Update: Generali Q1 Operating Profit Rises 6% to $1.5B on Investment Income

By and | May 14, 2015

Assicurazioni Generali SpA, Italy’s biggest insurer, reported the highest quarterly operating profit in seven years, spurred by a surge in investment income.

Profit in the three months to March climbed 6 percent to 1.3 billion euros ($1.5 billion), the Trieste-based company said in a statement Thursday. Net investment income jumped 26 percent to 678 million euros.

Europe’s insurance companies are seeking ways to boost earnings after the European Central Bank’s bond-buying program pushed yields on the debt they hold to record lows. Chief Executive Officer Mario Greco, 55, is buying corporate bonds, loans and government debt outside the continent to help increase Generali’s returns.

The earnings were better than expected and “driven primarily by higher realized gains on fixed income investments” of about 170 million euros, Sanford C Bernstein & Co. analyst Thomas Seidl said, citing his own calculations. Seidl rates Generali as underperform.

Shares Climb

Generali rose 1.9 percent to 17.68 euros at midday in Milan trading, the biggest increase on the Bloomberg Europe 500 Insurance Index. The shares are up 4 percent this year, compared with an 11 percent increase for the index.

While Generali said profit from selling fixed income contributed to the earnings, it didn’t provide details in the statement. Chief Financial Officer Alberto Minali said the sale of some corporate bonds had a marginal effect on operating income. The life business, which includes investments, was the main contributor, he told journalists on a conference call.

Intesa Sanpaolo SpA, Italy’s second-biggest bank, doubled profit in the first quarter with a four-fold jump in trading revenue. Half of that derived from the disposal of government bonds, it said on Thursday. Reinsurer Swiss Re sold its holdings of euro-denominated covered bonds after a rally, it said last week.

Generali’s assets under management rose 6.5 percent to 510.9 billion euros on March 31 from three months earlier, with third-party assets totaling 51.6 billion euros.

Gains were “largely driven by the bond portfolio, which benefited from the increase in value determined by interest rate trends,” Generali said. Fixed income represented 87.7 percent of total investments.

Net income increased 3.3 percent to 682 million euros, beating the 646 million-euro average estimate of five analysts surveyed by Bloomberg.

Italy Growth

Insurance premiums grew 8.3 percent in the first quarter to 20 billion euros, driven by a 13 percent increase in life premiums. Life premium growth in Italy was 31 percent.

Operating profit in life insurance rose 8.2 percent to 823 million euros. Catastrophe events in Italy and Central Europe contributed to a decline of 4.6 percent in property and casualty profit to 505 million euros.

Chief Executive Officer Mario Greco will present a new strategy on May 27 after he achieved targets for asset sales, cash generation and leverage earlier than planned. Generali has raised about 4 billion euros by selling assets including its U.S. reinsurance operation, Mexican businesses and Swiss asset-management unit BSI Group.

“Given the presence of an uncertain macro-economic scenario and in line with its strategic objectives, in 2015 the group will continue to undertake all actions aimed at improving the overall operating result,” the company said.

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