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TEXT - Fitch affirms ITAS Mutua insurer financial strength rating
January 29, 2013 / 5:17 PM / in 5 years

TEXT - Fitch affirms ITAS Mutua insurer financial strength rating

(The following statement was released by the rating agency)
    Jan 29 - Fitch Ratings has affirmed Italian insurer ITAS Mutua's Insurer
Financial Strength (IFS) rating at 'BBB'. The Outlook is 
Negative. 

RATING RATIONALE

The affirmation reflects ITAS's improving net profitability and stable capital 
adequacy throughout its three-year growth plan, which finished in 2012. New 
business acquisition costs have started decreasing, having increased in 2010 and
stabilised in 2011, in line with Fitch's expectations. 

The Negative Outlook continues to reflect ITAS's large exposure to the eurozone 
debt crisis through its holdings of Italian sovereign and bank debt and its 
dependence on the Italian economy. Fitch expects ITAS to face continuing 
operational challenges from the adverse macroeconomic environment and austerity 
measures in Italy. 

ITAS is targeting above market average growth in both non-life insurance and 
life insurance (through ITAS Vita). In Fitch's view, such growth brings a risk 
that part of the new business could result in a lower quality portfolio. There 
was some evidence of this in 6M12, as the loss ratio worsened by 3.6pps to 70.6%
from 67% in 6M11 (excluding the extraordinary effects of the earthquake in the 
Emilia region, but including one large claim). However, this is manageable and 
expected given the strong volumes of new business ITAS has underwritten 
throughout the plan. Fitch understands management is taking actions to restore 
profitability across the entire insurance portfolio. 

Positively, the cost ratio, declined to 31.6% at 6M12 from 33.8% in 2011 (2010: 
34.9%), as ITAS's fixed costs are spread over an increasing premium volume. 
Fitch expects this trend to have consolidated in 2012 and a cost ratio at around
30% to be reported in 2013. 

As lower costs offset higher claims, ITAS's group combined ratio remained 
broadly stable at 102.1% (6M11: 101.8%) but was still above the 100% ratio that 
equates to underwriting break-even. Fitch expects ITAS to have maintained a 
stable underwriting performance, a disciplined approach in acquiring new 
business and generated a small but higher profit in 2012. As ITAS completes its 
plan and less capital is needed to support the company's growth, Fitch also 
expects the group's capital position to stabilise and to remain in line with the
current rating (eg well above 125%).

Fitch considers ITAS's investment policy as prudent, with 77% of the investments
consisting of fixed income instruments. Exposure to equity investments also 
remains low, which Fitch views positively. However, the quality of the asset 
allocation continues to be negatively affected by the large exposure to 
sovereign debt issued by the Republic of Italy ('A-'/Negative), which ITAS holds
to match its Italian life liabilities. This exposure puts negative pressure on 
ITAS's rating. 

Fitch expects ITAS Vita's profitability to have significantly recovered in 2012.
This is a result of the narrowing of credit spreads on Italian government bonds 
as well as declining lapse rates and positive net inflows in H212.

RATING SENSITIVITES/DRIVERS

ITAS's rating could be downgraded if Italy's Long-term Issuer Default Rating is 
downgraded, or if a further deterioration in macroeconomic conditions in Italy, 
combined with persistent pressure on Italian sovereign credit spreads, triggers 
losses on ITAS's financial assets. 

Other key rating triggers for a downgrade of ITAS's rating include a combined 
ratio deteriorating to above its 2011 level (around 102%), and a sustained fall 
in the group's regulatory solvency ratio to below 130%. 

ITAS's rating could be upgraded if there is a sustained improvement in its 
regulatory capital position to 175% or above, increased scale and 
diversification through profitable growth with a combined ratio below 100% for a
sustained period, or an upgrade of Italy's sovereign rating. 

Established in 1821, ITAS is the oldest Italian insurance company. It is 
predominantly a local non-life insurer with a significant position in the 
Trentino Alto Adige region in north-east Italy. It also distributes life 
products through ITAS Vita. The ITAS Group is the 14th-largest insurer in Italy.
Total group gross written premiums in 2011 were EUR540m.

 (Caryn Trokie, New York Ratings Unit)

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