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Investing.com -- Moody’s Ratings has upgraded Direct Line (LON:DLGD) Insurance Group plc’s (DLG) ratings following its acquisition by Aviva (LON:AV) Plc, which was completed on Monday.
The Insurance Financial Strength Rating (IFSR) of DLG’s key operating entity U K Insurance Limited was upgraded to Aa3 from A2, while DLG’s £350 million restricted Tier 1 securities rating was raised to Baa1(hyb) from Ba1(hyb).
Additionally, Moody’s upgraded the rating on the £260 million backed subordinated Tier 2 notes due 2032 to A3(hyb) from Baa2(hyb). These notes, initially issued by DLG in 2020, have been transferred to Aviva Plc but remain guaranteed by DLG. The outlook on all entities is stable.
From Monday, Direct Line Insurance Group plc became a wholly owned subsidiary of Aviva Insurance Limited, which has an IFSR of Aa3 with a stable outlook. Direct Line Insurance Group plc remains the direct parent company of U K Insurance Limited.
The upgrade reflects Moody’s expectation that DLG will benefit from Aviva Plc’s support. This is partly evidenced by Aviva’s plan to transfer DLG’s insurance portfolio into Aviva Insurance Limited via a Part VII portfolio transfer.
DLG’s standalone ratings are based on its position as a leading personal lines property and casualty insurer in the UK, with strong brands and market share in motor and home insurance. The group also maintains a strong solvency position, conservative investment portfolio, and low financial leverage.
These strengths are offset by underwriting performance that is still recovering from significant deterioration due to claims inflation and difficult pricing conditions in 2022 and 2023, as well as concentration in the UK personal lines P&C market.
The stable outlook aligns with that of Aviva Plc. Potential factors that could lead to further rating upgrades include an upgrade of Aviva Plc and/or Aviva Insurance Limited’s ratings.
Conversely, factors that might lead to downgrades include a downgrade of Aviva’s ratings, lower than expected integration of DLG into the Aviva group, or significant deterioration in DLG’s standalone credit profile.
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