OREANDA-NEWS. Fitch Ratings has affirmed Scottish Widows Limited's (SWL) Long-term Issuer Default Rating (IDR) at 'A+' and Insurer Financial Strength (IFS) rating at 'AA-'. The Outlooks on the ratings are Stable.

The agency has also affirmed SWL's and Clerical Medical Finance plc's subordinated debt, which carries a guarantee from SWL, at 'A-'.

KEY RATING DRIVERS
The ratings of SWL are based on the credit quality of Scottish Widows Group Ltd (SWG), the holding company consolidating all insurance operations of Lloyds Banking Group plc (LBG, Long-term IDR A+/Stable) as Fitch views SWL as core to SWG under its insurance group rating methodology.

SWL's IDR is aligned with Lloyds Bank plc's IDR of 'A+' to reflect Fitch's view of SWG's importance to LBG, the integration of its operations and management with those of LBG, and its strong position in the UK life and pensions market. This approach implies a single-notch uplift from Fitch's assessment of SWG's standalone creditworthiness. SWL's Outlook is aligned with Lloyds Bank plc's Outlook as a rating change of Lloyds Bank plc is likely to be reflected in SWL.

Although SWG's geographical diversification is limited by the insurer's UK focus, the group benefits from product diversification not just within its life, pensions and investment businesses, but also through its sizeable non-life insurance business.

Fitch views SWG's capitalisation as "extremely strong" based on its risk-adjusted Prism factor-based capital model, despite dividend payments of GBP0.5bn to LBG in February 2016. SWG's regulatory Solvency 2 capital position is also supportive of the ratings with solvency capital requirement coverage of 148% at end-2015. SWG's financial leverage at 25% and fixed-charge coverage of around 7x in 2015, both based on Fitch calculations, are in line with the IFS 'A' rating range.

SWL's underlying profit (excluding general insurance operations) was strong at GBP784m in 2015, up from GBP648m in 2014. The improvement in 2015 was driven by SWL successfully entering the bulk annuity market, where transactions lifted underlying profit by GBP247m.

RATING SENSITIVITIES
A change in Lloyds Bank plc's rating is likely to lead to a corresponding change in SWL's ratings. The ratings could be downgraded if Fitch no longer sees SWG as integral to LBG.