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

KEY RATING DRIVERS
The IFS rating is constrained by the rating of Italy (BBB+/Stable), given Poste Vita's large exposure to Italian sovereign debt (EUR70bn - including unit-linked investments - at end-December 2014 or around 23x consolidated shareholders' funds).

Poste Vita's rating reflects its strong franchise in Italy and solid profitability. This is offset by Poste Vita's only adequate capital position, relatively high financial leverage and adequate interest coverage.

Poste Vita's rating reflects its ownership by Poste Italiane (Poste; BBB+/Stable). Fitch regards Poste Vita as being strategically very important to Poste based on the agency's group rating methodology. Poste Vita benefits from cross-selling synergies, with 3.1 million shared customers from Poste's 31.8m client base. Poste provides funding in the form of subordinated loans (EUR540m at end-2014) 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 contributed around EUR900m in 2014 to Poste including profit and distribution commissions. Profitability at Poste Vita's group level continues to remain strong, with consolidated pre-tax profit of EUR540m in 2014 (2013: EUR506m).

Fitch views Poste Vita's level of capitalisation and solvency as being moderate, albeit commensurate with the rating. The consolidated regulatory solvency margin ratio was around 126% at end-2014 (end-2013: 122%), and Fitch expects the regulatory solvency margin to decline to around 120% in 2015 as the company grows its business. Nonetheless, Fitch does not view this lower solvency margin as a significant weakness due to the low level of minimum guarantees embedded in Poste Vita's products, which are expected to result in a significantly improved solvency ratio under Solvency II, due to become effective in 2016. Financial leverage was also high at 31% at end-2014.

Interest rate risk is low, as around two-thirds of Poste Vita's traditional liabilities carry investment guarantees of only 1.5%, although credited rates to policyholders have historically been higher. The remaining one-third of liabilities have guarantees lower than 1.5%. In addition, less than 10% of mathematical reserves carry annual guarantees, while the remaining offer guarantees at maturity, which Fitch views positively. The assets backing the life business within the segregated funds also carry significant unrealised gains. These gains can be used to cover the cost of guarantees, supplementing ordinary investment income.

Poste Vita is the largest Italian life insurer by gross written premiums, with a market share of 13.6% at end-2014. In Italy, Poste Vita has a strong franchise and can exploit its strong distribution capabilities through the widespread network of post offices in the country. Poste Vita's premium income is resilient and has been on a steadily rising trend since 2007.

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