Fitch lowers rating and gives companies a negative outlook

Fitch Ratings has downgraded Aviva Long-term Issuer Default Rating (IDR) to 'A' from 'A+', because of capital depletion as a result of steep declines in equity and credit markets and put the company on a negative outlook.

Fitch said Aviva’s core non-US operating subsidiaries' Insurer Financial Strength (IFS) Ratings were also downgraded to AA- from AA, and the IDR of Aviva International Insurance to A+ from AA-. The outlook is also negative.

Aviva's senior unsecured debt was downgraded to A from A+ and its subordinated debt was downgraded to BBB+ from A-.

Fitch said: “On 4 February 2009, Aviva announced an estimated Insurance Groups Directive (IGD) capital surplus at 31 December 2008 of £2bn, little changed from £1.9bn at 30 September 2008 despite deterioration in financial markets in Q4/08. The resilience of the IGD surplus reflects the effectiveness of Aviva's hedging programme to protect shareholders from extreme market movements.”

But David Prowse, Senior Director in Fitch's Insurance team in London said: "However, IGD surplus is an incomplete measure for companies such as Aviva because it does not reflect the strength - or changes in strength - of with-profit funds."

The company said: “In contrast to Aviva's stable IGD position, the preliminary full end-2008 results announced on 5 March show a significant depletion of excess capital (unallocated divisible surplus) in Aviva's with-profits funds, to GBP2.3bn from GBP4bn at 30 June 2008 (and GBP6.8bn at 31 December 2007). This capital, although ring-fenced, forms an important part of Fitch's assessment of the overall capital strength of Aviva.

“The Negative Outlook reflects Fitch's view that the near-term difficult conditions in global financial markets will likely continue for an extended period, which could cause Aviva to experience higher-than-expected volatility in its financial results and additional challenges in 2009.

The following Aviva subsidiary companies' Long-term IFS ratings have been downgraded to 'AA-' (AA minus) from 'AA'; all the companies have a negative outlook:

  • CGNU Life Assurance
  • Commercial Union Life Assurance
  • Norwich Union Life & Pensions
  • Aviva Insurance
  • Norwich Union Insurance

The following Aviva US subsidiary companies' Long-term IFS ratings have been downgraded to 'A+' from 'AA-' (AA minus); all the companies have a negative outlook:

  • Aviva Life and Annuity Company
  • American Investors Life Insurance Company
  • Aviva Life and Annuity Company of New York