-- On Aug. 1, 2012, Fondiaria-SAI Spa's EUR1.1 billion
shareholder rights' offer period concluded. Of the newly issued shares, 61% was
subscribed for a total value of EUR666.3 million, with the remaining to be
offered on the market. The subscription of any remaining ordinary shares is
guaranteed by a pool of banks, subject to specific clauses.
-- We estimate Fondiaria-SAI's capital adequacy has been restored above
the minimum regulatory requirements. However, we believe the risk of
regulatory intervention, although reduced, remains significant.
-- We are therefore raising to 'B+' from 'B' our long-term counterparty
credit and financial strength ratings on Fondiaria-SAI Spa, its "core"
subsidiary Milano Assicurazioni SpA, and its "nonstrategically important"
subsidiary, SIAT-Societa Italiana Assicurazioni e Riassicurazioni pA.
-- We are revising our CreditWatch placement on the ratings to positive,
from developing, to reflect the increased probability that Fondiaria-SAI will
merge with its holding company, Premafin HP, with Milano Assicurazioni and
with Unipol Assicurazioni, which in our view could benefit Fondiaria-SAI's
On Aug. 9, 2012, Standard & Poor's Ratings Services raised to 'B+' from 'B'
its long-term counterparty credit and financial strength ratings on
Italy-based composite insurer Fondiaria-SAI SpA, its core subsidiary Milano
Assicurazioni SpA, and its "nonstrategically important" subsidiary
SIAT-Societa Italiana Assicurazioni e Riassicurazioni SpA (SIAT).
At the same time, we revised the CreditWatch placement on the ratings to
positive from developing, where they were originally placed on Dec. 29, 2011.
The upgrade reflects our view of Fondiaria-SAI's improved capital position
following the EUR666.3 million capital increase it concluded on Aug. 1, 2012. We
estimate Fondiaria-SAI has restored its capital adequacy to a level close to
its minimum regulatory requirements. We believe, however, that capital
adequacy remains weak and volatile, while its already-weak financial
flexibility has been further impaired as result of the rights issue. We also
believe Fondiaria-SAI remains exposed to a significant, although reduced, risk
of regulatory intervention over the next 12 months.
At the closing of the EUR1.1 billion rights offer period on Aug. 1, 2012, there
were exercised share option rights corresponding to 61.9% of the newly issued
ordinary and saving shares offered by the company. The nonexercised share
option rights will be offered on the market by Fondiaria-SAI at new dates that
have not yet been communicated. The potential remaining ordinary shares will
be subscribed by a pool of banks, which agreed on July 13, 2012, to jointly
and severally guarantee the subscription of the remaining ordinary shares.
Unipol Gruppo Finanziario SpA (UGF) had guaranteed the subscription of the
We note, however, that the contract signed by Fondiaria-SAI with the banks
contains specific clauses which allow them to withdraw on the occurrence of a
series of events. The negative consequences of the unsuccessful completion of
the capital increase for Fondiaria-SAI would be exacerbated by the fact that
it would also jeopardize Premafin's own debt restructuring plan.
According to our estimates, Fondiaria-SAI's capital adequacy would exceed its
consolidated regulatory solvency margin requirement by over 20%, when taking
into consideration regulatory forbearance measures in Italy, the full
execution of the capital increase, and yields on Italian government bonds at
close to year-end 2011 levels. However, we believe this level of capital,
although above the minimum levels required by the regulator, would still not
be sufficient to significantly reduce the risk of regulatory intervention in
the medium term. In our view, Fondiaria-SAI remains exposed to a significant
risk of additional nonrecurring costs such as 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. Under Standard & Poor's capital model, even when taking into
account the proceeds of a fully subscribed EUR1.1 billion shareholders' rights
issue, Fondiaria-SAI's capital would remain below requirements at the 'BBB'
The ratings on Fondiaria-SAI remain supported by what we view as its good
competitive position and good liquidity. In our view, relative weaknesses to
Fondiaria-SAI's credit profile are its weak capital adequacy and financial
flexibility. Our views on its weak enterprise risk management and negative
management and corporate strategy are also rating constraints.
Standard & Poor's aims to resolve or update the CreditWatch placement within
the next three months, when the merger with the Unipol group is effectively
completed (or otherwise).
The positive CreditWatch status reflects the increasing likelihood that the
merger of Unipol Assicurazioni (BBB/Watch Neg/--), Premafin, Fondiaria-SAI,
and Milano Assicurazioni will be successfully completed. We believe this
merger would strengthen Fondiaria-SAI's current weak capital adequacy and
We could raise the ratings, possibly by a maximum of five notches, if the
merger is successfully completed, depending on the final group structure,
level of capital, and actual and potential nonrecurring costs at both the
Fondiaria-SAI and Unipol levels.
Conversely, we could remove the ratings from CreditWatch positive if the
capital increase is not successfully completed or the merger is not executed,
as this would again increase the risk of regulatory intervention.
Related Criteria And Research
All articles listed below are available on RatingsDirect on the Global Credit
Portal, unless otherwise stated.
-- 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
-- Hybrid Capital Handbook: September 2008 Edition, Sept. 15, 2008
-- Group Methodology, April 22, 2009
-- Use Of CreditWatch And Outlooks, Sept. 14, 2009
-- Italy-Based Fondiaria-SAI SpA Long-Term 'B' Ratings Remain On Watch
Developing On Merger Uncertainty, May 3, 2012.
-- Italy's Unipol Assicurazioni SpA Rating Lowered To 'BBB' On Increased
Premafin Commitment; Ratings Remain On Watch Neg, Aug. 9, 2012
Upgraded; CreditWatch/Outlook Action
SIAT - Societa Italiana Assicurazioni e Riassicurazioni pA
Milano Assicurazioni SpA
Counterparty Credit Rating
Local Currency B+/Watch Pos/-- B/Watch Dev/--
Financial Strength Rating
Local Currency B+/Watch Pos/-- B/Watch Dev/--
Complete ratings information is available to subscribers of RatingsDirect on
the Global Credit Portal at www.globalcreditportal.com. All ratings affected
by this rating action can be found on Standard & Poor's public Web site at
www.standardandpoors.com. Use the Ratings search box located in the left