October 24, 2017 / 10:13 AM / a year ago

Fitch Affirms Reale Mutua at IFS 'BBB+'; Outlook Stable

(The following statement was released by the rating agency) LONDON, October 24 (Fitch) Fitch Ratings has affirmed Italian insurer Societa Reale Mutua di Assicurazioni's (Reale Mutua) and core Spanish subsidiary Reale Seguros Generales' (Reale Seguros) Insurer Financial Strength (IFS) Ratings at 'BBB+' (Good). The Outlooks are Stable. KEY RATING DRIVERS The ratings reflect Reale Mutua's very strong capitalisation, as measured by Fitch's risk-adjusted Prism factor-based capital model (Prism FBM), absence of financial leverage and strong business profile. However, Reale Mutua's ratings are heavily influenced by Italy's sovereign rating of 'BBB'/Stable through the group's exposure to Italian-based debt securities. To back domestic liabilities in Italy the group held EUR4.7 billion of Italian sovereign bonds at end-June 2017 (1.9x consolidated shareholders' funds). The group's exposure to Italian sovereign debt is reflected in the sovereign constraint on Reale Mutua's ratings at 'BBB+'. This is one notch above the sovereign rating, in recognition of Reale Mutua's strong credit profile and international diversification into Spain (BBB+/Positive), where the group sources around 24% of its net premiums. The unconstrained IFS Ratings of Reale Mutua and its core subsidiary are 'A'. Fitch expects Reale Mutua to steadily reduce the weight of Italian government bonds in its portfolio. Reale Mutua acquired Uniqa Assicurazioni Spa and its subsidiaries Uniqa Previdenza Spa and Uniqa Life Spa (together Uniqa Italy) from Uniqa Insurance Group AG in December 2016. This transaction has strengthened Reale Mutua's business profile in Italy, enhanced the diversification of the group's product mix, especially in life, pension and health business, and extended the group's distribution network, particularly into independent agents and financial advisors. Reale Mutua's Prism FBM score decreased to 'Very Strong' from 'Extremely Strong' based on end-June 2017 financials, which took into account the recent Uniqa Italy acquisition. The change in its Prism FBM score reflects the increase in risk capital following the consolidation of Uniqa Italy's business in 2017. This level of capitalisation, nonetheless, continues to support Reale Mutua's ratings. Reale Mutua's consolidated Solvency II ratio, calculated using the standard formula and taking into account Uniqa Italy's acquisition, was 206% at end-June 2017 (248% at end-2016). It underpins the insurer's high level of capitalisation. However, given the high exposure to Italian and Spanish sovereign debt, Reale Mutua could face a significant increase in regulatory capital charges if European authorities remove the zero risk-weighting for European sovereigns. Prism FBM already includes a capital charge for sovereign assets. Reale Mutua's 2012-2016 average combined ratio was very strong at 96%. Its consolidated reported non-life combined ratio deteriorated to 98% in 1H17 (1H16: 96%); however, we expect Reale Muta's non-life underwriting profitability to remain positive in 2017. Reale Mutua's average Fitch-calculated return on equity for 2012-2016 was 6%, a level commensurate with the ratings, given the group's mutual status. Fitch expects Reale Mutua to maintain strong net profitability in 2017. Reale Seguros contributes strongly to the group's earnings, is a 'core' entity of Reale Mutua under Fitch's insurance group rating methodology and is rated accordingly, based on the credit profile of the Reale Mutua group as a whole. RATING SENSITIVITIES Reale Mutua's ratings could be downgraded if the group's combined ratio deteriorates to above 105% for a sustained period or if the Prism FBM score falls in the low range of the 'Strong' category. Reale Mutua's ratings would also be downgraded if Italy's sovereign rating is downgraded. An upgrade of Reale Mutua's ratings is unlikely in the near future given the sovereign constraint is already one notch above the sovereign rating. Contact: Primary Analyst Nicola Caverzan Associate Director +44 20 3530 1642 Fitch Ratings Limited 30 North Colonnade London E14 5GN Secondary Analyst Federico Faccio Senior Director +44 20 3530 1394 Committee Chairperson Chris Waterman Managing Director +44 20 3530 1168 Media Relations: Stefano Bravi, Milan, Tel: +39 02 879 087 281, Email: stefano.bravi@fitchratings.com; Athos Larkou, London, Tel: +44 203 530 1549, Email: athos.larkou@fitchratings.com. 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