Generali cautious on 2011 target due to market turmoil

MILAN (Reuters)—Assicurazioni Generali, Europe's third largest insurer, posted a 37% fall in nine-month net profit, hit by write-downs on its Greek bonds and equity investments and said full-year operating profit will only be at the low end of its forecast range.

Net profit was €825 million ($1.14 billion), slightly below a Reuters poll mean estimate, after investment write-downs for €824 million ($1.14 billion), the company said on Friday. Write-downs on Greek bonds were €329 million ($453.8 million).

Operating profit was down 1% at €3.1 billion ($4.28 billion), in line with analyst expectations, with a strong performance in nonlife insurance offset by the impact of market turmoil on its life activities, it said.

"Taking account of the extremely volatile trend in financial markets a reduction (is seen) of the (result) for life for the extraordinary component linked to the volatility," the company said in a statement.

In a slide presentation for analysts, Generali said it sees full year operating profit at the lower end of its previous €4 billion ($5.52 billion) to €4.7 billion ($6.48 billion) range.

In a preview poll, eight analysts said they saw annual operating profit at a mean estimate of €4.1 billion ($5.65 billion).

On Friday, Europe's largest insurer Allianz posted a forecast-beating third-quarter operating profit and said it could withstand economic adversity, sending its shares higher.

At Generali, impairments on its investment portfolio which include a large chunk of Italian state bonds pushed down its solvency ratio—a measure of an insurer's capital—to 118%, from 132% at the end of 2010, it said in its results statement.

At the end of June, Generali had €50.9 billion ($70.2 billion) of Italian state bonds, one of the biggest exposures by a financial institution in Italy.

To deal with the market volatility, Generali said it has continued to lower its equity exposure while its fixed income investment is stable compared with end-2010.

"Available liquid investments and equivalent means have increased their proportion following a decision taken by the group to increase liquid instruments," it said citing euro zone tensions, particularly in Italy.