Best’s News & Research Service - July 09, 2021 11:15 AM (EDT)
AM Best Revises Outlooks to Positive for Aviva plc and Its Subsidiaries
- July 09, 2021 11:15 AM (EDT)
London //BestWire// - AM Best has revised the outlooks to positive from stable and affirmed the Financial Strength Rating (FSR) of A (Excellent) and the Long-Term Issuer Credit Ratings (Long-Term ICR) of “a+” (Excellent) of the rated insurance subsidiaries of Aviva plc (United Kingdom). Concurrently, AM Best has revised the outlook to positive from stable for the Long-Term ICR of “a-” (Excellent) of Aviva plc (Aviva), the group’s non-operating holding company. At the same time, AM Best has revised the outlooks to positive from stable of all Long-Term Issue Credit Ratings (Long-Term IRs) on debt instruments issued or guaranteed by Aviva. (See below for a complete listing of companies and ratings.)
The ratings reflect Aviva’s balance sheet strength, which AM Best assesses as very strong, as well as its strong operating performance, favourable business profile and appropriate enterprise risk management.
The revised outlooks reflect AM Best’s expectation that Aviva’s disposal of several non-core subsidiaries, principally in Italy and France, along with continued deleveraging, will result in a stronger and more resilient balance sheet position. AM Best expects the sale of these subsidiaries to reduce the company’s Best’s Capital Adequacy Ratio (BCAR) capital requirements by substantially more than the reduction in available capital, resulting in a net positive impact on risk-adjusted capitalisation. Additionally, the exit from some European markets reduces the group’s exposure to interest rate risk associated with guaranteed life insurance products. During the first half of 2021, Aviva has reduced debt in line with its strategic goals through maturities and calls, along with a tender offer for four outstanding issues of senior and subordinated debt. This has resulted in lower leverage and has reduced prospective financing costs.
Consolidated risk-adjusted capitalisation, as measured by BCAR, is at the strongest level. However, most of the group’s capital is located within its life subsidiaries, limiting fungibility. AM Best’s assessment of risk-adjusted capitalisation for the group includes a significant contribution from economic capital embedded in long-term business and equity credit for hybrid debt. Positive factors include the group’s capital-light new business strategy (with the exception of expansion in U.K. bulk purchase annuities). In AM Best’s opinion, Aviva’s asset base is of good credit quality and is able to withstand investment market volatility.
Aviva achieves strong returns from a mature profile of activities, evidenced by a five-year average weighted average return-on-equity ratio of 10.3% (2016-2020). Strong profitability in 2019 and 2020 was supported by healthy growth across protection, annuities and savings products, combined with a steadily improving new business margin. Aviva reported an improvement in operating profit for general insurance to GBP 500 million in 2020 (2019: GBP 488 million), helped by improved margins in its Canadian business and stronger pricing in commercial lines.
The disposals are expected to reduce Aviva’s scale and geographic diversification; however, the company continues to benefit from a diversified product offering, leading market positions and strong distribution capabilities in its core markets of the U.K. and Canada.
AM Best has revised the outlooks to positive from stable and affirmed the FSR of A (Excellent) and the Long-Term ICRs of “a+” (Excellent) on the following subsidiaries of Aviva plc:
- Aviva Insurance Limited
- Aviva International Insurance Limited
- Aviva Insurance Company of Canada
- Elite Insurance Company
- Traders General Insurance Company
- Pilot Insurance Company
- Scottish & York Insurance Company, Limited
- S&Y Insurance Company
AM Best has revised the outlooks to positive from stable for the following subordinated Long-Term IRs:
Aviva plc—
— “bbb+”(Good) on GBP 800 million 6.125% perpetual subordinated notes
— “bbb+” (Good) on GBP 700 million 6.125% callable fixed rate reset subordinated bonds, due 2036
— “bbb+” (Good) on GBP 600 million 6.875% callable fixed rate subordinated notes, due 2058
AM Best has revised the outlooks to positive from stable for the following indicative Long-Term IRs on shelf securities:
Aviva plc—
— “bbb+” (Good) on senior subordinated notes
— “bbb” (Good) on junior subordinated notes
This press release relates to Credit Ratings that have been published on AM 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 see AM Best’s Recent Rating Activity web page. For additional information regarding the use and limitations of Credit Rating opinions, please view Guide to Best’s Credit Ratings. For information on the proper media use of Best’s Credit Ratings and AM Best press releases, please view Guide for Media - Proper Use of Best’s Credit Ratings and AM Best Rating Action Press Releases.
AM Best is a global credit rating agency, news publisher and data analytics provider specialising in the insurance industry. Headquartered in the United States, the company does business in over 100 countries with regional offices in London, Amsterdam, Dubai, Hong Kong, Singapore and Mexico City.