Fitch Affirms Societa Reale Mutua di Assicurazioni's IFS at 'BBB+'; Outlook Stable

Tue Aug 5, 2014 4:36am EDT

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(The following statement was released by the rating agency) LONDON, August 05 (Fitch) Fitch Ratings has affirmed Italian insurer Societa Reale Mutua di Assicurazioni's (RMA) and its Spanish subsidiary Reale Seguros Generales' (Reale Seguros) Insurer Financial Strength (IFS) ratings at 'BBB+'. The Outlooks are Stable. KEY RATING DRIVERS The ratings reflect RMA group's strong capitalisation, absence of financial leverage and strong franchise in Italy. This is offset by RMA's asset concentration in Italian sovereign debt. As a result, RMA's ratings are capped by the rating of Italy (BBB+/Stable). The affirmation also reflects the group's improved underwriting profitability in 2013, with a non-life combined ratio of 92.7%, and prudent reserving practices. Fitch expects that RMA will maintain profitable underwriting performance amid softening motor rates in Italy and that its Spanish insurance operations will continue providing a positive contribution to the group's earnings and show resilience to challenging market conditions in Spain. Fitch considers RMA's regulatory solvency to be strong and better than most Italian and European peers, despite concentration risk stemming from its Italian and Spanish debt holdings. RMA's consolidated regulatory solvency ratio was 219% at end-2013, the highest level since 2008. Fitch assesses RMA's investment policy as prudent and investments are well diversified across industries. Concentration risk in single corporate issuers is limited. RMA's exposure to risky assets, as measured by the risky assets/equity ratio, is low, with equity investments significantly below pre-2008 crisis levels, which Fitch views positively. However, as RMA is a domestic Italian insurer, its rating is affected by the group's exposure to eurozone debt through its holding of Italian sovereign debt (around EUR4.2bn at end-2013, or 2.1x consolidated shareholders' funds). This is to match local liabilities and to achieve satisfactory yields to meet investment guarantees and minimise the risk of policyholder lapses. The credit risk associated with Italian debt holdings is therefore key to RMA's rating and RMA's rating is capped by Italy's sovereign rating. RMA's real estate portfolio, comprising properties in prime locations in Italy and Spain and representing 10% of the insurer's consolidated own assets, is of good quality, in Fitch's view. The rental values are strong but there is the risk that the return offered from, and the liquidity of, these assets could suffer, should macroeconomic conditions in Italy or Spain deteriorate. RMA impaired EUR10m in 2013, largely on the Italian portfolio, but the impairments related to properties currently under redevelopment. There were also over EUR560m unrealised gains on both properties for the company's own use and real estate investments. RMA's consolidated non-life combined ratio was 92.7% in 2013, significantly better than 100.2% in 2012, when the ratio was negatively affected by natural catastrophes. Excluding the effect of natural catastrophes, the ratio was a strong 93.5% in 2012. RMA's consolidated pre-tax profit was EUR163m in 2013, marking the fourth consecutive year of profit since a loss of EUR8m in 2009. Fitch views RMA and Reale Seguros' non-life reserve adequacy as strong. The consolidated ratio of technical reserves to premiums was 160% at end-2013, the highest level in seven years. Positively, prior-year reserves continue to develop favourably. Fitch views RMA's diversification into the Spanish market through fully owned subsidiary Reale Seguros positively. Reale Seguros has returned stable positive operating profits since 2005. Spain is a key territory for RMA and Fitch believes that RMA would provide support to Reale Seguros if needed. As a result, Fitch views Reale Seguros as a "core" entity of RMA under its insurance group rating methodology and the company's rating is based on the credit profile of the RMA group as a whole. RATING SENSITIVITES RMA's ratings are capped by the ratings of Italy. An upgrade of Italy would lead to an upgrade of RMA, provided that net profitability and strong capital ratios are maintained. A downgrade of Italy could lead to a downgrade of RMA. The ratings could also be downgraded if the group's combined ratio deteriorates to above 105% or its consolidated regulatory solvency ratio falls below 150%. Contacts: Primary Analyst Federico Faccio Senior Director +44 20 3530 1394 Fitch Ratings Limited 30 North Colonnade London E14 5GN Secondary Analyst Clara Hughes Senior Director +44 20 3530 1249 Committee Chairperson David Prowse Senior Director +44 20 3530 1250 Media Relations: Elaine Bailey, London, Tel: +44 203 530 1153, Email: elaine.bailey@fitchratings.com. Additional information is available at www.fitchratings.com. Applicable criteria, 'Insurance Rating Methodology', dated 13 November 2013, are available at www.fitchratings.com. Applicable Criteria and Related Research: Insurance Rating Methodology here Additional Disclosure Solicitation Status here ALL FITCH CREDIT RATINGS ARE SUBJECT TO CERTAIN LIMITATIONS AND DISCLAIMERS. PLEASE READ THESE LIMITATIONS AND DISCLAIMERS BY FOLLOWING THIS LINK: here. IN ADDITION, RATING DEFINITIONS AND THE TERMS OF USE OF SUCH RATINGS ARE AVAILABLE ON THE AGENCY'S PUBLIC WEBSITE 'WWW.FITCHRATINGS.COM'. 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