OREANDA-NEWS. Fitch Ratings has assigned Italian insurer ITAS Mutua's (ITAS) issue of dated euro-denominated subordinated notes of EUR60m a final rating of 'BB'.

The notes are rated two notches below ITAS's IDR of 'BBB-' to reflect their subordination and risk of non-performance features, in line with Fitch's notching criteria.

The assignment of the final rating follows the completion of the bond issue and receipt of documents conforming to the information previously received. The final rating is the same as the expected rating assigned on 27 July 2015.

KEY RATING DRIVERS
The notes have a scheduled maturity date of 30 July 2025 and pay a fixed coupon of 6% per annum. The proceeds of the subordinated notes are being used to improve the company's capital position following the purchase of the Italian subsidiary of Royal & Sun Alliance.

The baseline recovery assumption for the debt, based on Italy's regulatory environment, is 'below average' which results in one downward notch being applied to the IDR for expected recovery. Furthermore, the issuance is a Solvency II Tier II hybrid with mandatory deferral triggers referencing a Solvency Capital Event, which results in a 'Moderate' risk of non-performance and consequently a further notch down from the IDR. As a result the rating on the debt is two notches below the IDR at 'BB'.

According to Fitch's methodology, this subordinated bond is classified as 100% capital due to regulatory override within Fitch's risk-based capital calculation and is classified as 100% debt for the agency's financial leverage calculations.

RATING SENSITIVITIES
Key rating triggers for a downgrade of ITAS's ratings include the consolidated combined ratio increasing to above 103% for a sustained period (2014: 99%), regulatory solvency falling below 150% for a prolonged period (2014: 176%) or materialisation of execution risk associated with a transaction of this size. A downgrade of Italy by two or more notches could also lead to a downgrade of ITAS's ratings.

Greater scale and diversification through profitable growth, a combined ratio that remains below 100% or below the market average, and robust group regulatory solvency of no lower than 175% could lead to an upgrade. If Italy's sovereign rating is upgraded ITAS's rating could also be upgraded provided that net profitability and strong capital ratios are maintained.