TEXT - S&P may still cut Assicurazioni Generali SpA ratings

Tue Nov 13, 2012 12:54pm EST

Overview
     -- Italy-based global multiline insurer Generali's    
announcement of assets for sale and the increased possibility of the exercise of
a put option on minority interests in Central and Eastern Europe could
significantly influence the group's future capital adequacy levels.
     -- The announcement on Nov. 9, 2012 by Generali's new CEO of the ongoing 
review of the group's geographic and business footprint prolongs uncertainties 
for Generali and its "core" subsidiaries (Generali group).
     -- We are therefore maintaining the ratings on the Generali group on 
CreditWatch negative.
     -- The CreditWatch reflects our view that there's still pronounced 
uncertainty regarding the outcome of Generali's new strategy and the 
resilience of its balance sheet to risk and volatility in the domestic 
environment.

Rating Action
On Nov. 13, 2012, Standard & Poor's Ratings Services maintained its 
CreditWatch with negative implications on the 'A' long-term counterparty 
credit and insurer financial strength ratings on Italy-based insurer 
Assicurazioni Generali SpA (Generali) and its "core" subsidiaries (Generali 
group; see Ratings List). We also maintained on CreditWatch negative our 'A-' 
counterparty credit rating on subsidiary Deutsche Bausparkasse Badenia AG, our 
'A' counterparty credit rating on Generali USA Life Reassurance Co., the 
'BBB+' counterparty credit ratings on Austria-based holding companies Generali 
Holding Vienna AG and Generali Rueckversicherung AG, and related issue 
ratings. We initially placed the ratings on CreditWatch negative on June 7, 
2012.

Rationale
The CreditWatch reflects our view that pronounced uncertainty regarding 
Generali's future capital adequacy remains, based on our opinion that there is 
an increased probability of both sales of non-core assets and the buyout of 
minority interests of its Central and Eastern Europe (CEE) operations in the 
coming months. Specifically, Generali announced on Nov. 9, 2012, that it had 
begun by identifying Generali USA Life Reassurance and BSI Bank as non-core 
and putting them up for sale. Moreover, our capital assessment is highly 
sensitive to Generali's potential decision about the future of its stake in 
the joint venture it holds with Czech company PPF (not rated) in the CEE. 
Generali could have to choose between selling its stake or buying out PPF's 
minority interest following news from PPF that a sale of its 49% stake in the 
joint venture could be accelerated by a potential recall of its bank loans.

The CEO has also confirmed the Generali group's ongoing review of its 
geographic and business footprint, and the intention to enhance efficiency 
throughout the group. This is in addition to the recently announced 
restructuring of domestic operations and centralization of all reinsurance 
coverage at group level starting January 2013. 

Given Generali's complex and wide-reaching international structure, the 
strategic orientation of the new management could affect the Generali group's 
financial profile and business position. In particular, we will monitor the 
impact of the efficiency enhancing measures and potential asset sales on the 
Generali group's future capitalization and its financial flexibility, which we 
view as the main rating weaknesses.

The CreditWatch also reflects our concerns about the Generali group's 
higher-than-peers' exposure to the Italian economy, and domestic sovereign and 
financial investments. As of end-September 2012, we estimated that Italian 
assets made up about 25% of Generali's investments, or about three times its 
consolidated regulatory solvency capital. 

Generali's high international diversification, strong market positions in 
highly-rated European countries including France (Republic of France, 
AA+/Negative/A-1+, unsolicited), Germany (Federal Republic of Germany, 
AAA/Stable/A-1+, unsolicited), and Austria (Republic of Austria, 
AA+/Negative/A-1+), and a share of Italian policyholder liabilities of below 
30% of the total reduces Generali's direct link to domestic sovereign risk. As 
a result, we rate Generali two notches above the long-term rating on Italy 
(Republic of Italy, BBB+/Negative/A-2 unsolicited) (see "General Criteria: 
Nonsovereign Ratings That Exceed EMU Sovereign Ratings: Methodology And 
Assumptions," published on June 14, 2011). 

The ratings on the Generali group reflect our view of its very strong 
competitive position, solid operating performance, and sound liquidity. We 
view the Generali group's capitalization as a weakness for its credit quality 
and believe that current market conditions and reduced net profits compared 
with 2010 levels constrain the Generali group's financial flexibility.

The EUR1.13 billion net profit Generali posted for the first nine months of 2012
is in line with our expectations. We believe operating results in 2012 will 
grow moderately compared with the 2011 figure of EUR3.9 billion based on an 
expected combined ratio below 98% and stable new business margin in life. 
Barring market turmoil in the last two months of 2012, net income for 
full-year 2012 should significantly recover compared with the weak 2011 level 
of EUR856 million.

CreditWatch 
The CreditWatch indicates our view that there is a one-in-two chance that we 
could lower the ratings on the Generali group, most likely by one notch. We 
expect to resolve the CreditWatch placement shortly after Generali's 
announcement of its new strategy which we expect on Jan. 14, 2013, 
notwithstanding any unexpected major event prior to that date.

We could lower the ratings on Generali group if we believe capitalization is 
unlikely to improve to levels consistent with the rating over the next year. 
This could result from our review of the impact and execution risk of the new 
strategy and announced asset sales, or the impact of potential minority 
buyouts. We could also lower the ratings on some subsidiaries if our view of 
their strategic importance changes under the Generali group's new strategy. We 
could also lower the ratings if we believe that the Generali group's balance 
sheet appears less resilient to risk and volatility in the domestic financial 
environment, given Generali's higher country exposure to Italy than for other 
global multiline insurers .

We could affirm the ratings on the Generali group if we believe that the new 
strategy is likely to strengthen Generali's future capitalization to a level 
in line with capital adequacy in the 'A' rating category according to our 
capital model, and the Generali group's balance sheet weathers the 
persistently high volatility and risks in Italy without a durable negative 
impact on its financial and business profiles.

Related Criteria And Research
     -- Group Methodology, April 22, 2009
     -- Holding Company Analysis, June 11, 2009
     -- Interactive Ratings Methodology, April 22, 2009
     -- Hybrid Capital Handbook: September 2008 Edition, Sept. 15, 2008
     -- Counterparty Credit Ratings And The Credit Framework, April 14, 2004
     -- Refined Methodology And Assumptions For Analyzing Insurer Capital 
Adequacy Using The Risk-Based Insurance Capital Model, June 7, 2010 
     -- Criteria Update: Factoring Country Risk Into Insurer Financial 
Strength Ratings, Feb. 11, 2003 
     -- General Criteria: Nonsovereign Ratings That Exceed EMU Sovereign 
Ratings: Methodology And Assumptions, June 14, 2011
     -- Use Of CreditWatch And Outlooks, Sept. 14, 2009

Ratings List
Ratings Remaining On CreditWatch

Assicurazioni Generali SpA 
INA ASSITALIA SpA
Generali Vie
Generali Versicherung AG
Generali Versicherung AG
Generali USA Life Reassurance Co. 
Generali Lebensversicherung AG
Generali IARD
Generali Deutschland Pensionskasse AG
Envivas Krankenversicherung AG
Cosmos Versicherung AG
Cosmos Lebensversicherungs AG
Central Krankenversicherung AG
Alleanza Toro S.p.A
Advocard Rechtsschutzversicherung AG
AachenMuenchener Versicherung AG
AachenMuenchener Lebensversicherung AG
 Counterparty Credit Rating
  Local Currency                        A/Watch Neg/--

Assicurazioni Generali SpA 
INA ASSITALIA SpA
Generali Vie
Generali Versicherung AG
Generali Versicherung AG
Generali USA Life Reassurance Co. 
Generali Lebensversicherung AG
Generali IARD
Generali Deutschland Pensionskasse AG
Generali (U.S. branch)
Envivas Krankenversicherung AG
Cosmos Versicherung AG
Cosmos Lebensversicherungs AG
Central Krankenversicherung AG
Alleanza Toro S.p.A
Advocard Rechtsschutzversicherung AG
AachenMuenchener Versicherung AG
AachenMuenchener Lebensversicherung AG
Financial Strength Rating
  Local Currency                        A/Watch Neg/--     

Deutsche Bausparkasse Badenia AG
 Counterparty Credit Rating             A-/Watch Neg/A-2   
 Certificate Of Deposit                 A-/Watch Neg/A-2       

Generali Holding Vienna AG
Generali Rueckversicherung AG
 Counterparty Credit Rating
  Local Currency                        BBB+/Watch Neg/--  
 Financial Strength Rating
  Local Currency                        BBB+/Watch Neg/--  

Assicurazioni Generali SpA 
 Senior Unsecured                       A-/Watch Neg       
 Subordinated                           BBB+/Watch Neg     
 Junior Subordinated                    BBB/Watch Neg      

Generali Finance B.V.
 Senior Unsecured*                      A-/Watch Neg       
 Junior Subordinated*                   BBB/Watch Neg      

*Guaranteed by Assicurazioni Generali SpA
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