OREANDA-NEWS. Fitch Ratings expects to rate the Principal At-Risk Variable Rate Notes issued by Azzurro Re I Ltd., an Irish private limited company that has applied for authorization as a special purpose reinsurance vehicle, as follows:

--Class A Principal At-Risk Variable Rate Notes expected maturity January, 2019 'BB+ sf'; Outlook Stable.

The Outstanding Principal Amount (euro denominated) and Risk Interest Spread will be determined at closing.

The notes provide reinsurance protection for UnipolSai Assicurazioni S.p.A. and other group subsidiaries (UnipolSai; unrated by Fitch). The notes are exposed to Earthquake peril and ensuing perils such as, but not limited to, 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, it is possible for the epicentre to be located outside Italy to be considered a Covered Event if risks in the Covered Area are damaged. The trigger is a per occurrence event based on Ultimate Net Losses.

UnipolSai provides earthquake coverage as add-on coverage to existing property insurance policies (not on a stand-alone basis). The Total Indemnity Limit (TIL) in Italy is 69.6 billion euro with industrial-type coverage representing 41.8% (and Residential/Civil being 22.0%). Contingent Business Interruption coverage is less than 1% of the TIL. Approximately two-thirds of the TIL is located in the northern regions of Italy: Lombardia (capital is Milan, TIL is 31.6%), Emilia-Romagna (Bologna, 13.7%), Veneto (Venice, 11.2%) and Piemonte (Turin, 10.1%).

The 2015-1 notes are exposed to principal loss if Ultimate Net Losses from a Covered Event exceed 500 million euro and is totally exhausted if they exceed 700 million euro. In the calculation of the Ultimate Net Loss, there is a Growth Limitation Factor which is the lesser of 1.0 and the ratio of the Growth Allowance Factor (1.10) and the Actual Growth Factor. The initial Loss Adjustment Expense Factor is 1.08 but may be changed at each Rate Reset Date to range between 1.06 and 1.10.

On a historical basis, it does not appear that a recurrence of a past earthquake event based on the modelled Subject Business would have caused any partial (or full) principal loss. It is estimated that the Irpinia event in 1980 with an epicentre in Campania (magnitude 6.9) would have caused Modeled Insured Industry Losses in Italy of 5.3 billion euro but only 291 million euro of Ultimate Net Losses to the Notes. Three other events, all in central Italy (Avezzano, magnitude 7.0; Friuli, 6.4 and Messina-Reggio, 7.1), may have caused over 1 billion euro in industry losses, but the modelled Ultimate Net Loss was estimated at 194 million euro, 163 million euro and 45 million euro, respectively.

For frequency and severity, Fitch reviewed the 2011 version of the Parametric Catalogue of Italian Earthquakes (A. Rovida, R. Camassi, P. and M. Gasperini Stucchi (ed), 2011. CPTI11). This catalogue contains 3,182 recorded earthquakes from the year 1000 to 2006. Since 1900, 1,838 events have occurred (or about 17 per year), of which, 75% had a Moment Magnitude Scale less than 5.0 which usually causes minimal losses. Approximately, 1.5% had a measurement above 7.0. This measurement replaced the more commonly known Richter Scale in the 1970s.

The risk period is around 3.5 years and ends on Dec. 31, 2018. The notes may be extended in quarterly increments for another 36 months (the scheduled redemption date is Jan. 16, 2019 and the final extended redemption date is Jan. 18, 2022) if certain qualifying events occur, or at the discretion of UnipolSai. However, the notes are not exposed to any further catastrophe events during this extension. The Notes may be redeemed at any time under seven defined Early Redemption Events which include regulatory or tax law changes or may be redeemed by UnipolSai during the extension period. The repayment of the notes to the noteholders occurs subsequent to any qualified payments to UnipolSai for Covered Events. Noteholders have no recourse to UnipolSai.