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MILAN/FRANKFURT, Sept 28 (Reuters) - Generali is open to selling its 40 billion euro ($47 billion) German life insurance portfolio to free up capital and accelerate growth in its second-biggest market, the company said on Thursday.
Italy’s biggest insurer said it would gradually wind down its Generali Leben life business from the first quarter next year in a “run-off” process that will honour existing policies but not issue new ones.
“This reorganisation does not exclude a potential future disposal of the Generali Leben portfolio,” the company said.
Insurers are struggling to pay guaranteed returns because of record-low interest rates and European capital rules that have become more stringent for some life policies, prompting some companies to consider selling their life insurance portfolios.
“We see this move as a further step towards potentially selling the German life business as Generali seeks to restructure its European footprint,” UBS analysts said, adding that a sale could generate between 700 million euros and 900 million euros.
After fending off a possible takeover from Italy’s biggest retail bank Intesa Sanpaolo this year, Generali is leaving some smaller markets to focus on core markets such as Germany.
The company, headed by Frenchman Philippe Donnet, said the run-off process 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.
Generali’s German head, Giovanni Leverani, said in a conference call that no decision had yet been made whether to do the run-off alone or sell the entire portfolio.
“We are keeping the door open,” he said, adding that talks are ongoing and several buyers had shown interest.
Generali Leben would be by far the biggest run-off operation in Germany, though Munich Re’s Ergo is considering a sale of an even bigger portfolio.
The option of selling its German life portfolio is part of a broader reorganisation of Generali’s operations in the country.
The insurer said on Thursday that it had agreed an extension of its joint venture with German financial adviser DVAG to distribute its products exclusively. Generali holds 40 percent of DVAG.
Europe’s third-largest insurer will also be investing more in its CosmosDirekt business in the country for online insurance policies.
“(We) reaped the low-hanging fruits. Now it’s time to go deeper, reshuffling the business model completely ... to create a growth story in a stagnating market,” Leverani said.
At 1236 GMT Generali shares were up 0.1 percent, in line with the broader European insurance sector. ($1 = 0.8517 euros) (Reporting by Stephen Jewkes and Alexander Huebner; Editing by David Clarke and David Goodman)