S&P lowers rating on Aviva Canada group

Rating agency Standard & Poor’s has lowered its long-term counter-party credit and financial strength ratings for Aviva Canada Inc. to “A” from “A+”. The rating agency says the insurer and its Canadian operating subsidiaries will remain on “credit watch” with negative implications.
“The rating actions follow Standard & Poor’s review of Pilot’s [Pilot Insurance Co., the Ontario personal lines carrier for Aviva Canada] $195 million (pretax) reserve strengthening and the unlocking of deferred premium acquisition cost that was announced in April 2003, and its impact on both Pilot and Aviva Canada,” a statement released by the rating agency says. Notably, the reserve adjustment made at Pilot, which will require restatement of both the operating subsidiary and Aviva Canada’s financial statements for the 2000, 2001 and 2002 financial years, accounts for about 40% of Pilot’s 2001 equity base and around 10% of Aviva Canada’s 2001 equity base, Standard & Poor’s observes.
The credit watch placement reflects the fact that Pilot’s and Aviva Canada’s restated financial statements have not yet been finalized, the rating agency says. In this respect, there is the potential of the reserving cost incurred by Pilot to be “materially greater” than the $195 million thus far disclosed, Standard & Poor’s notes.