Best Affirms Generali’s ‘A+’ Ratings

A.M. Best Co. has affirmed the financial strength rating of ‘A+’ (Superior) and the issuer credit rating of “aa-” of Italy’s Assicurazioni Generali S.p.A., both with stable outlooks. Best also affirmed the ratings of debt instruments issued or guaranteed by Generali.

The ratings reflect the company’s “excellent business position and the strong, albeit lower, capitalization,” said Best. “An offsetting factor is the deterioration of profitability, with life business affected by the financial downturn and increased volatility of capital markets, and the non-life segment impacted by the economic crisis in conjunction with persistent decreasing margins for motor in the main markets.”

Generali is one of the Europe’s largest insurers. The group writes approximately 95 percent of its consolidated premiums – €64.8 billion [$96.1 billion] at the end of 2008 — in Europe. Two-thirds of that from life insurance.

Best said, however that it believes that gross written premiums are likely to decline in 2009 by 2 to 4 percent, with the life segment affected by the sale of Intesa Vita SpA in Italy and the Europe-wide drop of investment products, partially offset by the enhanced sales of traditional products.

“On the other hand, non-life business remains under pressure due to the economic slowdown and the decline in new vehicle registrations,” Best continued. But despite those difficulties Best noted that “Generali has proven its excellent business ability, increasing its share in all main markets.”

Generali’s risk-adjusted capitalization is strong but has declined, mainly because of the reduction of revaluation reserves and the increased goodwill that developed from 2008 acquisitions. Pressure is added by the reduced margins and more capital intensive product mix of the life business. Again, Best discounted the overall effects, noting that “Generali’s risk-adjusted capitalization is resilient.” It has been recovering during 2009 and, although depending on future dividend payments, Best said it “expects it to keep improving going forward, also benefiting from the conservative investment strategy and the release of the business and liabilities following the sale of Intesa Vita SpA.”

In 2009, Generali has been able to smoothly issue two senior debts, aiming at refinancing maturing senior bonds, for an overall amount of €2.5 billion [$3.7 billion] (whose order books have been in the range of three/four times the issued amounts). Over 2008 and 2009, the leverage of the group has increased. Best added that it “believes it is likely to be reduced and in line with the ratings by 2010.

“Generali’s profitability is still good but declining. Net profits in 2008 amounted to €861 million [$1.277 billion] (70 percent less than €2.916 billion [$4.325 billion] in 2007) after €5 billion [$7.42 billion] of impairments. Life business is worsening as a result of declined financial markets and less profitable product mix (especially in Italy and France).

“The non-life segment is suffering the tightening margins, especially in motor, also impacted by the reduction of new vehicle registrations and lowering average premiums. The 2008 combined ratio of non-life business deteriorated to 97 percent (from 96.2 percent in 2007) and, in Best’s opinion, it is expected to further increase above 98 percent (though comfortably below 100 percent) in 2009.”

Best said it “recognizes that, in the current unfavourable market conditions, the group is generally performing better than the market average and is carrying forward several actions, mainly aiming to improve cost-effectiveness. Whilst positive results have already been achieved, in A.M. Best’s opinion, the main impact of these actions is likely to occur in the medium term.”

Source; A.M. Best – www.ambest.com