S&P lowers Generali and Allianz SpA ratings on back of Italy downgrade

The rating agency simultaneously affirmed its ratings of the core operating entities of Unipol Group, Societa Cattolica di Assicurazione SpA (Cattolica) and marine insurer Societa Italiana Assicurazione e Riassicurazione SpA (SIAT). The rating affirmations on Unipol and Cattolica reflect S&Ps' view that its downgrade of Italy has a limited immediate effect on these entities' business risk and financial risk profiles. The sovereign downgrade has no direct impact on SIAT, said S&P. The rating agency also stated this week that its assessment of Italy's P&C and life insurance industry as whole remains unchanged at moderate.hideOn 9 July S&P lowered its unsolicited long-term sovereign credit ratings on Italy to 'BBB' from 'BBB+'. This week it lowered the ratings on Italy-based Assicurazioni Generali SpA (Generali) and its core subsidiaries to 'A-' from 'A', and its ratings on Italy-based Allianz SpA to 'A' from 'A+'. All ratings have negative outlooks. The rating actions on Generali and Allianz SpA reflect S&P's view that these companies have high exposure to Italy that 'limits their potential insulation from domestic sovereign risk'. The long-term rating on Generali is two notches above the rating on the Italian sovereign, compared with a possible maximum cap of three notches according to S&P criteria. Although Generali has a 'very strong' business risk profile with wide international diversification, S&P considers Generali's capitalisation to be a relative weakness. Potential volatility in capitalisation exposes Generali to deterioration in operating and financial conditions in Italy, said the ratings agency. The negative outlook generally reflects the rating on Italy. "Negative operating and financial conditions in Generali's key Italian market could delay capital rebuilding and reduce Generali's ability to successfully execute its strategy," said S&P. The downgrade of Allianz SpA reflects its domestic Italian focus and high exposure to Italian assets, mitigated by Allianz SpA's core status to Germany-based insurer Allianz SE. "Under our group rating methodology, we cap our rating on a core insurance subsidiary with 10% exposure or higher to the jurisdiction of domicile at three notches above our rating on the related sovereign. We also factor in Allianz SE's willingness and ability to support Allianz SpA, including in cases of sovereign stress. The outlook on Allianz SpA mirrors that on the Republic of Italy. Any movement in our ratings on Italy would likely trigger an equal change to the ratings on Allianz SpA," said S&P. The rating agency affirmed its 'BBB' ratings on the core operating entities of Unipol group and on Societa Cattolica di Assicurazione SpA, with negative outlooks. It also affirmed its 'BBB-' ratings on SIAT, which carries a stable outlook. "The rating affirmations on Unipol and Cattolica reflect our view that the downgrade of the Republic of Italy has a limited immediate effect on these entities' business risk and financial risk profiles," said S&P. "Furthermore, we believe that any potential deterioration in the creditworthiness of the Italian banking system following the sovereign downgrade would have only a limited immediate effect on the financial risk profiles of Unipol and Cattolica, given the relatively modest share of Italian bank bonds in their respective investment portfolios," it added. "The stable outlook on SIAT incorporates our expectations that it will preserve its market share and grow at least in line with the Italian marine market, while maintaining a stable financial risk profile over 2013-2015," it added.

S&P lowers Generali and Allianz SpA ratings on back of Italy downgrade

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