REPORT ON SOLVENCY

AND FINANCIAL CONDITIONS Financial 2019

Contents

INTRODUCTION 7

SUMMARY 8

A.ACTIVITIES AND RESULTS 15 A.1. ACTIVITIES 17 A.1.1. General information 17 A.1.2. AREAS OF ACTIVITY AND GEOGRAPHICAL REGIONS OF BUSINESS 18 A.1.3. Significant information regarding activities or of any other nature 20 A.2. UNDERWRITING RESULTS 20 A.2.1. Results achieved 20 A.3. INVESTMENT RESULTS 25 A.3.1. Results achieved 25 A.4. RESULTS OF OTHER ACTIVITIES 25 A.4.1. Results achieved 25 A.5. OTHER INFORMATION 26

B.GOVERNANCE SYSTEM 27 B.1. GENERAL INFORMATION REGARDING THE SYSTEM OF GOVERNANCE 29 B.1.1. Structure, roles, and responsibilities 29 B.1.2. Remuneration policies 39 B.1.3. Significant transactions and conflicts of interest 42 B.2. REQUIREMENTS OF COMPETENCE AND GOOD REPUTE 42 B.3 SYSTEM OF INTERNAL RISK MANAGEMENT, INCLUDING INTERNAL ASSESSMENT OF RISK

AND SOLVENCY 52 B.3.1. Risk management system 50 B.3.2. Risk management function 51 B.3.3. Principles, objectives, and procedures for the purposes of ORSA 53 B.3.4. Calculation of capital requirement 55 B.3.5. Governance of the internal model 55 B.4. THE SYSTEM OF INTERNAL CONTROLS 60 B.4.1. Overview of the system of internal controls 60 B.4.2. Compliance function 63 B.3.2.1. Roles and objectives 63 B.5. THE INTERNAL AUDIT SYSTEM 64 B.5.1. Roles and objectives 64 B.6 ACTURIAL DEPARTMENT 67 B.6.2. Roles and objectives 65 B.7. OUTSOURCING 66 B.8. OTHER INFORMATION 69

C.RISK PROFILE 71 C.1. UNDERWRITING RISK 73 C.1.1. Description of the risk 73 C.1.2. Exposure 74 C.1.2.1. Evaluation measurements 74 C.1.2.2. Material risks 74 C.1.3. Mitigation techniques 76 C.1.4. Sensitivity analysis and stress testing 76 C.2. MARKET RISK 77 C.2.1. Description of the risk 77 C.2.2. Exposure 78

C.2.2.1. Measurement 78 C.2.2.2. Material risks 79 C.2.2.3. Investment of assets in compliance with the prudent person principle 80 C.2.3. Mitigation techniques 81 C.2.4. Sensitivity analysis and stress testing 81 C.3. CREDIT RISK 82 C.3.1. Description of the risk 82 C.3.2. Exposure 82 C.3.2.1. Measurement 83 C.3.2.2. Material risks 84 C.3.3. Mitigation tecniques 84 C.3.4. Sensitivity analysis and stress testing 85 C.4. LIQUIDITY RISK 86 C.4.1. Description of the risk 86 C.4.2. Exposure 86 C.4.2.1. Measurement 86 C.4.2.2. Material risks 87 C.4.2.3. Expected profits in future premiums - Non-Life business 87 C.4.2.4. Expected profits in future premiums - Life business 87 C.4.3. Liquidity risk mitigation measures 88 C.4.4. Sensitivity analysis and liquidity stress tests 88 C.5. OPERATIONAL RISK 89 C.5.1. Description of operational risk 89 C.5.2. Exposure 89 C.5.2.1. Measurement 90 C.5.2.2. Material risks 91 C.5.3. Mitigation techniques 91 C.5.4. Sensitivity analysis and stress testing 92 C.6. OTHER MATERIAL RISKS 92 C.6.1. Description of risks 92 C.6.2. Exposure 93 C.6.2.1. Measurement 93 C.6.2.2. Material risks 94 C.6.3. Mitigation techniques 95 C.6.4. Sensitivity analysis and stress testing 95 C.6.5. Intra-group transactions 96 C.6.6. Concentration 97 C.7. OTHER INFORMATION 98

D SOLVENCY VALUATION 99 D.1. ACTIVITIES 101 D.1.1. Value of assets at the valuation date 101 D.1.2. Methods and assumptions used to value assets 102 D.2. TECHNICAL PROVISIONS 107 D.2.1. Non-life technical provisions 107 D.2.1.1. Value of technical provisions at the valuation date 107 D.2.1.2. Methods and assumptions used to value technical provisions 107 D.2.1.3. Uncertainty of technical provisions 110 D.2.1.4. Amounts recoverable from reinsurance undertakings and special purpose vehicles 110 D.2.1.5. Long-term guarantee measures 111 D.2.2. LIFE TECHNICAL PROVISIONS 112 D.2.2.1. Value of technical provisions at the valuation date 112 D.2.2.2. Methods and assumptions used to value technical provisions 112 D.2.2.3. Uncertainty of technical provisions 115 D.2.2.4. Amounts recoverable from reinsurance undertakings and special purpose vehicles 115

D.2.2.5. Long-term guarantee measures 116 D.3. OTHER LIABILITIES 117 D.3.1. Value of technical provisions at the valuation date 117 D.3.2. Methods and assumptions used to value other liabilities 117 D.4. ALTERNATIVE VALUATION METHODS 121 D.5. OTHER INFORMATION 121

E.MANAGEMENT OF CAPITAL 123 E.1. OWN FUNDS 125 E.1.1. Objectives, policies, and processes for managing own funds 125 E.1.2. Structure, tiering, and quality of own funds 126 E.2. SOLVENCY CAPITAL REQUIREMENT AND MINIMUM CAPITAL REQUIREMENT 131 E.2.1. Amount and structure of the solvency capital requirement and minimal capital requirement 131 E.2.2. Simplified methods used to calculate the solvency capital requirement 134 E.3. USE OF THE DURATION-BASED EQUITY RISK SUB-MODULE TO CALCULATE THE SOLVENCY

CAPITAL REQUIREMENT 134 E.4. DIFFERENCES BETWEEN THE STANDARD FORMULA AND THE INTERNAL MODEL USED 134 E.5. NON-COMPLIANCE WITH THE MINIMUM BALANCE SHEET REQUIREMENT AND THE

BALANCE SHEET SOLVENCY REQUIREMENT 136 E.6. OTHER INFORMATION 137

F.ANNEX: SOLVENCY AND FINANCIAL CONDITION REPORT TEMPLATES 139

Introduction The Group's solvency and financial condition report has been prepared in accordance with the following legislation:

- The public disclosure requirements established under articles 290 to 303 of Chapter XII Section 1 and articles 359 to 364 of Commission Delegated Regulation (EU) 2015/35 ("Regulation") supplementing Directive 2009/138/EC of the European Parliament and of the Council on the taking-up and pursuit of the business of insurance and reinsurance ("Directive");

- Implementing Regulation (EU) 2015/2452 of 2 December 2015 laying down implementing technical standards with regard to the procedures, formats and templates of the solvency and financial condition report in accordance with the Directive;

- The Code of Private Insurance (Codice delle Assicurazioni private - CAP), as amended by Italian Legislative Decree No. 74 of 12 May 2015 implementing Directive 2009/138/EC (Solvency II);

- IVASS [Institute for the Supervision of Insurance] Regulation no. 33 of 6 December 2016, concerning disclosure to the public and to the supervisory authority that contains supplementary provisions regarding the contents of the solvency and financial condition report and the periodic report to IVASS.

The reference period for this Report is from 1 January 2019 to 31 December 2019 and the Report has been approved by the Board of Directors of Reale Mutua.

In April 2018, following the Group's authorisation request, IVASS granted its permission to use a partial internal model for calculating the solvency capital requirement, starting from 31 December 2017. Therefore, the attached quantitative reporting template (QRT) and this report have been prepared on the basis of the results of the partial internal model.

The Solvency and Financial condition Report of the Group is subject to external audit pursuant to articles 5 and 7 of the Ivass Regulation no. 42. Specifically, the models “S.02.01.02 Balance sheet”, “S.23.01.22 Own funds” and the notes from sections “D. Valuation for solvency” and “E.1 Own funds” are subject to audit. The model “S.25.02.22 Solvency Capital Requirement – for groups using the standard formula and partial internal model” and the notes from section “E.2 Capital solvency condition and minimum capital prerequisites” are subject to a limited audit.

All amounts in this report are expressed in thousands of euros, unless otherwise stated.

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Summary of contents This section contains a summary of the key data regarding the Group's solvency and financial condition in relation to the following aspects, which will then be discussed in more detail in subsequent chapters.

- Activities and results; - Governance system; - Risk profile; - Solvency valuation; - Management of capital.

Activities and results

Reale Group is made up of sixteen companies, six of which are insurers, two are real estate companies, one is a bank, five are service providers and two are insurance holdings. There were no changes during the financial year in terms of Reale Group’s business scope.

At the end of 2019 Reale Group's net profit amounted to €151.6 million, compared with a positive result of €148.0 million in the previous year.

The 2018 performance also benefited from an extraordinary net income of €36.2 million (net balance between the capital gain deriving from the partial sale of the equity investment in Sara Assicurazioni and the cost of the provisions to the Solidarity Fund). Net of the extraordinary item, the Group result for 2018 would have been €111.8 million.

In terms of underwriting results, the gross written premiums amount to €5,374.6 million, an increase of 6.1% compared to the previous financial year, 80.8% of which were achieved in Italy, 17.7% in Spain, and 1.5% in Chile. Non-life businesses (LoB) achieved a premium income amounting to €3,250.0 million, an increase of 2.6% over 2018, while Life businesses (LoB) show an increase in premium income of 11.8% and an overall volume amounting to €2,124.6 thousand.

The combined operating ratio of the Non-life businesses (LoB) stands at 97.5% compared to 97.6% in the last financial year. The improvement in technical profitability can be found both in the loss ratio and in the Expenses Ratio.

More specifically the loss ratio for the period was 65.2%, compared with 65.5% recorded in 2018. The trend was positively influenced by the improvement in the Non-Auto segment which went from 62.3% recorded in 2018 to 59.6% at the end of 2019. The Loss Ratio of the Auto segment instead recorded a 2.2% increase compared to the previous financial year. The decrease in the Expenses ratio went from 31.0% recorded in 2018 to 30.7% of the current financial year.

System of governance

Corporate Governance represents the system through which Reale Group is managed and controlled; it identifies the rules and procedures, at all levels, to ensure the proper management of the Group in terms of governance and control, and regulates the relationships between the various players involved.

Reale Group, much like Reale Mutua, the Ultimate Italian Parent Company (USCI) of Reale Group, has a corporate governance system appropriate for the structure, business model and nature, scope, and complexity of the activities managed. This system allows the Group's healthy and prudent management and takes into account the interests of the companies that form part of it and the ways in which these interests contribute to the common objective of the Group in the long term, including in terms of safeguarding of assets.

This system, which is suitable for implementing effective control over the strategic choices of the Group as a whole, as well as over the management balance of the individual companies that constitute it, includes:

- an adequate and transparent organisational structure that supports the operations and strategies of the companies and the Group, as well as procedures and safeguards that guarantee the efficiency and effectiveness of the business processes;

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- the definition of corporate strategies and policies in accordance with the provisions of current legislation;

- formalised coordination and connection procedures, including information procedures, for the various lines of business of the Group companies and the USCI, which ensure a suitable "bottom-up" and "top-down" information flow;

- the establishment of an suitable structure and organization for risk management at the Group level, including with clear definition of the tasks and division of responsibilities among the companies, in addition to the consistent application of internal control mechanisms, which allow - in line with the strategic guidelines, the risk appetite, and the risk tolerance limits of the Group - the achievement of consistent objectives, taking into account the different nature of the supervised entity, with those of the corporate governance system, as well as the reliability and the integrity of the accounting and management information;

- the establishment of fundamental functions and similar; - meeting the requirements of professionalism, integrity and independence by those for whom the

reference legislation requires the execution of administration, management and control functions, by the holders of the Group's fundamental and similar functions and by those who exercise these functions;

- suitable mechanisms to ensure the compliance of the corporate governance system with the provisions of the Private Insurance Code and with the corresponding corporate governance implementation provisions at Group level, ensuring the compliance of the Group's activities with current legislation, and with the corporate and Group directives and procedures;

- mechanisms that allow the USCI to verify the Group’s companies’ compliance with the conduct guidelines it dictates, the consistent application by the individual companies of the corporate governance provisions applicable, as well as the effectiveness of the internal control systems and risk management. To this end, USCI takes steps to ensure that periodic inspections are carried out within the Group’s companies, also with the use of their Internal Audit function.

The Group governance model provides for the attribution of specific responsibilities to collegial and uninominal subjects.

Collegial subjects are:

- the Board of Directors of the USCI, which has the ultimate responsibility for the Group's corporate governance system;

- the USCI Board of Statutory Auditors, with the task of verifying the adequacy of the organisational, administrative and accounting structure adopted by the Group and the USCI, to carry out the functions assigned to it at the Group level;

- the Supervisory Body set up pursuant to Legislative Decree 231/2001; - the Advisory Committee with investigative, advisory and/or proactive powers, in support of the Board

of Directors, for all matters that the law assigns to the Administrative Body and which require further investigation;

- the Remuneration Committee; - the Group Control and Risks Committee; - the Group Investment Commission; - the Audit Committee for eligibility requirements; - the Actuarial and Finance Commission; - the New Technologies, Innovation and Cyber Security Commission; - the Top Management of the USCI, made up of the General Manager, the Co-General Manager and the

Deputy General Manager, who is responsible for the overall implementation, maintenance and monitoring of the Group's corporate governance system (which operates at a collegial level within the Group Management Committee);

- the Group Management Committee; - the Italy Management Committee.

Uninominal subjects are:

- the President of the USCI's Board of Directors; - the Director in charge of supervising the Group's real estate activities. - the Managing Director (if applicable), the General Manager and, where they exist, the Co-General

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Manager and the Deputy General Manager.

The Committees and Commissions referred to above, each within the scope of their duties, report to the Boards of Directors and, where applicable, to the Senior Management of the USCI and of the Companies of the Group.

Risk profile

On April 17, 2018, the Supervisory Authority authorized the use of the Partial Internal Model for regulatory purposes starting from 31 December 2017.

Reale Group’s Partial Internal Model covers technical, financial and credit risks relating to non-life business.

More specifically, the Group assesses the following risk modules with the Partial internal model:

- Risk of Pricing and Reservation for damage and illness similar to Damage; - Market Risk deriving from assets covering non-life liabilities and illness similar to damage; - Credit risk deriving from balance sheet items on the account of third parties, relating to the management

of Damage and illness similar to Damage.

Given the low materiality of risks linked to the redemption of Non-life contracts, these are not included in the scope of calculation of the Partial internal model; nonetheless, the impact of this simplification is regularly monitored with a view to their possible inclusion. The Group assesses the technical, financial and credit risks relating to the Life business, the Operational risks and the Catastrophic damage and sickness risk modules through the Standard Formula approach.

The amount of the Solvency Capital Requirement (SCR) of Reale Group on 31 December 2019 is equal to € 1,224,789 thousand, an increase of € 63,242 thousand compared to the Solvency Capital Requirement relating to 31 December 2018.

The details of the Solvency Capital Requirement for the various risk modules are shown below.

(in thousands of euros) Risk module 31/12/2019 31/12/2018

Market risk 992,611 908,161 Credit risk 74,340 76,744 Life underwriting risk 172,504 261,159 Technical Health Insurance Risks similar to Life 26,315 15,339 Non-life and Health underwriting risk 447,046 423,498 Benefit of diversification -361,143 -374,177 Basic solvency capital requirement (BSCR) 1,351,673 1,310,724 Operational risk 163,162 153,672 Risks arising from ring-fenced funds (RFF) 10,179 6,382 Loss-absorbing capacity of technical provisions -107,148 -117,160 Loss-absorbing capacity of deferred taxes -314,894 -319,680 Model adjustment 62,892 73,193 Capital requirement of other related undertakings 30,400 29,618 Capital requirement for financial or credit sector 28,525 24,798 Solvency capital requirement (SCR) 1,224,789 1,161,547

A comparison of the results revealed the following main changes, with respect to the previous assessment period:

- significant decrease in Life Insurance Underwriting Risks due almost entirely to the decrease in Lapse risk and the recorded decrease in Mortality risk; the other risk modules do not show significant changes;

- increase in Non-Life and Health Underwriting Risks, linked to the increase recorded with Reale Mutua and Italiana Assicurazioni mainly due to the increase in the Premium and Reserve component;

- increase in Market Risk in both operations, caused by an increase in the risk on property in the non-life business and by an increase in the spread risk in the life business;

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- variation of the Model Adjustment, caused by the removal of the component related to the underwriting risk and by the increase of the component linked to the market damage risk due to the change in asset allocation.

For the principal forms of exposure, the Group adopts risk mitigation instruments in order to reduce its exposure to the risks underwritten, through recourse to reinsurance, and adopting hedge derivatives to restrict possible impairments of assets.

Assessment for the purpose of solvency

Reale Group, for the purposes of solvency and in compliance with the provisions of the Delegated Regulation (EU) 2015/35 and the Ivass Regulation no. 34/2017, has assessed its activities in accordance with the international IAS/IFRS accounting standards adopted by the European Commission under Regulation (EU) no. 1606/2002, on condition that those standards would include assessment methods consistent with the assessment approach under article 75 of the Solvency Directive II 2009/138/EC. Where IAS/IFRS valuation did not produce economic values as required by the Solvency II Directive, appropriate alternative valuation models were used. Regarding technical provisions, in accordance with Delegated Regulation (EU) 2015/35 and IVASS Regulation No. 18/2016 these were determined on a best estimate basis, in other words as the probability-weighted average of future expense cash flows, taking into account the temporal value of currency to which the risk margin has been added, calculated as the cost of constituting a sum of eligible own funds equivalent to the solvency capital requirement necessary to cover insurance and reinsurance obligations for the whole of their lifetime.

The figures below show the values of assets and liabilities measured following the valuation criteria used to prepare the consolidated financial statements and according to the criteria used to determine the Solvency II balance sheet.

(in thousands of euros) Consolidated financial

statements Solvency II balance sheet

Total assets 22,587,291 22,950,840 Total liabilities 19,807,241 19,557,691 Excess of assets over liabilities 2,780,050 3,393,149

Referring to the assets, the differences in valuation arise mainly from the use of fair value valuation of the real estate and the property investments, which are valued at amortised cost in accordance with IAS/IFRS accounting standards. As for liabilities, the main difference is due to the use of the Solvency II criteria to calculate technical provisions, as described above (Best Estimate and Risk Margin).

Capital management

The own funds eligible to cover the Solvency Capital Requirement (SCR) amount to 3,382,900 and are determined by the value of the Excess of the above assets, net of the adjustment for separate funds, equal to € 9,144 thousand and net of the portion of equity relating to third parties, equal to € 1,105 thousand. The following table shows the breakdown by Tier of the own funds eligible to cover the Solvency Capital Requirement, classified on the basis of their effective ability to absorb the losses estimated in the regulatory capital calculation process:

(in thousands of euros) Amount Incidence %

Tier I - unrestricted 3,382,900 100.00% Tier I - restricted 0 0.00% Tier II 0 0.00% Tier III 0 0.00%

Total eligible own funds to cover the Solvency capital Requirement 3,382,900 100.00%

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The own funds eligible to cover the Minimum Capital Requirement (MCR) amount to 3,320,021 and are classified entirely as Tier 1.

The following table shows the breakdown by Tier of the own funds eligible to cover the Minimum Capital Requirement, classified on the basis of their effective ability to absorb the losses estimated in the regulatory capital calculation process:

(in thousands of euros) Amount Incidence %

Tier I - unrestricted 3,320,021 100.00% Tier I - restricted 0 0.00% Tier II 0 0.00% Tier III 0 0.00%

Total eligible own funds to cover the Solvency capital Requirement 3,320,021 100.00%

The Group’s Solvency Ratio is 276.20% and it is the result of the ratio between admissible own Funds eligible to cover the SCR, equal to € 3,382,900 thousand, and the SCR equal to € 1,224,784 thousand.

(in thousands of euros) Description 31/12/2019 31/12/2018

Eligible own funds to cover the solvency capital requirement 3,382,900 3,268,115 Solvency capital requirement (SCR) 1,224,789 1,161,547

Coverage ratio of the Solvency capital requirement (Solvency Ratio) 276.20% 281.36%

The Group’s Minimum capital requirement coverage index is 498.90% and is the result of the ratio between its Eligible own funds for covering the Minimum capital requirement (MCR), equal to € 3,320,021 thousand, and the Minimum capital requirement (MCR), equal to € 665,463 thousand.

(in thousands of euros) Description 31/12/2019 31/12/2018

Eligible own funds for covering the Minimum Capital Requirement 3,320,021 3,210,390 Minimum Capital Requirement 665,463 625,700 Coverage ratio of Minimum Capital Requirement 498.90% 513.09%

It should be noted that the Company, even for 2019, applied the Volatility Adjustment to the risk-free interest rate term structure, for the purpose of calculating the Best Estimate of the technical provisions. The Solvency Ratio, without application of the Volatility Adjustment, decreased by 8.3 percentage points and stood at 267.88%.

At no time during the year did the Company fail to meet its solvency capital requirement (SCR) or its minimum capital requirement (MCR).

Finally, we report the results of the sensitivity analyses carried out by the Group in terms of impacts on the Solvency Ratio. The analyses relate to the year in question and assume, as a Central Scenario, a situation of capital adequacy determined according to the Partial Internal Model adopted by the Group.

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Stress test / Sensitivity Hypotheses regarding the central scenario Impact on

Solvency Ratio

Model Stress Test Probability level 99.90 -29.0%

Sensitivity spread (-50 bp) Spread on Italy governmental: - 50 bp 13.00%

Sensitivity spread (+50 bp) Spread on Italy governmental: + 50 bp -7.2%

Sensitivity spread (+100 bp) Spread on Italy governmental: +100 bp -17.0%

Sensitivity spread (+200 bp) Spread on Italy governmental: +200 bp -35.4%

Sensitivity spread (+300 bp) Spread on Italy governmental: +300bp -57.8%

Significant events occurred after the end of the year which may have an impact on the solvency situation

On 30 January, 2020, the World Health Organization (WHO) declared a global health emergency for a new Coronavirus that causes a disease officially known as COVID-19. The virus, reported at the end of December in the Chinese province of Hubei, spread worldwide in January and February, causing considerable human suffering and serious economic disruptions. Given the alarming levels of spread and severity of the virus, WHO upgraded it to pandemic level on 11 March.

Italy and Spain are now reporting among the highest infection and mortality rates after those found in China. The Italian and Spanish governments have intensified their efforts to deal with the epidemic by introducing a quarantine period with critical serious consequences on the economy of the entire Nation.

Reale Group has adopted a model of crisis governance with dedicated committees at the international and national level, in order to deal with all the aspects and impacts deriving from the emergency situation in a structured manner: from the internal organizational and operational ones, to those supporting the networks of agents, to those managing the financial, economic and solvency effects up to the communication and social contribution aspects.

With reference to the financial, economic and solvency aspects, the Group has activated a periodic monitoring by placing the main management, economic, equity and solvency indicators under observation in order to oversee the business and assess the impacts introduced with the COVID-19 scenario. This includes the weekly estimate process of the solvency position of the Group and its insurance companies, the results of which, also provided to the Supervisory Authority, allow to confirm business continuity and services towards policyholders and damaged.

Taking into account the analyses carried out for the end of the financial year, we believe that to date the impacts on the financial markets and on the more general macroeconomic context produced by the Coronavirus phenomenon, do not have effects on the Group's solvency situation such as to raise uncertainties about the going concern.

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A. ACTIVITIES AND

RESULTS

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A.1. ACTIVITIES A.1.1. GENERAL INFORMATION

Reale Group operates in Italy, in Spain and in Chile in the insurance sector through its Parent Company and subsidiary and associated Companies. The Group also operates in the real estate, banking and service sectors. Reale Group has its registered office and General Management in Via Corte d’Appello, 11 – 10122 Turin (Italy) and operates under the supervisory authority of IVASS, which has its registered office in Via del Quirinale, 21 - 00187 Rome. Its accounts are audited by EY S.p.A. with registered office in Via Lombardia, 31 - 00187 Rome; the partner responsible for auditing the accounts is Mr. Paolo Ratti.

No changes were recorder in financial year 2019, regarding Reale Group’s business perimeter. The following table shows the list of Group companies on 31 December, 2019.

Company Sector % Company and % Group

direct indirect interest interest SOCIETA' REALE MUTUA DI ASS.NI Turin insurance - - - - Guarantee fund € 60,000,000 Non-life and Life ITALIANA ASSICURAZIONI S.p.A. Milan insurance 99.92 - - 99.92 Share Capital € 57,626,358 Non-life and Life REALE SEGUROS GENERALES S.A. Madrid insurance 95.00 Italiana Assicurazioni S.p.A. 5.00 100.00 Share Capital € 87,425,600 Non-life REALE VIDA Y PENSIONES S.A. Madrid insurance 5.00 Reale Seguros S.A. 95.00 100.00 Share Capital € 15,000,000 Life REALE CHILE SEGUROS GENERALES S.A. Santiago insurance - Reale Group Chile S.p.A. 99.99 99.52 Share Capital € 49,367,770 Non-life - Reale Group Latam S.p.A. 0.01 REALE IMMOBILI S.p.A. Turin real estate 85.92 Italiana Assicurazioni S.p.A. 14.08 99.99 Share Capital € 209,500,000 BANCA REALE S.p.A. Turin banking 95.00 Italiana Assicurazioni S.p.A. 5.00 100.00 Share Capital € 30,000,000 REALE ITES S.r.l. Turin services 88.13 Italiana Assicurazioni S.p.A. 2.00 100.00 Share Capital € 86,268,168 Reale Seguros S.A. 9.85 Reale Vida S.A. 0.01 Banca Reale S.p.A. 0.01 REALE ITES Esp S.l. Madrid services - Reale Seguros S.A. 50.50 100.00 Share Capital € 17,503,000 Reale Ites S.r.l. 49.50 BLUE ASSISTANCE S.p.A. Turin services 100.00 - - 100.00 Share Capital € 3,120,000 IGAR S.A. Madrid real estate 46.81 Reale Seguros S.A. 53.19 100.00 Share Capital € 67,664,907 REALE GROUP LATAM S.p.A. Santiago holding - Reale Seguros S.A. 100.00 100.00 Share Capital € 55,190,276 insurance REALE GROUP CHILE S.p.A. Santiago holding - Reale Group Latam S.p.A. 99.52 99.52 Share Capital € 55,624,472 insurance ITALNEXT S.r.l. Milan services - Italiana Assicurazioni S.p.A. 100.00 99.92 Share Capital € 50,000 REM INTERMEDIAZIONI S.r.l. Milan services - Italiana Assicurazioni S.p.A. 100.00 99.92 Share Capital € 10,000 CREDEMASSICURAZIONI S.p.A. Reggio Emilia insurance 50.00 - - 50.00 Share Capital € 14,097,120 Non-life

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A.1.2. AREAS OF ACTIVITY AND GEOGRAPHICAL REGIONS OF BUSINESS Reale Group carries on insurance and reinsurance activities in the Non-life and Life sectors. Reinsurance activities are marginal, representing less than 0.03% of total premium income. The Group undertakes insurance and reinsurance activities on the Italian market (through the Parent Company Reale Mutua and its subsidiary company Italiana Assicurazioni) and on the Spanish market (through its subsidiary companies Reale Seguros and Reale Vida) and on the Chilean market (through its subsidiary Real Chile Seguros). Below is the percentage incidence of the collection of direct business carried out in Italy, Spain and Chile (at the end of the previous year, 80.94% of the overall collection was generated in Italy, 17.97% in Spain and 1.09% in Chile).

The following are details of the percentage proportion of Non-life premium income and Life premium income for direct business out of the Company total as at 31 December 2019 (at the previous end of year statement the proportions as percentages were, respectively, 62.50% and 37.50%).

ITALY80.80%

SPAIN17.73%

CHILE1.47%

GEOGRAPHICAL DISTRIBUTION OF PREMIUM INCOME

ITALIA

SPAGNA

CILE

Lines of business (Lob): Non-life

60.46%

Lines of business (Lob): LIFE

39.54%

TOTAL DIRECT PREMIUM INCOME

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The following graphics show the percentage proportion of the individual LoBs in the areas of Non-life premium income and Life premium income:

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A.1.3. SIGNIFICANT INFORMATION REGARDING ACTIVITIES OR OF ANY OTHER NATURE It should be noted that during the 2019 financial year there were no corporate occurrences that had a significant impact on the business. A.2. UNDERWRITING RESULTS A.2.1. RESULTS ACHIEVED The following comments refer to the data reported in QRT S.05.01, which specifies the information on premiums, claims and expenditure at the level of the lines of business (LoB) as defined by Delegated Regulation (EU) 2015/35, using the valuation principles adopted in the IAS/IFRS consolidated financial statements.

Overall, the net premiums written by the Group amount to € 5,006,493 thousand, showing an increase over the previous financial year of 6.3%.

(in thousands of euros) 2019 2018 Var. %

Non-life direct premium income 3,248,722 3,166,212 2.6% Life direct premium income 2,124,457 1,899,638 11.8% Total direct business 5,373,179 5,065,850 6.1% Indirect premium income 1,454 1,204 20.8% Total gross premiums written 5,374,633 5,067,054 6.1% Of which Non-life LoB 3,250,036 3,167,251 2.6% Of which Life LoB 2,124,597 1,899,803 11.8% Outward reinsurance premiums 368,140 357,440 3.0% Gross premiums written net of reinsurance 5,006,493 4,709,614 6.3%

Non-life LoB

Gross premiums written in 2019, with 2018 comparables, are detailed below:

(in thousands of euros) 2019 2018 Var. %

Medical costs insurance 124,942 115,334 8.3% Income protection insurance 170,283 167,957 1.4% Worker compensation insurance 0 0 0.0% Motor vehicle liability insurance 1,080,337 1,068,214 1.1% Other motor vehicle insurances 496,864 467,200 6.3% Marine, Aviation and Transport Insurance 25,039 32,372 -22.7% Fire and other property damage insurance 852,842 832,523 2.4% General civil liability insurance 370,208 363,632 1.8% Credit and guarantee insurance 53,460 50,847 5.1% Legal protection insurance 26,151 24,632 6.2% Assistance 39,121 34,876 12.2% Sundry pecuniary losses 9,475 8,625 9.9% Total direct business 3,248,722 3,166,212 2.6% Inward reinsurance income 1,314 1,039 26.5% Gross premiums written 3,250,036 3,167,251 2.6% Outward reinsurance premiums 337,682 321,142 5.2% Gross premiums written net of reinsurance 2,912,354 2,846,109 2.3%

The Non-Life (LoB) Areas of activity achieved premium collection from direct business amounting to € 3,248,722 thousand, with an increase of 2.6% over 2018, caused by an increase in the Motor vehicle segment

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(LoB Motor vehicle liability insurance and Other motor vehicle insurance) of 2.7% and by an increase in the Non-motor vehicle segment (remaining LoBs) of 2.5%.

The amount of claims for the year (determined as the sum of compensation items, the change in the provision for outstanding claims, variation in clawbacks, external settlement costs and direct expenses) and internal claim management expenses, are shown in the table below.

(in thousands of euros)

Claims arising Claim settlement costs 2019 2018 2019 2018

Medical costs insurance 94,437 91,533 1,213 1,804 Income protection insurance 79,766 78,630 4,245 4,353 Worker compensation insurance 0 0 0 0 Motor vehicle liability insurance 785,261 735,972 40,997 39,268 Other motor vehicle insurances 284,480 258,535 13,283 12,193 Marine, Aviation and Transport Insurance 14,215 37,983 715 964 Fire and other property damage insurance 583,703 554,991 28,642 27,272 General civil liability insurance 129,371 128,241 11,861 12,034 Credit and guarantee insurance 9,012 14,776 605 571 Legal protection insurance 1,513 1,050 206 203 Assistance 21,494 18,485 0 501 Sundry pecuniary losses 2,161 1,236 87 94 Total direct business 2,005,413 1,921,432 101,854 99,257 Inward reinsurance 296 -189 0 0 Total direct business + inward reinsurance 2,005,709 1,921,243 101,854 99,257 Reinsurers' share 237,127 227,919 0 0 Net 1,768,582 1,693,324 101,854 99,257

The total cost relating to claims for the period (sum of claims made and costs of claims management) and the relative incidence on the premiums (S/P ratio) is shown in the following table:

(in thousands of euros)

total Loss ratio (as a percentage)

2019 2018 Var. % 2019 2018 Medical costs insurance 95,650 93,337 2.5% 77.9% 81.3% Income protection insurance 84,011 82,983 1.2% 49.4% 48.9% Worker compensation insurance 0 0 0.0% 0 0 Motor vehicle liability insurance 826,258 775,239 6.6% 76.0% 73.6% Other motor vehicle insurances 297,763 270,728 10.0% 60.5% 61.7% Marine, Aviation and Transport Insurance 14,930 38,947 -61.7% 73.4% 145.7%

Fire and other property damage insurance 612,345 582,263 5.2% 72.1% 72.1%

General civil liability insurance 141,232 140,275 0.7% 38.2% 38.9%

Credit and guarantee insurance 9,617 15,347 -37.3% 19.5% 32.3% Legal protection insurance 1,719 1,253 37.2% 6.7% 5.2% Assistance 21,494 18,986 13.2% 56.8% 57.6% Sundry pecuniary losses 2,248 1,330 69.0% 24.5% 15.5% Total direct business 2,107,267 2,020,688 4.28% 65.2% 65.5% Inward reinsurance 296 -189 -256.6% Total direct business + inward reinsurance 2,107,563 2,020,499 4.31% Reinsurers' share 237,127 227,919 4.04% Net 1,870,436 1,792,580 4.34%

The loss ratio for the period corresponded to 65.2%, compared with 65.5% in 2018. The performance was positively influenced by the improvement in the Non-Motor segment, which went from 62.3% recorded in

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2018 to 59.6% recorded at the end of 2019, mainly due to the lower loss ratio recorded in the Lobs such as Medical expenses insurance, Maritime insurance, aeronautics and transport and Credit and surety insurance. The Loss Ratio of the Auto sector (Lob Motor vehicle liability insurance and Other auto insurance) instead recorded an increase compared to the previous year of 2.2% (from 70.1% to 71.2%) assignable to the worsening technical trend of the Lob Motor vehicle liability insurance.

Acquisition costs and other administrative expenses incurred by the Group during the year affected the technical performance of Non-life LoB. Acquisition expenses, net of the share borne by the reinsurers, amounted overall to € 780,452 thousand (a y/y increase of 3.1%) and are detailed in the following table:

(in thousands of euros) 2019 2018 Var. %

Medical costs insurance 30,302 28,532 6.2% Income protection insurance 57,665 56,563 1.9% Worker compensation insurance 0 0 0.0% Motor vehicle liability insurance 205,497 200,018 2.7% Other motor vehicle insurances 117,685 109,652 7.3% Marine, Aviation and Transport Insurance 7,829 6,827 14.7% Fire and other property damage insurance 272,850 265,500 2.8% General civil liability insurance 120,351 115,885 3.9% Credit and guarantee insurance 16,668 16,168 3.1% Legal protection insurance 8,418 7,941 6.0% Assistance 11,582 10,886 6.4% Sundry pecuniary losses 2,595 2,439 6.4% Total direct business 851,442 820,411 3.8% Inward reinsurance 134 100 34.0% Total direct business + inward reinsurance 851,576 820,511 3.8% Reinsurers' share 71,124 63,848 11.4% Acquisition costs net of reinsurance 780,452 756,663 3.1%

The other end of year administration expenses amount to € 142,492 thousand, the details per LoB are listed in the following table: (in thousands of euros) 2019 2018 Var. %

Medical costs insurance 7,139 6,380 11.9% Income protection insurance 8,874 9,033 -1.8% Worker compensation insurance 0 0 0.0% Motor vehicle liability insurance 47,053 45,616 3.2% Other motor vehicle insurances 17,607 16,734 5.2% Marine, Aviation and Transport Insurance 1,024 1,117 -8.3% Fire and other property damage insurance 36,530 35,714 2.3% General civil liability insurance 17,459 16,872 3.5% Credit and guarantee insurance 2,737 2,408 13.7% Legal protection insurance 1,403 1,222 14.8% Assistance 2,159 1,867 15.6% Sundry pecuniary losses 507 411 23.4% Total direct business 142,492 137,374 3.7% Inward reinsurance 0 0 Total direct business + inward reinsurance 142,492 137,374 3.7% Reinsurers' share 0 0

Other administrative expenses net of reinsurance 142,492 137,374 3.7%

Summing up, the Reale Group underwriting activity produced an expenses ratio of 30.7%, with a slight increase compared to that recorded in 2018 (31.0%).

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The Group's combined ratio for the year 2019, for Non-life insurance business (i.e. the ratio of claims for the year and management expenses to premiums for the year) was equal to 95.9%, improving relative to the previous year (96.5%), mainly owing to the claims component and the expenses component.

Even the combined operating ratio, which includes the result of reinsurance and other technical items, improved by 0.1 percentage points with respect to the previous year (97.5% versus 97.6%).

Life LoB

Detailed net premiums written for 2019 are as follows:

(in thousands of euros) 2019 2018 Var. %

Health insurance 32,033 30,039 6.6% Profit sharing Insurance 1,573,519 1,367,033 15.1% Insurance linked to an index and linked to shares 448,611 427,056 5.0% Other life insurance 68,764 74,732 -8.0%

Annuities deriving from non-life insurance contracts and relating to health insurance obligations

0 0 0.0%

Annuities on Non-life insurance contracts and relating to insurance obligations other than health insurance obligations

1,530 778 96.7%

Total direct business 2,124,457 1,899,638 11.8% Inward reinsurance 140 165 -15.2% Total gross premiums written 2,124,597 1,899,803 11.8% Outward reinsurance premiums 30,458 36,298 -16.1% Gross premiums written net of reinsurance 2,094,139 1,863,505 12.4%

In 2019, premiums written for direct business amounted to € 2,124,457 thousand, with a y/y increase of 11.8% compared to 2018.

With reference to the individual Business Areas (LoB), it should be noted specifically that the premiums written relating to LoB Profit sharing insurance increased in 2019 by € 206,486 thousand (+ 15.1%). The increase compared to the previous year is linked to the positive change made in 2019 in collections by the Parent Company and is due to the type of products marketed in the period. During the year, the new production of the Parent Company focused, in addition to multi-branch products which envisage a combination of an insurance product with profit sharing and a unit-linked insurance investment product, also on traditional products with separate management only.

The expenses relating to claims incurred, comprising amounts paid and variations of the amounts to be paid add up to € 1,450,399 thousand and are broken down in the following table:

(in thousands of euros) 2019 2018 Var. %

Health insurance 12,410 13,511 -8.1% Profit sharing Insurance 1,229,899 1,117,547 10.1% Insurance linked to an index and linked to shares 216,015 196,155 10.1% Other life insurance 34,200 39,504 -13.4% Annuities deriving from non-life insurance contracts and relating to health insurance obligations 43 43 0.0%

Annuities on Non-life insurance contracts and relating to insurance obligations other than health insurance obligations

607 584 3.9%

Total direct business 1,493,174 1,367,344 9.2% Inward reinsurance 200 514 -61.1% Total direct business + inward reinsurance 1,493,374 1,367,858 9.2% Reinsurers' share 42,975 47,675 -9.9% Claims for the year net of reinsurance 1,450,399 1,320,183 9.9%

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The increase recorded during the year relates to the redemption component of the Parent Company compared to the same period of 2018. In fact, during the year there was an exit of an important position from the portfolio of the Company and of other private positions.

Acquisition costs and other administrative expenses incurred by the Group during the year affected the technical performance of Life insurance LoB.

Acquisition expenses, net of the share borne by the reinsurers, amounted overall to € 79,812 thousand and are broken down in the following table:

(in thousands of euros) 2019 2018 Var. % Health insurance 9,173 8,313 10.3% Profit sharing Insurance 41,673 34,143 22.1% Insurance linked to an index and linked to shares 20,777 20,022 3.8% Other life insurance 13,121 13,064 0.4%

Annuities deriving from non-life insurance contracts and relating to health insurance obligations

0 0

Annuities on Non-life insurance contracts and relating to insurance obligations other than health insurance obligations

0 0

Total direct business 84,744 75,542 12.2% Inward reinsurance 11 12 -8.3% Total direct business + inward reinsurance 84,755 75,554 12.2% Reinsurers' share 4,943 6,506 -24.0% Acquisition costs net of reinsurance 79,812 69,048 15.6%

The other end of year administration expenses amount to € 38,999 thousand, the details per LoB are listed in the following table:

(in thousands of euros) 2019 2018 Var. % Health insurance 1,917 1,951 -1.7% Profit sharing Insurance 27,736 23,872 16.2% Insurance linked to an index and linked to shares 7,853 7,993 -1.8% Other life insurance 1,460 1,661 -12.1% Annuities deriving from non-life insurance contracts and relating to health insurance obligations 0 0 0.0%

Annuities on Non-life insurance contracts and relating to insurance obligations other than health insurance obligations

33 18 83.3%

Total direct business 38,999 35,495 9.9% Inward reinsurance 0 0 Total direct business + inward reinsurance 38,999 35,495 9.9% Reinsurers' share 0 0

Other administrative expenses net of reinsurance 38,999 35,495 9.9%

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A.3. INVESTMENT RESULTS A.3.1. RESULTS ACHIEVED This section shows information on income, profits and losses in the reference period for each category of investments in the Solvency II balance sheet. It should be noted, in particular, that the "net gains and losses" item is determined as the difference between the sale or reimbursement value and the Solvency II fair value at the end of the previous reference period, while the "unrealised gains and losses" item is determined as the difference, for assets neither sold nor expired during the reference period, between the Solvency II fair value at the end of the reference period and the same value at the end of the previous financial year.

The detail of net proceeds realised by the Group by asset category is shown in the following table, with the detail of ordinary income, net valuation gains and net gains from trading.

(in thousands of euros)

Asset category Dividends/interest/rental Net gains and losses Unrealised gains and losses

2019 2018 2019 2018 2019 2018 Government bonds 224,866 210,857 30,124 -18,003 561,122 -183,106 Corporate bonds 55,164 49,754 7,363 -5,347 194,628 -92,049 Capital instruments 16,262 12,792 19,674 -15,902 38,747 -56,934 Collective investment undertakings 9,997 10,106 69,140 -295 131,698 -87,193 Structured bonds 12,879 16,102 -4,537 2,612 1,654 -6,229 Backed securities 99 107 -11 -15 131 -70 Cash and deposits 196 120 1 1 0 8 Mortgages and loans 409 589 0 0 0 0 Real estate 86,214 82,964 66,194 5,869 105,673 148,344 Other investments 0 0 0 0 0 0 Futures 0 0 0 0 0 0 Call options 0 0 696 -243 1,130 -1,923 Put options 0 0 0 0 0 0 Swaps -2,490 -2,789 1,421 1,436 -788 119 Forwards 0 0 -20 24 0 0 Credit derivatives 0 0 0 0 0 0 Total 403,596 380,601 190,044 -29,862 1,033,995 -279,033

It should be noted that the amount of investment management costs, reported in QRT S.05.01, is equal to € 9,086 thousand for Non-Life Businesses (LoB) and € 14,438 thousand for Life Business Areas (LoB).

Finally, it should be noted that, in compliance with IVASS Regulation No. 24 of 6 June 2016 and as resolved by the Board of Directors, the Group does not permit securitisation investments. With reference to gains or losses directly relating to assets in the consolidated balance sheet, according to the international IAS/IFRS accounting standards, it should be noted that this component relates to investments classified within the category of “Financial activities available for sale”.

A.4. RESULTS OF OTHER ACTIVITIES A.4.1. RESULTS ACHIEVED This section carries the results for activities other than those of underwriting and investments, which were analysed in the previous sections.

The balances are shown here for the “Other income” and “Other expenses” items from the consolidated financial statements prepared in accordance with IAS/IFRS, with respective comparative data for the previous financial year. The items in question include some entries which, in the financial statements prepared according to national accounting rules, would be classified under the technical account (“Other

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technical income” and “Commissions cancelled” on the income side as well as “Other technical charges” and “Cancellation of receivables from policyholders for premiums” on the costs side).

(in thousands of euros) 2019 2018 Var. Other technical income 8,642 3,033 5,609 Commissions cancelled 8,640 7,335 1,305 Withdrawals from funds 61,644 46,316 15,328 Recovery of administrative expenses and costs 4,051 3,532 519 Realised gains/write-ups of property, plant and equipment

761 514 247 Positive exchange differences 4,022 5,357 -1,335 Other income and recoveries 39,070 27,065 12,005 Other out-of-period income 12,246 15,888 -3,642 Total other income 139,076 109,040 30,036 Other technical charges 29,516 27,361 2,155 Cancellation of receivables from policyholders for premiums

44,403 39,335 5,068 Provisions to reserves 63,323 92,283 -28,960 Administrative costs and expenses on behalf of third parties

4,051 3,532 519 Depreciation of tangible assets 16,136 9,958 6,178 Amortisation of intangible assets 41,258 40,706 552 Realised losses/value reductions on property, plant and equipment

3,510 756 2,754 Realised losses/value reductions on intangible assets 144 0 144 Negative exchange differences 1,789 1,641 148 Sundry taxes 6,231 3,351 2,880 Real estate and service company costs 11,646 13,514 -1,868 Other charges 7,194 4,977 2,217 Other out-of-period expense 9,768 17,495 -7,727 Total other costs 238,969 254,909 -15,940 Total other net income -99,893 -145,869 45,976

With reference to the items "Withdrawals from funds" and "Provisions to funds", it should be noted that the costs of the previous year included the provisions relating to the extraordinary operation to activate the Solidarity Fund as part of the Group's reorganisation project, for an amount equal to € 37,608 thousand. Withdrawals for the year include the use of such Company Solidarity Fund for an amount equal to €10,708 thousand, corresponding to the quota of charges recorded during the year.

Lastly, it should be noted that the Group has lessee contracts concerning properties and other tangible assets (entered under the Solvency Report item "Property, plant and equipment owned for its own use") and properties for third-party use (written under the item "Buildings other than those for own use” in the Solvency Report). For details of the values entered in the Solvency Report according to the IFRS 16 accounting standard, please refer to chapter "D.1.2. Methodology and assumptions used for the evaluation of the assets” of this report.

A.5. OTHER INFORMATION There is no other significant information to be noted.

B. SYSTEM OF GOVERNANCE

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B.1. GENERAL INFORMATION REGARDING THE SYSTEM OF GOVERNANCE Società Reale Mutua di Assicurazioni (registered with number 006 in the Register of ultimate parent undertakings kept by IVASS), in its capacity as Parent Company of Reale Group and in accordance with art. 4 of its by-laws, adopts all the necessary measures, in relation to the companies referred to in article 210-ter, sub-section 2 of the Code of Private Insurance, to implement the instructions issued by the Supervisory Authority in order to ensure the stable and efficient management of the Group.

Likewise, as laid down by the bylaws, Group Companies must comply with the provisions adopted by the Parent in implementing the instructions issued by IVASS in order to ensure the stable and efficient management of the Group.

The system of governance is structured to enable the sound and prudent management of Group activities in accordance with the laws in force.

Since 2003, the Group has adopted a Group Regulation, containing the methods and application rules governing the relations between the Parent Company Reale Mutua and the subsidiary companies that make up the Reale Group and amongst the both Italian and foreign subsidiaries themselves.

The Regulation stands as reference for governance, for the operational aspects, to which all Group companies must conform their actions; moreover in order to develop a common strategy that is consistent, on the one hand, with the profitable development and the creation/conservation of a financial solidity and, on the other, with an approach to the shareholders/policyholders/customers and the market which should have an overall uniqueness, thus respecting social cohesion, sustainable development and environmental protection.

The objectives of the Regulation, as mentioned above, are in place to allow:

- the Parent Company, to exercise the guidance, governance and control activities, to promote the efficient management and increase in value of the individual companies and of the Group as a whole;

- the Group companies, to operate, despite their autonomy, in harmony and consistency with the defined governance model.

The spirit of collaboration between the Parent Company and the subsidiaries must entail daily operations, in the awareness that, through mutual openness in comparison, trust and esteem, the objectives set can be achieved in an overall framework where each company can contribute effectively and with satisfaction.

As stated in the Group Regulations, the guidelines of the governance system of Reale Group, in terms of strategic decisions and the organisation of the system of controls, are defined by the Board of Directors of the Parent, assisted by its internal Committees/Commissions, and then by the Boards of Directors of the Subsidiaries.

Below is a description of the governance system, which the Parent Company deemed appropriate and adequate in relation to the nature, scope and risks inherent to the Group's business in the 2019 financial year.

B.1.1. STRUCTURE, ROLES AND RESPONSIBILITIES Board of Directors and internal Committees of said administrative body

The Board of Directors of Reale Mutua, whose mandate was conferred in the Assembly of Delegates on 27 April 2018 for a period of three years, is currently composed of the Chairperson and twelve Board Members.

It is established under the bylaws that the Board will normally meet once a month to discuss normal company issues, such as the organisational, administrative, and accounting set-up of the Company and business and financial strategic plans, as well as to adopt provisions concerning Group Companies for implementing regulations laid down by the Supervisory Authority in the interests of the Group's stable, efficient management.

Amongst others other reasons, Reale Group adopted a Regulation of its own in order to establish the methods and application rules governing relations between the Parent Company and the other companies belonging to the Group, and between the subsidiaries themselves,

SFCR 2019 30

The document, deriving directly from the Corporate Governance Policies, constitutes the reference for governance, for the operational aspects, to which all Group companies must conform their actions; moreover with the aim of developing a common strategy that is consistent, on the one hand, with the profitable development and the creation/conservation of a financially solidity and, on the other, with an approach to the shareholders/policyholders/customers and to market which should have an overall uniqueness, thus respecting social cohesion, sustainable development and environmental protection.

With the Regulation, in the above-mentioned area, the Parent Company is allowed to exercise the direction, governance and control activities, to promote the efficient management and enhancement of the individual companies and of the Reale Group as a whole, and in turn the Group companies are allowed to operate, though autonomous, in harmony and consistency with the defined governance model.

The Regulation of the Board of Directors was drafted to provide a single document setting out a systematic and coherent set of rules governing all aspects of the administration and management of Reale Mutua. This document, which includes everything laid down by primary and secondary legislation and by the articles of association, meets the requirement to provide specific formal documents that regulate the operations of the company bodies, as laid down by the Solvency II Directive, among the various aspects of regulation of company governance.

The Board of Directors is also assisted by specific Committees and Commissions, set up to verify particular aspects of corporate and Group performance, and to undertake the task of advising and submitting proposals to the Board itself.

Amongst these bodies, we mention:

- the Advisory Committee, currently composed of the Chairperson and three Directors, pursuant to art. 35 of the Articles of Association. It has merely investigative, consultative and/or advisory powers, in support of the Board of Directors, for all matters, concerning both ordinary and extraordinary administration, which the primary and secondary legislation, as well as the Articles of Association, assign to the Administrative Body and that need further insights;

- the Remuneration Committee, currently composed of three non-executive Directors, the majority of whom are independent. It is the holder of consultation, proposal, and enquiry functions regarding remuneration for the corporate bodies and relevant staff within the Group; it supports the Board of Directors of Reale Mutua in its assigned role;

- the Group Investment Commission, currently composed of four Directors and the Chairperson. It has consultative and advisory powers over the Boards of Directors of the Group's companies and conducts regular sensitivity and general risk analyses on assets in the financial and property portfolios;

- the Mutual Provisions Commission, currently composed of four Directors and the Chairperson. It has consultative and proactive powers towards the Board of Directors of Reale Mutua and has the purpose of assessing the annual mutuality measures that the Board presents, prior to their approval, to the Representative Assembly;

- the Group Internal Control and Risk Committee, a body set up at the Reale Mutua Parent Company, acting as the USCI of the Reale Group, currently composed of five members, who are non-executive and mostly independent from the main Group companies (identified as such by the Board of the Parent Company), with consultative and proposal functions regarding the internal control system and periodic verification of its adequacy and its effective functioning, as well as on risk management at the Group level;

- the Committee, composed of the Chairperson and members of the Company's Advisory Committee, with the task of assisting the Administrative Body in verifying the existence, firstly for the Board, of the requirements in terms of integrity, professionalism, independence, and absence of situations impeding the appointment, of the subjects indicated in the policy documents for determining the requirements of Reale Mutua as a Company, and also as USCI of Reale Group.

The Board of Directors is also assisted by the Supervisory Board, established pursuant to Italian Legislative Decree 231/2001 to monitor the Organisational, management and control model and with independent powers of initiative and control.

The Board of Reale Mutua is also supported, in its role of strategic and organizational management, similarly to the other Group companies, by the Actuarial & Finance Commission and by the New Technologies,

31

Innovation, and Cyber Security Commission, bodies set up within the Parent Company, with proposal and consultation functions, operating in actuarial/financial matters, respectively, and in new technologies, processes/product/services innovation, and IT security.

The Board defines the directives regarding the system of internal controls and risk management and oversees the annual alignment of these in the event of any changes to business operations and external conditions, also with the assistance of the Group Internal Control and Risks Committee and of all fundamental and control functions.

In this regard, the Board, in relation to the adoption of the resolution on the internal control and risk management system pursuant to the regulations of the Supervisory Authority, has defined the directives on the internal control system, with the approval of the documents referring to the various policies drawn up, also within the Group, on issues indicated by the regulations of the Supervisory Authority itself.

The Board defines the strategies and policies for assessing, accepting and managing the more significant risks, in line with the Company's financial standing, establishes risk tolerance levels and sets out and communicates to all the Group’s businesses the criteria for identifying, measuring, managing and controlling all the risks to which the Company is exposed. For this purpose, the Board of Directors of the Parent Company has approved a “Risk management policy” that sets out the guidelines for managing the risks to which Reale Group is exposed and outlines the aims and strategies, methods of analysis, control and measurement, as well as the roles and responsibilities of the corporate functions involved.

This document, which was defined within the Group, sets out the criteria for identifying, measuring, managing, reporting and controlling all the risks to which the Company is exposed, strategies and policies for assessing, accepting and managing risks, levels of risk appetite and tolerance to risk (the so-called risk appetite framework), the organisational model of the risk management system and integration of the risk management system into decision-making processes. It also has the more general aim of contributing to risk management within the Group and dissemination of the related culture of control.

This Policy, as required by current legislation, is subject to an annual review by the Board.

The Board of Directors verifies the correct implementation of the risk management system by Top Management through the systematic analysis of the development of rules, of organisational solutions, and of the tools used to analyse and assess risks in order to keep these at an acceptable level and one that is consistent with the Company's available capital. To this end the Board of Directors also benefits from the activities of the fundamental and similar functions, both at the local and Group level, and on whose activities it will do regular evaluations.

Top Management reports annually to the Board of Directors on the efficiency and adequacy of the system of internal controls and risk management. Therefore, the General Manager, also on the basis of specific documentation produced by the various corporate control and risk management units, reports annually to the Board on the effectiveness and adequacy of the internal control and risk management system.

At the request of the Chairman, the heads of the various sectors may also report regularly to the Board and to the Group Internal Control and Risks Committee, in order to provide a more complete and detailed account of specific matters and thus enable a more accurate verification of the consistency of the operational measures adopted with the directives issued.

The activity of the Board of Directors is regulated by primary and secondary legislation, as well as by the articles of association and the Regulations of the Board of Directors.

In particular, the rules of the Company Statute invest the Board of Directors with the following powers:

- to carry out all actions in connection with the administration of company assets, such as the use, transfer, purchase, keeping, and sale of securities, including the purchase and sale of properties; to enter into lease agreements, including agreements with a term in excess of nine years; to register, reduce and waive statutory and conventional mortgages, provided such actions are not expressly devolved to the Meeting of Delegates pursuant to the Articles of Association;

- to carry out everything necessary for the establishment and development of the various forms of insurance and reinsurance that constitute the business purpose;

- to pass resolutions on any legal and administrative action before any court and at any level of

SFCR 2019 32

jurisdiction, including at supra-national or international level, with the right to submit matters to arbitration or to agree to an amicable settlement;

- to make provisions for all operations with offices of Public Administration and with any other public or private office, with the right to issue any appropriate release or discharge, and with the power to waive the registration of statutory mortgages;

- to draw up and amend organisational regulations applicable to staff and regulations governing pensions and oversee the enforcement thereof. Consequently, the Board of Directors has responsibility for hiring all white-collar staff and establishing the remuneration thereof, for disciplinary measures of any kind whatsoever in relation to staff, for the dismissal of employees and payment of pensions and other indemnities;

- make provisions for setting up representative and main agencies both in Italy and abroad, including the nomination, revocation and replacement of the respective holders;

- to draft the financial budget for the coming year, to be submitted to the Meeting of Delegates for approval;

- to prepare the financial balance sheet for the previous year, together with the explanatory report to be submitted to the Meeting of Delegates;

- to formulate proposals to be submitted to the Meeting of Delegates for approval regarding the rules laid down in art. 9 and art. 11 of the articles of association on the subject of mutuality benefits;

- to execute the decisions of the Meeting of Delegates; - to amend the bylaws to meet regulatory requirements; - to assess the adequacy of the organisational, administrative and accounting setup of the Company; - to examine the strategic business and financial plans of the Company and overall operating

performance; - to fulfil all the duties and functions attributed thereto by law. The Board of Directors establishes the powers and faculties of the Chairperson of the Board of Directors. It may, in the event of absence or impediment of the Chairperson, authorise another Board Member to sign on behalf of the company and to represent the company in legal proceedings, whether as plaintiff or defendant. It may also entrust special duties to individual Members of the Board, appoint one or more General Managers or Joint General Managers, Managers or Directors and determine the powers and rights thereof, as well as authorised representatives for specific actions or categories of actions. The Board of Directors also has the duties and responsibilities laid down by sector-specific regulations. In particular, the Company’s Administrative body is ultimately responsible for the internal control and risk management system, for which it ensures its constant integrity, operation and efficiency, including with reference to outsourced activities. The Board of Directors must also ensure that the risk management system is adequate to enable the identification, assessment, including on a forward-looking basis, and control of risks, including those arising from non-compliance with regulations, and that it fulfils the aim of safeguarding assets, also in the medium-to-long term.

For these purposes the Board of Directors:

- is systematically informed by Top Management about the main aspects of company management, including:

the multi-year management plan, the budget and related updates; trends in premiums, claims and technical provisions; returns on welfare products based on financial instruments and performance of Life insurance ring-

fended funds; cash-flow data performance of equity holdings; the implementation, maintenance and monitoring of the risk management system; securities investments, with modules for verification of compliance with certain risk tolerance

levels; property investments, including examination of the composition of assets and current profitability; composition of the workforce; the network of agencies, with details of new mandates, terminations of or changes to contracts;

- approves, prior to their implementation, any significant amendments to the organisational setup, such as the creation or elimination of company functions, and examines, at least once a year, the

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organisational chart, together with the description of the duties and responsibilities of the operational units and their specific functions, in order to monitor the adequacy and consistency of the structure, as well as the appropriate separation of functions;

- delegates powers and responsibilities, to avoid excessive concentration in the hands of a single subject, and examines, at least once a year, the full map of delegated powers. In addition, and with the support of the functions responsible for the control and management of risks, the Board verifies the actual exercise of delegated powers, any may define suitable contingency arrangements should decide to take over the delegated powers itself;

- defines directives concerning the system of internal controls and risk management and reviews these at least once a year, to ensure their adequacy in view of the evolution of business operations and external conditions. The policies relating to fundamental and similar functions are also included in these directives. The Board of Directors also verifies that the system of internal controls and risk management is consistent with the strategic guidelines and established risk appetite and that it is adequate to deal with the changing risks to which the company is exposed and the way in which these interact;

- approves the current and future risk assessment policy (based on the ORSA -Own Risk and Solvency Assessment - principles), the criteria and methodologies used for the assessments, with particular attention to the most significant ones;

- approves the results of the assessments and communicates them to Top Management and to the units involved, together with the conclusions it has reached itself (so-called "top down" approach);

- determines, based on the above assessments, the risk appetite of the business consistent with the aim of safeguarding the assets thereof, defining coherent risk tolerance levels which it reviews at least once a year, in order to ensure the continuing effectiveness thereof;

- approves, based on the elements mentioned in the two previous points, the risk management policy and the strategies, also from a medium/long term point of view, as well as contingency plans, in order to ensure company regularity and continuity;

- taking into account the strategic aims and in accordance with the risk management policy, it approves the policies for underwriting, provisions, reinsurance and other risk mitigation techniques as well as for managing operational risk, in line with the three previous points, and capital management;

- where necessary, it defines the guidelines and criteria for the circulation and collection of data and information for the purpose of supplementary supervision pursuant to Title XV of Italian Legislative Decree No. 209/2005, and guidelines concerning internal controls for verifying the completeness and timeliness of the related information flows;

- approves the "Corporate Governance Policy" as a Company and as the USCI, to be disseminated to all related structures, which define:

the duties and responsibilities of the Company Bodies and Board Committees; the information flows, including the frequency thereof, between the various functions, the Board

Committees and between these and Company Bodies; the methods of coordination and collaboration between the subjects mentioned above and the

operational functions, when there are any areas of potential overlapping or where synergies could develop within the areas of control. In defining the methods of coordination, undertakings should take care not to alter, even in substance, the ultimate responsibilities of Company Bodies for the system of internal controls and risk management;

- approves the policies of the fundamental and similar functions, defining therein their tasks, powers and responsibilities;

- approves the internal Model for the calculation of the solvency capital requirement and the related governance policies;

- approves the corporate policy on outsourcing; - approves the company policy to assess the possession of the prerequisites for eligibility for the

appointment, in terms of integrity, professional capabilities and independence, of the subjects indicated by the current legislation and evaluates the existence of the requirements for these subjects at least annually. Specifically, this policy ensures that all members of the Board of Directors have adequate technical skills at least in the areas of insurance and financial markets, systems of governance, financial and actuarial analysis, regulatory framework, commercial strategies and business models;

- approves the IVASS reporting policy, in compliance with regulatory measures in force; - verifies that the Top Management correctly implements the system of internal control and risk

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management in accordance with the directives issued and that it assesses its operation and adequacy; - requires to be informed periodically as to the efficiency and adequacy of the system of internal control

and risk management and that the more significant critical issues be reported to it promptly, whether they may have been identified by the Top Management, or by the departments of Internal Audit, by fundamental functions or similar, by other control departments, or by staff, in order to enable prompt directives and the adoption of corrective measures, the effectiveness of which will be subsequently assessed;

- identifies particular events or circumstances requiring immediate action on the part of Top Management;

- ensures that there is an appropriate and continuous interaction, where applicable, between all the Committees set up within the Administrative Body itself, the Top Management and the fundamental and assimilated functions, also through proactive interventions to ensure its effectiveness;

- ensures constant professional development, including of Board members, including the preparation of suitable training plans to ensure that they have the required technical expertise to carry out their assigned roles with full knowledge, taking into consideration the nature, scope, and complexity of the assigned duties, and to maintain their expertise over time;

- performs, at least once a year, an assessment of the dimension, composition and operation of the Board as a whole, as well as its Committees, giving indications as to the professional figures whose presence within the Board of Directors would be deemed suitable and proposing any corrective actions;

- ensures that the undertaking's organisational structure is suitable to guarantee the completeness, functionality and efficacy of the system of internal controls and risk management;

- informs the Supervisory Authority without delay when significant alterations are made to the organisational structure of the business, illustrating the internal or external causes and/or the reasons for such measures;

- is supported by the Group Internal Control and Risks Committee for the matters and for the execution of tasks relating to the system of internal controls and risk management and establishes its composition (with a specific appointment of its representatives), tasks and modus operandi;

- defines and approves the contents of and/or amendments to the organisational, management and control model, as per Italian Legislative Decree No. 231/2001, also on the basis of any proposals by the Supervisory Body. It also approves the annual plan for the activities of this Body and defines its budget;

- promotes a high standard of integrity and a culture of internal control to increase employees' awareness of the importance and usefulness of internal controls. For this purpose, it issues a code of ethics, which defines rules of conduct, regulates situations involving potential conflicts of interest and lays down adequate corrective measures;

- annually approves the strategic plan for information and communication technology, drawn up within the group, which is intended to ensure the existence and maintenance of a highly integrated overall systems architecture in terms of both applications and technology, that is adequate to meet the needs of the business;

- appoints and dismisses the holders of the fundamental and similar functions, to whom it assigns the duties, powers, responsibilities and reporting methods to the Board itself, thus verifying the existence of the requirements of professionalism, integrity and independence established by the Policy for the assessment of their possession, pursuant to the Ivass Regulation no. 38/2018. Approve the functions’ annual plans;

- defines and formalises the links between the various functions entrusted to perform control tasks; - approves the outcomes of assessments of risks the business is exposed to, from a current and forward-

looking perspective, and communicates them to Top Management and the structures concerned, together with the conclusions reached.

Top Management

The Top Management comprises the General Manager and, as of 31 December 2019, a Joint General Manager and a Deputy General Manager, appointed by the Board of Directors. They possess the requisites of integrity, professionalism and independence referred to in the Policy relating to the eligibility requirements for the aforementioned position.

The General Manager reports directly to the Board of Directors on all matters, including those relating to control and corporate governance; he guides and coordinates, within the powers expressly delegated, the

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management of all company activities, with the support of the Joint General Manager, the Deputy General Manager and the entire management.

The Top Management is coordinated at the Group level within the Group Management Committee, which, in close connection with the Italy Management Board, in turn makes use of the collaboration of collegial working groups that, also operating at the Group level, carry out activities of in-depth analysis on specific matters.

Top Management also supervises the drafting, coordination and preliminary checking of reports before these are submitted to the Board of Directors. Likewise, it formulates, communicates, coordinates and verifies the return flow of strategic indications prepared by the Board on the basis of the information, converting such information into guidelines and management activities.

All the documentation and evidence supplied by the technical/operational functions and by staff functions, gathered through the established communication flows, allows Top Management to fulfil its role as link with the Board of Directors, in a formal manner that is constant over time.

At Group level, Top Management is coordinated by the Group Management Committee which, in turn, is assisted by joint work groups who also operate on a Group level, to perform in-depth analyses regarding specific issues.

Top Management:

- defines the details of the organisational set-up of the business, the duties and responsibilities of the base operational units, as well as the decision-making processes, in accordance with the directives issued by the Board of Directors; in this area it ensures appropriate separation of duties, both between individual subjects and between functions, so as to enable an adequate exchange and avoid, as far as possible, conflicts of interest;

- implements assessment policies, including on a forward-looking basis, and risk management policies defined by the Board of Directors, to ensure the definition of operational limits and to contribute in guaranteeing a prompt verification of those limits, as well as the monitoring of exposure to risks and observance of tolerance levels;

- implements the policies relating to the corporate governance system, in compliance with the roles and tasks assigned to it;

- takes care of maintaining the functionality and overall adequacy of the organizational structure and the corporate governance system;

- verifies that the administrative body is periodically informed about the effectiveness and adequacy of the corporate governance system and in any case does so promptly, whenever significant criticalities are found;

- implements the indications of the Board of Directors concerning the measures to be adopted to correct any anomalies that have been noticed and make improvements;

- proposes, to the Board of Directors, initiatives aimed at adapting and strengthening the corporate governance system;

- adequately documents its work, in order to allow control over management documents and decisions taken; it also documents how it has taken into account the information provided by the risk management system;

- is responsible for promoting the culture of internal control and ensures that staff are made aware of their role, their responsibilities and the policies adopted by the company, so as to be effectively engaged in carrying out the controls, intended as an integral part of their activities. To this end, it ensures the formalisation and adequate dissemination, amongst staff, of the system of proxies and procedures that regulate the attribution of tasks, operational processes, tools and reporting lines;

- ensures continuity to the training and communication programmes to encourage effective adherence of all staff to principles of moral integrity and ethical values;

- ensures that the Board of Directors is fully aware of important company matters, including through provision of adequate reporting.

Board of Statutory Auditors

The Board of Statutory Auditors of Reale Mutua is composed of three standing auditors, one of which is a Chairperson, and two deputy auditors.

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In its capacity as “Committee for internal control and auditing”, the Board of Statutory Auditors:

- monitors the financial reporting process; - verifies the efficacy of the systems of internal quality control, risk management and internal auditing; - monitors auditing of periodic statements; - verifies and monitors the independence of the audit firm, with a specific focus on the adequacy of non-

auditing services.

For the above purposes, the Board of Statutory Auditors, amongst other things:

- gathers elements in order to express its opinions on the suitability of the system of delegated powers and the adequacy of the organisational setup;

- assesses the efficiency and efficacy of the system of internal controls, maintaining an adequate link with the heads of the internal control functions, with special regard to relationships with the head of the Internal Audit function;

- supervises the timely exchange of information with the audit firm and examines the results of their work.

Furthermore, the Board of Statutory Auditors of Reale Mutua performs verifications and analyses of company units and meets the heads of the various company areas, with direct involvement of the head of the Internal Audit function.

The Board of Statutory Auditors also attends meetings of the Group Internal Control and Risks Committee, to examine issues relating to the system of internal controls and the results of the activities undertaken by the functions concerned.

The Board of Statutory Auditors maintains appropriate information exchanges with the Supervisory Authority appointed under Italian Legislative Decree No. 231/2001.

In its capacity as controlling body of the Parent Company, it ensures the coordination of functions and information flows with the Boards of Statutory Auditors of the subsidiary businesses.

With regard to activities of anti-money laundering and with reference to the regulations on prevention of use of the financial system for purposes of laundering the proceeds of criminal activities and financing of terrorism, as contained in Italian Legislative Decree No. 231/2007 and subsequent amendments and supplements and in the ISVAP Regulation no. 41/2012, the Board of Statutory Auditors receives and examines the quarterly reports compiled by the head of the Anti-money-laundering department and supervises company processes, including for the purposes of monitoring any occurrence of a basis for communications laid down by the provisions of art. 52 of Italian Legislative Decree no. 231/2007.

Fundamental and similar functions

Department of internal auditing

The Board of Directors has established the Group Internal Audit function, which is responsible for assessing and monitoring the effectiveness, efficiency and adequacy of the internal control system and of the other components of the corporate governance system and any need for adaptation, even with support and consultancy activities to other company functions.

The function assists the organisation in pursuing its objectives through a systematic professional approach, which generates added value as it is aimed at assessing and improving the control, risk management and Corporate Governance processes at the Group level.

The Internal Audit function also provides its support to the external auditing company and the Board of Statutory Auditors, both in the management of its periodic audits and in the meetings, it carries out with the various business units and reports periodically to the Group Internal Control and Risks Committee.

Within the Group, the Internal Audit function performs a task of coordination and supervision related to the similar functions, if any, within Reale Group's other companies; regarding the Italian instrumental companies, the function carries out periodic inspections as required by the IVASS Regulation. n. 38.

The tasks, roles and responsibilities of the Internal Audit function are analytically identified and incorporated within the "Group Internal Audit Function Policy", approved by the Board of Directors and subject to annual

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review, and are briefly described in paragraph B. 5.1 of this document.

Chief Risk Officer (CRO)

The Group Chief Risk Officer (CRO) is the guarantor, within the internal control system, of the overall risk management of the Group. The Group CRO function’s purpose is, in fact, to govern and coordinate, in a centralised manner, all issues pertaining to the Group's risk control, as well as to ensure consistency in the implementation of the guidelines defined by the Board of Directors of the Reale Mutua parent company (USCI) on the subject.

To this end, the Group CRO is entrusted with the task of coordinating: - the Group's second-level corporate control functions (Anti-Money Laundering, Compliance, Information

Security and Data Protection, Risk and Actuarial Management and directing the Group Legal Affairs Service, with the aim of creating a single hub with regulatory competence, thus eliminating any overlapping roles;

- the CRO functions of the individual insurance companies of Group, wher