Fitch Ratings has affirmed
It has simultaneously affirmed M&G's main operating company,
A full list of rating actions is below.
Key Rating Drivers
The ratings reflect M&G's business profile, capitalisation and leverage, and asset-liability management (ALM), all of which Fitch assesses as 'Very Strong'. In addition, we assess the group's debt service capabilities and financial performance as 'Strong'.
Our view of M&G's business profile reflects the group's assets under management and administration (AUMA) at
M&G's net outflows were
Our assessment of M&G's capitalisation is based on an 'Extremely Strong' score in Fitch's Prism Factor-Based Capital Model (Prism FBM) at end-2021. This is reinforced by a Fitch-calculated Solvency II (S2) solvency capital requirement (SCR) ratio of 254% at end-2021 (end-2020: 211%), including full credit for the surplus in its with-profits fund. We also view its exposure to interest-rate risk as marginal, due to the close match of annuity assets and best-estimate liabilities cash flow on its annuity book.
M&G's financial leverage ratio (FLR) remained low at 13% at end-2021, commensurate with its ratings and significantly stronger than similar rated peers'. The ratio benefits from the high, relative to peers', unallocated surplus in the with-profits funds, which is included in our FLR calculation. We expect M&G's financial leverage to remain within the 'aa' rating category.
We expect that rising interest rates may have an indirect negative impact on M&G's profitability. M&G's asset management operating profit is a function of the charges levied on unit-linked and asset management AUMA and are likely to reduce following the AUMA reduction due to the rising interest rates. Main inflation exposure arises through increasing expenses, although we view this as moderate.
M&G's underlying performance remained strong, although reported adjusted operating profit decreased to
M&G's fixed-charge coverage (FCC) remained broadly unchanged at about 6x in 2021. We expect the FCC run-rate to remain above 5x in the medium term.
RATING SENSITIVITIES
Factors that could, individually or collectively, lead to negative rating action/downgrade:
Weakening of business profile as evidenced, for example, by sustained net outflows or significant reduction in operating scale
Sustained weakening of the group's FCC to below 5x
Factors that could, individually or collectively, lead to positive rating action/upgrade:
Significantly increased geographic and product diversification along with business growth that is both profitable and prudently managed
Best/Worst Case Rating Scenario
International scale credit ratings of Financial Institutions and Covered Bond issuers have a best-case rating upgrade scenario (defined as the 99th percentile of rating transitions, measured in a positive direction) of three notches over a three-year rating horizon; and a worst-case rating downgrade scenario (defined as the 99th percentile of rating transitions, measured in a negative direction) of four notches over three years. The complete span of best- and worst-case scenario credit ratings for all rating categories ranges from '
REFERENCES FOR SUBSTANTIALLY MATERIAL SOURCE CITED AS KEY DRIVER OF RATING
The principal sources of information used in the analysis are described in the Applicable Criteria.
ESG Considerations
Unless otherwise disclosed in this section, the highest level of ESG credit relevance is a score of '3'. This means ESG issues are credit neutral or have only a minimal credit impact on the entity, either due to their nature or the way in which they are being managed by the entity. For more information on Fitch's ESG Relevance Scores, visit www.fitchratings.com/esg
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