The ratings reflect UnipolSai's balance sheet strength, which AM Best categorises as strong, as well as its strong operating performance, neutral business profile and appropriate enterprise risk management.
UnipolSai's balance sheet strength is underpinned by risk-adjusted capitalisation, as measured by Best's Capital Adequacy Ratio (BCAR), which was at the strongest level at year-end 2019 and AM Best expects to be maintained at least at the very strong level. Factors also supporting balance sheet strength are the company's low reinsurance dependence, good internal capital generation and good financial flexibility. An offsetting factor is the concentration of UnipolSai's investment portfolio in Italian government bonds, which exposes its risk-adjusted capitalisation to volatility.
The company's large capital buffers have insulated it against market volatility in the wake of the coronavirus pandemic. However, AM Best forecasts that unrealised losses will result in the BCAR falling to the very strong level at year-end 2020. Similarly, there has been a significant short-term impact on UnipolSai's Solvency II SCR ratio, with the first-quarter 2020 ratio of 200% being 51 percentage points lower than the year-end position, due largely to spread and interest rate impacts. These effects were not cushioned by the volatility adjustment.
UnipolSai's holding company, Unipol Gruppo S.p.A. (Unipol Gruppo), finalised the rationalisation of its exposure to the Italian banking sector in 2019 through the sale of Unipol Banca and the acquisition of a portfolio of non-performing loans held by UnipolReC at a significant write-down to gross value. Although Unipol Gruppo has a somewhat higher level of financial leverage than UnipolSai, the holding company is considered to have a neutral impact on the ratings.
AM Best expects UnipolSai's technical performance to remain strong, driven by strong non-life insurance profitability, and for the life business, a 2.16% margin between average segregated accounts yield and average minimum guarantee. A track record of good non-life underwriting performance is demonstrated by a five-year average combined ratio of 93.5% (2015-2019). Despite considerable expected impact to revenues in 2020 due to the shutdown in the wake of the COVID-19 pandemic, particularly for the life business, profitability is expected to be supported by improved non-life loss experience.
UnipolSai has a leading position in Italy's non-life segment, with a particularly strong position in motor. Performance is supported by the company's access to data and sophisticated pricing capabilities, as well as its extensive use of telematics applied to the non-life segment. However, the concentration of its business portfolio in Italy exposes the company's operations to any adverse changes in the economic and regulatory environment in the country.