Life Sales Drive Generali’s 52% Gain in 2009 Profit

Italy's Generali Group said a strong recovery in investment performance along with growth in its life insurance segment contributed to a 52.1% rise in 2009 net profit.

The multiline insurer's net profit rose to 1.31 billion euros from 861 million euros in 2008.

Generali said its profitable underwriting and premium growth was boosted by better performance in financial markets, compared with 2008. Shareholders' equity in 2009 rose 47.2% to 16.7 billion euros. In addition to the boost in net profit, the group pointed to a 1.8 billion euro contribution attributed to "the recovery in financial markets," and 2.5 billion euros gained through its merger with Alleanza Toro.

Last July, shareholders approved the merger by incorporation of Alleanza Assicurazioni and Toro Assicurazioni, creating a new company, Alleanza Toro, that is wholly controlled by Generali (BestWire, July 14, 2009). The combination tapped into Alleanza's experience in the property/casualty market and Toro's knowledge of the life market in Italy.

Ralph Hebgen, an equity analyst withe Keefe, Bruyette & Woods, said in a research note that Generali's results were strong, but still "a miss versus consensus at the level of group operating profits. The miss was driven by P&C and we believe generated by lower investment income than expected."

The property/casualty operating result missed consensus expectations by 18%, while the other segments were in line with expectations, according to Hebgen. The life segment beat KBW's own estimates by 6%, he added.

Hebgen also noted he was surprised to see Generali report its solvency at 128% on a Solvency 1 basis, which represents a deterioration compared with the level of 132% achieved in the first nine months of 2009.

"As shareholders' funds and embedded value was in line with our expectations, we believe this highlights an increase in required capital, rather than a reduction in available capital," said Hebgen. "Any increase in capital requirements are in turn likely to have resulted from an increase in the sales of traditional life insurance policies."

In the life segment, new business margins in terms of annual premium equivalent stood at 21.7%, up 1.5 percentage points from 2008. The operating result rose 34.2% to 2.45 billion euros. Generali said growth was particularly evident in France, Germany and Eastern Europe.

"These are some of the best results in the market, and were achieved thanks to significant growth, notably in Italy, Germany and Eastern Europe," Generali said.

"New business profitability was driven by excellent margin development in Italy, which at 28.5% in [2009] exceeded our expectations of 25% materially," said KBW's Hebgen. "Generali's other key European markets were in line with our expectations, and we believe the consolidation of Alleanza may well have driven the margin improvement in Italy."

In nonlife insurance, the operating result fell 38.6% to 1.3 billion euros, as the combined ratio rose to 98.3 from 96.4. Generali said increased losses came from the motor business, along with catastrophic events that included the Abruzzo earthquake last April, and storms in Europe. Those events had an impact of 270 million euros.

"An additional factor was the fall in short-term interest rates, which mostly affect investments in this segment, while action to cut costs produced positive effects with a reduction in administrative expenses (down 2.6%)," Generali said.

Assicurazioni Generali S.p.A. currently has a Best's Financial Strength Rating of A+ (Superior).