Sovereign downgrades in Italy and Spain would be unlikely to trigger a cut in ratings for both countries’ insurers, Fitch has said.
In a new note, the ratings agency explores the potential ramifications of a sovereign downgrade on the two faltering eurozone countries’ biggest insurers.
Italy currently has a sovereign rating of 'AA-'/Stable Outlook and Spain 'AA+'/Negative Outlook.
Of the seven insurers rated by Fitch in Italy, three have the same AA- level rating as the sovereign and four are rated several notches below the sovereign. Thus, a hypothetical one notch downgrade of Italy's sovereign rating would place it below the ratings of the three noted insurers.
Fitch's insurance team Senior Director Federico Faccio said: "Fitch would not expect to downgrade the ratings of the majority of rated Italian insurers, even in the event of a one-notch downgrade of Italy's sovereign rating."
"Nevertheless, there is some linkage between the strength of the Italian economy, the rating of a domestic insurer and the rating of the sovereign. It is unlikely that the rating of a domestic insurer could be more than one notch higher than the sovereign, thus creating downgrade risk were the sovereign to be downgraded by more than one notch."
Fitch also rated six insurers in Spain. The highest rated is Generali Espana at 'AA-' /Stable Outlook, two notches below the sovereign rating.
Even if Spain's sovereign rating was hypothetically downgraded by three notches, given the gap between the insurers' ratings and Spain's sovereign rating this is unlikely to affect the ratings of these six insurers. Thus, according to Fitch, it would take a severe downgrade before to trigger downgrades of the Spanish insurers.
