OREANDA-NEWS. Fitch Ratings has affirmed Poste Vita's Insurer Financial Strength (IFS) rating at 'BBB+'. Fitch has also affirmed Poste Vita's Long-term Issuer Default Rating (IDR) at 'BBB+'. The Outlooks are Stable. Fitch also affirmed Poste Vita's dated subordinated notes at 'BBB'.

KEY RATING DRIVERS
The IFS rating is constrained by the rating of Italy (BBB+/Stable), given Poste Vita's large exposure to Italian sovereign debt (EUR69.8bn at end-June 2015 or around 23x consolidated shareholders' funds). The ratings reflect Poste Vita's strong franchise in Italy and solid profitability. This is offset by Poste Vita's adequate capital position, relatively high financial leverage (31% at end-2014) and adequate interest coverage.

Poste Vita's ratings reflect its ownership by Poste Italiane (Poste; BBB+/Stable). Fitch regards Poste Vita as being strategically very important to Poste. Poste Vita benefits from cross-selling synergies, with 3.1 million shared customers from Poste's 31.8m client base. Poste provides funding in the form of subordinated loans (EUR450m at end-June 2015) and manages capital at a group level.

Fitch views Poste Vita as an important contributor to Poste's profit and believes financial and operational support would be forthcoming if needed. Poste Vita contributed more than EUR900m in 2014 to Poste, including profit and distribution commissions. Profitability at Poste Vita group level continues to remain strong, with consolidated pre-tax profits of EUR540m in 2014 (2013: EUR507m).

Fitch views Poste Vita's level of capitalisation and regulatory solvency as only adequate, albeit commensurate with the rating. The consolidated regulatory Solvency 1 margin ratio was 122% at end-June 2015 (end-2014: 126%), and Fitch expects the ratio to be around 120% at end-2015 as the company grows its business. Nonetheless, Fitch does not view this lower solvency margin as a significant credit weakness due to the low level of minimum guarantees embedded in Poste Vita's products. The company is expected to have a significantly improved solvency ratio under Solvency 2, the new risk-based regime which comes into effect on 1 Jan 2016.

Fitch believes Poste Vita's exposure to interest rate risk is low. Although around two-thirds of Poste Vita's traditional liabilities must contractually return at least 1.5%, credited rates to policyholders have historically been higher. The remaining one-third of liabilities have guarantees lower than 1.5%. In addition, less than 10% of mathematical reserves carry annual guarantees, while the remaining offer guarantees at maturity, which Fitch views positively. The assets backing the life business within the segregated funds also have significant unrealised gains. These gains can be used to cover the cost of guarantees, supplementing ordinary investment income.

Poste Vita is the largest Italian life insurer by gross written premiums, with a market share of 13.6% in 2014. Poste Vita has a strong franchise in Italy and can exploit its strong distribution capabilities through the widespread network of post offices in the country. Poste Vita's premium income is resilient and has been on a steadily rising trend since 2007.

RATING SENSITIVITIES
Poste Vita's ratings could be downgraded if Italy or Poste are downgraded. Conversely, Poste Vita's ratings could be upgraded if Italy or Poste are upgraded.