DBRS Morningstar Confirms the Rating of Siat Societa Italiana Assicurazioni e Riassicurazioni p.A. at A (high); Trend Remains Stable

DBRS Ratings GmbH (DBRS Morningstar) confirmed Siat Societa Italiana di Assicurazioni e Riassicurazioni p.A. (Siat or the Company)’s Financial Strength Rating at A (high) with Stable trend.

KEY CREDIT RATING CONSIDERATIONS
As a wholly owned and strategically important subsidiary of UnipolSai Assicurazioni S.p.A. (UnipolSai; rated A (high) with a Stable Trend by DBRS Morningstar), Siat’s ratings are primarily driven by its parent’s rating. As per DBRS Morningstar’s “Global Methodology for Rating Insurance Companies and Insurance Organizations,” the equalization of Siat’s Financial Strength Rating with that of UnipolSai reflects the expectation of support from the parent for this subsidiary, given the Company’s strategic and financial importance to the parent.

Because of its important presence and expertise in the marine insurance business, Siat is considered a strategically important subsidiary of UnipolSai. The Company is well integrated with its parent, which provides many operational functions including asset portfolio management, risk management, audit, information technology, and actuarial services. DBRS Morningstar also takes into consideration Siat’s meaningful market position in the hull and cargo business, supported by a well-entrenched distribution network of brokers. Siat maintained sound underwriting profitability in 2022, and adequate revenues generation scale. The Company’s investment strategy is considered conservative, while capitalization is sound with solid capital cushion above the regulatory minimum requirements.

CREDIT RATING DRIVERS
As Siat’s rating primarily reflects the rating of UnipolSai, an upgrade of UnipolSai’s Financial Strength Rating would result in an upgrade of Siat’s rating.

Conversely, a downgrade of UnipolSai’s rating would result in Siat rating downgrade. In addition, any indication of UnipolSai’s reduced ability or willingness to support Siat would result in a rating downgrade.

CREDIT RATING RATIONALE
Siat is UnipolSai’s subsidiary that specialises in marine insurance business. The Company ranks 3rd in Italy in both the hull and the cargo segment with a market share of 23.2% and 10.5% respectively in 2022. Siat also has a relatively new but smaller aviation business, which contributes to revenue diversification. Siat’s marine business is mostly domestic although the international business accounted for 35% of total premiums in 2022 (45% in 2021).
In terms of distribution channels, Siat relies mainly on brokers, which generated 85% of premiums in 2022. In 2022, Siat ceded 70% of total premiums written to reinsurance counterparties.

Siat has well-developed and efficient internal controls and risk management systems, which are integrated into those of its parent. DBRS Morningstar notes that a substantial part of the underwriting risk in portfolio is ceded through outward reinsurance. This helps mitigate the risk of large claims linked to increasingly adverse market conditions. Siat investment management strategy is considered conservative, but the investment portfolio’s credit profile is constrained by a relatively high but decreasing concentration in BBB-rated bonds (around 61% in 2022) consisting mainly of Italian sovereign exposure. On the other hand, Siat has nil exposure to non-investment grade bonds, and its holdings of shares and funds in the portfolio are negligible. The Company has some exposure to real estate; however, this is solely related to an office building, which is also the company’s headquarters and main operating office.

Siat’s revenue generation capacity is supported by its strong market position within Italy’s hull and cargo segments. Diversification provided by the aviation business decreased in 2022 as premiums generated by this segment went down by 37% YoY. Notwithstanding the challenging operating environment conditions characterised by increased geopolitical risk after Russia’s invasion of Ukraine and high inflation, underwriting profitability remained sound as the Company reported a net combined ratio of 90% in 2022, only slightly higher than 89.3% in 2021.

The nature of Siat's business exposes it to some claims volatility. The Company could also be affected by catastrophic risk events and potentially significant insured claims losses. However, these risks are mitigated in part by Siat's comprehensive reinsurance programme. Substantial holdings of liquid fixed income securities enhance the Company’s liquidity profile.

Siat capitalisation is sound and in line with the Company risk profile. Siat maintained a solid capital buffer against the minimum capital requirement and internal risk appetite levels with the Company’s Solvency II ratio of 169% at the end of 2022, almost stable YoY. Increasing capital requirements, mostly linked with an increased risk related to the Russia-Ukraine conflict, were more than offset by the effect of the positive impact of fair value adjustment. The use of reinsurance helps reduce some of the demands of required regulatory capital, particularly the amount of capital to be held for catastrophic risks. The ownership by UnipolSai provides some flexibility in the timing and frequency of dividend payments.

ENVIRONMENTAL, SOCIAL, GOVERNANCE CONSIDERATIONS

Credit rating actions on UnipolSai Assicurazioni S.p.A. are likely to have an impact on this credit rating. ESG factors that have a significant or relevant effect on the credit analysis of UnipolSai Assicurazioni S.p.A. are discussed separately at https://www.dbrsmorningstar.com/issuers/24728.

There were no Social or Governance factor that had a significant or relevant effect on the credit analysis.

A description of how DBRS Morningstar considers ESG factors within the DBRS Morningstar analytical framework can be found in the DBRS Morningstar Criteria: Approach to Environmental, Social, and Governance Risk Factors in Credit Ratings at https://www.dbrsmorningstar.com/research/416784/dbrs-morningstar-criteria-approach-to-environmental-social-and-governance-risk-factors-in-credit-ratings (4 July 2023).

Notes:
All figures are in EUR unless otherwise noted.

The principal methodology is the Global Methodology for Rating Insurance Companies and Insurance Organizations https://www.dbrsmorningstar.com/research/417109/global-methodology-for-rating-insurance-companies-and-insurance-organizations (14 July 2023). In addition DBRS Morningstar uses the DBRS Morningstar Criteria: Approach to Environmental, Social, and Governance Risk Factors in Credit Ratings https://www.dbrsmorningstar.com/research/416784/dbrs-morningstar-criteria-approach-to-environmental-social-and-governance-risk-factors-in-credit-ratings in its consideration of ESG factors.

The credit rating methodologies used in the analysis of this transaction can be found at: https://www.dbrsmorningstar.com/about/methodologies.

The sources of information used for this credit rating include Morningstar Inc. and Company Documents UnipolSai Consolidated Annual Reports 2022-2018, UnipolSai 2022 Solvency and Financial Condition Report, UnipolSai Sustainability Report 2022, Unipol Gruppo Q123 Consolidated Interim Financial Report, Unipol Gruppo 2022 Solvency and Financial Condition Report, Unipol Gruppo Integrated Consolidated Financial Statements 2018-2022, and Unipol Gruppo Annual Reports 2018-2022, Unipol Gruppo Investor Presentation. DBRS Morningstar considers the information available to it for the purposes of providing this credit rating to be of satisfactory quality.

DBRS Morningstar does not audit the information it receives in connection with the credit rating process, and it does not and cannot independently verify that information in every instance.

The conditions that lead to the assignment of a Negative or Positive trend are generally resolved within a 12-month period. DBRS Morningstar's outlooks and credit ratings are under regular surveillance.

For further information on DBRS Morningstar historical default rates published by the European Securities and Markets Authority (ESMA) in a central repository, see: https://registers.esma.europa.eu/cerep-publication/.
For further information on DBRS Morningstar historical default rates published by the Financial Conduct Authority (FCA) in a central repository, see https://data.fca.org.uk/#/ceres/craStats.

The sensitivity analysis of the relevant key credit rating assumptions can be found at: https://www.dbrsmorningstar.com/research/417520

This credit rating is endorsed by DBRS Ratings Limited for use in the United Kingdom.

Lead Analyst: Mario De Cicco, Vice President, Insurance – Global Financial Institutions
Rating Committee Chair: Marcos Alvarez, Senior Vice President, Global Head of Insurance - Global FIG
Initial Rating Date: October 8, 2020
Last Rating Date: October 4, 2022

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