London, 02 February 2012 -- Moody's Investors Service today placed on review for possible downgrade
the insurance and banking ratings of Unipol Gruppo Finanziario SpA (UGF).
Specifically the A2 IFSR of Unipol Assicurazioni SpA (Unipol), the
largest insurance operation of the group, the Baa2/Prime-2
bank deposit ratings and the D+ standalone bank financial strength
rating (BFSR) of Unipol Banca, the banking operation of the group,
and the Baa2 senior rating of UGF, the holding of the group,
were placed on review for possible downgrade (see complete rating list
below).
RATINGS RATIONALE
The review follows the announcement on January 29 that UGF has reached
an agreement with Premafin SpA, the holding company of Fondiaria
Sai SpA, to pursue an integration project with Premafin SpA,
Fondiaria Sai SpA and Milano Assicurazioni SpA (all unrated). As
a part of the agreement, Premafin is expected to increase the share
capital reserved to UGF by a maximum of €400m; as a result of
this reserved capital increase, UGF will obtain the control of Premafin
which in turns owns 36% of Fondiaria Sai ordinary shares.
UGF is expected to finance the transaction via a capital increase of €1.1billion
which is expected to be executed by May 2012.
The transaction is significant relative to UGF's size, given that
Fondiaria Sai is the second largest insurance player in Italy with reported
consolidated gross written premiums (GWP) of €13 billion in 2010.
The review for possible downgrade will focus on possible changes in the
risk profile of UGF as a consequence of the acquisition. The review
will focus on the following:
- Capital strength of the enlarged group. The capitalization
of the new group will be dependent on the successful execution of two
capital raisings (a maximum of €1.1 billion raised by Fondiaria
Sai and a maximum of €1.1 billion raised by UGF). The
overall amount is significant in respective of the current capitalization
of the two groups
- Quality of the overall investment portfolio of the enlarged group.
We will review how the high exposure of Fondiaria Sai to high risk assets,
namely property and equities, which accounted for more than 20%
of total investments at year-end 2010, will affect the asset
quality of the overall group
- The financial leverage of the enlarged group. Fondiaria
Sai had outstanding debt of over €1.0bn at the end of September
2011
- Quality of the reserves of Fondiaria Sai. We will review
the potential risk of further reserve deficiencies at Fondiaria Sai given
its history of reserve deficiencies. The company recently announced
an overall €790m reserves strengthening for 2011
- The execution risk of integrating multiple large insurance operations.
The integration will demand considerable management time and will require
significant effort in securing operational efficiency
More positively, the transaction would provide scale and strengthen
the market position of Unipol, as the new group would be the pro-forma
number one player in the Italian P&C market.
With regard to Unipol Banca Moody's said that the review of the
BFSR will focus on the extent to which the bank's business and financial
fundamentals, particularly in the current difficult operating environment
in Italy, are now compatible with a lower rating level. For
the bank's deposit ratings, which are also being placed on
review, Moody's said that this reflects both the review on
the BFSR, and the potential impact of the review on its parent,
given that Unipol Banca's deposit ratings currently incorporate
one notch of uplift from parental support.
The transaction is still subject to regulatory and antitrust approval
and to Consob's exception in relation to the requirement of launching
a tender offer on all the remaining shares of Premafin, Fondiaria
Sai and Milano Assicurazioni.
Unipol Gruppo Finanziario S.p.A., based in
Bologna, Italy, is the parent company of Unipol Assicurazioni
S.p.A. and Unipol Banca. As of 30 December
2010, Unipol Gruppo Finanziario S.p.A. reported
consolidated net profit of €71 million and Shareholders' Equity
of €4,021 million (€3,826 million as of year-end
2009).
The following ratings were placed on review for possible downgrade:
Unipol Assicurazioni S.p.A. -- insurance
financial strength rating A2;
Unipol Assicurazioni S.p.A. -- subordinated
debt rating: Baa1;
Unipol Gruppo Finanziario SpA -- senior rating: Baa2;
Unipol Banca -- deposit ratings: Baa2/Prime-2;
Unipol Banca -- BFSR: D+
WHAT COULD CHANGE THE RATINGS UP/DOWN
Unipol Assicurazioni
An upgrade on the IFSR is unlikely at the moment given the review for
downgrade
A downgrade of the IFSR could be principally related to
- A further downgrade of Italy's sovereign rating (A2, negative)
- Material deterioration of the group's risk profile and capitalization
as a result of the merger with Fondiaria Sai
- Group's financial leverage rising over 35%, and
fixed-charge coverage remaining below 4x for more than 18 months
Unipol Banca
An upgrade on the BFSR or the deposit ratings is unlikely at the moment
given the review for downgrade on the bank's BFSR and on the group's
ratings.
A downgrade of the BFSR could be principally triggered by a failure prevent
further deterioration in the bank's asset quality, or a failure
to restore the bank to profitability in the near term. Given the
weak operating environment at present, achieving this may prove
challenging, as reflected by the current negative outlook on the
bank's standalone.
A downgrade of the long-term local currency deposit rating could
be triggered by a downgrade of the bank's standalone BFSR,
and by a downgrade of the insurance financial strength ratings of the
Unipol group's operating insurance companies, which is currently
under review for downgrade.
METHODOLOGY USED
The methodologies used in rating Unipol Gruppo Finanziario SpA were Moody's
Global Rating Methodology for Life Insurers published in May 2010,
Moody's Global Rating Methodology for Property and Casualty Insurers published
in May 2010 and Moody's Guidelines for Rating Bank Hybrid Securities and
Subordinated Debt published in November 2009. Please see the Credit
Policy page on www.moodys.com for copies of these methodologies.
The methodologies used in rating Unipol Banca were Bank Financial Strength
Ratings: Global Methodology published in February 2007, and
Incorporation of Joint-Default Analysis into Moody's Bank Ratings:
A Refined Methodology published in March 2007. Please see the Credit
Policy page on www.moodys.com for copies of these methodologies.
REGULATORY DISCLOSURES
For ratings issued on a program, series or category/class of debt,
this announcement provides relevant regulatory disclosures in relation
to each rating of a subsequently issued bond or note of the same series
or category/class of debt or pursuant to a program for which the ratings
are derived exclusively from existing ratings in accordance with Moody's
rating practices. For ratings issued on a support provider,
this announcement provides relevant regulatory disclosures in relation
to the rating action on the support provider and in relation to each particular
rating action for securities that derive their credit ratings from the
support provider's credit rating. For provisional ratings,
this announcement provides relevant regulatory disclosures in relation
to the provisional rating assigned, and in relation to a definitive
rating that may be assigned subsequent to the final issuance of the debt,
in each case where the transaction structure and terms have not changed
prior to the assignment of the definitive rating in a manner that would
have affected the rating. For further information please see the
ratings tab on the issuer/entity page for the respective issuer on www.moodys.com.
The ratings have been disclosed to the rated entities or its designated
agent(s) and issued with no amendment resulting from that disclosure.
Information sources used to prepare each of the following rating are :
parties involved in the ratings, public information, and confidential
and proprietary Moody's Investors Service information.
Moody's considers the quality of information available on the rated
entity, obligation or credit satisfactory for the purposes of issuing
this review.
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uses in assigning a rating is of sufficient quality and from sources Moody's
considers to be reliable including, when appropriate, independent
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Antonello Aquino
Senior Vice President
Financial Institutions Group
Moody's Investors Service Ltd.
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Simon Harris
MD - Financial Institutions
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Moody's places Unipol Group's ratings on review for downgrade
