OREANDA-NEWS. Fitch Ratings has affirmed Italian insurer Societa Reale Mutua di Assicurazioni's (RMA) and its core Spanish subsidiary Reale Seguros Generales' (Reale Seguros) Insurer Financial Strength (IFS) ratings at 'BBB+'. The Outlooks are Stable.

KEY RATING DRIVERS
The ratings are capped by the sovereign constraint for RMA, which Fitch has set at the Issuer Default Rating of Italy (BBB+/Stable), given the company's concentrated exposure to Italian sovereign debt and premium income. The ratings reflect the group's strong capitalisation, lack of financial leverage, and solid underwriting performance as well as its prudent reserving practices.

The ratings of RMA are affected by the group's exposure to asset risk through its holding of Italian sovereign debt. RMA holds these assets to match local liabilities and to achieve satisfactory yields to meet investment guarantees and minimise the risk of policyholder lapses. The credit risk associated with Italian debt holdings is therefore key to RMA's ratings.

Fitch considers RMA to be strongly capitalised, with a regulatory solvency ratio of 242% at end-2014. The group also reported improved underwriting profitability in 2014 with a non-life combined ratio of 91% (92.7% in 2013) and pre-tax profit of EUR250m (EUR163m in 2013). Fitch expects RMA to maintain profitable underwriting performance despite softening motor rates in Italy.

Reale Seguros continued to provide a positive contribution to group earnings with a positive underwriting result in each of the past 10 years. Fitch views RMA's diversification into the Spanish market positively. Spain is a key territory for RMA and 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 SENSITIVITIES
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%.