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Generali/Allianz deal would face political, regulatory hurdles

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Generali/Allianz deal would face political, regulatory hurdles

Allianz Group is reported to be eyeing Italian rival Generali for what would be one of the biggest insurance M&A deals in recent history, but political, financial and regulatory obstacles stand in its way.

Reports by Italy's La Stampa that Allianz was looking into a deal with Italy's biggest insurer fueled a surge in Generali shares, which closed up nearly 4% in Jan. 23 trading. The insurer was valued at just over €22 billion, slightly under a third the value of Allianz, with a market cap of over €71 billion.

Allianz is the second major insurer in under a year to be linked to a cross-border tie-up with Generali. AXA, France's largest insurer by gross written premiums, was tipped in 2016 to be a potential buyer before Generali ruled out the deal.

Allianz's CEO, Oliver Bäte, recently said he was on the lookout for a "big" acquisition, telling a German newspaper that he is interested in buying either in the U.S. or in Europe, where the focus is on property insurance, investment management and credit insurance. He declined to be specific about rumors that Allianz is mulling a tie-up with Switzerland's Zurich Insurance Group Ltd.

Allianz was reported in December 2016 to be interested in Generali's French operations. But one insurance analyst from France said in an interview that he is "very, very skeptical" of an Allianz/Generali marriage.

"Allianz could want to make acquisitions in the U.S. or Asia, [though] it's not simple to find targets at affordable prices," said the analyst, who asked not to be named. "But I don't understand what interest a large European insurer would have to add exposure to European activities. It escapes me."

And even if Allianz was keen enough to go ahead, a deal with Generali would run into big political and regulatory problems, said an Italian analyst, who also asked not to be named.

"I don't think Allianz can buy the operations of Generali," he said, citing worries among Italian politicians over foreign control of key Italian assets, as well as regulatory concerns that a consolidation could make insurance markets in Germany and Italy less competitive.

Allianz, which operates in Italy through Allianz SpA, reported property and casualty gross written premiums in Italy of €2.27 billion and statutory premiums in life and health of €5.14 billion for the first half of 2016, making it one of Italy's big mid-tier insurers. In 2014, it bought a chunk of P&C business in the country as part of the transaction that created what is now UnipolSai Assicurazioni SpA.

Generali, meanwhile, wrote €2.13 billion of P&C business and €6.35 billion of life and health business in Germany during the first half of 2016, making it a large player in Allianz's home market too. Generali's businesses in Germany operate through Generali Deutschland AG.

One solution being considered as a way to soothe at least the Italian regulator's concerns, according to La Stampa, would involve Intesa Sanpaolo SpA, Italy's second-largest bank, investing between €5 billion and €6 billion to ensure that Generali remains, in large part, an Italian-controlled company. But even that, the Italian analyst said, is unlikely to come to fruition, because the regulator is likely to object to Intesa Sanpaolo combining its Intesa Sanpaolo Vita SpA life insurance business with that of Generali, again on competition grounds.