Fitch Ratings has placed Irish Life Assurance plc’s (Irish Life) Insurer Financial Strength (IFS) rating of ‘BBB+’, Long-term Issuer Default Rating (IDR) of ‘BBB’ and its subordinated debt, rated ‘BB+’, on Rating Watch Negative (RWN).
Irish Life is the main insurance subsidiary of Irish Life & Permanent Plc (ILP). ILP’s Individual rating was today downgraded to ‘E’ from ‘D/E’ and its Support Rating maintained at ‘2’, RWN. The Irish sovereign’s rating of ‘BBB+’ has been placed on RWN (see ‘Fitch Places Irish Banks’ Guaranteed Debt on RWN, Downgrades AIB’s, BOI’s & EBS’s Subordinated Debt’ dated 4 April 2011 and ‘Fitch Places Ireland’s Ratings on Rating Watch Negative’ dated 1 April 2011 at www.fitchratings.com).
ILP announced on 31 March that it will be selling Irish Life by IPO in the next 3 to 6 months to partly cover the bank’s increased capital requirements of EUR4bn. Although Fitch views the bank as a drag on the insurer’s ratings due to its weak capitalisation, the IPO will not trigger an upgrade of Irish Life’s ratings as they are capped by the sovereign rating. The RWN on Irish Life reflects the strong link between its ratings and the sovereign rating. Any downgrade of the sovereign rating would result in a downgrade of Irish Life.
Irish Life’s ratings could be downgraded if the Irish macro-economic situation deteriorates further or has a greater than expected impact on persistency or new business, or if the company does not remain profitable. The impact of the Irish government’s austerity package, high unemployment, reduced consumer confidence and lower than expected GDP could trigger higher policyholder lapse rates and lower sales volumes, threatening Irish Life’s profitability. The company is also exposed to the Irish sovereign through its significant shareholder exposure to Irish government debt and to the economic environment through other Irish investments.
Despite the RWN, Irish Life’s ratings continue to reflect the positive rating factors of its strong standalone capitalisation (regulatory solvency ratio of 175% at end-2010), comparatively low-risk business and strong market position. It reported operating profits of EUR160m in 2010 and has total embedded value of EUR1.6bn. However, Fitch expects profit margins and earnings to remain under pressure for a number of years.
Source : Fitch Press Release
