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* Q1 net profit 603 mln euros vs f'cast 528 mln
* Solvency I ratio improves to 145 pct at end-April
* Greco says on track to deliver targets
* Shares up 2.5 percent, hit highest in nearly 2 years (Rewrites first paragraph, adds shares, analyst and CEO comments)
By Lisa Jucca
MILAN, May 10 (Reuters) - Generali chief Mario Greco's turnaround plan started to bear fruit as the Italian insurer delivered higher-than-expected earnings and improved its capital base, fuelling a near 3 percent rise in its shares.
Greco, at the helm of Europe's biggest life insurance player since August, has pushed through an extensive clean-up of Generali's balance sheet and is seeking 4 billion euros ($5.2 billion) from the sale of non-core businesses to boost capital.
Generali said on Friday its net profit had risen 6.3 percent to 603 million euros ($789.6 million) in the fist quarter, above the 528 million average forecast in a survey compiled by the company.
"Results are good and above expectations," said analyst Enrico Esposti at brokerage ICBPI, adding the results had been boosted by a strong performance in the non-life segment and a move towards higher-margin life products.
By 0720 GMT the shares were up 2.5 percent at 14.90 euros, the biggest gainers in the European insurance index. The stock rose as high as 14.97 euros, its highest since mid 2011.
"In this quarter we have recorded our best operating result of the last four years," Greco said. "We are in the early stages of our journey and are on track to deliver our targets."
Shares in Generali have risen 50 percent over the last 12 months, boosted by hopes for Greco's strategy and improved investor sentiment towards crisis-hit Italy.
Greco said the positive trend seen in the first quarter was continuing in the second. The first quarter had, however, benefited from the absence of catastrophic events.
The company said it saw a higher operating profit in 2013 as a whole compared with a year ago and an increase in non-life results. But life premiums would be lower than last year as Generali continues to move away from low-margin products.
"We are focusing on quality, not quantity," said Greco.
Italy, Generali's core market, is suffering from a protracted recession, but the insurer has benefited from growth in healthier markets such as Germany and Austria.
The group continued to strengthen its capital position and its Solvency I ratio stood at 145 percent at the end of April, benefiting from better market conditions and the placement of 12 percent of unit Banca Generali.
Sources familiar with the matter told Reuters on Thursday that French insurer Scor had emerged as lead bidder for Generali's U.S. life insurance business, which analysts say may be worth $800 million.
Generali has also put on the block its large Swiss private banking arm BSI.
Greco declined to give details on the planned sales but said the process was at an advanced stage.
Greco also said he was open to any deal that would improve the value of Italian phone operator Telecom Italia, in which Generali is a core investor.
Telecom Italia is mulling a possible merger with Hong Kong-based conglomerate Hutchison, as well the spin-off of its fixed-line network. ($1 = 0.7637 euros) (Additional reporting by Gianluca Semeraro; Editing by Stephen Jewkes and David Holmes)