Standard & Poor’s Ratings Services maintains its CreditWatch with negative implications on the ‘A’ long-term counterparty credit and insurer financial strength ratings on Italy-based insurer Assicurazioni Generali SpA (Generali) and its “core” subsidiaries (Generali group).
Standard & Poor’s report :
We also maintained on CreditWatch negative our ‘A-‘ counterparty credit rating on subsidiary Deutsche Bausparkasse Badenia AG, our ‘A’ counterparty credit rating on Generali USA Life Reassurance Co., the ‘BBB+’ counterparty credit ratings on Austria-based holding companies Generali Holding Vienna AG and Generali Rueckversicherung AG, and related issue ratings. We initially placed the ratings on CreditWatch negative on June 7, 2012.
The CreditWatch reflects our view that pronounced uncertainty regarding Generali’s future capital adequacy remains, based on our opinion that there is an increased probability of both sales of non-core assets and the buyout of minority interests of its Central and Eastern Europe (CEE) operations in the coming months. Specifically, Generali announced on Nov. 9, 2012, that it had begun by identifying Generali USA Life Reassurance and BSI Bank as non-core and putting them up for sale. Moreover, our capital assessment is highly sensitive to Generali’s potential decision about the future of its stake in the joint venture it holds with Czech company PPF (not rated) in the CEE. Generali could have to choose between selling its stake or buying out PPF’s minority interest following news from PPF that a sale of its 49% stake in the joint venture could be accelerated by a potential recall of its bank loans.
The CEO has also confirmed the Generali group’s ongoing review of its geographic and business footprint, and the intention to enhance efficiency throughout the group. This is in addition to the recently announced restructuring of domestic operations and centralization of all reinsurance coverage at group level starting January 2013.
Given Generali’s complex and wide-reaching international structure, the strategic orientation of the new management could affect the Generali group’s financial profile and business position. In particular, we will monitor the impact of the efficiency enhancing measures and potential asset sales on the Generali group’s future capitalization and its financial flexibility, which we view as the main rating weaknesses.
The CreditWatch also reflects our concerns about the Generali group’s higher-than-peers’ exposure to the Italian economy, and domestic sovereign and financial investments. As of end-September 2012, we estimated that Italian assets made up about 25% of Generali’s investments, or about three times its consolidated regulatory solvency capital.
The CreditWatch indicates our view that there is a one-in-two chance that we could lower the ratings on the Generali group, most likely by one notch. We expect to resolve the CreditWatch placement shortly after Generali’s announcement of its new strategy which we expect on Jan. 14, 2013, notwithstanding any unexpected major event prior to that date.
We could lower the ratings on Generali group if we believe capitalization is unlikely to improve to levels consistent with the rating over the next year. This could result from our review of the impact and execution risk of the new strategy and announced asset sales, or the impact of potential minority buyouts. We could also lower the ratings on some subsidiaries if our view of their strategic importance changes under the Generali group’s new strategy. We could also lower the ratings if we believe that the Generali group’s balance sheet appears less resilient to risk and volatility in the domestic financial environment, given Generali’s higher country exposure to Italy than for other global multiline insurers .
We could affirm the ratings on the Generali group if we believe that the new strategy is likely to strengthen Generali’s future capitalization to a level in line with capital adequacy in the ‘A’ rating category according to our capital model, and the Generali group’s balance sheet weathers the persistently high volatility and risks in Italy without a durable negative impact on its financial and business profiles.
