AM Best has assigned a Financial Strength Rating of B+ (Good) and a Long-Term Issuer Credit Rating of "bbb-" to Net Insurance S.p.A. (Net Insurance) (Italy). The outlook assigned to these Credit Ratings (ratings) is stable.
The ratings reflect Net Insurance’s balance sheet strength, which AM Best categorises as adequate, as well as its adequate operating performance, limited business profile and appropriate enterprise risk management (ERM).
Net Insurance’s risk-adjusted capitalisation, as measured by Best’s Capital Adequacy Ratio (BCAR), is categorised as strongest. Offsetting factors in the balance sheet strength assessment include the concentration of the company’s underwriting portfolio on credit business and its small capital base, which increase the potential for volatility in its risk-adjusted capitalisation, especially under challenging economic conditions. Dependence on reinsurance is high, although the associated credit risk is mitigated partially by the excellent credit quality of its reinsurers.
Performance in each of the past two years has been good, with returns on equity of 11.3% and 19.8% in 2018 and 2019, respectively. The negative result in 2017 was due to the losses related to an alleged fraud committed by an external investment broker. Net Insurance has achieved good underwriting performance in recent years, with technical profits in four of the past five years and a five-year weighted average net combined ratio on its non-life business of 88.5% (2015-2019). Its long-term track record of operating profits, however, is volatile. AM Best expects the company’s prospective technical performance to be more stable, underpinned by actions taken by the management team appointed in 2019, although it remains vulnerable to increases in unemployment associated with weakening macroeconomic conditions in Italy.
Net Insurance is a multiline insurer, with 74% of its 2019 gross written premium (GWP) represented by credit business covering CQ "Cessione del Quinto" loans (i.e., salary-backed loans) in Italy. The company has a limited scale, with GWP of EUR 84.4 million in 2019. However, it has a strong market share (2019: 22.3%) in the niche CQ line of business in Italy where it is able to leverage its specialist expertise and innovative approach to compete against larger players. Net Insurance has a developed ERM framework, which has been strengthened following the discovery of the alleged fraud. The company has clear risk appetite and tolerance levels in place.
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