Unipol

A

ASSET-LIABILITY MANAGEMENT (ALM) The integrated management of assets and liabilities. A method of managing the risk to which insurance companies are exposed, designed to obtain a suitable return on investment through the integrated management of assets and liabilities. It is based on the sensitivity of assets and liabilities to variations in market conditions.

A.N.I.A. ASSOCIAZIONE NAZIONALE FRA LE IMPRESE ASSICURATRICI (NATIONAL ASSOCIATION OF INSURANCE COMPANIES): Industry association of both Italian and foreign insurance companies operating in Italy.

 

B

BANCASSURANCE: A recent term indicating the sale of insurance products - prevalently those pertaining to the Life insurance sector - through bank branches.

 

C

CAPITALISATION: Term used in economics to indicate the overall value of a company's shares; it is often employed as a unit of measurement of the success/failure of a listed company. It is calculated by multiplying the number of a company's shares by their price.

CONSOB (Italian Stock Exchange Authority): The Italian Stock Exchange Authority (Commissione Nazionale per le Società e la Borsa - CONSOB), established by Law no. 216 of 7th June 1974, is an independent administrative body which is made of legal entity and given complete autonomy by Law no. 281 of 1985. It is concerned with the safeguard of investors, and with the efficiency, transparency and development of the Italian securities market. Its functions have expanded over the course of time in relation both to the need to increase the scope of savings protection and to the gradual evolution of the financial market and of legislation covering that area.

 

C.I.D. (Direct Claims Payment Agreement) : The Direct Claims Payment Agreement (Convenzione per l'Indennizzo Diretto - C.I.D.) is an agreement between several insurance companies authorised to provide motor TPL insurance, according to which the injured party has the opportunity to obtain payment of its claim directly from its own insurance company, which shall then ask to be reimbursed by the insurance company of the vehicle responsible for causing the accident. This agreement usually applies when there are no injured parties; it does not apply to accidents involving mopeds.

 

CORPORATE GOVERNANCE : Within a company, Corporate Governance refers to those processes, policies, customs, laws and institutions that influence the ways in which such company is managed and controlled. Corporate governance also include the relationships between the various players involved (stakeholders, i.e. those with any kind of interest in the company) and the purposes for which the company is managed. The main players are shareholders, the management and the board of directors.

 

CLOSED-END or CONTRACTUAL FUNDS : Contractual pension funds arise from those collective contracts or agreements, company-level or otherwise, which clearly identify the beneficiaries thereof, that is, those subjects for whom the fund is designed on the basis of their belonging to a given sector, company or group of companies, or to a given administrative area (e.g. a region or autonomous province). The contractual pension fund's activities basically consist in the gathering of subscriptions and contributions, the identification of investment policies which shall be entrusted to outsiders specialised in asset management and the supply of services. A contractual pension fund is an autonomous legal entity complete with its own organs: the assembly, administrative and supervisory bodies, and the fund manager, who in general is also the fund's director general. The assembly is comprised of subscribers' representatives (and much less frequently, in the case of pre-existing funds, of all members). One half of the administrative and supervisory bodies is composed of representatives of those workers who have subscribed to the fund, while the other half is composed of employers' representatives. The members of the said bodies, together with the fund manager, have to be professional, honourable persons. In order to carry out certain activities, a contractual pension fund may avail itself of the services of external personnel. For example, management of the financial assets is entrusted to specialised undertakings (banks, brokerage firms, insurance companies, asset management companies); the fund's assets are deposited with the custodial bank; pensions are generally disbursed by an insurance company.

 

COLLECTIVE SAVINGS INVESTMENT ORGANISATIONS (ORGANISMI DI INVESTIMENTO COLLETTIVO DEL RISPARMIO - O.I.C.R.) : Collective Savings Investment Organisations are all mutual funds and open-ended investment trusts (SICAV): they are institutional investors who deal with collective capital management.

 

COLLECTIVE SECURITIES INVESTMENT ORGANISATIONS (ORGANISMI DI INVESTIMENTO COLLETTIVO IN VALORI MOBILIARI - O.I.C.V.M.) : Collective Securities Investment Organisations are all open-ended mutual funds, both Italian and foreign, and open-ended investment trusts (SICAV).

 

CAPITAL ACCUMULATION PLAN (CAP) : The CAP - Capital Accumulation Plan - is an instrument that allows shares in a mutual fund to be purchased by means of regular payments. In this way, the customer acquires the right (and not the duty) to make a certain number of payments up to a sum established under the initial contract. As a rule, the minimum number of such payments is 60. Once a CAP has been started, it may be fed by monthly payments or payments made at different intervals; payments may even be made on an irregular basis (that is, not by certain expiry dates), and larger payments than the unit payment initially established may be made, provided that they are whole multiples of the latter. In other words, this form of plan constitutes a subscription to fund share instalments, and as such is a form of investment that bears the risks of the fund itself. More generally speaking, a CAP may be useful as it enables investors without capital to invest: to start a capital accumulation plan, all the investor has to do is to make a limited initial payment.

 

COMMISSION : Remuneration for the insurance deals clinched and managed by the agent, broker or salesperson, and paid to the latter by the company.

 

CONSOLIDATED FINANCE ACT (TESTO UNICO FINANZIARIO, TUF) : The Consolidated Finance Act contains legal provisions concerning financial brokerage.

 

CONSOLIDATED BANKING ACT (TESTO UNICO BANCARIO, TUB) : The Consolidated Banking Act covers the banking and credit sectors.

 

D

DIRECT CLAIM SETTLEMENT: Direct claim settlement is a new insurance claim settlement procedure which from 1st February 2007, in the event of a motor accident, enables the non-liable (or partially non-liable) injured parties to be paid damages directly by their insurers. This procedure is provided for by law, and does not necessarily require the joint signature of an agreed motor accident statement in order to be applicable, and is not interrupted or prevented by the intervention of a lawyer on behalf of the injured party.

 

 

E

EMBEDDED VALUE: This is one of the most commonly used methods (the so-called mixed assets-profit method) of estimating the economic value of an insurance company. It is defined as the algebraic sum of adjusted net asset value and the expected value of profit margins on an already acquired policy portfolio: embedded value = adjusted net asset value + present value of future profits. The adjusted net asset value is obtained by re-expressing the principal asset items in terms of their current value, recording the relative latent capital gains and losses net of taxation. The value of an existing policy portfolio is calculated by estimating and subsequently actualising the profits that the said portfolio could generate during the course of its remaining lifetime.

 

END-OF-SERVICE ALLOWANCE (TRATTAMENTO DI FINE RAPPORTO - T.F.R.) : The end-of-service allowance or leaving indemnity is the sum paid to an employee at the end of his/her period of service, and as such it constitutes a form of payment deferred until the end of the employee's period of service, designed to help the employee deal with any financial difficulties that may arise as a result of the lack of salary. It is an integral part of gross pay, but is not immediately available: it is thus a deferred salary belonging to the individual employee, that the employer retains and for which the employer is responsible, and which the same employer has the duty to reinvest in the company in the meantime. Should the company go bankrupt, or should it fail to pay the said allowance when it is due for payment (at the end of service), or should the employee request an advance on the said allowance, then the National Institute of Social Insurance (INPS) shall guarantee for the private individual and pay the due sum. There are no such guarantees for pension contributions or salaries in arrears. From 1st January 2007, an employee is bound to choose whether to maintain this end-of-service allowance in its current form, or whether to set it aside for the creation of a supplementary pension, paying it into pension funds (whether professional funds or open-ended funds). This reform does not apply to public sector employees.

 

F

FUND ASSETS MANAGEMENT (GESTIONE PATRIMONIALE IN FONDI - G.P.F.) : A service offered to investors by a financial intermediary, which should guarantee the optimal allocation of capital and thus the best possible return for any given level of risk. Investment focuses on the purchase of shares in mutual funds or open-ended investment trusts (SICAV); the sum needed to be admitted to a G.P.F. is generally lower than that required for securities management.

 

FULLY COMPREHENSIVE INSURANCE : Insurance covering accidental breakdowns to a vehicle as a consequence of events regarding traffic circulation. There are two forms of such insurance: 1) that covering losses resulting from vehicle collision or overturning; 2) that covering losses resulting from collision with vehicles only.

 

G

GROSS PREMIUM: This is the premium actually due to the company from the contracting party. The gross premium includes: the pure premium (which corresponds to the mathematical concept of risk); loading charges (that is, the profits that remunerate the agency); any additional charges (costs related to the handling of the policy, the forwarding of payment notices, etc.); and the taxes due to the State (as a variable percentage depending on the branch of insurance in question).

 

I

 

INTEGRATED BRANCH : An integrated branch is a bank branch that is physically adjacent to an insurance company. The two offices, although separated in order to comply with Bank of Italy security regulations, may give rise to a unique commercial model. Actually, an integrated branch provides greater and better customer contact, and makes it possible to concentrate insurance, banking and savings management services all in one outlet. Integrated branches represent one of the most innovative commercial aspects of the Unipol Group, and they are based on the integration of the Unipol Bank's branches and the Group's insurance agencies.

 

INTERNATIONAL ACCOUNTING STANDARDS (IAS) / INTERNATIONAL FINANCIAL REPORTING STANDARDS (IFRS) : The International Accounting Standards (IAS) are international accounting principles issued by a group of professional accountants - the International Accounting Standards Committee (IASC) - in 1973: this was the first attempt to standardise accounting rules at the international level. Up until 2001, the IASC acted as a committee within the International Federation of Accountants (IFAC), before transforming itself a private foundation under US law (the IASC Foundation). Within this Foundation, the body entrusted with the task of establishing accounting standards is the International Accounting Standards Board (IASB), and the principles drawn up by this Board are referred to as the International Financial Reporting Standards (IFRS). Since the said standards currently coexist with the previous IAS, international standards are often referred to as IAS/IFRS.

 

INDEX LINKED : A life insurance policy the interest payments of which are tied (linked) to the performance of certain stock exchange indices (index). The policy, which generally offers a minimum guaranteed amount of capital upon expiry, enables investments to be made in the financial markets without any risk to the invested sum. These types of policy are more dynamic than traditional policies, and their yield depends on the performance of the reference share market.

 

INSURANCE SURVEYOR : Expert in certain specific sectors who evaluates and estimates values, damages or specific situations related to the nature and consequences of a loss.

 

INDIVIDUAL PENSION SCHEMES : Individual forms of pensions created through the underwriting of Life insurance contracts designed for social security purposes. The rules governing the relationship with the subscriber are contained not only in the insurance policy, but also in a special set of rules drawn up on the basis of the COVIP directives, and authorised by the latter for the purpose of guaranteeing the subscriber the same rights and prerogatives offered by other forms of supplementary pension. As established for other forms of pension, the financial assets accumulated as a result of the said contracts constitute a separate, independent form of capital. As in the case of open-ended pension funds, the figure of pension manager is envisaged, the said manager having the task of verifying that management of the fund takes place in the exclusive interest of subscribers, and in compliance with existing law, regulations and contracts.

 

INDUSTRIAL PLAN : The industrial plan is the document that illustrates management's strategic intentions regarding the company's competitive policies, those actions to be taken in order to achieve strategic targets, the evolution of key value drivers and of expected results. It plays a vital role in the management of a company in that it proves useful: to management when it comes to representing its own entrepreneurial viewpoint; to the board of directors when it comes to providing the guidelines for the company, and controlling company business; to the company when it comes to attracting those human and financial resources needed to achieve its business plan.

 

 

INSURANCE BRANCH : Insurance Branch means a specific type of insurance activity pertaining to a given risk or group of like risks. The following branches of insurance are provided for under Italian law: 1) Personal accident insurance (including accidents at work and occupational illnesses); 2) Health insurance; 3) Motor Vehicle insurance; 4) Railway Vehicle insurance; 5) Aviation insurance; 6) Inland Shipping and Marine insurance; 7) Cargo (transport) insurance; 8) Property Insurance against Fire and Related Risks; 9) Insurance against other types of damage to property; 10) Motor Third Party Liability; 11) Aviation Third Party Liability; 12) Inland Shipping and Marine Third Party Liability; 13) General Third Party Liability; 14) Credit insurance; 15) Bond insurance; 16) Pecuniary Loss insurance; 17) Legal Protection insurance; 18) Tourist assistence (IMA Assistance or similar); 19) Life assurance; 20) Supplementary forms.

 

 

M

MANAGEMENT COMMISSION : Within the context of managed savings, the term 'management commission' indicates the fee that the fund regularly pays the management company. It represents the management company's return on its 'active administration' of the fund's assets.

 

MULTI-AGENCY : Insurance companies may not stipulate with their own agents contracts containing sole distribution clauses regarding the Non-Life insurance sector. Thus the entire Non-Life insurance sector (fire, theft, accident, etc.) is covered by the ban provided for by Article 8 of Law 248/06, which shall come into force in 2008 for motor TPL insurance policies. The objective is to increase the level of competitiveness and the options available to the consumer. The contracting party shall have the opportunity to cancel the contract, from one year to the next, without being charged anything for cancellation. Basically, when offered more advantageous conditions by other insurance companies, the consumer shall be free to terminate the present contract prior to its original expiry date. Those new agency contracts to be stipulated subsequent to the aforesaid law, shall comply with the new regulations. In the case of the old contracts, the adjustment shall take place in any case by 1st January 2008.

 

N

 

 

O

ORDINARY SHARES : Ordinary shares represent the most traditional form of sharing in a corporate capital. At least 50% of a listed company's capital must be made up of ordinary shares; should this percentage fall below the 50% mark, the balance has to be re-established otherwise the company risks closure. As well as the economic right of entitlement to dividends and to the liquidation of the corporate capital, holders of ordinary shares also have administrative rights, such as the right to take part in and to vote at ordinary and extraordinary shareholders' meetings on the questions of the appointment of directors, approval of the financial statements, capital increases, amendments to company by-laws and the eventual winding up of the company. Each ordinary share gives the holder one vote, and there are no such shares entitling the holder to plural votes. Basically, ordinary shares are those enabling shareholders to be actively involved in the coprorate management, and for this reason, for the purposes of a takeover bid for a company, 50% plus one of the ordinary shares of the said company must be purchased on the market in order to give the purchasing company control.

 

OPEN-ENDED PENSION FUNDS : Open-ended pension funds are governed by Article 9 of the Legislative Decree of 21st April 1993. They may be founded and managed by Banks, Assets Management Companies, Brokers, Authorised Trust Companies, Insurance Companies, EC Investment Companies, subject to the granting of authorisation by the Pension Fund Supervisory Committee, and in agreement with those authorities (the Bank of Italy, CONSOB and ISVAP) entrusted with the supervision of subjects setting up such funds. With regard to the capital of those companies setting up such funds, open-ended pension funds constitute a separate, independent form of capital, designed solely for the purpose of providing welfare services. Subscription to such funds may be either collective or individual. Collective subscription to an open-ended pension fund occurs when the source creating the supplementary pension, rather than setting up a specific contractual pension fund, chooses one or more open-ended funds as means by which to achieve the social-security purpose. An open-ended fund is financially administered in general by the same company that set it up.The custodian bank, as in the case of contractual funds, must be an outsider. The manager of the open-ended fund operates independently from the company that set up the open-end fund, and has the task of checking that management thereof is in the exclusive interest of subscribers and in compliance with existing laws, regulations and agreements. Subscribers' interests are also safeguarded by the supervisory body. This body has the task of ensuring that the administration and management of the fund is conducted in a regular manner and that it serves the needs of subscribers. The composition of the supervisory body varies according to the type of open-ended fund in question. Members of the said body may include representatives of both workers and employers if subscription to the fund is of a collective nature.

 

P

PREFERENCE SHARES : Preference shares guarantee the right to vote at the company's extraordinary shareholders' meetings, but do not guarantee the same right at ordinary shareholders' meetings. Each share represents one vote. The limitation on administrative rights translates into increased economic rights, albeit not as great as those reserved for holders of savings shares. In fact, when dividends are being distributed, holders of preference shares have the right to receive at least 2% of the par value, and in the event of no profits, the right of accumulation for the following year is provided for. Preference shares, like ordinary shares, are registered: this type of share is seldom used nowadays, and the tendency is to convert them into ordinary shares.

 

PRE-EXISTING PENSION SCHEMES : Pre-existing pension funds are supplementary pension funds set up prior to 15th November 1992 which have certain features that distinguish them from the subsequently instituted funds (such as, for example, the option of managing funds directly without the need for specialised intermediaries). Legislative Decree 252/2005 established that such forms of pension fund had to be brought into line with the provisions of the decree according to criteria, terms and time-scales established jointly by the Ministry of the Economy and the Ministry of Labour, after consultation with the COVIP. Subscription to this type of fund takes place on a collective basis, and beneficiaries are established by company or inter-company agreements or contracts.

 

PROFIT-SHARING : The joint interest of the insured party in relation to the technical development of risk. Profit sharing, nevertheless, is rarely the subject-matter of a clause in a Non-Life insurance policy.

 

PURE PREMIUM : The pure premium is calculated from the ratio between the frequency of losses and the average cost of the said losses, both of which have been estimated. In theoretical terms, if the number of losses each year were equal to that foreseen by the statistics of probability, then the insurance company would break even using the pure premium (the sum of individual premiums equals that sum settled for losses occurred). It thus represents the pure cost to the insurance company of taking on the risk.

 

PLACEMENT/UNDERWRITING COMMISSION : Within the context of managed savings, this term indicates the commission payable by the saver when underwriting shares in a fund (unit trust or open-ended fund). This commission pays for the relevant consultancy and brokerage services.

 

R

REAL ESTATE INVESTMENT TRUSTS : The basic characteristic of real estate investment trusts is their capacity to transform real estate investment - the trading of which requires longer than does the trading of securities - into financial assets (shares) which make it possible to generate liquidity without the investor having to directly purchase any real estate. Real estate investment funds are exclusively of the closed-end variety.

 

RETURN ON EQUITY (ROE) : The return on equity (ROE) is the ratio between net profit for a given period and net equity for the previous period. It expresses the profitability of capital in terms of net profit: that is, how many units of net profit the company produces per 100 units of invested resources. This is the indicator that most interests investors in that it enables them to evaluate the profitability of the venture capital invested in the company. In order to attract new venture capital, a company needs to provide a ROE that is higher than the rates of return on alternative forms of investment. In any case, a company's ROE should never fall below the guaranteed return on non-risk investments: were it to fall below that level, then the risk of saver shareholders would not be suitably remunerated. If the company makes a loss then the ROE is negative. This means that the economic imbalance is such that the company's own resources are eroded.

 

RETURN ON INVESTMENT (ROI) : The ROI is one of the most commonly used indices in company accounting. It measures the profitability of the total capital invested in a company, taking into account both venture capital and loan capital. The ROI refers to those items pertaining to the operational or standard management of the company: as such, the index is equal to the ratio of operating income to capital invested in the company, and is calculated as the ratio between EBIT and invested capital. It is also referred to as ROCE - Return on Capital Employed - or RONA - Return on Net Assets.

 

RATE : The cost of insurance coverage per thousand lire insured. This rate varies according to the type of risk, and represents the basis for calculating premiums.

 

S

SECURITIES ASSETS MANAGEMENT (GESTIONE PATRIMONIALE MOBILIARE - G.P.M.) : A service offered to investors by a financial intermediary who employs capital by purchasing securities or financial instruments according to the investor's chosen line of investment. The minimum certificate size is usually very high, around the EUR400m; this lower limit derives from the need to guarantee the customer a well-diversified portfolio.

 

SUPPLEMENTARY FORMS OF PENSION : Supplementary pensions are designed to provide social security in the form of the disbursement of supplementary pension payments, in addition to those provided by the compulsory social security system, according to the entity of payments made. The amount of such supplementary social security payments is based on the contributions actually made, through the financial management of the said contributions made by the subscribers to the fund. The fund is supervised by the Pension Fund Supervisory Committee in order to guarantee the correct, transparent administration and management of the funds for the purposes of the supplementary pension systems. The managers of such funds preserve the supervisory powers exercised by the respective supervisory bodies. Such pension funds are governed by Legislative Decree no. 124 of 21st April 1993 and subsequent modifications and additions thereto. They may be divided into four categories as follows: - open-ended pension funds - closed-end pension funds - individual pension schemes - pre-existing pension schemes.

 

SWITCH : In the managed savings sector this term indicates the transfer of invested capital from one fund to another, managed by the same savings management company. A switch may be free of charge or may involve payment of a commission by the subscriber.

 

T

TAKEOVER BID : A takeover bid means any bid or invitation to bid or promotional message regarding the purchase of financial products: it is thus encouragement to disinvest. The Italian Stock Exchange Authority has established a maximum limit of 30% control by any one shareholder, above which it becomes compulsory to launch a takeover bid for the remaining floating equity. Takeover bids may be sub-divided into two types: the voluntary type, when the initiative is taken exclusively by the bidder - this type may regard any form of financial instrument; the compulsory type, when the law forces the bidder in the presence of certain conditions, and in this case the bid may be for ordinary shares only (carrying the right to vote on those topics listed in Article 105 of the Consolidated Finance Act) of Italian companies listed on the Italian Stock Exchange. In turn, the latter may take the form of consensual takeover bids, when the board of directors of the company for which a takeover bid has been made declares that it accepts the bid, or hostile takeover bids when the said board rejects the bid. In Italy, the correctness of takeover bids is controlled by the Stock Exchange supervisory bodies and by the Italian Stock Exchange Authority (CONSOB).

 

U

UNIT LINKED : A Life insurance policy linked to the units of an Internal Fund specially set up by the insurance company. Unit Linked policies combine the performance of a Life assurance policy (capital payment in the event of death) and the characteristics of an investment trust (subscription of Unit Linked policies entails the purchase of units in the internal fund). The performance of the policy is thus linked to the value of the units at the time disinvestment is requested. Unit Linked policies, due to their dynamic, flexible nature, can offer excellent returns and they represent a fundamentally important method of building a supplementary pension (especially for those persons who are not entitled to those tax deductions granted by the State for supplementary pensions).

 

V

VICINITY BRANCH : This is a bank sub-branch situated in the near vicinity of two or more of the Group's insurance agencies, and no further than 500 metres from the nearest branch in large towns and no more than 1,000 metres in the case of smaller towns (also taking account of the varying density of population and mobility within the town in question). The vicinity branch too is capable of generating operational/customer synergies, and of offering a considerable degree of penetration into the insurance and banking-financial markets.