LONDON–(BUSINESS WIRE)–AM Best has affirmed the Financial Strength Rating (FSR) of A (Excellent) and the Long-Term Issuer Credit Ratings (Long-Term ICR) of “a+” of the rated insurance subsidiaries of Aviva plc (United Kingdom). Concurrently, AM Best has affirmed the Long-Term ICR of “a-” of Aviva plc (Aviva), the group’s non-operating holding company. At the same time, AM Best has affirmed all Long-Term Issue Credit Ratings (Long-Term IRs) on debt instruments issued or guaranteed by Aviva. The outlook of these Credit Ratings (ratings) is stable. (See below for a complete listing of companies and ratings.)
The ratings reflect Aviva’s balance sheet strength, which AM Best categorises as very strong, as well as its strong operating performance, favourable business profile and appropriate enterprise risk management.
Consolidated risk-adjusted capitalisation, as measured by Best’s Capital Adequacy Ratio (BCAR), is assessed as strongest. However, there are fungibility constraints and most of the group’s capital continues to be located within its life subsidiaries.
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 borrowings. Despite the presence of these softer capital elements, AM Best expects Aviva’s risk-adjusted capitalisation to remain supportive of its rating level in the medium term. Positive factors include the group’s capital-light new business strategy in the life segment (with the exception of expansion in U.K. bulk purchase annuities) and the revision of its external dividend policy whereby the group has moved away from a target pay-out ratio to a progressive dividend policy. In AM Best’s opinion, Aviva’s asset base is of good credit quality and is able to withstand investment market volatility. In view of the COVID-19-related uncertainties, the group decided to suspend its final 2019 dividend payment, which supported its capital adequacy in the first quarter of 2020.
Aviva is obtaining strong returns from a mature profile of activities. Whilst AM Best’s five-year average return on capital for the company is 8.5% (2015-2019), removing intangible items from both profit and capital lifts the return to a more robust double-digit level. Income from the group’s legacy U.K. with-profit and unit-linked non-pensions back books are declining; however, AM Best expects that longevity releases from the U.K. annuities back book, expansion of U.K. pension-related sales, including bulk annuities, growth in the international operations and a continued recovery in the Canadian non-life operations, should all support the group’s modest operating profit growth in the medium term. Insurance losses arising from COVID-19-related disruption, such as in business interruption insurance, are expected to be moderated by the group’s reinsurance programme.
The diverse range of operations across life and non-life, and across territories is a positive rating factor for the group’s business profile. The group has leading market positions in the United Kingdom and Canada, significant operations in France, Italy, Ireland and Poland and growth opportunities in certain emerging markets.
The FSR of A (Excellent) and the Long-Term ICRs of “a+” have been affirmed with a stable outlook for 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
The following subordinated Long-Term IRs have been affirmed with a stable outlook:
— “bbb+” on GBP 450 million 6.625% callable subordinated notes, due 2041
— “bbb+” on GBP 800 million 6.125% perpetual subordinated notes
— “bbb+” on GBP 700 million 6.125% callable fixed rate reset subordinated bonds, due 2036
— “bbb+” on GBP 600 million 6.875% callable fixed rate subordinated notes, due 2058
The following direct capital instrument Long-Term IRs have been affirmed with a stable outlook:
— “bbb” on GBP 500 million 5.9021% direct capital instruments redeemable 2020 or thereafter
The following indicative Long-Term IRs on shelf securities have been affirmed with a stable outlook:
— “bbb+” on senior subordinated notes
— “bbb” 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 specializing in the insurance industry. Headquartered in the United States, the company does business in over 100 countries with regional offices in New York, London, Amsterdam, Dubai, Hong Kong, Singapore and Mexico City. For more information, visit www.ambest.com.
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