S&P assigns BBB+ rating to July 3 bond issue
12 July 2012 - 19:55
Trieste. Generali announced that Standard & Poor’s, the rating agency, assigned a BBB+ rating to the €750 million senior dated subordinated bond issue closed on July 3, 2012.
Please find below the Standard & Poor’s summary.
Assicurazioni Generali SpA
Credit Rating: A / Watch Neg / --
The ratings on Italy-based Assicurazioni Generali SpA, the parent of the European insurance group Generali, and on the group's core insurance operating companies, reflect Standard & Poor's Ratings Services' view of the group's very strong competitive position and operating performance, as well as its strong enterprise risk management (ERM). We view the group's capitalization as a relative credit weakness and believe that current market conditions constrain Generali's financial flexibility.
Generali benefits from a very strong competitive position as one of the leading franchises in major European life and property/casualty (P/C) markets, including Italy, Germany, and France, complemented by a strong position in Central and Eastern Europe (CEE). Its position as a market leader in Italy underpins the overall very strong competitive position of the group.
We view Generali's capitalization as a relative weakness to the ratings, although we currently assess it as "good" under our criteria. Equity market turbulence, the low interest rate environment, increased credit risk, and widening credit spreads since half-year 2011 weigh on Generali's capital adequacy, in our opinion.
In our opinion, the group still has "very strong" earnings generation potential, based on solid business fundamentals. However, we believe that volatile investment markets are hampering Generali's ability to rebuild its capital, through earnings, to a level that we consider to be strong over the next two years. In particular, Generali's materially high exposure (relative to its balance sheet and to peers) to eurozone sovereigns and their economies may weaken its business and financial profiles further, particularly if economic prospects remain dampened or if credit risk on these exposures increases.
In addition, we believe that current market conditions have constrained Generali's financial flexibility, thus increasing financing costs. Because of lower earnings and the decline in capital, we estimate that the group's hybrid debt (based on total adjusted capital) is just below 25%. Nevertheless, Generali was able to issue €750 million in long-dated subordinated notes on July 3, 2012 (rated 'BBB+/Watch Neg'), which prefinances a call on a similar subordinated instrument due on July 20, 2012. We have classified the notes as having "intermediate equity content" under our hybrid capital criteria.
We continue to view Generali's liquidity as "very strong" on the back of positive net inflows from a widely diversified base and operations, and a healthy net cash (and cash-equivalent) position, accounting for about 8% of own assets under management. Although we do not expect net inflows to be a source of material pressure in 2012, we believe that Generali is well positioned to respond to a large and unexpected cash requirement.
We view Generali's ERM as strong, reflecting its increasingly embedded risk management framework. Our assessment of Generali's ERM also reflects our view of its strong risk management culture, strong strategic risk management, and strong risk controls for its main risks.
The ratings on Generali exceed those on the sovereign, the Republic of Italy (BBB+/Negative/A-2 unsolicited ratings). According to our criteria, we assess Generali's exposure to Italian country risk as "moderate" (see "Nonsovereign Ratings That Exceed EMU Sovereign Ratings: Methodology And Assumptions," published on June 14, 2011). The long-term rating on Generali therefore qualifies for up to three notches of differential from the 'BBB+' long-term rating on Italy.
The CreditWatch placement indicates our view that there is a one-in-two chance that we could lower the ratings on Generali, most likely by one notch. We expect to resolve or update the CreditWatch placement within the next two months.
We could lower the ratings on Generali if we consider that any potential difficulty in implementing strategic actions, compounded by an unfavorable economic and financial environment, were to delay the recovery of Generali's financial profile (particularly in terms of its capital adequacy) compared with our previous expectations (see "Assicurazioni Generali, Core Entities Downgraded To 'A' After Adverse Market Conditions Weaken Capital; Outlook Stable," published on Jan. 27, 2012, on RatingsDirect). Depending on the outcome of our discussions, we could alternatively affirm the ratings at current levels.
Related Criteria And Research
- Group Rating Methodology And Assumptions, Nov. 9, 2011
- Nonsovereign Ratings That Exceed EMU Sovereign Ratings: Methodology And Assumptions, June 14, 2011
- Principles Of Credit Ratings, Feb. 16, 2011
- Rating Government-Related Entities: Methodology And Assumptions, Dec. 9, 2010
- Use Of CreditWatch And Outlooks, Sept. 14, 2009
- Holding Company Analysis, June 11, 2009
- Refined Methodology And Assumptions For Analyzing Insurer Capital Adequacy Using The Risk-Based Insurance Capital Model, June 7, 2010
- Interactive Ratings Methodology, April 22, 2009
- Hybrid Capital Handbook: September 2008 Edition, Sept. 15, 2008
- Criteria Update: Factoring Country Risk Into Insurer Financial Strength Ratings, Feb. 11, 2003
Financial Institutions Ratings Europe; FIG_Europe@standardandpoors.com
Copyright © 2012 by Standard & Poor's Financial Services LLC. All rights reserved.
No content (including ratings, credit-related analyses and data, model, software or other application or output therefrom) or any part thereof (Content) may be modified, reverse engineered, reproduced or distributed in any form by any means, or stored in a database or retrieval system, without the prior written permission of Standard & Poor's Financial Services LLC or its affiliates (collectively, S&P). The Content shall not be used for any unlawful or unauthorized purposes. S&P and any third-party providers, as well as their directors, officers, shareholders, employees or agents (collectively S&P Parties) do not guarantee the accuracy, completeness, timeliness or availability of the Content. S&P Parties are not responsible for any errors or omissions (negligent or otherwise), regardless of the cause, for the results obtained from the use of the Content, or for the security or maintenance of any data input by the user. The Content is provided on an "as is" basis. S&P PARTIES DISCLAIM ANY AND ALL EXPRESS OR IMPLIED WARRANTIES, INCLUDING, BUT NOT LIMITED TO, ANY WARRANTIES OF MERCHANTABILITY OR FITNESS FOR A PARTICULAR PURPOSE OR USE, FREEDOM FROM BUGS, SOFTWARE ERRORS OR DEFECTS, THAT THE CONTENT'S FUNCTIONING WILL BE UNINTERRUPTED OR THAT THE CONTENT WILL OPERATE WITH ANY SOFTWARE OR HARDWARE CONFIGURATION. In no event shall S&P Parties be liable to any party for any direct, indirect, incidental, exemplary, compensatory, punitive, special or consequential damages, costs, expenses, legal fees, or losses (including, without limitation, lost income or lost profits and opportunity costs or losses caused by negligence) in connection with any use of the Content even if advised of the possibility of such damages.
Credit-related and other analyses, including ratings, and statements in the Content are statements of opinion as of the date they are expressed and not statements of fact. S&Ps opinions, analyses, and rating acknowledgment decisions (described below) are not recommendations to purchase, hold, or sell any securities or to make any investment decisions, and do not address the suitability of any security. S&P assumes no obligation to update the Content following publication in any form or format. The Content should not be relied on and is not a substitute for the skill, judgment and experience of the user, its management, employees, advisors and/or clients when making investment and other business decisions. S&P does not act as a fiduciary or an investment advisor except where registered as such. While S&P has obtained information from sources it believes to be reliable, S&P does not perform an audit and undertakes no duty of due diligence or independent verification of any information it receives.
To the extent that regulatory authorities allow a rating agency to acknowledge in one jurisdiction a rating issued in another jurisdiction for certain regulatory purposes, S&P reserves the right to assign, withdraw, or suspend such acknowledgement at any time and in its sole discretion. S&P Parties disclaim any duty whatsoever arising out of the assignment, withdrawal, or suspension of an acknowledgment as well as any liability for any damage alleged to have been suffered on account thereof.
S&P keeps certain activities of its business units separate from each other in order to preserve the independence and objectivity of their respective activities. As a result, certain business units of S&P may have information that is not available to other S&P business units. S&P has established policies and procedures to maintain the confidentiality of certain nonpublic information received in connection with each analytical process.
S&P may receive compensation for its ratings and certain analyses, normally from issuers or underwriters of securities or from obligors. S&P reserves the right to disseminate its opinions and analyses. S&P's public ratings and analyses are made available on its Web sites, www.standardandpoors.com (free of charge), and www.ratingsdirect.com and www.globalcreditportal.com (subscription), and may be distributed through other means, including via S&P publications and third-party redistributors. Additional information about our ratings fees is available at www.standardandpoors.com/usratingsfees.