Fitch Ratings has assigned Aviva plc's (Aviva) GBP500 million issue of dated subordinated Tier 2 notes a 'BBB+' rating.

The notes are rated three notches below Aviva's 'A+' Long-Term Issuer Default Rating (IDR), comprising two notches for 'poor' recoveries and one notch for 'moderate' non-performance risk. The proceeds will be used for general corporate purposes.

Key Rating Drivers

The notes have been issued by Aviva under its GBP7 billion-euro medium-term note (EMTN) programme. The notes have a 30-year maturity and are callable after 10 years. The notes have a fixed-rate reset coupon, payable semi-annually in arrears.

We have applied a baseline recovery assumption of 'poor' to the Tier 2 notes, reflecting the level of subordination. The notes rank ahead of ordinary shares but behind senior creditors in the event of a winding-up of the organisation.

The notes include a mandatory interest deferral feature that would be triggered if Aviva is unable to meet its solvency capital requirements. Fitch regards the notes' mandatory interest deferral feature as leading to 'moderate' non-performance risk.

The notes qualify for 100% regulatory capital recognition under Solvency II. The notes receive 100% equity credit in Fitch's Prism Factor-Based Model (Prism FBM), due to the application of the agency's 'regulatory override' approach. However, given that it is a dated instrument, the notes are treated as 100% debt in Fitch's financial leverage ratio (FLR) calculation.

Fitch views this issue as positive for Aviva's capitalisation, and largely neutral for leverage and fixed-charge coverage.

RATING SENSITIVITIES

As the notes' rating is notched off Aviva's Long-Term IDR, it would move in tandem with the issuer rating (for the IDR sensitivities see Fitch Affirms Aviva plc at IFS 'AA-', Outlook Stable dated 21 November 2023 at www.fitchratings.com).

Date of Relevant Committee

20 November 2023

REFERENCES FOR SUBSTANTIALLY MATERIAL SOURCE CITED AS KEY DRIVER OF RATING

The principal sources of information used in the analysis are described in the Applicable Criteria.

ESG Considerations

The highest level of ESG credit relevance is a score of '3', unless otherwise disclosed in this section. A score of '3' means ESG issues are credit-neutral or have only a minimal credit impact on the entity, either due to their nature or the way in which they are being managed by the entity. Fitch's ESG Relevance Scores are not inputs in the rating process; they are an observation on the relevance and materiality of ESG factors in the rating decision. For more information on Fitch's ESG Relevance Scores, visit https://www.fitchratings.com/topics/esg/products#esg-relevance-scores.

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