The group of investors pushing for change at Assicurazioni Generali SpA will have a tough time encouraging the Italian insurer to be bolder with its acquisition strategy.

The challengers, backed by Italian construction magnate Francesco Gaetano Caltagirone, failed to get investor support for their alternative strategy at Generali's April 29 annual general meeting, with 55.9% of the vote in favor of the incumbent team's proposed director list, and by extension its existing three-year strategy and incumbent CEO Philippe Donnet. The alternative strategy proposed an acquisition warchest of up to €7 billion, compared with the current plan's €2.5 billion to €3 billion.

Sensible strategy

The rebels gained three seats on the 13-strong board and are expected to remain vocal in the boardroom and the press. But they are unlikely to sway Donnet from his current M&A approach, characterized by smaller bolt-on deals and caution on price when bidding for larger assets. The company is widely believed to have lost out to Allianz SE in the bidding for Aviva PLC's Polish operations in 2021 because it was not willing to pay as much as its German rival.

"From everything we've seen and heard, I'm not expecting anything particularly aggressive," Claudia Gaspari, an analyst at Barclays, said in an interview. In general, Gaspari said, there are few instances of investors welcoming large M&A deals in the insurance sector and a global presence only works for limited parts of the business. "If you're not present with the right distribution, the right operations ... doing M&A can be incredibly value-destructive, and we have seen it several times in the past," Gaspari added.

For Generali specifically, Gaspari said the company has to be careful not to overpay and take on a large mount of goodwill because there are indications that its capital base has a lower tangible capital component than peers.

The level of competition for acquisitions creates a risk of overpaying, according to Hadley Cohen, an analyst at Deutsche Bank Research. While Generali may have missed out on some acquisitions, "the prices that have been paid looked relatively high compared to what we would have expected them to go for," Cohen said in an interview.

Cohen said that bolt-on deals, which are easier to integrate, are preferable in insurance. "In that respect I think Generali's strategy so far has been sensible, and I wouldn't be surprised for it to continue," Cohen said. The analyst added: "I think the days of transformational large-scale M&A are likely behind us in the insurance sector, so the strategy of incremental bolt-ons is logical."

As Generali has done a good job in reducing its debt leverage, investors would frown on increasing it again "unless it was for something super-attractive," Cohen said. Luciano Cirinà, Generali's former head of Generali's Austria and central and Eastern Europe operations and the challengers' pick for Generali's new CEO, said the company would increase debt leverage to fund acquisitions under the rival plan, Reuters reported.

The challengers' influence on Generali's future more generally should be limited. While they secured three seats on the board, one seat was for Caltagirone, who had been on the board for 14 years before resigning in January 2022. The same month Romolo Bardin, whose company, Delfin, was part of the shareholder pact pushing for change at Generali, also resigned, so the rebels have only gained one net new seat.

The current management team can point to metrics such as share price growth to argue its approach is working, but the challengers' plan, which included compound annual EPS growth of 14% compared with the existing plan's 6% to 8%, was "all very much a theory, so I wouldn't expect Generali's management to change anything," Gaspari said. The current and previous plans discuss elements such as improving operating performance and investing in technology, "so they are not materially different in some respects."

Louder opposition

That does not necessarily mean a return to the status quo. There have long been dissenting voices on Generali's board, not least Caltagirone himself, whose company Caltagirone SpA now owns 9.95% of Generali and is its second-biggest shareholder. But they may now be a little louder. "The noise has always been there but the noise has intensified ... now they have a lot of share capital, they have a lot of voting rights," Gaspari said.

Generali's top team may also find some useful pointers in the challengers' proposals. Generali's current three-year plan is a "reasonable balance" of being ambitious and achievable, Cohen said, but the outcome of the vote and the alternative strategy proposal could prompt the incumbent management to take on board some of the points raised by the challengers, he said in an interview. "I think they will look to integrate certain elements of that into their own plans," the analyst said. While Cohen does not expect the company to change its current targets "I think they could look to explore other levers to help them achieve or even exceed those ambitions," he said.

Generali has more work to do on cost-cutting, Cohen said, the rival proposals could help the company accelerate its plans. The alternative plan envisaged a cost/income ratio of less than 55% and a gross cost saving of up to €600 million.

Generali directed requests for comment on the AGM result to statements made by Donnet and new Chairman Andrea Sironi on the day. Sironi said the AGM had brought "a very delicate phase" to an end. Sironi added: "I hope that everyone can now commit themselves towards this common goal, which is the interests of Assicurazioni Generali."