Fitch Ratings has placed Irish Life Assurance’s ratings on Rating Watch Evolving. These include the company’s IFS, IDR and subordinated debt rating.
The rating action reflects the pending disposal of the insurance company, which is the main insurance subsidiary of bancassurer Irish Life & Permanent Plc (ILP; Support Rating ‘2’, Viability Rating ‘ccc’, Individual Rating ‘E’).
Following a review by the Irish regulatory authorities of ILP’s capital position, which required it to raise EUR4bn in additional capital, a high court order ruled that the bank commence disposal of its insurance subsidiaries by 31 October 2011. Irish Life is due to be sold through an initial public offering (IPO) or sale to a private entity.
Fitch expects to resolve the RWE when an agreement for the sale of Irish Life is announced. If Irish Life is sold to a stronger parent, most likely to be located outside Ireland, then the rating is likely to be upgraded. If the sale is to a weaker parent or weakens the insurance company, Fitch would expect to downgrade the rating. If the company is sold by means of an IPO, the rating is unlikely to be affected.
Irish Life’s ratings continue to reflect the positive rating factors of its strong standalone capitalisation (regulatory solvency ratio of 175% at end-2010), comparatively low-risk business (94% of Irish Life’s products are unit-linked, where the investment risk is borne by the policyholder) and strong market position (c. 30% share of the Irish life insurance market). It reported a net profit of EUR4m for H111 and EUR143m for 2010 and has a total embedded value of EUR1.6bn. However, in view of Irish Life’s weak operating environment, Fitch expects profit margins and earnings to remain under pressure for several years.
Irish Life’s ratings reflect the strong link between its business and the Irish economy. The Irish sovereign’s rating is ‘BBB+’/Negative. Irish Life’s ratings could be downgraded if the macro-economic environment has a greater than expected impact on persistency or new business, or if the company does not remain profitable. The impact of the Irish government’s austerity package, high unemployment, reduced consumer confidence and lower than expected GDP could trigger higher policyholder lapse rates and lower sales volumes, threatening Irish Life’s profitability.
Irish Life is exposed to the Irish sovereign through material shareholder exposure (relative to regulatory capital) to Irish government debt. Any further downgrade to the sovereign rating may result in a downgrade of Irish Life. However, Fitch notes that sovereign exposure is unlikely to directly decrease security for policyholders of unit-linked policies, which form 94% of the business measured by reserves.
Source : Fitch Ratings
