Rating agency also concerned about debt and results volatility


AM Best has maintained its negative outlook on Aviva’s issuer credit ratings (ICRs) because of “significant senior managerial changes in this transitional period for the group”.

The rating agency said the continuing negative outlook also reflects the insurance group’s high debt-to-capital ratio and the volatility of its results.

AM Best gives Aviva’s insurance subsidiaries an ICR of a+ and the overall group and its bonds an ICR of a-. All of these ratings have a negative outlook.

The rating agency also gives Aviva’s insurance subsidiaries a financial strength rating (FSR) of A, which remains as a stable outlook.

All ratings were affirmed.

ICRs describe companies’ ability to pay debts, while FSRs are concerned with their ability to pay insurance claims.

Change at the top

Aviva has undergone several senior management changes recently. Former group chief executive Andrew Moss left under a cloud in May 2012 after a shareholder revolt. He was replaced on an interim basis by chairman John McFarlane until new permanent group chief executive Mark Wilson took over on 1 January 2013.

Under a turnaround plan initiated by McFarlane, Aviva began pruning unprofitable or under-performing units. Its biggest disposal was the sale of its US life unit.

Volatile results

AM Best noted that Aviva swung to a £1.1bn profit in the first half of 2013 from a £3bn loss at the end of 2012. The loss was caused by the accounting treatment of the US sale.

The agency said: “Results have the potential to remain volatile while Aviva transitions into a leaner and more focused insurer.”

It added: “Positive rating movements are unlikely unless there is a clear reduction in financial leverage and stabilisation in the improved capital position.

“Negative rating actions could occur if Aviva’s financial leverage were not to improve, risk-adjusted capitalisation were to deteriorate significantly or financial performance was consistently negative in the coming years.”

Strong capitalisation

On the positive side, AM Best said the rating affirmations were driven by Aviva’s “strong” risk-adjusted capitalisation, improving financial performance and giving a more focused business profile.