OREANDA-NEWS. This rating action commentary replaces the version published on 16 May 2016 and corrects Fitch's equity treatment of the subordinated bond.

Fitch Ratings has assigned Aviva Plc's CAD450m Tier 3 (CAG0683QC318) subordinated debt a 'BBB+' rating. The notes are rated three notches below Aviva's Long-Term Issuer Default Rating (IDR), in line with Fitch's notching criteria.

KEY RATING DRIVERS
Fitch expects the proceeds of the subordinated notes to be used to part-fund the completion of Aviva Canada's acquisition of RBC General Insurance Company. The securities carry a coupon of 4.5% and have a five-year maturity. The notes rank senior to existing Tier 2 capital, Tier 1 capital and all classes of share capital of the issuer.

The notes include a mandatory redemption deferral feature that would be triggered if the company is unable to meet the Solvency Capital Requirement (SCR). The notes also include a mandatory interest deferral feature which would be triggered on a breach of the Minimum Capital Requirement (MCR). Both the SCR and MCR are defined under the Solvency II directive.

A baseline recovery assumption of 'poor' and a non-performance risk assessment of 'moderate' were applied to the Tier 3 notes. The latter relates to the mandatory redemption deferral feature of the notes. As a result the rating is notched down three times from the IDR, comprising two notches for recovery prospects and one notch for non-performance risk.

According to Fitch's methodology, this subordinated bond does not receive equity credit within Fitch's risk-based capital assessment and is classified as 100% debt for the agency's financial leverage calculations. Fitch expects this issue to have a negligible effect on Aviva's financial leverage and fixed charge coverage.

RATING SENSITIVITIES
The notes' rating is subject to the same sensitivities that may affect Aviva's Long-Term IDR (for more details, see Fitch Rates Aviva 'AA-'; Upgrades Friends Life dated 11 December 2015 at www.fitchratings.com).

Fitch currently rates Aviva as follows:
-Insurer Financial Strength Ratings of core insurance entities: 'AA-'; Outlook Stable
-Issuer Default Rating of Aviva Plc: 'A+'; Outlook Stable