A.M. Best Affirms Generali’s A+ (Superior) Ratings

March 27, 2003

A.M. Best Co. announced that it has affirmed the A+(Superior) financial strength rating of Italy’s Assicurazioni Generali S.p.A., and assigned a negative outlook. It also announced that it has affirmed Generali’s senior debt at “aa-” and subordinated debt at “a+” with a negative outlook. “The affirmation also applies to debt guaranteed by Generali, which is issued by Generali Finance B.V, a special purpose vehicle,” said Best. The announcement listed the securities affected.

Best explained that “the negative outlook reflects a worse than expected depletion in consolidated shareholders’ funds as at year-end 2002 (from the nine month results announced in November), which places pressure on the prospective risk-adjusted capital level.” It also noted the “challenge of continued restructuring of its international operations” that the company faces “in a move to focus on core profit-making areas.”

Best indicated, however, that the “rating continues to reflect Generali’s leading business position, both in Italy and across continental Europe, and improving risk profile and underwriting performance.” The rating agency noted that Generali’s capitalization remains under pressure. According to Best’s risk-based capital model, it has “fallen to a level which puts the rating under pressure.” Shareholders funds have decreased by 2.3 billion Euros ($2.5 billion) to 9.6 billion Euros ($ 10.2 billion), and are “not expected to be replaced through the retention of earnings in the near term, according to A.M. Best’s expectations.”

Best also noted “a reduction in the risk profile of Generali, including reduced equity exposure (from 11.9% of total invested assets in 2001 to 8.5% in 2002) and the cessation of longer-tail (including industrial) non-life portfolios and increased diversity across the book.”

The bulletin stressed the insurer’s “leading business position,” as the “leading life insurance group and second-largest non-life insurance group in Italy based on market share in 2002,” as well as its strong presence in Germany, France, Spain and Austria. The company ranks as “the fourth-largest European group with gross premiums of EUR 46.9 billion (USD 50.1 billion) in 2002,” said Best, and “continues to enhance its distribution channels in all markets, primarily through agency agreements and bancassurance relationships.”

Best’s bulletin also noted the group’s improved underwriting performance, which, following restructuring initiatives, “led to a reduction in the non-life combined ratio to 107.9% from 108.4%, including the floods across central Europe.” Generali is continuing to put in place measures to “reduce expenditure across the company’s operations through staff reduction and the centralisation of capital allocation, asset liability management and reinsurance.”

“Technical results for life business remained stable in 2002,” said best, “including a reduction in the average margin on policies due to an increase in linked investment sales.” Best expects to see “an improvement in 2003 profitability due to a return to more secure traditional life products (which already began in the latter half of 2002) in reaction to prevailing market conditions.”

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