Making the Stodgy Look Brilliant

At first glance, Assicurazioni Generali, the giant Trieste insurance company, seems to be suffering all the same ills as its European counterparts. Its equity and bond portfolios are in the dumps, and reserves have fallen through the floor. It could report a 2002 loss of $1 billion. Yet analysts say Generali, the euro zone's No. 1 insurer, by market capitalization, is better placed than rivals to gain market share and return to profitability in the short-to-medium term.

That's because the Italian company has been more conservative in every way than competitors. Although it has acquired a range of insurers in the fast-growing markets of Central Europe in recent years, it was never tempted to make the sort of big, brash purchases in Europe and the U.S. that have caused Allianz Group (AZ ) and Zurich Financial Services such headaches. "Its sluggishness has actually helped it," says a board member from a rival euro-zone underwriter. "Generali could outperform us over the next two or three years, because it is so stolid."

Generali also has less exposure to equities -- an estimated 15% of its portfolio -- than Allianz and AXA Group (AXA ), its German and French rivals, with 17% and 21%, respectively, in stocks. So it has been hurt less by plunging prices and has stronger reserves than its rivals.

What's more, says Generali Chairman Antoine Bernheim, the firm is now managed by a "united team" committed to a restructuring strategy that should return it to "full profitability" by 2005 or 2006. Bernheim replaced Gianfranco Gutty as chairman last September, after Gutty was unceremoniously dumped by Milan investment bank Mediobanca for trying to curb Mediobanca's influence in the boardroom. Mediobanca owns 13.6% of Generali stock.

What could hold Generali back? A battle for control of its billions of dollars in assets between two of its principal shareholders: Mediobanca and commercial bank UniCredito Italiano, headed by Alessandro Profumo. Bernheim, who is close to Mediobanca, says UniCredito's effort to gain a controlling stake could "destabilize" the group. Profumo, who fears that Bernheim and Mediobanca have joined forces with a group of French investors that is planning its own takeover, maintains the insurer would perform better if it were freed from Mediobanca's clutches. Unicredito and its allies are said to own between 10% and 14%.

The fight is one problem that doesn't worry Generali investors. The company's share price has outperformed those of most other insurers in recent months, partly because it has been less hurt by the decline in the equity markets, partly because speculators are buying up its stock, anticipating that it will be driven even higher by the battle between UniCredito and Mediobanca. Says one London fund manager: "Whatever happens, it's just about the only insurer where we expect to make a reasonable return." And that's something to brag about in a depressed insurance world.

By David Fairlamb in Frankfurt

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