EN Official Journal of the European Union L 239/24

COMMISSION DECISION

of 20 March 2013

on the measures SA.23425 (11/C) (ex NN 41/10) implemented by Italy in 2004 and 2009 for SACE BT S.p.A.

(notified under document C(2013) 1501)

(Only the Italian text is authentic)

(Text with EEA relevance)

(2014/525/EU)

THE EUROPEAN COMMISSION,

Having regard to the Treaty on the Functioning of the European Union, and in particular the first subparagraph of Article 108(2) thereof,

Having regard to the Agreement on the European Economic Area, and in particular Article 62(1)(a) thereof,

Having called on interested parties to submit their comments pursuant to the provisions cited above (1),

Whereas:

I. PROCEDURE

(1) By a complaint lodged on 5 June 2007, registered on 7 June 2007, the Commission was informed that, in May 2004, SACE S.p.A. (‘SACE’) had implemented an initial capital allocation of EUR 100 million in favour of its newly established subsidiary SACE BT S.p.A. (‘SACE BT’) (‘the first measure’).

(2) By letter dated 6 November 2009, the complainant submitted additional arguments to support its complaint and informed the Commission about an additional measure in the form of reinsurance cover provided by SACE to SACE BT in 2009 (‘the second measure’).

(3) During its preliminary investigation, the Commission discovered that SACE BT had benefited from two capital injections granted by SACE on 18 June and 4 August 2009 (respective ‘the third measure’ and ‘the fourth measure’).

(4) By letter dated 23 February 2011, the Commission informed Italy that it had decided to initiate the procedure laid down in Article 108(2) of the Treaty on the Functioning of the European Union in respect of the four measures (‘the opening decision’).

(5) The Commission decision to initiate the procedure was published in the Official Journal of the European Union (2). The Commission invited interested parties to submit their comments on the measures.

(6) The Commission received comments only from SACE which were submitted on 5 May 2011. SACE annexed thereto various supporting documents, including a resubmission of the business plan for 2005-2008 for the operation of the short-term insurance prepared by SACE with the help of an external advisor, KPMG, and approved by the Board on 18 May 2004 (‘the initial business plan’), a letter from an external advisor of 7 July 2004, specifying the additional services provided (‘the advisor letter’), supplementary analyses to the business plan regarding the Italian market of the commercial information, the Italian market of the recovery of credits and its principal actors and the credit insurance market in the Central and Eastern Europe of March 2004 (‘the supplements to the business plan’), the adjustment of the Business Plan 2005-2009 approved on 19 November 2004 (‘the adjusted business plan’), extracts of the minutes of the Board of 28 April 2004, 18 May 2004, a business plan regarding potential acquisition of Assicuratrice Edile S.p.A. of May 2005 (‘Assedile acquisition business plan’), revised budget for SACE BT of 31 March 2009, SACE BT business plan for 2010-2011 of 4 August 2009 (‘the 2010-2011 business plan’).

(7) On 5 May 2011, Italy submitted its reply to the opening decision.

(8) On 23 June 2011, the Commission requested additional information. On 13 July 2011, a meeting was held with the Italian authorities and the company's representatives. Following this meeting, the request for information sent on 23 June 2011 was complemented by additional questions resulting from the discussions. The supplemented request for information was sent on 4 August 2011. By letter dated 15 September 2011, Italy submitted the reply to the request for information. It annexed thereto various supporting documents, including an invitation letter of 17 December 2003 to tender for consultancy services to draw a business plan for the preparation of the business plan for operation of the short-term export-credit insurance in the industrialised markets (‘the invitation letter’), additional documents prepared by an external consultant regarding potential acquisition of Assicuratrice Edile S.p.A. and the notes presented to the Board of SACE BT in May 2005 — September 2008 regarding various opportunities for international acquisitions and other forms of international expansion.

(9) By letter dated 25 January 2012 (3), the Commission requested further information. Italy submitted the reply on 5 March 2012. It also annexed to its submission minutes of the meetings of the Board of SACE and its predecessor, the Institute for external trade insurance services — SACE, of 21 November 2003, 3 December 2003, 10 November 2004, 1 April 2008, 1 October 2008, 28 November 2008, 11 February 2009, 1 April 2009, 26 May 2009, 1 July 2009 and 9 September 2009, the additional documents regarding the acquisition of Assedile and a comparison between the financial indicators projected in the initial business plan and the actual figures.

(10) Since Italy had focused its earlier submissions on trying to demonstrate the absence of aid in the measures and had provided only limited information on potential compatibility grounds in case the measures would constitute aid, by letter of 21 February 2012 (4), the Commission services requested Italy to submit additional elements that could demonstrate the potential compatibility of the aid.

(11) Italy submitted on 30 March 2012 a compilation of internal documents of SACE aiming to demonstrate the compliance of the measures granted in 2009 (the second, third and the fourth measures) with the market economy investor principle. They mainly contain: (a) the minutes of the Board of 10 December 2008 and Annexes thereto regarding organisational changes, with the view to strengthen risk control; (b) a summary of management changes for the period 2009-2012; (c) the minutes of the Board of 24 November 2011 with Annexes thereto regarding the update of the business plan for 2011-2013 and (d) the financial report for year-end 2011.

II. DESCRIPTION OF THE MEASURES

II. 1. SACE AND ITS INVOLVEMENT IN THE MARKETABLE RISKS (5)

(12) SACE, the parent company of SACE BT, is a joint stock company wholly owned by the Italian State. SACE is the Italian export-credit agency (ECA). Since the beginning of 2004, it was converted from a public body into a joint stock company wholly owned by the Italian State. SACE insures short-term and long-term non-marketable risks within the meaning of the Commission Communication on short-term export credit insurance (6) (‘the Export-credit Communication’) with the guarantee of the State.

(13) According to Article 2.3 of the Legislative Decree n. 143 of 31 March 1998 (7) which restated the guarantee applicable to SACE as per Law n. 227 of 24 May 1977, the operations and insurable risks, including, amongst others, the geographical coverage, are to be defined by the Inter-ministerial Committee for the Economic Programming (Comitato Interministeriale per la Programmazione Economica, ‘CIPE’). Every year not later than on 30 June, CIPE has to deliberate the financial projections as well as financial needs related to certain risks and to define global limits for the risks to be assumed under the State guarantee distinctly for the guarantees of the duration inferior and superior than 24 months.

(14) In 1997 the Commission adopted the Export-credit Communication which provides that no State aid is to be granted to support export-credit insurers in respect of marketable risks and that public export-credit insurers will, at the very least, have to keep a separate administration and separate accounts for their insurance of marketable risks and non-marketable risks for the account or with the guarantee of the State, demonstrating that they do not enjoy State aid in their insurance of marketable risks. In order to comply with the Export-credit Communication, SACE's Board of Directors (‘Consiglio di Amministrazione’) in its meeting of 7 July 1998 decided to stop the activity of marketable risks (defined as such at the time, i.e. short-term export-credit insurance in respect of the 15 Member States of the Union, ‘EU-15’) regarding direct insurance contracts as from 18 September 1998.

(15) In 2001, the amendments of the Export-credit Communication (8) included, inter alia, the replacement of the list of names of all the Member States which appeared in the Annex to the 1997 version of the Communication with a generic reference to the Member States of the European Union so that the future enlargement of the European Union will not necessitate further amendments of the Communication.

(16) Consequently, at the time of accession of the 10 Member States on 1 May 2004 (‘EU-10’), the non-marketable short-term risks for these countries became marketable risks. As a result, the provisions set out in the Export-credit Communication in respect of marketable risks apply to those risks thereafter.

(17) Article 6 of the Legislative Decree n. 269 of 30 September 2003 (converted with modifications into Law n. 326 of 24 November 2003) — which laid down the rules for the transformation as from 1 January 2004 of ‘the Institute for external trade insurance services — SACE’ into a limited liability publicly held company (SACE S.p.A.) — has set out the scope of operations of the company, which takes into account the evolution of the market at issue. In particular, Article 6.12 provides: ‘SACE S.p.a. can carry out the activity of insuring and guaranteeing marketable risks as defined by the EU rules. Such activity has to have separate accounting in respect of the activity benefiting from the State guarantee or a limited liability company has to be established to that end. In the latter case the participation of SACE S.p.a. in such company cannot be lower than 30 % [and certain previously allocated funds] cannot be used for the subscription of its capital. [The activity of insuring marketable risks] does not benefit from the State guarantee.’

(18) Upon the changes in the legislative framework mentioned in recitals 14-16, SACE decided to establish SACE BT.

(19) In order to comply with Union rules, SACE decided to establish and use separate accounting for marketable risks (9) for the period between the date when the respective risks became automatically marketable (1 May 2004) and when SACE BT was established (27 May 2004) (see Table 1 under recital 19 of the opening decision). No capital was allocated to these activities in the separate accounts. The accounts were separated as per Italian legal provisions. The statutory auditors also refer thereto in SACE's Annual Report 2004 and provide that the separate accounting of marketable risks closed at the end of 2004 (10).

II. 2. THE BENEFICIARY, SACE BT

(20) On 27 May 2004 (11), SACE BT was established with a share capital of EUR 100 million, paid up in full by SACE, following the approval of the initial business plan by SACE's Board of Directors (‘Consiglio di Amministrazione’) on 18 May 2004. In addition, the capital contribution into reserves (so-called ‘Fondo di organizzazione’) of SACE BT in the amount of EUR 5,8 million was provided by SACE (12), which was subsequently used to absorb losses, e.g. in 2004 and 2005 (13). On 3 July 2004, SACE BT received the authorisation from the regulatory authority, Istituto per la vigilanza sulle assicurazioni private e di interesse collettivo — ISVAP, as an insurance provider and started to operate on 15 October 2004.

(21) Presently, SACE BT operates in the credit (54 % of premiums in 2011), surety (30 %) and other damage to property insurance sectors (13 %).

(22) Within the credit insurance segment, SACE BT is active in the short term export-credit insurance business of ‘marketable risks’ within the meaning of the Export-credit Communication. It also provides credit insurance for transactions within Italy (insurance of domestic trade transactions). For a small part of its portfolio, SACE BT has remained active in the short-term non-marketable risks (see Table 1). As submitted by Italy, this activity, as the others, is carried out on market terms and without the guarantee of the State. Table 1 SACE BT's geographical split of credit insurance risks (%) 2005 (14) 2006 (14) 2007 (14) 2008 2009 2010 2011 Domestic, within Italy 42,5 47,5 55,4 67,3 73 76,7 77,4 Foreign — marketable 39,8 46,6 37,4 25,1 21 18,1 17,3 Foreign — non-marketable 17,7 5,9 7,2 7,6 6 5,2 5,3

(23) SACE BT's surety business has developed from an acquisition of Assicuratrice Edile S.p.A. (‘Assedile’). In 2005, SACE BT acquired an initial stake of 70 % thereof. The acquisition process was initiated in March 2005. Assedile was specialised in surety business and offered guarantees for the construction risk and changed its name to SACE Surety in January 2009. Following the acquisition of the remaining outstanding minority stakes in SACE Surety, SACE BT became its sole owner and merged it through incorporation into SACE BT (15).

(24) SACE BT is the sole shareholder of SACE Servizi S.r.l., a company set up to provide services in connection with the acquisition and management of commercial information. In 2011, SACE Servizi has also started the activity of recovery of credits for the account of SACE BT.

(25) The departments responsible for SACE BT's internal auditing, risk management and compliance are externalised to the parent company, SACE (16).

(26) In the second year after its creation SACE BT recorded a small profit, with Return On Equity (ROE) of 0,11 %. However, starting from 2007 (third year of its operation) it recorded losses (see Table 2). Table 2 SACE BT's ROE (%) Year ROE 2005 – 1,51 2006 0,11 2007 – 1,02 2008 – 38,0 2009 – 30,6 2010 – 4,4 2011 0,23 Source:SACE BT's Financial Reports.

(27) Notably, SACE BT registered significant losses both in 2008 (of around EUR 29,5 million) and in 2009 (of around EUR 34 million). In 2009, the insurance claims paid by SACE BT amounted to EUR 66,4 million, up 42,6 % compared to 2008 (17). While the major credit insurance and surety companies reduced their volumes insured in 2009, SACE BT insured transactions for a total of EUR 20,4 billion, an increase of 34,2 % compared to the EUR 15,2 billion insured in 2008.

(28) The situation of the company improved in 2010 when the combined ratio (18) decreased to 108 %, from 163 % in 2009 (see Table 5) and in 2011 when the company registered a small profit (of EUR 0,247 million).

II. 3. THE COMPLAINT

(29) The complainant argued that the initial capital allocation to SACE BT from the parent company, SACE, carried out in 2004 and amounting to EUR 100 million (the first measure) is imputable to the State, is not compliant with the market economy investor principle (‘MEIP’) and constitutes incompatible State aid (see recitals 29 and 30 of the opening decision). On 6 November 2009, the complainant also informed the Commission about the reinsurance granted by SACE to SACE BT that was allegedly imputable to the State and did not meet the MEIP test, thus constituting a new aid measure incompatible with Article 107 of the Treaty (the second measure).

(30) On the opening decision, the complainant did not provide any comments.

II. 4. DESCRIPTION OF THE MEASURES COVERED BY THE PRESENT DECISION

(31) The formal investigation, initiated by the Commission on 23 February 2011, concerns the following four measures granted by SACE to SACE BT (for further details see recitals 33-41 of the opening decision): (a) First measure : the initial capital allocation of EUR 100 million in the form of share capital and the capital contribution into reserves (so-called ‘Fondo di organizzazione’) of EUR 5,8 million in 2004 (19); (b) Second measure : reinsurance coverage, of the type Excess of loss reinsurance (20) for the marketable credit risk of 2009, provided on 5 June 2009. The second measure was granted by SACE, when SACE BT did not succeed to place 100 % of it with the private market participants. In particular, it seems that prior to 2009 SACE BT obtained its reinsurance prevalently from the private operators. However, when renewing its reinsurance contracts for the year 2009 in the context of the financial crisis, SACE BT faced difficulties. Albeit SACE BT contacted a significant number of market operators, it succeeded in raising cover solely from five private reinsurers for 25,85 % of the Excess of loss reinsurance for the marketable credit risk of 2009. The contracts were signed on 30 January 2009. 16 other operators contacted by SACE BT were offered the same terms as those having provided the cover, but they decided not to participate in the reinsurance coverage. The reinsurers had to cover the part of the loss that exceeded EUR 5 million up to EUR 40 million. The five private reinsurers that participated in the excess of loss reinsurance in 2009 were: Hannover Rückversicherung AG (10 %), Sirius International Insurance Corporation (7,5 %), DEVK Rückversicherungs und Beteiligungs AG (3 %), Atradius Reinsurance Ltd (2,5 %), and Assurisk S.A. (2,85 %). The parent company, SACE, subscribed the remaining part of the coverage, i.e. 74,15 % on 5 June 2009, on the same terms of priority, capacity and premium as the five private reinsurers. (c) Third measure : a recapitalisation of EUR 29 million carried out on 18 June 2009 so as to cover losses registered in 2008; (d) Fourth measure : a recapitalisation of EUR 41 million carried out on 4 August 2009 (21).

(32) A chronology of the four measures and the main decisions and milestones for SACE and SACE BT (as per the information and the supporting documents submitted to the Commission) are presented in Table 3. This Table also illustrates the time when certain documents were produced or discussed, documents which are referred later in the present decision. Table 3 Chronological order of the four measures and main decisions and milestones for SACE and SACE BT 21.11.2003 — Study of an external consultant, McKinsey, regarding the scenarios for the potential market of SACE; 17.12.2003 — Invitation letter to tender for consultancy services to draw a business plan for the short-term credit insurance activity of SACE; 1.1.2004 — Transformation of ‘the Institute for external trade insurance services — SACE’ into a limited liability publicly held company (SACE S.p.A.); March 2004 — KPMG carried out supplementary analyses to the business plan regarding the Italian market of the commercial information, the Italian market of the recovery of credits and its principal actors and the credit insurance market in the Central and Eastern Europe; 28.4.2004 — Calculation of the ‘free capital’ of SACE; 1.5.2004 — Accession of the 10 new Member States to the Union; — The non-marketable short-term risks for EU-10 became marketable risks; 18.5.2004 — KPMG presents the business plan that includes the main elements supporting profitability expectations for the period 2005-2008 to SACE's Board of Directors (‘Consiglio di Amministrazione’). — SACE's Board of Directors (‘Consiglio di Amministrazione’) approves the business plan for 2005-2008 regarding the establishment of SACE BT; 27.5.2004 — SACE BT was established; — The capital of EUR 105,8 million was granted thereto; (first measure) 3.7.2004 — SACE BT received the authorisation from the regulatory authority, ISVAP, as an insurance provider; 15.10.2004 — SACE BT started to operate; 19.11.2004 — SACE BT's Board of Directors approves the adjustment to the business plan for 2005-2009; March 2005 — The process of acquisition of Assedile was initiated (22); 15.4.2005 — Presentation on the valuation of Assedile by the external consultant, KPMG (preceded by the examination of the data room); — Discussion by the Board of SACE BT regarding the potential acquisition of Assedile; 18.4.2005 — The first non-binding offer of SACE BT for 70 % of Assedile; 30.5.2005 — Presentation of the addendum to the valuation of Assedile by the external consultant, KPMG; 30.9.2005 — SACE BT signs the final contract for the acquisition of 70 % of Assedile; 19.9.2006 — Business plan — joint bid of SACE BT and Ducroire for the acquisition of 66 % of KUP; December 2006 — Report of the external consultant to SACE BT and Ducroire on the valuation of 66 % of KUP; October 2007 — SACE BT and Ducroire jointly acquire 66 % of KUP; 6.3.2008 — SACE BT acquires the remaining 30 % in Assedile; 30.1.2009 — SACE BT succeeds in raising from five private reinsurers 25,85 % of the Excess of loss reinsurance for the marketable credit risk; 25.2.2009 — SACE BT sells at a loss to SA Ducroire its 33 % shareholding in KUP; 26.5.2009 — SACE's Board of Directors approves the transfer of EUR 29 million to SACE BT; 5.6.2009 — SACE subscribes the remaining 74,15 % of the Excess of loss reinsurance for the marketable credit risk; (second measure) 18.6.2009 — The Ordinary Assembly of shareholders of SACE BT approves to cover the losses registered at the end of 2008 by means of the transfer of EUR 29 million from SACE (third measure) and of EUR 0,49 million from reserves ‘Fondo di organizzazione’; 1.7.2009 — SACE's Board of Directors (‘Consiglio di Amministrazione’) approves the capital transfer (‘versamento in conto capitale’) of EUR 41 million to SACE BT; 4.8.2009 — The Ordinary Assembly of shareholders of SACE BT approves the capital transfer (‘versamento in conto capitale’) of EUR 41 million from SACE; (fourth measure) — SACE BT's Board of Directors (‘Consiglio di Amministrazione’) approves the business plan for 2010-2011; 7.12.2010 — SACE BT's Board of Directors approves a business plan for 2011-2013; 24.11.2011 — The meeting of SACE BT's Board of Directors: Adjustment of the business plan for 2011-2013; 23.2.2012 — The meeting of SACE BT's Board of Directors: Revision of the organisational model of SACE BT.

II. 5. GROUNDS FOR INITIATING THE PROCEDURE

(33) As regards the first measure, the Commission first clarified that the qualification of aid could be excluded from the initial capital endowment if it was provided to non-marketable risks and/or if it was simply the transfer to SACE BT of capital that had already been allocated to short-term insurance activity that existed before within SACE (including to previously non-marketable risks turned into marketable risks on 1 May 2004). The Commission indicated that at that stage it had not sufficient information to assess whether these conditions were met or not.

(34) Secondly, the Commission raised doubts that Italy acted as a private investor would have acted in similar circumstances. This is the so called MEIP test, which, if fulfilled, excludes the existence of an advantage for the beneficiary of the measure. (a) As regards the first measure, based on the information submitted, the Commission raised doubts that the assessment of expected profitability of SACE BT done at the time of its establishment in 2004 would have been sufficient to convince a market economy investor to make the capital contribution. The Commission underlines that the sole business plan submitted at the time merely provided projections for the years 2005-2008, with Return On Average Equity (ROAE) reaching only 5 % in 2008 (including a deduction of EUR 1,1 million for equalisation reserve) (23). No further assessment of a potential further increase in returns to cover for the initial losses appeared as having been made. The Commission at the time was not made aware of any analysis of the potential profitability of possible acquisitions in the sector. Italy was invited to present additional elements that would demonstrate that the investment was done on market terms. (b) As regards the second measure, based on the information provided by the Italian authorities illustrating the difficulties to find the reinsurance cover on the market, the Commission raised doubts whether the second measure has not conferred an advantage to SACE BT. (c) As regards the third and the fourth measures, the Commission considered that in view of the registered losses by SACE BT, it could not have raised that capital on the market.

(35) Thirdly, the Commission indicated that the measures granted by SACE (a public undertaking) seemed to be imputable to the State (State resources criterion), but did not take a final position on that issue.

(36) Finally, the Commission raised doubts that, if the measures were to be found aid, they could not be found compatible with the internal market. There seems to be no legal basis to find such aids compatible.

III. COMMENTS FROM INTERESTED PARTIES

(37) The Commission received comments only from SACE.

IV. COMMENTS ON THE OPENING DECISION AND ADDITIONAL SUBMISSIONS OF ITALY AND SACE

IV. 1. IMPUTABILITY

(38) Italy and SACE maintained that all the four measures granted by SACE would not be imputable to the Italian State. In the reply to the opening decision, Italy quotes extensively the Court judgments in the Stardust Marine (24), Olympic Airways (25) and SIC-RTP (26) cases. At the request of the Commission, Italy has submitted a list provided by SACE that included SACE Board members at the time when each of the four measures at stake was adopted by SACE's Board of Directors (27). When applicable, SACE indicated the position held in the public administration by the respective Board member.

(39) Furthermore, as regards the first measure, Italy argued that the investment into SACE BT was very small as compared to the size of SACE and hence this should also indicate that the State had no reason to be involved in such a small investment, which is therefore not imputable.

(40) As regards the second measure, Italy clarified that CIPE does not decide on the reinsurance activity of SACE (28).

IV. 2. ADVANTAGE CRITERION: THE FIRST MEASURE

(41) In the submissions after the opening decision, Italy and SACE provided that the investment was in line with market practices.

(42) To complement previously submitted documentation mainly consisting from the initial business plan, Italy and SACE notably submitted additional supporting documents (see recitals 6-9). In reply to an additional question of the Commission, Italy also communicated that there were no exchanges between ISVAP and SACE/SACE BT as from 2003 regarding projections made by SACE/SACE BT on the capital requirements and available capital, nor assessments made in this respect by the national supervisory authority (29).

(43) First, SACE stresses that it is a profitable company. It is a well-managed company and there is therefore no ground to put into doubt that it made the investment into SACE BT as a normal investor. To illustrate this, SACE provided data showing that SACE was profitable in 2004-2010 with ROE exceeding 6 % for all those years and annual dividend pay-out ratio varying from 40 % to 95 % of the profits summing up to the total amount of dividends of EUR 2,1 billion in addition to the restitution of part of the capital of EUR 3,5 billion to the State as a shareholder. SACE also claims that its investment into SACE BT was made out of ‘free capital’ unused and available at SACE, quantified at around EUR 250 million on 28 April 2004 (30). Moreover, SACE submits that the amount of capital was negligible compared to the assets and the profits generated by SACE (the amount invested into SACE BT in 2004 was equivalent to only 1,2 % of the equity of SACE and 20 % of net profit of SACE in 2004) (31).

(44) In that context, Italy also clarified that it is not SACE which has been benefitting of the counter-guarantee of the State, but such a guarantee was intended to counter-guarantee SACE's counterparties. In this regard, Italy stressed that, during the period 2004-2010, the counter-guarantee was never called, nor the State had carried out payments in favour of SACE in that period (32).

(45) Secondly, SACE submitted that the investment aimed at the diversification of risks insured by SACE group (in terms of geographical and sector coverage). The coverage of credit risks by SACE group, previously limited to non-marketable countries, was thus to be expanded into Italy and the area of marketable export-credit risks (short-term risk within OECD). In addition, the scope of business was to be expanded into other lines of business as exploited by the three largest private market players.

(46) Thirdly, SACE argued that there were significant unexploited market opportunities for a new market entrant, such as SACE BT. This consideration was analysed before making the investment. In particular, the domestic Italian market had a significantly lower credit insurance penetration ratio if compared to other big European markets. Also, there was an opportunity to operate in the markets of the EU-10, where the major credit insurance market players were not yet present at the time. Before the investment was made, the market opportunities were also analysed by the external consultant in great details.

(47) Fourthly, SACE argued that the ROE of SACE BT cannot be compared to the market average because SACE BT was a start-up at the time while the other short-term export-credit insurance companies were already established in the market.

(48) Fifthly, SACE argued that, when it created SACE BT in 2004 so as to enter the short-term export-credit market, the management expected a sufficient profitability to be achieved from the capital invested through a three pillars strategy (33) relying on organic growth in credit insurance business (of start-up character for which the initial business plan contains four years forecast) for the first pillar, on ancillary activities to the credit insurance (other types of insurance or services), potentially including acquisitions of other firms, in Italy (diversification in terms of business lines) for the second pillar and on geographical expansion through acquisitions of companies operating abroad (geographical diversification) for the third pillar.

(49) According to SACE, the rationale for such strategy was underpinned by the external consultant's analysis (34).

(50) According to SACE, it should be evident that the economic and financial projections elaborated in 2004 could not incorporate or anticipate the effects of future acquisitions which were carried out in the following years (35). In other words, the projections were based solely on the organic growth of SACE BT in the Italian credit insurance market (first pillar mentioned in recital 48) (36).

(51) Given the start-up character of the company, the parent company chose to inject more capital at once in the initial stage. Italy is arguing that this approach is comparable with the one used by private equity funds which are investing up-front money to be used for potential transactions, which should however be subject to independent evaluations and consistent with the pre-determined strategy (37).

(52) Further, Italy argued that even if the initial plan included solely the profitability for the first pillar of business, the other two pillars of business were mentioned/contemplated at the time. They were mentioned as early as in the letter dated 17 December 2003 inviting a consultant to provide an offer to draw a business plan for the short-term activity of SACE (38). In particular, in the invitation to tender to the external consultant, SACE requested the presentation of a limited number of scenarios (maximum 2), which should envisage an endogenous growth of SACE using its own resources and means and a collaboration with other entities, either Italian or foreign which might include various options such as a collaboration with one of the biggest market players, a collaboration with a secondary player (e.g. CESCE — Spain, OND — Belgium) and a collaboration with an Italian player operating in another market segment or in another financial sector.

(53) As regards possible relations with third parties, the consultant was requested to underline the possible advantages deriving from putting in common technology and expertise, economies of scale and specialisation and upstream and downstream integration of activities.

(54) SACE argued that the Board of Directors started discussing such opportunities around the same period when SACE BT was created. To further support that allegation, SACE provided a preliminary outline of cooperation with OND (Belgium) and CESCE (Spain) prepared on 5 March 2004, i.e. before granting the first measure (39).

(55) To provide basis for future expansion into other markets and lines of business, in March 2004, the consultant provided SACE with detailed analysis of market players operating in other business segments in Italy (commercial information services and recovery of credits) and credit insurance in the Central and Eastern Europe (40) and benchmarking to the market practices (mainly major market players) in terms of costs (i.e. for provision of commercial information, for credit recovery), timing of business operations, multiple analysis of the pricing of recent acquisitions in the sector of provision of commercial information as well as benchmarking to the best market practices — so considered due to their leadership position in the respective market segment — in terms of operative business solutions.

(56) Italy recalls that the acquisition strategy started to be put in place in less than one year of the start of operations by SACE BT (the first non-binding offer of SACE BT for 70 % of Assedile dates from 18 April 2005, while the whole process was initiated in March 2005, five months after the start of operations by SACE BT). Further, Italy submitted to the Commission various communications presented to the Board of Directors of SACE BT in the period 2006-2008 considering the subsequent opportunities for acquisitions (41) (all of them were underpinned by the valuations by the external advisors, due diligence exercise, etc., though a number of them were not successful for various reasons).

Financial projections

(57) In the invitation letter to tender for the consultancy services, SACE asked for financial projections for three years ahead, 2005-2007. inter alia, SACE asked for a quantification of the financial resources (i.e. capitalisation) necessary for the development of the short-term activity and the expected profitability (i.e. return on invested capital) (42).

(58) SACE argued that, as the acquisition opportunities were not yet clear and their valuation not yet available, the initial business plan was conservatively solely based on the first pillar of business (organic growth in credit insurance business). The projected profitability, even if limited since not including acquisition strategies, was still positive starting from 2007 (third full year of business) (43) and, if synergies with the parent company (i.e. SACE) were to be included, from 2006 (second full year of business).

(59) Further, already in November 2004, after only one month after the start of operations by SACE BT, an adjustment to the business plan for 2005-2009 (44) was discussed by the Board (45) (‘the adjusted business plan’), containing an analysis of SACE BT's operations at the start of its business, new assumptions for its development, economic-financial simulations and scenarios for development. The accompanying note to the Board clearly specifies the extension of the business into the surety market and the delineation of the evolutionary scenario regarding other opportunities of the external growth into the sectors presenting opportunities for synergies with the activity of SACE BT, so as to realign the return on the entire capital investment into SACE BT with the market benchmarks.

(60) In particular, in the adjusted business plan, the different pillars of future development of the business were mentioned explicitly: organic growth in credit insurance business (first pillar, see recital 48), expansion into other business segments in Italy (second pillar, see recital 48) and external growth, with a mention ‘to be developed further’ (second and third pillars, see recital 48), depending on the activities of a target firm). Capital required for the first pillar was estimated at EUR 40,3 million. As regards the second pillar, only endogenous expansion into surety business (‘cauzioni’) was specified in detail including separate financial projections for that line of business and estimated capital at EUR 3,7 million.

(61) Further, a more detailed analysis of expected profitability in function of capital allocated to the credit insurance and surety businesses was added: ROAE for the first two types of products (credit insurance and surety — cauzioni) on the required capital of EUR 44 million was estimated at 12,5 % (with respectively EUR 40,3 million and 12,1 % for solely credit insurance business) (46). The document stated that the analysis was preliminary and to be further elaborated upon preparation of the restated business plan for the regulatory purposes (expected in February/March 2005).

(62) According to the adjusted plan, the projected profits were of EUR 4,8 million in 2008 and the estimated ROAE on the entire amount of capital was projected to reach 4,4 % in 2009.

(63) Further, in its submissions dated 15 September 2011 and 5 March 2012, Italy provided SACE's calculation of an ‘implied ex ante’ profitability which includes the synergies and the acquisitions of KUP and Assedile (see Table 4). To construct such analysis, Italy took into consideration the ex ante valuations as available at different periods of time: when the initial business plan was prepared, when the acquisition of 70 % of Assedile was contemplated and evaluated, when the acquisition of 100 % of Assedile and 33 % of KUP was contemplated and evaluated. The expected synergies from acquisitions are presented separately at the bottom of the table. The initiated and evaluated, but not finalised acquisitions are not taken into account in such analysis. Any excess capital not needed for the acquisitions mentioned in recital 56, before they are identified and evaluated, is allocated to the standalone credit insurance business (the first pillar). Table 4 SACE's calculation of ‘implied ex ante’ profitability Reference year Amount of capital (EUR million) Profit, after taxes expected in the reference year (EUR million) ROE Situation as of 18 May 2004 Standalone credit insurance business as per the May 2004 initial business plan 2008 105 3,7 3,5 % 105 3,7 3,5 % (47) ‘Implied ex ante’ after the acquisition of 70 % of Assedile Acquisition of Assedile (48) 2009 27 2,7 10,2 % Stand alone after the acquisition of Assedile 2008 78 3,7 4,7 % 105 6,4 6,1 % ‘Implied ex ante’ after the acquisition of 100 % of Assedile and 33 % of KUP Acquisition of Assedile (70 % + 30 %) 2009 41,7 3,9 9,4 % Acquisition of KUP (33 %) (49) 2011 13,3 1,2 8,7 % Stand alone after the acquisition of Assedile + KUP 2008 50 3,7 7,4 % 105 8,8 8,3 ‘Implied ex ante’ after acquisitions and the revenues from synergies Synergies SACE BT/SACE 1,9 Synergies SACE BT/Assedile 0,6 105 11,3 10,8 % (47)

(64) As to the rate of return, a private investor would have requested to make a similar investment (‘requested rate of return’), Italy contested the ratio provided by the complainant (ROE of 11,5 %). Italy considers that the sample of companies on which the ROE was calculated was not representative and the time period over which that ROE was calculated was not adequate. SACE provided that the adequate rate of return for the credit insurance business in Italy should be established on the basis of average profitability of companies operating in Italy, i.e. Coface Italy (Viscontea Coface) and Euler Hermes SIAC, in the years 1998 to 2003 and would equal 10,25 % based on non-weighted average. SACE explained that Atradius (Italy) was excluded from the calculations as during the period considered it showed a volatility that significantly influenced the results to such an extent that the results showed a negative benchmark (– 2,4 % in case of using simple non-weighted average) (50).

(65) However, Italy argued in favour of the required rate of return being based on the weighted average rate. In Italy's submission, SACE calculated the weighted average ROE rate for the period 1998-2003 of Coface Italy and Euler Hermes SIAC by weighting their ROE averages of the period with the weight percentage share of gross premiums written for the same period for their credit insurance business. Thus calculated, the rate of return would equal 8,7 %.

(66) Italy argues that the difference between the estimated rate of return using non-weighted and weighted averages, i.e. between 10,25 % and 8,7 %, is not significant enough so as to substantially impact the decision of an investor with a time horizon of medium to long-term. Nonetheless, Italy considered more appropriate to use the weighted average ROE, as provided above, for the following two reasons (51): (a) a weighted average calculation is a better method compared with a non-weighted average, because it reflects better the required rate of return in a sector with 2 players with significant differences in terms of return among the players and among the years and significant differences in turnover between the two players (52); (b) as the basis for weighting, Italy used gross premiums written in the credit insurance business with the goal of having a homogeneous sample comparison with the activity of the new SACE BT back in 2004 (it started with credit insurance business and only later expanded into other related activities). The surety insurance business (‘ramo cauzioni’) was excluded from the basis of the calculation, as being characterised by a different dynamics than the credit insurance business. Only Coface operated in surety business in 2004 (53).

(67) Italy also provided that a calculation of the required rate of return based on total premiums (i.e. without limiting solely to credit insurance premiums as explained above) would amount to 9,5 %.

IV. 3. ADVANTAGE CRITERION: THE SECOND MEASURE

(68) SACE argues that the measure was driven by profit consideration and thus corresponded to reinsurance activity in line with market practices. It stresses that the main terms of the reinsurance cover provided by SACE to SACE BT in 2009 were the same as those agreed to by the private reinsurers a few months earlier (see recital 31). Ex post, it can be concluded that it only benefited the parent company, SACE, which received EUR 1,56 million (54) of premium income, as SACE BT did not make use of the reinsurance to cover the pre-specified excess of loss.

(69) Furthermore, Italy asserts that at the level of capital requirements (‘requisito patrimoniale’) calculated according to the Solvency 2 proposal at that time in 2009 (QIS4 technical specifications), the second measure did not reduce the capital requirements of SACE BT. In particular, the coverage of excess of loss did not produce any benefits because it is not recognised within the standard formula used by SACE BT as a method for quantifying the capital requirements. As regards the impact on the capital absorption (‘assorbimento di capitale’), Italy explained that per definition all forms of reinsurance produce effects on the level of capital, including reinsurance in the form of excess of loss cover (55). The Commission has specifically requested Italy on 4 January 2012 to provide the amount of capital relief at SACE BT's level following the excess of loss reinsurance concluded in 2009 with SACE. Italy did not provide the requested information, but repeated that the excess of loss reinsurance does not generate any relief in terms of supervisory capital requirements (‘requisiti patrimoniali di vigilanza’) (56).

(70) However, SACE submitted (57) that one of the main purposes of reinsurance is to increase the capacity of the ceding insurer to subscribe further contracts.

(71) As regards the application of the escape clause laid down in the Export-credit Communication (58), Italy submitted that it did not find appropriate to grant public support to this sector and decided not to make use of the escape clause (59). SACE did not find relevant the request of the Commission to submit information that might prove lack of coverage on the market for exporters (60).

IV. 4. ADVANTAGE CRITERION: THIRD AND FOURTH MEASURES

(72) SACE argues that by the adoption of the third and the fourth measure, SACE wanted to bring SACE BT in a status of ‘financial equilibrium’ with the objective to guarantee the solvency of the enterprise, according to the constraints imposed by the legislative framework. Once the solvency of SACE BT been guaranteed, it would have been possible to reach a sufficient profitability level (61). Moreover, SACE underlines that many private Italian competitors of SACE BT have registered losses in 2008 and 2009. This triggered the intervention of their shareholders, which contributed with important capital injections (internationally also Natixis recapitalised Coface twice in 2009 and beginning of 2010, whilst Coface recorded losses of EUR 163 million in 2009).

(73) SACE also notes that, while basically all market operators have been affected by the economic crisis, the effects of the crisis have had a particularly severe impact on SACE BT. In this respect, SACE argues that SACE BT is still in the start-up phase. For this reason, SACE BT could not make use of the ‘equalisation provision’ (‘riserva di perequazione’) (62) to cope with the economic and financial contingencies as this reserve has not yet been established. All other major competitors of SACE BT — including also Coface — have benefited from this reserve during the present economic crisis.

(74) In reply to the Commission's request in the opening decision to provide the estimated costs that could be incurred by SACE, if it were to sell or liquidate SACE BT, SACE submitted that the liquidation of SACE BT is a purely theoretical option which cannot be put in place at this moment. The main reasons quoted by SACE refer to: (i) the lack of an immediate benefit to SACE as a shareholder, since the liquidation would have rather crystallised the negative results in the context of particularly adverse circumstances of the market at the time and would have caused significant reputational damage for SACE; (ii) the possibility that such action could be interpreted by the markets as a crisis of liquidity within SACE; (iii) the likely event that the price of sale would not be adequate (63). When replying to the separate Commission's request regarding the exposure of SACE in respect of SACE BT at the time before granting the second, third and fourth measures, Italy indicated that, in theory, in the case of termination of activity and liquidation of SACE BT's assets during 2009, liabilities totalling EUR 2,09 million towards SACE were potentially at risk. Italy indicated that the net balance between assets and liabilities towards SACE for the year 2008 had been positive at EUR 8,43 million (64), meaning that in net terms SACE would owe money to SACE BT.

(75) SACE stated that the application of the MEIP has to take also into consideration the legislative constraints. […] (65) Moreover, SACE argues that an investor is not only focused on the profitability of an investment, but also on other considerations, such as safeguarding the group's public image or a reorientation of its business operations (66).

(76) Italy provided that the amount of EUR 70 million (third and fourth measures) was part of the capital needs identified in May 2009 by the Risk Management department (67) necessary to comply with the future Solvency 2 requirements (68) (69). This simulation was based on the revised budget for 2009.

(77) According to SACE, the decisions to recapitalise SACE BT were taken in view of the expected return to profitability, with the break-even in 2011 (70).

(78) According to Italy, starting with 2009, SACE BT was subject to deep transformations in the organisation, management and business processes, which have restored the long-term viability of the company, allowing it to return to profit in 2011, ahead of the forecasts made in the business plan for 2011-2013. In light of the changing economic and market terms, SACE BT's business plan for 2011-2013 was updated to take into account the on-going crisis and to set out a number of initiatives to further improve profitability (see Table 5). The adjusted business plan for 2011-2013 was approved by SACE BT's Board of Directors on 24 November 2011. The minutes of the meeting of the Board of 24 November 2011 (i.e. two years after the capital injections) refer to the objective of gradually improving profitability (as measured in terms of ROE) so as to reach the sector average. Table 5 SACE BT's financial highlights provided in the business plan for 2010-2011 and the adjusted plan for 2011-2013 Actual Projected in the business plan for 2010-2011 approved by the Board on 4 August 2009 (72) Projected in the adjusted business plan for 2011-2013 approved by the Board on 24 November 2011 (73) EUR million 2008 (71) 2009 2010 Revised budget 2009 Business Plan 2010 Business Plan 2011 2011 Proj. 2012 Proj. 2013 Proj. Gross written premiums (74) 99,7 95,2 94,6 […] […] […] […] […] […] Insurance technical expenses born by SACE (‘Sinistri di competenza’) – 70,6 – 104,9 – 59,8 […] […] […] […] […] […] General expenses – 36,1 – 38,2 – 37,3 […] […] […] […] […] […] Technical result before reinsurance – 63,0 – 60,0 18,2 […] […] […] […] […] […] Technical result after reinsurance – 39,3 – 56,4 5,0 […] […] […] […] […] […] Income before tax – 39,5 – 47,3 – 4,8 […] […] […] […] […] […] Net income – 29,5 – 34,1 – 4,8 [≤ 0] [≤ 0] [≤ 0] […] […] […] ROE pre Tax (%) (75) na – 41,7 % – 4,4 % na NA na […] […] […] ROE post Tax (%) (76) – 38,0 % – 30,6 % – 4,4 % na NA na […] […] […] Loss Ratio (%) 131,0 % 119 % 67 % […] […] […] […] […] […] Cost ratio (%) 44,6 % 43 % 41 % […] […] […] […] […] […] Combined ratio (%) 175,6 % 163 % 108 % […] […] […] […] […] […]

(79) In the last submission of 30 March 2012, Italy reiterated the non-imputability of the measures to the State and their compliance with the MEIP. Firstly, Italy explained that those were intragroup decisions to protect the reputation of the group. Secondly, Italy argued that SACE operates like a market operator and invests its resources in the development of the business in which it operates without relying in any way on public support. During the crisis, the parent company, SACE, remained profitable and distributed dividends to the State. For this reason, Italy submitted that SACE never deemed necessary to draw up a restructuring plan to be submitted to the Commission in accordance with the Commission Communication on the return to viability and the assessment of restructuring measures in the financial sector in the current crisis under the State aid rules (‘Restructuring Communication’) (77). Nor the national supervisory authority, ISVAP, raised any objection or requested particular procedures after the recapitalisation of SACE BT. Finally, Italy recalled its assessment that it would have been very difficult at that time to find a potential buyer for SACE BT.

(80) Italy argues that SACE BT's crisis was not caused by internal processes, changes in demand or other factors that would impose a deep rethinking of the business model and a subsequent restructuring, but rather by the significant increase of claims triggered by the crisis. In light of this situation, Italy submits that SACE decided to provide the additional capital and introduce the necessary organisational and management changes in total autonomy and according to the perspective of a market operator.

IV. 5. COMPATIBILITY OF AID

(81) Italy and SACE devoted the largest part of their comments to the opening decision on arguing that the measures are MEIP compliant and not imputable to the State and, hence, do not involve aid. In case the Commission would nevertheless find that these measures constitute state aid in the meaning of Article 107(1) of the Treaty, SACE submitted that the measures should be recognised and declared compatible with the internal market (78). As regards the second measure, SACE considers the doubts expressed by the Commission on the compatibility of that measure as purely speculative (79). As regards the third and the fourth measures, SACE reiterated that in any case it would be possible to find them compatible with the internal market under Article 107(3)(b) of the Treaty on the basis of the Communications quoted by the Commission (80).

V. ASSESSMENT OF THE MEASURES

V. 1. EXISTENCE OF AID WITHIN THE MEANING OF ARTICLE 107(1) OF THE TREATY

(82) It has to be examined whether the four measures set out in Section II.4 constitute State aid within the meaning of Article 107(1) of the Treaty. As set out in Article 107(1) of the Treaty any aid granted by a Member State or through State resources in any form whatsoever which distorts or threatens to distort competition by favouring certain undertakings or the production of certain goods shall, in so far as it affects trade between Member States, be incompatible with the internal market, save as otherwise provided.

(83) The qualification of a measure as State aid therefore presupposes that the following conditions are met: it must be imputable to the State and financed by a Member State or through State resources, it must grant a selective advantage susceptible to favour certain undertakings or the production of certain goods and it must distort or threaten to distort competition and have the potential to affect trade between Member States.

(84) These conditions being cumulative, they must all be present before a measure is characterised as State aid. As a result, if one of the conditions is not fulfilled then the relevant measure cannot be considered to be State aid.

(85) In recital 61 of the opening decision, the Commission indicated that the part of measures which would meet one of two following conditions would not constitute aid: (a) the capital/reinsurance benefiting the non-marketable risks (as opposed to marketable risks) (the first exclusion criterion); indeed, there is no market for these risks and therefore state support would not distort competition between insurance firms, such that the qualification of aid could be excluded; and (b) the amount of capital endowed to SACE BT that was already implicitly allocated to (turned) marketable risks within SACE (since such capital, if transferred to SACE BT with activities it was supporting already within SACE, would be the continuation of the same activity with the same capital under a different legal form. The transfer of that capital would therefore not constitute an advantage to these activities and the qualification of aid could be excluded) (the second exclusion criterion).

(86) As regards the second exclusion criterion, SACE confirmed that no capital was allocated to the non-marketable risks in relation to the EU-10 Member States that turned into marketable risks before the creation of SACE BT (81). This is coherent with Italy's repeated line of reasoning that the company was a start-up (see also recitals 96-100).

(87) As regards the first exclusion criterion, in reply to the Commission's request to provide the division between marketable and non-marketable risks (82), SACE replied that the relative volumes of non-marketable activities in SACE BT are very small (83). Moreover, Italy submitted that SACE BT is managing the non-marketable risks at market terms, without the guarantee of the State and they are not subject to the threshold established by CIPE every year for the non-marketable risks inferior than 24 months (84).

(88) The Commission notes that the Export-credit Communication provides that if Member States wishes to subsidise their non-marketable risks, they have to introduce separate accounting, ensuring that there is no flow of aid to the marketable risks. In the present case, none of SACE's measures was targeted specifically at supporting the small non-marketable risk activities. Italy does not invoke that it wanted to aid the non-marketable risks and considers that all the measures were granted to SACE BT as a whole (and not to one specific activity) and on market terms. Italy does not contest that all these measures are analysed under the MEIP test to identify the presence of an advantage.

(89) The Commission therefore agrees with Italy and SACE that the exclusions provided in chapters 4.1.1 and 4.1.2 of the opening decision do not apply in the present case. Hence, the qualification of aid of (part of) the four measures cannot be excluded based on these exclusion criteria. The entire capital injected into SACE BT of EUR 105,8 million (first measure) and the other measures in their entirety could constitute aid and are subject to the assessment.

V.1.1. Presence of an advantage

V.1.1.1. General principles for the assessment of the presence of an advantage

(90) As provided in recitals 80-82 of the opening decision, in accordance with settled case-law, in order to establish whether a capital injection is granting a competitive advantage it is necessary to assess whether, in similar circumstances, a private investor in a market economy would have made capital contributions of the same size (85), having regarded in particular to the information available and foreseeable developments at the date of those contributions (86).

(91) The MEIP is a test that should be applied ex ante, i.e. one should determine whether at the time of planning the investment a private investor in a market economy would have prevailed upon making such a capital contribution. A market investor would duly take into account the risks associated with the investment — so as to require higher profitability from more risky investments. It would take as a constraint the existing regulatory framework, e.g. in the financial services sector. If the specific regulatory requirements on the minimum capital, liquidity and similar makes the investment not profitable, a market economy investor would not proceed with the investments, instead of proceeding with an investment which complies with the regulatory requirement but does not provide an adequate level of profitability.

(92) A private investor is not content merely with the fact that an investment does not cause him a loss or that it produces only limited profits. A market economy investor would attempt to maximise the return on his assets in accordance with the circumstances in his interests, even in the case of an investment in an undertaking in which he already had a shareholding (87). Even if the average return in the sector is only one of the elements the Commission may consider, a prudent market economy investor, when making estimations of the appropriate remuneration, would, in principle, require a minimum return for the investment being at least of the level of the average profitability in the respective sector (88).

(93) According to the recent jurisprudence (89), a Member State that invokes the MEIP compliance must, where there is doubt, establish unequivocally and on the basis of objective and verifiable evidence that the measure implemented falls to be ascribed to the State acting as shareholder, i.e. that it acted on market terms. In that regard, it may have to produce evidence showing that the decision was based on economic evaluations comparable to those which, in the circumstances, a rational private investor in a situation as close as possible to that of the Member State would have had carried out, before making the investment, in order to determine its future profitability. For the purposes of applying the private investor test, the only relevant evidence is the information which was available, and the developments which were foreseeable, at the time when the decision to make the investment was taken. That is especially so where, as in the present case, the Commission is seeking to determine whether there has been State aid in relation to an investment which was not notified to it and which, at the time when the Commission carries out its examination, has already been made by the Member State concerned.

(94) The Commission, when making its own assessment regarding the compliance with the MEIP, has to carry out a global assessment, taking into account — in addition to the evidence provided by the Member State — all other relevant evidence enabling it to determine whether the Member State took the measure in question in its capacity as shareholder, i.e. as a market economy investor, or as a public authority. In particular, the nature and subject-matter of that measure are relevant in that regard, as is its context, the objective pursued and the rules to which the measure is subject (90).

V.1.1.2. Presence of an advantage in the first measure

(95) In recitals 95 and 96 of the opening decision, the Commission expressed doubts on whether the first measure met the MEIP. In the opening decision, the Commission provided that the parameter that needs to be ascertained is the expected profitability of the investment according to the business plan. Indeed, according to the established case-law and practice (91) the parent company, SACE, as would a market investor in comparable circumstances, had the alternative not to allocate capital and to use it for its other activities or return it as dividends to the State.

(96) It is noteworthy that SACE used separate accounting for the marketable risks for the period between the date when the respective risks became automatically marketable (1 May 2004) and when SACE BT was established (27 May 2004) (see Table 1 under recital 19 of the opening decision). However, no assets, liabilities or contracts were transferred from the established separate account to SACE BT (the contracts for marketable risks accounted in the separate accounting ended either as a result of natural expiration of insurance contracts, either through the termination of contracts in place; the marketable risks in question were gradually covered under new insurance contracts within SACE BT (92)). The business activity of the latter was started anew.

(97) Further, it has to be emphasised that SACE BT was established to focus on new business activities, which were not previously operated by SACE. Before the establishment of SACE BT and granting the initial capital thereto, already at the end of 2003, SACE sought external expertise to confirm and further elaborate the business opportunities identified by SACE so as to enter into the segment of marketable risks. The main opportunities were identified in the market segments, where the major credit insurance market players were not yet present at the time, i.e. provision of credit insurance in Italy for domestic credits and export-credit insurance for the Italian exporting companies, mainly SMEs, towards the marketable risk countries.

(98) Also, the business plan of SACE BT was based on market benchmarking and creating the structure of the company anew, rather than the continuation of any past business. In other words, it was not based on the existing track record of the business (or restructuring of the past business), but it was set up anew.

(99) Therefore, SACE BT is not the continuation of an activity which existed within SACE, but the result of a decision to set up a start-up and develop an economic activity which was not carried out within SACE.

(100) As a result, it can be concluded that the factual elements provided by Italy and SACE in the framework of the formal investigation procedure allow the Commission to conclude that SACE BT was created as a start-up and was not the mere continuation of activities carried out already within SACE.

(101) The Commission considers that the business plan prepared for a start-up should consist of a careful analysis of business opportunities into the market in which the start-up intends to operate in and the likely return to be generated, demonstrating thereby that the expected profitability is sufficient for the initial investment to be worthwhile.

(102) However, there may be a degree of uncertainty and thus some scope for adjustment and refinement of the scope of operations and of the financial forecasts. This may particularly be the case in the initial years of the company's operation. By definition, start-ups do not have a history of financial performance on which to base a valuation. Therefore, the investor has to develop a process for valuing the company based on comparable businesses (benchmarking) and financial projections. Since young businesses may take time to become profitable, the key of valuing start-ups is to focus on the activities allowing generation of adequate profits in the future.

(103) There are sufficient factual elements confirming that, before deciding to create SACE BT and to allocate its initial capital, SACE has undertaken analysis of the market in which SACE BT would operate. Initial discussions and preliminary elements of the business plan for the development of SACE's activities for the years 2004-2006 have been presented in the meetings of SACE's (93) Board of Directors of 21 November and 3 December 2003 (94). During the meeting of 21 November 2003, SACE's Board of Directors discussed the new directions for development and the possibility to operate in the short-term credit insurance in the OECD countries on the basis of a study prepared by an external consultant and SACE. The Board of Directors concluded that for the marketable risks, the resources, investments and objectives would be defined on the basis of a feasibility study (studio di fattibilità) (95).

(104) Consequently, a business plan was sought from a reputable external consultant. The tasks of the consultant were, amongst others, to identify the opportunities related especially to the short-term risks in OECD countries (where SACE evaluated the size of the market to EUR 2,5-5 billion (96)) and set out the operational terms for a new undertaking.

(105) In the tender letter of 17 December 2003, it was clearly stated that the start-up will not be able to rely on any State support, either directly (financial support) or indirectly (using the resources allocated to the non-marketable risks) (97).

(106) The initial business plan drawn on 18 May 2004 contained benchmarking (98) to the market practices (mainly major market players) in terms of expected pricing, claims expenses and other costs ratios and other details on how to set up and operate the business in line with market practices. This could serve as a solid basis for a start-up company to make its operations conform to market practices.

(107) In light of the foregoing, the Commission concludes that the process and steps followed by SACE before taking the decision to invest the initial capital into SACE BT were comparable to market practices in similar circumstances. Notably, before deciding on the investment, SACE sought a feasibility study from an external advisor and before proceeding with the investment it carefully assessed and identified significant market opportunities for growth in the credit insurance market in Italy as well as to further expansion into the CEE markets or into other services related to the credit insurance.

(108) As regards the limited time period of the financial projections contained in the initial business plan (i.e. only the four years 2005-2008) and limited profitability to be achieved at the end of that period, the Commission observes that it was due to the fact that some of key elements still had to be refined and the plan therefore only contained financial projections only for part of the envisaged activities (first pillar, see recital 48).

(109) In that context, the Commission notes that the adjusted business plan — formally adopted by SACE's Board of Directors only one month after the start of operations of SACE BT, changed some of the initial assumptions, extended the financial projections with one year, up to 2009, and presented estimations of the required capital and its return separately for the endogenously developed credit insurance business (first pillar) for which the required capital in relation to the projected premiums was estimated at EUR 40,3 million. The projected return upon this capital for 2009 was EUR 4,8 million and the expected ROAE was 12,1 %). The accompanying note to the Board clearly specified the extension of the business into surety market and the delineation of the evolutionary scenario regarding other opportunities of the external growth into the sectors presenting opportunities for synergies with the credit insurance activity of SACE BT, so as to align the return on the entire capital investment into SACE BT with the market benchmarks. The document stated that the analysis had to be further elaborated upon preparation of the restated business plan for the regulatory purposes (expected in February/March 2005).

(110) Italy and SACE also provided documents showing that the plan was constantly kept under review. This demonstrates that the plan was really followed and used by the management and updated regularly on the basis of new information. This practice appears to be comparable to that expected to be done in the case of a start-up, where evaluation of future profitability is uncertain and needs to be adjusted after the start of operations of the start-up.

(111) As regards other pillars of business, i.e. expansion of SACE BT operations through acquisitions (‘external growth strategy’), the Commission observes that the company identified at an early stage, with the help of a reputable external advisor (see recital 113), market opportunities in other market segments, which present significant synergies to its core credit insurance activity (including the potential targets for acquisitions). Given the concentrated structure of the market in Western Europe, SACE explored opportunities to expand in the CEE markets, where, at the time, the three big credit insurance players were significantly less present than in Western Europe.

(112) The Commission observes that, while SACE BT received a capital larger than the one needed for the organic growth of its credit insurance business (first pillar), Italy and SACE have provided documents showing that SACE had already considered and analysed the national and international expansion of SACE BT (respectively second and third pillar) before establishing SACE BT on 27 May 2004.

(113) Notably, the second and the third pillars were considered in the letter dated 17 December 2003 (see recitals 52 and 53) where the external consultant, apart from being requested to look at the endogenous growth of SACE, it had been requested to analyse a collaboration with other entities, either Italian or foreign (such as a collaboration with one of the biggest market players, a collaboration with a secondary player (e.g. CESCE — Spain, OND — Belgium) and a collaboration with an Italian player operating in another market segment or in another financial sector). Moreover, in March 2004, the external consultant had already provided supplementary analyses regarding the Italian market of the commercial information, the Italian market of the recovery of credits and its principal actors on the credit insurance in the Central and Eastern Europe (the supplements to the business plan). Consequently, even though at the time when the first measure was granted no exact financial projections were made regarding the expected profitability from expansion into other services in Italy and other geographical markets by means of acquisitions, SACE had already had the analysis prepared by a reputable external consultant to support such prospective identification of potential targets.

(114) The Commission acknowledges that further consolidation of the smaller players in the market could reasonably be expected as well as potential privatisation of the credit insurers in the CEE. It also understands the difficulties of SACE in spite of iterative process to precisely evaluate in money terms the amount of capital to be spent for these future acquisitions and the returns to be generated by such companies, before the owner of the potential target agrees to sell and the expected returns are evaluated for such potential acquisition targets.

(115) In light of the considerations of SACE done before the investment as well as the detailed analysis sought from the reputable external advisor, which preliminary identified the potential targets, the Commission can agree with the claim of Italy and SACE that the acquisition plans were considered by SACE, when investing the capital into SACE BT, without being able to estimate their profitability or expected synergies without having access to internal data of such potential targets and without knowing the sale price.

(116) In view of the extensive acquisition strategy, common to the sector and expected by SACE, the Commission can also agree with the argument of Italy and SACE that the capital to be used in the future acquisitions can be approximated to an investment into an equity fund. Indeed, in an equity fund only expected rate of return may be defined in line with market benchmarks (in this case approximating the required rate of return by the three biggest credit insurance players having expanded significantly through acquisitions), whilst more specific evaluation is done before each investment, once such opportunity arises. There may also be some delay before all the capital is invested.

(117) In terms of profitability from acquisitions, the Commission observes that an external consultant's advice was consistently sought before making acquisitions. As regards Assedile, the price offered was below (for the first acquisition of 70 % of the stake in Assedile) or within the valuation range (when considering combined acquisition of 100 % of Assedile) proposed by the external consultant (99). However, as regards investment in KUP in 2007 jointly with SA Ducroire, the price paid was above the valuation made by the consultant (Rothschild) by 5 %. On the other hand, quite quickly after realising that KUP's profitability could not be restored, SACE BT sold this investment (100). SACE BT sold its participation in KUP at a loss to SA Ducroire on 25 February 2009 to minimise its future losses (101).

(118) The Commission also notes that SACE, being a firm working on long-term export credit insurance, has some knowledge of the market for credit insurance risk. It was therefore not investing without any own knowledge of the sector.

(119) In summary, the Commission notes that the business plan was prepared ex ante and with the help of a reputable external consultant which looked into new market opportunities that were presented to SACE before the creation of SACE BT. Moreover, the investment was clearly targeted to a start-up company and was underpinned by a plan based on a detailed benchmarking to market practices, notably in terms of costs and pricing, and adequately identifying business opportunities for its growth and development. Finally and, as a subsidiary argument, the performance of the start-up has been subject to close monitoring by the parent company and timely adjustments in its first years of business.

(120) Given all the circumstances listed above and notably the level of profitability that could be expected from the second and the third pillars of business of SACE BT, which was explored in detail at the time, it can be concluded that an expectation to reach an adequate return from the initial capital investment, i.e. from the first measure, was realistic and in line with market practices.

(121) Therefore, it can be concluded that when SACE injected money in SACE BT, it required (as stipulates in the minutes and notes to the Board) and could have reasonably expected a sufficient return on its investment.

(122) In conclusion, the first measure is deemed as not having conferred an advantage to SACE BT. Hence, it did not constitute aid and the other criteria required to qualify as state aid do not have to be assessed.

V.1.1.3. Presence of an advantage in the second measure

(123) In recital 100 of the opening decision, the Commission expressed its doubts that the reinsurance by the market operators and parent company SACE was provided under comparable terms. The reinsurance provided by the State indirectly (i.e. via a public export-credit insurer SACE) seems to lead to the artificial creation of capacity that would not be available from the private market. Furthermore, in recital 103 of the opening decision the Commission did not exclude that the second measure conferred an advantage to SACE BT.

(124) Italy and SACE did not provide new factual elements that would change the preliminary assessment set out in the opening decision.

(125) According to point 4.2 of the Export-credit Communication, the Member States were requested to end granting of certain types of State aid within one year of the publication of this Communication, including a reinsurance by the State, either directly, or indirectly via a public or publicly supported export-credit insurer, on terms more favourable than those available from the private reinsurance market, which leads either to under-pricing of the reinsurance cover or to the artificial creation of capacity that would not be forthcoming from the private market (point 4.2(f)). Point 4.2 further states that existing complementary reinsurance arrangements remained permissible for an interim period, provided that, inter alia, the State reinsurance is a minority element in the insurer's overall reinsurance package and the State reinsurance for marketable risks is open to all credit insurers who are able to satisfy the common eligibility criteria. It is very clear that the latter provisions are not complied with in the case at hand since the State took the majority of the reinsurance. In addition, it did not open a scheme open to all credit insurers.

(126) In the assessment of the existence of an advantage, the Commission will first demonstrate that the measure could not be obtained from the rest of the market. Secondly, it will demonstrate that SACE did not act as a private reinsurer. Third, it will demonstrate that even when one takes into account the fact that SACE was the parent company of SACE BT, this does not allow to conclude that SACE acted as a private company in such a situation would have done. Fourth, the Commission will demonstrate that the reinsurance provided by SACE provides an advantage to SACE BT.

(127) The Commission observes that, in order to renew its reinsurance contracts for 2009, on 30 January 2009, SACE BT succeeded in raising 25,85 % of the Excess of loss reinsurance from the market for the marketable credit risk of 2009 (102). A number of market operators were approached and declined to provide reinsurance for the remaining part in spite of its alleged profitability (16 operators decided not to participate). Consequently, ‘after numerous attempts to reach an agreement with the market participants’ (103), SACE BT decided to seek the remaining part of the excess of loss reinsurance from SACE. SACE subscribed 74,15 % of the excess of loss reinsurance on 5 June 2009 on the same terms of priority, capacity and premium as the private reinsurers. It is therefore clear that the provision by SACE of 74,15 % excess of loss reinsurance could not have been received from the rest of the market (104).

(128) To ascertain whether such measure constitutes an advantage, one has also to verify that, by granting this measure, SACE did not act as a private insurer would have done in similar circumstances. The Commission observes that Italy and SACE themselves acknowledged that the global financial crisis influenced significantly the world reinsurance market and triggered restrictive reinsurance conditions in 2009. As a result, a number of private reinsurers have significantly reduced their credit insurance capacity by decreasing their activity in this sector and were refocusing on more profitable areas which had an impact on the availability of such credit insurance and reinsurance on the market. Secondly, the failure of SACE BT to find reinsurance on the market was also caused by its difficult financial situation and various private reinsurers involved in the discussions on the renewal of SACE BT's reinsurance have raised concerns about the situation of the company. SACE BT had registered significant losses in 2008 (around EUR 29,5 million). This weak situation entails that the risk on the reinsurance was higher (105). The behaviour of the reinsurers which participated in the reinsurance demonstrates that a private reinsurer would only take a limited part of such a risky reinsurance in the absence of a significantly higher fee. It would never accept to cover such a high percentage as 74 % and under same conditions as were required by reinsurers for much smaller percentage of reinsurance. A rational investor would have asked for a fee that takes into account the higher level of risk assumed (106). Thus, the fee charged by SACE should have been in fact higher than the fee charged by the five private reinsurers for the much smaller percentage of reinsurance (107). Therefore, the Commission calculates the aid amount in the second measure as the difference between the reinsurance fee that a private reinsurer would have charged for such a high portion of reinsurance and the one that was charged from SACE BT. In line with the Commission's case practice (108), the Commission considers that the fee for such a high portion of reinsurance and risk should have been at least 10 % higher than the fee charged by the private reinsurers for the smaller part of reinsurance and risk. For an amount of EUR 1,56 million paid by SACE BT to SACE, the aid amounts to EUR 156 000. Finally, the Commission notes that the allocation of such a high portion of reinsurance to one single company might have not been in compliance with the company's general principles on reinsurance, i.e. ‘the number of participating reinsurers to the treaties shall be such as to ensure an appropriate allocation of risk’ (109). For the above reasons the Commission concludes that SACE did not act as a private reinsurer.

(129) As regards the question whether a parent company would have provided such a large share of reinsurance in a situation where its subsidiary would not be able to find on the market enough reinsurance at the proposed price, one has to note that such reinsurance contract increases the exposure of the parent company towards the operations of the subsidiary. In the present case, SACE was in 2009 in a situation where it needed a large recapitalisation and reinsurance. The decision to grant this measure should therefore be analysed in parallel with the granting of the third and fourth measures. Indeed, the second, third and fourth measures were all contemplated by SACE's Board of Directors already on 26 May 2009 (110) in order to support SACE BT (111). As it will be concluded in the assessment of those measures, a private investor would not have proceeded with these recapitalisations but would have let the company go bankrupt. It has therefore to be concluded that a private parent company would not have proceeded with providing the second measure, which increases even more the exposure of the parent company to its subsidiary.

(130) Finally, as regards the question whether the reinsurance provided an advantage to SACE BT, as acknowledged by SACE (see recital 70), the measure allowed SACE BT to increase its credit insurance provision capacity and hence allowed it to subscribe more contracts than it would have been able to do otherwise. Alternatively, without this measure SACE BT would have had to support these risks on its balance sheet/putting its own capital more at risk or offer a higher premium to obtain that reinsurance, at least 10 % higher (see recital 128). Therefore, the measure allowed SACE BT to obtain reinsurance at a lower price, reinsurance which allowed it to subscribe more insurance than what it could have done without SACE's reinsurance or to bear less of risks on its own account.

(131) The Commission concludes that the second measure provided an advantage to SACE BT corresponding to the difference between the fee actually paid by SACE BT and that, at least 10 % higher, that a private reinsurer would have requested taking into consideration the higher level of risk assumed.

V.1.1.4. Presence of an advantage in the third and fourth measures

(132) In recital 107 of the opening decision, the Commission expressed its doubts on the possibility that a private economic operator would have invested the amount currently assessed in SACE BT. As acknowledged by the Italian authorities, the third and the fourth measures cover the needs of capital of SACE BT in order to cope with the effects of the financial crisis (112). In the document for discussion (materiale per discussione) in the SACE BT's Board of Directors of 31 March 2009 it is provided that SACE BT ‘needs a recapitalisation (ricapitalizzazione) of up to EUR 70 million in order to constitute adequate assets to cover the reserves at the end of 2009’ (113). The same document provides that already at the end of the first semester of 2009 the assets were insufficient to cover the reserves, i.e. an amount of EUR 23 million was needed at the end of June 2009 and EUR 68 million at the end of 2009. The opening decision indicates that it seems that SACE BT was not in a position to cover the losses registered at the end of 2008 and its assets at the time were not sufficient to cover reserves. It seems that SACE BT could not have raised the capital injected into the company on the market since its expected profitability was insufficient. There is no evidence that SACE BT had a positive value at that time.

(133) In recital 108 of the opening decision, the Commission invited Italy to comment, whether the third measure was necessary to allow SACE BT to continue operating and, if so, what would be the estimated costs that could be incurred by SACE, if it were to sell or to liquidate SACE BT. The Commission noted that a parent company would have recapitalised its subsidiary, but only if there is a reasonable likelihood that the assisted undertaking will become profitable again (114). A market economy investor would not have injected additional capital into SACE BT, if in economic terms this was more costly than to liquidate the respective assets (e.g. by selling the respective investment).

(134) In recitals 111 and 117 of the opening decision, the Commission raised doubts on the compliance of the third and fourth measures with the MEIP. The Commission further provided that the two measures seemed to have conferred an advantage to SACE BT.

(135) The opening decision (recital 109) indicates that the plan available at the time of the investment plays a central role. The plan has a key significance because a private investor will provide fresh capital to a company with an earnings deficit only if he expects a return to a sufficient profitability level. Otherwise, the invested capital would only go towards repayment of the company's existing debt, without ensuring that it will begin to earn a profit again in the future (115). Without a compelling ‘restructuring’ plan, a rational private investor would not invest (116).

(136) The Commission noted that in the business plan for the period 2010-2011 SACE BT envisaged mainly measures to increase the market share and the expansion of the activity rather than measures to return to profitability, e.g. to cut costs and restructure the business model. SACE BT expected to increase its market share in the credit insurance and surety business market up to a target level of 15 % in 2011 and to become the second market player in the credit insurance by 2011. For 2009, SACE BT estimated that it would rank third or fourth in the credit insurance and surety business market. As for SACE BT's distribution network, the plan provides, inter alia, the assessment of possible opportunities for further acquisitions. Moreover, the business plan relies, inter alia, on exogenous factors like the improvement of the economic and market scenario and a progressive opening of the reinsurance market starting with 2011 rather than on internal changes.

(137) The elements submitted by Italy and SACE during the formal investigation procedure have not changed the Commission's initial assessment laid down in the opening decision.

(138) The Commission's position regarding the qualification of the third and the fourth measures as a capital increase (‘aumenti di capitale’) has not changed. Even though according to Italy the operation did not increase the amount of the share capital (‘capitale sociale’), the Commission notes that it influenced positively the shareholders' equity (‘patrimonio netto’), being a wider category than the share capital (‘capitale sociale’), by means of transfer from the parent company SACE to SACE BT's capital (117).

(139) According to SACE, the decisions to recapitalise SACE BT were taken in view of the expected return to profitability in 2011.

(140) However, the Commission recalls that, when it granted the third measure, SACE did not dispose of updated financial projections or a business plan taking into account the capital injection and the latest financial data. Therefore, SACE had no basis to expect SACE BT's return to profitability.

(141) The main document considered by SACE when granting the fourth measure consists of the business plan for 2010-2011. The Commission notes that this business plan was a very short document, which merely set out the negative outlook in the market and, with specific regard to SACE BT, only provided few main financial ratios and figures for 2010 and 2011. In particular, the business plan provided data illustrating that the market situation was worsening (the loss ratio was progressively deteriorating, increased by 71,4 % in 2008 as compared to 2007) and the losses amounted to approximately half of the turnover of the sector. In that context, the plan projected a significant improvement in SACE BT's credit insurance ratios so as to reach zero profitability in 2011 (see Table 5). However, it did not detail the changes to the pricing or how the reduction of costs would be achieved to that end.

(142) It has to be emphasised that the business plan for 2010-2011 only included a projection of zero profitability in 2011, while it did not provide any element indicating that the situation would improve after 2011, nor any estimation of future profitability of SACE BT after that date (in fact the possibility that the company would produce profits after 2011 was not even mentioned). Also, the stated objective in the plan was limited to stop generating the losses by the company and to further expand its market presence, without foreseeing any future profit. In that respect, the Commission considers that a prudent market investor would have required a reliable estimation of restoration of future profitability to adequate levels.

(143) It also appears from the minutes of the Board of Directors of SACE approving the third and fourth measures that it agreed to the capitalisation measures so as to cover the losses and to satisfy the regulatory requirements, thus allowing the company to continue the business. No consideration of the future profitability of the company was provided in those minutes. The Board did not take into consideration a potential liquidation of SACE BT, comparing a liquidation scenario with the chosen path to inject further capital into the company in difficulty. Hence, it did not require nor consider any estimation of liquidation costs and, therefore, was not in a position to conclude that the injection of capital would have led to a better economic outcome than the liquidation of the company.

(144) As a result, the Commission concludes that, when adopting those measures, SACE did not assess whether providing the additional capital was a more economically beneficial scenario for it as a shareholder than the liquidation of the subsidiary. Given the market circumstances and the absence of any profitability forecasts for SACE BT at the time, a prudent private market operator would not have proceeded with the investment without such consideration. For this reason alone, one can therefore conclude that SACE did not behave like a prudent private market operator and, therefore, the capital injections made with the third and fourth measure should be qualified as state aid.

(145) The Commission also adds, for the sake of completeness, that it is not in a position to support SACE's argument that the compliance with the regulatory capital requirements would have been sufficient to a prudent private market investor to inject further capital into a company. As provided in the Commission communication on the application of Articles 92 and 93 of the EEC Treaty (‘MEIP Communication’) (118), investors are often obliged by law to contribute with additional equity to firms whose capital base has been eroded by continuous losses to below a predetermined level. To answer Member States' claims that these capital injections cannot be considered as aid as they are merely fulfilling a legal obligation, the MEIP Communication provides that private investors faced with such a situation would consider all other options — including the liquidation or run-down (119) — and choose the one which is financially the most advantageous.

(146) In the present case, the Commission considers that SACE could have let SACE BT go bankrupt, as it was a limited liability company. SACE would not have to cover the liabilities of SACE BT. SACE is correct to argue that other considerations like public image (120) may be taken into account by private investors. The Court of Justice ruled in ENI/Lanerossi that a parent company's temporary absorption of losses generated by a subsidiary ‘which is experiencing temporary difficulties but is capable of becoming profitable again, possibly after a reorganization’, could be justified not only by the prospect of an indirect material benefit, but also by other considerations, i.e. the protection of public image of the group and the reorientation of its operations (121). However, the Court ruled that if there is no prospect of profitability, even in the long-term, then any capital infusions should be viewed as state aid (122). Consequently, as upheld by the case-law, the arguments have limited significance in connection with the application of the private investor test in the absence of any prediction, at the time of the capital injections, that SACE BT could produce profits after 2011, not even in the longer term.

(147) In addition, Italy and SACE did not provide any element to show and quantify the negative economic effects that the alleged deterioration of SACE's public image would produce for this company.

(148) The Commission also observes that the insurance activities of SACE are operated under a state guarantee. Consequently, the insured parties know that the state will ensure that they are paid any indemnification they are entitled to under those insurances. So the Commission fails to see why insured customers of SACE would be worried that a subsidiary of SACE which is not state guaranteed and has the form of a liability company is liquidated. Italy and SACE did not provide justification why these activities of SACE operated under the state guarantee would be affected.

(149) Moreover, the Commission considers that, since SACE operates its insurance activities with a state guarantee, they do not constitute market activities which a private operator could carry out (precisely, the guarantee on the insurance activities of SACE does not constitute aid because these activities are considered not to be offered by the market and therefore there is no distortion of competition). The Commission considers that, when assessing whether a private investor in the position of SACE would have let a subsidiary like SACE BT go bankrupt or recapitalise it, one cannot take into account the possible negative effect of the liquidation of SACE BT on these non-market activities carried out by SACE, since a private investor would never be in the position of carrying out such activities.

(150) As indicated, at the time when it took the third and the fourth measure SACE did not compare a liquidation scenario with the chosen path to inject further capital into SACE BT despite its difficulties. For the sake of completeness, in the paragraphs below the Commission will in any event show that, if SACE had made such a comparison, it would have realised that the liquidation of SACE BT would have been more convenient than injecting further 70 million of capital in SACE BT despite its difficulties.

(151) To determine whether SACE, as the only shareholder of SACE BT, was better off investing additional capital of EUR 70 million rather than liquidating SACE BT (running down its activities), one has to compare the expected cash flows, if any, to SACE as a shareholder in the liquidation (running down) scenario with those expected in the capital injection scenario. Based on the information submitted, Italy and SACE have not made at the time (nor ex post) the valuation of the equity stake in SACE BT in pre-injection or post-injection scenarios.

(152) The Commission observes that at the end of May 2009 and early July 2009, when the Board of SACE BT decided to grant the third and fourth measures, it was already expected that, on top of the large losses recorded in 2008 (EUR 29,5 million), SACE BT was estimated to generate further significant losses in 2009 (of EUR 53,4 million (123)), such that the remaining capital at the end of 2009 was expected to amount to EUR 24,2 million. In particular, at the end of first quarter 2009 (1Q2009) SACE BT's book value of equity (taking into account the losses recorded in that period of EUR 22,6 million) was of EUR 55 million and the expected losses for the whole year 2009 were of EUR 53,4 million. Hence, in a pre-injection scenario the expected book value of equity at the end of 2009 would amount to the difference between book value at 1Q2009, EUR 55 million, and the remainder of the expected losses for the year, i.e. EUR 30,8 million (EUR 53,4 million minus EUR 22,6 million), equalling EUR 24,2 million.

(153) In the post-injection scenario, the book value of the equity would be expected to be increased by the amount of the recapitalisations (EUR 70 million) and to amount to EUR 94,2 million.

(154) In that context, it has to be noted that in the liquidation scenario, shareholders are only entitled to the residual proceeds, if any remain after covering all liabilities of the company and all due costs of liquidation. The outcome of the liquidation depends on the value and saleability of the assets of the company.

(155) To make a very conservative assessment, the Commission considers the hypothesis that in the liquidation scenario SACE would not have recovered any of its capital investment in SACE BT.

(156) As a next step, in order to assess the relative attractiveness of the injection of EUR 70 million of capital in SACE BT compared to a liquidation scenario, it has to be assessed what was the value of the company (i.e. market value of a 100 % equity stake in the company) after this EUR 70 million injection.

(157) If the value of the company after the 2009 capital injections was equal or higher than EUR 70 million, then a private investor could have been inclined to proceed with this investment.

(158) Such value of the company depends on the estim