Generali - InvestireOggi

Alan Bowe
(44-20) 7134-1837
alan.m.bowe@jpmorgan.com
6
Covered bonds are likely to have
a more stable ratings profile
over the medium term
Europe Credit Research
11 October 2012
Europe, it is likely that we continue to see further downgrades of senior unsecured
bank bonds as the systemic support notching is reduced by rating agencies. (See "The
Great Bank Downgrade" series of publications, latest publish on 2nd April 2012).
Under this scenario we believe a strategic move to increase the allocation to covered
bonds would benefit Generali in the long run and should also attract a lower capital
charge under Solvency II.
We note Generali has moved to reduce cross-border exposures between portfolios
and operations in separate jurisdictions. We expect this to also benefit Generali under
Solvency II and their economic capital model. This will come from the reduction of
risk capital that Generali allocate where government bonds are held cross border. As
of 1H 2012, the cross border exposure reduced by €9bn to €13bn and this released
€200m in associated risk capital; therefore, the expected improvement from this
avenue is fairly limited.
Rights Issue
Though this could be an obvious route to improve solvency we believe that
management will pursue alternative routes such as those mentioned above in order to
avoid a capital call from investors. We note that recent comments made at 1H 2012
results would suggest this to be the case.