E.10. Capital management

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

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

E.10.1. Solvency

The Company carries out business in the insurance sector, which is a regulated industry. The Company has to comply with all regulations set in the Insurance Act No 277/2009 Coll. and regulation No 306/2016 Coll., fully harmonised with EU regulation, including prudential rules relating to the capital. The Generali Group makes use of an internal approach to determine the available financial resources and the capital requirements for risks which it is exposed to (Group Internal Model), while maintaining consistency with the basic framework of Solvency II, which came effective in 2016. On 7 March 2016, the Company received the regulatory approval to use the Group Internal Model for regulatory solvency capital requirement calculations.

During 2016, activities aimed at enhancing the Risk Management System have continued, mainly in terms of advanced risk and solvency analysis and embedding the risk management in the business decisions. In minor areas, the remaining Solvency II requirements were implemented. This development was linked to the refinement of the methodology concerning the assessment of available financial resources and the variety of associated risks, consistently with an economic approach. Within risk assessment and monitoring enhancement activities, focus has been given to improve the overall validation activity of the overall risk assessment process, in order to fulfil the tests and standard requirements of the regulatory regime. Finally, activities aimed at a wider and more transparent disclosure of risks have been carried out, in light of Solvency II Pillar II (Own Risk and Solvency Assessment) and Pillar III requirements (regulatory and market disclosure).

The Company regularly assesses its statutory solvency position which is derived from the ratio of its available capital and the capital requirement.

Shareholders’ funds per financial statements (CZK 26,714 million) are further adjusted for revaluation of assets and liabilities to market value according to Solvency II rules to get onto regulatory available capital.

Based on preliminary calculation, the Company fulfils the regulatory capital requirements in respect of Solvency position as of 31 December 2016. The final solvency position according to the Solvency II requirements will be available after the date of the financial statements and will be published as a part of the Solvency and Financial Condition Report (SFCR) at the end of the May 2017.