Workers expect their defined contribution plans to play a greater role in their retirement income than annuities.
OLDWICK, N.J.--(BUSINESS WIRE)--September 18, 2008--A.M. Best Co. has affirmed the financial strength rating (FSR) of A+ (Superior) and issuer credit ratings of “aa-” of Aviva Life and Annuity Company (Des Moines, IA), American Investors Life Insurance Company, Inc. (Topeka, KS), Indianapolis Life Insurance Company (Indianapolis, IN), Aviva Life Insurance Company (Wilmington, DE) and Aviva Life and Annuity Company of New York (Woodbury, NY), all life insurance subsidiaries of Aviva USA Corporation (Aviva USA) (Des Moines, IA), which is a wholly owned subsidiary of AVIVA plc (AVIVA) (United Kingdom). Additionally, A.M. Best has affirmed the ICR of “a-” for Aviva USA. A.M. Best also has affirmed the debt ratings of Aviva USA and Indianapolis Life. The outlook for all ratings is stable.(See below for a detailed listing of the companies and ratings.)
These rating actions reflect A.M. Best’s view that Aviva USA is strategically important to AVIVA and a significant contributor to the overall revenue and earnings of the enterprise. AVIVA has completed the integration of the life members of the former AmerUs Group Co. acquired in November 2006. This acquisition has enhanced Aviva’s geographical diversification —a key objective of the organization—and has provided significant growth opportunities for Aviva USA in the world’s largest life and retirement savings markets. Currently, Aviva USA maintains market leadership positions in both the fixed-indexed annuity (FIA) and growing fixed-indexed life markets. Aviva USA also maintains a strong niche position in the structured settlement annuity market. Furthermore, the ratings reflect Aviva USA’s favorable consolidated stand-alone risk-adjusted capitalization enhanced by its solid operating performance. Additionally, Aviva USA’s ratings recognize the benefits derived from the financial flexibility of AVIVA.
Partially offsetting these positive rating factors are Aviva USA’s challenges to manage its growing exposure to interest-sensitive annuity and universal life liabilities, its exposure to potential regulatory and market conduct issues inherent within the FIA market, its elevated levels of below investment grade bonds and the challenges of amalgamating its integrated risk model into the overall enterprise risk management framework of AVIVA.
A.M. Best notes that Aviva USA’s net premium growth has been driven principally through its FIA segment. While Aviva USA’s annuity growth has resulted in greater interest rate and equity market exposure, surrender charge protection and market value adjustment features partially mitigate these risks. In noting Aviva USA’s growth in FIAs, A.M. Best acknowledges its prudent product design and customer profiles, effective hedging programs, well-defined asset/liability management and cash flow analysis techniques, and active market conduct and compliance programs.
A.M. Best also notes that the Securities and Exchange Commission’s (SEC) proposal to require the registration of newly-issued FIAs as securities has the potential to significantly impact industry-wide sales of FIAs. Many FIA writers could be adversely impacted as the majority of FIAs are sold through independent marketing organizations (IMOs) that for the most part utilize agents who are not registered representatives. Aviva USA’s multiple distribution channel networks with an increasing population of agents licensed to sell securities somewhat mitigates this concern. Moreover, Aviva USA’s strategic initiative to sell FIAs through financial institutions and broker-dealers is also viewed favorably. A.M. Best remains cautious over the potential declines in the industry’s future FIA sales and its impact on earnings given the increasing due diligence demanded to comply with the prevailing heightened regulatory environment. Despite expectations that the SEC’s proposal is unlikely to have a material impact on indexed annuity writers over the short term, A.M. Best’s longer-term view is more guarded—particularly for those companies heavily committed to this business.
The FSR of A+ (Superior) and ICRs of “aa-” have been affirmed for the following subsidiaries of Aviva USA Corporation:
Aviva Life and Annuity CompanyAmerican Investors Life Insurance Company, Inc.Indianapolis Life Insurance CompanyAviva Life Insurance CompanyAviva Life and Annuity Company of New York
The ICR of “a-” has been affirmed for Aviva USA Corporation.
The following debt ratings have been affirmed:
Aviva USA Corporation—
-- “a-” on $143.75 million 6.583% senior unsecured notes, due 2011
($20 million outstanding issued by the former AmerUs Group Co.)
Indianapolis Life Insurance Company—
-- “a” on $25 million 8.66% surplus notes, due 2011
Founded in 1899, A.M. Best Company is a global full-service credit rating organization dedicated to serving the financial and health care service industries, including insurance companies, banks, hospitals and health care system providers. For more information, visit www.ambest.com.