S&P: Insurance Australia Group's A$ Subordinated Notes Rated 'BBB'

S&P Global Ratings Services today said that it has assigned its 'BBB' long-term issue credit rating to the issuance of A$350 million in unsecured subordinated notes by Insurance Australia Group Ltd. (IAG; holding company rated A/Stable/--; core operating companies rated AA-/Stable/--).

IAG announced on March 23, 2018, that it had priced the notes for settlement on March 29, 2018, to wholesale domestic and international investors.

The notes qualify as Tier 2 regulatory capital and are scheduled to mature in 2044 (year 26), with an issuer option to redeem starting in 2024 (year 6) and then quarterly to year 7, subject to regulatory approval. If the notes are not redeemed, converted or written off beforehand, noteholders also have the option to convert them to ordinary share capital on certain dates from year 9.

Under our insurance hybrid criteria, we rate the notes three notches below the 'A' issuer credit rating on IAG. The 'BBB' issue rating reflects the additional risk arising from : (1) subordination to higher ranking securities and creditors; (2) deferability of interest payments; and (3) nonviability contingent capital terms. Under these terms, IAG must convert the notes to ordinary share capital or write them off in the unlikely event that the regulator determines IAG to be nonviable.

We assess the notes to have intermediate equity content and may support our assessment of IAG's capital position within certain tolerance levels. The issue's modest impact on financial leverage and fixed-charge cover does not affect the group's strong financial flexibility.

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