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Rating Action:

Moody's downgrades Scottish Widows plc and Clerical Medical Investment Group Limited

16 Feb 2009

London, 16 February 2009 -- Moody's downgraded to Aa3 from Aa1 the Insurer Financial Strength Rating (IFSR) and to A2 from Aa3 the subordinated debt rating of Scottish Widows plc (SW). Moody's also downgraded to A1 from Aa2 the Insurer Financial Strength Rating of Clerical Medical Investment Group Limited (CMIG) and to A3 from A1 subordinated debt ratings of Clerical Medical Finance plc. Stable outlooks apply to all ratings. These actions conclude the rating reviews initiated on September 18th 2008, which were the last rating actions on these entities.

The rating actions follow today's downgrades of Lloyds TSB Bank plc -- senior debt to Aa3 from Aaa -- and of HBOS plc -- senior debt to A1 from Aa2. Please refer to separate press release for full discussion of these actions. Moody's said that the ratings of both Scottish Widows and Clerical Medical had previously benefitted from implicit rating support from their banking parents, and the downgrades of the insurance entities reflects the now weakened credit quality of the enlarged Lloyd's Banking Group.

The rating agency added that the revised ratings of SW and CMIG now reflected the stand-alone credit qualities of those institutions. SW's Aa3 IFSR reflects its strong market position in the UK (5th largest in terms of APE for the first six months of 2008), strong and diversified distribution through both IFAs and Lloyds TSB's bank branches and good product risk with sales in all major lines, albeit with some concentration in the pension business. Capitalisation at SW has remained strong, partly reflecting the de-risking that occurred after the Group's demutualization. CMIG's A1 IFSR reflects the company's strong business profile, given its well-diversified distribution channels, and good capitalization; offsetting factors include its weak profitability -- in particular those generated through the IFA channel - and relatively higher stand-alone financial leverage following the issuance of GBP1.0 of subordinated debt in 2005.

Moody's added that the stable outlooks on both entities reflect the expectation that, at least in the short-term, both SW and CMIG will operate largely as distinct insurance operations within the enlarged Lloyds Banking Group. The rating agency added that in the event of a full integration of SW and CMIG's insurance businesses, the ratings of SW and CMIG could be aligned, potentially at the Aa3 IFS rating level, depending on the nature and extent of integration and the enlarged insurance Group's market position and financial fundamentals at that time. Moody's added however that it will continue to closely monitor the integration process of CMIG in the enlarged banking group, and any decision by Lloyds Banking Group to divest parts of the Clerical Medical Group could reduce CMIG's stand-alone credit quality and would provide negative ratings pressure.

The last rating actions took place on 18 September 2008, when Moody's placed under review for possible downgrade the Aa2 IFRS and A1 subordinated debt ratings of the Clerical Medical Investment Group Limited as well as the Aa1 IFSR and Aa3 subordinated debt ratings of Scottish Widows plc, following the announcement of the merger of Lloyds TSB and HBOS.

The principal methodologies used in rating the issuers covered by this press release are "Moody's Global Rating Methodology for Life Insurers" published on 11 September 2006.

Under IFRS SW had total assets amounting to GBP66.9 billion at year-end 2007 and reported a net profit of GBP835.6 million in 2007. Under IFRS CMIG had total assets amounting to GBP33.3 billion at year-end 2007 and reported a net profit of GBP492.3 million in 2007.

London
Antonello Aquino
VP - Senior Credit Officer
Financial Institutions Group
Moody's Investors Service Ltd.
JOURNALISTS: 44 20 7772 5456
SUBSCRIBERS: 44 20 7772 5454

London
Simon Harris
Managing Director
Financial Institutions Group
Moody's Investors Service Ltd.
JOURNALISTS: 44 20 7772 5456
SUBSCRIBERS: 44 20 7772 5454

Moody's downgrades Scottish Widows plc and Clerical Medical Investment Group Limited
No Related Data.
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