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Generali’s new strategic plan is credit positive, says Moody’s

3rd December 2018 - Author: Matt Sheehan

The new 3-year strategic plan from Italian insurance giant Generali is broadly credit positive, according to analysts at Moody’s Investors Service, as it targets debt reduction and greater earnings diversification.

Generali logoThe insurer announced its ‘Generali 2021’ growth plan last week alongside claims that it was on track to hit all of its financial and industrial targets for 2018.

The new strategy will see Generali focus on European markets, retail and SME clients, integrated asset management offers, and physical distribution over the next three years.

Moody’s said that it views the plan positively due to the earnings diversification it promotes via growth in Asia and Latin American markets, as well as in Generali’s asset management business, and as it does not rely on share buybacks.

The analysis follows comments from J.P. Morgan, who recently said that the higher life operating margin posted by Generali is reflective of a broader shift towards new, lower guarantee products in the European life market, driven by Solvency II.

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Generali also intends to reduce its debt amount by €1.5 billion to €2 billion by 2021, which could result in a reduction in its annual gross interest expense of €70 million to €140 million compared with 2017, according to analysts.

Moody’s also expects Generali’s solvency to benefit from strong capital generation, which the insurer forecasts at above €10 billion on a cumulative pre-dividend basis from 2019 to 2021.

Additionally, the rating agency views Generali’s increased focus on its asset management business as a beneficial, which the company plans to grow from a net result of €187 million in 2017 to €400 million by 2021.

Moody’s generally views the Generali 2021 pan as positive for the company’s business profile, given its objectives of growing fee-based and health and protection revenues, while maintaining the current focus on expanding the P&C retail and SME business.

Nevertheless, the planned meaningful growth outside Generali’s European core insurance markets introduces some execution risk, analysts cautioned, especially as this may involve acquisitions.

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