TEXT-S&P raises Fondiaria-SAI Spa rating to 'B+' from 'B'

Thu Aug 9, 2012 12:11pm EDT

Overview
     -- On Aug. 1, 2012, Fondiaria-SAI Spa's EUR1.1 billion
shareholder rights' offer period concluded. Of the newly issued shares, 61% was
subscribed for a total value of EUR666.3 million, with the remaining to be
offered on the market. The subscription of any remaining ordinary shares is
guaranteed by a pool of banks, subject to specific clauses.
     -- We estimate Fondiaria-SAI's capital adequacy has been restored above 
the minimum regulatory requirements. However, we believe the risk of 
regulatory intervention, although reduced, remains significant.
     -- We are therefore raising to 'B+' from 'B' our long-term counterparty 
credit and financial strength ratings on Fondiaria-SAI Spa, its "core" 
subsidiary Milano Assicurazioni SpA, and its "nonstrategically important" 
subsidiary, SIAT-Societa Italiana Assicurazioni e Riassicurazioni pA.
     -- We are revising our CreditWatch placement on the ratings to positive, 
from developing, to reflect the increased probability that Fondiaria-SAI will 
merge with its holding company, Premafin HP, with Milano Assicurazioni and 
with Unipol Assicurazioni, which in our view could benefit Fondiaria-SAI's 
financial strength.
    
Rating Action
On Aug. 9, 2012, Standard & Poor's Ratings Services raised to 'B+' from 'B' 
its long-term counterparty credit and financial strength ratings on 
Italy-based composite insurer Fondiaria-SAI SpA, its core subsidiary Milano 
Assicurazioni SpA, and its "nonstrategically important" subsidiary 
SIAT-Societa Italiana Assicurazioni e Riassicurazioni SpA (SIAT).

At the same time, we revised the CreditWatch placement on the ratings to 
positive from developing, where they were originally placed on Dec. 29, 2011.
Rationale
The upgrade reflects our view of Fondiaria-SAI's improved capital position 
following the EUR666.3 million capital increase it concluded on Aug. 1, 2012. We
estimate Fondiaria-SAI has restored its capital adequacy to a level close to 
its minimum regulatory requirements. We believe, however, that capital 
adequacy remains weak and volatile, while its already-weak financial 
flexibility has been further impaired as result of the rights issue. We also 
believe Fondiaria-SAI remains exposed to a significant, although reduced, risk 
of regulatory intervention over the next 12 months.

At the closing of the EUR1.1 billion rights offer period on Aug. 1, 2012, there 
were exercised share option rights corresponding to 61.9% of the newly issued 
ordinary and saving shares offered by the company. The nonexercised share 
option rights will be offered on the market by Fondiaria-SAI at new dates that 
have not yet been communicated. The potential remaining ordinary shares will 
be subscribed by a pool of banks, which agreed on July 13, 2012, to jointly 
and severally guarantee the subscription of the remaining ordinary shares. 
Unipol Gruppo Finanziario SpA (UGF) had guaranteed the subscription of the 
savings shares.

We note, however, that the contract signed by Fondiaria-SAI with the banks 
contains specific clauses which allow them to withdraw on the occurrence of a 
series of events. The negative consequences of the unsuccessful completion of 
the capital increase for Fondiaria-SAI would be exacerbated by the fact that 
it would also jeopardize Premafin's own debt restructuring plan.

According to our estimates, Fondiaria-SAI's capital adequacy would exceed its 
consolidated regulatory solvency margin requirement by over 20%, when taking 
into consideration regulatory forbearance measures in Italy, the full 
execution of the capital increase, and yields on Italian government bonds at 
close to year-end 2011 levels. However, we believe this level of capital, 
although above the minimum levels required by the regulator, would still not 
be sufficient to significantly reduce the risk of regulatory intervention in 
the medium term. In our view, Fondiaria-SAI remains exposed to a significant 
risk of additional nonrecurring costs such as further reserve strengthening, 
asset write-downs, and other costs that could result from legal, claw-back, 
and compensatory actions from shareholders, listing authorities, and 
creditors. Under Standard & Poor's capital model, even when taking into 
account the proceeds of a fully subscribed EUR1.1 billion shareholders' rights 
issue, Fondiaria-SAI's capital would remain below requirements at the 'BBB' 
level.

The ratings on Fondiaria-SAI remain supported by what we view as its good 
competitive position and good liquidity. In our view, relative weaknesses to 
Fondiaria-SAI's credit profile are its weak capital adequacy and financial 
flexibility. Our views on its weak enterprise risk management and negative 
management and corporate strategy are also rating constraints.

CreditWatch
Standard & Poor's aims to resolve or update the CreditWatch placement within 
the next three months, when the merger with the Unipol group is effectively 
completed (or otherwise).

The positive CreditWatch status reflects the increasing likelihood that the 
merger of Unipol Assicurazioni (BBB/Watch Neg/--), Premafin, Fondiaria-SAI, 
and Milano Assicurazioni will be successfully completed. We believe this 
merger would strengthen Fondiaria-SAI's current weak capital adequacy and 
financial flexibility.

We could raise the ratings, possibly by a maximum of five notches, if the 
merger is successfully completed, depending on the final group structure, 
level of capital, and actual and potential nonrecurring costs at both the 
Fondiaria-SAI and Unipol levels.

Conversely, we could remove the ratings from CreditWatch positive if the 
capital increase is not successfully completed or the merger is not executed, 
as this would again increase the risk of regulatory intervention.

Related Criteria And Research
All articles listed below are available on RatingsDirect on the Global Credit 
Portal, unless otherwise stated.
     -- Principles Of Credit Ratings, Feb. 16, 2011
     -- Interactive Ratings Methodology, April 22, 2009
     -- Refined Methodology And Assumptions For Analyzing Insurer Capital 
Adequacy Using The Risk-Based Insurance Capital Model, June 7, 2010
     -- Hybrid Capital Handbook: September 2008 Edition, Sept. 15, 2008
     -- Group Methodology, April 22, 2009
     -- Use Of CreditWatch And Outlooks, Sept. 14, 2009
     -- Italy-Based Fondiaria-SAI SpA Long-Term 'B' Ratings Remain On Watch 
Developing On Merger Uncertainty, May 3, 2012.
     -- Italy's Unipol Assicurazioni SpA Rating Lowered To 'BBB' On Increased 
Premafin Commitment; Ratings Remain On Watch Neg, Aug. 9, 2012

Ratings List
Upgraded; CreditWatch/Outlook Action
                                        To                 From
Fondiaria-SAI SpA
SIAT - Societa Italiana Assicurazioni e Riassicurazioni pA
Milano Assicurazioni SpA
 Counterparty Credit Rating
  Local Currency                        B+/Watch Pos/--    B/Watch Dev/--
 Financial Strength Rating
  Local Currency                        B+/Watch Pos/--    B/Watch Dev/--



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