Aviva plc: Interim management statement – 3 months to 31 March 2009
CAPITAL MANAGEMENT
IGD solvency
The estimated group regulatory capital position based on the EU Insurance Groups Directive solvency surplus has increased to £2.5 billion as at 31 March 2009 after taking into account the 2008 final dividend in full. We have increased equity hedges to provide important protection in the event of further equity market falls and we retain significant capital benefit if equity markets improve. Consequently, a 40% fall in equity markets would reduce the IGD by only £0.2 billion at 31 March 2009 but a 40% rise in markets would benefit the IGD by £0.8 billion.
The considerable increase in the surplus IGD results from the ongoing operating profits of the group, 80% of which is derived from our general insurance businesses and the in-force books of our long term savings businesses, and also from a number of management actions. These include the issue of hybrid capital and additional re-insurance in our UK life business. The 35% take up of the scrip dividend has benefitted the IGD in terms of reducing the impact of the dividend payment by nearly £0.2 billion. There is also an increased contribution from the Delta Lloyd business, which includes the benefits of the sale of the DL Health business on 1 January 2009. These benefits have been achieved despite the adverse movements in markets worldwide in the first quarter of the year.
As we outlined in March this year, the group has a number of options available to increase the IGD surplus and this result demonstrates that we are able to execute these. There remain a number of other options available to increase IGD further, including re-insurance and securitisation, as well as ongoing earnings retention.
Ratings
The Standard & Poors (S&P) ratings of the main operating subsidiaries are AA- ("very strong") with a Negative outlook. The group is rated Aa3 (“excellent”) by Moody’s and the rating is under review for possible downgrade. AM Best's ratings of the main operating subsidiaries are A ("excellent") with a Stable outlook.
