Generali CEO on cost-cutting and Intesa

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It's been an eventful year for Generali, Italy's biggest insurer. With a series of changes in the top team, a refreshed strategy, and takeover interest from Intesa Sanpaolo, Italy's biggest bank. Now a year since he became chief executive, I'm joined by Generali's Philippe Donnet to talk about the challenges facing the company and the industry. Philippe, it's been a very busy year for Generali. Has that distracted the company from the core business of selling insurance?

No, absolutely not. It has been a very challenging year, but it also has been a very exciting year. We've been very focused on implementing our strategic plan which was announced last year in November in the city, in London. And the 2016 results the evidence that we have not been distracted, that we have been very focused on the execution of our plan because our results are great and fully in line with our targets.

Now alongside the results you announced, an acceleration of some of the cost savings that the promise that are going to be delivered a year earlier, but no increase in the cost savings target. Did you consider making extra savings on top of what you had already promised?

Well, as you know, we were very successful in the implementation of our cost savings programmes in 2016 because we reached a net cost reduction of $70 million. Obviously, this is the reason why we are very confident that we can anticipate and reach our target of $200 million cost reduction one year earlier, which means by the end of 2018 instead of 2019. We will announce later next year we will when we will announce our new plan, we will announce what we will do in 2018 about cost.

But I think that definitely to be able to reach our target with one year in advance is a great use. Another part of the strategy that you talked about in November was trimming down a little some of your non-core operations. How is progress on those disposals?

It's progressing very well. As you know, we said that we would sell between 12 and 15 small and medium insurance companies in markets that we consider less attractive or less in line with our strategy. We started the competitive sale processes for each of these assets. And it's progressing well because we have interest and appetite for these assets. So I'm very confident that we will reach our target of $1 billion proceeds for these assets. And we will probably complete the disposal in a reasonable range of time.

Now it's been a challenging period for insurance companies with interest rates very low. Although rates are rising in the US, they're still very low in Europe. How do you as a company, and the industry more broadly, respond to very low interest rates?

Well, I think that the plan that we disclosed last November and that in fact we started implementing one year ago when I was appointed is definitely the right response to these very low interest rate environment. As you know, I spent a few years in Japan. So I'm quite trained in managing insurance company in such an environment. I think the response is very simple. Low cost, low loss ratio, and solid technical margins on the life business.

This is exactly what we are implementing. As you know, we have the lowest expense ratio of the industry. We have the lowest combined ratio of the industry. And we have very solid life technical margins. We are improving significantly the quality of our life business.

Our new business value in 2016 has been growing by almost 15%. Our new business margin has been growing by almost five points. So this is the right response to the low interest rates.

And finally, one of the big challenges facing the industry is technological change. Is Generali ready for that challenge?

Absolutely. It's one of our six strategic initiatives, innovation, digitalisation, what does it mean for us? Digital for us, doesn't mean direct. We have a very good direct business in Italy, for example, in Germany with customers direct.

But for us, digital is a great way to completely transform the customer experience. And this is what we are doing. We are making our sales people our agents digital.

One final question for you. The bid interest from Intesa has gone away now. Are you pleased that that's gone away and that's off the agenda?

Yes, of course I'm pleased it's gone away because I always thought and I'm still thinking that the best way for us as Generali to create value for our shareholders is to remain independent, Italian, and international.

Philippe Donnet, thank you very much.

Thank you to you.