Overview -- 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 financial strength. Rating Action 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. Rationale 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 savings shares. 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' level. 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. CreditWatch 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 financial flexibility. 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 Ratings List Upgraded; CreditWatch/Outlook Action To From Fondiaria-SAI SpA 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 column.