Generali Warns on Coronavirus Hit After Impairments Sink Profit -- Update
By Pietro Lombardi
Assicurazioni Generali SpA vowed to slash costs to mitigate the
effect of the coronavirus pandemic, which is expected to hit its
bottom line this year after impairments related to the virus led to
an 85% drop in first-quarter profit.
Generali is the latest insurer to warn that the pandemic will
take a toll on its results. The crisis is a significant challenge
for the industry which has to face claims related to event
cancellations, other costs related to the disruption brought about
by the pandemic, as well as hits to insurers' investment
Executives at the Italian insurance giant said in a call with
journalists Thursday that the company will hold an investor day in
November to asses the progress of the 2021 plan. They are confident
the company has the right strategy in place and added that, thanks
to its business mix, it is less exposed than some peers to the
business areas most affected by the pandemic, such as cancellation
However, although it is still too early to estimate the full
effect of the virus, the insurer forecast lower operating profit
this year. It expects the pandemic to hit revenue, with travel
insurance among the hardest-hit business lines. Generali didn't
give an outlook for the effect of the pandemic on claims, but said
it "can rely on a favorable business mix and robust standard policy
In response to the difficult situation, the company will cut
costs significantly this year. The cost reduction doesn't include
job cuts, the executives said in the call.
Net profit for the year is likely to take a hit from the
pandemic, in particular due to impairments which already dragged
the results in the first quarter.
The company booked 655 million euros ($717.9 million) in
impairments on investments due to disruption in financial markets
sparked by the coronavirus pandemic. This amount could change until
the end of June based on the value of the assets at that time.
Net profit for the period fell almost 85% to EUR113 million.
The impairments offset a solid operating performance. Operating
profit rose 7.6%, boosted by the property-and-casualty division and
the asset-management operations.
"While the reassuringly high 1Q operating result should please
investors, the non-operating impacts are somewhat higher than
expected," U.S. bank Jefferies said.
Shares in Generali fell 1.1% at 0755 GMT.
Insurance market Lloyd's of London recently estimated that the
coronavirus pandemic could deal a $203 billion blow to the global
insurance industry this year, as underwriting claims are expected
to reach levels seen after some of the worst natural catastrophes
in recent years and as insurers' investment portfolios get
hammered. Underwriting losses related to the pandemic should
account for roughly $107 billion of the expected hit, with falls in
investment portfolios expected to make up the remaining $96
Big European insurers such as Germany's Allianz SE and France's
AXA SA have warned about the effect of the pandemic. The German
insurer, which like reinsurer Munich Re has scrapped guidance for
the year, said the virus had an overall hit on its operating
profits of around EUR700 million in the first three months of the
This is "one of the most difficult and uncertain periods in
recent decades," Generali Chief Financial Officer Cristiano Borean
"The first three months of the year showed a good operating
performance and confirmed the group's solid capital position," he
Write to Pietro Lombardi at firstname.lastname@example.org
(END) Dow Jones Newswires
May 21, 2020 04:33 ET (08:33 GMT)
Copyright (c) 2020 Dow Jones & Company, Inc.
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