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LONDON–(BUSINESS WIRE)–AM Best has affirmed the Financial Strength Rating (FSR) of A
(Excellent) and the Long-Term Issuer Credit Ratings (Long-Term ICR) of
“a+” of the rated insurance subsidiaries of Aviva plc (United
Kingdom). Concurrently, AM Best has affirmed the Long-Term ICR of “a-”
of Aviva plc (Aviva), the group’s non-operating holding company. At the
same time, AM Best has affirmed all Long-Term Issue Credit Ratings
(Long-Term IRs) on debt instruments issued or guaranteed by Aviva. The
outlook of these Credit Ratings (ratings) is stable. (See below for a
complete listing of companies and ratings.)

The ratings reflect Aviva’s balance sheet strength, which AM Best
categorises as very strong, as well as its strong operating performance,
favourable business profile and appropriate enterprise risk management.

Consolidated risk-adjusted capitalisation, as measured by Best’s Capital
Adequacy Ratio (BCAR), is assessed at strongest. However, there are
fungibility constraints and most of the group’s capital continues to be
located in its life subsidiaries.

AM Best’s assessment of risk-adjusted capitalisation for the group
includes a significant contribution from unallocated divisible surplus,
economic value in the group’s life segment that is not reflected in IFRS
reporting and hybrid borrowings. Although the first two of these
elements can be volatile, AM Best expects risk-adjusted capitalisation
to remain at a level supportive of the ratings. The group is pursuing a
capital light new business strategy in the life segment, with the
exception of expansion in U.K. annuities, and its external dividend
policy has been adjusted away from the previous target of a 55% to 60%
payout ratio by 2020 to an approach in which the dividend is expected to
increase with earnings. AM Best’s expectation is that the release of
capital from mature activities and management actions will accommodate
the group’s external dividend and coupon payments and allow a degree of
flexibility for the recently appointed chief executive to manage the
future shape of the group.

Aviva is obtaining strong returns from a mature profile of activities.
Whilst AM Best’s five-year average return on capital for the company is
8.0%, removing intangible items from both profit and capital lifts the
return for 2017 and 2018 to a mid-teens level. Income from the group’s
U.K. with-profit and unit-linked non-pensions back books are declining
and Aviva’s Canadian non-life earnings are expected to remain depressed
in 2019 compared with historical performance. However, AM Best expects
that longevity releases from the U.K. annuities back book, expansion of
U.K. pension-related sales, including bulk annuities, growth in the
international operations and a more visible recovery in Canadian
non-life profit in 2020 and after, will be sufficient to provide the
group with mid-single digit percent operating profit growth over the
medium term.

The diverse range of operations across life and non-life, and across
territories is a positive rating factor for the group’s business
profile. The group has leading market positions in the United Kingdom
and Canada, significant operations in France, Italy and Poland and
growth opportunities in certain emerging markets. However, the
increasing importance of U.K. pension-related earnings, whilst it
reflects a business opportunity, also increases the public policy risk.

The FSR of A (Excellent) and the Long-Term ICRs of “a+” have been
affirmed with a stable outlook for the following subsidiaries of Aviva

  • Aviva Insurance Limited
  • Aviva International Insurance Limited
  • Aviva Insurance Company of Canada
  • Elite Insurance Company
  • Traders General Insurance Company
  • Pilot Insurance Company
  • Scottish & York Insurance Company, Limited
  • S&Y Insurance Company

The following subordinated Long-Term IRs have been affirmed with a
stable outlook:

Aviva plc—

— “bbb+” on GBP 450 million 6.625% callable subordinated notes, due 2041

— “bbb+” on GBP 800 million 6.125% perpetual subordinated notes

— “bbb+” on GBP 700 million 6.125% callable fixed rate reset
subordinated bonds, due 2036

— “bbb+” on GBP 600 million 6.875% callable fixed rate subordinated
notes, due 2058

The following direct capital instrument Long-Term IRs have been affirmed
with a stable outlook:

Aviva plc—

— “bbb” on GBP 500 million 5.9021% direct capital instruments
redeemable 2020 or thereafter

The following indicative Long-Term IRs on shelf securities have been
affirmed with a stable outlook:

Aviva plc—

— “bbb+” on senior subordinated notes

— “bbb” on junior subordinated notes

This press release relates to Credit Ratings that have been published
on AM Best’s website. For all rating information relating to the release
and pertinent disclosures, including details of the office responsible
for issuing each of the individual ratings referenced in this release,
please see AM Best’s
Rating Activity
web page. For additional information
regarding the use and limitations of Credit Rating opinions, please view
Best’s Credit Ratings
. For information on the proper media
use of Best’s Credit Ratings and AM Best press releases, please view
for Media – Proper Use of Best’s Credit Ratings and AM Best Rating
Action Press Releases

AM Best is a global rating agency and information provider with a
unique focus on the insurance industry. Visit
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Copyright © 2019 by A.M. Best Rating Services, Inc. and/or its


Anthony Silverman
Associate Director, Analytics
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