TEXT - Fitch cuts Old Mutual PLC ratings

Tue Jan 15, 2013 11:05am EST

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Jan 15 - Fitch Ratings has downgraded Old Mutual PLC's (Old 
Mutual) Long-term Issuer Default Rating (IDR) to 'BBB' from 'A-', senior 
unsecured debt to 'BBB-' from 'BBB+' and subordinated debt to 'BB' from 'BBB-'. 
The agency has also downgraded Old Mutual Life Assurance Company (South Africa) 
Limited's subordinated debt to 'AA-(zaf)' from 'AA(zaf) and affirmed its 
National IFS rating at 'AAA(zaf)'. The Outlooks on the group's IDRs and IFS 
ratings are Stable. A full list of ratings actions is at the end of this 
comment. 

RATING RATIONALE

The rating actions follow the downgrade of South Africa's Long-term foreign 
currency IDR to 'BBB'/Stable from 'BBB+'/Negative and Long-term local currency 
IDR to 'BBB+'/Stable from 'A'/Negative (see "Fitch Downgrades South Africa to 
'BBB'; Outlook Stable", dated 10 January 2013 at www.fitchratings.com). The bulk
of Old Mutual's IFRS group operating earnings come from South Africa, with the 
remainder largely from the UK.

The two-notch downgrade of the group's non-South African operation Skandia Life 
Assurance Company Ltd reflects the change in Fitch's view of the credit quality 
of the Old Mutual group as a whole, which is driven by its South African 
business.

The group's IFS rating is one notch higher than the South African local currency
sovereign rating in recognition of Old Mutual's geographical diversification, 
with a sizeable proportion of earnings generated in the UK and Europe. The 
additional notch also reflects the group's ability to share with policyholders 
potential investment losses on its investments in the South African financial 
markets, and the financial flexibility from being listed on the London Stock 
Exchange.

RATING OUTLOOK - STABLE

The Stable Outlook on the group's ratings reflects the Stable Outlook on South 
Africa's Long-term foreign and local currency IDR.

RATING SENSITIVITIES

A change in South Africa's Long-term foreign or local currency IDR could trigger
a corresponding rating action on Old Mutual.

Old Mutual could be downgraded if there is greater than expected earnings 
pressure on its South African operations from volatile investment markets, weak 
consumer confidence and recessionary fears. Further reduction in the 
geographical diversification of earnings, or a deterioration in the quality of 
international earnings, could also lead to a downgrade.

Fitch assesses Old Mutual's hard-currency cover to measure its ability to 
service its non-rand-denominated debt obligations based purely on its non-rand 
earnings. The agency expects this ratio to be about 2.5x to 3x in 2013. Although
failure to achieve this level was a potential downgrade trigger at the previous 
rating level, there is more tolerance at the new rating level and provided the 
metric remains above 2x, a downgrade triggered solely by hard-currency cover is 
unlikely.

The rating actions are as follows: 

Old Mutual plc

Long-term IDR: downgraded to 'BBB' from 'A-'; Outlook Stable

Senior unsecured debt: downgraded to 'BBB-' from 'BBB+'

Lower Tier 2 subordinated debt:

GBP500m 8% subordinated notes due 2021 (XS0632932538): downgraded to 'BB' from 
'BBB-'

Upper Tier 2 subordinated debt:

EUR500m 5% subordinated notes undated (XS0234284668): downgraded to 'BB' from 
'BBB-'

Tier 1 subordinated debt:

GBP350m 6.376% perpetual callable securities (XS0215556142): downgraded to 'BB' 
from 'BBB-'

Short-term IDR and commercial paper: downgraded to 'F3' from 'F2' 

Old Mutual Life Assurance Company (South Africa) Limited

National IFS rating: affirmed at 'AAA(zaf)'; Outlook Stable

National Long-term rating: downgraded to 'AA+(zaf)' from 'AAA(zaf)'; Outlook 
Stable

Subordinated debt: ZAR3bn callable notes (ZAG000026816): downgraded to 
'AA-(zaf)' from 'AA(zaf)'

Skandia Life Assurance Company Ltd

IFS rating: downgraded to 'A-' from 'A+'; Outlook Stable

Long-term IDR: downgraded to 'BBB+' from 'A'; Outlook Stable
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