Assicurazioni Generali S.p.A.

Summary

" ■■ Assicurazioni Generali, through over 626 subsidiaries and affiliates, provides a variety of insurance services, primarily accident & health insurance. The company also provides life and title insurance, real estate services, and a range of other investment activities.

-  ■■ For the fiscal year ended December 2003, Generali reported revenues of Ђ65,573 million, an increase of 3.19% from the previous fiscal year. In the same period, group profit increased from Ђ754.5 million to Ђ1,015.1 million.

-  ■■ Generali is a market leader in Italy, with a market share in life insurance of 19.5% and 17% in non-life insurance. Generali’s strong position is mainly due to the fact that the company made profitable acquisitions in the past, and has been able to achieve and maintain profitability.

-  ■■ Generali continues to expand its investment and it reported an increase of 11.4% between 2002 and 2003. Total investments have reached the level of Ђ230 billion at the end of 2003.

-  ■■ Generali is now facing a challenge while trying to consolidate its recent acquisitions in France, which includes Le Continent and a portfolio from Zurich Financial Services. If this acquisition is successful, it can contribute to Generali’s stronger position in France.

Overview

Assicurazioni Generali, through over 626 subsidiaries and affiliates, provides a variety of insurance services, primarily accident & health insurance. The company also provides life and title insurance, real estate services, and a range of other investment activities. It is headquartered in Trieste, Italy. About 185 companies make up the core of the Generali Group, which holds interests in many more companies.

Generali carries out insurance operations in some 50 markets worldwide, through a network of more than 190 local units, consisting of branches and subsidiary companies. It also carries out operations through a number of specialised offices providing assistance to multinational clients. The group's main markets are: Italy, with around 39% of total revenues, Germany with 26%, France with 17% and Austria with 4%.

In terms of written premiums, the Generali Group holds the fourth place in Europe and ranks among the 10 largest insurers at world level in terms of assets under management.

For the fiscal year ended December 2003, Generali reported revenues of Ђ65,573 million, an increase of 3.19% from the previous fiscal year. In the same period, group profit increased from Ђ754.5 million to Ђ1,015.1 million. Total Generali group premium income was up by 4.8% in 2003 at Ђ49,603.4 million.

History

Assicurazioni Generali was established in December 1831, to meet the demand for an insurance company with the necessary technical and financial structures to operate in the international trade industry.

A few months after its foundation, Generali began to expand with offices in France, Germany, and Switzerland. Generali then expanded into the Balkans and Eastern Europe, from Warsaw to St. Petersburg, and within a few decades had also reached Africa, Asia and North and South America.

The 1990s saw an extensive period of growth for the company. In October 1995, it signed a letter of intent with Can Insurance to enhance mutual business interests throughout the world. The following year, it signed a protocol understanding with Bank Leumi, Tel Aviv, aimed at acquiring through Leumi Insurance Holding (LIH) the control of Migdal, the Israeli insurance company, in which they already held a 27% interest.

In June 2003, Bancassurance activities of the two groups - Alleanza Assicurazioni and Banca Intesa were unified to create the new company - Intesa Vita. In July 2003, Generali Group acquired Le Continent from Toro for an estimated value of Ђ290 million, which strengthened the group's position in France.

In February 2004, Generali and EBRD (the European Bank for Reconstruction and Development) signed an agreement for the setting up of a new real estate fund with the aim of investing in the real estate sector in central and eastern European countries, which in May 2004 became members of the EU: Hungary, Poland, Czech Republic, Slovakia, Slovenia, Estonia, Lithuania, Latvia, Romania and Bulgaria. The Fund, called "Accession Fund", would be set up as an SICAV under Luxemburg law, and would have up to Ђ300 million equity. Generali Group would contribute Ђ90 million and the EBRD up to Ђ75 million.

SWOT analysis

Strengths

Strong position in Italy: Generali is a market leader in Italy, with a market share in life insurance of 19.5% and 17% in non-life insurance. Generali’s strong position is mainly due to the fact that the company made profitable acquisitions in the past, and has been able to achieve and maintain profitability. Examples include the Banca Primavera in 2003, which means that Generali now has access to the largest network of financial consultants in Italy. Life insurance business (accounting for 60% of consolidated premium income) grew by 7.9%, driven by new business (for example, an agreement with Banca Intesa). It is important to note this significant growth in life insurance business, since Generali is one of the very few companies that managed to not only avoid losses, but also achieve profitability in the life insurance sector, where most companies were troubled by the recession and produced poor results. Generali has also achieved a strong position on other markets, including Germany, France and Spain. Generali The insurer benefited greatly from its operations in Spain reaching a profit of Ђ100 million in 2003. Also, the sales of Generali insurance products through Commerzbank (Generali owns 10% of the bank) in Germany were up by 40% at the end of 2003.

Strong financial performance: Generali is rather different to its competitors in a way that it manages its investments differently. The company, unlike other insurers profiled in this report, has a low exposure to equity, asset management and commercial banking. Also the fact that it has no direct investment links with the United States and Japan means that it has maintained financial stability and has not experienced any significant losses during the recession of 2001 and 2002. Generali’s balance sheet is very strong and has Ђ1.7 billion in excess capital.

Steady growth in investments: Generali continues to expand its investment and it reported an increase of 11.4% between 2002 and 2003. Total investments have reached the level of Ђ230 billion at the end of 2003. When compared to its competitors, Generali’s exposure to equities in proportion to bonds is much lower, and in 2003 Generali’s investment portfolio was represented mainly by bonds, in 55.6% and equity accounted for only 6.5%.

Weaknesses

Trying to maintain a leading position in Europe: Generali is now facing a challenge while trying to consolidate its recent acquisitions in France, which includes Le Continent and a portfolio from Zurich Financial Services. If this acquisition is successful, it can contribute to Generali’s stronger position in France. This acquisition increases Generali’s market share of the French insurance market to 6.5%.

High cost of Austrian operations: the group reported decline in profits in 2002 from its Austrian subsidiary, mainly due to the high cost structure on the Austrian insurance market and the high levels of taxation in the country.

Low exposure to markets outside of Europe: Assicurazioni Generali has limited exposure to markets outside of Europe. This may prove to be a problem for the company in the future, since the potential for growth in Europe is becoming rather limited. Generali has already started considering expansion outside of Europe (including China and Philippines), and in 2002 the company entered the Thailand's life- and non-life insurance markets through a strategic alliance forming two joint ventures with the Tantipipatpong family.

High combined ratio: Generali's combined ratio was 110.4% for 2000, 108.4% for 2001 and 107.9% for 2002. The company ended 2003 with a combined ratio of 104.2%. It is expected that it will take time to reduce - especially given the restructuring required in the 'problem' areas, for example in Germany.

Opportunities

Focus on core markets: Generali reported positive trend in underwriting in Europe, where direct premium income grew by 5.5% to Ђ48.6 billion in 2003. Generali is one of the few insurance providers, which recorded profitability in insurance underwriting in Europe.

Exceptional growth in Generali’s life insurance business: Generali’s life insurance business (accounting for 60% of consolidated premium income) grew by 7.9%, driven by new business. Generali's gross premiums reported almost double-digit growth in Italy. Alongside Spain and Germany, Italy has the fastest ageing European population, which contributes to the higher demand for life insurance products and pensions. The new co-operative distribution venture with Banca Intesa has further strengthen Generali’s position in Italy and now Generali group underwrites 39% of all life-insurance premiums in Italy.

Threats

Too cautious investment profile: the group's defensive profile is considered by some analysts to be a disadvantage for Generali, especially in the future market environment. It seems that nowadays large financial groups enjoy stronger exposure to equities, especially through the exposure to the U.S. life insurance market (Generali does not have any exposure to the United States). Furthermore, the upward trend in interest rates could limit the growth in revalued net asset value, which at present includes unrealised bond capital gains.

Company activity snapshot

-  ■■ In February 2004 China's insurance-market regulator cleared Generali to launch

operations in Beijing. The launch is part of efforts by Generali to capture part of China's fast growing life-insurance market, following the steps of other global insurance competitors. Generali started a joint venture with China National Petroleum Corp and formed Generali China Life Insurance, planning to sell life-insurance products in Beijing via its sales force and via local banks. Generali can now enter a market of about 12 million people, or 8% of China's domestic life-insurance market. The new license is part of Generali's larger efforts to expand in Asia. The Chinese life-insurance market has grown 44% a year since 1989. According to analysts, the Chinese market is a long way from reaching a maturity phase and is therefore considered to offer best growth prospects for insurers.

-  ■■ Generali announced in March 2004 that it planned to ‘meet or beat’ targets in

2004 despite economic growth being slower than expected. Generali’s shares in March 2004 gained 2.8% to Ђ21.26 after it reported a net profit of Ђ1.02 billion ($1.25 billion) for 2003 compared with a loss of Ђ754 million the previous year, above its target and many analysts' expectations.