Another ratings cut for big seller of indexed annuities

Moody's lowers financial strength grade for Aviva Life; third reduction in three months

Dec 14, 2012 @ 2:47 pm

By Darla Mercado

Moody's Investors Service Inc. has downgraded Aviva Life and Annuity Co.'s insurance financial strength ratings to Baa1, from A1, as its parent prepares to sell the unit.

This is the third ratings cut the insurer has taken from a major agency: A.M. Best Co. Inc. lowered the insurer's issuer credit ratings to A, from A+, in October, and Standard and Poor's Ratings Services cut its financial strength ratings on the company to A-, from A, in November.

"There is no change to our stand-alone rating," a spokesman for Aviva USA wrote in an email. "Rather, Moody's removed the uplift we received due to Aviva plc's confirmation that it was in discussions with external parties to sell the US business."

He added: "Aviva USA's financial position remains strong."

Moody's lowering of the insurer's financial strenght ratings — like the cuts from A.M. Best and S&P — is attributed largely to the fact that the carrier's British parent, Aviva PLC, wants to sell the U.S.-based business. Essentially, even if the company doesn't find a buyer, Aviva PLC deems the business non-core, noted Neil Strauss, vice president at Moody's.

“We would expect that the U.S. operations will receive limited financial support going forward, regardless of whether or not Aviva USA is executed,” Mr. Strauss said.

Going back to this spring, there has been a lot of speculation about who would be Aviva's buyer.

Most recently, Guggenheim Partners LLC and Apollo Global Management LLC reportedly were weighing a joint bid on the company, which could place the second-largest seller of indexed annuities into the hands of private-equity firms.

Private-equity firms have been snapping up indexed-annuity business through a number of acquisitions, prompting some fears from observers that their market share is growing too quickly.

Guggenheim's Security Benefit Life Insurance Co. is now the third-highest seller of indexed annuities, and its Total Value Annuity is the No. 1 selling product in the third quarter, according to AnnuitySpecs.

How Moody's would treat Aviva's rating in the event of such an acquisition depends on the strength of the private-equity firm and its credit quality.

“If it manages the insurance company with a long-term focus using a standard insurance company model, it's possible that the stand-alone [insurer] rating would remain,” Mr. Strauss said. “The fact that it's a P-E firm would not necessarily detract from the company's quality.”

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