Best Affirms Aviva’s Ratings; Places them on Review/Negative

Following its announcements, made earlier this week, A.M. Best Europe – Rating Services Limited is continuing to take rating actions on a number of European (re)insurers, as a result of the continued negative developments regarding the euro zone sovereign debt crisis.

The move has affected the UK’s largest insurer, as Best said it has affirmed the issuer credit rating (ICR) of “a-” of the non-operating holding company, Aviva plc and the ICR of “a+” and financial strength rating (FSR) of ‘A’ (Excellent) of Aviva’s subsidiary companies.

Best also affirmed the debt securities issued by Aviva and assigned a rating of “bbb+” to $400 million subordinated debt issued by Aviva in November 2011. In addition, Best assigned an FSR of ‘A’ (Excellent) and ICR of “a+” to Aviva Insurance Limited, and has also affirmed and withdrawn the FSR of ‘A’ (Excellent) and ICR of “a+” of Aviva Insurance UK Limited at the company’s request.

Best also said it has withdrawn the ratings of Delta Lloyd NV, “as Aviva is no longer a majority shareholder and no longer consolidates Delta Lloyd NV. All ratings have been placed under review with negative implications.”

Best stressed that the “rating actions were driven by Aviva’s exposure to investments in several peripheral euro zone economies, Italy in particular.” The bulletin indicated that the rating actions on Aviva and other European (re)insurers “reflect their exposure to the continued deterioration of the sovereign creditworthiness of several euro zone countries and the negative economic outlook for the region.”

Best has been actively monitoring the potential imact of the economic crisis. It released reports on related (re)insurers’ exposure in September and November of this year.

Best explained that the “rationale for taking rating action at this point is largely attributable to the current level of credit and liquidity risk for insurers operating within the euro zone countries—most notably Italy and Spain. The perceived strain on the economies of these countries and companies operating within their borders is growing rapidly with very little evidence of a solution being formulated to address near-term concerns.”

In addition Best confirmed that the “ratings for Aviva will remain under review with negative implications while A.M. Best examines this group’s exposure to a prolonged adverse economic environment within the euro zone.”

As with other companies, Best said its particularly concerned by their “exposure to Italy and Spain’s sovereign bonds and the potential for contagion into other asset classes, particularly holdings of European bank securities.”

Best will assess the likely impact of a prolonged financial crisis and recessionary environment on these carriers’ market position and ongoing business operations; however the rating agency reiterated that “upward rating pressures are unlikely at this point.

Negative rating actions could occur if there were a worsening of risk-adjusted capitalization tied to investment losses or a deterioration of the operating environment in key territories.”

For a complete listing of Aviva plc and its domestic and international property/casualty and life/health subsidiaries, FSRs, ICRs and debt ratings, please visit www.ambest.com/press/121501avivaplc.pdf.

Source: A.M. Best