S&P Keeps Unipol on CreditWatch

January 10, 2006

In a comment on its CreditWatch placement of Italian insurer Compagnia Assicuratrice Unipol SpA (Unipol), Standard & Poor’s Ratings Services commented that its “A-” long-term counterparty credit and insurer financial strength ratings will “remain on CreditWatch with negative implications, where they were first placed on June 3, 2005.”

S&P noted: “On July 19, 2005, following the announcement that the company would launch a mandatory offer for 59 percent of the ordinary capital of Banca Nazionale del Lavoro SpA (BNL), and on Oct. 18, 2005, Standard & Poor’s updated its opinion, announcing that the ratings on Unipol would remain on CreditWatch with negative implications.

“If the offer were to be approved by the Italian regulators and were to be fully subscribed, Unipol would hold about 73 percent of BNL’s ordinary capital. The size and financial structure of the offer give rise to significant uncertainties, such as the impact on Unipol’s consolidated capitalization and financial flexibility, and considerable execution risk.”

“We expect that any lowering of the ratings on Unipol would be limited to a maximum of three notches in the case of a successful bid,” Indicated S&P credit analyst Antonello Aquino. S&P said it will “meet with Unipol’s management in the coming weeks to fully evaluate the impact that the deal would have on the business and financial profiles of Unipol and BNL.”

“Even if the offer were not to be approved by the Italian regulators, important uncertainties will still remain,” Aquino noted. S&P said these “principally include questions over the future capital and operational strategies of Unipol’s new senior management team; reservations over Unipol’s corporate governance generated by the recent resignation of the Chairman, and the future of the bancassurance joint venture with BNL, as the insurer’s diversification into life business would be significantly impacted if it were to lose its bancassurance agreement with BNL. If all of these uncertainties were to be satisfactorily resolved in the wake of the hypothetical failure of the transaction, the current ratings could be affirmed.”

However, S&P warned “if these uncertainties crystallize into real concerns,” then it “may lower the ratings, although any such change would likely be limited to one notch.”

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