Helvetia Group in Italy

The Italian economy grew stronger last year than in the previous years. GDP is expected to rise by around 1.7%. The inflation rate was higher and was 2.6% at the end of the year as a result of the strong increase in prices for consumer goods and in particular for oil. At the same time unemployment declined further and at an estimated 7.4% the unemployment rate is at a historic low. The political will to institute reform continued in 2007 and a large number of new laws and rules were approved. These measures had a big effect in the financial sector.

Slight growth and increased regulatory activity in the insurance market
The Italian insurance market saw a slight trend reversal last year. While growth for the market as a whole was slightly negative in 2006, the Italian insurance market is expected to have returned to slight growth in 2007. Non-life business grew by around 2% last year, but this trend was seriously dampened by increasing competitive pressure in the motor vehicle segment. The life business will post declining premium volumes for the second year in a row, even though the negative growth rate is likely to be much improved. The declining growth is primarily due to uncertainties regarding the continued outsourcing of pension funds to insurance companies.
Last year, a large number of new laws and rules were approved that will also affect our business activities. For example, we will benefit from the new EU agent guidelines under which exclusive broker agreements are forbidden with effect from 2008, as we never worked with exclusive agents in the past. The introduction of transparency standards such as the disclosure of commission payments in the motor vehicle business require us to invest in our systems. At the beginning of 2007 a new system of claims settlement in motor vehicle insurance was introduced across the market, which is radically changing the existing system. Under the new system the insurer must first pay compensation to its own insured after an accident (and not the counterparty as before) before it can recover from the insurance company of the person who caused the accident.

Continued high earning power
The pre-tax profit confirms our growing profitability even in an increasingly competitive market. It is clear that our focus on quality products is paying off. At CHF 35.1 million, the overall pre-tax profit is around 26.7% better than in the previous year, with the non-life business posting a slight decline and the life business a healthy improvement. The decline in the non-life business can be attributed to the slightly higher net combined ratio of 99.4% (previous year 98.4%). The life technical result improved compared to the previous year, mainly thanks to the positive development of the risk result and good investment income.

Helvetia achieves success with its strategy 2010
Even though life profit was higher than in the previous year, premium income in the life segment declined. After the strong growth posted in previous years, Helvetia Vita continued to focus on profit-oriented consolidation in 2007, as a result of which overall premiums declined by 25.3% (28.5% in original currency). This was also due in part to income considerations, as we were very cautious in concluding policies with high single premiums. In 2007 two new index-linked products were launched which developed in line with our expectations.
In 2007, Helvetia Italy once again achieved above-average non-life premium growth of 7.2% (2.6% in original currency). This growth was driven by property insurance which improved by 18.8% (13.7% in original currency). Although motor vehicle insurance is still slipping slightly, new business is showing first positive trends. Non-life growth was also boosted by the premiums generated by the banking channel. We still consider the business mix between motor vehicle insurance on the one hand and the other non-life segments on the other as reasonable and promising. Geographically, the focus of our business activities remains on the economically interesting northern regions of the country.

Outlook
As part of the strategy 2010, significant restructuring measures were introduced last year:

• Restructuring of the broker business by integrating the life and non-life segments
• Creation of a new strategic marketing department
• Restructuring of the IT department which will have a significant impact on business efficiency
• Strengthening and selective improvement on the age profile of the local management team.

As far as the objectives of the strategy 2010 are concerned, Helvetia Italy is well on course. We are convinced that, as a focused player and specialised provider in the private customer and SME segments, we will continue to operate successfully and grow profitably in the future. In view of the Italian business unit's good performance in the past few years and the measures that have been introduced, we are facing the future with confidence.

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