A.M. Best Europe – Rating Services Limited has revised the outlook to stable from negative and affirmed the financial strength rating of ‘A’ (Excellent) and the issuer credit rating of “a” of Italy’s Societa Cattolica di Assicurazione – Societa Cooperativa.
The revised outlook reflects the “significant improvement of Cattolica Assicurazioni’s performance in the non-life business,” said Best, noting that the company has “achieved a sustainable level of technical profitability.”
Best also indicated that the turnaround had been accomplished “under persistent challenging conditions in the Italian non-life insurance market. In particular, Cattolica Assicurazioni has been able to report a better than the market average technical performance over the last two years after several years of underperformance. The ratings also reflect the company’s diversified insurance portfolio and its established position as a medium-sized insurer with primary focus on the wealthier north of Italy.”
As offsetting factors Best cited the “uncertainty on the future performance of Cattolica Assicurazioni’s life business and the risk of volatility of its prospective risk-adjusted capitalization, which highly depends on the company’s investment decisions and dividend policy.
“The improvement of Cattolica Assicurazioni’s technical profitability in the non-life insurance business ensues from the decrease of its loss ratio, now in the range of 70 percent-73 percent. It is mainly a result of the change in the product mix coupled with the significant improvements of the company’s claims frequency ratio, which benefits from the geographical distribution of Cattolica Assicurazioni’s business, largely concentrated in the better performing north of Italy.”
On the other hand, Best said it believes that Cattolica Assicurazioni “has margins to improve its expense ratio, which is expected to benefit from its actions aiming at optimizing and simplifying its operations and product distribution.
“Regarding the life business, following the credit crunch and a different risk appetite of the customers, Cattolica Assicurazioni’s portfolio mix changed, as traditional products with minimum guarantees experienced a strong growth to the detriment of linked products. The profitability of Cattolica Assicurazioni’s life business, albeit positive, is negatively affected by the high guarantees (around 4 percent) of the policies within the “old” portfolio.”
Best added that in its opinion, future profitability of the life business is “likely to depend on the enhancement of the company’s asset liability management, especially with regard to interest rates and duration gap. A.M. Best expects Cattolica Assicurazioni to improve its control on the life business portfolio and, in this regard, considers as a positive step the company’s plan to publish the embedded value of its life business within the next two to three years.
“Cattolica Assicurazioni has a wide range of insurance products both in the life and non-life businesses. The major distribution channels are the proprietary agencies for the non-life and the bancassurance channel for the life business. In 2010, the latter was strengthened by the renewal of Cattolica Assicurazioni’s partnerships with UBI Banca and Banca Popolare di Vicenza, both extended until 2020, in addition to the joint venture with ICCREA Banking group launched for the distribution of both life and non-life products.”
Best also indicated that “Cattolica Assicurazioni’s risk-adjusted capitalization remains in line with the current ratings, although it declined in 2010 due to the impact of the bancassurance deals closed during the year. The impact of these agreements was partly offset by the subordinated loan of€80 million [$110 million] raised to partially finance them.”
Best said it “believes that the prospective level of Cattolica Assicurazioni’s risk-adjusted capitalization will be driven by the investment decisions (either in terms of pursuing acquisition opportunities or implementing a more aggressive investment strategy) and the dividend policy implemented by the company.”
Source: A.M. Best
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