MILAN (Reuters) - Italy’s top insurer Generali (GASI.MI) has agreed to buy 24.4% of smaller rival Cattolica Assicurazioni (CASS.MI), the two companies said on Thursday, in a surprise move that will boost Cattolica’s capital position.
The investment will turn Generali into Cattolica’s single-biggest shareholder, leapfrogging Warren Buffett’s Berkshire Hathaway (BRKa.N), currently the top investor with a 9% stake.
The move comes after a turbulent spell for Italian insurers, which have seen the value of their assets, including large holdings of domestic government bonds, hit by a market rout caused by COVID-19.
Insurance regulator IVASS has told Cattolica to raise 500 million euros in capital after the coronavirus crisis knocked its solvency ratio, a measure of financial strength.
IVASS has started monitoring closely insurers’ solvency and liquidity levels due to COVID-19.
Generali and Cattolica are also signing multi-year partnerships in asset management, the Internet of things, healthcare and reinsurance.
Generali will subscribe to a 300 million ($337 million) euros reserved capital increase at Cattolica, paying 5.55 euros per share, a premium of more than 50% to Wednesday’s closing price of 3.61 euros.
By 1102 GMT shares in Cattolica rose 34% to 4.84 euros. Generali shares fell 0.3%.
Generali also has the option to subscribe pro-rata to an up to 200 million euro cash call Cattolica is set to approve by July.
Analysts at Societe Generale said it would not be surprising if Generali further raised its Cattolica stake in the future.
Under the accord, Cattolica will shed its cooperative status and turn into a regular joint-stock company by April 1, 2021.
Credit Suisse analysts said the deal would help Generali cement its leading market position and generate additional revenues, despite a low return on capital invested.
“The strategic partnership with Cattolica ... allows us to extend our services ... to Cattolica’s over 3.5 million customers,” Generali’s Italy Marco Sesana said in a statement.
The new banking group would be strongly focused on insurance and a twin deal needed for antitrust reasons is set to boost the network of Italy’s second-biggest insurer UnipolSai (US.MI).
Rothschild advised Generali on the deal.($1 = 0.8890 euros)
Additional reporting by Elvira Pollina and Giancarlo Navach; editing by Jason Neely and Alexandra Hudson