Fitch Ratings has upgraded Irish Life Assurance plc’s (Irish Life) Long-term Issuer Default Rating (IDR) to ‘BBB+’ from ‘BBB’ and the subordinated debt rating to ‘BBB-‘ from ‘BB+’. Its Insurer Financial Strength (IFS) Rating has been affirmed at ‘BBB+’. The Outlooks on the IFS and IDR are Stable.
The rating actions reflect the revision of Ireland’s Outlook to Stable from Negative (see “Fitch Revises Outlook on Ireland to Stable; Affirms at ‘BBB+'” dated 14 November 2012 at www.fitchratings.com). The ratings continue to reflect Irish Life’s high exposure to Irish government and bank debt – although those investments make up just 16% of the company’s non-linked investments they amount to 53% of Irish Life’s shareholders’ funds – and the importance of the Irish economy to its business. Irish Life is rated based on its own standalone profile, but the rating is limited by Irish sovereign and macroeconomic constraints as 99% of its business is domestic.
Irish Life’s ratings also reflect its strong standalone capitalisation (regulatory solvency ratio of 184% at end-HY12), comparatively low-risk business (over 90% of Irish Life’s insurance liabilities are unit-linked, with investment risk borne by policyholders) and strong market position (around 30% share of the Irish life insurance market). However, in view of the weak operating environment in Ireland, Fitch expects the company’s earnings to remain under pressure for several years.
Until June 2012, Irish Life was part of the permanent tsb Group (PTSB; formerly Irish Life & Permanent Group). As a result of the recapitalisation of PTSB’s banking operations, which needed state support during the financial crisis, Irish Life was sold to the Irish Minister for Finance for EUR1.3bn and is held as a commercial business. Given the current macroeconomic environment in Ireland, Fitch expects the Irish state to remain Irish Life’s owner for the foreseeable future, although Ireland plans to sell Irish Life as soon as practicable.
A sale to a higher rated company could lead to an upgrade of Irish Life’s rating. Any change in Ireland’s sovereign rating could also change Irish Life’s ratings.
The key rating triggers that could result in a downgrade include the macro-economic environment having a greater than expected adverse impact on policyholder surrender rates, new business or profitability. These threats could include the impact of the Irish government’s austerity package, high unemployment, reduced consumer confidence and lower than expected GDP triggering higher policyholder surrender rates and lower sales volumes.
