September 28, 2017 / 8:21 AM / a year ago

Generali may sell German life portfolio to fund expansion

MILAN, Sept 28 (Reuters) - Generali is open to selling its 40 billion euro ($47 billion) German life insurance portfolio to free up capital to accelerate growth in its second-biggest market, the company said on Thursday.

Italy’s biggest insurer said in a statement it would be gradually winding down its Generali Leben life business from the first quarter next year in a “run-off” process, which means it will honour existing policies but not issue new ones.

Insurers are struggling to pay guaranteed returns because of record-low interest rates and European capital rules have become more stringent for some life policies, prompting some companies to consider selling their life insurance portfolios.

Generali said a sale would boost its economic solvency ratio, a measure of financial strength, by 1.7 percentage points and by 26 percentage points in Germany, where it is the second largest insurer by premium income.

“This is positive news ... The capital free-up could also open up further new-growth opportunities in the German market,” Milan broker Banca Akros said.

As part of a reorganisation, Generali also said it had sealed an agreement with German financial adviser DVAG to distribute its products exclusively in the country. Generali holds 40 percent of a joint venture with DVAG which will absorb the Italian companies agent network by the middle of next year.

Europe’s third largest insurer will also be investing more in its CosmosDirekt business for online insurance policies.

“This reorganisation does not exclude a potential future disposal of the Generali Leben portfolio,” Generali said.

Sources told Reuters in July that U.S. investment bank Morgan Stanley was evaluating options for Generali’s life business in Germany, including a sale.

One of the sources said the insurer was hoping to sell the portfolio for about 900 million euros but bidders valued it at closer to 400 million to 600 million euros.

After fending off a possible takeover from Italy’s biggest retail bank Intesa Sanpaolo earlier this year, Generali said it was leaving markets where it lacks sufficient size so it can focus on core markets such as Germany and France. ($1 = 0.8517 euros) (Reporting by Stephen Jewkes; editing by David Clarke)

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