OREANDA-NEWS. Fitch Ratings has affirmed Intesa Sanpaolo Vita's (ISV)'s Long-term Issuer Default Rating (IDR) at 'BBB+' with a Stable Outlook. Fitch has also affirmed ISV's dated and perpetual subordinated notes at 'BBB' and 'BBB-', respectively.

KEY RATING DRIVERS
ISV's rating reflects the company's strong franchise in Italy, solid net profitability, adequate capital and moderate financial leverage. Offsetting this, ISV's operations are concentrated in Italy and there is high concentration risk in its investments as ISV holds a large amount of Italian sovereign and corporate debt.

ISV distributes its insurance products through Intesa Sanpaolo's (ISP; BBB+/Stable) branches. ISP is ISV's ultimate parent and the second-largest Italian bank by total assets. ISV is part of ISP's wealth management offer and of the newly created Insurance Division of the bank . Its risk management is also highly integrated within ISP, which manages capital at the group level. Fitch views ISV as an important contributor to ISP's financial performance and believes support would be forthcoming if needed.

Total life premiums increased by 49.5% yoy in 2014. All major products (unit-linked, traditional guaranteed and pension products) contributed to the increase. This trend is due to the intrinsically volatile nature of the bancassurance business in Italy. ISV provides solutions to ISP's network for sales of single-premium savings-type products.

ISV's consolidated Solvency I ratio was 173.9% at end-2014, which was strong but reduced from 189.6% in 2013 due to robust business growth. Capital remains exposed to volatility given ISV's high exposure to Italian sovereign bonds. In Fitch's Prism Factor Based Model, ISV scored "Adequate" based on end -2013 financials, which Fitch expects to have been maintained in 2014 and to continue in 2015.

ISV issued EUR750m of perpetual fixed/floating subordinated notes in December 2014, further enhancing its financial flexibility after issuing EUR500m dated subordinated debt in 2013. However, the issuance was negative for ISV's financial leverage, which increased to around 24% from 13% at end-2013, based on a pro-forma calculation on 2013 results, as the new notes are treated as 100% debt in Fitch's leverage calculations. However, Fitch expects ISV's financial leverage to remain commensurate with its rating when calculated using 2014 financials and in 2015.

Low interest rates are a key risk for ISV's business, as a significant proportion of the in-force life reserves carries financial guarantees. However, ISV's reduction of minimum guarantees on new sales (0% for the newest products) is a mitigating factor. Furthermore, most new guarantees apply only at maturity, rather than accruing year by year, allowing ISV greater flexibility in dealing with low investment returns in any particular year.

RATING SENSITIVITIES
ISV's rating could be downgraded if ISP's ratings are downgraded. Conversely, the rating could be upgraded if ISP's ratings are upgraded and ISV continues to make a positive contribution to ISP's financial performance.