TEXT - Fitch affirms Generali's IFS at 'A-'
(The following statement was released by the rating agency)
Jan 10 -- Fitch Ratings has affirmed Assicurazioni Generali SpA's (Generali) and its core subsidiaries' Insurer Financial Strength (IFS) ratings at 'A-' and Long-term Issuer Default Ratings (IDR) at 'BBB+'. The Rating Outlooks are Negative. Fitch has also affirmed Generali's hybrid subordinated notes at 'BBB-' and senior notes at 'BBB+'. A full list of rating actions is at the end of this release. The affirmation follows Generali's announcement that it will increase its stake in its joint venture Generali-Holding PPF (GPH) to 76% in March 2013. Fitch views positively the strategic rationale of the agreement with PPF Group (PPF). Generali will retain full control of GPH. GPH has been profitable since it was established in 2007 and is an important contributor to Generali's profitability. GPH's combined ratio was strong at 89.5% at end-2011, making central and Eastern Europe (CEE) the Generali group's best performing region in the property and casualty segment. In Fitch's view, the announcement removes a great deal of uncertainty around Generali's strategic commitment in CEE as well as the potential negative implications for Generali's balance sheet arising from an early exercise from PPF of its right to sell its 49% stake in GPH. In addition, the strike price of the 2014 call-put option is now fixed, and the transaction is goodwill-neutral. Nevertheless, the transaction drains resources from Generali balance sheet, which will impact negatively on the group's capital adequacy and financial debt leverage. The first stage of the transaction will be broadly solvency-neutral according to Fitch's calculations. Generali estimates that the total net consideration of EUR1.1bn payable in March 2013 to acquire 25% of PPF shareholding in GPH would cancel out the positive effect of the EUR1.25bn subordinated debt issued in November 2012 that fully qualifies for treatment as regulatory solvency capital. However, Fitch continues to believe that Generali's risk-adjusted capital ratio is only adequate for the company's current ratings level. The group solvency margin recovered to a pro forma 150% at 9M12 (also following the issuance of subordinated debt) from 117% at end-2011, but the sensitivity of this ratio to capital markets fluctuations remains high. The financial leverage ratio (FLR) is also negatively affected by this transaction. The combination of EUR1.1bn total net consideration and the issuance of EUR1.25bn subordinated debt will result in an increase in Generali's financial leverage from 34% in H112 to 37% on a pro forma basis at 9M12, according to Fitch's calculations, a level that Fitch views as high. However, financial flexibility remains good, as demonstrated for example by the recent successful issuance of subordinated debt securities. Fitch believes Generali has a sound liquidity profile. The total net consideration of EUR1.1bn is in part already covered by the recent EUR1.25bn subordinated debt issue. In addition, Generali is a cash accretive group which generated nearly EUR13bn of cash flow from operating activities in 2011 and EUR6bn in H112. As such, funding the acquisition of the remaining 24% stake in GPH in late 2014 is likely to be covered by cash flow generation in 2013 and 2014. Generali is also planning some asset disposals that could help enhance the group's liquidity and solvency. The Negative Outlook continues to reflect Generali's exposure to the eurozone debt crisis, primarily through its significant holdings of Italian sovereign debt, as well as operational challenges in Italy and Spain, due to the adverse macroeconomic environment and austerity measures in these countries. A sustainable solution to the eurozone debt crisis remains key to the future direction of Generali's ratings. Generali has agreed to buy the 49% of GPH held by PPF in two stages. The first stage will see Generali acquiring 25% of PPF shareholding in GPH for a total cash consideration of around EUR1.3bn in March 2013. This amount will be partly offset by PPF redeeming 51% of a EUR400m bond subscribed by Generali. By end-2014, Generali has the option to buy, and PPF to sell, the remaining 24% of PPH shareholding in GPH for around EUR1.2bn. KEY ASSUMPTIONS AND SENSITIVITIES Key rating triggers for a downgrade of Generali's ratings include: --A downgrade of Italy's Long-term IDR (currently 'A-'/Negative); --FLR not falling below 35% over the next 12-18 months. --Solvency I ratio falling below 120% and the expectation that it will not recover over a short period of time. Key rating triggers for an upgrade of Generali ratings include: --Strengthening the group's capital base to the extent that Generali is able to withstand credit and other losses given a scenario of severe distress. This could be achieved with a Solvency I consistently above 150% or if the eurozone debt crisis stabilises and the rating of Italy is upgraded. The rating actions are as follows: Assicurazioni Generali SpA: Affirmed IDR at 'BBB+'; IFS 'A-'; Outlook Negative Generali (Schweiz) Holding AG: Affirmed IDR at 'BBB-'; Outlook Negative Generali Iard: Affirmed IFS at 'A-'; Outlook Negative Generali Vie: Affirmed IFS at 'A-'; Outlook Negative Generali Deutschland Holding AG: Affirmed IFS at 'A-'; Outlook Negative Generali Deutschland Pensionskasse AG: Affirmed IFS at 'A-'; Outlook Negative Cosmos Versicherung AG: Affirmed IFS at 'A-'; Outlook Negative Cosmos Lebensversicherungs-AG: Affirmed IFS at 'A-'; Outlook Negative AachenMuenchener Lebensversicherung AG: Affirmed IFS at 'A-'; Outlook Negative Generali Lebensversicherung AG: Affirmed IFS at 'A-'; Outlook Negative AachenMuenchener Versicherung AG: Affirmed IFS at 'A-'; Outlook Negative Generali Versicherung AG: Affirmed IFS at 'A-'; Outlook Negative Central Krankenversicherung AG: Affirmed IFS at 'A-'; Outlook Negative Generali Espana, S.A. de Seguros Y Reaseguros Affirmed IFS at 'A-'; Outlook Negative Generali Versicherung AG (Austria) Affirmed IFS at 'A-'; Outlook Negative Fitch has affirmed Generali's debt ratings as follows: Senior unsecured: EUR1,500m 4.75% guaranteed notes due 12 May 2014: affirmed at 'BBB+' EUR500m 3.875% notes due 6 May 2015: affirmed at 'BBB+' EUR750m 4.875% notes due 11 November 2014: affirmed at 'BBB+' EUR1,750m 5.125% notes due 16 September 2024: affirmed at 'BBB+' Hybrid capital instruments/notes: EUR1,250m perpetual notes 5.479% until February 2017, thereafter Euribor plus 214bp: affirmed at 'BBB-' GBP495m perpetual notes 6.416% until February 2022, thereafter Libor plus 220bp: affirmed at 'BBB-' EUR1,275m perpetual notes 5.317% until June 2016, thereafter Euribor plus 210bp: affirmed at 'BBB-' GBP700m perpetual notes 6.214% until June 2016, thereafter Euribor plus 208bp: affirmed at 'BBB-' GBP350m perpetual notes 6.269% until June 2026, thereafter Euribor plus 235bp: affirmed at 'BBB-' Senior Subordinated notes: EUR1,250m 7.75% until December 2022, due 12 December 2042: affirmed at 'BBB-' EUR750m 10.125% until July 2022, due 10 July 2042: affirmed at 'BBB-' (Caryn Trokie, New York Ratings Unit)
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