Bloomberg News

Greco Faces Task of Reviving Generali’s 9-Year-Low Profit

June 04, 2012

Assicurazioni Generali SpA departing CEO Giovanni Perissinotto

Assicurazioni Generali SpA outgoing Chief Executive Officer Giovanni Perissinotto. Photographer: Alessia Pierdomenico/Bloomberg

Assicurazioni Generali SpA (G) Chief Executive Officer-designate Mario Greco faces the task of reviving the largest Italian insurer’s profit that is at a nine- year low as the European debt crisis threatens to engulf Italy.

The 52-year-old, who as CEO of Riunione Adriatica di Sicurta SpA expanded that company before its 2005 buyout by Allianz AG, will take the helm at Generali after he resigns from Zurich Insurance Group AG. (ZURN) Giovanni Perissinotto, who has led Generali since 2001, was voted out by its board 10-to-5 June 2.

Greco arrives at a time when the insurer’s capital is weakened by exposure to Italy’s sovereign debt and its stock is trading near the lowest level in more than 20 years. Investors led by Mediobanca SpA (MB) and Leonardo Del Vecchio, which together own 16 percent of the Trieste, Italy-based company, are turning to Greco for a new strategy after profit fell for four consecutive quarters on writedowns of assets including Greek bonds and lower earnings at the life unit.

“Generali’s main problem isn’t linked to the management but to the country’s risk,” said Angelo Drusiani, who manages about 3 billion euros ($3.7 billion) at Banca Albertini Syz & C. in Milan. “The insurer should focus on internationalization. To do that Greco would need to attract new investors and fresh capital, something that’s not easy in the current environment.”

Italian Bonds

Investors are shunning shares of financial institutions exposed to Europe’s debt as Spain struggles to avoid becoming the next country to call for a rescue and the euro slides near a two-year low against the dollar. Generali held 45.9 billion euros of Italian government bonds at the end of 2011.

Generali rose 3 cents, or 0.4 percent, to 8.52 euros by 9:06 a.m. in Milan trading today. The shares have fallen 27 percent this year, the third-worst performance in the Bloomberg Europe 500 Insurance Index (BEINSUR), which was down 5.8 percent. Generali reached 8.22 euros on May 31, the lowest level since December 1988.

Generali’s solvency I ratio, a measure of its ability to absorb losses, was 117 percent at the end of last year, compared with an average of 188 percent of 12 life insurance companies in Western Europe, according to Bloomberg Industries data.

Even though the ratio rose to 133 percent at the end of March, the levels “limit room for maneuver,” Alberto Villa, an analyst at Intermonte SIM SpA, wrote in report last month.

PPF Venture

Net income slumped 50 percent to 856 million euros last year, the lowest level since 2002.

Greco may need to raise funds to help pay for Generali’s venture in eastern Europe with Amsterdam-based PPF Group NV.

The Italian insurer may spend as much as 2.7 billion euros in 2014 to exercise an option to acquire the 49 percent stake it doesn’t already own, according to Generali’s 2011 annual report.

Perissinotto had dismissed calls for a capital increase and said in March Generali could buy the stake using “internal resources.” A month later, he said raising capital could be an option if “there were real opportunities to grow.”

Investors are betting Greco, a former McKinsey & Co. consultant, can replicate what he has achieved over his 17 years in the insurance industry, when he oversaw businesses in countries including France, Spain and Turkey, as well as Italy.

In 1998 he became CEO of Riunione Adriatica di Sicurta, Italy’s second-biggest insurer at the time. He ran the company until 2005, when he joined Intesa Sanpaolo SpA (ISP) as head of its insurance division.

’International Flavor’

During his tenure at RAS, Greco combined units, expanded the insurer’s sales channels and banking services and fostered distribution alliances. RAS was fully taken over by Allianz in 2005.

RAS’s shares rose about 66 percent under his management, beating a 50 percent decline of the Bloomberg Europe 500 Insurance Index.

“Greco is a very high-quality manager as confirmed by RAS’s performance under his leadership,” said Carlo Alberto Carnevale-Maffe, professor of business strategy at Milan’s Bocconi University. “He will bring an international flavor.”

A Zurich Insurance spokeswoman declined to make Greco available for comment. Greco, who is the Zurich-based company’s head of general insurance, didn’t respond to an e-mail.

Greco may need to prove his independence from leading shareholders after Perissinotto accused Mediobanca, Generali’s biggest investor with a 13 percent stake, of protecting its own interests by pushing him out of office.

Mediobanca Link

“Mediobanca has obstructed Generali management efforts to diversify risk into new high-growth areas” because this might have led to a dilution of its stake and “reduced influence” over the group given the investment bank’s unwillingness to take part in a capital increase, Perissinotto wrote in a May 31 letter to board members.

Mediobanca is leading a rescue plan for Fondiaria-Sai SpA (FSA), Italy’s second-biggest insurer, by supporting a proposal of Unipol Gruppo Finanziario SpA to carry out a merger. Mediobanca has lent more than 1 billion euros to Fondiaria.

Generali Board Member Diego Della Valle, who backed Perissinotto, said after the June 2 meeting that he plans to resign. “I agreed neither with the form nor the substance” of his departure, Della Valle told reporters in Milan.

Mediobanca and Generali have shared business interests beyond Mediobanca’s stake in the insurer. Generali has a 30 percent holding in Telco SpA, Telecom Italia SpA (TIT)’s biggest investor. The insurer last month agreed with shareholders including Mediobanca on a 3.4 billion-euro financing package to help repay loans they obtained in 2007 to buy stakes in the phone company.

Generali has bought 624 million euros of Mediobanca’s bonds and 500 million euros of Mediobanca’s hybrid instruments, according to its more recent annual report.

“Governance is the company’s Achilles heel, as investors have several times interfered in the management to preserve their interests,” Banca Albertini’s Drusiani said. “If he fails in this mission he will not go far.”

To contact the reporters on this story: Sonia Sirletti in Milan at ssirletti@bloomberg.net; Elisa Martinuzzi in Milan at emartinuzzi@bloomberg.net

To contact the editor responsible for this story: Frank Connelly at fconnelly@bloomberg.net


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