A.M. Best Places Ratings of Aviva plc’s Canadian Subsidiaries Under Review With Negative Implications

A.M. Best Co. has placed under review with negative implications the financial strength rating (FSR) of A (Excellent) and issuer credit ratings (ICR) of “a+” of Aviva Insurance Company of Canada and its affiliates, Elite Insurance Company, Pilot Insurance Company, Scottish & York Insurance Company Limited, S&Y Insurance Company and Traders General Insurance Company (together known as Aviva Canada). These companies are insurance subsidiaries of its ultimate parent company Aviva plc. Aviva plc is a global diversified financial services company based in the United Kingdom.

These rating actions follow A.M. Best’s recent review of Aviva plc, which resulted in its ratings and that of its subsidiary companies being placed under review with negative implications on December 15, 2011. Aviva Canada’s ratings are inherently tied to those of Aviva plc and reflect enhancement in consideration of Aviva’s overall credit profile. The rating actions on Aviva plc were driven by the company’s exposure to investments in several peripheral eurozone economies, Italy in particular. (Please see press release titled “A.M. Best Affirms Ratings of Aviva plc; Places Under Review with Negative Implications” for further information.) A.M. Best’s rating actions on Aviva plc and other European (re)insurers reflect their exposure to the continued deterioration of the sovereign creditworthiness of several eurozone countries and the negative economic outlook for the region.

Aviva Canada’s ratings reflect its leading position in the property/casualty market, along with its continued strong operating performance. The ratings for Aviva plc and therefore Aviva Canada will remain under review with negative implications while A.M. Best examines Aviva plc’s exposure to a prolonged adverse economic environment within the eurozone. Of particular concern to A.M. Best is the exposure to Italy and Spain’s sovereign bonds and the potential for contagion into other asset classes, particularly holdings of European bank securities. In addition, A.M. Best will assess the likely impact of a prolonged financial crisis and recessionary environment on these carriers’ market position and ongoing business operations.

Negative rating actions could occur if there were a worsening of risk-adjusted capitalization tied to investment losses or a deterioration of the operating environment in Aviva plc’s key territories.

The principal methodology used in determining these ratings is Best’s Credit Rating Methodology -- Global Life and Non-Life Insurance Edition, which provides a comprehensive explanation of A.M. Best’s rating process and highlights the different rating criteria employed. Additional key criteria utilized include: “Risk Management and the Rating Process for Insurance Companies”; “Understanding BCAR for Canadian Property/Casualty Insurers” and “Rating Members of Insurance Groups.” Methodologies can be found at http://www.ambest.com/ratings/methodology.