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Generali sees scope for higher dividends as debt falls

A view of Generali headquarters in Rome April 6, 2011. REUTERS/Remo Casilli
A view of Generali headquarters in Rome April 6, 2011. REUTERS/Remo Casilli

By Gianluca Semeraro

LONDON (Reuters) - Italian insurer Generali is aiming to pay higher dividends to investors as its turnaround plan to cut debt through a string of asset disposals and hefty cost savings starts to pay off.

Europe's third-largest insurer by market capitalization has already raised 2.4 billion euros ($3.25 billion) through asset sales as part of an aggressive overhaul to improve profitability and focus on its core insurance business.

The company, along with other European insurers, is having to restructure to cope with low interest rates, tighter regulation and a weak economic environment in Europe.

Chief Executive Mario Greco said his three-year business plan, when completed in 2015, would free up about 2 billion euros ($2.71 billion) a year for dividends and investments in high-growth markets including acquisitions.

Greco said part of the additional capital will be used to increase the insurer's presence in markets with high potential, such as Poland, Brazil and Asia.

"Our priority was to sort out the capital issue, and this is why we have worked fast on asset disposals," Greco, who took up his job in August 2012, said on Wednesday.

"Once we have reached the capital targets, we will be able to start talking about a policy of progressively higher dividends," he said, adding he saw higher dividends by 2015.

Generali paid a dividend of 0.20 euros a share on its 2012 earnings, in line with the previous year. Greco had said in April that that dividend could not be a benchmark for future payments for Generali shareholders.

The group also increased its cost savings goal to 750 million euros by 2015 and 1 billion by 2016. In January, Generali had set out a cost-cutting target of 600 million euros. The savings would come from rationalization as no major job cuts were planned, Greco explained.

Shares in Generali were up 1.8 percent at 1057 GMT, outperforming a 0.6 percent rise in the European insurance index <.SXIP>. The stock is up around 30 percent from a year ago.

REBUILDING CAPITAL

Generali confirmed it was targeting an operating return on equity - a measure of profitability - of 13 percent by 2015. It is aiming for a Solvency 1 ratio - a measure of capital strength - of above 160 percent. The ratio stood at 152 percent at the end of October.

"We have made excellent progress in rebuilding our capital, with more than 60 percent of our targeted 4 billion euros in asset sales completed," Greco said.

The group wants its debt leverage ratio to fall below 35 percent by 2015 from around 40 percent on average. Its debt stood at 50.2 billion euros at the end of September.

Generali said it had sufficient resources to repay, rather than refinance, one third of the 2.24 billion euros of senior debt maturing in 2014. The sales proceeds will also allow Generali to buy out of Eastern European insurance joint venture GPH, for which it needs more than one billion euros.

The company, which manages almost 500 billion euros in assets, said it wanted to keep a stable exposure to equity and fixed income while upping its stake in high-quality real estate.

Standard & Poor's placed Generali on negative credit watch late on Tuesday, pending a review of its exposure to Italy's sovereign debt, which Generali aims to trim to 55 billion euros by year end from 58.5 billion euros.

Greco said in a statement on Tuesday he was surprised at the decision, which came just as Italy is expected to emerge from its longest recession in sixty years.

Greco also said Generali's performance in the fourth quarter has been stable compared with previous quarters.

($1 = 0.7374 euros)

(Additional reporting and writing by Lisa Jucca; Editing by Jane Merriman and Elaine Hardcastle)

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