Fitch Ratings has placed Irish Life Assurance plc’s (Irish Life) Long-term Issuer Default Rating (IDR) of ‘BBB+’, Insurer Financial Strength (IFS) Rating of ‘BBB+’ and subordinated debt rating of ‘BBB-‘ on Rating Watch Positive (RWP).
KEY RATING DRIVERS
The RWP reflects the announcement that Irish Life is going to be acquired by Great-West Life Assurance Company (Great-West; IFS ‘AA’/Stable) and Fitch’s view that the new ownership is likely to improve Irish Life’s credit profile.
The ratings continue to reflect Irish Life’s high exposure to Irish government (‘BBB+’/Stable) and bank debt. Although these investments make up just 16% of the company’s non-linked investments, they amount to 53% of Irish Life’s shareholders’ funds. The ratings further reflect the importance of the Irish economy to Irish Life’s business. Irish Life will remain rated as a standalone entity during the pending sale to Great-West and is subject to sovereign constraint 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 was held as a commercial business.
RATING SENSITIVITIES
The closure of the sale to Great-West is likely to lead to an upgrade of Irish Life’s ratings. The amount of uplift will depend on the strategic importance of Irish Life to Great-West. Fitch will assess the strategic importance when the sale is completed. 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.
