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Aviva Insurance Limited -- Moody’s affirms Aviva’s A2 senior debt ratings, with stable outlook

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Rating Action:

Moody’s affirms Aviva’s A2 senior debt ratings, with

stable outlook

7 December 2021

London, December 7, 2021 – Moody’s Investors Service (“Moody’s”) has today affirmed the A2

senior unsecured debt rating of Aviva Plc (”Aviva” or “the group”) and the Prime-1 short-term

commercial paper rating. At the same time, Moody's also affirmed the Aa3 insurance financial

strength ratings (IFSR) of Aviva's main UK operating entities, including Aviva International Insurance

Limited, Aviva Insurance Limited and Aviva Life & Pensions UK Limited. The outlook on all entities

remains stable.
Please click on this link

https://www.moodys.com/researchdocumentcontentpage.aspx?

docid=PBC_1000005582

for the List of Affected Credit Ratings. This list is an integral part of this

Press Release and identifies each affected issuer.
RATINGS RATIONALE
The affirmation of Aviva’s ratings reflects the group’s very strong franchise in the UK and Canadian

insurance markets, with low product risk and good product diversification, that is supported by

its strong financial profile and operating and financial flexibility. Over the past year, Aviva has

scaled back its geographic footprint to focus on its three core markets, emerging as a smaller less

diverse group, but with a stronger underlying financial profile and improved operating and financial

flexibility. In comparison to the group’s prior broad diversification with resources spread too thinly,

Aviva’s narrower focus has reduced execution risk around its strategy of attaining profitable growth

alongside improving expense efficiency.
The group benefits from a very strong market position and brand in each of its three core markets,

and its narrower focus enables it to focus more resources on strengthening its position in these

markets. However, its diminished geographic diversification and greater dependence on three core

markets leaves it more vulnerable to disruption in these markets, constraining its overall market

position relative to large global peers with strong franchises in several large markets.
Aviva benefits from lower product risk as a result of the disposal of its French and Italian operations,

as their capital intensive guaranteed savings businesses had increased the group’s exposure to

interest rate and credit risk. Product focus and diversification also benefits from Aviva’s very broad

product offering in the UK, which remains one of the largest insurance markets in the world.
Aviva’s balance sheet and absolute level of capital will become smaller following the business

disposals and capital repatriation, but the group’s financial profile will strengthen relative to its lower

risk and exposure profile. The group’s capital adequacy has improved as a result of diminished

financial markets sensitivity which will result in lower volatility in its Solvency II coverage ratio going

forward. Financial flexibility has been strengthened through deleveraging and improved earnings

power. The group has stated its intent to maintain strong capitalisation and liquidity along with

moderate leverage, but it remains under pressure from investors to return greater amounts of capital,

which would lead to diminished operating and financial flexibility and lower resilience to stress.
Aviva’s more focused business footprint should result in improved underlying profitability through

business growth and expense efficiencies. The UK business, in particular, is aligned with structural

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growth drivers, such as rising prices for commercial property and casualty (P&C) insurance and

steady demand for bulk annuities and workplace savings products that add credibility to its plans for

profitable growth. However, execution risk remains around the steps the insurer is taking to improve

operating efficiency and further differentiate itself in its core markets.
The stable outlook for Aviva reflects Moody’s expectation that the group will maintain a solid

Solvency II ratio above 170% (on a shareholder view) and moderate leverage, while improving

franchise strength and underlying profitability of business in its core markets.
FACTORS THAT COULD LEAD TO AN UPGRADE OR DOWNGRADE OF THE RATINGS
An upgrade is considered unlikely at this stage as Aviva's IFSR is at the level of the UK sovereign

debt rating, however the following factors could further improve the resilience of Aviva's ratings, (i) a

substantial improvement in the diversification of revenues and profit, (ii) improvements in underlying

earnings, as evidenced by return on capital consistently above 10% (adjusted for amortisation of the

acquired value inforce and other intangible assets) across the underwriting cycle, (iii) a sustained

improvement in financial leverage to below 25% with earnings coverage consistently above 10x, (iii)

sustained stronger capitalisation with a Solvency II ratio (shareholder view) consistently above 200%

and with moderate sensitivity to financial market risks.
Conversely, the following factors could lead to downward pressure on the ratings, (i) a sustained

deterioration in Aviva’s market position within its core markets, (ii) revenue growth and expense

savings falling short of the group’s targets, resulting in return on capital consistently below 6%

(calculated on a Moody’s basis and adjusted for amortisation of the acquired value in-force and other

intangible assets), (iii) a sustained rise in adjusted financial leverage above 30% or total leverage

above 35%, a decline in capitalisation resulting for example in a Solvency II ratio (shareholders'

view) consistently below 170%, and/or (iv) a downgrade of the UK sovereign debt rating.
PRINCIPAL METHODOLOGIES
The principal methodology used in rating Aviva International Insurance Limited and Aviva Insurance

Limited was Property and Casualty Insurers Methodology published in September 2021 and

available at

https://www.moodys.com/researchdocumentcontentpage.aspx?docid=PBC_1254163

.

The principal methodology used in rating Aviva Life & Pensions UK Limited and Friends Life

Holdings plc was Life Insurers Methodology published in September 2021 and available at

https://

www.moodys.com/researchdocumentcontentpage.aspx?docid=PBC_1254133

. The principal

methodologies used in rating Aviva Plc were Property and Casualty Insurers Methodology published

in September 2021 and available at

https://www.moodys.com/researchdocumentcontentpage.aspx?

docid=PBC_1254163

, and Life Insurers Methodology published in September 2021 and available at

https://www.moodys.com/researchdocumentcontentpage.aspx?docid=PBC_1254133

. Alternatively,

please see the Rating Methodologies page on www.moodys.com for a copy of these methodologies.
REGULATORY DISCLOSURES
The List of Affected Credit Ratings announced here are a mix of solicited and unsolicited credit

ratings. Additionally, the List of Affected Credit Ratings includes additional disclosures that

vary with regard to some of the ratings. Please click on this link

https://www.moodys.com/

researchdocumentcontentpage.aspx?docid=PBC_1000005582

for the List of Affected Credit

Ratings. This list is an integral part of this Press Release and provides, for each of the credit ratings

covered, Moody’s disclosures on the following items:
• EU Endorsement Status

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• UK Endorsement Status
• Rating Solicitation
• Issuer Participation
• Participation: Access to Management
• Participation: Access to Internal Documents
• Disclosure to Rated Entity
• Lead Analyst
• Releasing Office
For further specification of Moody’s key rating assumptions and sensitivity analysis, see

the sections Methodology Assumptions and Sensitivity to Assumptions in the disclosure

form. Moody’s Rating Symbols and Definitions can be found at:

https://www.moodys.com/

researchdocumentcontentpage.aspx?docid=PBC_79004

.

For ratings issued on a program, series, category/class of debt or security this announcement

provides certain regulatory disclosures in relation to each rating of a subsequently issued bond or

note of the same series, category/class of debt, security or pursuant to a program for which the

ratings are derived exclusively from existing ratings in accordance with Moody's rating practices.

For ratings issued on a support provider, this announcement provides certain regulatory disclosures

in relation to the credit rating action on the support provider and in relation to each particular credit

rating action for securities that derive their credit ratings from the support provider's credit rating.

For provisional ratings, this announcement provides certain regulatory disclosures in relation to the

provisional rating assigned, and in relation to a definitive rating that may be assigned subsequent

to the final issuance of the debt, in each case where the transaction structure and terms have not

changed prior to the assignment of the definitive rating in a manner that would have affected the

rating. For further information please see the ratings tab on the issuer/entity page for the respective

issuer on www.moodys.com.
For any affected securities or rated entities receiving direct credit support from the primary entity(ies)

of this credit rating action, and whose ratings may change as a result of this credit rating action, the

associated regulatory disclosures will be those of the guarantor entity. Exceptions to this approach

exist for the following disclosures, if applicable to jurisdiction: Ancillary Services, Disclosure to rated

entity, Disclosure from rated entity.
Regulatory disclosures contained in this press release apply to the credit rating and, if applicable, the

related rating outlook or rating review.
Moody’s general principles for assessing environmental, social and governance (ESG) risks in

our credit analysis can be found at

http://www.moodys.com/researchdocumentcontentpage.aspx?

docid=PBC_1288235

.

Please see www.moodys.com for any updates on changes to the lead rating analyst and to the

Moody's legal entity that has issued the rating.
Please see the ratings tab on the issuer/entity page on www.moodys.com for additional regulatory

disclosures for each credit rating.
Brandan Holmes

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VP-Sr Credit Officer

Financial Institutions Group

Moody's Investors Service Ltd.

One Canada Square

Canary Wharf

London

United Kingdom

JOURNALISTS: 44 20 7772 5456

Client Service: 44 20 7772 5454
Simon James Robin Ainsworth

Associate Managing Director

Financial Institutions Group

JOURNALISTS: 44 20 7772 5456

Client Service: 44 20 7772 5454
Releasing Office:

Moody's Investors Service Ltd.

One Canada Square

Canary Wharf

London, E14 5FA

United Kingdom

JOURNALISTS: 44 20 7772 5456

Client Service: 44 20 7772 5454

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