Generali , Europe's No.3 insurer, is targeting operating profit of more than 5 billion euros ($6.6 billion) in the mid term as it sees no repeat of the dramatic market shocks that prompted big writedowns in the past year.

Italy's top insurer said on Wednesday it believes the worst is over after detecting signs of recovery in the early months of 2012, having reported a 50 percent drop in yearly net profit to 856 million euros and a dividend cut late the previous session.

I am hopeful that we have reached the bottom and now the way is up, Generali Chief Executive Giovanni Perissinotto told analysts during a conference call, adding he expected strong growth in profit this year.

Yet investors punished Generali shares, which were down 3.2 percent by 1212 GMT on the back of the weak earnings and reduced dividend. The company also set an operating profit target for its large life business slightly below the target set for last year.

Generali shares underperformed a 0.3 percent fall in the European insurance sector <.SXIP> as a whole.

Generali had been hit hard by the deepening of the euro zone crisis due to its Greek bond holdings and its exposure to the Italian market. Its 2011 results were hit by impairment losses worth 1 billion euros on Greek bonds and other holdings.

The insurer's operating result of 3.9 billion euros in 2011 was below the bottom of its target range. It set a new 2012 target at 3.9 to 4.5 billion euros.


Weak 2011 net profit forced Generali, the last major European player to report 2011 results, to cut its dividend to 0.20 euro per share from 0.45 euro for 2010.

This contrasts with a decision by French rival Axa and German peer Allianz to keep dividends stable. At 1.52 percent, Generali's dividend yield is now well below a sector average of 4.7 percent, analysts said.

The big surprise, in our view, was the larger-than-expected cut in the dividend, said analysts at Nomura.

European insurers' 2011 dividends have been under close scrutiny amid investor worries that writedowns on sovereign debt, near-record catastrophe claims and dwindling investment returns might crimp their ability to pay while maintaining healthy capital reserves.

Generali's Solvency I ratio - a measure of financial strength - held up better than expected in the final quarter of 2011, when yields on Italian government bonds rose to euro-era highs amid an intensification of the euro zone crisis.

The ratio, reported under conservative Italian solvency rules, had rebounded to 132 percent by March 1, 2012 and will get a small additional boost from the announced sale of Israeli unit Midgal. Chief Financial Officer Raffaele Agrusti told analysts Generali was targeting 140 percent in 2014.

The insurer said on Wednesday it was considering further sales of assets it considers non-core.

Generali, which reported a 38 percent rise in 2011 non-life results to 1.56 billion euros, said on Wednesday it had a 2012 target range of 1.5 to 1.9 billion euros, above last year's goal.

In the life sector, where the insurer saw a 16 percent fall in 2011, this year's target was set at 2.4 to 2.8 billion euros, below the 2.7-3.2 billion euro target set for last year.

Generali's effort to expand its footprint in high-growth emerging markets is making it a more attractive player than some rivals, although the outlook for Europe's life market remains uncertain as the crisis eats into household savings.

($1 = 0.7564 euro)

(Additional reporting by Stephen Jewkes and London stock market team; Editing by Dan Lalor and David Holmes)