Scottish Widows’ insurer financial strength rating has been downgraded to ‘A’ from ‘AA-‘. Fitch Ratings also downgraded long-term insurer default rating to ‘A’ from ‘A+’, and gives both ratings a stable outlook.
Fitch has additionally downgraded Clerical Medical Investment Group Ltd’s (CMIG) IFS rating to ‘A’ from ‘A+’ and Long-term IDR to ‘A-‘ from ‘A’. The Outlooks on CMIG’s IFS and IDR are Stable. The agency has also downgraded SW’s subordinated debt rating to ‘BBB+’ from ‘A-‘ and Clerical Medical Finance plc’s subordinated debt ratings ‘BBB’ from ‘BBB+’.
The downgrade of SW and CMIG’s ratings reflect the downgrade of the companies’ ultimate parent, Lloyds Banking Group (LBG), from ‘AA-‘/Stable to ‘A’/Stable based on Fitch’s expectation of a weaker probability of support (see “Fitch Lowers UK Support Rating Floors” dated 13 October 2011 at www.fitchratings.com).
The bank’s IDR constrains the insurance companies’ IDRs and IFSs reflecting the strong strategic link between the insurance operations and the banking parent. Fitch considers the standalone financial position of both insurance companies’ to be strong with solid capitalisation. SW’s standalone financial profile is stronger than the rating incorporating the drag from the bank. In Fitch’s opinion, SW’s franchise and market position is stronger than CMIG’s, which is largely closed to new business.
CM’s Outlook is Stable, reflecting Fitch’s opinion that there is greater certainty over the business’s continuing position in the group following the strategic review in June 2011 by LBG.
Both entities’ ratings are linked to LBG’s ratings. An upgrade or downgrade of LBG could lead to corresponding rating actions on SW and CMIG. In particular, CMIG could be downgraded if its strategic importance to the group declined, or if Fitch considered that its standalone profile had worsened. An upgrade of either SW or CMIG is unlikely in the near term.
Source : Fitch Ratings