Moody’s has affirmed the ratings of Aviva, AXA UK, L&G, and M&G, saying that the insurance financial strength ratings (IFSR) of the first three are still ‘stable’, while that of M&G remains ‘negative’.
A statement from Moody’s said that the move comes despite a weakening of the UK government’s creditworthiness, indicated by its change in outlook on the UK’s Aa3 government bond rating to negative from stable. This comes three days after the ratings firm changed the outlook on the UK to negative.
The firm wrote in the statement: “The stable outlooks on Aviva and L&G reflect the two insurance groups’ strong fundamental credit profiles and robust capitalisation. Both Aviva and L&G have manageable direct exposures to UK sovereign debt and robust regulatory solvency ratios, supported by relatively conservative and diverse investment portfolios as well as strong capital generation. Both groups also benefit from relatively low expected volatility in their capital ratios, being only moderately sensitive to financial market movements. As such, in Moody’s view, these groups hold sufficient capital buffers to withstand a significant and long-lasting fall in property and equity values, significant ratings migration and/or an increase in investment grade corporate defaults, which could be triggered by a UK sovereign credit stress or default.”
It added: “The stable outlook on AXA UK reflects high parental support from AXA, which provides additional protection for creditors. The outlook on M&G remains negative, reflecting the challenges the group faces in strengthening its performance and growing new business volumes to improve its market position in line with similarly rated insurance and asset management peers.”
Moody’s reflected on each of the individual insurers.
On Aviva, the firm said: “Moody’s has affirmed the Aa3 IFSR of Aviva’s insurance operating entities and its A2 senior unsecured debt rating, with a stable outlook. This reflects the group’s strong capitalisation, well diversified and relatively conservative investment portfolio with asset risk moderated by the prevalence of unit-linked and with-profits products, very well diversified business mix and strong market position in its core markets, which Moody’s believes will collectively provide relative stability to Aviva’s credit profile despite the deteriorating credit quality of the UK sovereign.”
Regarding AXA UK, Moody’s said: “Moody’s has affirmed the Aa3 IFSR of AXA UK, with a stable outlook. This reflects its good market position in the UK and Ireland, diversified business profile including a range of retail and commercial general insurance products as well as a top health insurance brand in the UK. AXA UK’s financial profile is strong, supported by good asset quality and capitalisation, along with strong and stable profitability. Capitalisation is lower than for some peers because it distributes much of its excess capital up to its parent. AXA UK benefits from implicit support from its parent, AXA, reflecting its strong contribution to AXA’s revenues and profits and its strategic importance to the group.”
Moody’s went on to say that it saying the IFRA for L&G remained ‘stable’ reflected the group’s strong solvency II ratio, well diversified and relatively conservative investment portfolio and very strong position in the UK life and savings Marketplace. This, said Moody’s, will collectively provide relative stability to L&G’s credit profile despite the deteriorating credit quality of the UK sovereign.
Meanwhile, it explained its affirmation of M&G’s negative outlook because of what it said was the group’s strong financial profile, underpinned by its strong and resilient capital adequacy, strong asset quality characterized by high quality shareholder assets and significant buffer available to absorb asset price volatility within its with-profits assets, and good financial flexibility and profitability,
Moody’s said: “[We believe that this] will collectively provide relative stability to M&G’s credit profile despite the deteriorating credit quality of the UK sovereign. In addition, M&G benefits from two strong brands in the UK market, a leading private debt franchise within the institutional asset management sector, and a solid platform from which to strengthen its market position and new business generation capabilities, including through the recently launched M&G Wealth.”