TEXT-Fitch affirms Sanlam Life Insurance Ltd ratings
(The following statement was released by the rating agency)
Sept 27 - Fitch Ratings has affirmed Sanlam Life Insurance Limited's (Sanlam Life) National Insurer Financial Strength (IFS) rating at 'AA+(zaf)', National Long-term rating at 'AA(zaf)' and National Short-term rating at 'F1+(zaf)'. The Outlooks are Stable. Fitch has also affirmed Sanlam Life's subordinated debt at 'A+(zaf)'. Simultaneously Fitch has also affirmed Sanlam Developing Markets Limited's (SDM) National IFS rating at 'AA+(zaf)' and National Long-term rating at 'AA(zaf)'. The Outlooks are Stable. Fitch has also affirmed the parent of Sanlam Life and the ultimate holding company of the Sanlam group, Sanlam Limited's (Sanlam), National Long-term rating at 'AA-(zaf)'. The Outlook is Stable. The affirmation of Sanlam and Sanlam Life reflects Sanlam group's strong operating performance, strong and resilient capitalisation, and its well-established and diversified business position in South Africa. The affirmation of SDM is based on Fitch's view that SDM has core status within the Sanlam group. As a result, SDM's ratings are aligned with those of the primary operating entity within the group, Sanlam Life. Offsetting these key rating drivers is some earnings volatility stemming from the group's exposure to investment markets and the continued tough South African economic environment. Fitch considers Sanlam's capital levels as strong. Sanlam Life's statutory capital adequacy requirement (CAR) cover ratio remained strong at 3.7x at end-H112 (end-2011: 3.7x), which is well above the minimum regulatory requirement of 1.0x. Fitch notes that the group's capitalisation is somewhat sensitive to equity-market volatility, which is in line with South African peers. Fitch views Sanlam's equity exposure as acceptable within the context of the insurer's strong capitalisation. Fitch expects Sanlam's expansion into emerging markets in Africa and Asia to continue. Sanlam has earmarked a considerable portion of its discretionary capital of ZAR4.0bn to further invest into business in its target markets. Progress on potential transactions will be evaluated at year-end 2012 and share buy-backs and/or a special dividend will be considered if a substantial portion of the discretionary capital is unlikely to be utilised during the course of 2013. Fitch expects capital to be managed in a manner compatible with Sanlam's rating. Sanlam's earnings generation continues to be strong and compares favourably to those of its leading peers, despite the slight reduction (2% yoy) in normalised headline earnings to ZAR5,023m in 2011, caused by poorly performing investment markets. At H112, normalised headline earnings were up by 15% to ZAR2.5bn. Fitch considers an upgrade to be unlikely in the near term. However, the key rating driver that could result in an upgrade in the medium term is mainly an increase in the group's scale and scope. At the same time, operating performance and capitalisation would have to remain strong at current levels. A substantial and sustained deterioration in capitalisation (based on Fitch's risk-based assessment) or a drop in Sanlam's shareholders' funds of 25% for a sustained period, and/or poor operating performance driven by a significant fall in equity markets, narrower new-business margins or a severe weakening of market share could lead to a downgrade. Separately, Fitch has affirmed the ratings of Santam Limited, a core general insurance subsidiary of Sanlam (see 'Fitch Affirms South Africa's Santam's IFS at 'AA+(zaf)'; Outlook Stable', dated 27 September 2012 at www.fitchratings.com). (Caryn Trokie, New York Ratings Unit)
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