Fitch Affirms Societa Reale Mutua di Assicurazioni's IFS at 'BBB '; Outlook Stable
KEY RATING DRIVERS
The affirmation reflects the group's strong capitalisation, with a regulatory solvency ratio 239% at end-3Q14, and its strong operating profile. The group reported a robust underwriting result in 9M14 with a non-life combined ratio of 89.9% (92.7% in 2013) and net profit of EUR147.3m (EUR78.8m in 9M13).
Reale Seguros, RMA's Spanish insurance subsidiary, continued to provide a positive contribution to group earnings with a net profit in 9M14 of EUR33m (EUR29.6m in 9M13). The group has no leverage and a conservative investment policy, which are positive rating drivers.
Despite RMA's strong solvency position, the group is exposed to concentration risk stemming from its Italian and Spanish debt holdings, held in line with market practice to match local liabilities and minimise the risk of policyholder lapses. As such, the rating is capped at the level of the Italian sovereign rating of 'BBB+', which has a Stable Outlook.
Fitch views RMA's diversification into the Spanish market through fully owned subsidiary Reale Seguros positively. Reale Seguros has returned stable positive operating profits since 2005. Spain is a key territory for RMA and Fitch believes that RMA would provide support to Reale Seguros if needed. As a result, Fitch views Reale Seguros as a "core" entity of RMA under its insurance group rating methodology and the company's rating is based on the credit profile of the RMA group as a whole.
RATING SENSITIVITES
RMA's ratings are capped by the ratings of Italy. An upgrade of Italy could lead to an upgrade of RMA, provided that net profitability and strong capital ratios are maintained.
A downgrade of Italy could lead to a downgrade of RMA. The ratings could also be downgraded if the group's combined ratio deteriorates to above 105% or its consolidated regulatory solvency ratio falls below 150%.
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