US – Moody???s downgrades Aviva Life IFS to Baa1

Moody’s Investors Service has downgraded the insurance financial strength (IFS) rating of Aviva Life and Annuity Company (Aviva Life) to Baa1 from A1 and the long-term issuer rating of intermediate U.S. holding company, Aviva USA Corporation, to Ba1 from Baa1. All the ratings have been assigned a developing outlook. These actions conclude the ratings review, established on June 27, 2012, which was prompted by the ultimate parent, Aviva Plc’s (Aviva, A3 subordinated debt rating, negative outlook) strategic review of its business segments. 

Moody’s said that the downgrade of Aviva Life and related entities was driven by Aviva Plc’s announcement in the group’s Q3 results that it is in discussions with external parties which may lead to a sale of its US operations. The downgrade, which lowered the rating to the standalone credit profile, reflects the removal of three notches of implicit support in the ratings from the ultimate parent, given Aviva Plc’s stated intentions. 

According to Moody’s Vice President Neil Strauss, “Recent developments make it clear that the US operations are noncore to Aviva Plc, implying an increased probability of being sold, and we would expect that the US operations will receive limited financial support going forward, regardless of whether or not sale of Aviva USA is executed.” 

The rating agency commented that the developing outlook reflects the various potential outcomes of a sale of the company, which could result in Aviva Life being acquired by a company that has lower, higher, or the same creditworthiness as Aviva Life. In addition, the amount of implicit and or explicit support from the buyer, as well as business strategy, capital management, and transaction financing considerations would influence the positioning of the ratings post-close. Moody’s would also take into account the contingency of a transaction not taking place and Aviva Plc maintaining ownership.