S&P Assigns ‘A Ratings to Unipol, Aurora; Other Actions on Restructuring

Standard & Poor’s Ratings Services has assigned its ‘A-‘ long-term counterparty credit and insurer financial strength ratings to Compagnia Assicuratrice Unipol SpA (Unipol) and Aurora Assicurazioni SpA (Aurora), the main operating entities of Italy’s Unipol Gruppo Finanziario SpA (UGF – formerly Compagnia Assicuratrice Unipol SpA), following the completion of the Group’s restructuring, effective Sept. 1. The outlook is stable.

S&P also affirmed its ‘BBB’ subordinated debt ratings on UGF’s two rated hybrid equity issues and removed them from CreditWatch, where they had been placed on Dec. 18, 2006, with negative implications.

In a related action, S&P lowered its long-term counterparty credit rating to ‘BBB’ from ‘A-‘ on UGF; removed it from CreditWatch, where it had been placed on Mar. 16, 2007, with negative implications; and assigned a stable outlook. S&P also withdrew the ‘A-‘ insurer financial strength rating on UGF.

“The ratings on Aurora and Unipol reflect our view that these two entities are core to the UGF group. We therefore have equalized the long-term ratings at ‘A-‘, the level of the notional group operating rating on the consolidated UGF group,” stated S&P credit analyst Paola Del Curatolo.

After explaining that it had affirmed the debt ratings on the hybrid equity issues, as they remain a liability of UGF (with subordinated guarantees, S&P said it had “lowered the counterparty credit rating on UGF to reflect its transformation from an operating and holding company into a pure holding company.” The insurer financial strength rating on UGF was withdrawn as it “no longer carries out insurance activities, given that the liabilities have been transferred to the operating companies.”

The counterparty credit rating on UGF reflects its position as the holding company for the UGF group, the fourth-largest insurance group in Italy, and is based on expected strong and sufficiently diversified cash flow, strong coverage ratios, low debt leverage, and strong capitalization.

“The stable outlooks reflect our view of the UGF group and our expectation that new management will pursue a cautious and prudent corporate strategy,” Ms. Del Curatolo, continued. “Capitalization is very strong due to the October 2005 capital raising. Although the group’s management intends to use existing excess capital to boost growth in its banking business through external acquisitions, we do not believe capitalization will deteriorate below a strong level.”

The group’s competitive position is set to remain strong, despite a slowdown in life growth, due to a more prudent underwriting approach to capitalization products, a general market slowdown, and a possible review of bancassurance agreements.

The group’s operating performance stands to remain strong, thanks to exploitation of unrealized synergies and increasing weight in the portfolio of profitable non-motor business.

The outlooks could be revised to negative if new management pursues an aggressive growth strategy that weakens the group’s capitalization to below a strong level.

Conversely, we would consider revising the outlooks to positive if new management significantly improves financial and risk management, maintains capitalization at a strong level, and proves its ability to meet its goals in terms of profitability and market position.

Source: S&P