UNIPOL GRUPPO S.P.A.
Fitch Ratings has affirmed
Fitch has also affirmed
The affirmation reflects Unipol's leading position in the Italian non-life insurance sector, strong and resilient capitalisation and strong insurance financial performance. The ratings also reflect Unipol's high, albeit reducing, investments in Italian sovereign debt concentration and moderate financial leverage.
Key Rating Drivers
Reducing Investment Concentration Risk: Our assessment of Unipol's investment and asset risk is primarily driven by the group's large, albeit reducing, exposure to Italian sovereign debt. Unipol's exposure to Italian sovereign debt creates large concentration risk and potential volatility in capital adequacy, which Fitch views as a rating weakness. However, Unipol has been progressively reducing its exposure to Italian bonds over the past four years to protect its solvency capital from the volatility of Italian government spreads.
The group's exposure to Italian bonds significantly decreased to
Strong Capitalisation: Unipol's capital, as measured by Fitch's Prism Factor Based Model (Prism FBM), was stable at 'Strong' based on end-2022 data, albeit deteriorating within the 'Strong' category. This was largely reflecting a lower capital base due to unrealised fixed-income losses. Fitch added back 50% of unrealised losses on bonds to available capital, reflecting its view that a large portion of those losses will be captured in shareholders' equity due to bonds approaching their par value as their maturity nears.
We expect Unipol's Prism FBM score to at least be in the high range of 'Strong' in 2023 under IFRS17. Unipol's solvency coverage was very strong at 218% at end-1H23, improving from 200% at end-2022.
Stable Financial Leverage: Fitch views Unipol's financial leverage ratio (FLR) as moderate for its rating. In 2022, the FLR slightly improved to 30.8% (2021: 31.6%). Fitch expects Unipol's FLR to improve under IFRS17 at end-2023.
Most Favourable Business Profile: Unipol is the largest motor underwriter in
Strong Underlying Insurance Profitability: Fitch assesses Unipol's profitability as strong. The Fitch-calculated combined ratio was stable at 95% in 2022, as higher tariffs in motor offset the effect of rising inflation on claims cost. In 1H23, Unipol's combined ratio deteriorated to 97.1%, based on published IFRS17 financial statements (1H22: 90.5%), primarily due to an increase in claims frequency and higher average costs in motor, together with the impact of weather-related events. Fitch expects Unipol's underlying and net profitability to remain strong in 2023.
RATING SENSITIVITIES
Factors that Could, Individually or Collectively, Lead to Positive Rating Action/Upgrade:
A further reduction in Unipol's sovereign investment concentration risk and an improvement in Unipol's capitalisation, both on a sustained basis
An upgrade of
Factors that Could, Individually or Collectively, Lead to Negative Rating Action/Downgrade:
A downgrade of
A sustained increase in Unipol's sovereign investment concentration risk
A deterioration in Unipol's capitalisation or FLR, both on a sustained basis
REFERENCES FOR SUBSTANTIALLY MATERIAL SOURCE CITED AS KEY DRIVER OF RATING
The principal sources of information used in the analysis are described in the Applicable Criteria.
ESG Considerations
The highest level of ESG credit relevance is a score of '3', unless otherwise disclosed in this section. A score of '3' means ESG issues are credit-neutral or have only a minimal credit impact on the entity, either due to their nature or the way in which they are being managed by the entity. Fitch's ESG Relevance Scores are not inputs in the rating process; they are an observation on the relevance and materiality of ESG factors in the rating decision. For more information on Fitch's ESG Relevance Scores, visit https://www.fitchratings.com/topics/esg/products#esg-relevance-scores.
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