"A-" IFS RATING for the cash EUR 1.2 billion acquisition of Cattolica by Generali; the outlooks remain stable

10 June 2021 — Alexandra GUZUN
Fitch Ratings affirmed Generali's 'A-' Insurance Financial Strength (IFS) rating. The agency also affirmed the 'BBB+' Issuer Default Rating (IDR), and the outlooks remain stable. The rating actions follow Generali's announcement of the cash voluntary public tender offer for all shares of Cattolica not owned by Generali for approximately EUR 1.2 billion.

Fitch expects the acquisition as proposed to be broadly neutral to Generali's capitalisation and financial leverage, as well as investment risk, following Generali's announcement of a cash voluntary public tender offer for all shares in Societ Cattolica di Assicurazioni S.p.A. (Cattolica) not currently owned by Generali.

Generali and Cattolica started a strategic partnership in June 2020, when Generali became Cattolica's largest shareholder with a 24.4% holding through a reserved share capital increase for EUR 300 million. The proposed transaction is subject to Generali acquiring at least 66.67% of Cattolica's total share capital. The transaction is also subject to the customary regulatory approvals.

According to Fitch, the proposed acquisition of Cattolica would further strengthen Generali's market position in Italy and support Generali's strategy to further diversify into the non-life sector. The acquisition will solely be financed with Generali's own funds. Fitch therefore expects no significant impact on Generali's financial leverage.

Cattolica is the seventh largest insurer in Italy with significant life and non-life insurance operations. The proposed transaction will increase Generali's leading Italian life market share to approximately 20% from 17% currently, and will place Generali as the non-life market leader in Italy with approximately a 21% share from 15% currently. The proposed transaction will also support Generali's business mix diversification towards the non-life segment.

Fitch expects Generali's capital position to remain very strong, even after the acquisition, whose consideration will represent about 3.7% of Generali's consolidated shareholders' capital at end-2020. Generali's size and scale advantage has helped the group maintain very strong capitalisation. Its solvency coverage was very strong at 224% at end-2020 and increased further to 234% at end-1Q21 (2019: 224%). Based on the group's expectations, this should decrease by 7.8% from end-1Q21's value following the proposed Cattolica acquisition, leading to a pro-forma solvency coverage of 226.2%.

Generali's exposure to Italian government debt was high, albeit decreasing, at EUR 61 billion at end-2020 (2019: EUR 62.8 billion). Following Cattolica's acquisition, this should increase to EUR 69.2 billion, leading to a pro-forma sovereign investments-to-capital ratio of 1.9x consolidated shareholders' capital, up from 1.7x at end-2020 (2019: 1.9x). Generali's increased exposure to Italian sovereign debt creates a large concentration risk and potential volatility in capital adequacy, which Fitch sees as a rating weakness.

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