S&P Raises Aviva’s French Unit to ‘AA-‘

Standard & Poor’s Ratings announced that it has raised its long-term counterparty credit and insurer financial strength ratings on non-life French insurer Aviva Assurances S.A. to ‘AA-‘ from ‘A+’ with a stable outlook.

“The rating action reflects the fact that we now view Aviva Assurances as a core subsidiary of its ultimate parent, CGU International Insurance PLC (AA-/Stable/A-1+),” stated S&P credit analyst Emmanuelle Calès. Aviva Assurances ranks among the top 15 French property/casualty insurers.

S&P noted that “the company is predominantly retail-focused and underwrites a mix of motor, property, liability, and accident & health business lines. Its gross premium income totaled 841 million euros ($1.03 billion) at year-end 2003.”

It also noted: “Aviva Assurances is playing a growing role in the long-term strategy of the Aviva France sub-group by providing to its parent group the possibility of cross-selling its tied agent network with life products (12 percent of the Aviva’s French life premium income was generated by Aviva Assurances’ tied agents network in 2003, versus 9 percent in 2002). As such, it is a useful and growing complement to Aviva France’s parallel external savings distribution channel, the Association Française d’Epargne et de Retraite, the first provider of Aviva Assurances’ life sister company Aviva Vie S.A. (AA-/Stable/–).

“Aviva Assurances’ operating performance is strong and has further improved in recent years, reflecting the company’s strengthened discipline both in risk selection and pricing. It posted a strong combined ratio of 102 percent in 2003, driven by stable loss ratios (72.3 percent in 2003 versus 71.2 percent the year before).”

However, S&P indicated that “Aviva Assurances remains challenged by an expense ratio of 31 percent, which compares unfavorably with direct mutuals and bankassurers, which have structurally lower distribution costs.”

The rating agency also noted that the company’s capitalization is very strong despite its policy of paying “substantial dividends to the ultimate French holding company, Aviva Participations (not rated). The quality of capital is strong, with core shareholder funds representing more than one-half of Standard & Poor’s measure of net total adjusted capital.”

Calès added: “The outlook on Aviva Assurances is driven by that on the Aviva group. Any change in the group’s ratings would have an immediate impact on those of Aviva Assurances.”