Analysts are buzzing about Assicurazioni Generali's (OTCPK:ARZGY) impressive first half of 2018, and rightfully so. A record-breaking net result, a decade-high operating profit, and exceeding strategic targets – these are all strong indicators of a company on the upswing. But amidst the flurry of positive news and self-congratulatory pats on the back, a single sentence, uttered almost as an afterthought by Group CEO, Philippe Donnet, might hold the key to unlocking a much larger and more significant story: the potential for explosive growth within Generali's asset management division.

Donnet's declaration, "Our Asset Management business plays a key role and we expect it to contribute to EUR 150 million of additional profit to the group by 2020," seems innocuous at first glance. It's tucked away in a section dedicated to reviewing strategic targets, sandwiched between pronouncements about cost reduction and portfolio rebalancing. Yet, a deeper dive into the financials reveals this statement to be a monumental understatement, hinting at a transformative shift within Generali's business model.

The first half of 2018 saw Generali's European asset management activities generate a staggering €88 million in operating profit, a 56% surge compared to the same period in 2017. This resulted in a €36 million boost to the group's overall profit compared to the first half of 2016, the baseline year for comparison. These figures, already remarkable, paint only a partial picture. Remember, Generali's stated target for asset management's profit contribution by 2020 is €150 million. They're already over halfway there, with two years to spare.

Now, consider this: Generali's overall operating profit for the first half of 2018 was €2.53 billion. If the asset management division continues on its current trajectory, its €150 million contribution by 2020 would represent roughly a 6% increase in the group's total operating profit, assuming all other factors remain constant. But that's where things get really interesting.

The 56% year-over-year growth in asset management's operating profit suggests that "all other factors" are far from constant. This division is exhibiting explosive growth, fueled by several key factors detailed in CFO Luigi Lubelli's presentation: increased real estate investments, a strategic review of insurance-mandate pricing, and an expansion of both third-party business and internally managed unit-linked assets are propelling this surge.

"These drivers are not temporary blips on the radar; they represent deliberate, long-term strategic choices. Generali is actively transforming its asset management division into a growth engine, capable of not just contributing a modest sum to the overall profit, but potentially becoming a significant force in its own right."

Projected Asset Management Operating Profit Growth

The following chart illustrates the potential growth of Generali's asset management operating profit, assuming a continuation of current trends and strategic initiatives.

Let's crunch some numbers. If the asset management division maintains even half its current growth rate for the next two years, its contribution to the group's operating profit could easily surpass €250 million by 2020, almost double the initial target. This scenario would see asset management's share of Generali's operating profit jump to nearly 10%, effectively redefining the company's revenue mix.

What does this mean for investors? It signals a fundamental shift within Generali, moving beyond its traditional insurance stronghold and embracing a more diversified and potentially high-growth business model. As asset management continues to gain traction, it could act as a buffer against fluctuations in the insurance market, providing a more stable and attractive investment proposition.

"**Fun Fact:** Generali, founded in 1831 in Trieste, Italy, was initially named "Assicurazioni Generali Austro-Italiche," reflecting its roots in the Austro-Hungarian Empire. Today, the company's global reach and ambitious foray into asset management signal a new chapter in its 187-year history, one where this legacy insurer is boldly charting a course towards a future of diversified growth and potentially outsized returns."

Donnet's seemingly understated sentence about asset management's contribution might have slipped under the radar of most analysts, but it offers a tantalizing glimpse into a future where Generali's growth story is driven not just by its insurance prowess, but also by its burgeoning asset management powerhouse. The seeds of this transformation are already being sown, and the harvest could be truly bountiful.