UPDATE 2-Generali’s strong capital show raises prospect of richer returns


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MILAN (Reuters) – Generali (GASI.MI) held out the prospect of richer returns for shareholders on Thursday after booking record annual operating profits and stronger-than-expected capital ratios.

The Assicurazioni Generali logo is seen in downtown Milan, Italy, February 8, 2016. REUTERS/Stefano Rellandini/File Photo

Europe’s No. 3 insurer, which lifted 2017 dividends by 6 percent, said operating profits rose 2.3 percent last year to 4.89 billion euros ($6 billion), boosted by life and asset management businesses and cost cuts.

At the same time it said its economic solvency ratio – an indicator of capital strength – jumped to 230 percent from 194 percent a year earlier. That was above an analyst consensus of 217 percent.

According to London broker Jefferies, with a solvency ratio at that level, Generali seems to have entered excess capital territory which could reach 4-5 billion euros a year from now.

“Investors will likely be reassessing the longer-term earnings and dividend power of the group,” the broker said, adding there was room for dividend upside.

Generali is due to present a new business outlook in November.

Chief Executive Philippe Donnet told analysts in a call on the full-year results that some of the capital would be used to repay 250 million euros of subordinated debt due in 2018, among other things.

He also confirmed a target, given in 2015, of paying out an overall 5 billion euros in dividends by the end of 2018.

“We are perfectly positioned to reach all of our objectives that we had set for 2018,” the CEO said.

Asked about consolidation in the insurance sector, Donnet said Generali would consider M&A activity providing it enabled the company to accelerate its strategy.

Generali is looking to sell businesses in 13 countries and use the proceeds to help fund expansion of asset management operations and beef up its fee-based business.

The group, whose main shareholder is influential investment bank Mediobanca (MDBI.MI), is considering options on its 40 billion euro German life portfolio, Generali Leben, to free up capital and accelerate growth in its second-biggest market.

Donnet said the insurer was still assessing whether to choose an internal run-off process or proceed with a sale.

“Overall results are positive with a nice beat at the operating profit level,” a Milan-based trader said.

At 1410 GMT Generali shares were up 2 percent, outperforming the European sector .SXIP.

A strong performance in life and asset management offset a 4.9 percent fall in non-life operations, affected by a 416 million euro hit from natural catastrophe claims, Generali said.

Last year insurers paid record claims of about $135 billion after a spate of hurricanes, earthquakes and fires.

($1 = 0.8083 euros)

Reporting by Stephen Jewkes, editing by Giulia Segreti and Susan Fenton


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