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Fitch Rates RSA Insurance Group Plc's Restricted Tier 1 Notes 'BB'
April 7, 2017 / 9:42 AM / 8 months ago

Fitch Rates RSA Insurance Group Plc's Restricted Tier 1 Notes 'BB'

(The following statement was released by the rating agency) LONDON, April 07 (Fitch) Fitch Ratings has assigned RSA Insurance Group Plc's SEK2,500 million and DKK650 million perpetual Restricted Tier 1 (RT1) contingent convertible notes a 'BB' rating. The notes are rated four notches below RSA Insurance Group Plc's Issuer Default Rating (IDR) of 'BBB+', comprising two notches for a 'poor' baseline recovery assumption and two notches for 'moderate' non-performance risk. KEY RATING DRIVERS The notes have been issued by RSA Insurance Group Plc, the group's top holding company. Fitch understands that the proceeds of the notes will be used to repurchase or refinance existing debt as well as other general corporate purposes. The issued notes are floating rate perpetual securities with no fixed maturity or redemption date. In the event of a winding-up, the notes rank in priority to ordinary shares, but behind senior creditors (which are defined as including Solvency II Tier 2 and 3 subordinated debt). The deep level of subordination results in our baseline recovery assumption of 'poor'. We therefore notch down the maximum of two from the IDR for recovery. The notes include a mandatory interest cancellation feature, which would be triggered if any minimum capital requirement applicable to the issuer is not met or if the regulator has notified the issuer that payments under the notes have to be cancelled. The issuer also has full discretion to cancel interest payments at any time at its option. To reflect this fully flexible interest cancellation feature, which we regard as 'moderate' non-performance risk, we notch down by a further two notches from the IDR. (This represents one extra notch compared with our treatment of standard Solvency II Tier 2 instruments, to reflect the higher non-performance risk arising from the fully flexible interest cancellation.) The notes will convert into ordinary shares if a conversion trigger event occurs, which is defined as the amount of own funds eligible to cover the Solvency Capital Requirement (SCR) being equal or less than 75% of the SCR; or the amount of own funds eligible to cover the Minimum Capital Requirement (MCR) being equal or less than the MCR; or a breach of the SCR has occurred and compliance was not re-established within three months from the occurrence of the breach. The conversion feature does not affect our ratings notching over and above that described above. The notes are structured to qualify as RT1 capital under Solvency II. Given that they are non-cumulative perpetual instruments with no step-ups on call dates, the notes are treated as 100% equity both in Fitch's Prism Factor-Based Model and in our financial debt leverage calculation. However, they are treated as 100% debt in our total financing and commitments (TFC) ratio, in common with any other debt instrument. We view the issue as positive for RSA's financial debt leverage and capital adequacy, and neutral for the TFC ratio. At end-2016, RSA's financial leverage was 26% and Solvency II coverage was 158%. Fixed charge coverage is expected to remain at around current levels or to improve, as RSA is expected to repay some of its more expensive debt and as it continues to improve its operating profitability. RATING SENSITIVITIES The notes' rating is subject to the same sensitivities that may affect RSA Insurance Group Plc's Long-Term IDR. Contact: Primary Analyst Ekaterina Ishchenko Associate Director +44 20 3530 1532 Fitch Ratings Limited 30 North Colonnade London E14 5GN Secondary Analyst Ralf Ehrhardt Director +44 20 3530 1551 Committee Chairperson Chris Waterman Managing Director +44 20 3530 1168 Media Relations: Athos Larkou, London, Tel: +44 203 530 1549, Email: Additional information is available on Applicable Criteria Insurance Rating Methodology (pub. 15 Sep 2016) here Additional Disclosures Dodd-Frank Rating Information Disclosure Form here _id=1021846 Solicitation Status here Endorsement Policy here ALL FITCH CREDIT RATINGS ARE SUBJECT TO CERTAIN LIMITATIONS AND DISCLAIMERS. PLEASE READ THESE LIMITATIONS AND DISCLAIMERS BY FOLLOWING THIS LINK: here. IN ADDITION, RATING DEFINITIONS AND THE TERMS OF USE OF SUCH RATINGS ARE AVAILABLE ON THE AGENCY'S PUBLIC WEB SITE AT <a href="">WWW.FITCHRATINGS.COM.. PUBLISHED RATINGS, CRITERIA, AND METHODOLOGIES ARE AVAILABLE FROM THIS SITE AT ALL TIMES. FITCH'S CODE OF CONDUCT, CONFIDENTIALITY, CONFLICTS OF INTEREST, AFFILIATE FIREWALL, COMPLIANCE, AND OTHER RELEVANT POLICIES AND PROCEDURES ARE ALSO AVAILABLE FROM THE CODE OF CONDUCT SECTION OF THIS SITE. DIRECTORS AND SHAREHOLDERS RELEVANT INTERESTS ARE AVAILABLE AT <a href="">HTTPS://WWW. FITCHRATINGS.COM /SITE/REGULATORY. FITCH MAY HAVE PROVIDED ANOTHER PERMISSIBLE SERVICE TO THE RATED ENTITY OR ITS RELATED THIRD PARTIES. DETAILS OF THIS SERVICE FOR RATINGS FOR WHICH THE LEAD ANALYST IS BASED IN AN EU-REGISTERED ENTITY CAN BE FOUND ON THE ENTITY SUMMARY PAGE FOR THIS ISSUER ON THE FITCH WEBSITE. Copyright © 2017 by Fitch Ratings, Inc., Fitch Ratings Ltd. and its subsidiaries. 33 Whitehall Street, NY, NY 10004. Telephone: 1-800-753-4824, (212) 908-0500. Fax: (212) 480-4435. Reproduction or retransmission in whole or in part is prohibited except by permission. All rights reserved. In issuing and maintaining its ratings and in making other reports (including forecast information), Fitch relies on factual information it receives from issuers and underwriters and from other sources Fitch believes to be credible. Fitch conducts a reasonable investigation of the factual information relied upon by it in accordance with its ratings methodology, and obtains reasonable verification of that information from independent sources, to the extent such sources are available for a given security or in a given jurisdiction. The manner of Fitch’s factual investigation and the scope of the third-party verification it obtains will vary depending on the nature of the rated security and its issuer, the requirements and practices in the jurisdiction in which the rated security is offered and sold and/or the issuer is located, the availability and nature of relevant public information, access to the management of the issuer and its advisers, the availability of pre-existing third-party verifications such as audit reports, agreed-upon procedures letters, appraisals, actuarial reports, engineering reports, legal opinions and other reports provided by third parties, the availability of independent and competent third- party verification sources with respect to the particular security or in the particular jurisdiction of the issuer, and a variety of other factors. Users of Fitch’s ratings and reports should understand that neither an enhanced factual investigation nor any third-party verification can ensure that all of the information Fitch relies on in connection with a rating or a report will be accurate and complete. Ultimately, the issuer and its advisers are responsible for the accuracy of the information they provide to Fitch and to the market in offering documents and other reports. In issuing its ratings and its reports, Fitch must rely on the work of experts, including independent auditors with respect to financial statements and attorneys with respect to legal and tax matters. Further, ratings and forecasts of financial and other information are inherently forward-looking and embody assumptions and predictions about future events that by their nature cannot be verified as facts. As a result, despite any verification of current facts, ratings and forecasts can be affected by future events or conditions that were not anticipated at the time a rating or forecast was issued or affirmed. The information in this report is provided “as is” without any representation or warranty of any kind, and Fitch does not represent or warrant that the report or any of its contents will meet any of the requirements of a recipient of the report. A Fitch rating is an opinion as to the creditworthiness of a security. This opinion and reports made by Fitch are based on established criteria and methodologies that Fitch is continuously evaluating and updating. Therefore, ratings and reports are the collective work product of Fitch and no individual, or group of individuals, is solely responsible for a rating or a report. The rating does not address the risk of loss due to risks other than credit risk, unless such risk is specifically mentioned. 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Due to the relative efficiency of electronic publishing and distribution, Fitch research may be available to electronic subscribers up to three days earlier than to print subscribers. For Australia, New Zealand, Taiwan and South Korea only: Fitch Australia Pty Ltd holds an Australian financial services license (AFS license no. 337123) which authorizes it to provide credit ratings to wholesale clients only. Credit ratings information published by Fitch is not intended to be used by persons who are retail clients within the meaning of the Corporations Act 2001

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