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Announcement:

Moody's continues the review for downgrade of Unipol Group's ratings

Global Credit Research - 18 May 2012

London, 18 May 2012 -- Moody's Investors Service continues the review for downgrade of the A3 insurance financial strength rating of Unipol Gruppo Finanziario SpA (UGF) initiated on 2 February 2012 (see complete rating list below). The review was initially prompted by the announcement that UGF 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).

RATINGS RATIONALE

Moody's said that the continuation of the review reflects the still significant hurdles ahead of the completion of the transaction. These hurdles include, among others, 1) the agreement on the valuation of Fondiaria Sai and the ultimate merger's exchange ratio between Unipol and Fondiaria Sai, 2) the approval of the anti-trust authority and 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, and 3) 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). Furthermore the anti-trust authority decided in April to suspend those activities that have an irreversible effect on the merger, including the subscription phases for the UGF and Premafin capital increases. The anti-trust authority will investigate the risk of creating a dominant position in Italy and in light of the ties that would be created between Mediobanca and the UGF/Premafin group, on the one hand, and the existing ties between Mediobanca and Generali, on the other.

The transaction remains 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 €11 billion in 2011. The review for possible downgrade will continue to focus on possible changes in the risk profile of UGF as a consequence of the acquisition:

- Capital strength of the enlarged group. The capitalization of the new group will be dependent on the successful execution of two capital raisings currently guaranteed by a consortium of banks (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 16% of total investments at year-end 2011, 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 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 recorded an overall €790m reserves strengthening in 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, the ratings remain on review for possible downgrade. Moody's will continue the review of the BFSR, which 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 also remain 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.

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 2011, Unipol Gruppo Finanziario S.p.A. reported consolidated net loss of €94 million and Shareholders' Equity of €3,205 million (€4,021 million as of year-end 2010).

The following ratings remain on review for possible downgrade:

Unipol Assicurazioni S.p.A. -- insurance financial strength rating A3;

Unipol Assicurazioni S.p.A. -- subordinated debt rating: Baa2;

Unipol Gruppo Finanziario SpA -- senior rating: Baa3;

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 (A3, 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

The methodologies used in rating Unipol Gruppo Finanziario SpA were Moody's Global Rating Methodology for Life Insurers published in May 2010, and Moody's Global Rating Methodology for Property and Casualty Insurers published in May 2010. Please see the Credit Policy page on www.moodys.com for a copy 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: Global Methodology published in March 2012. 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.

Moody's considers the quality of information available on the rated entities, obligations or credits satisfactory for the purposes of issuing these ratings.

Moody's adopts all necessary measures so that the information it uses in assigning the ratings is of sufficient quality and from sources Moody's considers to be reliable including, when appropriate, independent third-party sources. However, Moody's is not an auditor and cannot in every instance independently verify or validate information received in the rating process.

Please see Moody's Rating Symbols and Definitions on the Rating Process page on www.moodys.com for further information on the meaning of each rating category and the definition of default and recovery.

Please see ratings tab on the issuer/entity page on www.moodys.com for the last rating action and the rating history. The date on which some ratings were first released goes back to a time before Moody's ratings were fully digitized and accurate data may not be available. Consequently, Moody's provides a date that it believes is the most reliable and accurate based on the information that is available to it. Please see the ratings disclosure page on our website www.moodys.com for further information.

In addition to the information provided below please find on the ratings tab of the issuer page at www.moodys.com, for each of the ratings covered, Moody's disclosures on the lead rating analyst and the Moody's legal entity that has issued each of the ratings.

Antonello Aquino
Senior Vice President
Financial Institutions Group
Moody's Investors Service Ltd.
One Canada Square
Canary Wharf
London E14 5FA
United Kingdom
JOURNALISTS: 44 20 7772 5456
SUBSCRIBERS: 44 20 7772 5454

Simon Harris
MD - Financial Institutions
Financial Institutions Group
JOURNALISTS: 44 20 7772 5456
SUBSCRIBERS: 44 20 7772 5454

Releasing Office:
Moody's Investors Service Ltd.
One Canada Square
Canary Wharf
London E14 5FA
United Kingdom
JOURNALISTS: 44 20 7772 5456
SUBSCRIBERS: 44 20 7772 5454

Moody's continues the review for downgrade of Unipol Group's ratings
No Related Data.

 

© 2014 Moody's Corporation, Moody's Investors Service, Inc., Moody's Analytics, Inc. and/or their licensors and affiliates (collectively, "MOODY'S"). All rights reserved.

 


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