Concentration risk constrains Italian insurers' ratings despite strong capitalisation - Fitch

Written by Adam Cadle

03/08/2020

Asset concentration risk constrains the ratings of Italian insurers, Fitch Ratings has said, however, this risk is partly offset by strong capitalisation, which is typically a credit strength for rated Italian insurers.

In a new report, Fitch compares and provides commentary on its views of key rating factors for six Italian insurance groups: Assicuratrice Milanese S.p.A. (Milanese; BBB-/Negative), Intesa Sanpaolo Vita S.p.A. (ISV; BBB/Stable), ITAS Mutua (ITAS; BBB-/RWN), Societa Reale Mutua di Assicurazioni (Reale Mutua; BBB+/Stable), Unipol Gruppo S.p.A. (Unipol; BBB/Stable) and Vittoria Assicurazioni S.p.A. (Vittoria; BBB+/Stable). Assicurazioni Generali S.p.A. (A-/Stable) is not included in this peer review, given its international footprint.

The peer group has a large exposure to Italian sovereign debt (BBB-/Stable), and this heavily influences their ratings. Asset concentration is part of Fitch’s assessment of investment and asset risk. Insurers' rationale behind this investment strategy is to match guarantees on life insurance with-profit liabilities with returns offered by Italian government bonds. Milanese is the exception among its peers as it reduced its investments in Italian sovereign debt to zero, which Fitch views as credit positive.

The capitalisation and leverage risk factor has typically a high influence on Italian insurers' ratings, Fitch said. The capital adequacy of Italian insurers based on Fitch's risk-based Prism Factor-Based Model (Prism FBM) ranged between 'Strong' and 'Extremely Strong' at end-2019.

“The high exposure of the insurers to Italian sovereign bonds heavily influences their Prism FBM scores because unlike the standard formula in the Solvency II (S2) regulatory regime, in Prism FBM we apply capital risk charges to sovereign bond holdings depending on both the rating level and duration,” Fitch said.

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