Generali Posts Quarterly Profit after Year-Ago Write Downs Caused Loss

By and | March 13, 2014

Assicurazioni Generali SpA, Italy’s biggest insurer, reported a fourth-quarter profit after booking a loss a year earlier on write-downs of equity holdings. The insurer more than doubled its dividend.

Net income was €324 million ($452 million) compared with a net loss of €1.04 billion [$1.45 billion] a year before, when Generali wrote down stakes in companies by €1.3 billion [$1.815 billion]. Profit missed the €604 million [$843 million] average estimate of seven analysts surveyed by Bloomberg.

“In 2014, the debt will be reduced further and significant cost savings will be achieved,” Chief Executive Officer Mario Greco said in the statement. “We estimate to improve the operating result and the net profit further, in line with the plan.”

Greco, who took over as CEO in 2011, is selling assets and focusing on the company’s main business to strengthen finances and boost profitability. The insurer is more than half way to reaching its goal of raising €4 billion [$5.437 billion] from disposals by 2015, after the sale of its U.S. reinsurance unit and Mexican businesses last year.

Dividend Raised

Generali raised its dividend to 45 cents [62 cents] a share from 20 cents [28 cents], the Trieste, Italy-based insurer said in a stock-exchange statement.

Operating income fell 0.6 percent in the fourth quarter from a year earlier to [$859 million [$1.199 billion] as income at the non- life business fell 40 percent to €291 million [$406 million]. Claims and costs as a proportion of premiums, known as the combined ratio, improved to 95.6 percent in 2013. Life operating profit increased 36 percent to €573 million [$800 million] euros.

“Generali published mixed 2013 results below consensus excluding the dividend,” Raphael Caruso, an analyst at Raymond James Euro Equities in Paris, wrote in a note today. Fourth- quarter results “were impacted by a significantly higher than expected combined ratio and some non-operating items,” he said.

Generali rose 0.7 percent to €16.42 [$22.92] in Milan trading as of 10:33 a.m. in Milan, giving the company a market value of €25.5 billion [$35.6 billion]. The Bloomberg Europe 500 Insurance Index was little changed this year, compared with Generali’s 4 percent decline.

Telco Exit

Results were driven by extraordinary items “including proceeds of disposals and the gain on the stake in the Bank of Italy which have been offset by negative impacts from the Telco SpA stake write-down and the goodwill write-down of BSI group,” Generali said in the statement.

Generali, which owns 19.3 percent stake in Telco, the holding controlling Telecom Italia SpA, wrote down its stake by €189 million [$264 million] in the fourth quarter. The insurer plans to exit its holding as early as June, Greco said during a conference call today.

“We wrote down the stake at Telecom’s market value at the end of December, as it’s likely that we will exit Telecom in June,” Greco said. “We have two exit windows, one in June 2014 and one in February 2015.”

Madrid-based Telefonica SA, Spain’s biggest phone company, is the largest shareholder in Telco and agreed to increase its stake last year.

BSI Sale

The CEO is confident to sell Swiss asset-management unit BSI Group as part of his disposal plan to boost capital. “The sale is easier now, after rules on U.S. clients’ treatment are clarified,” he said, without disclosing details on talks. Generali wrote down the company’s value by €217 million [$303 million] in the quarter.

Generali’s solvency ratio, a measure of its capacity to absorb losses, fell to 141 percent by Dec. 31 from 143 percent in September, the insurer said. At the end of February, the ratio was about 150 percent, the company said.