Fitch Rates AAI Limited's Sub-Debt Issue 'A'

(The following statement was released by the rating agency)SYDNEY, November 12 (Fitch) Fitch Ratings has assigned a rating of 'A' to AAI Limited's (AAI; Insurer Financial Strength (IFS) Rating: AA-/Stable) AUD225m regulatory compliant Tier 2 subordinated notes, which are due to settle on 18 November 2015. At the same time, Fitch has published AAI's Issuer Default Rating (IDR) of 'A+'. The Outlook is Stable. The unsecured subordinated obligations have a final maturity of 18 November 2040. Optional redemption before this date requires the prior written approval of the Australian Prudential (L:PRU) Regulation Authority (APRA). The notes include a regulatory non-viability clause and will qualify as regulatory Tier 2 capital for the insurer. The proceeds from the notes will be used for general corporate purposes and will form part of the issuer's shareholder's funds investment portfolio. KEY RATING DRIVERS AAI's Tier 2 instrument is classified as subordinated debt and is rated one notch below the company's IDR of 'A+'. Fitch has applied standard notching to the notes including a baseline recovery assumption of 'below average' compared to senior unsecured instruments, and a non-performance risk assessment of 'minimal'. Notching of -1 was applied relative to the IDR, which was based on -1 for recovery and 0 for non-performance risk. Fitch has applied a 'minimal' classification for non-performance risk to reflect the notes low triggers. The notes would convert to equity in AAI's ultimate parent Suncorp Group Limited (IDR: A+/Stable) in part or in full should APRA deem that AAI or the group's non-life holding company, Suncorp Insurance Holdings Ltd (SIHL), has become non-viable without conversion and would convert in full without a public-sector capital injection. The notes would be written off in part or in full were SGL unable to convert the notes to equity within five business days of the trigger event date. Interest payments can be deferred at the discretion of AAI or if a regulatory deferral condition subsists. Under Fitch's methodology, the notes qualify for 100% equity credit as the agency applies a regulatory override to the extent that APRA does. The notes will be treated as 100% debt in financial leverage ratios. RATING SENSITIVITIESAny change to AAI's IFS rating would likely result in a corresponding change in AAI's IDR and subordinated debt rating. For details on the key rating drivers and sensitivities for the IFS rating of AAI, see the rating action commentary titled, "Fitch Upgrades Suncorp's IFS Rating to 'AA-'; Outlook Stable", dated 30 July 2015, available at www.fitchratings.com.Contact: Primary AnalystJohn BirchDirector+61 2 8256 0345Fitch Australia Pty. Ltd., Level 15, 77 King Street, Sydney NSW 2000Secondary AnalystSiew Wai WanSenior Director+65 6796 7217Committee ChairpersonMartyn StreetSenior Director+44 20 3530 1211Media Relations: Leni Vu, Sydney, Tel: +61 2 8256 0304, Email: leni.vu@fitchratings.com.Additional information is available on www.fitchratings.comApplicable Criteria Insurance Rating Methodology (pub. 16 Sep 2015)https://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=871172Additional Disclosures Dodd-Frank Rating Information Disclosure Form https://www.fitchratings.com/creditdesk/press_releases/content/ridf_frame.cfm?pr _id=993950Solicitation Status https://www.fitchratings.com/gws/en/disclosure/solicitation?pr_id=993950Endorsement Policy https://www.fitchratings.com/jsp/creditdesk/PolicyRegulation.faces?context=2&det ail=31ALL FITCH CREDIT RATINGS ARE SUBJECT TO CERTAIN LIMITATIONS AND DISCLAIMERS. PLEASE READ THESE LIMITATIONS AND DISCLAIMERS BY FOLLOWING THIS LINK: HTTP://FITCHRATINGS.COM/UNDERSTANDINGCREDITRATINGS. IN ADDITION, RATING DEFINITIONS AND THE TERMS OF USE OF SUCH RATINGS ARE AVAILABLE ON THE AGENCY'S FREE WEB SITE AT WWW.FITCHRATINGS.COM. PUBLISHED RATINGS, CRITERIA, AND METHODOLOGIES ARE AVAILABLE FROM THIS SITE AT ALL TIMES. FITCH'S CODE OF CONDUCT, CONFIDENTIALITY, CONFLICTS OF INTEREST, AFFILIATE FIREWALL, COMPLIANCE, AND OTHER RELEVANT POLICIES AND PROCEDURES ARE ALSO AVAILABLE FROM THE CODE OF CONDUCT SECTION OF THIS SITE. FITCH MAY HAVE PROVIDED ANOTHER PERMISSIBLE SERVICE TO THE RATED ENTITY OR ITS RELATED THIRD PARTIES. DETAILS OF THIS SERVICE FOR RATINGS FOR WHICH THE LEAD ANALYST IS BASED IN AN EU-REGISTERED ENTITY CAN BE FOUND ON THE ENTITY SUMMARY PAGE FOR THIS ISSUER ON THE FITCH WEBSITE. Fitch Australia Pty Ltd holds an Australian financial services licence (AFS licence no. 337123) which authorises it to provide credit ratings to wholesale clients only. Credit ratings information published by Fitch is not intended to be used by persons who are retail clients within the meaning of the Corporations Act 2001.