Generali’s Greco Targets Higher Cash Flow, Cost Reduction

Assicurazioni Generali SpA (G), Europe’s third-largest insurer, targets more than 2 billion euros ($2.7 billion) cash flow by 2015 and lower costs as the company focuses on growing emerging markets and its main insurance business.

Generali expects to increase its cash flow by 700 million euros from 1.3 billion euros generated in 2011, the company said in a statement today. The insurer wants to reduce costs by 600 million euros by 2015 and sees a return of equity of 13 percent, with more than 5 billion euros operating profit “over the cycle.”

“The goal of the strategy we are presenting today is to transform Generali into one global insurance group that will be able to compete in the international markets,” Chief Executive Officer Mario Greco said in the statement. “Generali will have a more solid and stable balance sheet and provide greater returns for its shareholders.”

Greco, who took the helm at Trieste, Italy-based Generali in August, is seeking to convince investors he can turn the company around. He’s cutting costs, shedding non-strategic assets and targeting growing emerging markets to revive profit and boost capital.

Lagging Peers

Generali’s profitability is lagging behind peers, with the insurer’s Solvency I ratio, a measure of its ability to absorb losses, at 140 percent at the end of the third quarter. That compares with a median of 195 percent for 10 insurance companies in western Europe disclosing data, according to Bloomberg Industries data. The company targets a solvency ratio of 160 percent by 2015.

“Generali will achieve this through retained earnings, selective disposals of non-core assets and other capital management actions,” the company said.

Analysts predict operating profit will rise to 4.91 billion euros ($6.55 billion) in 2015, according to the average estimate of eight analysts surveyed by Bloomberg. The insurer targeted more than 4 billion euros of operating profit in 2012 and expects non-life premiums to climb, while life premiums will match the 2011 level.

Growth Markets

Generali is unifying domestic business around three brands, Generali, Alleanza and Genertel, and simplifying the Italian business as part of the plan to improve efficiency and cut costs in the country. Analysts at Merrill Lynch Bank of America, CA Cheuvreux and Equita expected cost cuts of 235 million euros to 800 million euros in the next three years.

“Generali will enhance its competitive position and profitability through further investments in the high growth markets: Central and Eastern Europe and Asia,” the insurer said in the statement.

Generali agreed last week to buy the 49 percent stake it doesn’t own in its eastern European venture with private-equity firm PPF Group as part of the plan. The CEO predicts profitability in the region will be twice as much as in western European markets over the next five years.

Eastern Europe

Generali, which operates in more than 60 countries with 82,000 employees, makes about 10 percent of its operating profit in central and eastern Europe. The company has also set up offices in the main markets of the Far East, including India and China, where it has a joint venture with China National Petroleum Corp.

Generali has said it’s seeking to sell its U.S. life reinsurance business and Swiss asset-management unit BSI Group.

Greco was picked by Generali’s controlling shareholders, led by Mediobanca SpA (MB), to replace Giovanni Perissinotto, who resigned as CEO on June 2 after profit fell for four consecutive quarters and at a time when the insurer’s capital was weakened by exposure to Italy’s sovereign debt.

Management Shuffle

In the three months following his appointment, Greco shuffled management to spur profit growth and smooth relations with investors. He moved Managing Director Sergio Balbinot to the new position of chief insurance officer and appointed Alberto Minali as chief financial officer to replace Raffaele Agrusti, who became country manager for Italy.

Greco appointed Nikhil Srinivasan, a former Allianz Group executive, as chief investment officer and Carsten Schildknecht as chief operating officer.

Generali also created a 10-member management committee that will be led by Greco with Balbinot as deputy and include the heads of Italy, France and Germany as well as other top executives.

The shares, which hit their lowest level since December 1988 on May 31, just two days before Perissinotto’s ousting, have rallied 42 percent since Greco’s appointment on Aug. 1, compared with the 23 percent increase in the Bloomberg Europe 500 Insurance Index (BEINSUR), showing investors’ optimism about his ability to turn around the company.

To contact the reporters on this story: Sonia Sirletti in Milan at ssirletti@bloomberg.net;

To contact the editor responsible for this story: Frank Connelly at fconnelly@bloomberg.net

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