OREANDA-NEWS. Fitch Ratings has affirmed Scottish Widows plc's (SW) and Clerical Medical Investment Group Ltd's (CMIG) Long-term Issuer Default Ratings (IDR) at 'A+' and their Insurer Financial Strength (IFS) ratings at 'AA-'. The Outlooks on the ratings are Stable.

The agency has also affirmed SW's and Clerical Medical Finance plc's subordinated debt, which is guaranteed by CMIG, at 'A-'. The subordinated debt ratings do not factor in any impact that may arise from the new criteria proposed by Fitch - "Exposure Draft: Insurance Notching Criteria" published on 12 May 2015 and available on www.fitchratings.com (see rating sensitivities below).

The rating action follows Scottish Widows Group Ltd's (SWG) announcement that it will merge its eight life insurance entities into CMIG via a legal process known as a Part VII transfer. After the transfer, which will become effective at end-2015, CMIG is expected to be renamed Scottish Widows Limited (SWL). Fitch expects to rate SWL at the same level as CMIG.

KEY RATING DRIVERS
The affirmation of SW's and CMIG's ratings reflects Fitch's view that the Part VII transfer, once effective, will be neutral to the ratings as the overall business and financial profile (including capital and dividend policies) will remain unchanged. The transfer will further increase the strong integration of the group's life insurance operations.

The ratings of SW and CMIG are based on the credit quality of SWG, the holding company consolidating all insurance operations of Lloyds Banking Group's (LBG; IDR A+/Stable), as the agency views the rated entities as core to SWG under its insurance group rating methodology.

SW's and CMIG's IDRs are aligned with Lloyds Bank plc's IDR 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 implies a single-notch uplift from Fitch's assessment of SWG's standalone creditworthiness.

RATING SENSITIVITIES
If new notching criteria proposed by Fitch are made final, we expect to upgrade SW's GBP560m subordinated notes (XS020343842) one notch to 'A' because 'non-performance risk' has been assessed as 'minimal'. No other ratings are expected to be impacted by the proposed changes to Fitch's notching criteria.

Any change in Lloyds Bank plc's rating is likely to lead to a corresponding change in SW's and CMIG's ratings.

The ratings could be downgraded if Fitch no longer sees SWG as integral to LBG.