Fitch Ratings has affirmed Italy-based SIAT - Societa Italiana Assicurazioni e Riassicurazioni - per Azioni's (SIAT) Insurer Financial Strength (IFS) Rating at 'A-' (Strong).

The Outlook is Stable.

The rating reflects SIAT's ownership by UnipolSai Assicurazioni S.p.A. (UnipolSai; IFS: A-/Stable) and Fitch's view that the parent would support SIAT if needed. Consequently, Fitch has aligned SIAT's IFS Rating with UnipolSai's, resulting in a two-notch uplift to SIAT's Standalone Credit Profile. The latter mirrors the company's niche business profile as the third-largest marine insurer in Italy, albeit small in size.

Key Rating Drivers

Very Important Subsidiary: Fitch has revised its view of SIAT's strategic importance to UnipolSai under its group rating methodology to 'Very Important' from 'Important'. This reflects SIAT's increased synergies with the Unipol group, financial results that are generally in line with the group's expectations and our view that divestiture over the rating horizon is highly unlikely. UnipolSai provides control functions, asset management and procurement services to SIAT. In turn, SIAT provides UnipolSai with technical and operational services in the marine business, given its role as the hub of competence for marine insurance within the UnipolSai group.

'Less Favourable' Business Profile: Fitch considers SIAT's business profile as 'Less Favourable' than that of other Italian insurers. SIAT is a small insurer with gross written premiums (GWP) of EUR173 million in 2022 and shareholders' equity of EUR69 million. Combined with its niche strategy, this makes SIAT susceptible to external shocks. It operates as the third-largest marine insurer in Italy in a highly competitive environment.

Strong Capitalisation, No Leverage: SIAT has a strong capital base, as reflected in Fitch's Prism Factor-Based Capital Model score of 'Extremely Strong' at end-2022. SIAT's regulatory Solvency II (S2) ratio, calculated according to the standard formula, was also strong at 169% at end-2022, little changed from end-2021. SIAT has no financial debt, which Fitch views as credit positive. We expect SIAT to maintain strong capitalisation.

Extensive Reinsurance Coverage: SIAT's reinsurance utilisation ratio is high. Net written premiums/GWP was 30% in 2022, little changed from 32% in 2021. Fitch believes SIAT's high usage of reinsurance is commensurate with the risks the company assumes and stabilises financial results. Counterparty credit risk is mitigated by all SIAT's reinsurers being rated in the 'A' category or above. SIAT's reinsurance programme, for which Fitch does not expect material changes in 2023, supports the company's IFS rating.

Strong Underwriting Performance: Fitch views SIAT's underlying financial performance as strong, with a five-year average return on equity of 3.9% (2022: 7.2%) and a five-year average combined ratio of 94% (2022: 90.6%). However, SIAT's net profit can be volatile, given the nature of the marine business. In 2022, the company reported a net profit of EUR4.9 million, supported by strong underwriting and the company's wide reinsurance cover.

Low Investment Risk: Fitch considers SIAT's investment policy prudent. Commensurate with its short-tail business, SIAT holds a highly liquid investment portfolio that mainly consists of fixed-income securities. Investment risk, as measured by the risky assets/equity ratio, is low.

However, SIAT's exposure to Italian asset risk affects the quality of its investment portfolio. SIAT held EUR64 million of Italian sovereign bonds at end-2022 (end-2021: EUR50 million), corresponding to 0.9x (end-2021: 0.7x) its shareholders' equity. This caps SIAT's score in Investment and Liquidity Risk under Fitch's Insurance Rating Criteria at 'bbb+'.

RATING SENSITIVITIES

Factors that could, individually or collectively, lead to positive rating action/upgrade:

An upgrade of UnipolSai's IFS rating and an upward revision of SIAT's standalone credit quality

Factors that could, individually or collectively, lead to negative rating action/downgrade:

A downgrade of UnipolSai's IFS rating

A downward revision of SIAT's standalone credit quality due, for example, to a weakening in SIAT's business profile

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.

Public Ratings with Credit Linkage to other ratings

SIAT's rating is linked to UnipolSai's rating.

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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