Moody’s Investors Service has placed Italian insurers Allianz S.p.A (Allianz Italy) and Unipol Gruppo S.p.A. (UG) on review for downgrade as the country faces a financial crisis following the election of a Eurosceptic coalition government.
The announcement follows Moody’s decision to place the Italian government’s Baa2 debt rating under review for downgrade, which was prompted by the agreement of the new constituent parties on a programme that includes plans to cut taxes and ramp up spending.
Moody’s considers the insurers’ key credit fundamentals, such as asset quality, capitalisation, profitability, and financial flexibility, to be linked to the economic and market conditions in Italy, where they are domiciled and have considerable operations.
However, at the same time, Moody’s has affirmed the Baa1 insurance financial strength rating (IFSR) of Italy’s largest insurer, Assicurazioni Generali S.p.A, the outlook on which remains stable due to the Generali group’s global diversification, which leaves it less exposed to Italian sovereign risks.
In 2017, Generali’s non-Italian business accounted for 67% of the group’s premiums and 62% of the group’s operating results, meaning Moody’s remains confident that Generali’s stand-alone credit profile will not be affected by the review for downgrade on the Italian sovereign.
In contrast, at year-end 2016, Italian government bonds represented 35% (€15 billion) of Allianz Italy’s total investment portfolio and approximately 3.0x of its shareholders’ equity.
Similarly, at year-end 2017, Italian government bonds represented approximately 50% (€31.7 billion) of UG’s investment portfolio and around 4.15x of its shareholders’ equity.
Both Allianz Italy and UG also source virtually all of their premiums from Italy, leaving them significantly exposed to fluctuations in the country’s sovereign rating.