 0.5%
Net operating realized gains on investments 1,673 2,365 -29.3%
Net operating impairment losses on investments -706 -334 111.2%
Other operating net financial expenses -927 -863 7.4%
Net income from financial instruments at fair value through profit or loss 1,661 2,725 -39.0%
Net income from financial instruments related to unit and index-linked policies 1,728 2,276 -24.1%
Net other income from financial instruments at fair value through profit or loss -66 448 n.m.
Policyholders' interests on operating income from own investments -10,921 -12,880 -15.2%

The net investment result, amounting to € 2,085 million, was down (-7.7%) on the € 2,260 million recorded at 31 December 2015.

This performance was particularly caused by the decline in net realized gains, reflecting the planned strategy of reducing this income component with a view to supporting the future return on investments. This was partially offset by the increase in current income from investments in equity and bonds despite the low interest rates in general.

More specifically:

  • current income from investments – which also include the current income from investments at fair value through profit or loss – was up slightly at € 11,305 million (€ 11,248 million at 31 December 2015), while the related profitability, calculated on the basis of the book value of the investments, was down to 3.2%. In more detail, the current income from fixed income instruments fell from € 9,877 million at 31 December 2015 to € 9,801 million. The current income in the equity line was up, from € 416 million at 31 December 2015 to € 520 million. Finally, current income from investment properties was also slightly up, at € 543 million (€ 526 million in 2015);
  • net operating realized gains on investments stood at € 1,673 million (€ 2,365 million as at 31 December 2015) against lower realized gains on all asset classes. In fact, the Group pursued the policy of sustaining future returns on its investments with a view to creating long-term value;
  • net operating impairment losses on investments increased from € -334 million at 31 December 2015 to € -706 million; this performance mainly reflects higher impairments on equity instruments due to market trends; 
  • other operating net financial expense, which includes interest expense related to operating debt and investment management expenses, amounted to € -927 million (€ -863 million at 31 December 2015); 
  • net income from financial assets and liabilities related to unit-linked and index-linked contracts fell from € 2,276 million at 31 December 2015 to € 1,728 million. This trend was affected by the change in value of the investments against the performance of certain financial markets with respect to the corresponding period of the previous year; 
  • net income from other financial instruments at fair value through profit or loss amounted to € -66 million (€ 448 million at 31 December 2015). The significant change was due to the performance of certain financial markets during the year.

The policyholders’ interests on operating income from own investments went from € -12,880 million at 31 December 2015 to € -10,921 million, down from the corresponding period of the previous year, due to the volatility of the income from financial instruments at fair value through profit or loss.

Operating result: Insurance and other operating expenses

Life segment operating result: insurance and other operating expenses

(€ million)31/12/201631/12/2015Change
Insurance and other operating expenses -4,985 -5,204 -4.2%
Acquisition and administration costs related to insurance business -4,888 -5,047 -3.1%
Net other operating expenses -97 -157 -38.2%

The acquisition and administration costs related to insurance business and the other operating expenses have increased from € -5,204 million at 31 December 2015 to € -4,985 million.

More specifically, acquisition and administration costs related to insurance business stood at € -4,888 million, down by 3.1% compared to 31 December 2015. The costs of acquisition contributed to that change, which amounted to € -3,884 million, down by -4%, reflecting the general decline in the various countries in which the Group carries on business. Administration costs are essentially stable, amounting to € -1,004 million.

The ratio of the acquisition and administration costs to volume stood at 10.0% (9.6% at 31 December 2015).

Finally, the percentage of the total administration costs related to insurance business to the average insurance provisions stayed substantially stable at 0.26%.

Other operating items reduced to € -97 million, due to lower risk provisions. This item also includes the brand royalties paid by the companies in this segment to the Parent company for marketing and branding activities.

1 Please refer to the Glossary in the Appendix to Management Report section for more details on the way the indicator was calculated.