Aviva rating stable, AmerUs rating revised

Standard & Poor’s Ratings Services has affirmed its ratings and stable outlook on U.K.-based insurer Aviva PLC and related core operating entities of the group, including CGU International Insurance PLC.
At the same time, S & P’s revised its outlook on U.S.-based life insurer AmerUs Group Co. (AMH), the holding company of AmerUs Group, to positive from stable, and affirmed its ‘BBB+’ long-term counterparty credit rating on the company. S & P’s also affirmed its ratings on related core operating entities of AmerUs Life Insurance Group (AmerUs Group). The outlook on the AmerUs Group operating entities is stable.
“The rating actions follow the announcement today of Aviva’s bid to acquire AMH in a transaction valued at 1.6 billion. On completion of the transaction, which is expected in the fourth quarter of 2006, AmerUs Group will be considered strategically important to Aviva, according to S & P’s group rating methodology,” S & P’s credit analyst Mark Button says.
S & P’s views the transaction positively from a strategic and competitive position perspective, with geographic and product risk diversification benefits. The acquisition, according to the ratings agency, is in line with Aviva’s strategy to target markets with significant growth opportunities. AmerUs Group will increase Aviva’s exposure to the U.S. life market to about 8%-10% of the group’s life sales, earnings, and capital employed.
The transaction, according to S & P’s, will support Aviva’s growth ambitions in the U.S. life market through the acquisition of an operation with strong stand-alone fundamentals and healthy growth prospects. AmerUs Group has a very strong competitive position in its selected markets of equity-indexed life and annuity products, with a strong and consistent earnings record.
About 50% of the 1.6 billion all-cash transaction will be funded through an equity placing, with the balance funded through a mix of internal resources and external debt, S & P’s reports. The expected strong earnings performance and cash flow generation of Aviva in 2006 will likely result in financial leverage remaining below 30% on completion.
The stable outlook on Aviva and related entities reflects S & P’s expectation that key balance sheet and debt-servicing ratios will remain intact following the transaction.
“On completion of the transaction, S & P’s expects to raise the ratings on AMH and Financial Benefit Life Insurance Co. by two notches to ‘A’ and assign a stable outlook. The rating action will recognize the additional financial resources available to AMH from its new parent and the importance of AmerUs Group to Aviva’s strategic ambitions in the U.S. life market,” Button says.
Over the medium term, S & P’s says the stable outlook on AMH and its operating subsidiaries may be revised to positive if:
* The integration process with Aviva’s existing U.S. operation runs smoothly;
* Key members of the AmerUs Group management team are retained;
* Aviva demonstrates positive sales and earnings momentum from its combined U.S. business; and
* There is evidence of stability in key financial metrics.
Achievement of these expectations would demonstrate to S & P’s, strong execution of the transaction and a successful transition of the business under new ownership. A positive outlook would signal S & P’s expectation that AmerUs Group is likely to be considered a core part of the Aviva group.