Nov 15 (The following statement was released by the rating agency)
Fitch Ratings has affirmed Scottish Equitable plc's
(Scottish Equitable) GBP250m value of in-force (VIF) securitisation fixed-rate
loan notes due 2023 at 'A'.
The affirmation reflects the transaction's performance, which is in line with
The transaction, referred to as 'Zest', is a securitisation of the future
profits arising from a book of unit-linked pensions business. Scottish Equitable
is the principal UK subsidiary of Aegon N.V. (Aegon; A/Negative).
The issued notes do not benefit from a financial guarantee insurance policy and
there is no recourse to Scottish Equitable.
Although the transaction is a contingent loan with no recourse to the sponsor,
the notes' rating has been established under Fitch's Corporate Finance
methodology. This is because in Fitch's opinion, the transaction has no
significant structured finance elements.
KEY RATING DRIVERS
The rating is based on analysis of the transaction documents, the volatility of
underlying profit sources, and analysis of the transaction's expected cash
flows. Fitch's rating process at the outset of the transaction included a review
of the embedded value methodology, assumptions and actuarial model developed by
Scottish Equitable. Tillinghast, an actuarial consulting firm of Towers Watson,
independently reviewed the model and the assumptions used. These assumptions are
updated on an annual basis by Aegon and reviewed by Fitch.
The transaction currently has GBP15m of principal outstanding. As the
transaction generates approximately GBP60m of free surplus annually, Fitch
expects the transaction to be fully repaid in July 2014, unless there is an
extraordinary event outside of the 'A' range.
Zest could be downgraded if, in Fitch's opinion, future cash flows are unlikely
to be sufficient to cover the repayment of the loan and interest payments under
a 'A' stressed scenario or if the transaction underperforms by more than GBP15m
in one year or GBP30m on a cumulative basis. The transaction could also be
downgraded if Fitch's opinion of Scottish Equitable or Aegon's credit quality