Generali upgraded to A+ by Fitch on improved capitalisation

Fitch Ratings has upgraded the insurer financial strength ratings of Generali and its core operating subsidiaries to A+ from A-, in a move the rating agency said reflects the Italian insurer’s strong capitalisation and moderate financial leverage.

Additionally, Fitch upgraded Generali’s long-term issuer default rating to A from A-. The outlook on all the ratings is stable.

“The upgrades reflect the consolidation of Generali's very strong capitalisation and moderate financial leverage,” Fitch said, noting that the insurer maintained a Solvency II ratio of 228 percent at H1 2023 and 221 percent at year-end 2022.

“It also reflects Generali's reduced sovereign investment concentration risk, despite a fall in shareholders' equity as interest rates rose in 2022.”

The upgrade also demonstrates Generali's very strong company profile and resilient operating performance, the rating agency explained.

The Trieste-headquartered insurer saw its operating profit improve to €3.7bn in H1 2023, up from €2.9bn in the prior-year period, driven by a strong performance in non-life.

The group's combined ratio improved to 92 percent from 97 percent, mostly as a result of a significant 11 percent annual increase in gross premiums at the half year.

Fitch noted that Generali's 2017-2021 average return on equity (ROE) was 10 percent, which the rating agency said it viewed as strong.

“We expect ROE to remain strong and supportive of the ratings in 2023-2024,” it said, adding that Generali benefits from a “leading position” in core Western European countries and a significant presence in Central and Eastern Europe and in Asia.

Fitch assessed Generali's investment and asset risk as primarily driven by the group's large exposure to Italian sovereign debt.

“Generali's exposure to Italian sovereign debt creates large concentration risk and potential volatility in capital adequacy, which Fitch views as a rating weakness,” it said.

However, Fitch noted that Generali has been progressively reducing its exposure to Italian bonds over the past four years to protect its solvency capital from the volatility of Italian government spreads.