Generali is in the spotlight in Piazza Affari: the stock gains 1,9% to 15,46 euros at the end of the morning in a market that rises by 0,3%. According to press rumors, Generali is considering the sale of Generali Leben in Germany with estimated assets of 44 billion and a possible proceeds of between 900 and 600 million from the sale.
“The life company – writes Equita – is the most problematic among the German subsidiaries of the group from a Solvency II perspective, affected by the challenging interest rate context in the face of reserves characterized by high guaranteed minimums”. Based on the data provided during the investor day, the company at the end of 2015 had a Solvency II rating of 162% against almost 400% of Aachen Munchener and Cosmos and 287% of Generali Deutschland. For some time now, management has had a particular focus on the company which has not placed traditional policies for some time and is the subject of an aggressive cost-cutting plan. During the investor day in London, the head of the German division had speculated on the sale of portions of the portfolio in order to optimize the company's Solvency II position, underlining however that the company could be capitalized by resorting to intra-group adjustments between the German subsidiaries. And it is no coincidence that today the insurance group responded to the rumors by recalling that "as already explained at the Investors Day, the sale of a part of the portfolio within the perimeter of the German activities is one of the many strategic options that the company is evaluating" .
For Equita, "the sale would partially mitigate the risk linked to the life exposure in Germany but would not radically change Generali's equity story". According to Credit Suisse analysts, a sale would be in line with the group's strategy presented in November 2016. Analysts estimate a 2016 embedded value for Generali Leben of approximately 2,1 billion euros. Similar trades suggest multiples of 0,5-0,7x for business of this type. If this were the case, “we believe that a transaction would not be particularly positive for the group's Solvency II ratio. A sale could lead to 1 billion euro of cash, which is the minimum sales target for the group”.
