Fitch Ratings has affirmed Italy-based SIAT - Societa Italiana Assicurazioni e Riassicurazioni - per Azioni's (SIAT) Insurer Financial Strength (IFS) Rating at 'A-' (Strong).
The Outlook is Stable. A full list of rating actions is below.
The rating reflects SIAT's ownership by UnipolSai Assicurazioni S.p.A. (UnipolSai, IFS: A-/Stable) and Fitch's view that the parent would support SIAT if needed. Consequently, Fitch has aligned SIAT's IFS Rating with UnipolSai's, resulting in a two-notch uplift to SIAT's Standalone Credit Profile. The latter mirrors the company's niche business profile as the second-largest marine insurer in Italy, albeit small in size.
Key Rating Drivers
Important Subsidiary: Fitch views SIAT as strategically 'Important' to UnipolSai under its group rating methodology. UnipolSai provides control functions, asset management and procurement services to SIAT. In turn, SIAT provides UnipolSai with technical and operational services in the marine business, given its role as the hub of competence for marine insurance within the UnipolSai group.
Less Favourable Business Profile: Fitch considers SIAT's business profile as 'Less Favourable' than that of other Italian insurers. With gross written premiums (GWP) of EUR151 million in 2021 and shareholders' equity of EUR67 million, SIAT is small in size. Combined with its niche strategy, this makes SIAT susceptible to external shocks. It operates as the second-largest marine insurer in Italy in a highly competitive environment.
Strong Capitalisation, No Leverage: SIAT has a strong capital base, as reflected in Fitch's Prism Factor-Based Capital Model score of 'Extremely Strong' at end-2021. SIAT's regulatory Solvency II (S2) ratio, calculated according to the standard formula, was also strong at 168% at end-2021. SIAT has no financial debt, which Fitch views as credit-positive. We expect SIAT to maintain strong capitalisation.
Extensive Reinsurance Coverage: SIAT's reinsurance utilisation ratio is high. Net written premiums (NWP)-to-GWP was 32% in 2021, little changed from 30% in 2020. Fitch believes SIAT's high usage of reinsurance is commensurate with the risks the company assumes and stabilises financial results. Counterparty credit risk is mitigated by all SIAT's reinsurers being rated in the 'A' category or above. SIAT's reinsurance programme, for which Fitch does not expect material changes in 2022, supports the company's IFS Rating.
Strong Underwriting Performance: Fitch views SIAT's underlying financial performance as strong, with a five-year average return on equity (ROE) of 4.1% (2021: 6.4%) and a five-year average combined ratio of 94% (2021: 90%). However, SIAT's net profit can be volatile, given the nature of the marine business. In 2021, the company reported a net profit of EUR4.2 million, supported by strong underwriting and the company's wide reinsurance cover.
Low Investment Risk: Fitch considers SIAT's investment policy prudent. Commensurate with its short-tail business, SIAT holds a highly liquid investment portfolio that mainly consists of fixed-income securities. Investment risk, as measured by the risky assets/equity ratio, is low. However, SIAT's exposure to Italian asset risk affects the quality of its investment portfolio. SIAT held EUR50 million of Italian sovereign bonds at end-2021 (end-2020: EUR59 million), corresponding to 0.7x (end-2020: 0.9x) its shareholders' equity, which caps SIAT's score in Investment and Liquidity Risk under Fitch's insurance criteria at 'bbb+'.
Factors that could, individually or collectively, lead to positive rating action/upgrade:
An upgrade of UnipolSai's IFS Rating and an upward revision of SIAT's SCP. However, Fitch views an upward revision of the SCP as unlikely.
Factors that could, individually or collectively, lead to negative rating action/downgrade:
A downgrade of UnipolSai's IFS Rating.
A decline in SIAT's strategic importance to UnipolSai.
Downward revision of SIAT's SCP due, for example, to a weakening in SIAT's business profile.
Best/Worst Case Rating Scenario
International scale credit ratings of Financial Institutions and Covered Bond issuers have a best-case rating upgrade scenario (defined as the 99th percentile of rating transitions, measured in a positive direction) of three notches over a three-year rating horizon; and a worst-case rating downgrade scenario (defined as the 99th percentile of rating transitions, measured in a negative direction) of four notches over three years. The complete span of best- and worst-case scenario credit ratings for all rating categories ranges from 'AAA' to 'D'. Best- and worst-case scenario credit ratings are based on historical performance. For more information about the methodology used to determine sector-specific best- and worst-case scenario credit ratings, visit https://www.fitchratings.com/site/re/10111579
REFERENCES FOR SUBSTANTIALLY MATERIAL SOURCE CITED AS KEY DRIVER OF RATING
The principal sources of information used in the analysis are described in the Applicable Criteria.
Public Ratings with Credit Linkage to other ratings
SIAT's rating is linked to UnipolSai's rating.
Unless otherwise disclosed in this section, the highest level of ESG credit relevance is a score of '3'. This means ESG issues are credit-neutral or have only a minimal credit impact on the entity, either due to their nature or the way in which they are being managed by the entity. For more information on Fitch's ESG Relevance Scores, visit www.fitchratings.com/esg