Rating agency Standard & Poor’s affirmed short term rating on Aviva International at ‘A-1+’, and then withdrew it. Aviva Insurance also received a ‘A-1+’ short term rating. As a result, the ‘A-1+’ short-term rating on the Aviva PLC guaranteed commercial paper program is unaffected. All other ratings on Aviva International are also being affirmed.
Standard & Poor’s report :
As a result of simplifying its legal structure, Aviva PLC has changed the guarantor of its £2 billion commercial paper (CP) program to Aviva Insurance Ltd. (AI) from Aviva International Insurance Ltd. (AII). In practice, this means withdrawing the CP program guaranteed by AII and replacing it with one guaranteed by AI. There are no material differences between the old and new programs.
The program is a £2 billion euro CP program issued by Aviva PLC and guaranteed by AI. We rate it ‘A-1+’ for several reasons. First, the guarantor for the new program is a core operating entity of Aviva Group and is therefore rated AA-/Stable/A-1+. CP holders rank with senior debt holders, i.e., below policyholders. Therefore, to arrive at the appropriate long-term rating to use as a reference point for the short-term rating, we lower the CCR by one notch to ‘A+’ to reflect this subordination.
An ‘A-1+’ short term rating is not inconsistent with an ‘A+’ rating level. Factors that support the rating include the level of backup liquidity. This comfortably exceeds the minimum liquidity backup coverage of 50%, as defined in our criteria for an ‘A-1+’ rating (that is, cash and liquid assets plus committed bank lines are equal to 50% of confidence-sensitive short-term debt). On June 30, 2011, Aviva Group reported that it had £1.8 billion of liquid assets held at the group, plus £2.1 billion of undrawn committed central credit facilities. Together, this backup liquidity of £3.9 billion equated to 196% of the program. Of the £2.1 billion facility, £800 million expires within one year, but even excluding this leaves a very healthy coverage of 156%.
Another factor supporting the ‘A-1+’ short-term rating is Aviva Group’s statement that it has allocated £750 million of its £2.1 billion credit facilities to support the credit rating on the £2 billion CP program. This amount easily supports the £500 million of outstanding or issued CP. As an operating insurance company, Aviva Insurance also has access to liquidity from its cash-generative non-life insurance business.
Source : S&P
