S&P Affirms Aviva Canada Subs ‘A’ Ratings

October 3, 2003

Standard & Poor’s Ratings Services announced that it has affirmed its counterparty credit and financial strength ratings on the primary operating subsidiaries of Toronto, Ont.-based insurance holding company Aviva Canada Inc., which is unrated. It also said it had “removed the ratings from CreditWatch, where they were placed April 16, 2003,” and assigned them a stable outlook.

“The primary operating subsidiaries of Aviva Canada include Aviva Insurance Co. of Canada; Elite Insurance Co.; Pilot Insurance Co.; Scottish & York Insurance Co. Ltd.; and Traders General Insurance Co. (collectively known as Aviva Canada group),” said the bulletin.

It indicated that “The ratings were removed from CreditWatch following Standard & Poor’s review of Pilot Insurance Co.’s restated financial statements for 2001 and 2002. It was Pilot’s C$195 million [U.S. $144.36 million] (pretax) reserve strengthening and the unlocking of deferred premium acquisition cost which led to the lowering of the long-term counterparty credit and financial strength ratings on the primary operating subsidiaries to ‘A’ from ‘A+’ on June 20, 2003.”

“Aviva Canada group’s financial results for the first six months of 2003 were favorable due to the significant capital gains that were generated by the companies’ investment portfolio, and the internal stop loss arrangement that was put in place in the worldwide group,” stated S&P credit analyst Donald Chu.

The rating agency noted that it views the Canadian operations of the U.K.’s Aviva PLC as “a strategically important group of subsidiaries,” and “accordingly, the financial strength and counterparty credit ratings on Aviva Canada group receive implicit support from the parent.”

It also indicated that “Aviva Canada group is one of the market leaders in the Canadian property and casualty (P&C) market with its 9% market share position, which is strongly supported by its well-established distribution channels and diversified product lines. As of Dec. 31, 2002, Aviva Canada group had general assets of C$5.9 billion [U.S. $4.37 billion], and a total shareholder equity base of slightly more than C$1.0 billion [U.S. $740 million]. Aviva Canada group contributes 12% of worldwide general insurance premiums and about 3% of the group’s total gross premiums.

“The stable outlook reflects the implicit support of Aviva Canada group’s parent, its relatively strong market share in the Canadian P&C sector, the group’s improving financial performance, and some of the prospective changes that might improve the industry’s operating environment. Standard & Poor’s would expect Aviva Canada group to maintain a consolidated minimum capital test ratio at or above 160%, achieve a combined ratio of 105% or better and a ROE of 8.0% or better for 2003.”

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