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FOR IMMEDIATE RELEASE
LONDON - MAY 18, 2016 11:59 AM (EDT)
A.M. Best has affirmed the financial strength rating (FSR) of A (Excellent) and the issuer credit ratings (ICR) of “a+” of the rated insurance subsidiaries of Aviva plc (Aviva) (United Kingdom). Additionally, A.M. Best has affirmed the ICR of “a-” and the issue ratings of Aviva. The outlook for each of these ratings is stable.
The ratings of Aviva and its subsidiaries reflect the group’s strong risk-adjusted capitalisation, improving financial performance, including expected strong cash flow, and very strong business profile in its core markets. A.M. Best’s calculation of risk-adjusted capitalisation for the combined group includes a significant contribution from unallocated distributable surplus (UDS), which mostly relates to participating funds in France and the United Kingdom, the value of in-force business (VIF: an embedded value measure) and hybrid borrowings. Although the first two of these elements can be volatile and are subject to fungibility constraints, risk-adjusted capitalisation is expected to continue to be supportive of the ratings.
Financial leverage, as calculated by A.M. Best, remains high for the rating level. 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. This loan has decreased over 2015 and 2016. The ratings and outlooks incorporate A.M. Best’s expectation that the group will generate a strong trend of rising cash flow, which would mitigate fungibility constraints. Cash flow will be assisted by the limited capital required to support Aviva’s new life business when compared to the heavier requirement for the existing back book. In the nearer term, cash flow from the acquisition of Friends Life Group Limited, completed in 2015, should more than accommodate the group’s higher external dividend payments in 2016, consequent on the shares issued for the acquisition and increased dividends per share.
For a complete listing of Aviva plc and its subsidiaries’ FSRs, ICRs and issue ratings, please visit Aviva plc.
This press release relates to rating(s) 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.
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