Fitch Ratings has today affirmed the Italian insurance company Assicurazioni Generali SpA's ratings at Issuer Default 'AA-' and insurer financial strength 'AA'.
Generali's subsidiaries are also affirmed as listed below. All rating outlooks are stable.
The affirmation follows the preliminary agreement between Generali and PPF group N.V. to form a joint venture company in central and eastern Europe (CEE). Generali and PPFG will contribute equity participations in subsidiaries operating in the region. Generali's initial stake in the JV will be increased to 51% from 29.4% by a EUR1.1bn cash payment, which will be funded from internal resources.
Essentially, Generali's relatively disparate eastern European operations would be enhanced by the inclusion of Ceska Pojistovna a.s. operations. Ceska, which is the largest insurer in the Czech Republic, accounted for 95% premiums of CZIH Group (a PPFG company) in 2006 and has a 33% share in its domestic market.
Although this transaction drains resources from the group capital position, Fitch does not believe that the capital deployed would make a material difference to Generali's capital adequacy. Debt-equity leverage as per Fitch's calculations would remain unchanged at 21%.
The JV is expected to be moderately earnings-enhancing, while cost synergies should be minimal. CZIH posted a net profit in 2006, excluding exceptional items, of EUR257m.
Fitch takes comfort from the strategic rationale of this agreement, which is in line with Generali's previously stated growth objectives. This transaction would increase the significance of Generali's CEE operations within the group. Subject to the successful completion of the JV, CEE is expected to account for 4% of Generali group premiums, up from 2%. Management of the JV operations will be equally split between Generali and PPFG. Generali will appoint the chairman during the first two years and the first chief executive officer will come from PPFG.
