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Categorized | Financial

Generali to exit less profitable markets in cost cutting drive

Posted on November 23, 2016

Generali, Italy’s largest insurer, has unveiled a plan to exit unprofitable and subscale markets in a bid to cut costs and raise €1bn in cash by 2018.

The move by Generali is the first major strategic update by new chief executive Philippe Donnet who took the helm earlier this year when Mario Greco quit after three years for the top job at rival Zurich Insurance, reports Rachel Sanderson in Milan.

Mr Donnet confirmed Generali’s targets to achieve free cash flow of about €7bn and cumulative dividends of about €5bn by 2018. The insurer, which operates in around 60 countries, reiterated its average return on equity of about 13 per cent over the 2015 to 2018 period.

“We believe these new targets will provide comfort that Generali is fully on track to deliver its main 2015 to 2018 targets on dividend, return on equity and cashflow,” JP Morgan analysts wrote in a note.

Generali shares are down 34 per cent year to date compared with a 10 per cent fall on average fall for insurers. The stock fell 4 per cent on Wednesday.

Shares in Zurich Insurance have risen 12.4 per cent this year since Mr Greco joined that insurer.

Despite being in more than 60 countries, Generali has for some time focused its business on four geographies Italy, France, Germany and central and eastern Europe.

RBC analysts said outside its main focus countries “many of the markets where Generali operates will be too small to be sufficiently profitable and simply produce a drag to earnings and capital”.

“The release of €1bn of cash should provide a one off benefit but the increased focus of the group should help operational efficiency over the coming years as well,” RBC analysts added.