August 1, 2014 / 1:56 PM / in 3 years

Fitch Affirms ITAS Mutua at IFS 'BBB'; Stable Outlook

(The following statement was released by the rating agency) LONDON, August 01 (Fitch) Fitch Ratings has affirmed Italian insurer ITAS Mutua's (ITAS) Insurer Financial Strength (IFS) rating at 'BBB' with a Stable Outlook. KEY RATING DRIVERS The affirmation reflects ITAS's improving niche market position in Italy and strong capital adequacy, as well as its unprofitable underwriting performance in 2013 and large concentration risk in Italian sovereign debt. ITAS's three-year plan 2013-2015 has resulted in above-market-average growth, particularly in non-life insurance, where the company is targeting around 10% compound annual premium growth until 2015. Growth has consumed solvency capital but at the same time has strengthened the franchise and reduced the cost base as a percentage of premiums. Fitch expects ITAS to exercise strong underwriting discipline in respect of the new business it plans to write, and therefore views the growth plan positively. However, trading conditions are expected to be different from those ITAS faced for its previous business plan 2010-2012. In the current soft market, the risk remains that lower-quality new business could result in higher-than-normal attrition losses over 2013-2015. Fitch considers ITAS's investment policy as prudent, with 72% of the investments consisting of fixed-income instruments at FYE13. Exposure to equity investments is low, which Fitch views positively. However, the quality of assets continues to be negatively affected by the large exposure to sovereign debt issued by the Republic of Italy (around 4x consolidated shareholders' funds at end-2013), which ITAS holds to match its Italian life liabilities. This exposure puts pressure on ITAS's rating. ITAS's individual combined ratio remained unprofitable at end-2013 at 103.9%, slightly worse than the 103.3% reported at end-2012. While this was contrary to Fitch's expectations, it was due to a negative reinsurance result compared with 2012. Gross of reinsurance, the combined ratio improved to 102.1% from 106.8%. Fitch expects ITAS to improve its underwriting performance in 2014 (combined ratio at or below 100% excluding natural catastrophe events), to maintain strong underwriting discipline in acquiring new business and to continue generating a small but higher profit (more than EUR5m). Fitch considers ITAS's regulatory solvency of 186% at FYE13 as strong for the rating level. The solvency margin is sensitive to changes in values of Italian government bonds and Fitch expects that some capital will be used to fund growth until 2015 but also expects that ITAS will maintain a capital position of at least 1.5x the minimum regulatory requirement. ITAS Vita's profitability increased in 2013, in line with Fitch's expectations. This was a result of the stable credit spreads on Italian government bonds, declining lapse rates and positive net inflows, which Fitch views positively. RATING SENSITIVITES Key rating triggers for a downgrade of ITAS's rating include the consolidated combined ratio deteriorating to above its level during 2010-2012 (around 103%), or regulatory solvency falling below 150% for a prolonged period. Greater scale and diversification through profitable growth, a combined ratio that remains below 100% or below the market average, and robust group regulatory solvency (no lower than 175%) could also lead to an upgrade. A downgrade of Italy by two or more notches could lead to a downgrade of ITAS's rating. Conversely, if Italy's sovereign rating is upgraded ITAS's rating could also be upgraded provided that net profitability and strong capital ratios are maintained. Contacts: Primary Analyst Federico Faccio Senior Director +44 20 3530 1394 Fitch Ratings Limited 30 North Colonnade London E14 5GN Secondary Analyst Sergio Ciaramella Director +39 02 879087 216 Committee Chairperson David Prowse Senior Director +44 20 3530 1250 Media Relations: Elaine Bailey, London, Tel: +44 203 530 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 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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