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Fitch Affirms Generali at IFS 'A-'; Outlook Negative
February 6, 2014 / 4:41 PM / 4 years ago

Fitch Affirms Generali at IFS 'A-'; Outlook Negative

(The following statement was released by the rating agency) LONDON, February 06 (Fitch) 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 Rating (IDR) at 'BBB+'. The Outlooks are Negative. Fitch has also affirmed Generali's senior and subordinated notes at 'BBB+' and 'BBB-', respectively. A full list of rating actions is provided at the end of this commentary. KEY RATING DRIVERS The affirmation of the IFS ratings reflects Generali's strong operating performance in 2013 (in particular in the property and casualty segments) and the enhanced focus of the new management to preserve capital and reduce debt. This is partially offset by a fairly low group regulatory solvency position and high financial leverage for the rating level. Generali's ratings continue to be affected by the group's exposure to the eurozone debt crisis, primarily through its significant holdings of Italian sovereign debt (EUR55.5bn or 2.9x consolidated shareholders' funds at end-9M13). This represents large concentration risk and a potential source of volatility for capital adequacy. The group's exposure to Italy, which is to match its domestic liabilities in Italy, explains the alignment of Generali's IDR to Italy's 'BBB+'. The IFS rating is one notch higher than its IDR and that of Italy, supported by the company's geographical diversification in countries with stronger credit profiles than Italy, in particular Germany and France. Generali is refocusing on select core markets and has agreed to dispose of a number of operations worldwide to raise up to EUR4bn to strengthen its capital position and repay its debt. Generali has so far disposed of EUR2.4bn of non-core operations, which will boost its consolidated solvency margin by 9% in 2014. The company has also put BSI (a private banking service provider in Switzerland) up for sale. Partially offsetting this, Generali has the option to buy the remaining 24% of PPF Group shareholding in Generali PPF Holding in December 2014. Generali's balance sheet remains weaker than peers', with fairly low and potentially volatile capital and high financial leverage. However, the new management has expressed commitment to strengthen and maintain capital at a higher level and to reduce financial debt, marking an important difference from previous management. Management has also undertaken a thorough review of the group's investments and streamlined its processes and operations. Fitch views positively the group's focus on its core markets and on streamlining its operations. Generali's Fitch-calculated financial leverage ratio (FLR) was fairly high at 35% at end-9M13. However, the group plans to reduce financial debt: it repaid EUR500m in 1H13 and plans to repay at least EUR750m of outstanding senior notes during the course of 2014. To partially refinance all its existing maturities in 2014 (EUR2.25bn), Generali also issued EUR1.25bn of senior debt in January 2014. Although the issuance led to an increase in financial leverage to an estimated 37% on a pro-forma basis at end-9M13, from 35% at end-2012, this is only temporary as Fitch expects that EUR750m will be repaid in 2014. Fitch expects FLR to fall below 35% as the group deleverages. Fixed-charge coverage (FCC) excluding unrealised and realised gains and losses was low at 2.7x at 9M13, down from 6.4x in 2012, but this was due to the seasonality of interest payments. FCC is expected to improve over time as the new debt carries a lower coupon than the existing outstanding notes. Fitch also views that Generali has high financial flexibility, as demonstrated, for example, by the sale of treasury shares to fund the buy-out of Generali Deutschland's minorities. Fitch believes that Generali's capital is vulnerable to stress due to its substantial exposure to Italian sovereign debt and its high investment leverage. Furthermore, Generali's significant levels of goodwill and intangibles negatively affects the quality of its capital. Generali is aiming for a regulatory solvency ratio at or above 160% at the end of its three-year plan in 2015, a level consistent with an 'A' category rating, in accordance with Fitch's insurance rating methodology. RATING SENSITIVITES Generali's ratings are likely to be downgraded if Italy is further downgraded. Key rating triggers for a downgrade of Generali and its core subsidiaries' ratings include: - Consolidated FLR remaining at or above 35% over the next 12 months - Consolidated Solvency I ratio falling below 120% on a sustained basis Key rating triggers for an upgrade of Generali and its core subsidiaries' ratings include: - Strengthening of the group's capital base to the extent that Generali is able to withstand credit and other losses during severe stress. This could be achieved with a consolidated Solvency I ratio consistently above 150% or if the eurozone debt crisis stabilises and Italy's rating is upgraded to the 'A' category The rating actions are as follows: Assicurazioni Generali SpA: IDR affirmed at 'BBB+'; IFS affirmed at 'A-'; Outlook Negative Generali Iard: IFS affirmed at 'A-'; Outlook Negative Generali Vie: IFS affirmed at 'A-'; Outlook Negative Generali Deutschland Holding AG: IFS affirmed at 'A-'; Outlook Negative Generali Deutschland Pensionskasse AG: IFS affirmed at 'A-'; Outlook Negative Cosmos Versicherung AG: IFS affirmed at 'A-'; Outlook Negative Cosmos Lebensversicherungs-AG: IFS affirmed at 'A-'; Outlook Negative AachenMuenchener Lebensversicherung AG: IFS affirmed at 'A-'; Outlook Negative Generali Lebensversicherung AG: IFS affirmed at 'A-'; Outlook Negative AachenMuenchener Versicherung AG: IFS affirmed at 'A-'; Outlook Negative Generali Versicherung AG: IFS affirmed at 'A-'; Outlook Negative Central Krankenversicherung AG: IFS affirmed at 'A-'; Outlook Negative Generali Espana, S.A. de Seguros Y Reaseguros IFS affirmed at 'A-'; Outlook Negative Generali Versicherung AG (Austria) IFS affirmed at 'A-'; Outlook Negative Envivas Krankenversicherung AG IFS affirmed at 'A-'; Outlook Negative Advocard Rechtsschutzversicherung AG IFS affirmed at 'A-'; Outlook Negative Dialog Lebensversicherungs-AG IFS affirmed at 'A-'; Outlook Negative Generali (Schweiz) Holding AG: IDR affirmed at 'BBB-'; Outlook Negative Generali's debt ratings are as follows: Assicurazioni Generali SpA Senior unsecured: EUR750m 4.875% notes due 11 November 2014: affirmed at 'BBB+' EUR1,750m 5.125% notes due 16 September 2024: affirmed at 'BBB+' EUR1,250m 2.875% notes due 14 January 2020: affirmed at 'BBB+' Hybrid capital instruments/notes: GBP495m perpetual notes 6.416% until February 2022, thereafter Libor plus 220bp: 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-' Generali Finance BV 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+' Hybrid capital instruments/notes: EUR1,275m perpetual notes 5.317% until June 2016, thereafter Euribor plus 210bp: affirmed at 'BBB-' EUR1,250m perpetual notes 5.479% until February 2017, thereafter Euribor plus 214bp: affirmed at 'BBB-' GBP700m perpetual notes 6.214% until June 2016, thereafter Euribor plus 208bp: affirmed at 'BBB-' Contact: Primary Analyst Federico Faccio Senior Director +44 20 3530 1394 Fitch Ratings Limited 30 North Colonnade London E14 5GN Secondary Analyst Harish Gohil Managing Director +44 20 3530 1257 Committee Chairperson Chris Waterman Managing Director +44 20 3530 1168 Media Relations: Hannah Huntly, London, Tel: +44 20 3530 1153, Email: Additional information is available at Applicable criteria, 'Insurance Rating Methodology', dated 13 November 2013, are available at Applicable Criteria and Related Research: Insurance Rating Methodology -- Amended 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'. PUBLISHED RATINGS, CRITERIA AND METHODOLOGIES ARE AVAILABLE FROM THIS SITE AT ALL TIMES. FITCH'S CODE OF CONDUCT, CONFIDENTIALITY, CONFLICTS OF INTEREST, AFFILIATE FIREWALL, COMPLIANCE AND OTHER RELEVANT POLICIES AND PROCEDURES ARE ALSO AVAILABLE FROM THE 'CODE OF CONDUCT' SECTION OF THIS SITE. FITCH MAY HAVE PROVIDED ANOTHER PERMISSIBLE SERVICE TO THE RATED ENTITY OR ITS RELATED THIRD PARTIES. DETAILS OF THIS SERVICE FOR RATINGS FOR WHICH THE LEAD ANALYST IS BASED IN AN EU-REGISTERED ENTITY CAN BE FOUND ON THE ENTITY SUMMARY PAGE FOR THIS ISSUER ON THE FITCH WEBSITE.

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