OREANDA-NEWS. Fitch Ratings has affirmed Poste Vita's Insurer Financial Strength (IFS) rating at 'BBB+' and Long-term Issuer Default Rating (IDR) at 'BBB+'. The Outlooks are Stable. Fitch also affirmed Poste Vita's dated subordinated notes at 'BBB'.

KEY RATING DRIVERS
The IFS rating is constrained by Italy's sovereign rating (BBB+/Stable), given Poste Vita's large exposure to Italian sovereign debt (EUR74.5bn at end-2015 or around 23x shareholders' funds). The ratings reflect Poste Vita's strong franchise in Italy, stronger Solvency II regulatory capital than Solvency I and solid profitability. This is offset by Poste Vita's relatively high financial leverage (29% at end-2015), although this is marginally reducing year on year.

Poste Vita's ratings reflect its ownership by Poste Italiane (Poste; BBB+/Stable). Fitch regards Poste Vita as being strategically very important to Poste. Poste provides funding in the form of subordinated loans (EUR450m at end-2015) and manages capital at a group level. Fitch views Poste Vita as an important contributor to Poste's profit and believes financial and operational support would be forthcoming if needed.

Poste Vita is the largest Italian life insurer by gross written premiums, with a market share of 15.3%; premium income increased to EUR18.2bn at end-2015 (2014: EUR15.5bn). Consolidated pre-tax profits increased to EUR564m in 2015 (2014: EUR540m). Poste Vita has a strong franchise in Italy and can exploit its strong distribution capabilities through the widespread network of post offices in the country. Poste Vita's premiums continued to grow in 1Q16 above market average. This followed strong sales of traditional guaranteed products, albeit with 0% minimum guarantees.

Poste Vita's Solvency II ratio was 404% at March-2016 (405% at end-2015), calculated using the standard formula. The ratio reflects the low level of minimum guarantees embedded in Poste Vita's products. However, given the large exposure to Italian sovereign debt, Poste Vita would be faced with a significant increase in capital charges if European regulators were to remove the zero risk-weighting for sovereign. In addition, the ratio is sensitive to interest rates changes.

Fitch considers Poste Vita's exposure to interest rate risk as low. This reflects adequate asset and liability matching and relatively low minimum guarantees. Around half of traditional guaranteed liabilities must contractually return at least 1.5%, while the remaining part of the liabilities have guarantees lower than 1.5%. Crediting rates have historically been higher but over 90% of the guarantees only have to be paid at maturity, allowing Poste Vita greater flexibility in dealing with low investment returns in any particular year.

RATING SENSITIVITIES
Poste Vita's ratings could be downgraded if Italy or Poste are downgraded. Conversely, Poste Vita's ratings could be upgraded if Italy or Poste are upgraded.