Appendix C - Analysis of Assets

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C6 – Debt securities

The tables below provide further details of the products included within debt securities and their ratings.

The overall quality of the portfolio is very good. 94% of Debt securities are investment grade, with 1% below investment grade and 5% non-rated. 37% of total holdings are in government bonds. A further 49% of holdings are listed corporate bonds with an average rating between AA and A.

Where shareholder risk is skewed toward the lower rating categories in the tables below, this is typically to back specific product lines and the risk is commensurate with the investment objectives.

The Group has extremely limited exposure to ‘Sub-prime’ debt securities and also limited exposure to CDOs and CLOs.

‘Wrapped credit’ is credit exposure that has been insured with monoline insurers to achieve a better credit rating. Aviva is a long-term holder of this debt and will not be a forced seller in the event that the monolines are downgraded. The exposure is diversified across several monolines and the underlying bonds are diversified across many different counterparties. Consequently, this is believed to represent a small level of risk in relation to the size of the Group.

The majority of the Residential Mortgage-Backed Securities (RMBS) are US investments with 92% being rated AAA or AA. The bulk of these RMBS’s are backed by one of the US Government Sponsored Entities such as Fannie Mae and Freddie Mac.

Approximately half of the unlisted corporate bonds, relate to private placements with public and private companies by our US business. While these private placements are not all rated by the major rating agencies they all are rated by the national Securities Valuation Office (SVO) of the National Association of Insurance Commissioners (NAIC), a national regulating agency. The SVO rates 96% of our US private placement holdings as investment grade with a weighted average equivalent rating of the portfolio being A-, however as this rating is not assigned by the main rating agencies, these investments are disclosed above as non-rated.

Non-rated other debt securities primarily relate to our French businesses holding of bond UCITS (Undertakings for Collective Investments in Transferable Securities) rather than direct holding in debt securities. Due to the nature of these UCITS as collective investments they do not have a rating. The underlying ratings of these bonds within these investments are typically investment grade.

£2.5 billion of the non-rated debt securities are from our Dutch life business which report ratings based exclusively on S&P ratings. As such, the non-rated amount includes £1.4 billion that has been rated by Moody’s as investment grade of which £1.3 billion are rated the equivalent to AAA.