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S&P’s downgrades Aegon and Aviva

Standard & Poor’s has downgraded Aegon and Aviva, citing concerns over exposure to financial markets.

Aegon Netherlands’ long and short-term counterparty credit ratings have dropped to ‘A-/A-2’ from ‘A+/A-1’. While the long-term counterparty credit and insurer financial strength ratings on Aegon’s core insurance operating subsidiaries have been lowered to ‘AA-‘ from ‘AA’. The outlook is negative.

Credit analyst Mark Button says: “The downgrade of the operating company reflects the higher-than expected investment-related losses in 2008, the continued weakness in financial markets in 2009 and our opinion that certain de-risking and capital preservation actions will reduce future underlying earnings.”

Standard & Poor’s believe the pressures are most acute in Aegon’s US business where the group has high equity and credit risk exposures. It says the deteriorating outlook for credit risk, combined with continued weakness and volatility in equity markets, is likely to constrain the near-term dividend capacity of Aegon’s primary business unit in the US, resulting in lower holding company cash inflows.

Button adds: “The negative outlook reflects our view of the risk that Aegon may fail to meet our expectations owing to the sensitivity of its business to investment markets during a period of heightened risk and volatility.”

Meanwhile, Standard & Poor’s lowered the long-term counterparty credit rating on Aviva PLC to ‘A’ from ‘A+’ although the ‘AA-‘ long-term counterparty credit and insurer financial strength ratings on Aviva’s core insurance operating subsidiaries was maintained with a negative outlook.

Credit analyst Charis Adu-Kwapong says: “The rating actions reflect our view that current challenging operating and financial market conditions have put pressure on certain key credit fundamentals of Aviva’s business. These include reduced cash flows from subsidiaries, increased double leverage, and a holding company debt structure benefiting only from limited upstream guarantees.”

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