By Stephen Jewkes and Pamela Barbaglia
MILAN/LONDON (Reuters) - Italy's biggest insurer Generali (MI:GASI) is looking to raise at least 1 billion euros ($1.06 billion) by selling businesses in unattractive markets and is to cut costs in an effort to boost profit and capital.
Reiterating 2018 targets on Wednesday, Generali said it is reviewing its presence in 13-15 countries and aims to cut operating costs in mature markets by 200 million euros over the 2016-19 period.
These plans provide more evidence of how insurers are having to respond to a squeeze on margins between investment income and policyholder returns as a result of low interest rates. This has prompted the likes of Europe's biggest players Allianz (DE:ALVG) and Axa (PA:AXAF) to rethink their business models.
European insurers got a boost this month from rising bond yields triggered by Donald Trump's victory in the U.S. presidential elections. But uncertainty over a referendum that could unseat prime minister Matteo Renzi is weighing on Italian shares.
If yields go up and the spread (between Italian and German 10-year bonds) doesn't widen too much we are much better off," Chief Financial Officer Alberto Minali said.
Generali shares, which rose sharply on Tuesday after reports by Reuters and business newspaper Il Sole 24 Ore of potential job losses, dropped by nearly 4 percent on Wednesday, with some analysts expressing concern over the insurer's dividends.
The company denied that it was considering laying off 8,000 workers outside Italy.
"This number does not exist ... there are no redundancies or restructuring plans," CEO Philippe Donnet told reporters on Wednesday.
Donnet later told analysts there could be a reduction in headcount in coming years in countries without strong enough growth rates through slower hiring, natural attrition and restructuring plans.
The group's headcount of about 76,000 had already fallen by 1,500 since March from slower hiring rates and staff departures, he said.
Generali, which generates most of its revenue and earnings in Italy, France and Germany, did not specify the markets it is considering leaving, though broker Intermonte said that South American or Benelux countries could be among the candidates.
Donnet, who took the helm when Mario Greco left to join rival Zurich Insurance (S:ZURN) in March, said Generali was aiming for a 15 percent productivity boost by 2019.
"Our goal is leadership in our chosen markets, not measured by size but by profitability," he said.
REINVESTING
Europe's third-largest insurer said its strategy was not based on mergers and acquisitions but it is open to reinvesting the 1 billion euros from disposals if the right opportunity came along.
Donnet said the group was interested in small and mid-sized companies easy to integrate and run in markets where Generali was already strong but said the group was in no rush to buy.
Asked about the controlling stake in asset management division Banca Generali (MI:BGN), he said the insurer had no plans to sell down its stake.
The company, which gave no details on solvency capital targets, said it intended to change the business mix of its life operations by shifting to more capital-light products.
Generali is more focused than its main rivals on capital-intensive traditional life products rather than unit-linked or index-linked policies.
It stuck to its targets to generate more than 7 billion euros in cash by 2018 and pay more than 5 billion euros in dividends. The company currently has a dividend payout ratio of 55-60 percent, Minali said.
Analysts at Intermonte said its own dividend estimates were below the targets given by Generali. "We believe consensus could be revised downwards," they said.
Generali shares closed down 3 percent, among the worst performers on the pan-European STOXX 600 (STOXX) index.