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Fitch Affirms Unipol Gruppo Finanziario IDR at 'BBB-'; Outlook Stable
October 11, 2016 / 4:05 PM / in a year

Fitch Affirms Unipol Gruppo Finanziario IDR at 'BBB-'; Outlook Stable

(The following statement was released by the rating agency) LONDON, October 11 (Fitch) Fitch Ratings has affirmed Unipol Gruppo Finanziario (Unipol) Long-Term Issuer Default Rating (IDR) at 'BBB-'. Fitch has also affirmed UnipolSai (Unipol's primary insurance subsidiary) Insurer Financial Strength (IFS) rating at 'BBB' and the Long-Term IDR at 'BBB-'. The Outlooks on the IFS rating and the Long-Term IDRs are Stable. A full list of rating actions is available at the end of this commentary. KEY RATING DRIVERS The ratings reflect Fitch's expectations that Unipol's adequate capital and profitability are likely to be negatively affected by the extremely weak credit quality of its banking operations (Unipol Banca) in the coming years. Fitch believes that Unipol's ownership of Unipol Banca will be a drag on Unipol's earnings and ultimately weaken capital, in view of the likely need to support the banking operations. Fitch's view on Unipol's capital is driven by the company's score under Fitch's Prism Factor Based Model (Prism FBM). Unipol's score improved to "Strong", based on end-2015 financials, from "Adequate" in 2014, as Unipol underwrote a smaller amount of premiums. The quality of capital is negatively affected by the amount of goodwill on the balance sheet (EUR1.6bn or 20% of total shareholders' funds at end-June 2016) and various contingent liabilities, including the bank. However, goodwill is excluded from total available capital in Prism. Unipol's consolidated regulatory Solvency II ratio, calculated using undertaking specific parameters (USP), decreased to 140% at end-June 2016 from 150% at end-2015 due to stock-market volatility and lower interest rates. The financial leverage ratio (FLR) is relatively high at 35% at end-June 2016. Fitch expects FLR to remain commensurate with the current ratings. Unipol's non-life combined ratio improved to 96% at end-June 2016 (end-June 2015: 97%) driven by a more favourable natural catastrophe trend than last year. However, net income decreased to EUR160m at end-June 2016 (end-June 2015: EUR255m), as exceptionally high net realised gains in 2015 cannot be repeated in 2016, due to stock-market volatility. Fitch-calculated net income return on equity was 3.4% at end-June 2016. Net profit is likely to remain volatile due the uncertainty linked to non-insurance operations, notably banking and real estate, and financial markets. The exposure of Unipol to Italian government debt (BBB+/Stable) was EUR39bn at end-June 2016, about 5x consolidated shareholders' funds. Like most Italian insurers, this creates concentration risk in Unipol's investment portfolio. However, Unipol plans to reduce this exposure. In addition, Unipol's exposure to real-estate assets (about 7% of total investment assets at end-June 2016) is negative to Unipol's ratings, as some of these assets are loss-making. However, Unipol continues to reduce its exposure to real estate. The difficult Italian property market is hampering this policy. Unipol has a strong franchise in Italy and is the largest Italian non-life insurance group by non-life gross written premiums. Unipol acquired Fondiaria-SAI in 2012 to create the largest motor underwriter in Italy. The group distributes its insurance products through a multichannel approach. RATING SENSITIVITIES Factors that could trigger a downgrade of Unipol's ratings include: - Prism FBM assessment worsens to "Somewhat Weak" - FLR deteriorates to above 40% for a sustained period. - Return on equity falls below 3% for a sustained period. Factors that could trigger an upgrade include: - Prism FBM assessment remains "Strong" for a sustained period. - Return on equity remains above 6% for a sustained period. FULL LIST OF RATING ACTIONS Unipol Gruppo Finanziario Long-Term IDR affirmed at 'BBB-'; Outlook Stable EMTN programme: affirmed at 'BB+' Senior unsecured debt: affirmed at 'BB+' UnipolSai IFS rating affirmed at 'BBB'; Outlook Stable Long-Term IDR affirmed at 'BBB-'; Outlook Stable EMTN programme: Senior debt: affirmed at 'BBB-' Dated/undated subordinated debt: affirmed at 'BB' Dated subordinated debt: affirmed at 'BB+' Undated subordinated debt: affirmed at 'BB' Contact: Federico Faccio Senior Director +44 20 3530 1394 Fitch Ratings Limited 30 North Colonnade London E14 5GN Secondary Analyst Nicola Caverzan Associate Director +44 20 3530 1642 Committee Chairperson Dr Stephan Kalb Senior Director +49 69 768 076 118 Media Relations: Athos Larkou, London, Tel: +44 203 530 1549, Email: Additional information is available on Applicable Criteria Insurance Rating Methodology (pub. 15 Sep 2016) here Additional Disclosures Dodd-Frank Rating Information Disclosure Form here _id=1012946 Solicitation Status here 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. 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. Copyright © 2016 by Fitch Ratings, Inc., Fitch Ratings Ltd. and its subsidiaries. 33 Whitehall Street, NY, NY 10004. Telephone: 1-800-753-4824, (212) 908-0500. Fax: (212) 480-4435. 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