OREANDA-NEWS. Fitch Ratings has affirmed Intesa Sanpaolo Vita's (ISV) Insurer Financial Strength (IFS) rating at 'BBB+' and 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 Italy's sovereign rating (BBB+/ Stable). ISV's operations are concentrated in Italy and there is high concentration risk in its investments as it holds a large amount of Italian sovereign debt (EUR47.6bn at group level at end-June 2015 or around 10x consolidated shareholders' funds).

ISV's exposure to Italian sovereign debt, which is to match domestic liabilities in Italy, is underlined by the application of the sovereign constraint on its ratings. Its ratings cannot exceed the sovereign constraint, which Fitch has set at 'BBB+' for ISV, in line with the sovereign rating of Italy (BBB+). ISV's unconstrained IFS rating is 'A-', and its unconstrained IDR is 'BBB+'.

ISV's ultimate parent is Intesa Sanpaolo (ISP; BBB+/Stable), the second-largest Italian bank by total assets. ISV distributes its insurance products through ISP branches. ISV products are 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 would be forthcoming if needed. It is unlikely that ISV's IDR would be higher than its parent's IDR.

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

Total net earned premiums fell by 25% yoy in 2015 after growing strongly in 2014. This trend is due to the change of business mix from traditional products to united-linked and hybrid products. It also reflects the intrinsically volatile nature of the bancassurance business in Italy. ISV provides solutions for ISP's network for sales of single-premium savings-type products.

Fitch's view on ISV's capital is driven by the company's score under Fitch's Prism Factor Based Model. ISV scored "Adequate" based on end-2014 financials, which Fitch expects to have continued in 2015. ISV's consolidated Solvency I ratio was a strong 166% at end-2015, in line with 2014 but lower than over 180% in 2012 and 2013 following rapid growth of the business. Capital remains exposed to volatility given ISV's high exposure to Italian sovereign bonds. Fitch expects ISV's capital to remain at least adequate and supportive of its rating.

ISV's Fitch-calculated financial leverage was moderate at 24% in 2015. The financial leverage ratio (FLR) increased in 2013 and in 2014 following ISV's issuance of EUR500m five-year dated subordinated notes in 2013 and perpetual subordinated instruments in 2014. Fitch expects FLR to continue to support the company's current rating. Fitch's total financing and commitments ratio is low given the traditional nature of ISV's business.

Low interest rates are a key risk for ISV's business, as a significant - albeit declining - 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 and ISP's ratings are upgraded.