Standard & Poor’s Ratings Services has raised its long-term counterparty credit and insurer financial strength ratings on Ireland-based insurer Irish Life Assurance PLC (ILA) to ‘BBB+’ from ‘BBB-‘. We also raised the rating on the €200 million junior subordinated notes issued by ILA to ‘BBB-‘ from ‘BB’ and removed all ratings from CreditWatch with developing implications.
Standard & Poor’s report :
The upgrade reflects our view that the sale to the Irish government on June 29, 2012 has significantly reduced ILA’s risks and exposures relating to the weaker Permanent TSB Group Holdings PLC, its former parent. The ratings on ILA are now aligned with its stand-alone credit profile.
The ratings were originally placed on CreditWatch with negative implications on Nov. 26, 2010, to mirror the CreditWatch placement on Ireland’s sovereign rating. Issues relating to its parent bank caused us to lower the ratings to ‘BBB-‘ from ‘BBB’ on Feb. 2, 2011, and keep them on CreditWatch negative. We revised the CreditWatch to developing on April 5, 2011, when the bank announced that it would sell ILA (see “Irish Life Assurance PLC CreditWatch Implications Revised To Developing On News Of Separation From Parent Bank,” published on April 5, 2011).
The ratings on ILA reflect its strong competitive position, a diversified distribution base, and very strong risk-based capital adequacy. These factors are partially offset, however, by the company’s lack of geographic diversity. This is especially relevant given its reliance on the weakened Irish economy, and its relatively volatile operating performance, which leaves revenues sensitive to equity market conditions.
According to our government-related entity criteria, there is a “limited” link between ILA and the Irish government and we view ILA’s role to the government as being of “limited importance.” Accordingly, we consider the likelihood of extraordinary government support to be low. This view is consistent with the government’s stated intention to sell ILA as soon as market conditions allow it to do so at a suitable price. The timing of any sale is uncertain, but in our opinion is unlikely to occur before 2014.
The negative outlook is aligned with the negative outlook on the Irish sovereign rating. Any downgrade in the Irish sovereign rating will likely trigger a similar rating action on ILA. A significant worsening of ILA’s stand-alone credit profile may also result in negative rating action. However, an improvement in ILA’s stand-alone characteristics would not lead us to raise the rating, unless we were also taking positive action on the Irish sovereign. ILA’s rating is currently constrained by that on the Irish sovereign, reflecting its exposure to sovereign investments, even though this risk is partly mitigated by being shared with policyholders. It also incorporates the risks of having an entirely Irish customer base, given the current economic environment in Ireland.
