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Fitch Affirms ITAS Mutua's IFS at 'BBB'; Outlook Stable
October 13, 2017 / 1:25 PM / in 10 days

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

(The following statement was released by the rating agency) LONDON, October 13 (Fitch) Fitch Ratings has affirmed ITAS Mutua's (ITAS) Insurer Financial Strength (IFS) Rating at 'BBB' (Good) and Long-Term Issuer Default Rating (IDR) at 'BBB-' and removed them from Rating Watch Negative (RWN). The Outlooks are Stable. Fitch has also affirmed ITAS's subordinated notes at 'BB'. KEY RATING DRIVERS Fitch placed ITAS's ratings on RWN in April 2017 following the announcement that the insurer's former general manager had been disqualified from holding office by magistrates, as a precautionary measure pending judicial investigations. This had increased risks around the effectiveness of ITAS's governance and the potential for a significant loss of market share. The rating actions reflect Fitch's view that ITAS is undertaking effective actions aimed at strengthening corporate governance and internal controls. These include the strengthening of ITAS's senior management team and control functions, the implementation of a new internal control framework and streamlined decisional processes within the company. The rating actions also reflect ITAS's resilient financial performance in 2Q17 and beginning of 3Q17. ITAS's non-life gross written premium increased by 5.5% to EUR388 million at end-June 2017 (end-June 2016: EUR368 million). Its life net inflows declined by 21.5%, in line with the market trend, but remained positive at EUR93 million at end-June 2017. The affirmation of the IFS rating and IDR reflects ITAS's strong capitalisation, primarily based on Fitch's risk-adjusted Prism factor-based capital model (Prism FBM), and good financial performance. ITAS's ratings are nonetheless influenced by Italy's sovereign rating of 'BBB'/Stable through its exposure to Italian-based debt securities. To back domestic liabilities ITAS held EUR1.7 billion of Italian sovereign bonds at end-June 2017 (4.5x consolidated shareholders' funds). ITAS's Prism FBM score was 'Strong' based on end-2016 financials, in line with 2015. Its consolidated Solvency II ratio, calculated using the standard formula, was 140% at end-June 2017. Like many other Italian insurers, ITAS could face a significant increase in regulatory capital charges if European authorities remove the zero risk-weighting for European sovereigns. Prism FBM already includes a capital charge for sovereign assets. ITAS's Fitch-calculated financial leverage ratio (FLR) was 15% at end-2016, in line with 2015. This is low and supportive of the rating. ITAS is exposed to interest-rate risk through its traditional with-profits business. The yield on assets is sufficient to cover the guaranteed returns on these policies. However, the balance sheet is exposed to interest rate changes as the duration of assets is much shorter than that of its life liabilities with annual guarantees. ITAS's duration gap is above the market average, which is negative for its ratings. ITAS's reported non-life combined ratio slightly weakened to 98% at end-June 2017 (2016: 97%), due to higher natural catastrophe claims. ITAS's 2012-2016 average combined ratio was strong at 99%. We expect ITAS to maintain good non-life underwriting profitability through selective new business and better risk diversification. Its 2012-2016 average return on equity was 4%, a level commensurate with the rating, given the group's mutual status. Fitch expects ITAS to improve its net income and profitability, as the ex-RSA subsidiary is likely to provide a positive contribution to group earnings. ITAS has a moderate business profile, but its market position in Italy has improved following the acquisition of the Italian subsidiary of Royal & Sun Alliance (RSA, IFS: A/Stable) in 2015. The acquisition, which took effect on 1 January 2016, increased ITAS's geographical diversification in central and north-west Italy; ITAS's existing business was concentrated in the north-east. The acquisition also strengthened ITAS's franchise through better diversification by distribution channels. RATING SENSITIVITIES ITAS's ratings could be downgraded if its combined ratio deteriorates to above 103% for a sustained period or the Prism FBM score falls below 'Strong'. ITAS's ratings would also be downgraded if Italy's sovereign rating was downgraded. ITAS's ratings could be upgraded if the combined ratio remains below 97%, Prism FBM score remains at least 'Strong' and if there is sustained reduction in the company's interest-rate risk, provided that Italy's sovereign rating is upgraded. Contact: Primary Analyst Nicola Caverzan Associate Director +44 20 3530 1642 Fitch Ratings Limited 30 North Colonnade London E14 5GN Secondary Analyst Federico Faccio Senior Director +44 20 3530 1394 Committee Chairperson Chris Waterman Managing Director +44 20 3530 1168 Media Relations: Athos Larkou, London, Tel: +44 203 530 1549, Email: athos.larkou@fitchratings.com. Additional information is available on www.fitchratings.com Applicable Criteria Insurance Rating Methodology (pub. 26 Apr 2017) here Additional Disclosures Dodd-Frank Rating Information Disclosure Form here Solicitation Status here#solicitation Endorsement Policy 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 WEB SITE AT WWW.FITCHRATINGS.COM. 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