The outlook of the Long-Term ICR has been revised to stable from positive while the outlook of the FSR remains stable. AM Best also has upgraded the Long-Term Issue Credit Ratings (Long-Term IRs) of debt instruments issued or guaranteed by Generali. The outlook of these Long-Term IRs has been revised to stable from positive. Concurrently, AM Best has assigned the FSR of A (Excellent) and a Long-Term ICR of "a+" to Generali Espana, Sociedad Anonima de Seguros y Reaseguros (Generali Espana) (Spain). The outlook assigned to these Credit Ratings (ratings) is stable. (See below for a detailed list of companies and debt instruments.)
The ratings reflect Generali's balance sheet strength, which AM Best categorises as strong, as well as its strong operating performance, very favourable business profile and appropriate enterprise risk management.
The upgrade of the Long-Term ICR reflects Generali's record of consistently strong profitability in challenging market conditions, reflective of the successful execution of the group's strategic plan, focusing on technical discipline and adapting to a persistent low interest rate environment. Generali's balance sheet strength is underpinned by risk-adjusted capitalisation, as measured by Best's Capital Adequacy Ratio (BCAR), at the strongest level, which has benefitted from ongoing solid organic capital generation over recent years. The group had a regulatory solvency ratio of 200% as at 30 September 2018. An offsetting rating factor remains Generali's significant exposure to Italian sovereign bonds, amounting to EUR 60.0 billion as at 30 June 2018 (254% of shareholders' equity). Whilst AM Best notes that Generali holds the majority of these sovereign bonds for asset and liability management purposes, this, together with significant investment exposure to financial institutions, leaves the group's risk-adjusted capitalisation sensitive to shocks in the financial markets. The balance sheet strength assessment also factors in Generali's financial leverage, which is higher than most peers.
Generali demonstrates strong operating performance, resilient to the challenging market conditions prevailing in its core European markets, with the group reporting an operating result of EUR 3.6 billion for the first nine months of 2018. Profitability is driven by solid technical metrics. At year-end 2017, the five-year weighted average non-life combined ratio stood at 93.7% (as per AM Best's calculation). The life segment produced an improved new business margin (standing at 4.01% at year-end 2017 - calculated on present value of new business premiums), driven by the management actions taken to reduce the average embedded guarantee within the life book and develop capital efficient products to augment profitability. The disposal of Generali Lebensversicherung AG in Germany has reinforced this plan, whilst reducing the group's exposure to interest rate risk.
Generali remains one of the largest insurers in Europe, with gross written premium in excess of EUR 66 billion in 2017. The group's very favourable business profile is supported by leading and defensible positions in each of its core markets, namely Italy, Germany, France and Central and Eastern Europe, and is underpinned by a solid franchise. Generali benefits from excellent access to market as a result of its multi-channel distribution strategy, with a strong proprietary network.