November 8, 2018 / 9:05 AM / 6 days ago

Poste Italiane plans to strengthen insurance unit after bond sell-off

MILAN, Nov 8 (Reuters) - Poste Italiane plans to focus on strengthening its insurance business following a sell-off in government bonds, the company said on Thursday after its profits in the first nine months jumped 46 percent to beat expectations.

The former postal services monopoly, controlled by the Treasury and state lender Cassa Depositi e Prestiti, is now a conglomerate whose insurance arm Postevita is a key source of growth.

On Thursday it said Postevita’s solvency ratio, a closely watched measure of financial strength, fell to 172 percent from 185 percent at the end of June, mainly due to market volatility impacting its government bond holdings.

Poste holds 50 billion euros of state bonds at its financial services division and 70 billion euros at its insurance unit.

Government bonds have come under pressure as Italy’s new ruling coalition looks to borrow to fund increased welfare spending and tax cuts.

“We have put in place a series of measures to be able to absorb the level of spread reached in recent weeks,” chief executive Matteo Del Fante said.

Del Fante, who said the group did not need any capital increase, said even if the spread between Italian BTP bonds and German bunds widened, the dividend was sustainable.

The group has committed to raise the dividend this year by 5 percent to 0.44 euros per share.

The company, which said its insurance arm could post a loss this year, indicated a pro-forma solvency II margin of 210 percent after undertaking capital management actions.

Net profits in the first nine months came in at 1.056 billion euros, above an analysts’ consensus of 1.008 billion euros.

“This is a good set of results, better than estimates, (and) solvency seems manageable,” analysts at Milan broker Banca Akros said.

At 0837 GMT shares in Poste Italiane were up 4.8 percent. (Reporting by Stephen Jewkes; Editing by Jan Harvey)

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