OREANDA-NEWS.  Fitch Ratings has assigned Phoenix Life Limited and Phoenix Life Assurance Limited Insurer Financial Strength (IFS) ratings of 'A'. Both are the main operating companies of Phoenix Group Holdings (Phoenix), to which Fitch has assigned an Issuer Default Rating (IDR) of 'A-'. The Outlooks on all ratings are Stable.

Fitch has also assigned PGH Capital Limited's (PGHCL) GBP300m 5.75% senior notes (XS1081768738) and GBP428m subordinated Tier 2 notes (XS1171593293) ratings of 'BBB+' and 'BBB-', respectively. Both debt issues are guaranteed by Phoenix.

KEY RATING DRIVERS
The ratings reflect Phoenix's strong capitalisation and market position. These positive rating factors are offset by high, but significantly improved, financial leverage and fairly weak fixed-charge coverage.

The rating of the subordinated Tier 2 notes reflects "moderate" risk of non-performance and "poor" baseline recovery assumption.

Fitch views Phoenix's capitalisation as "very strong" based on the agency's Prism FBM capital model. The group's Insurance Groups Directive (IGD) solvency ratio (calculated with the formula for closed book insurers) was 128% at end-2014 (end-2013: 129%).

Phoenix is the largest consolidator of closed life assurance funds in the UK with total assets of GBP66bn (excluding reinsurance assets) and gross written premiums of GBP981m for 2014. However, as Phoenix's strategy is to acquire run-off portfolios only in the UK and Ireland, the group's geographical diversification is low. This characteristic exposes Phoenix to economic and regulatory changes in these two countries.

Phoenix's financial leverage has improved significantly in recent years, to 33% at end-2014 (2010: 54%), including the issuance of new subordinated Tier 2 notes in January 2015 in exchange for its perpetual capital securities, on a pro-forma basis. Fitch expects leverage to be stable in the medium term.

Fixed-charge coverage ratios are weak for the ratings, averaging 3.4x between 2010 and 2014. However, coverage was stronger at 5.7x in 2014, benefiting from reduced interest costs, reflecting Phoenix's reduction in leverage, but also benefitting from the proceeds of the sale of Phoenix's asset manager Ignis to Standard Life.

RATING SENSITIVITIES
Phoenix's ratings could be upgraded if the group's Prism FBM score improves to "extremely strong" or leverage falls below 30% for a sustained period. Fixed-charge coverage higher than 7x for a sustained period of time could also lead to an upgrade.

A Prism FBM score below "very strong" or leverage above 35% could result in a downgrade.

The committee that assigned the ratings was held on 30 July 2015.