Assicurazioni Generali SpA, Europe’s third-largest insurer, plans to cut an extra 150 million euros ($204 million) of costs by 2015 and reduce debt to boost profit and strengthen capital.
The company increased its cost savings goal to 750 million euros by 2015 and will seek reductions of 1 billion euros by 2016, the Trieste-based insurer said today. Standard & Poor’s put Generali on CreditWatch negative yesterday while the rating company carries out stress tests.
“Generali doesn’t need to raise capital,” Chief Executive Officer Mario Greco said in an interview with Francine Lacqua on Bloomberg Television before a presentation to investors in London today. “The company is not capitalized enough today, but we are working to get our target by 2015.”
Greco, who took over as CEO last year, is selling non- strategic assets and focusing on the company’s main business. The insurer is more than half way to its goal of raising 4 billion euros from disposals by 2015, after selling its U.S. reinsurance unit and Mexican businesses earlier this year. Generali is also seeking a buyer for its Swiss asset-management unit, BSI Group.
“Things now are clearer and we are coming to a point where valuations are coming closer to what we expect to get,” Greco said in the interview.
Generali rose 1.3 percent to 16.80 euros as of 10:14 a.m. in Milan trading, giving the insurer a market value of 26.1 billion euros. The stock rallied more than 63 percent since Greco’s appointment in August 2012, compared with a 48 percent gain in the Bloomberg Europe 500 Insurance Index.
Solvency Ratio
“The update on targets in our view is positive,” Michael van Wegen, an analyst at Bank of America Merrill Lynch with a buy rating on the stock, wrote in a note to clients today. “We continue to see Generali as an attractive restructuring story.”
Generali reiterated plans to boost the Solvency I ratio, a measure of its ability to absorb losses, to more than 160 percent by 2015 from 152 percent at the end of October. That compares with a third-quarter median ratio of 216 percent for 16 insurance companies in western Europe disclosing the information, according to Bloomberg Industries data.
The company said it intends to lower its debt-to-leverage ratio to less than 35 percent by 2015 from 40 percent.
‘Too High’
Analysts’ estimates for operating profit of 4.5 billion euros this year are too high, Greco said.
“Our operating profit will be higher than last year and a positive number,” Greco said. “Analysts will be pleased with our results by year end, but we will not get as far as 4.5 billion euros.”
The CEO said the dividend will increase “progressively,” linked to the effort to rebuild capital.
Generali’s third-quarter profit rose 75 percent to 510 million euros as it earned more from its life segment and property and casualty operations. The company reiterated a return-on-equity goal of 13 percent in 2015 and said it expects fourth-quarter earnings in line with previous quarters.
–With assistance from Francine Lacqua in London. Editors: Frank Connelly, Simone Meier