Italian insurer Generali has come to the rescue of Cattolica Assicurazioni, a troubled local rival part-owned by Berkshire Hathaway.
Regulators last month ordered Cattolica to raise €500m of capital after coronavirus-related market volatility hit the financial position of its life insurance businesses.
Insurers around the world have been hit hard by the crisis, which has reduced the value of their assets and increased their liabilities. In March Eiopa, the EU’s insurance regulator, urged insurers to protect their balance sheets by cancelling their dividends.
Generali, Italy’s largest insurer, on Thursday said it would pay €300m for a 24 per cent stake in Cattolica, valuing the company at €1.25bn. People with knowledge of the company described it as a rescue of a rival that needed capital quickly.
The deal will dilute the holding of Warren Buffett’s Berkshire Hathaway, which has been Cattolica’s largest shareholder since 2017 with a 9 per cent stake.
Cattolica is also planning to raise another €200m in an equity issue open to all shareholders.
Cattolica’s solvency ratio — a measure of capital available as a proportion of the minimum required under EU regulations — fell from 183 per cent at the end of last year to 133 per cent this month.
Shares in Cattolica rose 33 per cent to €4.80 on the news on Thursday morning, although they are well down from the €7.30 at which they traded at the start of the year. Generali shares were flat.
The rescue comes as Cattolica battles legal action from former chief executive Alberto Minali. Mr Minali, who was chief financial officer of Generali before joining Cattolica, was removed from his position last year after a clash with the board over governance and strategy. He is now suing the company for €9.6m over his departure.
The equity stake Generali has taken comes alongside a co-operation agreement between the two companies, which will work together in areas including asset management, reinsurance and technology such as telematics in cars.
“The strategic partnership with Cattolica represents a unique opportunity currently in Italy for profitable growth in asset management and innovative services,” said Marco Sesana, head of Generali’s Italian business.
James Shuck, an analyst at Citi, said: “For Generali, this gives access to 3.5m Italian customers and 1,400 agents, at what we see as a very attractive price.”
Cattolica has a 6 per cent share of the Italian insurance market, compared with Generali’s 16 per cent, according to Mr Shuck.