S and P Lowers Aviva Insurance Ratings from ‘A+’ to ‘A-‘ After Ireland Downgrade

Standard & Poor’s Ratings Services has lowered its long-term counterparty credit and insurer financial strength ratings on Aviva Insurance Europe SE (Aviva SE) to ‘A-‘ from ‘A+’.

In addition S&P said the ratings “remain on CreditWatch with negative implications, where they were placed on Nov. 25, 2010, following the downgrade and CreditWatch placement of the Republic of Ireland.”

S&P explained that it took the rating action because it considers it “less likely that Aviva plc [the parent company which is rated ‘A’ /negative] will consolidate certain of its material European operations into Ireland-based Aviva SE in 2011.

“Furthermore, on Feb. 2, 2011, the Republic of Ireland was downgraded to ‘A-/A-2’ from ‘A/A-1’ and remains on CreditWatch with negative implications.”

Credit analyst Tatiana Grineva explained: “Under our ratings criteria, sovereign risk is a key factor influencing the financial strength of insurers. As a result, the vast majority of insurers are rated no higher than the relevant sovereign local currency rating. Consequently, we have lowered the ratings on Aviva SE by two notches to reflect the increasing sovereign-related risk.”

S&P also stated that prior to its taking the rating action it had “assumed that Aviva would increasingly operate its European general insurance business through European branches of Aviva SE, diluting the current level of business and financial exposure to Irish sovereign risk within this rated legal entity. We now believe that in the near term Aviva SE’s business profile will remain largely focused on Irish risks.

“The CreditWatch placement follows the CreditWatch action on Ireland and reflects the possibility that we may lower the ratings following our review of Aviva SE’s exposure to heightened sovereign-related risks.

“The ratings on Aviva SE could also be lowered if we were to lower the ratings on Ireland further, but are likely to remain in the investment-grade category.”

Grineva added that S&P expects “to resolve the CreditWatch placement by April 2011, following the resolution of the CreditWatch on the Irish sovereign rating.”

Source: Standard & Poor’s

Topics Europe