Morningstar DBRS Places Unipol Gruppo S.p.A.’s Issuer Rating of BBB Under Review With Positive Implications

DBRS Ratings GmbH (Morningstar DBRS) placed Unipol Gruppo S.p.A.’s (Unipol or the Company) Issuer Rating of BBB Under Review with Positive Implications following the Company’s announcement to initiate a corporate rationalization by merging UnipolSai Assicurazioni S.p.A (UnipolSai; rated A (high) with a Stable trend by Morningstar DBRS) into Unipol by the end of 2024.

KEY CREDIT RATING CONSIDERATIONS
The Under Review with Positive Implications designation follows Unipol’s announcement to implement the merger by incorporating UnipolSai and other wholly owned subsidiaries by the end of 2024. If Unipol’s plan is fully executed, the resulting entity will be an operating insurance company to be renamed Unipol Assicurazioni S.p.A. Under Morningstar DBRS’ Global Methodology for Rating Insurance Companies and Insurance Organizations (the Global Insurance Methodology), the resulting entity’s Issuer Rating and Financial Strength Rating will be equalized with those of UnipolSai, provided that there are no negative financial implications resulting from the merger. In line with the Global Insurance Methodology, Unipol’s current Issuer Rating is constrained by the rating of the Republic of Italy (rated BBB (high) with a Stable trend by Morningstar DBRS). However, once the merger is concluded, the resulting entity will be an operating insurance company whose Issuer Rating and Financial Strength Rating can both be positioned above the Sovereign rating for Italy, as is the case with UnipolSai.

CREDIT RATING DRIVERS
Unipol’s Issuer Rating would be upgraded once the merger with UnipolSai is completed and provided that any adverse effect, including execution risk, is limited.

Conversely, Unipol’s Issuer Rating would be confirmed at its current level if the merger does not proceed as planned.

CREDIT RATING RATIONALE
On 16 February 2024, Unipol announced that its board of directors had approved a merger by incorporating UnipolSai into Unipol and renaming the resulting entity Unipol Assicurazioni S.p.A. As part of the corporate rationalization project, Unipol Finance S.r.L., UnipolPart I S.p.A., and Unipol Investment S.p.A., wholly owned subsidiaries of Unipol that hold shares of UnipolSai will also be merged into Unipol. The Company expects to complete the merger by the end of 2024, subject to customary regulatory approvals.

As part of the merger, Unipol will launch a voluntary tender offer for all the ordinary shares of UnipolSai not held, directly or indirectly, by Unipol (to date, approximately 14.75%). Unipol will pay EUR 2.70 for each share of UnipolSai tendered in the offer that is not exchanged for Unipol shares. The Company expects a net positive impact on its Solvency II ratio, which closed at 200% as of YE2023. However, the resulting effect on Unipol’s solvency will depend on the proportion of UnipolSai shareholders participating in the tender offer and the proportion of Unipol shareholders exercising their withdrawal rights within the maximum terms of EUR 100 million.

The transaction will create a holdco/opco entity and help simplify the Company’s corporate structure and optimize its cash and solvency position. Morningstar DBRS will monitor the execution of the transaction and will finalize the review of its credit ratings once the merger is complete.

Franchise Strength Building Block Assessment: Strong

Risk Profile Building Block Assessment: Good/Moderate

Earnings Ability Building Block Assessment: Strong/Good

Liquidity Building Block Assessment: Strong/Good

Capitalization Building Block Assessment: Good/Moderate

ENVIRONMENTAL, SOCIAL, GOVERNANCE CONSIDERATIONS

Environmental (E) Factors
As part of its operations within the property and casualty insurance business, Unipol is exposed to climate and weather risks, as well as natural catastrophic events in Italy, including earthquakes, wildfires, and flooding. Morningstar DBRS considers that the issuer has adequate procedures in place to assess and measure the impact of these risks on its operations and support broader global actions that aim to minimize them. However, these considerations on the Environmental factor are taken into account as part of Morningstar DBRS’ assessment of product risk within the Company’s risk profile.

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

A description of how Morningstar DBRS considers ESG factors within the Morningstar DBRS analytical framework can be found in the Morningstar DBRS Criteria: Approach to Environmental, Social, and Governance Risk Factors in Credit Ratings at https://dbrs.morningstar.com/research/427030/morningstar-dbrs-criteria-approach-to-environmental-social-and-governance-risk-factors-in-credit-ratings (23 January 2024).

Notes:
All figures are in euros unless otherwise noted.

The principal methodology is the Global Methodology for Rating Insurance Companies and Insurance Organizations: https://dbrs.morningstar.com/research/417109/global-methodology-for-rating-insurance-companies-and-insurance-organizations (14 July 2023). In addition, Morningstar DBRS uses the Morningstar DBRS Criteria: Approach to Environmental, Social, and Governance Risk Factors in Credit Ratings, https://dbrs.morningstar.com/research/427030/morningstar-dbrs-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://dbrs.morningstar.com/about/methodologies.

The sources of information used for this credit rating include Morningstar, Inc. and company documents: Press Release dated 16 February 2024: Unipol Gruppo: preliminary consolidated results for financial year 2023; Press Release: Voluntary tender offer for all the ordinary shares of UnipolSai Assicurazioni S.p.A. launched by Unipol Gruppo S.p.A.; Presentation: FY2023 Preliminary Consolidated Results presentation – Unipol and UnipolSai. Morningstar DBRS considers the information available to it for the purposes of providing this credit rating to be of satisfactory quality.

Morningstar DBRS 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. Morningstar DBRS' outlooks and credit ratings are under regular surveillance.

This credit rating is under review. Generally, the conditions that lead to the assignment of reviews are resolved within a 90-day period. Morningstar DBRS reviews and credit ratings are under regular surveillance.

For further information on Morningstar DBRS 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 Morningstar DBRS 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://dbrs.morningstar.com/research/428540/.

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

Lead Analyst: Mario De Cicco, Vice President – Global Insurance Ratings
Rating Committee Chair: Elisabeth Rudman, Managing Director – Global Financial Institutions Ratings
Initial Rating Date: 8 October 2020
Last Rating Date: 21 July 2023

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