Generali Profit Drops After Year-Earlier Gain Isn't Repeated

  • Earnings miss estimates as life-insurance business drops
  • Insurer maintains full-year target of operating ROE above 13%

Assicurazioni Generali SpA, Italy’s biggest insurer, said first-quarter profit fell 14 percent on lower income from its life insurance business and after record capital gains from last year weren’t repeated. The shares fell the most in three months.

Net income declined to 588 million euros ($672 million) from 682 million euros a year earlier, the Trieste-based company said in a statement on Thursday. That compares with 601 million euros, the average of seven analyst estimates compiled by Bloomberg. Operating profit declined 12 percent to 1.16 billion euros.

“The decrease in the operating result and in the net profit is mainly driven by the decision to realize a lower level of gains on our investments considering the current adverse market conditions,” General Manager and Chief Financial Officer Alberto Minali said in the statement.

Generali appointed Philippe Donnet as its chief executive officer in May, replacing Mario Greco, who took the helm of competitor Zurich Insurance Group AG. Europe’s insurers are struggling to sustain earnings growth as low interest rates hurt investment income and competition puts pressure on prices.

“These results do not change our sell thesis,” Thomas Seidl, an analyst at Sanford C. Bernstein, wrote in a note Thursday. “The headline results were broadly in line with expectations, despite modest ‘one-off ’ benefits.”

As part of a wider reorganization, the insurer hired Frederic de Courtois, the CEO of AXA in Italy, to head Global Business Lines & International division, the company said in a statement Wednesday.

"Despite the challenging environment and the high volatility of the financial markets, in 2016 the group confirms the target of an operating return on equity above 13 percent,” Generali said in the statement. The insurer will improve shareholder remuneration, “consistently with the strategic plan presented to the market.”

Claims and costs as a proportion of non-life insurance premiums, known as the combined ratio, improved to 92 percent. Generali’s economic solvency ratio, a key measure of capital strength, fell to 188 percent from 202 percent in Dec, according to the insurer’s internal model based on a set of European Union capital rules called Solvency II.

Generali fell as much as 5 percent, the most since Feb. 11, and was down 3.8 percent at 12.61 euros as of 10:41 a.m. The stock has declined 22 percent in Milan trading this year, cutting the company’s market value to 20 billion euros. That compares with a 17 percent retreat in the Stoxx Europe 600 Insurance Price Index.

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