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A.M. Best Affirms the Credit Ratings of Aviva plc and Its Subsidiaries
[July 05, 2018]

A.M. Best Affirms the Credit Ratings of Aviva plc and Its Subsidiaries

A.M. 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 (Aviva) (United Kingdom). Concurrently, A.M. Best has affirmed the Long-Term ICR of "a-" of Aviva, the group's non-operating holding company. At the same time, A.M. 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 A.M. Best categorises as very strong, as well as its strong operating performance, favourable business profile and appropriate enterprise risk management.

A.M. Best's calculation of risk-adjusted capitalisation for the combined group includes a significant contribution from unallocated divisible surplus, value in the group's life segment that is not reflected in IFRS reporting (assessed using Solvency II disclosure) and hybrid borrowings. Although the first two of these elements can be volatile and subject to fungibility constraints, A.M. Best expects risk-adjusted capitalisation to continue being supportive of the ratings. The group is pursuing a capital light new business strategy in the life segment, with the exception of expansion in U.K. annuities. A.M. Best's expectation is that, on a group-wide basis, the release of capital from mature activities and management actions will comfortably accommodate the group's external dividend and coupon payments, despite a high target dividend pay-out ratio of 55-60% by 2020.

Aviva's financial leverage and interest coverage ratios are supportive of the very strong balance sheet assessment. Most of Aviva's capital is located in the group's life subsidiaries. An internal loan from the main non-life subsidiary to a fellow group subsidiary, which is not part of the financial leverage calculation, in part reflects fungibility constraints. The ratings and outlooks incorporate A.M. Best's expectation of rising nearer term cash flow, which mitigates these constraints.

Aviva is obtaining strong returns from a mature profile of activities. Whilst A.M. Best's five-year average return on capital for the company is 9.3%, removing intangible items from both the return and capital lifts this percentage by 3-4 percentage points. In addition, this period featured significant non-operating costs (apart from intangible amortisation) and A.M. Best estimates operating returns before intangibles are in the mid-teens percent region. Aviva's Canadian non-life operations are expected to remain depressed over 2018 and 2019, and profits from its U.K. with-profit and unit-linked non-pensions back books declining. However, A.M. Best expects that expansion in U.K. pension-related activities, including bulk annuities, and in the international operations will be sufficient to provide the group with growth in operating pre-tax profit in the mid-single digit percent region over the medium term.

The exceptionally diverse range of operations across life and non-life and across territories is a positive rating factor for the group's profile. The group has leading market positions in the U.K. and Canada, significant operations in France, Italy and Poland and growth opportunities in certain emerging markets. However, the increasing importance of U.K. pension-related earnings, whilst it reflects a business opportunity, also creates a degree of public policy risk.

The FSR of A (Excellent) and the Long-Term ICRs of "a+" have been affirmed for the following subsidiaries of Aviva plc. The outlook of these ratings remains stable.

  • 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:

Aviva plc-
-- "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:

Aviva plc-
-- "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:

Aviva plc-
-- "bbb+" on senior subordinated notes
-- "bbb" on junior subordinated notes

This press release relates to Credit Ratings 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 see A.M. Best's Recent Rating Activity web page. For additional information regarding the use and limitations of Credit Rating opinions, please view Understanding Best's Credit Ratings. For information on the proper media use of Best's Credit Ratings and A.M. Best press releases, please view Guide for Media - Proper Use of Best's Credit Ratings and A.M. Best Rating Action Press Releases.

A.M. Best is the world's oldest and most authoritative insurance rating and information source. For more information, visit

Copyright © 2018 by A.M. Best Rating Services, Inc. and/or its affiliates. ALL RIGHTS RESERVED.

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