December 26, 2012 / 9:16 PM / in 5 years

TEXT - S&P affirms Aviva USA Corp ratings

     -- Aviva PLC announced an agreement to sell Aviva USA Corp., which 
contains its U.S. insurance subsidiaries (Aviva Life and Annuity Co. and Aviva 
Life and Annuity Co. of New York, collectively referred to as Aviva USA) to 
Athene Holding Ltd, for $1.55 billion.
     -- We affirmed our ratings on Aviva USA. The ratings remain on 
CreditWatch Developing, where they were placed on Nov. 12, 2012.  The 
continuation of the CreditWatch Developing status reflects the level of 
uncertainty regarding how Aviva USA's credit profile could change as it is 
sold and transitioned to its new owner.
     -- If there are no material developments, we would not expect to make any 
credit comments on Aviva USA until after the transaction closes, which is 
expected to take place by mid-year 2013.

Rating Action
On Dec. 26, 2012, Standard & Poor's Ratings Services affirmed its 'A-' ratings 
on Aviva PLC's U.S. insurance subsidiaries (Aviva Life and Annuity Co. and 
Aviva Life & Annuity Co. of New York; collectively referred to as Aviva USA). 
All of the ratings remain on CreditWatch Developing, where they were placed on 
Nov. 12, 2012.  

Our ratings and outlooks on Aviva PLC and its other rated subsidiaries remain 
unchanged following this announcement.
On Dec. 21, 2012, Aviva PLC announced its plan to sell Aviva USA to Athene 
Holding Ltd. (Athene; not rated) for $1.55 billion. The continuation of the 
CreditWatch Developing placement reflects the level of uncertainty regarding 
how Aviva USA's credit profile could change as it is sold and transitioned to 
its new owner. Subject to regulatory approval, this transaction is expected to 
close by mid-year 2013. Aviva will retain the North American asset management 
activities of Aviva Investors that are focused on third parties, as well as 
Aviva PLC assets outside of the U.S. 

Athene is a life insurance holding company focused principally on the 
retirement market. Its business, through its subsidiaries, is focused 
primarily on issuing and reinsuring fixed annuities, including fixed indexed 

The counterparty credit and insurer financial strength ratings on Aviva USA 
are based on their stand-alone credit fundamentals. The ratings reflect our 
view of Aviva USA's strong competitive position in the U.S., supported by its 
effective multichannel distribution network, focused and leading product suite 
in the indexed products market, strong prospective core operating performance, 
and capitalization. During the past year, Aviva USA's management team has made 
progress in maintaining or improving the strength of its business franchise, 
its enterprise risk management infrastructure, and its key financial metrics. 

In our opinion, these positive factors are offset by the earnings 
concentrations in two product lines (indexed annuity and indexed life), spread 
compression that reflects the low interest rate environment, capital strain 
created by AXXX/XXX reserve requirements, and the relatively high proportion 
of life insurance products sold with no-lapse guarantees, which a prolonged 
low interest rate environment could adversely affect. 

Aviva USA has a strong competitive position in the equity indexed annuity 
(EIA)and equity indexed life market, with about 80% of its liabilities related 
to accumulation products and 20% to life insurance products. New sales have 
remained concentrated in two product lines. Indexed annuity products accounts 
for about 95% of the accumulation product segment sales, and indexed life 
products account for about 90% of the protection product segment sales. From 
our assessment, we believe that the firm's EIA risks are well managed. Given 
that Aviva USA relies on AXXX/XXX solutions for its life business, its product 
design and new product pricing remains exposed to market risk.

In July 2012, we revised our strategic view of the U.S. operations to 
"nonstrategically important" to Aviva PLC, from "strategically important" and 
lowered the ratings by one notch based on our assessment that these operations 
could be disposed of given Aviva PLC's revised strategic plans. In November 
2012, we removed the one notch of implied parental support to our published 
ratings on Aviva USA when Aviva PLC announced that the U.S. operations were 
being tendered for sale. 

The CreditWatch Developing status reflects the uncertainty we have regarding 
the new owner's plans for Aviva USA and what this organization may look like 
in the future. We will monitor developments and will meet with Athene's 
management to understand its business strategy for Aviva USA. We expect to 
resolve the CreditWatch placement within a month following the transaction 

Standard & Poor's could lower the ratings if Aviva USA's earnings or capital 
adequacy deteriorate, if its risk profile increases, or if material changes 
are made to the underlying business franchise.

For Aviva USA to maintain the current stand-alone ratings, we would expect the 
company to maintain its very strong franchise position in equity indexed 
products in the U.S. with sales that remain in line with industry trends, net 
interest margins that are maintained or improve, and International Financial 
Reporting Standards pretax operating earnings remaining at or better than 
levels seen in 2011 and 2012. Operating results will remain sensitive to the 
relative level of long term interest rates and net interest margins given the 
high proportion of fixed-rate products sold. We expect capitalization to 
remain redundant at the 'A' confidence level, based on our model, that 
liquidity will remain strong, and that losses within the investment portfolio 
will remain manageable.

While deemed to be much less likely, we could raise the ratings if the new 
owners provide suitable explicit support or credit enhancements for Aviva USA, 
or if Aviva USA's earnings increase sustainably and on a risk adjusted basis, 
asset quality is maintained or improves, or capital adequacy is supportive of 
higher ratings.
Related Criteria And Research
     -- Principles Of Credit Ratings, Feb. 16, 2011
     -- Use Of CreditWatch And Outlooks, Sept. 14, 2009
     -- Interactive Ratings Methodology, April 22, 2009
     -- Counterparty Credit Ratings And The Credit Framework, April 14, 2004

Ratings List
Ratings Affirmed, Remian On CreditWatch 
Aviva Life and Annuity Co. 
  Aviva Life and Annuity Co. of NY      
  Counterparty credit rating                 A-/WatchDev/-                     
  Financial strength rating                  A-/WatchDev/-

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