27th Nov 2019 17:29
(Alliance News) - Moody's Investors Service on Wednesday affirmed the A2 senior unsecured debt rating of Aviva PLC and the Prime-1 short-term commercial paper rating.
The ratings agency also affirmed the Aa3 insurance financial strength ratings of Aviva's main UK operating entities, including Aviva International Insurance Ltd, Aviva Insurance Ltd and Aviva Life & Pensions UK Ltd.
The outlook on all entities remains stable.
Moody's said the rating action reflects Aviva's very strong franchise in the UK and Canadian insurance market, low product risk and well-diversified business profile, and solid capitalisation, with one of the lowest sensitivities to interest rate risk amongst the European composite insurers.
"However, Aviva's performance has been relatively weak, with bottom line profitability supported by material one-off gains over the last two years, most notably longevity releases. The group's 2018 five year average return on capital was around 5%, comparing weakly with other similarly rated European insurers even when including one-off gains," the ratings agency noted.
Moody's expects Aviva's underlying operating performance to improve but the magnitude will be dependent on the group's ability to reduce costs and grow revenues. Bottom line profitability on the other hand, is predicted to likely remain subdued over the coming 12 to 18 months.
The stable outlook reflects Moody's expectation that Aviva will continue to maintain a solid Solvency II ratio above 170% and continue to reduce its leverage.
Moody's also expects a successful execution of Aviva's new strategic plan, with improvements in underlying profitability via cost cutting initiatives and growing revenue in its chosen market segments.
Aviva shares on Wednesday closed at 402.40 pence each in London, up 0.2%.
By Tapan Panchal; [email protected]
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