Best Affirms Generali Ratings; Outlook Now Stable

A.M. Best Co. announced that it has affirmed the financial strength rating of “A+” (Superior) and assigned an issuer credit rating of “aa-” to Italy’s largest insurer Assicurazioni Generali S.p.A. Best also affirmed the ratings of debt instruments issued or guaranteed by Generali, and revised its outlook on all ratings to stable from negative.

“The rating actions reflect Generali’s strengthening business profile, excellent capitalisation and improving operating performance,” said Best. “An offsetting factor is the inherent mismatching of the life liabilities with their backing assets, leading to potential volatility.”

Commenting on the Group’s “strengthening business profile,” Best said it now enjoys a superior business position and it expects it to “continue strengthening as the company experiences above market average growth, especially in the life markets of Italy, France and eastern Europe.”

Best estimated that “consolidated life premiums grew by approximately 15 percent, driven by increased demand in Italy, France and the emerging markets. In 2005 premium growth rate is likely to reduce to the single-digit range due to the impact of the tax reforms in Germany, the restructuring of the Austrian operations and the decreasing demand for unit linked business.”

Best also said it sees growth in Generali’s non-life business as “less than 2 percent in 2005 (expected to have grown by almost 3 percent in2004), driven by increased competition in personal lines.”

The rating agency indicated that the company “maintains its excellent risk-adjusted capitalisation as the impact of the strong business growth in 2004 is being mitigated by increased retained earnings and shifts toward lower risk products. The majority of the company’s in-force life business continues to consist of policies with high return guarantees, resulting in strong dependence on investment returns, and potential impact of the guarantees on the life reserves has been factored into the rating. Any volatility in asset values arising from the implementation of the International Financial Reporting Standards is likely to be counterbalanced by similar movements in the respective liabilities.”

Best also noted that it expects further improvement in life profitability in 2005 “due to the impact of the improving business margins experienced in the Italian business and the continuing reduction in expense ratio.”

However, Best said the “non-life loss ratio is likely to start increasing in 2005, reversing the trend observed during the last three years as increased competition results in a rate decline in the more mature markets which Generali operates. A.M. Best believes that the consolidated combined ratio is likely to reach 102 percent in 2005 as loss ratio increases are partly offset by the company’s ongoing cost reduction activities in France, Austria and Italy.”