OREANDA-NEWS. Fitch Ratings has assigned Intesa Sanpaolo Vita (ISV) an Insurer Financial Strength (IFS) rating of 'BBB+'. Fitch has also affirmed ISV's Long-term Issuer Default Rating (IDR) at 'BBB+'. The Outlooks are Stable. Fitch has also affirmed ISV's dated subordinated notes and perpetual subordinated at 'BBB' and 'BBB-', respectively.

KEY RATING DRIVERS
The IFS rating is constrained by the rating of Italy (BBB+/Stable). ISV's operations are concentrated in Italy and there is high concentration risk in its investments as ISV holds a large amount of Italian sovereign debt (EUR49bn at group level at end-2014 or around 10x consolidated shareholders' funds).

ISV's ratings also reflect the company's strong franchise in Italy, solid net profitability, adequate capital and moderate financial leverage.

ISV distributes its insurance products through Intesa Sanpaolo's (ISP; BBB+/Stable) branches. ISP is ISV's ultimate parent and the second-largest Italian bank by total assets. ISV is part of ISP's wealth management offering. ISV's risk management is also highly integrated within ISP, which manages capital at the group level. Fitch views ISV as an important contributor to ISP's financial performance and believes support to ISV would be forthcoming from ISP if needed.

Total life premiums increased by 2.6% yoy in 1H15 after growing 49.5% yoy in 2014. This volatile trend is due to the intrinsically volatile nature of bancassurance sales in Italy. ISV provides solutions for ISP's network for sales of single-premium savings-type products.

In Fitch's Prism factor-based capital model, ISV scored "Adequate" based on end-2014 financials, which Fitch expects to continue in 2015. ISV's consolidated Solvency I ratio was a strong 173.9% at end-2014. However, capital remains exposed to volatility given ISV's high exposure to Italian sovereign bonds.

Low interest rates are a key risk for ISV's business, as a significant proportion of the in-force life reserves carries financial guarantees. However, this is mitigated by ISV's reduction of minimum guarantees on new sales (0% for the newest products). Furthermore, most new guarantees apply only at maturity, rather than accruing year by year, allowing ISV greater flexibility in dealing with low investment returns in any particular year.

RATING SENSITIVITIES
ISV's ratings could be downgraded if Italy is downgraded or ISP's ratings are downgraded. Conversely, ISV's ratings could be upgraded if Italy is upgraded or ISP's ratings are upgraded.