Generali welcomes S&P rating affirmation

Generali has welcomed the decision by Standard & Poor’s (S&P) to affirm its financial strength rating of A- after the Italian insurer passed a new stress test that had been introduced by the rating agency. The outlook on the rating is negative, however.

S&P’s recently updated its approach to the way it handles the ratings of insurers rated higher than their sovereign country. It runs a stress test on the capital model of the insurer as if the sovereign had defaulted. The test is based on an aggregate of severe historical financial crises in various countries.

If the insurer then still achieves the minimum level of regulatory capital after this stress, a rating above the sovereign level can be assigned. If not the sovereign rating becomes the de-facto rating ceiling. In Generali’s case, that would have resulted in an automatic downgrade for the insurer.

“This is a substantial achievement for Generali and the clearest possible signal of the inherent strength of the Group,” said Mario Greco, the Generali Group CEO. “Our ability to pass such a dramatic stress scenario is a testament to the significant balance sheet buffers and financial flexibility the Group has today.

“Moreover, we have always considered extremely unlikely the scenario of a potential default of Italy. S&P’s affirmation is an important and independent acknowledgement of the global diversification of the Group where approximately 70 percent of our business and assets are outside the domestic market. It is also a validation of the excellent progress Generali is making in its strategy of rebuilding solvency, reducing leverage, and improving profitability.”