TEXT- S&P affirms Unipol Assicurazioni SpA

Fri Dec 14, 2012 1:38pm EST

(The following statement was released by the rating agency)

Overview
     -- On Nov. 14, 2012, the enlarged Unipol group provided its first 
consolidated accounts. 
     -- On Nov. 30, its subsidiary Milano Assicurazioni shareholders appointed 
a new board of directors. 
     -- We consider that Unipol has strengthened its strong competitive 
position and maintained merely good capitalization and adequate operating 
performance after taking control of Premafin Hp and its major operating 
entities, Fondiaria-SAI and Milano Assicurazioni, which it plans to merge with 
Unipol Assicurazioni. 
     -- We are affirming our 'BBB' long-term ratings on Unipol group's core 
operating entity, Unipol Assicurazioni, and our 'BB+' long-term ratings on 
Unipol's group holding company, UGF, and removing them from CreditWatch 
negative.
     -- The negative outlook reflects our view that the merger carries 
significant execution risk and the group remains exposed to significant 
nonrecurring costs.

Rating Action
On Dec. 14, 2012, Standard & Poor's Ratings Services removed from CreditWatch 
with negative implications and affirmed its 'BBB' long-term counterparty 
credit and financial strength ratings on Italy-based composite insurer Unipol 
Assicurazioni SpA. 

We also removed from CreditWatch negative and affirmed our 'BB+' long-term 
counterparty credit rating on the Unipol group's holding company, Unipol 
Gruppo Finanziario SpA (UGF).

The outlook on these entities is negative.

Our 'BB+' long-term issue ratings on Unipol Assicurazioni's subordinated debt 
and UGF's senior unsecured debt were also removed from CreditWatch negative 
and affirmed. 

We originally placed the ratings on CreditWatch negative on Dec. 9, 2011. 

Rationale
The affirmation reflects our view that the Unipol group has strengthened its 
strong competitive position and maintained merely good capitalization and 
adequate operating performance as result of taking control of Premafin Hp and 
its major operating entities, Fondiaria-SAI and Milano Assicurazioni. The 
affirmation follows the publication of the first consolidated financial 
statements of the enlarged group and the appointment of a new board of 
directors to Milano Assicurazioni, which also signals an increased probability 
that Unipol Assicurazioni, Milano, and Premafin Hp will be successfully merged 
in Fondiaria-SAI in July 2013, as planned.

At the end of September 2012, Unipol reported consolidated shareholders' funds 
of EUR6.4 billion, up from EUR3.2 billion at year-end 2011. The key factors in 
this rise were the EUR1.1 billion capital increases at UGF, which concluded in 
September 2012; an improvement in the available for sale reserves of EUR535 
million; EUR146 million net income reported at end of September 2012 (including 
EUR46 million positive consolidation adjustments) and the consolidation of the 
Premafin Hp group. 

The group covered its minimum regulatory capital requirements 1.6x at 
September 2012. However, under Standard & Poor's capital adequacy model, 
Unipol group has little capital excess at the 'BBB' rating level. We also 
consider that the quality of capital has weakened to a marginal level due to 
the increased reliance on unrealized gains on properties and other soft 
capital elements following the acquisition and consolidation of the Premafin 
Hp group. Finally, we consider the level of property/casualty (P/C) reserving 
to be marginal, and will be progressively strengthened.

In our opinion, Unipol benefits from strong earnings potential, should the 
group successfully build on its strong P/C underwriting on the significantly 
enlarged premium base. However, we expect synergies to start pay off only 
gradually and we factor into our ratings positive, albeit only adequate, 
profitability in 2013 and 2014. 

In our view, Unipol's historically strong competitive position in the Italian 
insurance market has been enhanced by the acquisition of the Premafin Hp 
Group, which has more than doubled the group's size. We expect Unipol group's 
gross premium written, including those from the Fondiaria-SAI group, to total 
EUR15 billion at year-end 2012, making it the No. 1 P/C insurer and No. 2 
composite insurance group in Italy, although the requirements of the Antitrust 
Authority will likely see this reduce toward EUR13.5 billion. 

In our view, Unipol's management and corporate strategy and financial 
flexibility has weakened as result of the acquisition of the Premafin Hp 
group. We assess management and corporate strategy as fair, reflecting the 
scale of the financial and operational challenge of embarking on such a 
transaction in very difficult market conditions. Dividend policy and goal 
setting is, in our view, aggressive. Furthermore, given the combined entities' 
capital adequacy and very constrained financial flexibility, the merged group 
would, in our view, have limited flexibility to absorb potential nonrecurring 
costs resulting from a difficult integration in a testing macroeconomic and 
financial environment. 

The ratings on Unipol's core operating entities (which now include 
Fondiaria-SAI and Mailano; see "Fondiaria-SAI And Milano Assicurazioni Ratings 
Raised On Assessment As Core Companies In Enlarged Unipol Group," published 
today) reflect the group's leading position in the Italian P/C insurance 
business; the ongoing recovery of P/C underwriting performance; and good 
investments. These factors are partially offset by high exposure to execution 
risk and nonrecurring costs; merely good capitalization and marginal financial 
flexibility; and weak banking operations.


Outlook
The negative outlook reflects the fact that the integration of the Premafin Hp 
group involves significant execution risk, and Unipol's financial risk profile 
could be weakened by the difficult macroeconomic and financial environment as 
well as exposure to nonrecurring costs. These may include further 
strengthening of loss reserves, further asset impairments, and other 
nonrecurring costs related to the integration, and also to legal, claw-back, 
and compensatory actions from shareholders, listing authorities, and 
creditors. 

We could lower the ratings if nonrecurring costs and difficult macroeconomic 
conditions were to weaken the group's capitalization, capacity to service its 
financial obligations, and underlying operating performance, prompting the 
group to report negative net results in 2012 and 2013. 

We could consider revising the outlook to stable if the group were to 
demonstrate sustainable improvements in underlying operating performance, 
reduced potential for nonrecurring items, and improving financial flexibility.

Related Criteria And Research
     -- Fondiaria-SAI And Milano Assicurazioni Ratings Raised On Assessment As 
Core Companies In Enlarged Unipol Group, Dec. 14, 2012
     -- Unipol Banca 'BB/B' Ratings Removed From CreditWatch, Affirmed After 
Similar Action On Parent Unipol Group; Outlook Negative, Dec. 14, 2012
     -- Italy-Based Marine Insurer SIAT Ratings Raised To 'BBB-' On Restored 
Financial Profile And Fondiaria-SAI Upgrade, Dec. 14, 2012
     -- Unipol Assicurazioni And UGF Ratings Still On Watch Neg On 
Uncertainties Due To Planned Merger With Fondiaria-SAI, Nov. 9, 2012
     -- Principles Of Credit Ratings, Feb. 16, 2011
     -- Refined Methodology And Assumptions For Analyzing Insurer Capital 
Adequacy Using The Risk-Based Insurance Capital Model, June 7, 2010
     -- Use Of CreditWatch And Outlooks, Sept. 14, 2009
     -- Group Methodology, April 22, 2009
     -- Interactive Ratings Methodology, April 22, 2009
     -- Hybrid Capital Handbook: September 2008 Edition, Sept. 15, 2008

Ratings List
Ratings Affirmed; Outlook Action
                                        To                 From
Unipol Assicurazioni SpA
 Counterparty Credit Rating             BBB/Negative/--    BBB/Watch Neg/--
 Financial Strength Rating              BBB/Negative/--    BBB/Watch Neg/--

Unipol Gruppo Finanziario SpA
 Counterparty Credit Rating             BB+/Negative/--    BB+/Watch Neg/--

Ratings Affirmed; Removed From CreditWatch

Unipol Assicurazioni SpA
 Subordinated*                          BB+                BB+/Watch Neg

Unipol Gruppo Finanziario SpA
 Senior Unsecured                       BB+                BB+/Watch Neg

*Guaranteed by Unipol Gruppo Finanziario SpA.

 (Caryn Trokie, New York Ratings Unit)
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