Fitch Affirms Azzurro Re I Ltd Catastrophe Notes at 'BB+sf'; Outlook Stable

NEW YORK--()--Fitch Ratings has affirmed Azzurro Re I Ltd's principal at-risk variable rate notes as follows:

--EUR200,000,000 class A notes with an expected maturity of Jan. 16, 2019 at 'BB+sf'; Outlook Stable.

Azzurro Re I Ltd is an Irish private limited company authorized as a special purpose reinsurance vehicle.

Today's affirmation is based on Fitch's annual surveillance review of the notes, which includes a scheduled evaluation of the natural catastrophe risk, counterparty exposure, collateral assets and structural performance. Fitch expects to complete an updated reset report by the end of 2016.

KEY RATING DRIVERS

The 2015-1 class A notes provide reinsurance protection for UnipolSai Assicurazioni S.p.A. and other group subsidiaries (UnipolSai; Issuer Default Rating 'BBB-'/Outlook Stable). The notes are exposed to earthquake peril and ensuing perils including sprinkler leakage, fire, groundshaking, volcanic disturbance or eruption (including ashfall), and tsunami and flooding due to dam or levy ruptures. The covered area is predominantly located in Italy (99.8%). However, if an epicentre is located outside of Italy it could be considered a covered event if risks in the covered area are damaged.

The 2015-1 class A notes are exposed to principal loss if ultimate net losses from a covered event exceed EUR500 million and totally exhausts if losses exceed EUR700 million. As of today, there have been no reported covered events that exceeded the trigger amount of EUR500 million in the first annual risk period of the transaction, which runs from June 18, 2015 through Dec. 31, 2016.

The annual one-year attachment probability for the 2015-1 class A notes is 0.40%. This indicates an implied rating of 'BB+' using Fitch's ILS Calibration Matrix with a one-year time-to-risk maturity assumption. The annualized modeled expected loss is 0.31%.

AIR Worldwide (AIR), acting as the reset agent, is expected to complete the first reset report later in 2016 that will determine the modelled attachment probability for the second annual risk period (Jan.1, 2017 through Dec. 31, 2017).

Fitch believes the notes and indirect counterparties are performing as required. There have been no reported early redemption notices or events of default and all agents remain in place.

Additional information regarding the notes can be found in Fitch's press release published June 18, 2015.}

RATING SENSITIVITIES

This rating is sensitive to the occurrence of a qualifying event(s), the counterparty risk of UnipolSai and the rating on, and performance of, the assets held in the collateral account.

If qualifying covered events occur that cause the ultimate net losses to exceed the attachment amount, Fitch will downgrade the notes reflecting an effective loss of principal and impairment of the notes, and issue a Recovery Rating.

In the case of a reset election, UnipolSai may select an updated attachment level such that the updated modeled expected loss falls in the range of 0.31% and 0.36%. Fitch believes the corresponding attachment probability will likely stay at the implied rating of 'BB+' though there could be a one-notch upgrade or downgrade under possible outcomes.

The rating on the notes is contingent on UnipolSai maintaining the proper pre-funded amounts in the premium deposit account, and if this does not occur, the rating is contingent on the transaction being successfully unwound with principal and accrued interest paid in full. Fitch has an Issuer Default Rating of 'BBB-' for UnipolSai.

To a lesser extent, the notes may be downgraded if the EBRD notes should suffer a serious downgrade, the terms of the notes are altered, or the assets held in the collateral account perform significantly worse than expectations for high-quality, short-term investments.

The catastrophe risk element is highly model-driven and actual losses may differ from the results of the simulation analysis. The escrow model may not reflect future methodology enhancements by AIR, which may have an adverse or beneficial effect on the implied rating of the notes were such future methodology to be considered.

DUE DILIGENCE USAGE

No third party due diligence was provided or reviewed in relation to this rating action.

Additional information is available at www.fitchratings.com.

Applicable Criteria

Counterparty Criteria for Structured Finance and Covered Bonds (pub. 14 May 2014)

https://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=744158

Global Structured Finance Rating Criteria (pub. 06 Jul 2015)

https://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=867952

Insurance-Linked Securities Methodology (pub. 23 Jul 2015)

https://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=868333

Additional Disclosures

Dodd-Frank Rating Information Disclosure Form

https://www.fitchratings.com/creditdesk/press_releases/content/ridf_frame.cfm?pr_id=1005975

Solicitation Status

https://www.fitchratings.com/gws/en/disclosure/solicitation?pr_id=1005975

Endorsement Policy

https://www.fitchratings.com/jsp/creditdesk/PolicyRegulation.faces?context=2&detail=31

ALL FITCH CREDIT RATINGS ARE SUBJECT TO CERTAIN LIMITATIONS AND DISCLAIMERS. PLEASE READ THESE LIMITATIONS AND DISCLAIMERS BY FOLLOWING THIS LINK: HTTP://FITCHRATINGS.COM/UNDERSTANDINGCREDITRATINGS. IN ADDITION, RATING DEFINITIONS AND THE TERMS OF USE OF SUCH RATINGS ARE AVAILABLE ON THE AGENCY'S PUBLIC WEBSITE 'WWW.FITCHRATINGS.COM'. PUBLISHED RATINGS, CRITERIA AND METHODOLOGIES ARE AVAILABLE FROM THIS SITE AT ALL TIMES. FITCH'S CODE OF CONDUCT, CONFIDENTIALITY, CONFLICTS OF INTEREST, AFFILIATE FIREWALL, COMPLIANCE AND OTHER RELEVANT POLICIES AND PROCEDURES ARE ALSO AVAILABLE FROM THE 'CODE OF CONDUCT' SECTION OF THIS SITE. FITCH MAY HAVE PROVIDED ANOTHER PERMISSIBLE SERVICE TO THE RATED ENTITY OR ITS RELATED THIRD PARTIES. DETAILS OF THIS SERVICE FOR RATINGS FOR WHICH THE LEAD ANALYST IS BASED IN AN EU-REGISTERED ENTITY CAN BE FOUND ON THE ENTITY SUMMARY PAGE FOR THIS ISSUER ON THE FITCH WEBSITE.

Contacts

Fitch Ratings
Primary Analyst
Phillip Chan
Director
+1-212-908-0745
Fitch Ratings, Inc.
33 Whitehall St.
New York, NY 10004
or
Secondary Analyst
Christopher Grimes
Director
+1-312-368-3263
or
Committee Chairperson
Kevin Corrigan
Senior Director
+1-212-908-9156
or
Media Relations:
Sandro Scenga, +1-212-908-0278
sandro.scenga@fitchratings.com

Contacts

Fitch Ratings
Primary Analyst
Phillip Chan
Director
+1-212-908-0745
Fitch Ratings, Inc.
33 Whitehall St.
New York, NY 10004
or
Secondary Analyst
Christopher Grimes
Director
+1-312-368-3263
or
Committee Chairperson
Kevin Corrigan
Senior Director
+1-212-908-9156
or
Media Relations:
Sandro Scenga, +1-212-908-0278
sandro.scenga@fitchratings.com