Best’s News & Research Service - April 13, 2015 01:04 PM (EDT)
A.M. Best Removes From Under Review and Affirms Ratings of Aviva plc and Its Subsidiaries
- April 13, 2015 01:04 PM (EDT)
London //BestWire// - A.M. Best has removed from under review with developing implications and affirmed the financial strength rating (FSR) of A (Excellent) and the issuer credit ratings (ICR) of "a+" of the rated insurance subsidiaries of Aviva plc (Aviva) (United Kingdom). Additionally, A.M. Best has removed from under review with developing implications and affirmed the ICR of "a-" and the debt ratings of Aviva. A.M. Best has assigned an outlook to the FSR, the debt ratings and the ICRs of stable. Concurrently, A.M. Best has withdrawn the ratings of Aviva Life & Pensions UK Limited and Aviva Annuity UK Limited as Aviva has requested to no longer participate in A.M. Best's interactive rating process for these two subsidiaries. (Please see link below for a detailed listing of the companies and ratings.)
The rating actions follow Aviva's completion of the acquisition of Friends Life Group Limited (Friends Life) through an all-share transaction on 13 April 2015. The ratings of Aviva and its subsidiaries reflect the enlarged group's strong risk-adjusted capitalisation, improving financial performance and very strong business profile in its core markets. A.M. Best's calculation of risk-adjusted capitalisation for the combined group includes a significant contribution from unallocated distributable surplus (UDS), which mostly relates to participating funds in France and the United Kingdom, the value of in-force business (VIF: an embedded value measure) and hybrid borrowings. Although the first two of these elements can be volatile and are subject to fungibility constraints, risk-adjusted capitalisation is expected to continue to be supportive of the ratings.
Aviva's financial leverage, as calculated by A.M. Best, on a pro-forma basis post-acquisition, remains high for its rating level. The stable outlook for the ratings reflects A.M. Best's expectation that the enlarged group will generate strong cash flow and significant additions to tangible net assets. On this basis, it is expected that balance sheet leverage will decline to a more appropriate level for the ratings over 2015 and 2016. An internal loan from the main non-life subsidiary to a fellow group subsidiary, which is not part of the financial leverage calculation, also is expected to be reduced in 2015.
Positive rating actions on the ICRs of Aviva and its subsidiaries are unlikely in the near-term, but could occur over the long-term if retained earnings and cash flow result in Aviva's risk-adjusted capitalisation becoming less dependent on UDS and VIF. Negative rating actions could occur if performance or management actions lead to Aviva's financial leverage and the internal loan not moving in line with expectations or if risk-adjusted capitalisation should deteriorate significantly.
For a complete listing of Aviva plc and its subsidiaries' FSRs, ICRs and debt ratings, please visit Aviva plc .
The methodology used in determining these ratings is Best's Credit Rating Methodology, which provides a comprehensive explanation of A.M. Best's rating process and contains the different rating criteria employed in the rating process. Best's Credit Rating Methodology can be found at www.ambest.com/ratings/methodology.
Key insurance criteria reports utilised:
- Analyzing Insurance Holding Company Liquidity
- Equity Credit for Hybrid Securities
- Insurance Holding Company and Debt Ratings
- Rating Members of Insurance Groups
- Risk Management and the Rating Process for Insurance Companies
- Understanding BCAR for Canadian Property/Casualty Insurers
- Understanding Universal BCAR
- Catastrophe Analysis in A.M. Best Ratings
In accordance with Regulation (EC) No. 1060/2009, the following is a link to required disclosures: A.M. Best Europe - Rating Services Limited Supplementary Disclosure.
This press release relates to rating(s) that have been published on A.M. Best's website. For all rating information relating to the release and pertinent disclosures, including details of the office responsible for issuing each of the individual ratings referenced in this release, please visit A.M. Best's Rating & Criteria Center .
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