Best Affirms Generali, Main Subs Ratings; Outlook Remains Negative

August 12, 2013

A.M. Best Europe – Rating Services Limited has affirmed the financial strength rating of ‘A’ (Excellent) and issuer credit ratings (ICR) of “a” of Assicurazioni Generali S.p.A. and its main subsidiaries. Best also affirmed the ratings of the debt instruments issued or guaranteed by Generali.

The outlook for all of these ratings, however, remains negative.

Best said its ratings “reflect the group’s very strong business position, resilient operating performance and improving risk-adjusted capitalization.

As offsetting factors Best cited the “sensitivity of the group’s risk-adjusted capitalization to financial market volatility and profitability pressures arising from the challenging macroeconomic environment in its key markets.

“The negative outlook reflects Generali’s exposure to the financial markets in Italy.

“Generali is one of the largest insurers in Europe with a very strong franchise in both life and non-life insurance within its core markets, namely Italy, Germany and France, which contributed over 70 percent of gross written premium in 2012.

“The Central and Eastern Europe (CEE) markets remain important and a source of future growth, as attested by the acquisition by Generali of an extra 25 percent stake in Generali PPF Holding (GPH) in March of this year, giving Generali management control of the entity. In 2012, the group reported increased gross written premium of €69.6 billion [$92.568 billion]. Premium revenue is likely to grow marginally in the next few years as challenging market conditions prevail in Generali’s core markets.”

Best’s report described Generali’s “profitability” as “resilient, albeit impacted by the euro zone financial crisis in the last two years. Generali reported a reduced net result of €90 million [$119.7 million] in 2012, down from €856 million [$1.1385 billion] in 2011, mainly stemming from significant impairments following the asset review conducted at the end of 2012 and the alignment of the group’s impairment policy with market standards. Both life and non-life business segments contributed to an increased operating result of €4.2 billion [$5.589 billion] (€3.9 billion [$5.187 billion] in 2011).”

Best also pointed out that “Generali’s risk-adjusted capitalization recovered in 2012, benefitting from increases in revaluation reserves of financial investments and recovery of the Value of In Force (VIF), which Best gives partial credit for in its Best’s Capital Adequacy Ratio (BCAR) model.

“In line with Generali’s strategic plans, risk-adjusted capitalization is expected to benefit from the disposals of Generali U.S. Holdings and the minority stakes held in Seguros Banorte Generali and Pensiones Banorte Generali, amongst others”.

However, Best also indicated the “Generali continues to maintain sizeable exposures to peripheral euro zone sovereign debt, mainly Italian, and euro zone financial institutions that make its risk-adjusted capitalization sensitive to investments in the financial markets. The group’s capital resources would also be affected by the planned acquisition of the remaining 24 percent stake of GPH.

“In the context of the restructuring of the Italian operations, as at first July this year, Generali has transferred the bulk of its primary insurance business to the newly created Generali Italia S.p.A. Generali’s ratings are not affected by the transaction, as the entity remains an operating holding company, mainly acting as the group’s reinsurer.

Upward rating pressure is likely to be driven by lasting improvements to the macroeconomic conditions in Southern Europe.

Negative rating pressure could arise if Generali’s risk-adjusted capitalization were to deteriorate materially, which could be as a result of investment losses or a deterioration of the operating environment in Generali’s key territories.

Best summarized the entities affected by its ratings report as follows:
The FSR of ‘A’ (Excellent) and ICRs of “a” have been affirmed for Assicurazioni Generali S.p.A. and its following subsidiaries:
•Generali Deutschland Holding AG
•AachenMuenchener Lebensversicherung AG
•AachenMuenchener Versicherung AG
•Generali Lebensversicherung AG
•Generali Versicherung AG
•COSMOS Lebensversicherungs-AG
•COSMOS Versicherung Aktiengesellschaft
•Central Krankenversicherung Aktiengesellschaft
•Generali Vie
•Generali IARD

The ICR of “bbb” has been affirmed for Generali France S.A.

The following debt ratings have been affirmed:
Assicurazioni General S.p.A.—
— “a-” on €1.750 billion 5.125 percent senior unsecured notes, due 2024
— “a-” on €750 million 4.875 percent senior unsecured notes, due 2014
— “bbb+” on €1.250 billion 7.75 percent fixed/floating rate senior subordinated callable notes, due 2042 (callable in 2022)
— “bbb+” on €750 million 10.125 percent fixed/floating rate senior subordinated callable notes, due 2042 (callable in 2022)
— “bbb+” on £495 million 6.416 percent fixed/floating subordinated rate perpetual debentures, callable in 2022
— “bbb+” on £350 million 6.269 percent fixed/floating subordinated rate perpetual debentures, callable in 2026

Generali Finance B.V. (guaranteed by Assicurazioni Generali S.p.A.) —
— “a-” on €1.500 billion 4.75 percent senior unsecured debentures, due 2014
— “a-” on €500 million 3.875 percent senior unsecured notes, due 2015
— “bbb+” on €1.250 billion 5.479 percent fixed/floating subordinated rate perpetual debentures, callable in 2017
— “bbb+” on €1.275 billion 5.317 percent fixed/floating subordinated rate perpetual debentures, callable in 2016
— “bbb+” on £700 million 6.214 percent fixed/floating subordinated rate perpetual debentures, callable in 2016

The following indicative ratings on securities available under the €10 billion medium-term note program that was renewed in April of this year have been affirmed:
Assicurazioni Generali S.p.A. and Generali Finance B.V.—
— “a-” on all senior notes to be issued under the program
— “bbb+” on all subordinated and hybrid notes to be issued under the program

Source: A.M. Best

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