TEXT - S&P may still raise Fondiaria-SAI SpA ratings

Fri Nov 9, 2012 12:07pm EST

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(The following statement was released by the rating agency)

Overview
     -- On Oct. 30, 2012, Fondiaria-SAI SpA's shareholders appointed a new 
board of directors. 
     -- We believe this development signals an increasing alignment of 
Fondiaria-SAI with the Unipol group in light of their integration plan. We 
also think that this, and the EUR1.1 billion capital increase concluded in 
September 2012, is having a positive impact on Fondiaria-SAI's business and 
financial risk profiles.
     -- We are therefore raising to 'BB' from 'B+' our ratings on 
Fondiaria-SAI and its rated subsidiaries, Milano Assicurazioni SpA and 
SIAT-Societa Italiana Assicurazioni e Riassicurazioni SpA.
     -- The ratings on all these entities remain on CreditWatch with positive 
implications.
     -- The ongoing CreditWatch placement reflects the increased likelihood 
that Fondiaria-SAI and Milano Assicurazioni will merge with Unipol 
Assicurazioni, which in our view could further benefit Fondiaria-SAI and its 
rated subsidiaries' financial strength.
Rating Action
On Nov. 9, 2012, Standard & Poor's Ratings Services raised to 'BB' from 'B+' 
its long-term counterparty credit and financial strength ratings on 
Italy-based composite insurer Fondiaria-SAI SpA, and its rated subsidiaries 
Milano Assicurazioni SpA and SIAT-Societa Italiana Assicurazioni e 
Riassicurazioni SpA (SIAT). 


At the same time, we kept the ratings on Fondiaria-SAI, and its rated 
subsidiaries, on CreditWatch with positive implications, where they were 
originally placed on Aug. 9, 2012.
Rationale
The upgrade reflects our view of progress that Fondiaria-SAI has made in the 
planned integration with the Unipol group. It also reflects Fondiaria-SAI's 
improved financial risk profile following the EUR1.1 billion capital increase on
Sept. 13, 2012. 

The ratings on Fondiaria-SAI and Milano Assicurazioni include one notch of 
uplift owing to support from the Unipol group.

We believe that the EUR1.1 billion capital increase has enabled Fondiaria-SAI to
restore its capital adequacy to levels above its minimum regulatory 
requirements. At the end of September 2012, according to our estimates, 
Fondiaria-SAI's consolidated solvency margin exceeded 130%, when taking into 
consideration regulatory forbearance measures in Italy. 

Despite the capital increase, however, Fondiaria-SAI's consolidated capital 
remains considerably lower than that required at the 'BBB' rating level, 
according to our capital model. We believe Fondiaria-SAI's level of capital is 
marginal, particularly when taking into account its exposure to potential 
additional nonrecurring costs. These include 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. We consider that Fondiaria-SAI's operating performance remains 
marginal. Under our base-case scenario, we expect the insurer will report a 
consolidated net loss at year-end 2012, driven by nonrecurring costs related 
to reserve strengthening and intangible and financial asset impairments.

Following the appointment of the new board, which is strongly influenced by 
Unipol management, our view of the Fondiaria-SAI group's management and 
strategy, enterprise risk management, and financial flexibility is more in 
line with the Unipol group. We also believe that the increased alignment 
between the two groups will benefit Fondiaria-SAI's competitive position, as 
it will now be able to focus on its core business.

The ratings on Fondiaria-SAI reflect its marginal capitalization, marginal 
financial flexibility, and marginal operating performance. These factors are 
partially offset by Fondiaria-SAI's good competitive position overall and its 
membership of the Unipol group.

CreditWatch 
The ongoing CreditWatch placement reflects our view that the merger between 
Fondiaria-SAI with Unipol Assicurazioni, Premafin HP, and Milano Assicurazioni 
is increasingly likely. We believe that the merger would strengthen 
Fondiaria-SAI's financial risk profile, which we currently consider to be 
marginal.

We aim to resolve or update the CreditWatch placement within the next three 
months in conjunction with the CreditWatch resolution of the Unipol group. The 
CreditWatch resolution would likely occur once Unipol reports its first 
consolidated accounts, which include Premafin HP group; the new board at 
Milano Assicurazioni is appointed; and uncertainties about potential 
nonrecurring costs expected for year-end 2012, in particular asset value and 
reserve strengthening, reduce. 

We could raise the ratings on Fondiaria-SAI if, upon resolution of the Unipol 
group CreditWatch, we were to impute greater levels of rating support from the 
Unipol group to Fondiaria-SAI, potentially resulting in a rating outcome in 
the lower 'BBB' category.

We could also raise the ratings if we consider that Fondiaria-SAI's financial 
profile has improved. This is likely to occur if uncertainties related to 
reserve, asset, and legal risks diminish.

Conversely, we could affirm the ratings and remove them from CreditWatch if 
the integration does not go ahead as planned or if, upon resolution of the 
Unipol group CreditWatch, Fondiaria-SAI does not warrant greater implicit 
rating support.


Related Criteria And Research

All articles listed below are available on RatingsDirect on the Global Credit 
Portal, unless otherwise stated.

Related criteria
     -- 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
     -- Group Methodology, April 22, 2009
     -- Hybrid Capital Handbook: September 2008 Edition, Sept. 15, 2008
     -- Use Of CreditWatch And Outlooks, Sept. 14, 2009

Related research
     -- Unipol Assicurazioni And UGF Ratings Still On Watch Neg On 
Uncertainties Due To Planned Merger With Fondiaria-SAI, Nov. 9, 2012
     -- Ratings On Italy-Based Fondiaria-SAI SpA And Subsidiaries Raised To 
'B+' On Improved Capital Adequacy; On Watch Positive, Aug. 9, 2012
     -- Italy-Based Fondiaria-SAI SpA Long-Term 'B' Ratings Remain On Watch 
Developing On Merger Uncertainty, May 3, 2012.

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

 (Caryn Trokie, New York Ratings Unit)
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