OREANDA-NEWS. Fitch Ratings has assigned Italian insurer SIAT an Insurer Financial Strength (IFS) rating of 'BBB'. The Outlook on the rating is Stable.

KEY RATING DRIVERS
The rating reflects the strong market position but small size of SIAT in the Italian marine insurance market, its strong capital and extensive reinsurance coverage. Fitch assesses SIAT's standalone IFS at 'BBB+' but the rating is capped by the IFS rating of parent company UnipolSai (IFS: BBB/Stable). The cap reflects Fitch's view that in the event of UnipolSai's financial distress, it may seek to extract capital from the higher-rated group member.

Fitch views SIAT as strategically 'important' to UnipolSai, under its group rating methodology. UnipolSai provides IT, asset management and procurement services to SIAT. In turn SIAT provides UnipolSai with technical, operational and administrative services in the marine business.

SIAT is the second-largest Italian marine insurer with a strong market position. However, with EUR132m gross premiums and EUR422m total assets, SIAT is small in size.

SIAT's reinsurance utilisation ratio is high (71% in 2014). Fitch believes SIAT's use of reinsurance is adequate for the risks the company assumes. SIAT's reinsurance programme is a major factor supporting its rating and Fitch does not expect material changes to the current reinsurance programme.

SIAT has a strong capital base, as reflected in a Fitch Prism factor-based model (Prism FBM) score of 'Extremely Strong" at end-2014. However, Fitch expects SIAT's Solvency II ratio for 2016 to be significantly lower than the Solvency I ratio given the company's business volatility. SIAT has no financial debt, which is viewed positively by Fitch.

SIAT's net profit in 2014 was EUR3.5m (2013: EUR3.1m), which equates to around a 6% return on equity, in line with the five-year average and commensurate with an IFS rating at the low end of the 'A' range. SIAT has been profitable since 2005 and its equity has increased to EUR57m currently from EUR44m in 2013, driven by retained earnings.

SIAT's net combined ratio is below 100% - indicating an underwriting profit - but can be volatile. Its net combined ratio was 97% in 2014, up from 94% in 2013, which Fitch views as reasonable given the company's risk profile. Fitch expects SIAT's combined ratio to remain below 100% in the medium term; its technical result has been profitable since 2008.

RATING SENSITIVITIES
Factors that could trigger a downgrade of SIAT's rating include UnipolSai being downgraded, as the rating of UnipolSai acts as a cap on SIAT's rating. The Prism FBM score decreasing to "Very Strong" or the combined ratio deteriorating materially above 100% could also result in a downgrade.

Factors that could trigger an upgrade of SIAT's rating include UnipolSai being upgraded and SIAT maintaining an adequate financial profile.