Generali Feels Pain of Low Rates

MILAN—Assicurazioni Generali SpA said first-quarter net profit fell by 14% after volatile equity markets and Europe's ultralow interest rates battered the performance of Italy's largest insurer.

Generali, presenting its first earnings report under new Chief Executive Philippe Donnet, said net profit fell to €588 million ($671.6 million) in the three months to end March from €682 million for the same period a year earlier on a 12% fall in operating profit to €1.16 billion.

In addition to the impact of low interest rates on the profitability of its life-insurance business, Generali said it booked less profit on its securities portfolio than in the first quarter last year which had been a particularly lucrative period for the group.

Relatively poor market conditions also weighed on the performance of the insurer's asset-management unit Banca Generali SpA.

Generali warned that tougher-than-expected financial markets have ratcheted up the pressure on management to find new ways to reduce costs to meet targets set out in a four-year growth plan announced a year ago.

"We are carrying out a thorough analysis to understand where we can generate additional profitability because market conditions are more difficult than when we presented the plan last year," said Chief Financial Officer Alberto Minali.

Generali shares fell more than 2% in early trading, the leading loser on the Milan exchange.

The insurer is betting on a big commercial push in Europe, Asia and Latin America to improve cash flow, with gains to be returned to its shareholders through fatter dividends rather than being spent on acquisitions.

Generali has said it wants to generate cumulative net free cash flow of more than €7 billion between 2015 and 2018, equivalent to around €1.8 billion a year. Last year the company generated €1.2 billion in cash.

Mr. Minali said Generali isn't changing its financial targets, noting that at the operating level, the group performed well in April though it is on alert about any possible impairments in its securities portfolio considering how volatile markets are.

In the first quarter, Generali's life-insurance business posted an 8.1% decline in operating income to €756 million while the property and casualty business's operating income was virtually flat at €498 million.

Generali said that against a scenario of low interest rates it will continue to favor a portfolio of policies less sensitive to low rates and which absorb less capital at its life business. The European Central Bank's current policy stance for the eurozone, where Generali does much of its business, includes subzero interest rates and large-scale bond purchases.

It confirmed its target of an operating return on equity above 13% and improving dividend for its shareholder, as foreseen by its strategic plan. Its annualized return on equity for the quarter stood at 13.3%.

Generali's Economic Solvency Ratio—a measure of capital solidity for insurers—was 188% at the end of March, after the company generated 5 percentage points of additional capital during the quarter.

Write to Giovanni Legorano at [e-mail]

(END) Dow Jones Newswires

May 12, 2016 04:45 ET (08:45 GMT)

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