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Fitch Affirms Reale Mutua's IFS at 'BBB+' on Uniqa Transaction
December 7, 2016 / 12:00 PM / a year ago

Fitch Affirms Reale Mutua's IFS at 'BBB+' on Uniqa Transaction

(The following statement was released by the rating agency) LONDON, December 07 (Fitch) Fitch Ratings has affirmed Italian insurer Societa Reale Mutua di Assicurazioni's (Reale Mutua) and its core Spanish subsidiary Reale Seguros Generales' (Reale Seguros) Insurer Financial Strength (IFS) ratings at 'BBB+'. The Outlooks are Stable. Reale Mutua announced on 5 December 2016 that it will acquire UNIQA Assicurazioni Spa (UNIQA Italy) from UNIQA Insurance Group AG for EUR295m. The transaction also encompasses the acquisition of UNIQA Previdenza SpA and UNIQA Life SpA, UNIQA Italy's subsidiaries. The legal closing is expected to take place in 1H17, subject to necessary regulatory approvals. KEY RATING DRIVERS The transaction would strengthen Reale Mutua's business profile in Italy, enhance the diversification of the group's product mix, especially in life, pension and health business, and extend its distribution network. UNIQA Italy distributes both life and non-life products through independent agents, financial advisors and bancassurance. These distribution channels are complementary to Reale Mutua's exclusive network of agents. However, Reale Mutua's geographical diversification would reduce as a result of the acquisition, as the business would become more heavily weighted towards Italy, with Italian non-life premiums increasing by around 13% and Italian life insurance liabilities increasing by around 50%. Reale Mutua's consolidated capital adequacy would reduce following the inclusion of UNIQA Italy's portfolio. On a pro-forma basis, based on end-2015 data and including the impact of the acquisition, Reale Mutua's estimated score in Fitch's risk-adjusted Prism factor-based capital model (Prism FBM) would decrease to 'Very Strong' from 'Extremely Strong', a level nonetheless still commensurate with the ratings. Positively for the ratings, the company plans to finance the acquisition through own funds, so financial leverage would remain zero. There could be execution risks in integrating the acquired business and realising synergies. However, Fitch believes Reale Mutua has the necessary expertise to execute the transaction successfully. In 2015, UNIQA Italy underwrote EUR1.1bn of insurance premiums (Reale Mutua: EUR3.8bn), its combined ratio was 98% (Reale Mutua: 96%) and consolidated net income was EUR10m (Reale Mutua: EUR159m). UNIQA Italy's total consolidated shareholder's equity was EUR318m (Reale Mutua: EUR2.3bn) and total consolidated assets were EUR4.7bn at end-2015 (Reale Mutua: EUR14.2bn). RATING SENSITIVITIES An upgrade of Reale Mutua's ratings is unlikely in the near future given the Negative Outlook on Italy's rating. A one-notch downgrade of Italy is unlikely to trigger a downgrade of Reale Mutua's ratings, due to the group's strong credit profile and international diversification. However, a multiple-notch downgrade of Italy would lead to a downgrade of Reale Mutua's ratings. The ratings could also be downgraded if the group's combined ratio deteriorates to above 105% or if the Prism FBM score falls below 'Very Strong'. 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 David Prowse Senior Director +44 20 3530 1250 Media Relations: Athos Larkou, London, Tel: +44 203 530 1549, Email: Additional information is available on Applicable Criteria Insurance Rating Methodology (pub. 15 Sep 2016) here Additional Disclosures Dodd-Frank Rating Information Disclosure Form here _id=1016005 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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