S&P Lowers Rating on Aviva Canada Group

Rating agency Standard & Poor’s has reduced its financial rating for Aviva Canada Inc. to “A” from “A+”. S&P says the insurer and its Canadian operating subsidiaries will remain on “credit watch” with negative implications. “This action follows S&P’s review of Pilot’s [Pilot Insurance Co., the Ontario personal lines carrier for Aviva Canada] $195 million (pretax) reserve strengthening and the unlocking of deferred premium acquisition cost that was announced in April 2003,” a statement says.

Notably, the reserve adjustment made at Pilot, which requires restatement of accounts for the personal lines carrier and Aviva Canada for the 2000, 2001 and 2002 financial years, accounts for about 40% of Pilot’s 2001 equity base and around 10% of Aviva Canada’s 2001 equity base. S&P’s credit watch placement reflects the fact that Pilot’s and Aviva Canada’s restated financial statements have not yet been finalized. In this respect, there is the potential of the reserving cost incurred by Pilot to be “materially greater” than the $195 million thus far disclosed, the rating agency notes.