A.M. Best Downgrades Ratings of Aviva Life and Annuity Company and Its Subsidiary; Places Ratings Under Review
December 24, 2012 by N/A
Best’s News Service – December 21, 2012 03:17 PM
OLDWICK, N.J. – A.M. Best Co. has downgraded the financial strength rating to A- (Excellent) from A (Excellent) and issuer credit ratings (ICR) to “a-” from “a” of Aviva Life and Annuity Company (ALAC) (West Des Moines, IA) and its wholly owned subsidiary, Aviva Life and Annuity Company of New York (ALACNY) (Melville, NY) (together referred to as Aviva USA). Concurrently, the ratings have been placed under review with negative implications.
Both ALAC and ALACNY are the principal insurance subsidiaries of Aviva USA Corporation, which is an indirect, wholly owned subsidiary of Aviva plc (Aviva). Aviva is a global diversified financial services company based in the United Kingdom.
The rating actions follow the Dec. 21, 2012, announcement by Aviva that it had agreed to sell Aviva USA Corporation to Athene Holding Ltd. for $1.8 billion. Aviva will receive sales proceeds of $1.55 billion in cash, after the repayment of external debt. Of this, an amount of up to $250 million may be received in the form of an interest bearing vendor loan, repayable in cash within 12 months of completion. The transaction is expected to close in 2013, subject to regulatory and other customary approvals.
On Oct. 31, 2012, A.M. Best had downgraded Aviva USA’s ICRs by one notch to reflect uncertainty regarding Aviva’s future funding of growth, as Aviva had provided significant capital contributions to Aviva USA. Given the public announcement of sale, A.M. Best’s rating actions reflect its belief that Aviva USA now operates on a stand-alone basis, along with the credit profile of the potential buyer and challenges associated with establishing a new brand identity.
The ratings for Aviva USA continue to recognize its leading market position in indexed life insurance and fixed-indexed annuities, innovative product development and multiple distribution networks and its favorable risk-adjusted capitalization. Aviva USA markets a wide array of life and fixed annuity products through multiple distribution channels, which includes brokerage general agents, career agents, personal producing general agents and independent marketing organizations. Aviva USA has demonstrated a well-diversified investment portfolio and sound risk management practices. Aviva USA results are generally positive; however, in some periods when a reserve financing transaction occurs (e.g., December 2011), there is a surplus strain impacting statutory net income, with a corresponding offset in surplus. In periods when a reserve financing transaction is not in place, the redundant reserve strain negatively impacts results. Moreover, Aviva USA’s focus on indexed life insurance and annuities subjects its earnings to some equity market risk.
The ratings will remain under review pending discussions with the new ownership group, a review of its business plan, investment strategy and capitalization position post-close. A.M. Best will also monitor the ability of Aviva USA to maintain its distribution relationships during this time of transition.
The methodology used in determining these ratings is Best’s Credit Rating Methodology, which provides a comprehensive explanation of A.M. Best’s rating process and contains the different rating criteria employed in the rating process. Best’s Credit Rating Methodology can be found at http://www.ambest.com/ratings/methodology.
BN-NJ-12-21-2012 1517 ET #