Consolidated interim report 2014

3 CONTENTS GROUP STRUCTURE 4 DIRECTORS’ REPORT ON OPERATIONS 5 Executive summary 5 Economic and market environment 11...

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Consolidated interim report 2014

CORPORATE OFFICERS

BOARD OF DIRECTORS (1) Chairman

Luigi Calabria

Chief Executive Officer

Maria Bianca Farina

Director

Antonio Nervi

Director

Pasquale Marchese

Director

Bianca Maria Martinelli

Director

Dario Frigerio

Director

Salvatore Militello

BOARD OF STATUTORY AUDITORS (1) Chairman

Stefano Dell’Atti

Auditor

Marco De Iapinis

Auditor

Simona Arduini

Alternate

Franco Pichiorri

Alternate

Teresa Naddeo

INDEPENDENT AUDITORS (2)

BDO SpA

1.

2.

The Board of Directors and the Board of Statutory Auditors were appointed by the shareholders at the General Meeting held on 4 August 2014 and will serve for three-year terms of office, until approval of the financial statements for 2016. The Board of Directors appointed the Chief Executive Officer at their meeting of 5 August 2014. Appointment approved by the shareholders at the General Meeting of 29 April 2014.

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CONTENTS GROUP STRUCTURE

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DIRECTORS’ REPORT ON OPERATIONS

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Executive summary Economic and market environment Operating review Financial position Organisation of the Poste Vita Group Relations with the parent and other Poste Italiane Group companies Other information Events after 30 June 2014 Outlook

5 11 14 19 24 28 29 32 33

CONSOLIDATED INTERIM FINANCIAL STATEMENTS

34

Consolidated financial statements Notes Annexes

35 40 78

REPORT OF THE INDEPENDENT AUDITORS ATTESTATION OF THE MANAGER RESPONSIBLE FOR FINANCIAL REPORTING

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GROUP STRUCTURE The insurance group’s current structure and its scope of consolidation are briefly described below.

The Parent Company, Poste Vita, almost exclusively operates in the life insurance sector, and only marginally in the non-life sector. The scope of consolidation includes solely Poste Assicura SpA, an insurance company founded in 2010 and that operates in non-life insurance, excluding motor insurance. This company is a wholly subsidiary of the Parent Company, Poste Vita, and is consolidated on a line-by-line basis. The Parent Company also holds a non-controlling interest in Europa Gestioni Immobiliari SpA, a real estate company tasked with the management and development of Poste Italiane’s properties no longer used in operations. This investment is accounted for using the equity method.

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DIRECTORS’ REPORT ON OPERATIONS

EXECUTIVE SUMMARY in the six months ended 30 June 2014, the Poste Vita insurance group again continued to pursue its strategic and business priorities: •



to consolidate and strengthen the Company's position in the life insurance and pensions market, with a particular focus on the supplementary pension segment and new emerging needs (primarily welfare and longevity). to grow the non-life insurance business, with a view to positioning the subsidiary Poste Assicura as a leading player in this market.

Profit before tax for the period amounts to €330.4 million, up €77.5 million on the €252.9 million for the corresponding period of the previous year. Profit for the period amounts to €201.4 million, compared to €151.7 million for the previous six-month period. This performance is due to satisfactory product sales and greater investment income, due to positive trends in financial markets. In millions of euros RECLASSIFIED INCOME STATEMENT for the six months ended 30 June Net premium revenue Gross premium revenue Outward reinsurance premiums Fee and commission income Net financial income from assets related to traditional products Net financial income from assets related to indexand unit-linked products Net change in technical provisions Claims paid Change in technical provisions Share attributable to reinsurers Investment management expenses Acquisition and administration costs Net commissions and other acquisition costs Operating costs Other revenues/(costs), net EBITDA Net financial income attributable to free capital Interest expense on subordinated loans PROFIT BEFORE TAX Income tax expense PROFIT FOR THE PERIOD

2014

2013

Non-life business

Life business

Total

Non-life business

Life business

Total

26.6 38.6 (11.9)

8,222.6 8,228.7 (6.1)

8,249.3 8,267.3 (18.0) 0.0

18.5 29.8 (11.3)

6,586.1 6,591.5 (5.3) 0.0

6,604.6 6,621.2 (16.6) 0.0

2.1

1,394.0

1,396.1

1.6

1,083.0

1,084.5

435.1

435.1

138.4

138.4

(10.6) (8.3) (7.6) 5.3 (0.1) (9.9) (5.4) (4.5) (1.3) 6.8

(9,578.9) (2,655.9) (6,928.3) 5.3 (15.4) (223.7) (203.7) (20.0) (15.7) 218.0 116.7 (11.1) 323.6 (127.3) 196.3

(9,589.5) (2,664.2) (6,935.9) 10.6 (15.5) (233.6) (209.1) (24.5) (17.0) 224.8 116.7 (11.1) 330.4 (129.0) 201.4

(5.7) (6.3) (2.6) 3.2 (0.1) (7.1) (2.8) (4.3) (1.4) 5.8

(7,393.9) (3,042.4) (4,357.7) 6.1 (12.9) (184.2) (165.2) (19.0) (10.5) 205.9 50.4 (9.2) 247.0 (99.2) 147.9

(7,399.6) (3,048.7) (4,360.3) 9.4 (13.1) (191.3) (168.0) (23.3) (11.9) 211.7 50.4 (9.2) 252.9 (101.2) 151.7

6.8 (1.7) 5.1

5.8 (2.0) 3.8

The Group engages mainly in the life insurance business where, thanks partly to a constant focus on products, stepping up support to the distribution network and growing customer loyalty, its efforts concentrated almost exclusively on the offer of Branch I investment and savings products (traditional separately managed accounts) with inflows of around €7.9 billion (up 19.7% on the first half of 2013), while a marginal contribution was made by the sale of Branch III products. Profit before tax is up approximately €77 million to €324 million, thanks also to positive results from treasury management and net returns on free capital. On the other hand, while the contribution of the non-life business to the Group’s results is still limited, sales in this area have performed well, with net premium revenue of €26.6 million, up

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43.8% on the same period of 2013. Profit before tax of €6.8 million compares with €5.8 million for the same period of 2013, thanks to the great attention paid to operating costs, which were largely unchanged from the comparable period in 2013. This result was achieved despite an increase in the loss ratio (from 30,3% at 30 June 2013 to 42.6% at 30 June 2014), which in any case continued to be lower than the industry average (60.5% in 2013), even though this difference is narrowing with the Company’s gradual growth. With an economic picture still marked by uncertainty, in Italy and in Europe, and low interest rates, the Company continued to pursue an investment strategy for separately managed accounts with a view to increasingly match investments to insurance obligations and, at the same time, running a portfolio that can provide stable returns in line with the market. Investment policy was marked by maximum prudence, with a portfolio primarily invested in Italian government securities and highlyrated corporate bonds. Returns on investment from separately managed accounts, as well as from the company's free capital, both registered good performances, thanks also to capital gains obtained in the first half. Regarding organisational aspects, in 2014 the Company continued to expand its workforce and develop the expertise, to step with its growing size and the increase in volumes. This has enabled it to follow up on the large number of projects in pursuit of growth and the constant functional/infrastructural improvement of the most important business support systems. At 30 June 2014, the Group’s equity amounts to €3,021 million, up €257.9 million compared to the beginning of the year due solely to: i) profit for the period and ii) the reserve reflecting changes in the fair value of available-for-sale financial assets. At 30 June 2014 the Group’s solvency I ratio was 1.35% (1.22% at 31 December 2013). The increase for the period was due mainly to profit for the period and the gain on available-for-sale financial assets recognised through equity. In addition, in May the Company completed its first ever issue of subordinated bonds with a total nominal value of €750 million, placed in their entirety with institutional investors. The transaction forms part of an overall plan to strengthen the company’s financial position, primarily in view of expected growth over the two-year period 2014-2015 and the aim of maintaining a solvency ratio of at least 120% until the entry into effect of the new capital requirements contained in the “Solvency II” Directive in 2016.

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Life business RECLASSIFIED INCOME STATEMENT for the six months ended 30 June Net premium revenue Gross premium revenue Outward reinsurance premiums Fee and commission income Net financial income from assets related to traditional products Net financial income from assets related to indexand unit-linked products Net change in technical provisions Claims paid Change in technical provisions Share attributable to reinsurers Investment management expenses Acquisition and administration costs Net commissions and other acquisition costs Operating costs Other revenues/(costs), net EBITDA

Life business 2014

2013

8,222.6 8,228.7 (6.1)

6,586.1 6,591.5 (5.3) 0.0

1,636.5 1,637.2 (0.7) 0.0

Increase/(decrease)

25% 25% 14% 0%

1,394.0

1,083.0

311.0

29%

435.1

138.4

296.7

214%

(9,578.9) (2,655.9) (6,928.3) 5.3 (15.4) (223.7) (203.7) (20.0) (15.7) 218.0

(7,393.9) (3,042.4) (4,357.7) 6.1 (12.9) (184.2) (165.2) (19.0) (10.5) 205.9

(2,184.9) 386.5 (2,570.6) (0.8) (2.4) (39.5) (38.5) (1.0) (5.2) 12.2

30% -13% 59% -13% 19% 21% 23% 5% 49% 6%

With regard to operations and portfolio performance, in the first half of 2014 net premium revenue, net of outward reinsurance premiums, amounted to €8,222.6 million, up 25% on the €6,586.1 million for the corresponding period of 2013. Net financial income from assets related to traditional products totals €1,394 million, up compared to the €1,083 million for the same period of the previous year, mainly due to an increase in assets under management. Regarding investments linked to index and unit-linked products, net financial income from these assets for the period under review is €435.1 million, which is nearly entirely reflected by a change in technical provisions. The change in technical provisions amounts to €6,928.3 million (compared to €4,357.7 million in the first half of 2013), due mainly to an increase in insurance liabilities determined by the abovementioned policy and investment product sales and the corresponding increase determined by the positive investment performance. Claims paid to customers amount to approximately €2.7 billion, inclusive of policy expirations of approximately €0.9 billion. Policy surrenders total approximately €1.3 billion, in line with 2013. Total surrenders accounted for 3.9% of initial provisions, down from 4.6% for the corresponding period of the previous year and much lower than the industry average. Commissions and other acquisition costs, net of costs ceded to reinsurers, amount to approximately €204 million, reflecting the increase in policy sales, against €165 million for the six months ended 30 June 2013. Operating costs amount overall to €20 million, in line with the comparable year-earlier figure.

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Non-life business RECLASSIFIED INCOME STATEMENT for the six months ended 30 June Net premium revenue Gross premium revenue Outward reinsurance premiums Fee and commission income Net financial income from assets related to traditional products Net financial income from assets related to indexand unit-linked products Net change in technical provisions Claims paid Change in technical provisions Share attributable to reinsurers Investment management expenses Acquisition and administration costs Net commissions and other acquisition costs Operating costs Other revenues/(costs), net EBITDA

Non-life business 2014

2013

26.6 38.6 (11.9)

18.5 29.8 (11.3)

Increase/(decrease)

8.1 8.8 (0.6)

44% 29% 6%

2.1

1.6

0.5

31%

(10.6) (8.3) (7.6) 5.3 (0.1) (9.9) (5.4) (4.5) (1.3) 6.8

(5.7) (6.3) (2.6) 3.2 (0.1) (7.1) (2.8) (4.3) (1.4) 5.8

(4.9) (2.0) (5.0) 2.1 (0.0) (2.8) (2.6) (0.2) 0.1 1.0

86% 32% 188% 64% 36% 40% 94% 4% -6% 17%

Gross premium revenue in the non-life business, generated by policies sold in the six months under review, totalled approximately €45 million. After deducting the change in technical provisions (which is calculated, on an accruals basis, based on the length of the contracts for each product as a percentage of premiums earned, less acquisition costs, for the period), net premium revenue amounts to approximately €38.6 million (€26.6 million, net of outward reinsurance premiums). During the period under review, total claims expenses (claims paid and change in technical provisions) amounted to €15.9 million. This item refers to the change in technical provisions for the year (inclusive of provisions for late lodgements), totalling €7.6 million, and claims paid, inclusive of settlement costs, of approximately €8.3 million for the period. Considering the reinsurer’s share of €5.3 million, the net change in technical provisions amounts to €10.6 million at the end of the period, compared to €5.7 million in 2013. This resulted in an increase of the loss ratio (up from 30,3% at 30 June 2013 to 42.6% at 30 June 2014). However, this ratio continued to be lower than the average for the industry (60.5% in 2013), even though the gap is increasingly narrowing as the Company grows. The increase in the loss ratio was due mainly to the rise in claims, which was not offset by a proportional increase in total premium revenue. In addition, it is worthy of note that in the first half of the previous year the loss ratio benefited from the release of approximately €1.5 million from technical provisions in 2012, due to excess provisions made in relation to the earthquake in Emilia Romagna. Lastly, a large claim in the first half of 2014 led the Company to make provisions of €750 thousand, which drove the loss ratio up by about 2%; however, in connection with this event, reinsurance coverage of approximately €600 thousand was obtained. Concerning the Financial Loss class, given the negative underwriting performance (in a context of severe economic and employment crisis), provisions of €0.7 million were made for unexpired risks during the period under review. However, the re-pricing of credit protection policies (CPIs) is beginning to show positive effects, thereby improving the ratio, but only for the current year. The intermediary, Poste Italiane, received commissions for distribution and collection activities of nearly €9 million (€6.1 million in the first half of 2013), which, net of commissions received from

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reinsurers and the change in deferred acquisition costs registered in the period, amounts to a total of €5.4 million (€2.8 million in the first half of 2013). Operating expenses amount to €4.5 million, in line with the comparable year-earlier amount. Key performance indicators Key performance indicators and the reclassified income statement and statement of financial position are shown below. (€m)

FINANCIAL AND OTHER INDICATORS Technical provisions Equity

at 30 June 2014 at 31 December 2013 79,063.0 68,005.2 3,021.5 2,763.5

Solvency ratio Workforce OPERATING AND OTHER INDICATORS for the six months ended 30 June Premium revenue Profit for the period Costs as a percentage of provisions Costs as a percentage of premiums

1.37 329

1.22 317

2014 8,273.6 201.4 0.03% 0.30%

2013 6,625.0 151.7 0.04% 0.35%

at 30 June 2014

at 31 December 2013

Increase/(decrease) 11,057.9 16.3% 258.0 9.3% 0.15 12

12.3% 3.8%

Increase/(decrease) 1,648.6 24.9% 49.8 32.8% -0.01% -0.05% (€m)

ASSETS Investments

Increase/(decrease)

81,137.4

69,852.2

11,285.3

16.2%

Investments in subsidiaries, associates and joint ventures

197.5

197.0

0.4

0.2%

Loans and receivables

764.3

11.5

752.9

n.s.

Available-for-sale financial assets

69,101.2

59,159.9

9,941.4

16.8%

Financial assets at fair value through profit or loss

11,074.4

10,483.8

590.6

5.6%

1,463.2

804.9

658.3

81.8%

Technical provisions ceded to reinsurers

47.4

40.3

7.0

17.4%

Other tangible and intangible assets

19.2

13.5

5.7

42.3%

1,606.5

1,292.8

313.8

24.3%

84,273.6

72,003.6

12,270.0

17.0%

at 30 June 2014

at 31 December 2013

Cash and cash equivalents

Receivables and other assets TOTAL ASSETS

(€m)

LIABILITIES AND EQUITY Equity Technical provisions Provisions for risks Payables and other liabilities TOTAL LIABILITIES AND EQUITY

3,021.5

2,763.5

79,063.0

68,005.2

10.1

10.1

2,179.1

1,224.9

84,273.6

72,003.6

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Increase/(decrease)

258.0 11,057.9 954.2 12,270.0

9.3% 16.3% 0.0% 77.9% 17.0%

RECLASSIFIED INCOME STATEMENT for the six months ended 30 June Net premium revenue Gross premium revenue Outward reinsurance premiums Fee and commission income Net financial income from assets related to traditional products Net financial income from assets related to indexand unit-linked products Net change in technical provisions Claims paid Change in technical provisions Share attributable to reinsurers Investment management expenses Acquisition and administration costs Net commissions and other acquisition costs Operating costs Other revenues/(costs), net EBITDA Net financial income attributable to free capital Interest expense on subordinated loans PROFIT BEFORE TAX Income tax expense PROFIT FOR THE PERIOD

2014 8,249.3 8,267.3 (18.0)

2013 6,604.6 6,621.2 (16.6)

1,396.1

1,084.5

311.5

29%

435.1 (9,589.5) (2,664.2) (6,935.9) 10.6 (15.5) (233.6) (209.1) (24.5) (17.0) 224.8 116.7 (11.1) 330.4 (129.0) 201.4

138.4 (7,399.6) (3,048.7) (4,360.3) 9.4 (13.0) (191.3) (168.0) (23.3) (11.9) 211.7 50.4 (9.2) 252.9 (101.2) 151.7

296.7 -2,189.9 384.5 -2,575.6 1.3 -2.5 -42.3 -41.1 -1.2 -5.1 13.1 66.3 -1.9 77.5 -27.7 49.8

214% 30% -13% 59% 14% 19% 22% 24% 5% 43% 0.1 132% 21% 31% 27% 33%

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Increase/(decrease) 1,644.6 1,646.0 -1.4

25% 25% 8%

ECONOMIC AND MARKET ENVIRONMENT Global growth seems to have gathered steam again, after a setback in the first quarter, especially in the United States, where GDP rose, and in China, where the slowdown came to a halt. On the other hand, geopolitical tensions in certain oil-producing countries enhanced risk; should events precipitate further, there might be repercussions on the supply and prices of oil products, on output and world trade. In the euro area growth remained subdued, inconsistent and patchy among countries. Inflation continued to fall more than expected, even excluding food and energy, the more volatile components. According to the Eurosystem’s latest projections, inflation should be on a level inconsistent with price stability also in the next two years. The ECB’s Governing Council stepped in again to ease money supply and credit and for the first time interest rates on bank deposits with the Eurosystem will be negative, to boost liquidity and put downward pressure on the euro exchange rate. The Council reiterated its commitment to implementing other stimulus measures, such as the purchase of securities, in the event that medium-term inflation prospects make it necessary. Monetary policy measures had an immediate impact: interest rates fell, the euro depreciated and capital flows to many countries in the euro area, including Italy, intensified. Further participation by banks in refinancing operations might result in added economic strength. In Italy the picture is still marked by weakness and growth is failing to take hold. Business activities in the winter months were affected by lower energy production levels, partly due to weather factors and the continuing slack in construction. In May industrial output declined unexpectedly – though this phenomenon concerned Europe as a whole – due in part to calendar effects; the information available point to stagnating activities also in the second quarter. The economic slump stands in stark contrast with such indicators as consumer and business confidence and expected improvement in spring. In fact, household spending was up, though slightly, for the first time since the start of 2011. A moderate recovery is projected for the Italian economy in 2014-2015, albeit not without uncertainties, assuming the implementation of policies designed to support growth and consumer and business confidence as well as the firming up of recovery in the entire euro area. The risk of less robust growth in the emerging countries, also following international tensions, and the possibility that the exceptionally favourable conditions in financial markets turn out to be short-lived should not be underestimated. Overview of financial markets In the last three months conditions in financial markets have improved, though with fluctuations and uncertainties in the last few days. Equities and bonds were driven mainly by lower risk premiums, against a backdrop of exceptionally low volatility. Sovereign spreads continued to drop in the euro area, thanks to the ECB’s expansionary stance while capital flows to the emerging economies resumed. Ten-year government bond yields in the euro area decreased in view of the substantial stability achieved in the other advanced economies. In mid-July these yields in the US, UK and Japan were 2.5%, 2.7% and 0.5%, respectively. Since the end of March German yields have fallen by 36 basis points, to 1.2%, reflecting the weak prospects of economic recovery in the euro area. The decline in yields was due also to the expectations and, eventually, the implementation of expansionary measures in the Eurosystem.

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Spreads over the German Bund for bonds issued by other euro area countries were down overall, despite a temporary rise in mid-May fuelled mainly by concerns over the European Parliament elections and an unexpected slowdown in the area’s GDP. Sovereign spreads started to fall again after the adoption of new accommodative measures by the ECB at the beginning of June. In the last few weeks, conditions stopped improving, with rising uncertainty over recovery in the euro area and the fate of a Portuguese bank. Since the end of March risk premiums over private companies’ debt have fallen. Premiums on fiveyear CDSs for the main banks declined both in the euro area and in the United States (by 14 and 4 basis points, respectively). Spreads for bonds issued by non-financial companies with higher credit ratings sagged for both euro- and dollar-denominated instruments. Equities went up in the main advanced countries outside the euro area, reflecting the firming up of the recovery in the United States, in Japan and in the UK. The implicit volatility in the prices of options on equity indices decreased to exceptionally low levels, close to those recorded before the global financial crisis. Financial conditions in emerging markets were overall favourable, with share indices going up and spreads between dollar-denominated long-term sovereign bonds and US Treasuries going down. As international capital resumed its inflows, the main currencies of emerging countries were stable vis-à-vis the dollar. The appreciation of the euro stopped in early May, with the ECB’s announcement of the measures that were eventually implemented in June. Since the end of March, the European currency has depreciated by 1.2%, 3.8% and 2.9% against the US dollar, the British pound and the Japanese yen, respectively. In nominal effective terms, in the quarter the euro depreciated by 1.5%. Overview of the insurance market The life market continued to grow also in the first half of 2014, with sales up 39%. In terms of value, new premiums amounted to approximately €54 billion, the highest figure on record for the first half of the year. From a structural point of view, compared to 2013, trends seem to have changed slightly, as Branch III products as a share of the total fell from 33% in 2013 to 26% for the six months under review. In particular, the so-called “protected unit-linked policies” were down 14%, while more traditional policies were up 12.8%, accounting for 90% of Branch III products in terms of value, driven mainly by the efforts of EU companies. Also the distribution of Branch I products continues to grow at a very fast pace (up about 60%), driven mainly by the banking channel (up 58%) and, for the first time, by financial promoters (who saw a decrease of 4.3% in Branch III products, but a 57% increase in Branch I). Evidently, partly due to the country’s current economic situation, demand for products linked to separate pools of assets is on the rise as wealthier customers seek out the best form of asset allocation, as the 80% increase in Branch V policies shows. At the end of June, these policies have already achieved the same volume of premium revenue generated throughout 2013 (€1.4 billion). On the other hand, growth in overall premiums belies a strong sign of the difficulties experienced by supplementary pension funds which, after years of uninterrupted growth, have experienced a sharp drop (down 16%) in the period under review, as well as a significant decrease in sales as a share of total insurance products, going from 11% in 2013 to less than 8%. This negative performance is further testimony to the early signs of a slowdown that could be seen by the end of

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2013, which is obviously due to the ongoing economic conditions affecting the average Italian household, with their growing inability to allocate a share of current income to very-long-term retirement savings. Risk policies continued to grow, with a 4% increase in the six months under review, in line with the figure for 2013 as a whole. This improvement was definitely driven by mortgage and loan insurance. Premiums from Branch IV products – in essence LTC and Critical Illness products, closely linked to demand for insurance to cover social health and social care needs – were very low, due to sales of just 15,000 contracts out of a total of 2 million policies sold. Also in this case, the ongoing financial difficulties of the average Italian household are weighting on demand for products that address needs not perceived as compelling. The above picture, where sales of investment products are predominant and growing fast while sales of products with higher insurance content are down, is consistent with the further decrease of the agents channel, which in terms of new premiums accounts today for only 8% of the total, compared to about 78% for the banking channel, up from 74% in 2013. The average premium for single-premium policies continued to be very high, settling at €48 thousand, compared to €43 thousand in 2013. The situation of non-life business remains complicated and strongly influenced by the economic crisis, despite a number of positive signs. Quarterly figures from ANIA (Italy’s National Association of Insurance Companies) for premium revenue by branch and distribution channel at 31 March 2014 reveal a fall of 2.4% compared with the first quarter of 2013 (a decline of €9.1 billion). The figure was affected by a 6.4% reduction in motor premiums (land vehicle insurance + land vehicle hulls) with premium revenue of €4.75 billion, accounts for over 52% of the total for the non-life segment. On the other hand, non-life classes recorded a 2.4% increase in terms of direct written premiums. In closer detail, land vehicle insurance registered a decline of 6.9% (€4.09 billion), whilst the land vehicle hulls class has fallen 3% (€664 million). The other main classes in this segment are, on the other hand, showing signs of recovery: third-party liability insurance was stable at €913 million, while premiums were up in Accident (up 2.1% to €825 million), Medical (up 5.9% to €616 million), Other Damage to Property (up 1.2% to €606 million) and Fire/Natural Disaster (up 3% to €579 million). Positive performances were delivered also by Credit (up 8.2%), Financial Loss (up 15.2%), Legal Expenses (7.4%) and Assistance (up 9.9%). Suretyship and Goods in Transit are down 6.4% and 11.2%, respectively. In terms of distribution channel, Outside Agents handled 80.3% of premiums written (rising to 86.7% in the motor segment, 84.4% for third-party liability insurance, 82.9% for Fire and Natural Disaster cover and 80.8% for Suretyship insurance), followed by Brokers (6.7%) and In-house Agents (4.1%). Direct sales (over the phone and on line) account for around 5% of the total, accounting for a higher proportion in certain classes: 9.8% Assistance, 8% Legal Expenses and 7.9% for the motor insurance segment as a whole.

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OPERATING REVIEW In the first half of 2014, total premiums continued to grow, with total premium revenue, net of outward reinsurance premiums, totalling €8,249.3 million, up 24.9% on the €6,604.6 million for the first half of 2013. The table below breaks down premiums by life and non-life businesses: (€m)

Premium revenue for the six months ended 30 June Branch I Branch III Branch IV Branch V Gross "Life" premium revenue Outward reinsurance premiums Net "Life" premium revenue Non-life premiums Outward reinsurance premiums Change in premium reserve Change in share of premium reserve attributable to reinsurers Net "Non-life" premium revenue Net premium revenue for the period

2014 7,877.2 14.2 0.6 336.7 8,228.7 (6.1) 8,222.6 44.9 (12.8) (6.4) 0.8 26.6 8,249.3

2013 6,583.1 0.3 8.1 6,591.6 (5.5) 6,586.1 33.6 (11.6) (3.8) 0.3 18.5 6,604.6

Increase/(decrease) 1,294.1 19.7% 14.2 n.s. 0.3 76% 328.6 4036.4% 1,637.1 24.8% (0.6) 10.9% 1,636.5 24.8% 11.3 33.8% (1.2) 10.2% (2.6) 68.4% 0.5 149.1% 8.1 43.5% 1,644.7 24.9%

The Company’s positive performance is shown also by the increase in the number of customers, up from 3.0 million at 31 December 2013 to 3.2 million at the end of the period under review. Life business In the first half of 2014, total premiums continued to grow, reaching a total of €8,228.7 million. (€m)

Breakdown of gross premium revenue for the life business for the six months ended 30 June Regular premiums - of which first year - of which subsequent years Single premiums Total

2014 494.6 207.7 286.9 7,734.1 8,228.7

2013 352.8 130.7 222.1 6,238.7 6,591.6

Increase/(decrease) 141.8 40.2% 77.0 58.9% 64.8 29.2% 1,495.4 24.0% 1,637.1 24.8%

In keeping with the approach adopted by the industry as a whole, the sales effort focused in essence on household savings, with the offering of investment products mostly to retail customers. Market conditions and the financial crisis that has kept the country under sway make the sale of products specifically devoted to demographic risks hard, given that the resulting financial difficulties have prompted Italian households to consider the relevant expense with a diminished sense of urgency and, as such, something that can be put off. The period under review saw sales of Branch I products rise faster than for the market as a whole, thanks to a product offering more attuned to the needs of post office customers, who showed a preference for the risk/return tradeoff typical of these products. Sales of Branch V capital redemption policies, distributed directly by the Company to large customers (banks, companies, foundations, wealthy individuals, etc.), also were satisfactory, contributing 5% to the overall increase with its €336 million in premiums. Regular premiums contributed significantly to growth. In the period under review, these premiums amounted to approximately €500 million, up 40% on the first half of 2013. From this standpoint, in the first half of 2014 the activity of the distribution network was particularly effective as, in addition to generating sales volumes, it produced a substantial number of new regular premium policies,

14

which accounted for 25% of total contracts sold. In this context, the period under review saw once again substantial sales of pension products (about 43 thousand new contracts), which firmed up our leadership in the retirement market, with a total number of 670 thousand members for Postprevidenza Valore. In addition to retirement plans, during the first six months of 2014 80,000 new twenty-year cost-averaging and insurance contracts were placed. Even though the number of new pure-risk stand-alone policies (accidental death, or TCM, and long-term care, or LTC) was still high in terms of numbers, sales were slightly down compared to the previous year, due to the external conditions indicated above, which have prompted households to put off the purchase of these products. On the other hand, sales of policies bundled with mortgages and loans (so-called CPI policies) placed by the Poste Italiane network were once again significant (about 64,000). Non-life business In the period under review, nearly 192 thousand new non-life contracts were sold, with a 24% increase compared on the previous year and an approximate daily average of 1,288 contracts sold. The table below shows gross premiums written for the period, by line of business:

Total policies in the six months ended 30 June Goods and property Personal insurance Credit protection Total

2014

% share

14,783 113,650 63,534 191,967

8% 59% 33% 100%

2013 40,298 55,304 59,831 155,433

% share 26% 36% 38% 100%

Increase/ (decrease) (25,515) 58,346 3,703 36,534

% inc./(dec.) -63% 106% 6% 24%

As of 30 June 2014, gross premium revenue is equal to nearly €44.9 million (up 33% compared to the same period of the previous year). Gross premium revenue for the six months ended 30 June Accident Medical Other Damage to Property Fire and Natural Disaster General Liability Financial Loss Legal Expenses Assistance Total

2014

% share

2013

% share

16.7 4.0 2.2 3.3 5.4 9.9 1.0 2.4 44.9

36% 8% 5% 8% 12% 23% 2% 6% 100%

14.4 2.7 2.2 2.9 4.9 4.5 0.8 1.2 33.6

41% 7% 9% 7% 16% 14% 3% 4% 100%

15

Increase/ (decrease) 2.3 1.3 0.0 0.4 0.5 5.3 0.2 1.2 11.2

% inc./(dec.) 16% 47% -1% 13% 10% 118% 25% 105% 33%

Payments and change in technical provisions Claims paid during the period amount to a total of €2,664.3 million, compared to €3,048.7 million in the comparable period of the previous year, divided as follows: (€m)

for the six months ended 30 June Non-life insurance Claims paid Costs of settling claims Total non-life insurance claims paid

2014

2013 Increase/(decrease)

7.3 1.0 8.3

5.4 0.9 6.3

Costs of settling claims Total life insurance amounts paid

2,651.3 1,271.2 981.8 398.2 4.6 2,655.9

3,039.5 1,256.7 1,439.2 343.6 2.9 3,042.4

(388.2) 14.5 (457.4) 54.6 1.7 (386.5)

-12.8% 1.2% -31.8% 15.9% 58.6% -12.7%

Total

2,664.3

3,048.7

(384.4)

-12.6%

Life insurance Amounts paid of which:

Surrenders Maturities Claims

1.9 0.1 2.0

35.2% 11.1% 31.7%

Regarding the life business, total claims paid during the six-month period ended 30 June 2014 amount to €2,655.9 million, compared to €3,022.4 million a year ago, owing to fewer maturities. Surrender costs amount to nearly €1,271.2 million, in line with the figure for 2013 (€1,256.7 million), representing 3.9% of initial provisions, compared to 4.6% in the previous year, which was still much lower than the industry average. The change in technical provisions, equal to €6,935.9 million (€4,360.3 million in the comparable period of 2013) refers mainly to a corresponding increase in liabilities due to the above-mentioned commercial trends. (€m)

for the six months ended 30 June Non-life technical provisions Mathematical provisions for Branch I, IV Mathematical provisions Branch III DPL reserve Other technical provisions Total life technical provisions Total

2014 (7.6) (6,799.3) (56.0) (64.4) (8.6) (6,928.3) (6,935.9)

2013 (2.6) (5,022.6) 699.8 (43.0) 8.1 (4,357.7) (4,360.3)

Increase/(decrease) (5.0) 192.3% (1,776.6) 35% (755.8) -387% (21.4) -118% (16.7) -206% (2,570.6) 59.0% (2,575.6) 59.1%

Changes in life technical provisions, amounting to €6,928.3 million, included changes in mathematical provisions for Branch I, IV and V products, totalling €6,799.3 million, changes in mathematical provisions for Branch III products (€56 million), changes in the Deferred Profit Liability (DPL) reserve (€64.4 million) and changes in other mathematical provisions (€8.6 million).

16

Considering that volumes during the year were very limited, the change in technical provisions for Branch III products should be attributed to cash outflows for surrenders and policy maturities, only partially offset by revaluations following positive movements in financial markets. With reference to policies ceded to reinsurers, claims paid in the period under review, inclusive of the change in technical provisions, amount to €10.6 million, compared to €9.4 million for the first half of 2013, as shown below: (€m)

for the six months ended 30 June Non-life insurance Claims paid Costs of settling claims Total non-life insurance claims paid Change in technical provisions Total non-life insurance

2014 2.8 0.2 3.0 2.4 5.4

2.4 0.2 2.6 0.5 3.1

0.4 (0.1) 0.3 1.9 2.2

16.3% -27.1% 12.8% n.s. 72.1%

1.9 0.0 1.9 3.4 5.3

1.0 1.0 5.4 6.3

0.9 0.0 1.0 (2.0) (1.0)

99.6% 0.0% 100.3% -37.1% -16.4%

10.6

9.4

1.2

12.8%

Life insurance Claims paid Costs of settling claims Total life insurance claims paid Change in technical provisions Total life insurance Total claims paid and change in technical

2013 Increase/(decrease)

Reinsurance strategy Life insurance With reference to Life insurance, reinsurance policies adopted in the past years remained essentially unaltered in the first half of 2014 and therefore the effects of ongoing treaties continued. In particular, the Parent Company, Poste Vita, cedes life and long-term care (LTC) policies under quota-share treaties. In addition, it reinsures life and permanent disability policies covering executives of Medio Credito Centrale in optional reinsurance arrangements. Ceded life policies showed a positive result of €0.2 million (€1.6 million at 30 June 2013). The effects of these reinsurance policies on the Company’s results are described in the notes.

Non-life insurance In the first half of 2014, the Group – through its Poste Assicura subsidiary – adopted a reinsurance policy in its non-life business consistent with the strategy set for the 2013-2015 three-year period, which was ratified in 2013. Briefly, the reinsurance strategy for 2014: 

regards gross premium revenue as the basis for reinsurance cession in the Fire, Other Damage to Property and General Liability classes, with a further increase of commissions paid by reinsurers based on underwriting results;

17

     



sets once again at 25% the proportion of risks ceded in General Liability, excluding professional liability which is maintained at 90%; gives preference to “bouquet” and “multi-line” reinsurance; retains 100% of gross premium revenue in the Accident class, with reference to new premiums; maintains pure premium rates established in 2013 for credit protection insurance; provides for an increase in retroceded reinsurance commissions in the Legal Expenses and Assistance classes; adopts excess-of-loss treaties in Property and Liability (Fire, Other Damage to Property, General Liability) and personal (Accident) insurance due to risk and/or event to hedge against large losses; confirms, in view of the high degree of the segment’s specificity, minimum risk retention for the corporate and government sectors (up to 10%), to be attained mainly via optional reinsurance agreements.

Ceded non-life insurance had total expenses of approximately €1.7 million (€3.8 million at 30 June 2013), benefiting in particular from the changes introduced in the second half of 2013, and confirmed in the first half of 2014, into the reinsurance strategy. The total effects on the Company’s results are illustrated in the notes. Distribution The Poste Vita Insurance Group distributes its products through the post offices of the parent, Poste Italiane SpA, a sole shareholder company – BancoPosta RFC, duly registered under letter D in the single register of insurance intermediaries as per ISVAP Regulation 5 of October 16, 2006 whose validity was extended until March 2019, with tacit renewal at expiration. Poste Italiane SpA’s sales network consists of over 13,000 post offices throughout the country. Insurance contracts are signed in the post offices by qualified and suitably trained personnel. Training activity for personnel in charge of product sales continued according to regulatory guidelines. Professional training programs in the first half of 2014 focused both on new products and on technical-insurance and pension modules. The latter were created to develop the expertise of personnel acting as intermediaries, not only in terms of specific skills in relation to the products offered, but also of general welfare issues and of defining customer needs. Each training initiative was designed, approved and carried out by the Poste Vita Insurance Group’s competent department, according to Poste Italiane SpA’s training guidelines (in some instances with the support of external training companies, specialising in the insurance sector). Moreover, the Company also strengthened its service model for customer support based on a multi-channel approach and through an improved website, which includes customer services, an area reserved for the company’s portfolio customers and an upgraded call centre that can be reached through a toll free phone number. The multi-channel service model was developed also to support the distribution network, in synergy with and integrating the central role carried out by post office personnel. Total distribution and collection fees paid to Poste Italiane amount to approximately €207 million (€172 million in the first half of 2013).

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FINANCIAL POSITION Financial investments Investment strategies and guidelines are defined by the Boards of Directors through "framework resolutions", which identify both the essential characteristics, in qualitative and quantitative terms, of investment sectors and the strategies for derivative transactions. The investment process also includes a governance system with corporate bodies (an Investment Committee and a Risk Committee). Regarding derivative transactions, at 30 June 2014 the only derivative instruments held include the warrants purchased to hedge the indexed component of certain index-linked products. At 30 June 2014 total investments amount to €82,000.6 million, up 16.9% on the €70,657.0 million at 30 June 2013, given policy sales and financial market trends. (€m)

Financial investments

at 30 June 2014 at 31 December 2013

Investments in associates Loans and receivables Available-for-sale financial assets Financial assets at fair value through profit or loss Cash and cash equivalents Total financial investments

197.5 764.3 69,101.2 11,074.4 1,463.2 82,600.6

197.0 11.5 59,159.9 10,483.8 804.9 70,657.1

Increase/(decrease) 0.4 752.9 9,941.3 590.6 658.3 11,943.5

0.2% 6570.8% 16.8% 5.6% 81.8% 16.9%

Investments refer to the shareholding in the associate, EGI, which is accounted for using the equity method. EGI, which is owned by Poste Vita SpA and Poste Italiane SpA with 45% and 55% equity interests, respectively, operates in real estate and is tasked with the management and development of Poste Italiane’s properties no longer used in operations. This Company has equity of €438.8 million at 30 June 2014 and a profit of €1 million for the six months then ended. Loans and receivables mainly refer to the positive balance of the current account held with Poste Italiane and to amounts receivable in connection with capital calls in relation to mutual funds for unissued units. Available-for-sale (AFS) financial assets amount to over €69 billion, including mainly investments to cover contractual obligations entered into with policyholders in relation to traditional with-profit policies, with a minimum guaranteed return linked to returns on investment pools managed by Poste Vita (so-called separately managed accounts). On these products, the Company guarantees a minimum rate of return varying between 0% and 1.5%, payable at maturity. (€m)

Available for-sale financial assets at 30 June 2014 at 31 December 2013 Equity instruments Debt securities of which: UCI units Total

government bonds corporate bonds

9.7 67,625.4 57,822.4 9,803.0 1,466.1 69,101.2

5.3 57,617.7 48,853.2 8,764.5 1,536.9 59,159.9

Increase/(decrease) 4.4 10,007.7 8,969.2 1,038.5 (70.8) 9,941.3

83.6% 17.4% 18.4% 11.8% (4.6%) 16.8%

In the first half of 2014, the Company continued to use an investment approach designed to balance the need to match increasingly investments with the structure of the obligations with

19

policyholders and, in the meantime, to maintain a portfolio capable of ensuring returns in line with those of its main competitors. Investment choices were informed by utmost prudence, also in light of market trends, with a portfolio invested mostly in euro area government securities and corporate bonds of good standing. Purchases focused mainly on Italian government bonds, including in the inflation-indexed component. Special attention was paid to the selection and diversification of the corporate bond portfolio. In fact, with a view to diversifying risk among different sectors, to take the profit opportunities made available by economic growth and by the slope of corporate yield curves, the weight of banking, financial and industrial issuers was increased. On the other hand, to achieve geographical diversification, the weight of European (mainly French, German and Spanish) and US issuers was increased. The fall in Italian government bond yields, which marked the early months of 2014, allowed the Company to book gains on sales of long-dated bonds. The nearly €9.9 billion growth on the comparable amount for 2013 is attributable to the positive commercial results and to returns obtained in the period, together with a fair value increase as a consequence of positive trends in the financial markets. As of 30 June 2014, financial assets classified as AFS showed unrealized capital gains of nearly €7,062 million, compared to nearly €2,913 million at the end of 2013. Of these, €6,760 million were attributable to policyholders through the shadow accounting mechanism, in accordance with IFRS 4, as they relate to financial instruments included in separately managed accounts. The remaining €302 million (€225 million in 2013) refers to net gains on AFS securities included in the Company’s “free capital” and therefore attributable to a specific equity reserve (equal to €205 million), net of the related taxation. Financial assets at fair value through profit or loss (FVTPL) amount to nearly €11 billion (€10.5 billion at 30 June 2013) and mainly referred to financial instruments to cover unit and index-linked policies (€9.3 billion). Of these, nearly €6.3 billion refer to financial instruments backing indexlinked type policies for which Poste Vita provides customers with a capital guarantee as well as a minimum rate of return. This item includes also structured bonds of €3 billion, backing index-linked policies, and units of mutual funds backing unit-linked policies for which Poste Vita does not offer capital protection or a minimum rate of return. The financial risks associated with these investments are totally borne by customers. Financial assets at fair value through profit or loss also comprised callable bonds and new CMS (Constant Maturity Swap) issues included in the Company’s separately managed accounts, totalling €1.7 billion. Positive trends in the financial markets have made it possible to record unrealized capital gains of nearly €70 million, attributable entirely to policyholders through the shadow accounting mechanism. (€m)

Financial assets at fair value through profit or loss Debt securities of which:

government bonds corporate bonds

Structured bonds Other financial instruments Derivatives Total

at 30 June 2014 at 31 December 2013 7,258.8 6,087.5 1,171.3 2,943.4 623.2 249.0 11,074.4

6,560.7 5,888.9 671.8 2,983.3 729.8 210.0 10,483.8

Increase/(decrease) 698.1 198.6 499.5 (39.9) (106.6) 39.0 590.6

10.6% 3.4% 74.3% (1.3%) (14.6%) 18.6% 5.6%

Portfolio composition according to issuing country is in line with 2012 and characterized by a strong prevalence of Italian government bonds, as shown in the following table:

20

(€m)

Country Australia Austria Belgium Canada Denmark Finland France Germany Japan Hong Kong/China Ireland Italy Luxembourg Malta Mexico Norway New Zealand Netherlands Portugal United Kingdom Czech Republic Supranational Spain United States of America Sweden Switzerland Total

FVTPL

AFS

19.0 33.1 58.9 262.5 39.4 260.6 7,530.4 418.9 238.6 15.2 345.1 940.7 97.6 243.5 32.7 538.2 11,074.4

Total 234.1 28.1 84.6 6.0 33.8 33.7 2,323.1 437.5 10.1 178.7 59,998.9 133.1 29.8 48.7 41.7 1,430.6 30.5 840.6 5.3 51.4 953.1 1,894.1 185.7 87.9 69,101.2

234.1 47.1 117.6 6.0 92.8 33.7 2,585.6 476.9 10.1 439.3 67,529.3 552.0 238.6 44.9 48.7 41.7 1,775.7 30.5 1,781.3 5.3 51.4 1,050.7 2,137.6 218.5 626.2 80,175.6

Liquid assets refer mainly to temporary excess cash balances, mainly available in “Separately managed accounts”, which, given current interest rate levels, will be invested in the second half of 2014 in accordance with market trends. Net income from financial investments for the first half of 2014 amounts to €1,937 million, up approximately €673 million on the comparable figure for 2013. The increase is due mainly to the increase in assets under management and gains on medium-term portfolio investments, to ensure consistency to returns on separately managed accounts in a market with falling interest rates. This amount includes also unrealized gains of approximately €361 million related to financial assets at fair value through profit or loss, mainly backing unit- and index-linked products, as reflected nearly entirely by the corresponding technical provisions. (€m)

for the six months ended 30 June 2014 Deriving from available-for-sale financial assets Deriving from financial assets at fair value through profit or loss Income from cash and cash equivalents Deriving from loans and receivables Deriving from financial liabilities Deriving from investments in associates Total for the six months ended 30 June 2013 Deriving from available-for-sale financial assets Deriving from financial assets at fair value through profit or loss Income from cash and cash equivalents Deriving from loans and receivables Deriving from financial liabilities Deriving from investments in associates Total Increase/(decrease) % increase/(decrease)

Interest

Other income and costs

Realized losses

Realized gains

1,160.6

41.1

228.9

(18.2)

166.0 4.1 0.4 (11.1) 0 1,319.9

(0.5) -

5.5

(1.0)

Interest 993.4 154.1 5.7 0.1 (9.2) 0.0 1,144.2 175.7 15%

40.6 Other income and costs 14.9

Unrealized gains

210.7 4.4

364.6

215.1

0.4 365.0

Unrealized Unrealized losses gains/(losses), net 0.0 (4.0)

-

234.4 -

19.3 Realized losses

Realized gains

Realized gains/(losses), net

125.1

(7.7)

117.4

10.7

(0.9)

9.8 -

14.9 25.7 172%

Realized gains/(losses), net

135.8 98.6 73%

21

8.6 10.6 123%

127.2 88.0 69%

Unrealized gains

58.7

360.6 -

0.4 (4.0) 361.0 Unrealized Unrealized losses gains/(losses), net (81.5)

(22.8) -

0.6 59.3 305.7 516%

(81.5) 77.5 -95%

0.6 (22.2) 383.2 1727%

Total income (expense), net 1,412.4 530.5 4.1 0.4 (11.1) 0.4 1,936.7 Total income (expense), net 1,125.8 141.2 5.7 0.1 (9.2) 0.6 1,264.1 672.5 53%

Technical provisions As a result of the aforementioned business trends, in accordance with the laws and regulations on this matter and on the basis of appropriate actuarial assumptions, technical provisions analytically calculated for each contract total €79,063 million. Based on favourable commercial trends, they have grown nearly 16.3% compared to the €68,005 million of 2013, allocated as follows: Technical provisions Non-life branches: Premium reserve Outstanding claims provisions Other technical provisions Total non-life branches Life branches: Mathematical provisions Technical provisions where risk is borne by policyholders Outstanding claims provisions DPL provisions Other technical provisions Total life branches Total

at 30 June 2014 at 31 December 2013 37.5 34.0 5.2 76.7 62,523.0 9,246.2 273.1 6,860.0 84.1 78,986.3 79,063.0

31.8 26.1 4.8 62.7 55,723.8 9,190.2 229.3 2,723.6 75.5 67,942.5 68,005.2

Increase/(decrease) 5.7 7.9 0.4 14.0 6,799.2 56.0 43.7 4,136.3 8.6 11,043.8 11,057.8

17.9% 30.2% 9.0% 22.3% 12.2% 0.6% 19.1% 151.9% 11.3% 16.3% 16.3%

In particular, provisions for the life branches amount to €78,986.3 million, up approximately 16.3% on the comparable amount at the end of 2013 (€67,942.5 million).These provisions are made to meet all of the Company’s obligations and include mathematical provisions (€62,523 million), provisions for unit- and index-linked products (€9,246.2 million), outstanding claims provisions (€273.1 million), provisions for deferred policyholder liability (DPL) (€6,860 million) and other provisions (€84.1 million). The latter includes provisions for future expenses (article 31 of ISVAP Regulation 21/2008), totalling €80 million, and provisions for supplementary health insurance, totalling €4 million. With reference to the shadow accounting method, Branch I products whose revaluation is linked to the returns on separately managed accounts, the financial component of technical provisions was determined on the basis of realized income and expenses, as established by the applicable accounting standards, without considering unrealized gains and losses. This generates a timing mismatch between liabilities and the assets designed to back them, which are recognized at fair value, in accordance with IAS 39. This phenomenon is monitored, as in previous years, through “shadow accounting”, a tool introduced by IFRS 4 to report assets and liabilities they are intended to back in a consistent manner. In particular, unrealized losses and gains on financial instruments included in separately managed accounts are recognized as liabilities among technical provisions, though to the extent of the amount attributable to policyholders, in proportion to the retrocession percentage contractually provided for in the separately managed accounts. This analysis takes into account the impact on the minimum rate of return levels currently applied in contracts. The criteria used for shadow accounting purposes are described in the notes. Contracts classified as “insurance contracts” and those classified as “financial instruments with a discretionary participation feature”, for which use is made of the same recognition and measurement criteria as in Italian GAAP, were subjected to a LAT - Liability Adequacy Test established by paragraph 15 of IFRS 4. The test was conducted by taking into account the present value of future cash flows, obtained by projecting the expected cash flows generated by the existing portfolio as of period end, based on adequate assumptions underlying expiration causes (death, termination, surrender, reduction) and expense trends. The results of the described tests, in Part F “Disclosure of risks”, show the adequacy of the technical provisions.

22

At 30 June 2014 technical provisions related to the non-life classes, before provisions ceded to reinsurers, amounts to €76.7 million (€62.7 million in 2013) and consists of: the premium reserve of €37.5 million, outstanding claims provisions of €34 million and other provisions of €5.2 million. The premium reserve includes additional provisions of €5.1 million, following an adequacy test, as described more thoroughly in the notes. Outstanding claim provisions for claims incurred but not reported (IBNR) amount to €6 million. Changes in the premium reserve and outstanding claims provisions reflect trends in policy sales. Equity and solvency ratio At 30 June 2014 the Group’s equity amounts to €3,021.5 million, with an increase of €258.0 million on the opening balance for the year due to: i) profit for the period and ii) the change in the valuation reserve for available-for-sale financial assets. Moreover, as indicated above, in May the Company placed €750 million in fixed-rate (overall equal to about 3%) five-year subordinated bonds. The bonds, which were placed entirely with institutional investors, was more than 3 times oversubscribed. This issue was intended to further strengthen the Company’s capital taking into account, in particular, growth forecasts for 2014-2015 and a targeted solvency ratio of at least 120% until 2016, when capital requirements under the Solvency II regulations will come into force. Following this placement, and considering the €540 million in debt securities issued in the past by the Parent Company, subordinated debt amounts to €1,290 million. Consequently, at the end of the first half of 2014, total items included in the solvency ratio amount to €3,855 million, compared to a required amount of €2,814 million, with a solvency ratio of 1.37x.

23

ORGANISATION OF THE POSTE VITA GROUP Corporate governance This paragraph also represents the Report on Corporate Governance required by art. 123-bis of Legislative Decree 58/1998 (the Consolidated Law on Finance), as for as it extends to information required under paragraph 2, sub-paragraph b. The governance model adopted by Poste Vita is “traditional”, i.e. characterized by the traditional dichotomy between the Board of Directors and the Board of Statutory Auditors. The Board of Directors, which has 7 members, meets periodically to review and adopt resolutions on strategy, operations, results, and proposals regarding the operational structure, strategic transactions and any other obligations under current industry legislation. This body thus has a central role in defining the Group’s strategic objectives and the policies needed to achieve them. The Board of Directors is responsible for managing corporate risks and approves the strategic plans and policies to be pursued. It promotes the culture of control and ensures its dissemination to the various levels within the Company. The Chairman is vested with the powers provided for by the Company’s articles of association and those conferred by the Board of Directors at the meeting of 5 August 2014. On that date, the Board of Directors granted the Chief Executive Officer the authority to manage the Company, save for the powers reserved to the Board of Directors. The Board of Statutory Auditors is made up of 3 standing members appointed by the shareholders. Pursuant to art. 2403 of the Italian Civil Code, the Board of Statutory Auditors monitors compliance with the law and the articles of association and with good practices and, in particular, the adequacy of the organizational, administrative and accounting structure adopted by the Company and its functionality. The audit activities required by articles 14 and 16 of Legislative Decree 39/2010 are carried out by BDO SpA, an auditing firm entered in the register of auditors held by the Ministry of the Economy and Finance. The Company also has a system of procedural and technical rules that ensure consistent corporate governance through the coordinated management of the decision-making process regarding aspects, issues and activities of interest and/or of strategic importance, or that might give rise to significant risks for its assets. The governance system is further enhanced by a series of Company Committees chaired by the CEO, aimed at addressing and controlling corporate policies on strategic issues. In particular, the following committees have been established: (i) an Insurance Products Committee, which analyses, ex ante, proposals regarding insurance product offerings, with the related technical and financial characteristics, and verifies, ex post, the technical and profit performance and limits on risk taking for product portfolios; (ii) a Projects Committee, which is responsible for monitoring the Insurance Group’s strategic projects, assessing progress, analysing possible critical areas and guiding the actions undertaken by the departments in charge in order to achieve pre-established goals; (iii) a Crisis Management Committee, responsible for managing crisis situations arising in connection with the Company’s information system, to ensure business continuity on the occurrence of unexpected, exceptional events. The Committee operates in accordance with the policies established for the areas of interest by the Parent Company, Poste Italiane; (iv) an Investment Committee, which plays a role in defining the investment policy, the strategic and

24

tactical asset allocation policy and its monitoring over time, and a (v) Risk Committee, with responsibility for helping the Company establish risk measurement metrics and the related system, as well as in identifying risk limits, based on the defined risk appetite and on limits approved by the Board of Directors. Lastly, to increase compliance with the more advanced governance models, the Company’s articles of association require the appointment of a manager response for financial reporting. At its meeting of 11 September 2014, the Board of Directors confirmed the Chief Financial Officer in this role. Internal control system Within the Poste Vita Group, risk management is part of a wider internal control system that is divided into three levels: •







Line, or first level, controls, carried out during operational processes managed by individual operating units (this also includes hierarchical controls and controls "embedded" in procedures); the system of proxies and of powers of attorney; the operating units therefore represent a "first line of defence" and are responsible for effectively and efficiently managing the risks that fall within their purview. Risk management controls (second level), carried out by the Risk Management unit, which is separate and independent from other operating units and identifies the various types of risk, contributes to establishing methods for evaluation/measurement and verifies that the operating units comply with the assigned limits; it also identifies and recommends, where necessary, risk corrective and/or mitigation actions, checking consistency between the Company’s operations and the risk objectives established by the competent corporate bodies. Controls on the risk of non-compliance with rules (second level), carried out by the Compliance department, which is separate and independent from operating units and has responsibility for preventing the risk of incurring legal or administrative sanctions, financial losses or reputational damage arising from non-compliance with the relevant regulations. In this context, the Compliance unit is responsible for assessing the adequacy of internal processes to prevent the risk of non-compliance. Third Level Controls, assigned to Internal Auditing, Ethics and Internal Control Models unit, which is separate and independent from operating units. This department, based on an analysis of areas of risk affecting the Company’s business, plans annual audits to check the effectiveness and efficiency of the Internal Control System with respect to operations/business processes.

The internal control system also consists of a set of rules, procedures and organisational units designed to prevent or minimize the impact of unexpected events and to enable the achievement of strategic and operational objectives (effectiveness and efficiency of operations and protection of corporate assets), compliance with laws and regulations, and accurate and transparent internal information. It is a widespread system within the Company and is constantly upgraded. Within this context, the Internal Auditing, Ethics and Internal Control Models unit helps the organization to achieve its business and governance goals, providing support to officers and management in fulfilling their duties with regard to the internal control and risk management systems, with a view to improving constantly the Company’s corporate governance mechanisms and control processes. In particular, the unit’s duty is to provide assurance – also by virtue of its

25

organisational independence and lack of any operational role – on the adequacy and overall functionality of the internal control system, adopted by the Company pursuant to Law 262/05. For this reason, this unit prepares an annual Audit Plan based on risk analysis, for a progressive coverage of key business processes. A Risk Management unit has also been established to develop risk measurement methods and propose action plans to mitigate the financial, technical and process risks to which the Company is exposed. Risk Management is also responsible for developing a risk assessment system and a system to measure regulatory capital according to specifications under definition at EU level (Solvency II). Risk Management also supports the Board in assessing, through stress tests, the consistency between the risks undertaken by the firm, the risk appetite defined by the Board of Directors and its current and prospective capital. The Compliance unit guarantees organisational and procedural adequacy to prevent the risk of non-compliance with regulations, as per the Compliance Policy approved by the Board of Directors on 26 November 2008. Regarding the organisation of controls, control functions for the subsidiary, Poste Assicura – Internal Auditing, Risk Management and Compliance – have been assigned to the Parent Company, Poste Vita, pursuant to art. 36 of ISVAP Regulation 20, dated 26 March 2008. As to the matters governed by Legislative Decree 231/01, Poste Vita has adopted a Compliance Programme with the objective to prevent the perpetration of the different types of offence contemplated by the law, and has appointed a Supervisory Board. Adoption of the 231 Compliance Programme and the rules of conduct contained therein combine with the “Code of Ethics of the Poste Italiane Group” and the “Code of Conduct for Suppliers and Partners of the Poste Italiane Group” adopted by the companies, in keeping with similar codes in place for the Parent Company, Poste Italiane.

Organizational structure and personnel The Insurance Group’s goal during the year was to strengthen its organisational structure, to meet the requirements associated with its constant growth in terms of size and business. The number of direct employees at 30 June 2014 is equal to 329, compared to 317 at 31 December 2013. Workforce breakdown Executives Middle managers Operational staff Fixed-term employees Direct employees

at 30 June 2014 at 31 December 2013 Increase/(decrease) 33 32 1 120 113 7 165 161 4 11 11 0 329 317 12

The above-mentioned increase in personnel was necessary first and foremost to support the Group’s growing business and the various strategic projects started during the year. Moreover, the Company has continued to pursue a recruitment policy intended to secure skilled staff specialising in the insurance sector, as well as to improve processes and the relevant internal control system. The company’s organisational structure was continuously strengthened, focusing on staff development and skill improvements. Personnel development is one of the Group’s strategic

26

priorities. In particular, in the first half of 2014, over 198 days of specialist technical training was provided to personnel. Moreover, during the period, several projects were started, aimed at ensuring the development of behavioural and managerial skills for various personnel within the Company (above all, senior and middle management). Commitment to and investment in training projects, aimed at enhancing behavioural and managerial skills, were made to enable the employee’s personal and professional growth, consistent with the Company’s need for operational excellence. During the year, implementation of an annual staff performance appraisal system continued, focusing on skills and achievement of the targets assigned.

27

RELATIONS WITH THE PARENT AND OTHER POSTE ITALIANE GROUP COMPANIES The Company, Poste Vita, is wholly owned by Poste Italiane SpA, which directs and coordinates the Group. Transactions with Poste Italiane SpA, which owns all the shares outstanding, are governed by written agreements and conducted on an arm’s length basis. They regard mainly:      

the sale and distribution of insurance products at post offices and related activities; post office current accounts; partial secondment of personnel used by the Company; support in organising the business and in the recruitment and management of personnel; the pick-up, packaging and shipping of ordinary mail; and call centre services.

A service contract relating to information technology is currently being finalised with Poste Italiane SpA. Furthermore, at 30 June 2014 subordinated loan notes, totalling €540 million and issued by the Company, have been subscribed by Poste Italiane SpA. The notes provide a market rate of return reflecting the creditworthiness of the Company. In addition to the relationship with the Company, Group companies also maintain operational relations with other Poste Italiane Group companies, particularly for:       

management of the Company’s free capital and of a part of the portfolio investments attributable to separately managed accounts (Bancoposta Fondi SGR); printing, enveloping and mail delivery through information systems; management of incoming mail, the dematerialization and filing of printed documentation (Postel); services related to network connections with Italian post offices (Postecom); mobile telephone services (Poste Mobile); advice on obligations pertaining to occupational health and safety (Poste Tutela); Term Life Insurance Policies (Postel and BdM-MCC); Policies for Accidents (PdM-MCC – Postel), General Third Party Liability (Postel) and Fire – Credit (BdM – MMC).

Also these arrangements are conducted on an arm’s length basis. Details of the above are provided in the notes to the financial statements.

28

OTHER INFORMATION Information on own shares and/or the parent’s shares held, purchased or sold during the period. The Company does not own and did not purchase or sell its own or the parent’s shares.

Related party transactions In addition to other companies in the Poste Italiane Group, whose relationships have already been described in the previous paragraph, according to the provisions of IAS 24 (para. 9) related parties are the MEF (the Ministry of the Economy and Finance), Cassa Depositi e Prestiti SpA, entities controlled by the MEF and key management personnel. The Government and public bodies different from the MEF and from the bodies controlled by the Ministry are not considered related parties; furthermore, dealings associated with financial assets and liabilities represented by financial instruments are not considered related party transactions. In particular, it is noted that, at 30 June 2014, the Company held bonds issued by Cassa Depositi e Prestiti, purchased at arm’s length, and has a lease agreement in place, at arm’s length, with EUR SpA (which is 90%-owned by the MEF). Company directors and key management personnel have not conducted any related party transactions. Research and development activities During the period under review, the Group did not incur any research and development expenses, except for costs related to new products. These outlays were expensed as incurred. Legal disputes Nearly 270 proceedings initiated against the Parent Company, Poste Vita, had been filed at 30 June 2014, mainly relating to “dormant policies" and the payment of claims. Moreover, 6 proceedings are still pending in the labour court, filed by employees of subcontracting firms. The likely outcome of these disputes has been taken into account in determining the results for the period. Nearly 100 proceedings have been filed against Poste Vita, mostly regarding insurance documents. Disputes involving Poste Assicura at 30 June 2014 total nearly 150 and mainly refer to objections raised against the payment of claims. The likely outcome of these disputes was taken into account in calculating outstanding claims provisions. Nearly 15 proceedings have been filed against Poste Assicura, mostly regarding insurance documents. Tax disputes In 2009 the Regional Tax Office for Large Taxpayers (Agenzia delle Entrate - Direzione Regionale del Lazio - Ufficio Grandi Contribuenti) notified Poste Vita SpA of an alleged violation of the VAT regulations in the 2004 tax year, resulting in fines of approximately €2.3 million for the alleged failure to pay VAT on invoices for service commissions. In December 2010 and September 2011,

29

the tax authorities sent notices of two further small fines for the same violation in 2005 and 2006 tax years. The Company appealed the above findings before the Provincial Tax Tribunal of Rome, which found in favour of the Company, considering the demands of the tax authorities to be groundless. As of the date of this report, the tax authorities still have time to appeal these decisions. Concerning the claims for 2005, the case is still pending before the Provincial Tax Commission of Rome. In setting the level of provisions necessary to meet these payments, the Company continued to regard as uncertain the outcome of the legal proceedings in question. IVASS On 1 April 2014 IVASS began an inspection of Poste Vita SpA, which is in progress. The Company is awaiting the inspection report. Regulatory developments In the first half of 2014, the regulatory developments that affect or might affect the Insurance Group’s business were as follows: 







On 19 February the Senate converted the Law Decree introducing the “Destination Italy” plan (Law Decree 1299) into law. Attention is called, among other things, to article 12 of this decree, which lays down a number of measures intended, overall, to inject liquidity into businesses and to boost access to financing for small and medium enterprises. To encourage investment in bonds by pension funds and insurance companies, insurance companies will be permitted to make technical provisions for investments in bonds and similar securities issued in relation to securitization transactions, including those without ratings, even though they are not listed in regulated markets or in multilateral trading systems and are without a rating. On 25 February the Senate converted Law Decree 150 of 30 December 2013, as amended, containing an extension of deadlines set by other legislation (Law Decree 1214-B), published in Official Gazette no. 49 of 28 February 2014 of 28 February 2014. Attention is called, in particular, to postponement of the deadline for the mandatory adoption of debit card payment devices (POS). This provision refers to the obligation for entities that sell products and provide services, including insurance companies, to accept payments made by debit card. On 15 April 2014 IVASS, the insurance industry regulator, issued Ruling 17, containing amendments and supplements to ISVAP Regulation 20/2008 - on internal control, risk management, compliance and the outsourcing of insurance business operations – and ISVAP Regulation 36/2011 - regarding guidelines on investments backing technical provisions – as well as ISVAP Regulation 15/2008, concerning the insurance group, to implement the EIOPA guidelines in view of Solvency II. Law Decree 66 of 24 April 2014, containing “Urgent measures for competitiveness and social justice” (Official Gazette 95 of 24 April 2014), enacted the new IRAP (regional business tax) rates applicable, as of 1 January 2014, for companies whose fiscal year is the same as the calendar year. In particular, as a result of the law, the basic IRAP rate for insurance companies fell from 5.90% to 5.30%. Therefore, starting in the 2014 tax year, the new IRAP rate applicable to the Company – including the 0.92% increase mandated by the provisions enacted by Lazio Regional Authority pursuant to paragraph 3 of article 16 of Legislative Decree 446/1997 (IRAP Decree) – is 6.22%.

30



On 10 June the Draft Regulation updating provisions on investments and assets backing technical provisions under ISVAP Regulation 36 of 31 January 2011 was issued for public consultation.

31

EVENTS AFTER 30 JUNE 2014 The following events have taken place since 30 June 2014: 

On 15 July 2014, IVASS (the insurance regulator) authorised the transfer, pursuant to art. 198 of Legislative Decree 209/2005 and ISVAP Regulation 14/2008, of the retail non-life insurance portfolio of accident and medical policies from Poste Vita to Poste Assicura.



On 4 August 2015, the shareholders appointed the new members of the Board of Directors and the Board of Statutory Auditors for the three years 2014-2016 and attributed the relevant authorities and powers. Specifically, the new Directors and Auditors are:

BOARD OF DIRECTORS Chairman

Luigi Calabria

CEO

Maria Bianca Farina

Director

Antonio Nervi

Director

Pasquale Marchese

Director

Bianca Maria Martinelli

Director

Dario Frigerio

Director

Salvatore Militello

BOARD OF STATUTORY AUDITORS Chairman

Stefano Dell’Atti

Auditor

Marco De Iapinis

Auditor

Simona Arduini

Alternate

Franco Pichiorri

Alternate

Teresa Naddeo

32

OUTLOOK Despite a still challenging domestic and international environment, and increasingly fierce competitive pressures, in the second half of 2014 the Group will continue to take all the actions necessary to improve earnings and focus on achieving the targets set. This will involve implementation of a growing number of key initiatives, including those relating to distribution and of a financial nature, in order to take advantage of further profitable growth. Other important new projects will also continue, including the demanding task of ensuring compliance with the new “Solvency II” regulations, with initial requirements coming into force in 2015.

33

Financial statements and Notes

34

STATEMENT OF FINANCIAL POSITION - ASSETS at 30 June 2014

at 31 December 2013

1

INTANGIBLE ASSETS

1.1

Goodwill

15,346

10,513

-

-

1.2

Other intangible assets

2

TANGIBLE ASSETS

15,346

10,513

3,812

2,954

2.1

Land and buildings

2.2

Other tangible assets

3

TECHNICAL PROVISIONS CEDED TO REINSURERS

4

INVESTMENTS

4.1

Investment property

4.2

Investments in subsidiaries, associates and joint ventures

4.3

Investments held to maturity

4.4

Loans and receivables

764,323

11,458

4.5

Available-for-sale financial assets

69,101,208

59,159,855

4.6

Financial assets at fair value through profit or loss

11,074,410

10,483,821

5

SUNDRY RECEIVABLES

113,065

73,003

5.1

Receivables arising from direct insurance sales

29,759

10,225

5.2

Receivabes arising from reinsurance transactions

9,365

11,022

5.3

Other receivables

73,940

51,755

6

OTHER ASSETS

1,493,475

1,219,779

6.1

Non-current assets or disposal groups held for sale

-

-

6.2

Deferred acquisition costs

48,612

44,505

6.3

Deferred tax assets

11,374

9,754

6.4

Current tax assets

1,430,516

1,164,433

6.5

Sundry assets

2,973

1,086

7

CASH AND CASH EQUIVALENTS

-

-

3,812

2,954

47,364

40,340

81,137,410

69,852,153

197,469 -

TOTAL ASSETS

35

197,019 -

1,463,155

804,856

84,273,628

72,003,597

STATEMENT OF FINANCIAL POSITION - EQUITY AND LIABILITIES at 30 June 2014

at 31 December 2013

1

EQUITY

3,021,492

2,763,515

1.1

attributable to the owners of the Parent

3,021,492

2,763,515

1.1.1

Share capital

1,216,608

1,216,608

1.1.2

Other equity instruments

-

1.1.3

Capital reserves

-

1.1.4

Retained earnings and other reserves

1.1.5

(Treasury shares)

-

1.1.6

Reserve for currency translation differences

-

1.1.7

Valuation reserve for available-for-sale financial assets

1.1.8

Other valuation reserve

1.1.9

Profit/(Loss) for the period attributable to owners of the Parent

1.2

attributable to non-controlling interests

-

-

1.2.1

Share capital and reserves attributable to non-controlling interests

-

-

1.2.2

Valuation reserves

-

-

1.2.3

Profit/(Loss) for the period attributable to non-controlling interests

2

PROVISIONS

3

TECHNICAL PROVISIONS

4

FINANCIAL LIABILITIES

4.1

Financial liabilities at fair value through profit or loss

4.2

Other financial liabilities

1,289,767

544,179

5

PAYABLES

204,482

144,084

5.1

Payables arising from direct insurance transactions

133,250

94,044

5.2

Payables arising from reinsurance transactions

16,725

12,856

5.3

Other payables

6

OTHER LIABILITIES

6.1

Liabilities included in disposal groups held for sale

6.2

Deferred tax liabilities

138,943

108,897

6.3

Current tax liabilities

537,758

422,849

6.4

Other liabilities

1,398,772

204,734

1,142,652 148,130

(49) 201,427

-

10,050

79,063,008

68,005,153

1,289,767

544,179 -

54,507

37,184

684,829

536,616

-

36

256,120

10,050

-

TOTAL EQUITY AND LIABILITIES

5

-

8,128

4,870

84,273,628

72,003,597

INCOME STATEMENT (€000) for the six months ended 30 June 1.1 1.1.1 1.1.2 1.2 1.3 1.4 1.5

2014

Net premium revenue Gross premium revenue Outward reinsurance premiums Fee and commission income Net income (expenses) from financial assets at fair value through profit or loss Income from investments in subsidiaries, associates and joint ventures Income from other financial instruments and investment property

2013

8,249,252

6,604,607

8,267,262

6,621,248

(18,010)

(16,641)

0

0

530,522

141,156

453

574

1,435,116

1,139,312

1,165,060

999,302

1.5.1

Interest income

1.5.2

Other income

41,129

14,931

1.5.3

Realised gains

228,927

125,079

1.5.4

Unrealised gains

0

0

109

119

1.6

Other income

1

TOTAL REVENUE

10,215,452

7,885,768

2.1

Net claims expenses

(9,589,502)

(7,399,648)

(9,600,150)

(7,409,011)

10,648

9,363

0

0

0

0

(29,351)

(16,907)

(11,121)

(9,207)

2.1.1

Claims paid and change in technical provisions

2.1.2

Share attributable to reinsurers

2.2 2.3 2.4 2.4.1

Commission expenses Expenses arising from investments in subsidiaries, associates and joint ventures Expenses arising from other financial instruments and investment properties Interest expense

2.4.2

Other expenses

2.4.3

Realised losses

2.4.4 2.5

(18,230)

Unrealised losses

-

Operating costs

(7,701) -

(240,135)

(196,510)

2.5.1

Commissions and other acquisition costs

(200,090)

(160,225)

2.5.2

Investment management expenses

(15,544)

(13,011)

2.5.3

Other administrative expenses

(24,501)

(23,274)

2.6

Other costs

2

TOTAL COSTS AND EXPENSES

3 4

(26,078)

(19,807)

(9,885,066)

(7,632,871)

PROFIT/(LOSS) BEFORE TAX

330,385

252,896

Income tax expense

(128,959)

(101,222)

PROFIT/(LOSS) FOR THE PERIOD

201,427

151,675

PROFIT/(LOSS) FROM DISCONTINUED OPERATIONS

-

-

CONSOLIDATED PROFIT/(LOSS)

201,427

151,675

of which attributable to owners of the Parent

201,427

151,675

of which attributable to non-controlling interests

-

37

-

STATEMENT OF COMPREHENSIVE INCOME for the six months ended 30 June

2014

CONSOLIDATED PROFIT/(LOSS)

2013 201,427

Other components of comprehensive income that will not be reclassified to profit or loss, net of taxation

151,675

(51)

33

Change in subsidiaries' equity

-

-

Change in revaluation reserve for intangible assets

-

-

Change in revaluation reserve for tangible assets

-

-

Income and expenses from non-current assets and disposal groups held for sale

-

-

51

33

Actuarial gains and losses and adjustments related to defined-benefit plans

-

Other components Other components of comprehensive income that may be reclassified to profit or loss, net of taxation Change in reserve for currency translation differences

-

-

56,599

(9,590)

Gains or losses on available-for-sale financial assets

56,602 -

-

9,592

Gains or losses on cash flow hedges

-

Gains or losses on hedges of a net investment in foreign operations

-

-

(3)

2

Income and expenses related to non-current assets or disposal groups held for sale

-

-

Other components

-

-

Change in subsidiaries' equity

TOTAL OTHER COMPONENTS OF COMPREHENSIVE INCOME

-

56,548

(9,557)

TOTAL CONSOLIDATED COMPREHENSIVE INCOME

257,975

142,118

of which attributable to owners of the Parent

257,975

142,118

-

-

of which attributable to non-controlling interests

STATEMENT OF CHANGES IN EQUITY Changes Adjutments due in Increases/ to Balance at 30 Transfers closing Decreases reclassification June 2014 balances to profit or loss 1,216,608 1,216,608

Balance at 31 December 2013 Share capital

Equity attributable to owners of the Parent

Other equity instruments

-

-

Capital reserves

-

-

Retained earnings and other reserves (Treasury shares)

-

256,120

-

Profit/(Loss) for the period

Equity attributable to non-controlling interests

1,142,652

1,398,772

-

256,120

-

-

54,693

201,427

Other components of comprehensive income

148,135

77,400 -

20,850,053

Total attributable to owners of the Parent

2,763,515

77,452 -

20,850,053

204,685 -

3,021,492

Share capital and reserves

-

-

-

-

-

Profit/(Loss) for the period

-

-

-

-

-

Other components of comprehensive income

-

-

-

-

-

Total attributable to non-controlling interests

-

-

-

-

Total

2,763,515

38

77,452

77,452

-

3,021,492

CASH FLOW STATEMENT (Indirect method) for the six months ended 30 June

2014

Profit/(Loss) for the period before tax

2013 330,385

252,896

Changes in non-monetary items

10,686,126

4,007,251

Change in non-life premium reserve

5,109

3,415

Change in outstanding claims provisions and other non-life technical provisions

5,245

2,023

11,040,477

3,984,871

Change in outstanding claims provisions and other life technical provisions Change in deferred acquisition costs

(4,107)

Change in provisions

-

Non-monetary income and expenses from financial instruments, investment property and investments Other changes

(360,598) -

Change in receivables and payables generated by operating activities Change in receivables and payables deriving from direct insurance sales and reinsurance transactions

142,205 25,198

(7,624) 830 22,757 979 (124,563) 47,419

Change in other receivables and payables

117,007

(171,982)

Income tax paid

(243,246)

(311,997)

Net cash generated by (used for) monetary items related to investing and financing activities

(590,588)

618,623

Liabilities from investment contracts issued by insurance companies

-

-

Due to bank and interbank customers

-

-

Loans and receivables outstanding with bank and interbank customers

-

Other financial instruments at fair value through profit or loss

(590,588)

TOTAL NET CASH generated by OPERATING ACTIVITIES

10,324,882 -

Net cash generated by (used for) investment property Net cash generated by (used for) investments in subsidiaries, associates and joint ventures Net cash generated by (used for) loans and receivables

Net cash generated by (used for) tangible and intangible assets Other net cash generated by (used for) investing activities

(576) (5,011,825)

(5,692)

(168)

(10,339,763) -

Net cash generated by (used for) equity instruments attributable to owners of the Parent

98,888

(9,580,756) -

TOTAL NET CASH GENERATED BY (USED FOR) INVESTING ACTIVITIES

-

(450) -

Net cash generated by (used for) available-for-sale financial assets

4,442,211

(752,865)

Net cash generated by (used for) investments held to maturity

618,623

(72,409)

(4,913,680) (111,852)

Net cash generated by (used for) treasury shares

-

-

Distribution of dividends to owners of the Parent

-

-

Net cash generated by (used for) share capital and reserves attributable to non-controlling interests

-

Net cash generated by (used for) subordinated liabilities and equity instruments Net cash generated by (used for) sundry financial liabilities

745,588 -

TOTAL NET CASH GENERATED BY (USED FOR) FINANCING ACTIVITIES Effect of exchange rate differences on cash and cash equivalents

673,179

-

-

-

804,856

INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS

658,299

CASH AND CASH EQUIVALENTS AT END OF PERIOD

1,463,155

39

(112,005)

CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD

(153)

1,025,293 (583,474) 441,819

NOTES BASIS OF PREPARATION AND ACCOUNTING POLICIES

The financial statements of the Poste Vita Group for the six months ended 30 June 2014 have been prepared in accordance with IVASS Regulation 7 of 13 July 2007, as amended. The scope of consolidation includes Poste Vita SpA and the subsidiary, Poste Assicura SpA, an insurance company founded in 2010, whose principal activity is the provision, in Italy and abroad, of all permitted types of non-life insurance and reinsurance. In addition, Poste Vita SpA may undertake all activities related to, or conducive to growth in, insurance and reinsurance (as per article 4 of the Articles of Association). Poste Assicura SpA is currently authorised to carry out insurance business in all non-life classes with the exception of the motor segment and related sectors. The company is wholly owned by the Parent Company, Poste Vita. The company is consolidated on a line-by-line basis. The Parent Company also holds a non-controlling interest in Europa Gestioni Immobiliari SpA, a real estate company engaged in property management and transactions in Italy and abroad for own account and on behalf of third parties. This investment is accounted for using the equity method. Name Poste Assicura SpA Europa Gestioni Immobiliare SpA

Country Italy Italy

Business Insurance Property management

Type of ownership Subsidiary Associate

% direct ownership 100 45

Consolidation/Accounting method Line-by-line consolidation Equity method

The consolidated financial statements for the six months ended 30 June 2014 have been subject to a review by BDO SpA, the independent auditors appointed for 2014-2022. For a detailed explanation of the accounting policies adopted in the preparation of this consolidated interim report and the contents of the financial statements, reference is made to the basis of preparation and accounting policies described in the latest annual report. In particular, the Company prepares its consolidated accounts based on historical cost, save for instances requiring the application of fair value, as per IFRS 13. There were no changes in the accounting policies adopted, save as otherwise indicated in the following section. New accounting standards Following endorsement by the European Union, the accounting standards described below are applicable with effect from 1 January 2014: 

IFRS 10 “Consolidated Financial Statements”: has replaced IAS 27 (“Separate and Consolidated Financial Statements”) and interpretation SIC 12 (“Consolidation – Special Purpose Entities”), clarifying the concept of control for inclusion in the scope of consolidation. Specifically, an investor has control of an investee when it has all of the following elements: a) the ability to direct the relevant activities that significantly affect the investee's returns; b) exposure or rights to variable returns and the ability to affect those returns through power over the investee;

40

c) the ability to use its power over the investee to affect the amount of the investor's returns. If facts and circumstances indicate change in one or more control factors, a review of the scope of consolidation should be made. Application of the new standard has not had any impact on the Group. 

IFRS 11 - "Joint Arrangements" adopted by EU Regulation 1254/2012. The new standard establishes financial reporting rules for entities that are part of a joint arrangement and has replaced IAS 31 - Interests in Joint Ventures and SIC-13 - Jointly Controlled Entities - NonMonetary Contributions by Venturers. IFRS 11 also provides criteria for the identification of joint arrangements by focusing on the rights and obligations of the arrangement, rather than on their legal form. Unlike previous provisions in IAS 31, it does not allow use of proportionate consolidation to account for interests in joint ventures.



IFRS 12 “Disclosure of Interests in Other Entities”: this standard has established the minimum disclosure required to provide an understanding of the nature and risk of the interests held by an entity in one or more entities and the effects that these interests have on the financial condition, operating performance and cash flows of the entities.

The disclosure required by the new standard will be provided in the consolidated annual report for 2014. 





Amendments to IAS 32 “Financial Instruments: Presentation – Offsetting Financial Assets and Liabilities”: these amendments provide additional guidance to reduce inconsistencies in application of the standard. Amendments to IAS 36 “Impairment of Assets - Recoverable Amount Disclosures for NonFinancial Assets”: these are intended to clarify that the disclosures to be made regarding the recoverable amount of assets, when such amount is based on fair value less costs to sell, only concern impaired assets. Amendments to IAS 39 “Financial Instruments: Recognition and Measurement – Novation of Derivatives and Continuation of Hedge Accounting”: these amendments govern the novation of a derivative designated as a hedge from a counterparty to a central counterparty, pursuant to laws or regulations. In these cases, hedge accounting is permitted to continue regardless of any novation.

These amendments are not currently applied.

41

NOTES TO THE CONSOLIDATED STATEMENT OF FINANCIAL POSITION

ASSETS

1. INTANGIBLE ASSETS Intangible assets at 30 June 2014 amount to €15,346 thousand, compared to €10,513 thousand at 31 December 2013. (€000)

Other intangible assets Gross amount Accumulated amortisation Carrying amount

at 30 June 2014 27,692.3 12,345.8 15,346.5

at 31 December 2013 20,450.3 9,937.3 10,513.0

Increase/(decrease) 7,242.0 35.4% 2,408.5 24.2% 4,833.5 46.0%

at 30 June 2014 9,538.3 5,791.5 16.7 15,346.5

at 31 December 2013 6,902.7 3,590.1 20.2 10,513.0

Increase/(decrease) 2,635.6 38.2% 2,201.4 n.s. (3.5) (17.3%) 4,833.5 46.0%

The following table provides a breakdown: (€000)

Other intangible assets Software Intangibles in progress Start-up and expansion costs Carrying amount

Intangible assets mainly comprise unamortized software programme licenses, totalling €9,538 thousand, and the capitalized costs incurred in software development still to be completed at 30 June 2014 (which did not, therefore, generate economic benefits in the period), totalling €5,791.5 thousand. Software licenses are amortized at a rate of 33%. There were no impairment losses recorded during the first half of 2014. The table below shows changes in this item during the period under review: (€000)

Other intangible assets Software - Accumulated amortisation Intangibles in progress - Accumulated amortisation Start-up and expansion costs - Accumulated amortisation Total

at 31 December 2013 16,341.3 (9,438.6) 3,590.1 0.0 518.9 (498.7) 10,513.0

Increases 5,040.7 (2,405.1) 2,201.4 0.0 0.0 (3.5) 4,833.5

Decreases

-

at 30 June 2014 21,382.0 (11,843.7) 5,791.5 0.0 518.9 (502.2) 15,346.5

Compared to 31 December 2013, the increases concern capitalized costs incurred for software development still in progress at 30 June 2014, totalling €2,201 thousand, and the capitalization of costs for the acquisition of software licenses and upgrades of other software applications, totalling €2,636 thousand.

42

2. TANGIBLE ASSETS Tangible assets total €3,812 thousand, an increase of €858 thousand on 31 December 2013. (€000)

Other tangible assets Gross amount Accumulated amortisation Carrying amount

at 30 June 2014 6,905.2 3,093.2 3,812.0

at 31 December 2013 5,572.8 2,619.2 2,953.6

Increase/(decrease) 1,332.4 23.9% 474.0 18.1% 858.4 29.1%

at 31 December 2013 446.6 2,336.8 162.6 7.6 2,953.6

Increase/(decrease) 139.4 31.2% 633.4 27.1% 88.3 54.3% (2.7) (35.1%) 858.4 29.1%

The following table shows a breakdown of tangible assets:

(€000)

Other tangible assets Fixtures and fittings Computer equipment Telephone system Leasehold improvements Carrying amount

at 30 June 2014 586.0 2,970.2 250.9 4.9 3,812.0

Tangible assets primarily relate to assets used in operations: fixtures and fittings amounting to €586 thousand, net of accumulated depreciation, computer equipment amounting to €2,970 thousand, net of accumulated depreciation, the telephone system amounting to €251 thousand, net of accumulated depreciation, and leasehold improvements amounting to €5 thousand, net of accumulated depreciation. The following table shows a breakdown of movements during the period: (€000)

Other tangible assets Computer equipment - Accumulated depreciation Fixtures and fittings - Accumulated depreciation Telephone system - Accumulated depreciation Leasehold improvements - Accumulated depreciation Carrying amount

at 31 December 2013 4,145.8 (1,809.0) 920.3 (473.7) 306.8 (144.2) 199.8 (192.2) 2,953.6

Increases 1,021.5 (388.1) 191.3 (51.9) 119.7 (31.4) (2.7) 858.4

Decreases

-

at 30 June 2014 5,167.3 (2,197.1) 1,111.6 (525.6) 426.5 (175.6) 199.8 (194.9) 3,812.0

The increase mainly relates to the purchase of new computers and electronic equipment during the period, totalling €1,022 thousand.

43

3. TECHNICAL PROVISIONS CEDED TO REINSURERS At 30 June 2014 these provisions total €47,363.7 thousand, an increase of €7,024.1 thousand compared to 31 December 2013 (€40,340 thousand). A breakdown of the balance is provided below: (€000)

Technical provisions ceded to reinsurers Non-life provisions Premium reserve Outstanding claims provisions Other provisions Life provisions Outstanding claims provisions Mathematical provisions Technical provisions where risk is borne by policyholders and pension fund provisions Other provisions Total

at 30 June 2014

at 31 December 2013

Increase/(decrease)

6,746.5 12,502.2 767.6

5,515.1 10,090.7 761.8

1,231.4 2,411.5 5.8

22.3% 23.9% 0.8%

4,154.2 23,193.2

3,591.1 20,380.9

563.1 2,812.3

15.7% 13.8%

47,363.7

40,339.6

7,024.1

17.4%

The year-on-year increase in the amount of technical provisions ceded to reinsurers is due to growth of the business.

4. INVESTMENTS Investments total €81,137,410 thousand at 30 June 2014, a 16.2% increase compared to the €69,852,153 thousand of 31 December 2013. They consist of the following: (€000)

Investments Investments in subsidiaries, associates and joint ventures Loans and receivables Available-for-sale financial assets Financial assets at fair value through profit or loss

Total investments

at 30 June 2014

at 31 December 2013

197,469.2 764,322.9 69,101,208.1 11,074,409.5 81,137,409.7

197,019.2 11,457.8 59,159,854.6 10,483,821.3 69,852,152.9

Increase/(decrease) 450.0 752,865.1 9,941,353.5 590,588.2 11,285,256.8

0.2% 6570.8% 16.8% 5.6% 16.2%

Investments in subsidiaries, associates and joint ventures The Poste Vita Group accounts for its associate, Europa Gestioni Immobiliare SpA (EGI) - a real estate company tasked with the management and development of the Poste Italiane SpA Group’s properties no longer used in operations – using the equity method. The Group holds a 45% equity interest and the €450 thousand increase is due to the company’s profit for the first half of 2014. For more details regarding the level of the fair value hierarchy assigned to the investments in this category, please see Annex 5 D.3, D.4, D.5 to these financial statements.

44

Loans and receivables Loans and Receivables amount to €764,323 thousand at 30 June 2014, compared to €11,458 thousand at 31 December 2013 and, comprise the following: Loans, amounting to €750,000 thousand at 30 June 2014 (€142 thousand at 31 December 2013), consisted entirely of the amount held by the Parent Company as part of the Group’s cash management system, inclusive of the proceeds from the subordinated bonds issued in May 2014. The Company, taking account of lower interest rates at 30 June 2014, decided to wait and evaluate appropriate types of investment for those proceeds, keeping the sum with Poste Italiane SpA in the meantime, ensuring that this cash deposit obtains a return in line with comparable market alternatives. Receivables of €14,323 thousand at 30 June 2014 (€11,316 thousand as at 31 December 2013) relating to subscriptions to capital calls on mutual funds for which the corresponding units have not yet been issued.

Available-for-sale financial assets (€000)

Available-for-sale financial assets Equity instruments Debt securities UCI units/shares Total

at 30 June 2014 9,675.3 67,625,405.6 1,466,127.2 69,101,208.1

at 31 December 2013 5,284.5 57,617,659.2 1,536,910.9 59,159,854.6

Increase/(decrease) 4,390.8 10,007,746.4 (70,783.7) 9,941,353.5

83.1% 17.4% (4.6%) 16.8%

At 30 June 2014 “Available-for-sale financial assets” show unrealized gains – i.e. the difference between the carrying amount and market value at 30 June 2014 – of €4,274,995 thousand. Of this amount, €4,159,4984 thousand has been retroceded to policyholders, in accordance with the shadow accounting method permitted by IFRS, with a credit to technical provisions. The remaining amount of €115,511 thousand has been credited to the fair value reserve in equity, totalling €76,879 thousand, net of the related taxation. Equity instruments, classified in the AFS category, totalling €9,675 thousand (€5,284 thousand at 31 December 2012), relate to Branch I products linked to separately managed accounts. Bonds total €67,625,406 thousand (€57,617,659 thousand at 31 December 2013), of which €67,004,482 thousand relates to listed instruments issued by European countries and leading European companies and €620,923 thousand to unlisted securities, including specific CDP SpA issuances (private placement) with a fair value of €538,743 thousand, used to back specific Branch I insurance policies sold during the previous year. UCI units, totalling €1,466,127 thousand (€1,536,911 at 31 December 2013) consist of €1,089,002 thousand in funds primarily invested in equities and €377,125 thousand in mutual funds that are mainly invested in bonds. For more details regarding the level of the fair value hierarchy assigned to the investments in this category, please see Annex 5 D.3, D.4, D.5 to these consolidated interim report.

45

Financial assets at fair value through profit or loss At 30 June 2014, these amount to €11,074,410 thousand, compared to €10,483,821 thousand at 31 December 2013, and consist of the following: (€000)

Financial assets at fair value through profit or loss Debt securities Structured bonds Other financial instruments Derivatives Total

at 30 June 2014 7,258,755.6 2,943,426.6 623,209.7 249,017.6 11,074,409.5

at 31 December 2013 6,560,746.0 2,983,252.1 729,835.0 209,988.2 10,483,821.3

Increase/(decrease) 698,009.6 (39,825.5) (106,625.3) 39,029.4 590,588.2

10.6% (1.3%) (14.6%) 18.6% 5.6%

Bonds of €7,258,756 thousand at 30 June 2014 (6.560.746 thousand at 31 December 2013) include €6,087,502 thousand of stripped “BTP” Treasury Bonds purchased to back Branch III insurance policies, with the remaining €1,171,254 thousand invested in corporate bonds issued by leading issuers and included in separately managed accounts. Structured bonds totalling €2,943,427 thousand (€2,983,252 thousand at 31 December 2013) consist of investments whose profits are related to specific market index performances, primarily to back index-linked Branch III products. The year to date decrease is due to the combined effect of the disposal of financial instruments, totalling €95,081 thousand, to cover corresponding Branch III claims, and an increase of €54,845 thousand in fair value. Other financial assets totalling €623,210 thousand (€729,835 thousand at 31 December 2013) relate to UCI units held primarily to cover unit-linked Branch III products. The year-to-date decrease is due mainly to the maturity of a product and the corresponding repayment of the financial instruments related to it. During the period under review, the fair value of these financial assets rose by approximately €16,298 thousand due to positive market performances. Derivatives refer to warrants intended to back Branch III policies sold. At 30 June 2014 their total nominal amount is €6,058 thousand, unchanged compared to 31 December 2013, while their fair value is €249,018 thousand, up €39,030 thousand on the €209,988 thousand of 31 December 2013, after an increase in their fair value. For more details regarding the level of the fair value hierarchy assigned to the investments in this category, please see Annex 5 D.3, D.4, D.5 to these financial statements.

5. SUNDRY RECEIVABLES Sundry receivables at 30 June 2014 amount to €113,065 thousand, reflecting a decrease of €40,062 thousand compared to 31 December 2013. This item consists of: (€000)

Sundry receivables Receivables arising from direct insurance transactions Receivables arising from direct reinsurance transactions Other receivables Total sundry receivables

at 30 June 2014 29,759.1 9,365.3 73,940.4 113,064.8

46

at 31 December 2013 10,225.4 11,022.2 51,755.5 73,003.1

Increase/(decrease) 19,533.7 191.0% 1,656.9 -15.0% 22,184.9 42.9% 40,061.7 54.9%

The book value of trade receivables and other receivables is in line with their fair value. Trade receivables are short-term and do not bear interest. With regards to receivables from policyholders, the Group does not present any particular credit risk concentration since credit exposure is divided among a large number of counterparties.

Receivables arising from direct insurance transactions At 30 June 2014 this item amounts to €29,759 thousand, compared to €10,225 thousand at 31 December 2013, and consists of: (€000)

Receivables arising from direct insurance transactions Due from policyholders Premiums receivable from agents Receivables arising from co-insurance agreements Total

at 30 June 2014 3,575.6 23,080.1 3,103.4 29,759.1

at 31 December 2013 1,936.4 7,457.9 831.1 10,225.4

Increase/(decrease) 1,639.2 84.7% 15,622.2 209.5% 2,272.3 273.4% 19,533.7 191.0%

Amounts due from policyholders, totalling €3,576 thousand, reflecting unpaid premiums that are due and payable. This amount reflects sums due for non-life policies, totalling €1,776 thousand, in receivables for the current year and €368 thousand in receivables for the previous year for which no provisions to the allowance for bad debts have been made as they are still due and payable. The remaining €1,432 thousand relates to life policies not yet collected at 30 June 2014. Amounts due from agents, totalling €23,080 thousand at 30 June 2014 (€7,458 thousand at 31 December 2013), refer to premiums already collected by the agent (Poste Italiane) at 30 June 2014 but credited to the Company in early July 2014. Receivables from co-insurance agreements amount to €3,103 thousand at 30 June 2014 (€831 thousand at 31 December 2013) and relate to the co-insurance agreement with Eurizon Vita SpA. These are amounts owed by this company to Poste Vita in its capacity as lead agent for products placed before 30 September 2004.

Receivables arising from reinsurance transactions These receivables amount to €9,365 thousand compared to €11,022 thousand at 31 December 2013 and related to recoveries from reinsurers for claims and commissions. Other receivables Other receivables total €73,940 thousand at 30 June 2014 (€51,755 thousand at 31 December2012) and comprise the following: (€000)

Other receivables Due from policyholders for stamp duty Due from Poste Italiane Group companies Due from third parties Miscellaneous receivables Total

at 30 June 2014 70,415.0 2,139.1 1,218.1 168.3 73,940.4

47

at 31 December 2013 48,274.9 2,176.3 1,164.5 139.8 51,755.5

Increase/(decrease) 22,140.1 45.9% 37.2 -1.7% 53.6 4.6% 28.5 20.4% 22,184.9 42.9%

Due from policyholders for stamp duty, in the amount of €70,415 thousand, refers to stamp duty1 on Branch III and V financial policies. The item “Due from Poste Italiane Group companies”, amounting to €2,139 thousand at 30 June 2014, relates mainly to a sum due from Bancoposta Fondi SGR for VAT paid in 2013 on the invoices issued for management fees on insurance investments not yet settled at 30 June 2014, totalling €2,006 thousand. The amount due from third parties, totalling €1,218 thousand, reflects mainly advances to suppliers and receivables outstanding with suppliers (not belonging to the Poste Italiane Group) for credit notes.

6. OTHER ASSETS Other assets total €1,493,475 thousand at 30 June 2014, an increase of €274.697 thousand compared to 31 December 2013, and include the following: (€000)

Other assets

at 30 June 2014

at 31 December 2013

Increase/(decrease)

Non-current assets or disposal groups held for sale Deferred acquisition costs Deferred tax assets Current tax assets Sundry assets

Total

48,612.2 11,373.9 1,430,516.1 2,973.2 1,493,475.4

44,505.3 9,754.2 1,164,432.9 1,086.4 1,219,778.8

4,106.9 1,619.7 266,083.2 1,886.8 273,696.6

9.2% 16.6% 22.9% 173.7% 22.4%

Deferred acquisition costs amount to €48.612 thousand at 30 June 2014 (€44,505 thousand at 31 December 2013) and include €45,758 thousand in deferred sales commissions attributable to individual pension plans (FIP - Forme Individuali di Previdenza) and for residual part €2,706 thousand to the portion not yet amortized of non-life policy sales commissions paid to Poste Italiane. The increase compared to 2013 was due to the growth of premiums relating to Individual Pension Plan products during the period. Deferred Tax Assets amounting to €11,374 thousand (9.754 thousand at 31 December 2013) are calculated as the total of the temporary differences arising between assets and liabilities and their tax bases, in accordance with IFRS 12. Temporary differences originate mainly from provisions and impairments of equity instruments included in current assets, as well as other expenses, such as the non-deductible excess of the change in provisions for claims and provisions for bad debts, which will be deducted in equal instalments in future years. Current tax assets amounting to €1,430,516 thousand (€1,164,433 at 31 December 2013) mainly relate to tax credits on mathematical provisions under Law 191/2004, totalling approximately €1,191,795 thousand (€926,929 thousand at 31 December 2013), prepayments of corporate income tax (IRES) for 2013 to the Parent Company under the tax consolidation arrangement, totalling €157,303 thousand (€160,634 thousand at 31 December 2013) and the prepayment of IRAP of €73,723 thousand (€74,145 thousand at 31 December 2013).

1

As per the implementing decree of 24 May 2012, enacted pursuant to paragraph 5 of article 19 of Law Decree 201 of 6 December 2011, converted by Law 214 of 2 December 2011.

48

Sundry assets, amounting to €2,973 thousand at 30 June 2014 (€1,086 thousand at 31 December 2013), refer mainly to prepaid expenses.

7. CASH AND CASH EQUIVALENTS Cash and cash equivalents at 30 June 2014 amounts to €1,463,55 thousand, compared to €804,856 thousand at the end of 2013. This item breaks down as follows: (€000)

Cash and cash equivalents Bank deposits Post office deposits Cheques and cash in hand Total

at 30 June 2014 1,379,957.4 83,195.5 2.5 1,463,155.4

at 31 December 2013 773,062.9 31,786.8 6.4 804,856.1

Increase/(decrease) 606,894.5 78.5% 51,408.7 161.7% 3.9 -60.9% 658,299.3 81.8%

This item includes short-term bank and post office deposits, as well as cash and revenue stamps.

49

LIABILITIES AND EQUITY

1. EQUITY At 30 June 2014 equity attributable to owners of the Parent amounts to €3,021,492 thousand (€2,763,515 at 31 December 2013). (€000)

Equity Share capital Reserves

at 30 June 2014 1,216,607.9 1,398,772.0 72,596.3 648.0 2,582.3 426.0 1,322,519.4 204,734.2 (49.0) 201,426.8 3,021,491.9

Legal reserve Extraordinary reserve Organisation fund Negative goodwill Retained earnings

Valuation reserve for AFS financial assets Other gains or losses recognised through equity Profit for the period Total

at 31 December 2013 1,216,607.9 1,142,652.1 60,412.5 648.0 2,582.3 426.0 1,078,583.3 148,130.1 5.3 256,119.9 2,763,515.3

Increase/(decrease) 0.0 0.0% 256,119.9 22.4% 12,183.8 20.2% 0.0 0.0% 0.0 0.0% 0.0 0.0% 243,936.1 22.6% 56,604.1 38.2% (54.3) -1024.5% (54,693.1) -21.4% 257,976.6 9.3%

The change compared to the previous year was due to i) profit for the period of €201,427 thousand and

ii) the change in the valuation reserve for available-for-sale financial assets, totalling €56,604 thousand. Changes in individual reserves are shown in the statement of changes in equity. The table below reconciles profit for the period and equity: Reconciliation between the Parent Company's financial statements and the IAS/IFRS Equity Italian GAAP financial statements Measurement of financial assets Measurement of AFS financial assets less deferred policyholder liabilities Measurement of investments (cost method) Actuarial differences on post-employment benefits Adjustment to deferred acquisition costs Other minor adjustments Parent Company's IAS/IFRS financial statements Retained earnings of consolidated subsidiary Valuation reserve for subsidiary's AFS financial assets at fair value Measurement of investment using the equity method IAS/IFRS consolidated financial statements

Profit/(Loss)

Changes in equity June 2013 -

Equity

Jan 2013 1,959,109 54,265

June 2013 162,652 (10,578)

97,102 (48,065) (17) 0 7 2,062,402 4,738

0 (4,160) 0 0 (58) 147,856 3,284

(9,271)

87,830 (52,224) 29 13 0 (51) (9,242) 2,201,016 4 8,026

0 (3,822) 0 0 1,049 252,710 5,128

2,110 39,190 2,108,439

0 535 151,675

(320) 1,789 2 39,726 (9,557) 2,250,557

0 (1,718) 256,120

50

June 2013 2,121,761 43,687

Changes in Profit/ Changes Equity Equity equity (Loss) in equity 2013 31 Dec 201331 Dec 2013 June 2014 June 2014 June 2014 238,207 350,000 2,547,317 205,049 2,752,366 17,276 71,540 (3,217) 0 68,324

Profit/(Loss)

47,735

397,768 4

144,837 (51,887) 16 0 1,056 2,712,880 9,869

0 (4,265) 0 0 (388) 197,179 3,794

53,119 197,956 0 (56,152) (49) (33) 0 0 0 668 53,070 2,963,129 (1) 13,661

1,183 1 398,956

3,293 37,473 2,763,516

0 453 201,427

3,485 6,778 (3) 37,923 56,550 3,021,492

32

2. PROVISIONS Provisions at 30 June 2014 total €10,050 thousand are are unchanged from the end of 2013. This item reflects amounts set aside to cover contingent liabilities in relation to:   

application of Law 166/08 (so-called "dormant policies"), totalling approximately €1 million; outstanding legal disputes, totalling approximately €3.3 million; tax liabilities which could arise from ongoing disputes (claims of approximately €5.7 million).

51

TECHNICAL PROVISIONS Technical provisions at 30 June 2014 total €79,063,008 thousand, an increase of €11,057,855 thousand on the €68,005,153 thousand of 31 December 2013. They comprise the following: (€000)

Technical provisions Non-life branches: Premium reserve Outstanding claims provisions Other technical provisions Total non-life branches Life branches: Mathematical provisions Outstanding claims provisions Other technical provisions Technical provisions where risk is borne by policyholders Total life branches Total

at 30 June 2014

at 31 December 2013

37,484.2 33,997.3 5,210.1 76,691.6

31,776.6 26,105.5 4,806.8 62,688.9

62,523,022.2 273,054.1 6,944,027.8 9,246,211.9

55,723,799.4 229,343.9 2,799,143.7 9,190,176.6

78,986,316.0 79,063,007.6

67,942,463.6 68,005,152.5

Increase/(decrease) 5,707.6 7,891.8 403.3 14,002.7 6,799,222.8 43,710.2 4,144,884.1 56,035.3 11,043,852.4 11,057,855.1

18.0% 30.2% 8.4% 22.3% 12.2% 19.1% 148.1% 0.6% 16.3% 16.3%

Non-life technical provisions This item, inclusive of provisions ceded to reinsurers, consists of: a premium reserve of €37,484 thousand, outstanding claims provisions of €33,997 thousand and other provisions of €5,210 thousand. This item also reflects additional provisions made following an adequacy test of the premium reserve. In particular, with reference to Branch 16 (Financial Loss), the only branch with a negative performance in the first half of 2014, mainly due to the economic downturn, additional provisions for unearned premiums of €5,077 thousand were made, in accordance with the empirical method suggested by the Supervisory Authorities, deemed suitable to meet IFRS 4 requirements for the adequacy test of the premium reserve. This item also includes an ageing reserve of €133 thousand. According to article 37, paragraph 8 of Legislative Decree 209 of 7 September 2005 and to article 46 of ISVAP Regulation 16, this reserve was established by setting aside 10% of gross premium revenue in the period for contracts with the characteristics specified in the Regulation. The outstanding claims provisions include provisions for claims incurred but not reported (IBNR), totalling €6,001 thousand. The premium reserve and the outstanding claims provisions have increased as a result of growing policy sales. Life technical provisions Contracts classified as "insurance contracts" and as "financial instruments with discretionary participation" - which are also recognised and measured on the basis of paragraph 15 of IFRS 4 in the Italian GAAP financial statements - were subjected to a LAT – Liability Adequacy Test - to compare the adequacy of net technical provisions with respect to the “realistic provisions", which reflects the present value of expected cash flows generated by the existing portfolio at period end under assumptions based on appropriate expiration causes (mortality, termination, surrender, reduction) and on changes in expenses. The results of the analysis confirmed the adequacy of the technical provisions, removing the need for further provisions. These results, described in "Risk information", have proven the adequacy of the provisions recorded in the financial statements.

52

At 30 June 2014 "Other technical provisions" include provisions for future expenses (art. 31 of ISVAP Regulation 21/2008) of €80,071 thousand, provisions for supplementary insurance premiums (€4,000 thousand) and those for deferred liabilities to policyholders, accrued according to the shadow accounting method, pursuant to para. 30 of IFRS 4, totalling €6,859,957.

3. FINANCIAL LIABILITIES (€000)

Financial liabilities Financial liabilities held for trading Financial liabilities designated at fair value through profit or loss Other financial liabilities Total

at 30 June 2014

1,289,767.2 1,289,767.2

at 31 December 2013

544,179.1 544,179.1

Increase/(decrease)

745,588.1 745,588.1

137.0% 137.0%

At 30 June 2014 “Other financial liabilities”, amounting to €1,289,767 thousand (€544.179 thousand at 31 December 2013), include: 



subordinated loans of €540,000 thousand (of which €400,000 with an undefined maturity), which were obtained at arm’s length – in accordance with article 45, section IV, sub-section III of Legislative Decree 209 of 7 September 2005, as amended - by the Parent Company, Poste Vita, from its controlling shareholder, Poste Italiane, and interest accrued thereon, totalling €4,240 thousand; the subordinated bonds issued by the Company with a total nominal amount of €750,000 thousand. This issue, which was completed on 30 May 2014, is intended to further strengthen the Company’s capital, taking into account growth forecasts for 2014-2015 and a targeted solvency ratio of at least 120% until 2016, when capital requirements under the Solvency II regulation will come into force. Interest accrued on the bonds at 30 June 2014 amounts to €1,831 thousand, while the discount to nominal value, as of the same date, totals approximately €6,304 thousand.

The change with respect to the amount at the end of 2013 is due solely to the amount of the subordinated bonds issued by Poste Vita in May 2014.

4. PAYABLES Payables at 30 June 2014 amount to €204,482 thousand, an increase of €60,398 thousand compared to the €144,084 thousand of 31 December 2013. The following table sets forth a breakdown of payables: (€000)

Payables Payables arising from direct insurance transactions Payables arising from reinsurance transactions Other payables Total

at 30 June 2014 133,249.7 16,724.6 54,507.4 204,481.7

53

at 31 December 2013 94,043.7 12,856.2 37,184.0 144,083.9

Increase/(decrease) 39,206.0 41.7% 3,868.4 30.1% 17,323.4 46.6% 60,397.8 41.9%

Payables arising from direct insurance transactions: (€000)

Payables arising from direct insurance transactions Commissions payable to Poste Italiane Due to policyholders Payables arising from co-insurance agreements Total

at 30 June 2014 132,104.2 1,119.8 25.7 133,249.7

at 31 December 2013 91,063.8 2,480.0 499.9 94,043.7

Increase/(decrease) 41,040.4 45.1% 1,360.2 -54.8% 474.2 -94.9% 39,206.0 41.7%

This item includes €132,104 thousand (€91,064 thousand at 31 December 2013) related to invoices to be received from Poste Italiane SpA, for commissions earned for the sale of insurance products in May and June, These will be settled in the second half of 2014. The increase was due to the growth in sales. Amounts due to policyholders, totalling €1,119.8 thousand (€2,480 at 31 December 2014), mainly relate to payables to policyholders arising in the period for amounts collected that are subject to refund. Payables arising from co-insurance agreements, amounting to €25.7 thousand, relate to the coinsurance agreement with Eurizon Vita SpA. These are amounts owed to it by the Company in its capacity as lead agent for products placed before 30 September 2004

Payables arising from reinsurance transactions Amounts due to reinsurers at 30 June 2014 amount to €16,725 thousand, up €3,868 thousand, compared to €12,856 thousand at 31 December 2013. The increase for the period was due to the growth in sales.

Other payables This item, amounting to €54,507 thousand at 30 June 2014 (€37,184 thousand at 31 December 2013), consists of: (€000)

Other payables Trade payables Due to Poste Italiane Group suppliers Due to MEF Due to employees of which post-employment benefits Payables arising from fund purchases Sundry payables Total

at 30 June 2014 22,700.8 13,867.1 977.5 2,937.9 908.1 658.8 13,365.4 54,507.4

at 31 December 2013 18,639.4 9,650.2 3,575.0 2,397.0 823.3 2,439.4 483.0 37,184.0

Increase/(decrease) 4,061.3 22% 4,216.9 44% (2,597.5) -73% 540.8 23% 84.8 10% 1,780.6 n.s. 12,882.4 2667% 17,323.4 46.6%

Trade payables refer to services rendered by companies that do not belong to the Poste Italiane Group, part of which have not yet been invoiced at the end of the period under review (€22,701 thousand). The amount due to Poste Italiane Group suppliers (€13,867 thousand) relates to services provided by Poste Italiane’s subsidiaries.

54

The amount due to the MEF (the Ministry of the Economy and Finance), amounting to €978 thousand at 30 June 2014, relate to amounts payable to the Fund set up by the MEF for policies expiring after 28 October 2008, when Law 166/2008 came into force, introducing rules on "dormant policies". The amount of payables for fund purchases, amounting to €659 thousand, refers to funds purchased and not yet settled in early 2014. In accordance with IVASS provisions contained in Regulation 7, the liability for post-employment benefits has been accounted for in “Other payables”. Under international financial reporting standards, and in relation to information provided by the International Accounting Standards Board (IASB) and by the International Financial Reporting Interpretations Committee (IFRIC), post-employment benefits are considered as a defined-benefit plan. Actuarial assessment of post-employment benefits was carried out according to the "accrued benefits" method using the "Projected Unit Credit" (PUC) criterion, as defined in paragraphs 64-66 of IAS 19. Movements in this liability for the past two years are summarised as follows: (€000)

Post-employment benefits Opening balance Service cost Interest cost Benefits paid Transfers in/(out) Actuarial (Gains)/Losses Closing balance

at 30 June 2014 at 31 December 2013 823.3 804.7 17.7 36.2 12.9 23.1 (23.7) (6.9) 21.2 78.0 55.0 908.1 823.3

Increase/(decrease) 18.5 2% 18.5 -51% (10.3) -44% (16.8) 242% (21.2) -100% 133.0 -242% 84.8 10.3%

5. OTHER LIABILITIES At 30 June 2014 this item amounts to €684,829 thousand, compared to €536,616 thousand at 31 December 2013. The table below provides a breakdown: (€000)

Payables arising from direct insurance transactions Liabilities included in disposal groups held for sale Deferred tax liabilities Current tax liabilities Other liabilities Total

at 30 June 2014

at 31 December 2013

138,943.1 537,758.0 8,127.6 684,828.7

Current tax liabilities, amounting to €537,758 thousand, consist of:

55

108,897.1 422,848.8 4,870.2 536,616.1

Increase/(decrease) 30,046.0 114,909.2 3,257.4 148,212.6

27.6% 27.2% 66.9% 27.6%

(€000)

Current tax liabilities Advance payment in relation to reserve for Law Decree 209/2002 Current tax expense Stamp duty payable Withholding taxes on life policies Substitute tax payable on individual pension plans (FIP) Other Total

at 30 June 2014 311,704.5 154,842.8 63,860.1 6,277.6 16.4 1,056.8 537,758.2

at 31 December 2013 282,295.1 83,970.7 43,843.9 4,300.1 6,923.5 1,515.5 422,848.8

Increase/(decrease) 29,409.4 70,872.2 20,016.2 1,977.5 6,907.0 458.7 114,909.4

10.4% 84.4% 45.7% 46.0% -99.8% -30.3% 27.2%

The tax on reserves at 30 June 2014 (€311,705 thousand) refers to the advance tax payable on mathematical provisions for the first half of 2014. The increase on the previous year was due to higher mathematical provisions for the period. The increase in current tax expense on the comparable amount at the end of 2013 is due mainly to: i) the offsetting of the current tax liability for 2013 in relation to the tax consolidation arrangement entered into with the Parent Company, totalling approximately €161 million, as a result of the combined provisions of Law Decree 133/2013 and the Ministerial Decree of 30 November 2013, which raised advance tax payments to 130% of the tax paid in the previous year. Stamp duty payable at 30 June 2014 for financial policies included in Life Branches III and V (as provided for in the implementing decree of 24 May 2012, issued pursuant to article 19, paragraph 5 of Law Decree 201 of 6 December 2011, as converted by Law 214 of 2 December 2011)2, amounts to €63,860 thousand. Payables for withholding and substitute taxes on amounts paid for life policies are €6,278 thousand at 30 June 2014. Deferred tax liabilities of €138,943 thousand at 30 June 2014 include the tax effect of all temporary tax differences, to be reversed in future years, mainly attributable to financial asset adjustments.

Other liabilities At 30 June 2014 “Other liabilities” amount to €8,128 thousand (€4,870 thousand at 31 December 2013), relating mainly to: i) amounts due to employees for unused holidays, one-month mid-year salary bonuses and performance bonuses, totalling €1,848 thousand; ii) amounts due to policyholders for premiums collected but not yet credited to the various accounts; and iii) deferred expenses, which at 30 June 2014 amount to €3,655 thousand.

2

Paragraph 7 of the implementing decree provides that for communications relating to Life Branch III and V policies, stamp duty is payable at the time of redemption or surrender. However, for each year of contract duration, companies must record the value of stamp duty for each policy in force at period end and enter this sum in the statement of financial position as an amount payable to the tax authorities. This debt will be cancelled in later periods as a contra entry to the amounts due to policyholders, through the tax payment determined cumulatively upon redemption or surrender of each individual policy.

56

NOTES TO THE CONSOLIDATED INCOME STATEMENT

1.1 NET PREMIUM REVENUE Consolidated net premium revenue for the six months ended 30 June 2014 amounts to €8,249 thousand, up €1,644,645 thousand on the €6,604,607 thousand for the corresponding period of 2013. Gross premium revenue amounts to €8,273,647 thousand, up 25% on the comparable period of 2013 (€6,625 thousand). At 30 June 2014 total outward reinsurance premiums amount to €18,877 thousand, compared to €16,991 thousand at 30 June 2013. (€000)

for the six months ended 30 June Gross life premium revenue Gross non-life premium revenue Total gross premium revenue Change in gross premium reserve Gross premium revenue Outward life reinsurance premiums Outward non-life reinsurance premiums Total outward reinsurance premiums Change in share of premium reserve attributable to reinsurers Outward reinsurance premiums Total net premium revenue

2014 8,228,696.2 44,950.8 8,273,647.0 (6,385.2) 8,267,261.8 (6,064.0) (12,813.3) (18,877.3)

2013 6,591,453.2 33,559.0 6,625,012.2 (3,764.6) 6,621,247.6 (5,327.1) (11,663.5) (16,990.6)

Increase/(decrease) 1,637,243.0 24.8% 11,391.8 33.9% 1,648,634.8 24.9% (2,620.6) 69.6% 1,646,014.2 24.9% (736.9) 13.8% (1,149.8) 9.9% (1,886.7) 11.1%

867.5 (18,009.8) 8,249,252.0

349.7 (16,640.9) 6,604,606.7

517.8 (1,368.9) 1,644,645.3

148.1% 8.2% 24.9%

All gross premium revenue attributable to the Insurance Group’s portfolio falls within the scope of IFRS 4.

57

1.3 NET INCOME FROM FINANCIAL ASSETS AT FAIR VALUE THROUGH PROFIT OR LOSS Net income from financial assets at fair value through profit or loss amounts to €530,522 thousand for the six months ended 30 June 2014, compared to €141,156 thousand for the first half of 2013. The increase on the amount for the previous first half is due to more favourable financial market conditions in the period under review. The following table shows a breakdown of income and expenses from financial instruments at fair value through profit or loss: (€000)

Interest

Income and expenses from financial assets at fair value through profit or loss

165,998.9

Other income (expenses), net

Total realised Net realised income gains (expenses), net

(510.4)

4,435.5

58

169,924.0

Total income Total income Unrealised (expenses), net (expenses), net gains 30 June 2014 30 June 2013 360,597.9

530,521.9

141,155.8

Increase/ (decrease)

389,366.1 275.8%

1.4- 1.5 NET INCOME FROM INVESTMENTS IN SUBSIDIARIES, ASSOCIATES AND JOINT VENTURES, FROM OTHER FINANCIAL INSTRUMENTS AND INVESTMENT PROPERTY This item totals €1,406,218 thousand for the six months ended 30 June 2014, an increase of €283,239 thousand compared to the same period of 2013, as shown below: (€000)

Interest

Income and expenses from available-for-sale financial assets

1,160,561.5

Other income (expenses), net

41,128.9

Total realised Net realised income gains (expenses), net 210,696.7

Income and expenses from loans and receivables Income from cash and cash equivalents Income and expenses from other financial liabilities Income and expenses from investments in associates Total

437.5 4,061.4 (11,121.4)

Total income Total income Unrealised (expenses), net (expenses), net gains 30 June 2014 30 June 2013

1,412,387.1

1,412,387.1

41,128.9

210,696.7

286,635.5

25.5%

437.5

437.5

141.7

295.8 208.7%

4,061.4 (11,121.4)

4,061.4 (11,121.4)

5,718.1 (9,206.7)

(1,656.7) -29.0% (1,914.8) 20.8%

453.1 1,153,501.4

1,125,751.6

Increase/ (decrease)

1,405,764.5

453.1

453.1 1,406,217.6

573.9 1,122,978.6

(120.9) -21.1% 283,239.0

25.2%

Net income from financial assets classified as available-for-sale amounts to €1,412,387 thousand for the six months ended 30 June 2014, compared to €1,125,752 thousand for the six months ended 30 June 2013, with the increase attributable to the growth in assets under management and positive returns achieved in the period. A small part of net expenses of approximately €6,170 thousand for the period under review (€2,773 thousand for the first half of 2013) relates to interest expense on the subordinated loan obtained from Poste Italiane SpA and the new subordinated bonds issued by Poste Vita, totalling €11,121 thousand, €4,061 thousand in interest income on bank and post office current accounts, €438 thousand earned on positive balances held in the intercompany cash management system, and €453 thousand reflecting EGI’s profit for the period.

1.6 OTHER INCOME In the first half of 2014, this item amounted to €109 thousand, compared to €119 thousand in the same period of 2013. It relates mainly to the reversal of premiums ceded in previous years, totalling €64 thousand;

2.1 NET CLAIMS EXPENSES Total claims expenses, after the share attributable to reinsurers, total €9,589,502 thousand for the six months ended 30 June 2014, compared to €7,399,648 thousand for the corresponding period of 2013. Total amounts paid, including allocated settlement costs and the change in technical provisions, amount to €9,600,150 at 30 June 2014 (compared to €7,409,011 thousand at 30 June 2013). This item breaks down as follows:

59

(€000)

for the six months ended 30 June Non-life insurance Claims paid Change in outstanding claims provisions Change in recoveries Change in other technical provisions Costs of settling claims Total non-life insurance Life insurance Claims paid Change in outstanding claims provisions Change in mathematical provisions Change in technical provisions where the investment risk is borne by policyholders and deriving from pension fund management Change in other technical provisions Costs of settling claims Total life insurance

Total claims paid and change in technical provisions

2014

2013

Increase/(decrease)

7,336.0 7,891.8 (274.3) 987.4 15,940.9

5,404.8 2,614.1

1,931.2 5,277.7

35.7% 201.9%

31.1 903.1 8,953.2

(305.4) 84.2 6,987.8

-982.0% 9.3% 78.0%

2,607,557.4 43,710.2 6,799,262.0

2,990,783.0 48,693.8 5,022,640.1

(383,225.6) (4,983.6) 1,776,621.9

-12.8% -10.2% 35.4%

56,035.3 72,992.2 4,652.0 9,584,209.1

(699,910.1) 34,930.6 2,920.3 7,400,057.8

755,945.4 38,061.6 1,731.7 2,184,151.3

-108.0% 109.0% 59.3% 29.5%

9,600,150.0

7,409,010.9

2,191,139.1

29.6%

The share attributable to reinsurers amounts to €10,648 thousand, compared to €9,363 thousand for the six months ended 30 June 2013. This item breaks down as follows:

(€000)

for the six months ended 30 June Non-life insurance Claims paid Change in outstanding claims provisions Change in recoveries Change in other technical provisions Costs of settling claims Total non-life insurance

2014

2013

2,786.5 2,411.5 (39.3) 155.7 5,314.3

2,407.4 615.2 7.2 215.0 3,244.8

379.0 1,796.3

15.7% 292.0%

(46.5) (59.3) 2,069.5

-646.0% -27.6% 63.8%

Life insurance Claims paid Change in outstanding claims provisions Change in mathematical provisions Costs of settling claims Total life insurance

1,953.7 563.1 2,812.3 5.0 5,334.1

951.8 180.0 4,986.6 6,118.5

1,001.9 383.1 (2,174.3) 5.0 (784.4)

105.3% 212.8% -43.6% n.s. -12.8%

9,363.3

1,285.1

13.7%

Total claims paid and change in technical provisions

10,648.4

60

Increase/(decrease)

2.5 OPERATING COSTS (€000)

for the six months ended 30 June Non-life insurance Commissions and other acquisition costs: Acquisition commissions Other acquisition costs Commissions and share of profit received from reinsurers Total non-life insurance Life insurance Commissions and other acquisition costs: Acquisition commissions Other acquisition costs Commissions and share of profit received from reinsurers Total life insurance Investment management expenses Other administration expenses Total operating costs

2014

2013

Increase/(decrease)

10,061.9 8,865.9 1,196.1

6,976.8 5,960.3 1,016.5

3,085.2 2,905.6 179.5

44.2% 48.8% 17.7%

(4,902.2) 5,159.7

(4,198.7) 2,778.0

(703.5) 2,381.7

16.8% 85.7%

195,848.1 185,509.7 10,338.4

158,291.0 151,081.1 7,209.9

37,557.1 34,428.5 3,128.6

23.7% 22.8% 43.4%

(918.0) 194,930.1 15,544.1 24,501.2 240,135.0

(843.7) 157,447.3 13,010.7 23,273.7 196,509.7

(74.3) 37,482.8 2,533.4 1,227.5 43,625.3

8.8% 23.8% 19.5% 5.3% 22.2%

Acquisition commissions, net of changes in deferred acquisition costs, amounting to €194,376 for the first half of 2014 (€157,041 thousand in the first half of 2013), reflect commissions related to the sale of insurance products paid to Poste Italiane SpA’s distribution network. Commissions relating to long-term contracts are amortised in accordance with ISVAP Regulation 22 of 4 April 2008. The increase on the comparable amount for the previous first half is due mainly to higher sales. Commissions are set on the basis of a written arm’s length agreement entered into with Poste Italiane SpA. Other acquisition costs, amounting to €11,535 thousand (€8,226 thousand at 30 June 2013), include expenses arising from the sale of insurance policies, other than acquisition commissions. Specifically, this sub-item includes advertising expenses incurred to market insurance products, administrative costs incurred in handling applications and drawing up policies, as well as employee expenses allocated, in whole or in part, to operational units or operations. Commissions and the share of profit received from reinsurers, totalling €5,820 thousand for the six months ended 30 June 2014 (€5,042 thousand for the same period of 2013), include commissions paid to the Company by reinsurers, calculated on the share of premiums ceded under the relevant treaties. The increase is attributable to growth in the business. Costs not directly or indirectly attributable to the acquisition of premiums and contracts, to the settlement of claims or to investment management represent other administrative costs and total €24,501 thousand for the six months ended 30 June 2014, compared to €23,274 thousand for the comparable 2013 period. Investment management expenses of €15,544 thousand for the six months ended 30 June 2014, compared to €13,011 thousand for the comparable period of 2013, include portfolio management fees of €9,771 thousand, fees for the custody of securities, totalling €1,715 thousand, and overheads of €4,058 thousand. These increases were due to portfolio growth.

61

2.6 OTHER COSTS For the six months ended 30 June 2014, this item amounts to €26,078 thousand, compared to €19,807 thousand for the comparable period of 2013. These costs relate mainly to: i) maintenance commissions paid to the insurance broker, totalling €9,008 thousand; ii) charges incurred by the Company in relation to dormant policies maturing in the first half of 2014, totalling €929 thousand; iii) provisions made in the first half of 2014 in relation to the Partecipa product, which calls for the reimbursement of front-load commissions to policyholders extracted in a prize draw, totalling €13,600 thousand; iv) provisions to the allowance for bad debts, totalling €492 thousand; and v) overheads of €652 thousand.

62

3. INCOME TAX EXPENSE Income tax expense for the six months ended 30 June 2014, amounting to €128,959 thousand, includes €127,986 thousand for current IRES and IRAP taxes and €973 thousand of other deferred tax income and expense, as shown below: (€000)

Current taxation - IRES - IRAP Deferred taxation: - deferred tax liabilities arising during the period - deferred tax liabilities used during the period - deferred tax assets arising during the period - deferred tax assets used during the period Total

Six months ended 30 June 2014 127,986 111,679 16,307 973 1,777 (555) (5,967) 5,718 128,959

Deferred tax assets and liabilities are calculated according to the tax rates expected to be applied during the year in which the assets are recovered, based on information available at period end. The net amount recognised in the income statement in relation to changes in deferred tax liabilities amounts to €1,222 thousand. This amount was affected mainly by provisions for deferred IRES liabilities in relation to the charges incurred by Poste Vita with the bond issue. These charges were capitalised in the period and will be expensed out over the term to maturity of the bonds but, from a tax standpoint and in accordance with article 32, paragraph 13 of Law Decree 83/2012, they were fully deducted as incurred. Regarding changes in deferred tax assets, the net income of €660 thousand mainly reflects provisions for risks and other adjustments for changes in the value of equity instruments held as current assets by Poste Vita, as well as other charges, such as the non-deductible excess amount of the change in outstanding claims provisions, which will be deductible in equal instalments over future years. The table below reconciles the effective tax charge and the tax charge resulting from application of the statutory tax rate of 27.5%. No account was taken of IRAP, considering that the tax base for this tax is different from that on which IRES is calculated.

63

(€000)

Six months ended 30 June 2014 Amount Tax rate Profit before tax 330,385 Income tax based on statutory tax rate (only IRES at 27.5%) 90,746 27.50% Change in life technical provisions 26,763 8.11% Interest expense 122 0.04% Extraordinary expenses 3,294 1.00% Deduction of IRAP from IRES (411) -0.12% ACE (aid for economic growth) relief (8,381) -2.54% Other 1,085 0.20% Corporate income tax (IRES) 113,218 34.19% IRAP (regional business tax) 15,741 4.77% Income tax expense for the period 128,959 38.96%

64

OTHER INFORMATION Strategic direction and coordination The Company is wholly owned by Poste Italiane SpA, which performs direction and coordination activities for the Group. The table below shows key financial and operational indicators for Poste Italiane SpA. Reference should be made to Poste Italiane SpA‘s financial statements which, together with the independent auditors’ report, are available in the form and manner established by law.

P OS TE ITALIANE S P A S TATEM ENT OF FINANCIAL P OS ITION (€000)

at 31 Decem ber 2013

at 31 Decem ber 2012

Non-current assets

44,218,826

40,407,471

Current assets

18,671,539

20,851,931

-

129

62,890,365

61,259,531

at 31 Decem ber 2013

at 31 Decem ber 2012

Share capital

1,306,110

1,306,110

Reserves

Assets

Non-current assets held for sale TOTAL AS S ETS EQUITY AND LIAB ILITIES Equity

1,801,921

1,163,588

Retained earnings Total

2,322,175 5,430,206

1,843,172 4,312,870

Non-current liabilities

8,151,766

8,111,694

Current liabilities

49,308,393

48,834,967

TOTAL EQUITY AND LIAB ILITIES

62,890,365

61,259,531

65

P OS TE ITALIANE S P A S TATEM ENT OF P ROFIT OR LOS S for the year ended 31 December

(€000)

2013

2012

8,978,220

9,206,306

Other income from financial activities

307,504

155,686

Other operating income

147,059

123,280

9,432,783

9,485,272

2,024,373

2,121,094

7,293

1,472

5,755,065

5,658,396

501,134

525,546

(4,908)

(7,629)

232,487

235,725

917,339

950,668

92,643

115,027

139,125

90,695

963,821

926,336

473,491

474,390

(217,758)

(270,299)

Revenue from sales and services

Total revenue Cost of goods and services Other expenses from financial activities Personnel expenses Amortisation, depreciaton and impairments Capitalised costs and expenses Other operating costs OP ERATING P ROFIT/ (LOS S ) Finance costs Finance income P rofit before tax Income tax expense Income tax for previous years following change in legislation P ROFIT FOR THE Y EAR

708,088

66

722,245

Related party transactions Transactions between the Parent Company, Poste Vita SpA, and its subsidiary, Poste Assicura SpA, have been eliminated, as consolidated financial statements require the elimination of intercompany transactions and, as such, they are not shown in this section. They relate mainly to staff secondment, office rental and the organization of space, administration, support, IT assistance, communication and marketing. Assets, liabilities, costs and income arising from transactions between Group companies, including the Parent Company, and their related parties are shown in the following tables: (€000)

Related party Associate Other related parties

at 30 June 2014 Assets Liabilities 197,469 3,815,696 690,204

at 31 December 2013 Assets Liabilities 197,019 2,183,946 644,750

Six months ended 30 June 2014 Income Costs 453 74,667 226,913

Six months ended 30 June 2013 Income Costs 574 41,274 192,580

(€000)

Related party Associate Other related parties

The Parent Company, Poste Vita, is wholly owned by Poste Italiane S.p.A, which directs and coordinates the Group. Transactions with Poste Italiane SpA, which owns all the shares outstanding, are governed by written agreements and conducted on an arm’s length basis. They regard mainly:       

the sale and distribution of insurance products at post offices and related activities; post office current accounts; partial secondment of personnel used by the Company; support in organising the business and in the recruitment and management of personnel; the pick-up, packaging and shipping of ordinary mail; call centre services; IT services.

Furthermore, at 30 June 2014 subordinated loan notes, totalling €540 million and issued by the Company, have been subscribed by Poste Italiane SpA. The notes provide a market rate of return reflecting the creditworthiness of the Company. In terms of assets, attention is called to the value, at 30 June 2014, of the investment in the associate, Europa Gestioni Immobiliare SpA (EGI), totalling €197,469 thousand, and to the income for the period recorded by EGI, totalling €453 thousand. With respect to the other related parties, assets at 30 June 30 2014 included securities with a fair value of €2,752,283 thousand, which generated income for the period amounting to €73,415 thousand. In addition to relations with the parent, Poste Italiane, Group companies also maintain business relations with other Poste Italiane Group companies, including:

67

      

management of the Company’s free capital and of a part of the portfolio investments attributable to separately managed accounts (Bancoposta Fondi SGR); printing, enveloping and mail delivery through information systems; management of incoming mail, the dematerialization and filing of printed documentation (Postel); services related to network connections with Italian post offices (Postecom); mobile telephone services (Poste Mobile); advice on obligations pertaining to occupational health and safety (Poste Tutela); Term Life Insurance Policies (Postel, BdM-MCC, Poste Mobile; Bancoposta Fondi SGR; Poste Energia; EGI; Poste Shop; Postecom; Poste Tributi). Policies for Accidents (PdM-MCC – Postel), General Third Party Liability (Postel) and Fire – Credit (BdM – MMC).

Also these arrangements are conducted on an arm’s length basis.

Fair value measurement EU Regulation 1255/2012 of 11 December 2012 endorsed IFRS 13 - Fair Value Measurement, effective 1 January 2013. The new standard introduced a single framework to calculate the fair value of financial and non-financial assets and liabilities. In particular, the new standard defines fair value clearly and in detail. Fair value is the “exit price”, the price obtained for the sale of an asset or paid to transfer a liability in an ordinary transaction between market participants at the measurement date. An ordinary transaction takes place in the main market or, alternatively, in the most advantageous for the asset or the liability at the measurement date. Fair value is a market price if the information is available in an active market (or in the market where the goods traded are identical, buyers and sellers are willing to trade at any time and prices can be accessed by the public). In the absence of an active market, IFRS 13 provides guidance on the procedures and techniques to be used to measure fair value, which must maximise observable inputs. At any rate, if fair value cannot be reliably determined, amortised cost is the best estimate of fair value. Moreover, based on the nature of the inputs used to calculate fair value, IFRS 13 classifies assets and liabilities designated at fair value within a three-level hierarchy: Level 1: unadjusted quoted prices in active markets that the entity can access on the valuation date Level 2: inputs other than quoted prices in level 1, observable directly and indirectly for the asset or the liability Level 3: non-observable inputs for the asset or liability. Classification within the hierarchy takes place by considering the level corresponding to the lowest significant input used in measurement.

In terms of the assets and liabilities measured as per above, the Company applies the method described below, which is currently also used by the Parent Company, Poste Italiane SpA, to harmonize pricing and levelling criteria.

68

Debt securities If an active market is available, fair value is the market price (bid price). Alternatively, fair value is determined on the basis of the discounted cash flow method, which refers to input data observable in the market for similar instruments. In the case of structured instruments, the option component, which is identified with interest rate risk, is measured in accordance with traditional valuation methods, involving closed-form solutions with such specific risk factor underlying the option.

Equity instruments The Company has only securities quoted in active markets and, as such, their fair value is the same as their market price.

UCI units The Company holds units in UCIs, whose NAV is made available by public information providers and is indicative of the market price of the instrument. Therefore, for these instruments, fair value reflects NAV at the measurement date.

Investments in private equity funds The fair value of private equity funds is generally expressed as the NAV at the reporting date, as determined by using NAVs published from time to time and the audited financial statements provided by fund managers. In the event that such NAV is not available, the latest NAV notified by the Fund is adjusted to take account of developments in the Fund’s operations, with respect to new investments and/or divestments occurring in the period. These inputs are not observable in the market.

Derivatives (warrants): With reference to the characteristics of the instruments in portfolio, fair value is determined through valuation models either internal or provided by external vendors. Measurement is effected through a closed-form model. The main inputs used in the exercise include volatility, interest rates, yield curves, credit spreads, estimated dividends and exchange rates observable at frequent intervals. Financial liabilities The Company holds subordinated liabilities accounted for at amortised cost. The relevant fair value is shown in the notes.

Risk assessment and management The risk management process involves, with different roles and responsibilities, the Company’s Boards of Directors, senior management, operating units and control functions.

69

The Board of Directors, as described also in the “Corporate Governance” paragraph, has ample powers of ordinary and extraordinary management and may perform all actions it deems necessary and useful to achieve the Company’s purpose, with the exception of those expressly reserved by law to the shareholders. This body therefore defines the Company’s strategic objectives and the policies needed to achieve them. The Board of Directors also has final responsibility for the internal control system and defines strategies and policies for assuming, assessing and managing the most significant risks and in this respect, as already explained in the section on corporate governance, its sets risk tolerance levels and performance goals consistent with capital adequacy levels. In this regard, the Board of Directors is regularly informed on risk exposures, also through periodic reports by the control functions. The role of senior management within the internal control system is to ensure an effective management of operations and the related risks, by implementing the risk management strategies and policies established by the Board of Directors. Senior management implements the necessary measures to ensure the establishment and preservation of an efficient and effective internal control system, maintaining the functionality and overall adequacy of the risk management system. Senior management handles the information flow to the Board of Directors to ensure full awareness and manageability of business risks. It also ensures the timely control and constant monitoring of risk exposures, including compliance with the level of risk tolerance and operational limits. The Risk Management unit provides specialist support to the Board of Directors and to senior management for definition and implementation of the risk management system, by monitoring its overall resilience over time and ensuring a complete view of the Group’s business risks; the Risk Management unit checks the consistency between risk assessment qualitative and quantitative models and the Group’s operations. The Risk Management unit also supports the different operating units in assessing the impact on risk profiles regarding: strategic business decisions, and particular operations, products and prices. It also monitors risk exposure and compliance with tolerance levels. The individual operating units are responsible for operational risk management relating to their business, adopting, for this purpose, the necessary methods, tools and skills. Lastly, together with other control functions, the Risk Management unit contributes to spreading and strengthening the risk and control culture across Group personnel, in order to create an awareness of the role attributed to each individual business entity within the internal control system.

Below, a description is provided of the risk management process.

1. Financial risks Financial instruments held by the Group mainly related to investments designed to back contractual obligations to policyholders relating to traditional with-profits life insurance policies, to pension-type policies and to index- and unit-linked products. Further investments in financial instruments relate to the deployment of the Company’s free capital.

70

Traditional Branch I policies refer mainly to products with a revaluation of the benefits linked to the returns obtained by financial assets held in separately managed accounts, each with its own set of accounting records. Also unrealised gains and losses are transferred in full to policyholders on the basis of the shadow accounting technique; this technique calls for the calculation of prospective returns for each separately managed account, on the assumption that all gains and losses are realised over a time horizon consistent with the characteristics of the portfolio’s assets and liabilities. The Group guarantees a minimum rate of return on these products payable upon policy maturity. It follows that the impact of financial risks on investments can be fully or partly offset by insurance liabilities. In particular, this offsetting depends generally on the level and structure of the guaranteed minimum rate of return and to the mechanisms relating to policyholders’ income from separately managed accounts. The sustainability of these minimum returns is assessed by the Company through periodic analyses, conducted with the aid of an internal financial-actuarial model of Asset Liability Management (hereinafter also “ALM”). For each separately managed account, the ALM simulates the change in value of financial assets and the expected returns of insurance liabilities both in the case of a “central scenario" (based on current financial and actuarial assumptions) in stress scenarios and under different commercial scenarios. This makes it possible for the Group to manage quantitatively its risks and achieve lower earnings volatility and an optimal allocation of financial resources. Typically, the minimum guaranteed return is 1.5% or, with reference to recently issued products, 1%. In any case, the minimum return is capitalized upon maturity of the policy and, as such, its risk is not significant with respect to the returns generated by the separately managed accounts, according to ALM analysis. Index- and unit-linked products, so-called Branch III products, refer to policies whose premiums are invested in structured financial instruments, Italian government bonds, warrants and mutual funds. For the products in question issued prior to the introduction of ISVAP Regulation 32 of 11 June 2009, the Company does not offer capital guarantees or minimum rates of return, with financial risks almost entirely borne by policyholders. For policies issued after the introduction of the abovementioned Regulation, the Company will take on the insolvency risk of the issuer of the matching assets and also provides, where agreed contractually, a guaranteed minimum return. The Company monitors constantly developments in the risk profile of the single products, with special focus on the risk linked to the issuer’s solvency. Against this backdrop, the objectives of a balanced investment policy and monitoring of the main risk/return profiles are pursued thanks to organizational structures based on the separation and autonomy of functions, as well as specific processes governing the assumption, management and control of financial risks, including through the implementation of suitable IT tools.

Financial risks are broken down by “IFRS 7 – Financial Instruments: Disclosure” into four different sub-types (without limitation): • market risk; • credit risk; • liquidity risk; • cash flow interest rate risk. Market risk, in turn, concerns:

71

• price risk: this is the risk that the price of a financial instrument fluctuates as a result of a change in market prices, whether these changes are due to factors specific to the instrument r the issuer or to factors affecting all the instruments traded in the market; • foreign exchange risk: this is the risk that the value of a financial instrument fluctuates due to changes in the exchange rates of currencies other than the reporting currency; • fair value interest rate risk: this is the risk that the value of a financial instrument fluctuates due to changes in interest rates.

Price risk Price risk relates to financial assets that the Group has classified as “Available-for-sale” (AFS) and certain derivative financial instruments where changes in value are recognised in profit or loss. Available-for-sale financial assets subject to the risk in question concern mainly the position of Poste Vita SpA in other investments in mutual funds. At 30 June 2014, this item relates to equity instruments held by Poste Vita SpA within the context of Branch I separately managed accounts, totalling €9,675 thousand, and units of mutual funds held by Poste Vita SpA, totalling €1,466,127 thousand, to back commitments toward Branch I policyholders. Regarding financial assets at fair value through profit or loss, price risk concerns Poste Vita SpA’s investments covering nearly entirely Branch III policies whose returns are linked to equity markets. They include: • structured bonds with a value of €2,417,194 thousand; • units of mutual funds, totalling €623,210 thousand. Lastly, with respect to derivative instruments, price risk regards investments in warrants, totalling €249,018 thousand, held by Poste Vita SpA to back Branch III policies.

Fair value interest rate risk This refers to the effects of changes in interest rates on the price of fixed rate financial instruments or variable rate financial instruments swapped into fixed rate via cash flow hedges and, to a lesser degree, the effects of change in interest rates on the spread of variable rate financial instruments or fixed rate financial instruments due to conversion via fair value hedges. The impact of these effects is directly related to the portfolio duration.

Available-for-sale financial assets exposed to the risk in question regard primarily: - fixed rate government bonds held by Poste Vita SpA, totalling €57,719,075 thousand (of which €4,940,387 thousand in inflation-linked bonds); of this amount, €53,676,567 backs Branch I policies linked to separately managed accounts, €1,642,597 thousand products related to specific assets, while €2,399,912 thousand refers to the Company’s free capital; - other non-government bonds in Poste Vita SpA’s portfolio, totalling €9,803,011 thousand, which nearly entirely back Branch I policyholders;

72

In relation to financial assets at fair value through profit or loss, fair value interest rate risk concerns a portion of Poste Vita SpA’s investments in fixed rate bonds, totalling €7,258,755 thousand, comprising coupon-stripped BTPs with a fair value of €6,087,502 thousand, mainly backing Branch III policies, and corporate bonds with a fair value of €1,171,253 thousand.

Sovereign risk/spreads The value of the portfolio of Italian government bonds is much more sensitive to the credit risk associated with the Italian Republic than to changes in so-called risk-free interest rates. This is due, in part, to the fact that changes in credit spreads also affect the value of variable rate bonds and, especially, to the fact that, unlike the pure interest rate risk hedged by the Parent Company, no hedging policy is in place to protect against credit risk. This means that, in the event of increases in interest rates attributable to the swap component, unrealised losses on fixed rate bonds are offset by an increase in the value of hedging IRSs (a fair value hedge strategy). If interest rates rise as a result of a wider credit spread for the Italian Republic, losses on government bonds are not offset by movements in the opposite direction of other exposures. During the period under review, the spreads of many European government bonds over the German Bund, including Italy’s, seesawed at first and eventually began to fall. Accordingly, the spread of Italian government bonds at 30 June 2014 stood at 162 bps (vs. 217 bps at 31 December 2013). The progressive improvement in Italy’s creditworthiness during the six months under review had a positive effect on government bond prices, boosting the value of those classified by the Group as available-for-sale, with gains realised on part of the portfolio.

Credit risk This risk refers to all assets, except units of mutual funds. Overall, credit risk is mitigated through: • minimum rating requirements for issuers/counterparties, based on the type of instrument; • concentration limits by issuer/counterparty; • monitoring of counterparties’ ratings.

Liquidity risk Regarding the policies issued by Poste Vita SpA, liquidity risk is analysed via Asset/Liability management, so as to ensure the effective management of assets in view of commitments to policyholders. Moreover, prospective analyses are conducted on the effects of financial market shocks (asset dynamics) and of the behaviour of policyholders (liability dynamics).

Cash flow interest rate risk This concerns the effects of changes in interest rates on the cash flows generated by variable rate financial instruments. The Poste Vita Group holds instruments with a nominal amount of €5,148,230 thousand mainly to back Branch I policies.

73

Cash flow inflation risk At 30 June 2014, cash flow inflation risk regarded inflation-linked government bonds, totalling €4,349,000 thousand.

2. Technical risks

This type of risk arises with the stipulation of insurance contracts and the terms and conditions contained therein (technical bases adopted, premium calculation, terms and conditions of cash surrender, etc.) With respect to Poste Vita SpA, mortality is one of the main risk factors in life insurance, i.e. any risk associated with the uncertainty of a policyholder’s life expectancy. Particular attention is paid in selling pure life insurance policies, an area where procedures set underwriting limits to the capital and the age of the policyholder. In terms of “pure life” insured amounts the Group’s insurance companies transfer their risks to reinsurers in keeping with the nature of the products sold and conservation levels adequate to the companies’ capital structure. The main life reinsurers of the Group are characterised by substantial financial strength. For products with the capital sum subject to positive risk, such as term life insurance, this risk has negative consequences if the frequency of death exceeds the death probabilities realistically calculated (second order technical bases). For products with the capital sum subject to negative risk, such as annuities, there are negative consequences when death frequencies are lower than the death probabilities realistically calculated (longevity risk). That said, at 30 June 2014 the mortality risk is limited for the Group, considering the features of the products offered. The only area where this risk is somewhat significant is term life insurance. As such, actual death rates are compared from time to time with those projected on the basis of the demographics adopted for pricing purposes; so far, the former have always turned out to be much lower than the latter. Moreover, mortality risk is mitigated through reinsurance and by setting limits on both the capital and the age of the policyholder when policies are sold. Longevity risk is also low. In fact, for most life insurance products the probability of annuitisation is very close to zero, as historical experience shows that policyholders have never used the option to annuitise. As to pension products in particular, they still account for a limited share of insurance liabilities (about 4%). In addition, for these products, the Group may, if certain conditions materialise, change the demographic base and the composition by sex used to calculate the annuity rates. As to pricing risk, i.e. the risk of incurring losses due to the inadequate premiums charged for the insurance products sold, it may arise due to: • inappropriate selection of the technical basis; • incorrect assessment of the options embedded in the product, • incorrect evaluation of the factors used to calculate the expense loads.

74

As Poste Vita’s mixed and whole-life policies have mostly cash value build-up features, accumulating in accordance with a technical rate of zero, the technical basis adopted does not affect premium calculation (and/or the insured capital). In fact, there is nearly no pricing risk associated with the choice of technical basis in Poste Vita’s portfolio, except for the term life insurance products discussed above. The options embedded in the policies held in portfolio include: •

Surrender option



Guaranteed minimum return option



Annuity conversion option

For nearly all the products in the portfolio there are no surrender penalties. The surrender risk only becomes significant, however, in the event of mass surrenders which, on the basis of historical evidence, have a low probability of occurrence. Poste Assicura SpA, which began operating in the non-life sector in April 2010, is exposed to the following insurance risks: • Underwriting risk: the risk deriving from the conclusion of insurance contracts, associated with the events insured, the processes followed when pricing and selecting risks, and unfavourable claims trends compared with previous estimates. This risk can be divided into the following categories: - Pricing risk: the risk linked to the company’s pricing of its policies and dependent on the assumptions used in order to calculate premiums. If prices are based on inadequate assumptions, the insurer may be exposed to the risk of being unable to meet its contractual obligations to policyholders. These risks include those related to disability-morbidity risk, or the risk associated with the payment of benefits or claims for illness and/or injury. This category includes the risk that the premiums charged are not sufficient to cover the costs effectively in the management of the contract and the risks linked to excessive growth in operations associated with poor selection of risks or the absence of resources sufficient to keep up with the pace of growth. - Provisioning risk: referring to the risk that technical provisions are not sufficient to meet obligations to policyholders. This insufficiency may be due to incorrect estimates by the company and/or changes in the general environment. - Catastrophe risk: the risk that extreme and exceptional events have a negative impact that has not been taken into account when pricing the policies; - Anti-selection risk: this relates to the company’s unwillingness to insure an event not classified as future, uncertain and damaging. Given the fact that the insurance business is at the start-up stage, and in view of the expected growth of the portfolio and the different degrees of risk associated with the products distributed, the company has adopted a highly prudent approach to reinsurance. It has entered into pro rata reinsurance treaties with major reinsurance providers, establishing the amounts to be ceded based on the specific type and size of the risk to be assumed, backed up by excess-loss or stop-loss treaties to cover risks of a certain size (such as accident policies or so-called catastrophic risks). In

75

addition, when defining the guarantees offered, the assumption of specific types of risk has been mitigated by limiting the size of pay-outs in the event of certain specific types of claim. With reference to non-life risks, the Group performs specific analyses, including stress tests in terms of accident frequencies and amounts, to determine whether premiums collected are insufficient to meet commissions, claims and expenses.

3. Operational risks

Operational risk refers to the risk of losses resulting from inadequate or failed internal processes, people and systems, or from external events. This category of risk includes losses resulting from fraud, human error, business disruption, systems failures, breach of contracts and natural disasters. Operational risk includes legal risk.

Both Poste Vita SpA and Poste Assicura SpA, have drawn up and finalised their own framework for identifying, assessing and managing operational risks. The adopted approach reflects the specific nature of the processes and operational risk events typical of an insurance company. The process of assessing operational risk exposure involves both qualitative and quantitative analysis and is conducted through a structured process of identifying and assessing potential risks in terms of frequency, impact and mitigation. The overall risk exposure is modest thanks to the adoption of organisational measures and mitigating risk controls.

4. Other risks

Strategic risk This is the current or prospective risk of a decline in earnings or capital arising from changes in the operating environment, from incorrect business decisions, inadequate decision implementation or a lack of reaction to changes in the competitive and market environment. This risk is characterised by a satisfactory control level: risk management is inherent in strategic planning processes and, consistently with them, includes a three-year timeframe with annual reviews. Within this context, assumptions adopted in drafting plans are subject to periodic assessment and, if necessary, adapted to new market conditions.

Reputational risk The Group’s business is by its nature exposed to elements of reputational risk, linked to market performance and primarily associated with the sale of insurance policies issued by the Poste Vita Group.

76

In this context, to protect and maintain its high reputation with customers, as well as public confidence in its operations, and to protect its commercial interests from potential dissatisfaction among savers, the Parent Company, in agreement with Poste Italiane, its parent, carries out rigorous monitoring activities. This aims to ensure that it can keep track of the performances of the products sold and of changes in the risks to which customers are exposed, conducting careful assessments based on the contractual nature of the products in question in terms of the match with the needs of the various customers.

77

Annex to Consolidated Interim Report 2014

Statement of financial position by operating segment Codice prospetto: SCSPSETT

1 2 3 4 4.1 4.2 4.3 4.4 4.5 4.6 5 6 6.1 6.2 7 1 2 3 4 4.1 4.2 5 6

INTANGIBLE ASSETS TANGIBLE ASSETS TECHNICAL PROVISIONS CEDED TO REINSURERS INVESTMENTS Investment property Investments in subsidiaries, associates ad joint ventures Investments held to maturity Loans and receivables Available-for-sale financial assets Financial assets at fair value through profit or loss SUNDRY RECEIVABLES OTHER ASSETS Deferred acquisition costs Other assets CASH AND CASH EQUIVALENTS TOTAL ASSETS EQUITY PROVISIONS TECHNICAL PROVISIONS FINANCIAL LIABILITIES Financial liabilities at fair value through profit or loss Other financial liabilities PAYABLES OTHER LIABILITIES TOTAL EQUITY AND LIABILITIES

Annex to Consolidated Interim Report 2014

(€000)

at 30 June 2014 6,644 73 20,016 106,489 106,489 9,198 10,723 2,855 7,868 16,801 169,945 76,692 25,960 6,440 -

at 31 December 2013 3,132 16,368 88,870 88,870 10,741 9,658 2,706 6,952 13,530 142,298 62,689 19,012 7,688 -

at 30 June 2014 8,703 3,739 27,347 81,059,096 225,645 764,323 68,994,719 11,074,410 105,397 1,482,752 45,758 1,436,995 1,446,354 84,133,389 10,050 78,986,316 1,289,767 1,289,767 180,053 678,389 -

at 31 December 2013 7,381 2,954 23,972 69,791,459 225,195 11,458 59,070,985 10,483,821 63,660 1,210,121 41,800 1,168,322 791,327 71,890,873 10,050 67,942,464 544,179 544,179 126,470 528,928 -

-

-

-

-

at 30 June 2014 28,175 28,175 1,531 29,706 1,531 -

at 31 December 2013 28,175 28,175 1,398 29,574 1,398 -

at 30 June 2014 15,346 3,812 47,364 81,137,410 197,469 764,323 69,101,208 11,074,410 113,065 1,493,475 48,612 1,444,863 1,463,155 84,273,628 3,021,492 10,050 79,063,008 1,289,767 1,289,767 204,482 684,829 84,273,628

at 31 December 2013 10,513 2,954 40,340 69,852,153 197,019 11,458 59,159,855 10,483,821 73,003 1,219,779 44,505 1,175,273 804,856 72,003,597 2,763,515 10,050 68,005,153 544,179 544,179 144,084 536,616 72,003,597

Annex to Consolidated Interim Report 2014

Income statement by operating segment

Six months ended 30 June 2014 1.1 1.1.1 1.1.2 1.2 1.3 1.4 1.5 1.6 1 2.1 2.1.1 2.1.2 2.2 2.3 2.4 2.5 2.6 2

Net premium revenue Gross premium revenue Outward reinsurance premiums Fee and commission income Net income (expenses) from financial assets at fair value through profit or loss Income from investments in subsidiaries, associates and joint ventures Income from other financial instruments and investment property Other income TOTAL REVENUE Net claims expenses Claims paid and change in technical provisions Share attributable to reinsurers Commission expenses Expenses arising from investments in subsidiaries, associates and joint ventures Expenses arising from other financial instruments and investment properties Operating costs Other costs TOTAL COSTS AND EXPENSES PROFIT/(LOSS) BEFORE TAX

Annex to Consolidated Interim Report 2014

-

26,620 38,566 11,946 2,124 251 28,995 (10,627) (15,941) 5,314 0 0 0 (9,818) (1,495) (21,940) 7,055

Six months ended 30 June 2013 18,481 29,794 11,314 1,614 395 20,489 (5,708) (8,953) 3,245 0 0 (0) (6,658) (2,243) (14,609) 5,880

Six months ended 30 June 2014 8,222,632 8,228,696 6,064 530,522 453 1,432,992 907 10,187,506 (9,578,875) (9,584,209) 5,334 0 0 (29,351) (230,317) (25,632) (9,864,175) 323,331

Six months ended 30 June 2013

Six months ended 30 June 2014

6,586,126 6,591,453 5,327 141,156 574 1,137,698 1,400 7,866,954 (7,393,939) (7,400,058) 6,118 0 0 (16,907) (189,852) (19,238) (7,619,937) 247,016

Six months ended 30 June 2013

1,049 1,049 0 0 0 0 0 0 0 1,049 1,049 0

Six months ended 30 June 2014

837 837 0 0 0 0 0 0 0 837 837 0

-

8,249,252 8,267,262 18,010 530,522 453 1,435,116 109 10,215,452 (9,589,502) (9,600,150) 10,648 0 0 (29,351) (240,135) (26,078) (9,885,066) 330,385

Six months ended 30 June 2013 6,604,607 6,621,248 16,641 141,156 574 1,139,312 957 7,886,605 (7,399,648) (7,409,011) 9,363 0 0 (16,907) (196,510) (20,644) (7,633,709) 252,896

Annex to Consolidated Interim Report 2014

Scope of consolidation Codice prospetto: SCAREAC

Name

Poste Assicura SpA

Country

Method (1)

86

Business (2) G

1

% held directly

100

% total equity interest (3)

100

% votes available at general meetings (4)

% consolidation

100

(1) Consolidation method: Line-by-line =G, Proportionate=P, Line-by-line consolidation due to coordinated management=U (2) 1=Italian ins.; 2=EU ins; 3=ins. other country; 4= insurance holding; 5=reinsurance EU; 6= reins. other country; 7=banks; 8=asset mgmt. co.; 9=holding co.; 10= real estate 11= other (3) this is the sum of the equity interests related to all the companies along the ownership chain standing between the consolidating company and the company in question. If the latter is directly held by several subsidiaries it is necessary to add up all the interests. (4) Total percentage of the available votes at general meetings if different from the direct or indirect equity interest.

Annex to Consolidated Interim Report 2014

100

Annex to Consolidated Interim Report 2014

Details of non-consolidated investments Code prospetto: SCPARNC

Name

(€000)

Country

Method (1)

Business (2)

% held directly

% total equity interest (3)

Europa Gestioni Immobiliari SpA

86

10 b

45

45

% votes available at general meetings (4) 45

Carrying amount

197,469

(1) 1=Italian ins.; 2=EU ins; 3=ins. other country; 4= insurance holding; 5=reinsurance EU; 6= reins. other country; 7=banks; 8=asset mgmt. co.; 9=holding co.; 10= real estate 11= other (2) subsidiaries (IAS27) ; b=associates (IAS28); c=joint ventures (IAS 31); indicate with an asterisk (*) the companies as held for sale in accordance with IFRS 5 and show the key below the table. (3) this is the sum of the equity interests related to all the companies along the ownership chain standing between the consolidating company and the company in question. If the latter is directly held by several subsidiaries it is necessary to add up all the interests. (4) Total percentage of the available votes at general meetings if different from the direct or indirect equity interest.

Annex to Consolidated Interim Report 2014

Annex to Consolidated Interim Report 2014

Details of tangible and intangible assets (€000)

Cost Investment property Other properties Other tangible assets Other intangible assets

3,812 15,346

Annex to Consolidated Interim Report 2014

Fair value

Carrying amount -

3,812 15,346

Annex to Consolidated Interim Report 2014

Details of technical provisions attributable to reinsurers (€000)

Non-life provisions Life provisions Technical provisions where the investment risk is borne by policyholders and provisions deriving from the management of pension funds Mathematical and other provisions Total provisions attributable to reinsurers

Annex to Consolidated Interim Report 2014

at 30 June 2014 20,016 27,347

at 31 December 2013 16,368 23,972

27,347 47,364

23,972 40,340

Annex to Consolidated Interim Report 2014

Details of financial assets (€000)

Codice prospetto: SCATTFIN Total carrying amount at 30 June 2014 at 31 December 2013 at 30 June 2014 at 31 December 2013 Equity instruments and derivatives recognised at cost Equity instruments at fair value of which listed

Debt securities of which listed UCI units Loans and receivables due from banks Interbank loans and receivables Deposits with ceding entities Assets of investment components of insurance contracts Other loans and receivables Non-hedging derivatives Hedging derivatives Other financial investments Total

Annex to Consolidated Interim Report 2014

at 30 June 2014

at 31 December 2013 at 30 June 2014 at 31 December 2013 at 30 June 2014 at 31 December 2013

at 30 June 2014

at 31 December 2013

-

-

750,000 14,323 -

142 11,316 -

9,675 9,675 67,625,406 67,004,483 1,466,127 -

5,284 5,284 57,617,659 56,483,696 1,536,911 -

-

-

10,202,182 10,199,758 623,210 249,018 -

9,543,998 9,541,546 729,835 209,988 -

9,675 9,675 77,827,588 77,204,240 2,089,337 750,000 14,323 249,018 -

5,284 5,284 67,161,657 66,025,242 2,266,746 142 11,316 209,988 -

-

-

764,323

11,458

69,101,208

59,159,855

-

-

11,074,410

10,483,821

80,939,941

69,655,134

Annex to Consolidated Interim Report 2014

Details of assets and liabilities related to contracts issued by insurance companies where the investment risk is borne by policyholders and deriving from the management of pension funds (€000) Total at 30 June 2014 On-balance-sheet assets Intercompany assets * Total assets On-balance-sheet financial liabilities On-balance-sheet technical provisions Intercompany liabilities * Total liabilities

9,372,055 9,372,055 9,246,212 9,246,212

at 31 December 2013 9,306,141 9,306,141 9,190,177 9,190,177

* Assets and liabilities eliminated during the consolidation process

Annex to Consolidated Interim Report 2014

at 30 June 2014

at 31 December 2013

at 30 June 2014 9,372,055 9,372,055 9,246,212 9,246,212

at 31 December 2013 9,306,141 9,306,141 9,190,177 9,190,177

Annex to Consolidated Interim Report 2014

Details of technical provisions (€000)

Non-life provisions Premium reserve Outstanding claims provisions Other provisions of which provisions made after a test of adequacy of liabilities Life provisions Outstanding claims provisions Mathematical provisions Technical provisions where the risk is borne by policyholders and provisions deriving from the management of pension funds Other provisions of which provisions made after a test of adequacy of liabilities of which deferred policyholder liabilities Total technical provisions

Annex to Consolidated Interim Report 2014

at 30 June 2014 76,691,688 37,484,220 33,997,321 5,210,147 5,077,364 78,986,315,944 273,054,074 62,523,022,227

at 31 December 2013 62,688,956 31,776,602 26,105,526 4,806,828 4,399,778 67,942,463,566 229,343,916 55,723,799,329

9,246,211,881 6,944,027,762 6,859,956,724 79,063,007,632

9,190,176,595 2,799,143,726 2,723,630,449 68,005,152,522

Annex to Consolidated Interim Report 2014

Details of financial liabilities

(€000) Total carrying amount at 30 June 2014 Equity-like instruments Subordinated liabilities Liabilities from investment contracts issued by insurance companies deriving from contracts where the investment risk is borne by policyholders from pension fund management from other contracts Deposits received from reinsurers Liabilities of investment components of insurance contracts Debt securities issued Due to banks Interbank payables Other borrowings Non-hedging derivatives Hedging derivatives Sundry financial liabilities Total

Annex to Consolidated Interim Report 2014

at 31 December 2013

at 30 June 2014

at 31 December 2013

at 30 June 2014

at 31 December 2013

at 30 June 2014

at 31 December 2013

1,289,767

544,179

1,289,767

544,179

1,289,767

544,179

1,289,767

544,179

Annex to Consolidated Interim Report 2014

Details of underwriting business (€000) Six months ended Six months ended 30 June 2014 30 June 2013 Non-life business NET PREMIUM REVENUE a Premium revenue b Change in premium reserve NET CLAIMS EXPENSES a Claims paid b Change in outstanding claims provisions c Change in recoveries d Change in other technical provisions Life business NET PREMIUM REVENUE NET CLAIMS EXPENSES a Claims paid b Change in outstanding claims provisions c Change in mathematical provisions d Change in technical provisions where the investment risk is borne by policyholders and deriving e Change in other technical provisions

Annex to Consolidated Interim Report 2014

-

-

39,390,193 32,137,517 7,252,676 10,626,547 5,381,277 5,480,217 234,947 8,222,632,174 9,578,874,962 2,610,250,720 43,147,068 6,796,449,696 56,035,286 72,992,191

-

-

25,310,407 21,895,499 3,414,908 5,708,363 3,685,572 1,998,897 23,894 6,586,126,073 7,393,939,290 2,992,751,562 48,513,738 5,017,653,478 656,903,454 8,076,033

Financial and investment income and expenses (€000)

Unrealised gains Interest Investment income and expenses a From investment property b From investments in subsidiaries, associates and joint ventures c From investments held to maturity d From loans and receivables e From available-for-sale financial assets f From held-for-trading financial assets g From financial assets at fair value through profit or loss Income and expenses from sundry receivables Income from cash and cash equivalents Income and expenses from financial liabilities a From held-for-trading financial liabilities b From financial liabilities at fair value through profit or loss c From other financial liabilities Income and expenses from payables Total

Annex to Consolidated Interim Report 2014

1,326,998 438 1,160,562 165,999 4,061 (11,121) (11,121) 1,319,938

Other income 41,129 41,129 41,129

Other expenses 510 510 510

Realised gains 234,406 228,927 5,480 234,406

Realised losses 19,274 18,230 1,044 19,274

Net realised income/(expenses) 1,582,749 438 1,412,387 169,924 4,061 (11,121) (11,121) 1,575,689

Unrealised gains 365,020 453 364,567 365,020

Unrealised losses

Write-backs -

Unrealised losses 3,969 3,969 3,969

Impairments -

Total income and Total income and expenses for the six expenses for the six months ended 30 June months ended 30 June 2014 2013 361,051 1,943,800 1,267,623 453 453 574 438 142 1,412,387 1,125,752 360,598 530,522 141,156 4,061 5,718 (11,121) 9,207 (11,121) 9,207 361,051 1,936,739 1,264,134

Net unrealised income/(expenses)

Annex to Consolidated Interim Report 2014

Details of underwriting expenses (€000)

Six months ended 30 June 2014 Gross commissions and other acquisition costs minus commissions and share of profits received from reinsurers Other investment management expenses Other administrative expenses Total

Annex to Consolidated Interim Report 2014

-

10,062 147 4,512 14,720

Six months ended 30 June 2013 -

6,977 62 3,818 10,856

Six months ended 30 June 2014 -

195,848 15,398 19,989 231,235

Six months ended 30 June 2013 -

158,291 12,949 19,456 190,696

Details of other components of comprehensive income

1000

Changes

Other components of comprehensive income that will not be reclassified to profit or loss, net of Change in subsidiaries' equity Change in revaluation reserve for intangible assets Change in revaluation reserve for tangible assets Income and expenses from non-current assets and disposal groups held for sale Actuarial gains and losses and adjustments related to defined-benefit plans Other components Other components of comprehensive income that may be reclassified to profit or loss Change in reserve for currency translation differences Gains or losses on available-for-sale financial assets Gains or losses on cash flow hedges Gains or losses on hedges of a net investment in foreign operations Change in subsidiaries' equity Income and expenses related to non-current assets or disposal groups held for sale Other components TOTAL OTHER COMPONENTS OF COMPREHENSIVE INCOME

Annex to Consolidated Interim Report 2014

Adjustments due to reclassification to profit or loss

Six months Six months Six months Six months ended 30 June ended 30 June ended 30 June ended 30 June 2014 2013 2014 2013 (51) 33.1 (51) 33 77,451 (11,612) (20,850) 2,023 77,454 (11,614) (20,850) 2,023 (3) 2 77,400 11,579 20,850 2,023

Other changes Six months ended 30 June 2014 -

Six months ended 30 June 2013 -

Total changes

Tax

Balance

Six months Six months Six months Six months Six months Six months ended 30 June ended 30 June ended 30 June ended 30 June ended 30 June ended 30 June 2014 2013 2014 2013 2014 2013 (51.2) 33.1 (40.8) 7 (51) 33 (41) 7 56,601 (9,590) (28,054) 4,966 204,726 89,615 56,604 (9,592) (28,054) 4,966 204,734 89,619 (3) 2 (8) (4) 56,550 9,557 (28,054) 4,966 204,685 89,623

Assets and liabilities recognised at fair value on a recurring and non-recurring basis: breakdown by fair value level (€000)

Level1 at 30 June 2014

Assets and liabilities recognised at fair value on a recurring basis Available-for-sale financial assets Financial assets at fair value through Held-for-trading financial assets profit or loss Financial assets designated at fair value through profit or loss Total Financial liabilities at fair value through Held-for-trading financial liabilities profit or loss Financial liabilities designated at fair value through profit or loss Total

Annex to Consolidated Interim Report 2014

68,257,792 10,296,734 78,554,526

Level 2

at 31 December 2013

57,814,489 9,769,431 67,583,921

at 30 June 2014

620,923 777,675 1,398,598

Total

Level 3

at 31 December 2013

1,133,964 714,390 1,848,353

at 30 June 2014

222,493 222,493

at 31 December 2013

211,402 211,402

at 30 June 2014

69,101,208 11,074,410 80,175,618

at 31 December 2013

59,159,855 10,483,821 69,643,676

-

-

-

-

-

-

-

-

-

-

-

-

-

-

-

-

Details of changes in level 3 assets and liabilities recognised at fair value on a recurring basis amounts in thousands of euros

Financial assets at fair value through profit or loss Available-for-sale financial assets

Opening balance Purchases/Issues Sales/Repurchases Redemptions Gains or losses through profit or loss - of which unrealised gains/losses Gains or losses through other components of comprehensive income Transfers to level 3 Transfers to other levels Other changes Closing balance

Annex to Consolidated Interim Report 2014

Held-for-trading financial assets

Financial assets designated at fair value through profit or loss

Financial liabilities at fair value through profit or loss Investment property

Tangible assets

Intangible assets

211,402

-

-

-

-

-

17,559

-

4,608 -

-

-

-

-

-

222,493

-

-

-

-

-

(9,636)

(1,439)

0

Held-for-trading financial liabilities -

Financial liabilities designated at fair value through profit or loss -

-

-

Assets and liabilities not recognised at fair value: breakdown by fair value level

(€000)

Fair value

Carrying amount at 31 December 2013

Assets Investments held to maturity Loans and receivables Investments in subsidiaries, associates and joint ventures Investment property Tangible assets Total assets

Liabilities Other financial liabilities

Level 1

Level 2

-

-

764,323 197,469 3,812 965,604 1,289,767

11,458 197,019 2,954 211,431 544,179

-

-

-

-

-

-

Total

Level 3

at 31 December at 31 December at 31 December at 31 December at 31 December at 31 December 2012 2013 2012 2013 2012 2013 -

-

at 31 December 2012

at 31 December at 31 December 2013 2012

-

-

-

-

11,458 197,019 2,954 211,431 544,179

102,146 197,019 2,412 301,577 544,294

764,323 197,469 3,812 965,604 1,289,767

11,458 197,019 2,954 211,431 544,179