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Global Credit Research - 24 Jun 2010
London, 24 June 2010 -- Moody's Investors Service announced today that it had downgraded the Insurance
Financial Strength Rating (IFSR) for AXA Sun Life plc and Sun Life Assurance
Society plc (collectively "AXA UK Life") to A1 from Aa3.
These ratings remain on review for possible downgrade. Moody's
also affirmed the A3 IFSR of Friends Provident Life & Pensions Ltd
(FPLP) and the Baa3 subordinated debt of Friends Provident Group plc ("Friends
Provident") and changed the outlook on these ratings to positive from
developing. Moody's also downgraded the IFSR of Axa Sun Life
Holding plc to A1 from Aa3; this rating will be withdrawn as the
company does not write insurance business from this legal entity.
The rating actions were prompted by the announcement of the proposed acquisition
by Resolution Limited (not rated), via Friends Provident Holdings
(UK) Ltd., of AXA UK life's operations in the risk
areas of protection, annuities and group pension. Total consideration
is maximum GBP2.75 billion, which is expected to be funded
by a pre-emptive rights issue by Resolution of GBP2.055
billion, GBP0.5 billion of Deferred Consideration Notes
issued to AXA and also by acquisition bank debt. We understand
that Resolution will buy, among others, the legal entities
of AXA Sun Life plc and Sun Life Assurance Society plc. The transaction
remains subject to regulatory and shareholder approval.
Moody's said that the downgrade of AXA UK Life's ratings reflects
the removal of the rating support from the parent company AXA SA (A2 senior
debt rating / stable outlook) previously included in the ratings,
as a result of the disposal of these operations to Resolution.
The A1 ratings of AXA UK Life's operations continue to reflect the
stand-alone credit characteristics of AXA UK Life which include
a good market position in the UK life insurance industry and good capitalisation.
However, the review for possible downgrade on these ratings will
focus on possible changes in risk profile as a consequence of a) only
parts of the AXA UK business being acquired, representing c.
60% of AXA's new business volumes as measured by annual premium
equivalent; b) the inherent challenges of integrating the large open
life insurance operations of FPLP (rated A3 IFSR) and the acquired AXA
businesses , and c) any changes to financial management policy,
notably capital, investment and leverage, as a consequence
of Resolution's ownership. The rating review will also consider
the aggregate rating profile of the enlarged AXA / FPLP Group.
The change of outlook to positive from developing for the A3 IFSR of FPLP
reflect the potentially beneficial impacts of the transaction in terms
of franchise and scale for FPLP, as well as the potential for FPLP's
ratings to reflect the Group's aggregate rating profile over time.
The market position of the combined group would improve considerably relative
to FPLP's historic position, particularly in the life pension
and protection lines. The group expects to realize significant
cost synergies, principally from the rationalisation in the areas
of sales and marketing and support costs. The acquisition is in
line with Resolution's previously stated growth strategy in the
UK market with the ultimate goal to create a GBP10 billion embedded
value insurance group in the UK. Moody's added that in the
event of the transaction not proceeding, the outlook on FPLP's
rating would likely revert to developing.
The acquisition would be financed via (i) a fully underwritten GBP2.055
billion right issue, (ii) a GBP0.5 billion equity deferred
consideration notes issued to AXA SA, (iii) a GBP0.4
billion banking bridge facilities Moody's views the proposed funding as
relatively conservative and does not expect a materially negative impact
on the capitalization and leverage ratio for the combined group.
Friends Provident plc, headquartered in London, United Kingdom,
had total assets of GBP60bn at year-end 2009 under IFRS.
AXA Sun Life plc had total assets of GBP45bn at year-end 2009 under
The last rating action on FLPL was on 12 August 2009, when Moody's
affirmed the A3 IFSR and changed the outlook to developing from stable.
The last rating action on AXA UK Life was on 20 February 2009, when
Moody's affirmed the Aa3 IFSRs with a stable outlook.
The principal methodology used in rating AXA UK Life and FPLP was "Moody's
Global Rating Methodology for Life Insurers", published in May 2010,
which can be found on www.moodys.com in the Rating Methodologies
sub-directory under the Research & Ratings tab. Other
methodologies and factors that may have been considered in the process
of rating these issuers can also be found in the Rating Methodologies
sub-directory on Moody's website.
The following ratings were downgraded and placed on review for possible
AXA Sun Life plc - insurance financial strength rating to A1 from
Sun Life Assurance Society plc - insurance financial strength rating
to A1 from Aa3
The following ratings were downgraded and will be withdrawn:
Axa Sun Life Holding plc - insurance financial strength rating
to A1 from Aa3
The outlook for the following ratings was changed to positive from developing:
Friends Provident Life & Pensions Ltd- insurance financial
strength rating A3
Friends Provident Group plc- junior subordinated debt (guaranteed)
VP - Senior Credit Officer
Financial Institutions Group
Moody's Investors Service Ltd.
JOURNALISTS: 44 20 7772 5456
SUBSCRIBERS: 44 20 7772 5454
Financial Institutions Group
Moody's Investors Service Ltd.
JOURNALISTS: 44 20 7772 5456
SUBSCRIBERS: 44 20 7772 5454
Moody's downgrades AXA UK life operations by one notch (IFSR to A1) and leaves these ratings on review for possible downgrade. The outlook for Friends Provident (A3 IFSR) is changed to positive
No Related Data.
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