Aviva 2009 Annual Report Download - page 54

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Aviva plc Analysis of investments continued
Annual Report and Accounts 2009
Despite the increase in market downgrade activity during 2008 and 2009, debt securities with a credit rating of A or above at
31 December 2009 still represented 81.6% of total holdings (
2008: 86.3%). Approximately 43% of total debt security holdings
were in government bonds and 34% of total debt security holdings were in corporate bonds with a credit rating of A or above,
as of 31 December 2009.
“Wrapped credit” is credit exposure that has been insured with monoline insurers to achieve a better credit rating. The
monoline insurers suffered downgrades during 2008 and 2009 and this is reflected in the analysis that follows. The exposure is
diversified across several monolines and the underlying bonds are diversified across many different counterparties. In general, we
are a long-term holder of this debt, although we continue to review our holdings with reference to the underlying quality and
prospects.
The majority of the residential mortgage-backed securities (RMBS) are US investments and over 65% of the total exposure is
backed by the US Government-sponsored entities (GSEs) Fannie Mae and Freddie Mac. Under the conservatorship arrangements
with the US Government implemented in September 2008, these securities have an implicit guarantee, although they are not
expressly backed by the full faith and credit of the US Government. The majority of the remaining US RMBS are backed by
fixed-rate loans that originated in 2005 or before.
At 31 December 2009, our exposure to sub-prime debt securities was limited to £2 million (
2008: £39 million ), and our
exposure to collaterised debt obligations (CDO) and collaterised loan obligations (CLO) was limited to £176 million. Investments
in structured assets (excluding agency RMBS that are backed by GSEs) were £7,341 million, representing less than 5% of total
debt securities.
The vast majority of the corporate bonds that are not rated represent private placements and corporate bond investments
made via unit trusts, where a “look-through” to the underlying securities has been performed. The private placements are US
investments which are not rated by the major rating agencies but are rated an average equivalent of A- by the Securities Valuation
Office of the National Association of Insurance Commissioners (NAIC), a US association of state insurance regulators.
Excluding the private placements that are rated an average A– by the NAIC, the exposure that is not rated by a major rating
agency is less than 3% of total debt securities.
Of the debt securities rated less than BBB, 77% are rated BB, while only 5%, amounting to £181 million, are rated below B.
Debt securities analysed by credit rating and sector
Total debt securities analysed by credit rating and product type are set out in the table below. Government and corporate debt
securities are further analysed by type of issuer.
Debt securities – Total
Ratings
Less than
AAA AA A BBB BBB Non-rated Total
2009 £m £m £m £m £m £m £m
Government
UK government 20,069 1,354 — — — — 21,423
UK local authorities — 16 — — — — 16
Non-UK government 25,189 11,787 7,566 1,814 410 710 47,476
45,258 13,157 7,566 1,814 410 710 68,915
Corporate
Public Utilities 696 721 3,680 1,215 246 72 6,630
Convertibles and bonds with warrants — 26 362 95 50 53 586
Other corporate bonds 10,440 11,973 26,201 15,029 2,682 3,018 69,343
11,136 12,720 30,243 16,339 2,978 3,143 76,559
Certificates of deposits — 890 580 1,330 — 10 2,810
Structured
RMBS non-agency sub-prime 2 — — — — — 2
RMBS non-agency ALT A 18 100 16 22 81 — 237
RMBS non-agency prime 943 8 47 60 6 5 1,069
RMBS agency 2,534 — — — — 1
2,535
3,497 108 63 82 87 6 3,843
CMBS1 1,350 266 245 91 84 4 2,040
ABS2 1,256 282 372 164 37 276 2,387
CDO (including CLO) 69 18 17 10 71 56 241
ABCP3 — 836 — — — — 836
ABFRN4 — — — — — — —
2,675 1,402 634 265 192 336 5,504
Wrapped credit 157 93 121 129 40 54 594
Other 22 213 413 34 16 1,587 2,285
Total 62,745 28,583 39,476 20,137 3,723 5,846 160,510
Total % 39.1% 17.8% 24.6% 12.6% 2.3% 3.6%
2008 66,298 24,452 39,308 12,750 2,197 5,729 150,734
2008 % 44.0% 16.2% 26.1% 8.4% 1.5% 3.8%
1. CMBS – Commercial Mortgage Backed Security
2. ABS – Asset Backed Security
3. ABCP – Asset backed commercial paper
4. ABFRN – Asset backed floating rate notes