At the same time, Standard & Poor's has removed from CreditWatch and lowered its ratings on the AMP U.K. operating companies, group holding company, and bank. The insurer financial strength and counterparty credit ratings on NPI Ltd. are lowered to 'A' from 'A+' and the counterparty ratings on AMP Group Holdings Ltd. and AMP Bank Ltd. are lowered to 'A-/A-2' from 'A/A-1'. The outlook on these ratings is negative. The insurer financial strength and counterparty credit ratings on Pearl Assurance PLC are lowered to 'BBB+' from 'A'. The outlook on Pearl is stable.
The ratings action by Standard & Poor's represents a divergent approach to that previously taken for the AMP group, reflecting the unique circumstances that are currently affecting the AMP group. The ratings on AMP Life, which is the main Australian operating company within the AMP group, have been decoupled from other ratings within the AMP group, as indicated by Standard & Poor's affirmation of AMP Life and the downgrade of other AMP companies.
"The affirmation of AMP Life reflects its superior financial strength compared with other companies within the AMP group," said Kate Thomson, associate director, Financial Services Ratings group. The ratings on AMP Life are supported by AMP Life's preeminent market position in its Australian home market, and its solid capital and earnings profile. "Standard & Poor's believes that the AMP group is currently strategically committed to its U.K. businesses, but is less confident that more capital, if required, would be made available from the internal sources of the AMP group to support its U.K. businesses, quarantining AMP Life's capital strength to some extent."
Standard & Poor's ratings action reflects its belief that the strong Australian life insurance business will be insulated, but only to a limited extent, from an intensification of stresses affecting the group's U.K. operations. "Current circumstances allow for a degree of differentiation between the ratings in the AMP group, but, should risks associated with the U.K. operations intensify further, all ratings could be affected," added Ms. Thomson.
The rating on Pearl reflects its stand-alone capital strength, AMP's decision to close this entity to new business in the coming year, and Pearl's subsequent corporate restructure. Pearl's capital position, depressed by falling U.K. equity values in 2002, has been protected somewhat against further falls. If this protection is removed, Pearl's capitalization could reduce, further placing capital pressures on the wider AMP group. Pearl's ratings are now based on its stand-alone credit strength, and the stable outlook indicates that Pearl may not be impacted by future rating actions affecting the group.
The one notch downgrade affecting other AMP group companies, including NPI, AMP Group Holdings, and AMP Bank reflects Standard & Poor's view of the reduced strength of the AMP group as a whole. "In particular, capitalization has been negatively impacted following a sustained deterioration of equity markets affecting AMP U.K. businesses," said Ms. Thomson.
The ratings outlook for AMP Life, AMP Group Holdings, AMP Bank, and NPI remains negative, reflecting the continued difficult operating environment in the U.K., and uncertainty over U.K. equity markets weighing on group strength. The AMP group has announced an expected loss of about A$900 million in the year to Dec. 31, 2002, and the ratings action is based on the assumption that actual results are not materially outside of previously communicated company expectations.
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