The rating agency also downgraded a number of other Italian and Spanish insurers at the time.

Fitch stated this week that Generali's ‘internationally diversified sources of earnings’ mean that its ratings are not automatically capped by the sovereign rating of Italy.

It added, however, they are also not insulated from an economy where government austerity measures are likely to ‘dampen’ private consumption and investment.

“As a result, if Italy's long-term IDR is further downgraded, it is likely that Generali's ratings will be downgraded. The ratings could also be downgraded if the insurer's consolidated solvency margin and operating performance deteriorate to the extent that they would fall short of Fitch's expectations for an 'A-' rated insurer,” stated Fitch.

The rating agency also noted, however, that Generali's outlook could be revised to stable if the outlook on the Italian sovereign rating was revised to stable.

“If the outlook for sovereign debt improves and stabilises, it is also likely that Generali's ratings could be upgraded should their actual and pro-forma capital ratios also improve,” it added.

No such good news came from Fitch for fellow Italian insurance group Fondiaria.

Fitch also this week downgraded the Florence-based company’s IFS and its main subsidiary, Milano Assicurazioni’s to 'B+' from 'BB-'.

At the same time, Fitch changed the Rating Watch to evolving from negative, where the ratings were placed on 29 December, 2011.

The rating agency explained that the downgrade follows FonSAI's announcement that it expects to post an after-tax loss of approximately €1.1bn for 2011 after it was estimated to be a loss of €925m in December.

This figure includes reserve strengthening of €790m (compared with the earlier estimate of €660m) and further impairments on its real estate portfolio for €145m (against €165m).

Fondiaria’s management now estimates its consolidated regulatory solvency margin was 75% at end-2011, weaker than the 90% it estimated in December.

The rating agency noted that this is the second revision of the company's expectations of earnings and capital adequacy within a short period of time.

It said that this raises concerns about the actual scale of full year loss and solvency margin for 2011 and about management's ‘grasp of its business’.

“In Fitch's view, capital remains volatile and highly exposed to adverse investment market volatility, particularly with reference to Italian sovereign debt and equities. The quality of capital is also negatively affected by the large proportion of unrealised gains on real estate and goodwill, and the form of double leverage between FonSAI  [Fondiaria group] and Milano,” added Fitch.

The rating agency said that the Rating Watch Evolving (RWE) partly reflects uncertainty over the success of FonSAI's newly announced capital increase of €1.1bn. If the company successfully raises the whole sum, it expects to report a solvency margin of 120%, it added.

Fitch also said that the RWE also reflects the announcement by Unipol Group (which is not rated) that it intends to acquire a majority stake in Premafin (also not rated), FonSAI's ultimate holding company.

“Fitch views this announcement as potentially strongly positive for FonSAI's ratings, but also notes that Unipol itself needs to raise €1.1bn of fresh capital for the transaction to proceed, introducing a further measure of uncertainty,” said Fitch.

If Unipol successfully acquired a majority stake in Premafin, as a result, it would also control FonSAI and Milano and contribute to FonSAI's capital increase.

As part of the proposed transaction, subject to regulatory approvals, Unipol plans to integrate its own operations with those of the three other companies.

Fitch said that the potential integration of the insurance operations of Unipol and FonSAI would create a ‘significant’ player in the Italian insurance market, in particular in the non-life market.

The newly merged group would offer a credible alternative to insurance buyers along with Generali and Allianz Italy.

Unipol hopes that the four-way integration will be completed by the end of 2012.

Fitch said it believes, however, that because of the complexity of the integration, there is substantial execution risk.

FonSAI is the parent company and main operating entity of the second-largest domestic insurance group in Italy, with consolidated gross written premiums of €12.9bn in 2010.

The group, created by the merger between Fondiaria and SAI in 2002, holds leading positions in the Italian non-life market through FonSAI and its 60% ownership of Milano.

Also this week Fitch downgraded Mapfre SA's (Mapfre) IDR to 'BBB+' from 'A-' and its core operating subsidiaries' IFS rating to 'A' from 'A+'.

The ratings have simultaneously been removed from Rating Watch Negative (RWN) where they were placed on 20 December 2011. The outlook for the ratings is negative.

Fitch said that the rating action follows the downgrade of Spain's long-term IDR to 'A' from 'AA-' on 27 January.

The rating agency said that the resolution of the RWN was dependent upon the resolution of the RWN on Spain's sovereign ratings given the ‘intrinsic link’ between Mapfre's ratings and Spain's creditworthiness.

Please sign up here to our full-time mailing list to ensure that you receive our weekly newsletter.

• More Results News
• More Financial News
• More Spain News
• More Italy News