The trend on the rating is Negative.
KEY RATING CONSIDERATIONS
As a wholly owned, strategically important subsidiary of
On an intrinsic basis, DBRS Morningstar views Siat as a strong player in the European marine insurance sector, where it has a leading market presence in the Italian hull and cargo business lines. Moreover, Siat has consistently demonstrated good revenue generation and sound underwriting capabilities but has a more limited franchise and product diversification that results in lower level of earnings, relative to
The Negative trend reflects the Negative trend on the ratings of the Parent.
RATING DRIVERS
As Siat's ratings primarily reflect the ratings of
RATING RATIONALE
Siat operates as the marine insurance arm of
While revenue generation has been consistent, profitability has eroded in the past few years as a result of poor experience in the hull business line, where the Company is currently experiencing elevated loss ratios. The Company has implemented several action plans to reverse this trend, including taking pricing actions and reducing the proportion of poor risks in its portfolio. Conversely, the cargo business line is quite profitable, with Siat aiming to expand in this area in order to boost overall profitability. The Company's expenses are managed prudently, as evidenced by a stable expense ratio.
Siat is adequately capitalised with a Solvency Capital Requirement (SCR) ratio of 147% at year-end 2019, above the regulatory minimum of 100%. Reinsurance helps reduce some of the demands of required regulatory capital, particularly the amount of capital to be held for catastrophic risks. As a nonlife insurer, there remains the risk of outsized claims occurring; however, Siat has a comprehensive reinsurance program comprised of high-quality reinsurers and appropriate risk retention levels that helps mitigate this risk. Siat has conservative risk management practices, with the Company exercising good pricing and underwriting discipline.
The Company's investment portfolio is highly marketable and liquid, comprised largely of sovereign bonds, followed by corporate bonds and real estate, primarily own use. The Company does not use riskier asset classes, such as equities or derivatives, in its portfolio, reducing some market risk. The proportion of Italian sovereign bonds in the investment portfolio is high, making it vulnerable to weaknesses and volatility in Italian macroeconomic conditions. Additionally, the low interest rate environment is expected to continue putting pressure on yields, affecting profitability.
ESG CONSIDERATIONS
DBRS Morningstar views the Climate and Weather Risk subfactor as a material ESG factor for this rating. This is included in the Environmental category. As a nonlife insurer, the company's profitability is impacted by severe weather events that can increase insured losses.
A description of how DBRS Morningstar considers ESG factors within the DBRS Morningstar analytical framework and its methodologies can be found at: https://www.dbrsmorningstar.com/research/357792.
Notes:
All figures are in euros unless otherwise noted.
The principal methodology is the Global Methodology for Rating Life and P&C Companies and Insurance Organizations (
For more information regarding rating methodologies and Coronavirus Disease (COVID-19), please see the following DBRS Morningstar press release: https://www.dbrsmorningstar.com/research/357883.
The related regulatory disclosures pursuant to the National Instrument 25-101 Designated Rating Organizations are hereby incorporated by reference and can be found on the issuer page at www.dbrsmorningstar.com.
The rated entity or its related entities did participate in the rating process for this rating action. DBRS Morningstar had access to the accounts and other relevant internal documents of the rated entity or its related entities in connection with this rating action.
This rating is endorsed by
This is the first DBRS Morningstar rating on this financial instrument.
Generally, the conditions that lead to the assignment of a Negative or Positive trend are generally resolved within a 12-month period. DBRS Morningstar's outlooks and ratings are monitored.
For further information on DBRS Morningstar historical default rates published by the
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Rating Committee Chair:
Initial Rating Date:
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Ratings
Date Issued Debt Rated Action Rating Trend Issued
i
US =
CA = Canada Issued, NRSRO
EU = EU Issued, NRSRO
E = EU endorsed
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08-Oct-20 Financial Strength Rating New Rating A (high) Neg CAE
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