(The following statement was released by the rating agency)
LONDON, October 11 (Fitch) Fitch Ratings has affirmed Unipol
(Unipol) Long-Term Issuer Default Rating (IDR) at 'BBB-'. Fitch
affirmed UnipolSai (Unipol's primary insurance subsidiary)
Strength (IFS) rating at 'BBB' and the Long-Term IDR at 'BBB-'.
The Outlooks on
the IFS rating and the Long-Term IDRs are Stable. A full list of
is available at the end of this commentary.
KEY RATING DRIVERS
The ratings reflect Fitch's expectations that Unipol's adequate
profitability are likely to be negatively affected by the
extremely weak credit
quality of its banking operations (Unipol Banca) in the coming
believes that Unipol's ownership of Unipol Banca will be a drag
earnings and ultimately weaken capital, in view of the likely
need to support
the banking operations.
Fitch's view on Unipol's capital is driven by the company's
score under Fitch's
Prism Factor Based Model (Prism FBM). Unipol's score improved to
on end-2015 financials, from "Adequate" in 2014, as Unipol
underwrote a smaller
amount of premiums. The quality of capital is negatively
affected by the amount
of goodwill on the balance sheet (EUR1.6bn or 20% of total
at end-June 2016) and various contingent liabilities, including
However, goodwill is excluded from total available capital in
Unipol's consolidated regulatory Solvency II ratio, calculated
specific parameters (USP), decreased to 140% at end-June 2016
from 150% at
end-2015 due to stock-market volatility and lower interest
rates. The financial
leverage ratio (FLR) is relatively high at 35% at end-June 2016.
FLR to remain commensurate with the current ratings.
Unipol's non-life combined ratio improved to 96% at end-June
2015: 97%) driven by a more favourable natural catastrophe trend
than last year.
However, net income decreased to EUR160m at end-June 2016
EUR255m), as exceptionally high net realised gains in 2015
cannot be repeated in
2016, due to stock-market volatility. Fitch-calculated net
income return on
equity was 3.4% at end-June 2016. Net profit is likely to remain
the uncertainty linked to non-insurance operations, notably
banking and real
estate, and financial markets.
The exposure of Unipol to Italian government debt (BBB+/Stable)
was EUR39bn at
end-June 2016, about 5x consolidated shareholders' funds. Like
insurers, this creates concentration risk in Unipol's investment
However, Unipol plans to reduce this exposure. In addition,
Unipol's exposure to
real-estate assets (about 7% of total investment assets at
end-June 2016) is
negative to Unipol's ratings, as some of these assets are
Unipol continues to reduce its exposure to real estate. The
property market is hampering this policy.
Unipol has a strong franchise in Italy and is the largest
insurance group by non-life gross written premiums. Unipol
Fondiaria-SAI in 2012 to create the largest motor underwriter in
group distributes its insurance products through a multichannel
Factors that could trigger a downgrade of Unipol's ratings
- Prism FBM assessment worsens to "Somewhat Weak"
- FLR deteriorates to above 40% for a sustained period.
- Return on equity falls below 3% for a sustained period.
Factors that could trigger an upgrade include:
- Prism FBM assessment remains "Strong" for a sustained period.
- Return on equity remains above 6% for a sustained period.
FULL LIST OF RATING ACTIONS
Unipol Gruppo Finanziario
Long-Term IDR affirmed at 'BBB-'; Outlook Stable
EMTN programme: affirmed at 'BB+'
Senior unsecured debt: affirmed at 'BB+'
IFS rating affirmed at 'BBB'; Outlook Stable
Long-Term IDR affirmed at 'BBB-'; Outlook Stable
Senior debt: affirmed at 'BBB-'
Dated/undated subordinated debt: affirmed at 'BB'
Dated subordinated debt: affirmed at 'BB+'
Undated subordinated debt: affirmed at 'BB'
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