Assicurazioni Generali SpA expects to reach 2015 targets ahead of schedule and improve its dividend policy, as first-half operating profit of Italy’s biggest insurer rose to the highest in 10 years.
“Our results show that we are quickly moving toward achieving our targets ahead of plan,” CEO Mario Greco said during a conference call today.
Greco, who took over as CEO in 2012, has cut costs and sold non-strategic assets to focus on the insurer’s main business, strengthen finances and bolster profitability. He said this month that the firm completed an asset-sales plan, raising €3.7 billion [$4.956 billion].
Operating income increased 20 percent in the second quarter to €1.25 billion ($1.67 billion), Generali said today, beating analysts’ average expectation of €1.17 billion [$1.567 billion]. In the first half, operating income was €2.51 billion [$3.362 billion]. At the end of June, the Solvency 1 ratio, a measure of the insurer’s capacity to absorb losses, reached 162 percent, exceeding a 160 percent target for 2015, and would be 164 percent on a pro-forma basis after the BSI Group sale.
“Generali reported strong first-half results, beating estimates,” on both the life and non-life operations,’’ Michael van Wegen, an analyst at BofA Merrill Lynch Global Research, wrote in a note to clients. “We estimate Generali to make the most significant progress among the composites in closing the performance gap with the sector.”
Shares Up
Generali rose 1 percent to €15.47 [$20.72] as of 10:17 a.m. in Milan trading, valuing the company at €24.1 billion [$32.28 billion]. Losses so far this year were 8.7 percent, compared with the 33-member Bloomberg Europe 500 Insurance Index’s gain of 1.4 percent.
Net income declined to €416 million [$557 million] in the three months to June 30 from €478 million [$640 million] a year earlier, missing the €504 million [$675 million] average estimate of seven analysts surveyed by Bloomberg.
Results were hurt by a €113 million [$151 million] loss from the sale of Swiss private-banking unit BSI Group to Grupo BTG Pactual of Brazil for 1.5 billion Swiss francs ($1.65 billion), announced earlier this month, and €190 million [$254.5 million] write-down on the stake in the Russian insurer OEO Ingosstrakh.
Operating income in life segment rose 10 percent in the second quarter from a year earlier to €772 million [$1.034 billion] as income at the non-life business increased 29 percent to €517 million [$692.5 million]. Claims and costs as a proportion of premiums for non-life premiums, known as the combined ratio, fell to 92.8 percent at the end of June.
2015 Targets
Generali’s operating return on equity was 7 percent in the first half and on track to reach the 2015 target of 13 percent earlier than planned, Greco said.
“We cannot assume that we will double the operating ROE by year-end, because the second half of the year is usually less profitable for seasonal effects, but we are confident to reach it well before the end of the next year,” he said.
The CEO also said that the capital restructuring and the targets’ achievement will remove dividend constraints, leading to an improvement of the 40 percent dividend-payout ratio targeted for next year.
“The insurer’s capital position will allow a more favorable dividend policy,” Enrico Esposti, a Milan-based analyst at ICBPI, wrote in a report today. “This will positively affect shares.”