Ras spa annual report & financial statements 2002 2002 directors’ report and statutory financial statements Ras spa Contents Board of directors, statutory auditors and general management 3 Agenda 5 Directors’ report 7 Ras in 2002 9 Relationships with subsidiary, affiliated, associated and parent companies and with related parties 14 Investments held by Directors, Statutory auditors and General managers 14 Lines of business 15 Ras Group 24 Net profit for the year 28 Investments held by directors, statutory auditors and general managers 29 Balance sheet and profit and loss account Balance sheet 34 Profit and loss account 46 Notes to the financial statements Part A - Valuation criteria 57 Part B - Notes to the balance sheet and profit and loss account 65 Balance sheet - Assets 65 Balance sheet - Liabilities and shareholders’ equity 77 Profit and loss account 97 Remuneration of directors, statutory auditors and general managers 107 Stock options assigned to directors and general managers 109 Part C - Other information 111 Cash flow statement 112 Real estate 115 List of direct and indirect equity investments exceeding 10% 117 Statutory auditors’ report 125 Independent auditors’ report 131 Resolutions of the ordinary shareholders’s meeting 135 Board of directors, statutory auditors and general management appointed by the Shareholders’ Meeting hold on 30 April 2003 Board of directors** Board of statutory auditors Giuseppe Vita* Pietro Manzonetto Chairman Chairman Michael Diekmann* Adolf Hällmayr Deputy chairman Giorgio Stroppiana Standing auditors Mario Greco* Chief executive officer Emilio Aguzzi de Villeneuve Michele Carpaneda Mario Arcelli Alternate auditors Guido Maria Barilla Detlev Bremkamp* General management Carlo Buora Vittorio Colao Massimo Arrighi Nicola Costa Mario Greco Klaus Dührkop Salvatore Militello Alberto Falck* Pierluigi Riches Pietro Ferrero Paolo Vagnone Angelo Marchiò* General managers Francesco Micheli Luigi Orlando Daniele D’Abramo Helmut Perlet Maurizio Devescovi Giampiero Pesenti Diego Fumagalli Gianfelice Rocca Mauro Montagnini Carlo Salvatori Claudia Motta Directors Roberto Notarbartolo di Villarosa Alessandro Scarfò Aldo Andreoni Carlo Spasiano Secretary to the board of directors Central managers Independent auditors KPMG spa Savings shareholders’ representative Gianfranco Negri Clementi * Members of the Executive Committee. ** As regards the office and powers vested on individual directors and the Executive Committee, see the specific section on Corporate Governance included in the consolidated financial statements. 3 Ordinary Shareholders’ Meeting 30 April – 5 May 2003,10 am Agenda 1. Financial statements as at and for the year ended 31 December 2002, directors’ report and sta- tutory auditors’ report. Resolutions relating thereto. 2. Fixing the number and appointment of directors for the three-year period 2003, 2004 and 2005. Resolutions relating thereto. Establishing the remuneration of the Board of Directors. 3. Appointment of the statutory auditors for the three-year period 2003, 2004 and 2005. Establishing their remuneration. 4. Appointment of the independent auditors for the audit of the statutory and consolidated financial statements as at and for the three-year ending 31 December 2003, 2004 and 2005 and for the review of the half-year reports as at and for the six-month periods ending 30 June 2003, 2004 and 2005 and for the other activities required by article 155 of Legislative Decree no. 58 of 24 February 1998. 5. Authorisation to acquire and sell the company ’s own shares pursuant to articles 2357 and fol- lowing and article 2359 bis of the Italian Civil Code, as well as article 132 of Legislative Decree no. 58 of 24 February 1998. 5 Ras in the last three years (thousands of Euro) Total premiums 2000 2001 2002 Non-life business 2,447,751 2,630,309 2,830,301 Life business 988,326 1,002,751 1,250,858 Total 3,436,077 3,633,060 4,081,159 Claims, maturities, annuities and surrenders Non-life business 1,822,562 1,987,564 1,985,103 Life business 589,568 709,387 775,219 Total 2,412,130 2,696,951 2,760,322 Technical reserves Non-life business 4,192,227 4,548,203 4,775,337 Life business 6,030,207 6,340,045 6,769,824 Total 10,222,434 10,888,248 11,545,161 Shareholders’ equity Share capital 376,410 376,567 437,770 Equity reserves 3,370,635 3,451,950 3,703,582 Net profit for the year 307,364 581,135 1,059,121 Total 4,054,409 4,409,652 5,200,473 Solvency margins Required by law 608,051 672,378 729,147 Actually held 3,820,850 4,123,974 4,803,709 6 Directors’ report Dear shareholders, 2002 was another difficult year for the global economy, especially in leading industrialized coun- tries.Although consumer spending remained high in the United States, the stagnation in the invest- ment cycle did not turn round, stifling growth in the gross domestic product. For the third year in a row, stock markets performed badly. Uncertainties surrounding the upswing in companies’ prof- itability, the possibility of war in the Middle East and the recent serious corporate governance scan- dals of certain US companies in the Spring have worn away American investors’ confidence in the stock market. In Europe, confidence remained extremely low, with a very small increase in the GDP, currently esti- mated at approximately 0.7%. After adopting the new common currency from 1 January 2002 by majority vote, the European Union was unable to develop independently of the international eco- nomic scenario, also as a result of strict agreements limiting the regulations governing the eco- nomic policies of each member. Accordingly, the Italian economic trend showed GDP growth esti- mated at approximately 0.4%. This is the result of a low propensity to expenditure, both in terms of consumption and investments. In 2002, the domestic insurance industry saw a significant growth in overall premium income, although presenting different reasons and characteristics for each line of business. With respect to the third-party motor liability line of business, pending the positive effects of the change in legis- lation implemented in December 2002, premium income continued to increase, although at a slow- er rate as the year went on. The other non-life lines of business were generally more dynamic. The industrial risks and marine businesses, particularly the hulls and third-party liability categories, showed the greatest growth rates. With regard to life business, 2002 brought with it further significant growth in gross premium income, alongside an increase in the demand mainly for traditional policies, which usually have cap- ital protection and where performance is less tied to market fluctuations. The year ended with a modest income from pension-related products, both from the individual and group policies, as the necessary legislative reform was again postponed. Financial services continued to be negatively affected by the market volatility, with a reduction in assets for the third year in a row. Savers turned towards more liquid products. However, the offer and portfolio transfer towards monetary funds only partly offset the outflows from higher risk products. 2002 saw considerable changes for Ras with regard to its corporate culture and Group image. The Ras logo was reviewed and updated, and a wide scale advertising campaign was launched to pres- ent the market with the new image of a company increasingly committed to insurance and finance, a new orientation which had already been created within the company. In terms of business results, this new image was the basis for fast growth in the life business, espe- cially for Ras Italy, where life business as a percentage of total premiums has now reached 61% and its market share has nearly doubled since 1999. Total Ras consolidated life premiums amount to Euro 8,343 million, outperforming the target set for 2003 in the business plan, which foresaw pre- miums of Euro 7,440 million. Furthermore, with regard to new business in Italy, both the agent and financial advisor network (+42%) and the bank channel (+37%) performed very well. Non-life business shows less striking growth (+8.4%) in premiums, even net of certain changes in the consolidation area and method. However, this increase was accompanied by an improved tech- nical result for the third year in a row. The direct sales channel, represented by Genialloyd, market leader in on-line policies sold, not only recorded significant growth in premiums (+60%), but also broke even before forecasts, becoming one of the few success stories of the New Economy start- ups. 7 In terms of retail financial services, after Dival Ras Sim network merged into Rasbank in 2001, the latter’s retail operations grew further with the integration of a portion of Rasfin Sim business (the company now focuses exclusively on corporate finance) and the Ras Investimenti Sim financial advisor network, backing insurance agencies. With 2,164 full-time financial advisors, Rasbank has the third largest network operating with a single brand. Overall, 2002 was a year of growth, with net inflows up 19% on the previous year. This was mainly a result of the contribution of products relating to assets under administration and current accounts, while assets under management and administration fell slightly, primarily following the performance of stock markets. 2002 was also a year for extraordinary transactions geared towards increasing profitability, freeing excess capital and improving efficiency. In addition to those mentioned above aimed at strength- ening Rasbank, in January, operations began at Ras Service, a company dedicated to non-life busi- ness claims settlement for the Group’s Italian companies. Moreover, the conclusion of a tender led to the sale of Group real estate not used in the business for approximately Euro 1.7 billion. Finally, the buy back of own shares through a public purchase offer was another success. Ras spa ended 2002 with a net profit of Euro 1,059 million, up 82.3% on the Euro 581 million of 2001.