Standard & Poor’s Ratings Services said that it reviewed its ‘BBB-‘ long-term counterparty credit and insurer financial strength ratings on Irish-based insurer Irish Life Assurance PLC (ILA) and chose to keep them on CreditWatch with developing implications. We also kept the ‘BB’ rating on the €200 million junior subordinated notes on CreditWatch developing.
We originally placed the ratings on CreditWatch with negative implications on Nov. 26, 2010. We lowered the ratings to ‘BBB-‘ from ‘BBB’ on Feb. 2, 2011, and kept them on CreditWatch negative. The CreditWatch placement was revised to developing on April 5, 2011.
Earlier in the year, the Central Bank of Ireland ran stress tests for the Irish banking sector which indicated that ILA’s banking parent Irish Life & Permanent (ILP; BB+/Watch Neg/B) required €4 billion in additional capital. ILP therefore announced that it would sell ILA on March 31, 2011. As a result, we revised our CreditWatch placement for ILA. We are keeping the CreditWatch implications on developing because, in our view, regarding how the separation of the insurer from the bank will unfold, and about the future ownership structure of Irish Life.
ILP continues to pursue the planned disposal of ILA through either a trade sale or IPO. The Memorandum of Understanding between the Irish state, the International Monetary Fund, and the EU requires the group to have started the sale of ILA by October 2011.
In our opinion, a successful separation of ILA from ILP is likely to significantly reduce ILA’s risks and exposures relating to its weaker banking parent. The ‘BBB-‘ long-term rating on ILA is two notches below its ‘bbb+’ stand-alone credit profile to reflect risks relating to its parent. ILP’s stand-alone credit profile is ‘bb-‘.
At year-end 2010, the reported embedded value of ILP’s life and fund management business was €1.6 billion.
We will update the CreditWatch placement as further details emerge about the disposal, including the possibility of a trade sale. The company is required to have commenced the sale of ILA by October 2011. We aim to provide an update by early October, but do not expect to resolve the CreditWatch placement until ILA has separated from its parent.
ILP has not yet decided how it will dispose of ILA, and therefore the rating outcome following the CreditWatch resolution remains uncertain. A successful IPO could see the rating on ILA equalized with its ‘bbb+’ stand-alone credit profile, but ILP is also willing to consider a trade sale. In that case, the new rating would depend heavily on the creditworthiness of the buyer. In addition, should ILP not complete the planned separation, we could lower the ratings by one or two notches.
Source : S&P
