A.M. Best Downgrades Issuer Credit Ratings of Aviva Life and Annuity Company and Its Subsidiary

  A.M. Best Downgrades Issuer Credit Ratings of Aviva Life and Annuity Company
  and Its Subsidiary

Business Wire

OLDWICK, N.J. -- October 31, 2012

A.M. Best Co. has downgraded the issuer credit ratings (ICR) to “a” from “a+”
and affirmed the financial strength rating (FSR) of A (Excellent) of Aviva
Life and Annuity Company (ALAC) (West Des Moines, IA) and its wholly owned
subsidiary, Aviva Life and Annuity Company of New York (ALACNY) (Melville, NY)
(together, referred to as Aviva USA). All ratings have been removed from under
review with negative implications and assigned a stable outlook.

Both ALAC and ALACNY are the principal insurance subsidiaries of Aviva USA
Corporation, which is an indirect, wholly owned subsidiary of Aviva plc
(Aviva). Aviva is a global diversified financial services company based in the
United Kingdom.

In June 2012, A.M. Best maintained the under review status for Aviva USA’s
ratings due to its parent’s strategic evaluation of its subsidiary businesses
and changes to its parent’s senior management, especially the departure of the
parent’s chief executive officer. Aviva, the U.K.’s second-biggest insurer by
market value, is evaluating, selling or winding down a number of businesses as
it seeks to exit less profitable markets and manage capital. Additionally,
European Solvency II regulations—which are yet to be finalized—will require
some insurers to hold more capital against their U.S. units, thus reducing
returns and making it more difficult to market products on a competitive
basis.

Historically, A.M. Best has viewed Aviva USA as strategically important to the
Aviva organization as well as an important growth opportunity. Additionally,
to fund this growth, Aviva provided significant capital contributions to Aviva
USA. Thus, the ratings of Aviva USA historically reflected this explicit
support and strength of Aviva. However, due to recent events—including the
write-off of the goodwill associated with Aviva’s U.S. operations—A.M. Best
has downgraded Aviva USA’s ICRs by one notch to reflect more of the
stand-alone credit profile of the U.S. operating companies.

The ratings for Aviva USA continue to recognize its leading market position in
indexed life insurance and fixed-indexed annuities, innovative product
development and multiple distribution networks and its favorable risk-adjusted
capitalization. Aviva USA markets a wide array of life and fixed annuity
products through multiple distribution channels, which includes brokerage
general agents, career agents, personal producing general agents and
independent marketing organizations. Aviva USA has demonstrated a well
diversified investment portfolio and sound risk management practices. To
manage statutory capital, Aviva USA established a number of Vermont-domiciled
reinsurance captives to provide funding for Regulation AXXX and XXX reserve
requirements and one that provides financing for the embedded value of a
regulatory closed block. Aviva USA’s strategy over the last three years has
been to focus on greater capital efficiency by moderating the pace of growth
in its fixed-indexed annuities. This strategy is in line with the
organization’s initiatives to alter its business mix and grow its life
insurance business.

Aviva USA results are generally positive; however, in some periods when a
reserve financing transaction occurs (e.g., December 2011), there is a surplus
strain impacting statutory net income, with a corresponding offset in surplus.
In periods when a reserve financing transaction is not in place, the redundant
reserve strain negatively impacts results. Moreover, Aviva USA’s focus on
indexed life insurance and annuities subjects its earnings to some equity
market risk. Aviva USA’s financial results for 2010 and 2011 improved from
prior years, due to management’s actions to improve margins and reduce new
business strain, as well as a more favorable impairment experience.

A.M. Best believes ALAC and ALACNY are well positioned at their current rating
levels. Negative rating actions could occur if Aviva USA’s capitalization,
operating performance or both fall markedly short of A.M. Best’s expectations.
Negative rating pressure could occur if the company’s business profile should
materially contract due to a change in its strategy or loss of distribution.

The methodology used in determining these ratings is Best’s Credit Rating
Methodology, which provides a comprehensive explanation of A.M. Best’s rating
process and contains the different rating criteria employed in the rating
process. Best’s Credit Rating Methodology can be found at
www.ambest.com/ratings/methodology.

Founded in 1899, A.M. Best Company is the world’s oldest and most
authoritative insurance rating and information source. For more information,
visit www.ambest.com.

       Copyright © 2012 by A.M. Best Company, Inc. ALL RIGHTS RESERVED.

Contact:

A.M. Best Co.
Joan Sullivan
Senior Financial Analyst
(908) 439-2200, ext. 5144
joan.sullivan@ambest.com
or
Rachelle Morrow
Senior Manager, Public Relations
(908) 439-2200, ext. 5378
rachelle.morrow@ambest.com
or
William Pargeans
Assistant Vice President
(908) 439-2200, ext. 5359
william.pargeans@ambest.com
or
Jim Peavy
Assistant Vice President, Public Relations
(908) 439-2200, ext. 5644
james.peavy@ambest.com