Italy's Cattolica sticks to 2020 targets ahead of Generali tie-up

MILAN, Sept 11 (Reuters) - Italian insurer Cattolica Assicurazioni stuck to its guidance for 2020 on Friday after reporting better than expected first-half operating profit boosted by lower motor claims during the COVID-19 lockdown.

Cattolica said business conditions had improved after the second quarter, adding its planned 500 million euro ($593 million) capital increase will bolster its financial strength.

In June Italy’s insurance regulator told Cattolica to boost capital after the coronavirus crisis dented its solvency ratio - a key measure of financial strength.

Lower prices and higher risk premiums on Italian government bonds have undermined solvency ratios at Italian insurers since they must book them at market value for capital ratio purposes.

Italian government bonds account for 52% of Cattolica’s overall financial assets, down from 73% in 2016. The insurer aims to get that down to around 50% by the end of the year.

Cattolica’s operating profit for the six months to end-June came in at 217 million euros, up 38.6% from a year earlier.

It stuck to its forecast given in February and confirmed in May for 2020 operating profits of 350-375 million euros.

Chief Financial Officer Atanasio Pantarrotas said the company’s solvency ratio should rise to around 190% after the cash call, expected to be launched in autumn, from 154% end-August.

The capital increase and the insurer’s recent transformation from cooperative to joint-stock company paves the way for a tie-up with Italy’s biggest insurer Generali.

In June, Generali agreed to buy 24.4% of smaller rival Cattolica.

Under the agreement, Generali will subscribe to a 300- million-euro reserved capital increase at Cattolica with an option to subscribe pro rata to a separate cash call of up to 200 million euros.

The investment will turn Generali into Cattolica’s single-biggest shareholder, leapfrogging Warren Buffett’s Berkshire Hathaway currently the top investor with a 9% stake.

$1 = 0.8431 euros Reporting by Andrea Mandalà; Editing by Stephen Jewkes and Emelia Sithole-Matarise