December 15, 2017 / 3:51 PM / a year ago

Fitch Affirms SACE's IDR at 'BBB+'; Outlook Stable

(The following statement was released by the rating agency) LONDON, December 15 (Fitch) Fitch Ratings has affirmed SACE S.p.A.'s (SACE) Long-Term Issuer Default Rating (IDR) at 'BBB+' with Stable Outlook and Short-Term Foreign Currency IDR at 'F2'. Fitch has also affirmed SACE's perpetual subordinated notes at 'BBB-'. KEY RATING DRIVERS The ratings reflect SACE's very strong capitalisation and strong business profile as Italy's export credit agency as well as its financial exposure to Italy (BBB/Stable). At end-2016, SACE held EUR1.3 billion (around 20% on total invested assets) of Italian sovereign bonds and EUR3.3 billion (around 50% of total invested assets) of cash balances with Cassa Depositi e Prestiti (BBB/Stable), SACE's parent company, and some Italian banks. SACE's ratings are therefore heavily influenced by the credit quality of Italy and Cassa Depositi e Prestiti. This influence is reflected in our view of SACE's asset concentration risk and sovereign constraint on its ratings at 'BBB+'. We have set the sovereign constraint at one notch higher than the sovereign rating of Italy, in recognition of SACE's strong credit profile and geographical diversification. SACE's off-balance sheet exposure to pledged guarantees and insured credits (EUR59 billion at end-2016) is well-diversified by geography and sector. Fitch's view of SACE's capitalisation is based on the company's relatively low multiple of nominal credit exposure to equity and appropriate reserving. SACE uses Solvency II risk metrics to assess its solvency capital position, although it is not regulated as an insurance company, and therefore is not subject to Solvency II. At end-1H17, SACE's risk-based solvency margin, calculated according to its partial internal capital model, was 1.6x risk capital based on a prudent confidence level of 99.85%, which SACE regards as compatible with a 'AA' rating. We expect SACE's capitalisation to remain very strong in 2017. SACE further increased its use of reinsurance to improve the portfolio mix and stabilise financial results. The ratio of net written premiums at 70% of gross written premiums in 2016 reflected this trend (2015: 81%). However, this approach introduces additional counterparty credit risk, as the main reinsurance provider is the Italian government, and intensifies significant concentration risk. SACE's 2012-2016 average return on equity was 7%, which Fitch views as strong and commensurate with SACE's rating. We expect SACE's return on equity to remain at least at this level in 2017. SACE's consolidated net income was EUR230 million at end-1H17 (end-1H16: EUR103 million), but its underwriting profits can be volatile, due to the timing and magnitude of recoveries from debtors. Investing and hedging activities allow the company to smooth volatile underwriting results, and stabilise net profitability. In the medium term, Fitch expects SACE to rebalance its sources of profit towards underwriting results and to a lesser extent, to investment income. SACE is Italy's export credit agency supporting the internationalisation of Italian companies. With gross written premiums of EUR601 million at end-2016, SACE provides insurance coverage against commercial and political risks, financial guarantees and supports business development of small and medium-sized Italian enterprises RATING SENSITIVITIES Deterioration in the credit quality of its investments could lead to a downgrade of SACE, as could a significant weakening in its capitalisation. SACE's ratings would be downgraded if Italy's sovereign rating is downgraded. Should Italy's rating be downgraded to 'BBB-' or lower, it is likely that Fitch would reconsider its approach of rating SACE one notch above the sovereign and would equalise its rating with the sovereign. An upgrade of SACE's ratings is unlikely in the near future given the sovereign constraint already at 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 Harish Gohil Managing Director +44 20 3530 1257 Committee Chairperson Chris Waterman Managing Director +44 20 3530 1168 Media Relations: Athos Larkou, London, Tel: +44 203 530 1549, Email: Additional information is available on Applicable Criteria Insurance Rating Criteria (pub. 30 Nov 2017) here Additional Disclosures Dodd-Frank Rating Information Disclosure Form here Solicitation Status here Endorsement Policy here ALL FITCH CREDIT RATINGS ARE SUBJECT TO CERTAIN LIMITATIONS AND DISCLAIMERS. PLEASE READ THESE LIMITATIONS AND DISCLAIMERS BY FOLLOWING THIS LINK: here. IN ADDITION, RATING DEFINITIONS AND THE TERMS OF USE OF SUCH RATINGS ARE AVAILABLE ON THE AGENCY'S PUBLIC WEB SITE AT WWW.FITCHRATINGS.COM. PUBLISHED RATINGS, CRITERIA, AND METHODOLOGIES ARE AVAILABLE FROM THIS SITE AT ALL TIMES. 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