RPT-Fitch Affirms Sanlam Life's & Sanlam Developing Markets' IFS at 'AA+(zaf)'; Outlook Stable
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Sept 17 (Reuters) - (The following statement was released by the rating agency)
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)'.
Fitch has also affirmed Sanlam Life's parent and the ultimate holding company of the Sanlam group, Sanlam Limited's (Sanlam), National Long-term rating at 'AA-(zaf)'. The Outlook is Stable.
Concurrently, Fitch has 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.
KEY RATING DRIVERS
The affirmation of Sanlam and Sanlam Life reflects the Sanlam group's well-established and diversified business position in South Africa, its strong and resilient capitalisation and its strong operating performance. SDM's ratings are aligned with those of the primary operating entity within the group, Sanlam Life, as SDM is Core to the Sanlam group under Fitch's insurance group rating methodology. Fitch considers SDM as Core because its business, operations and strategy are fully aligned with those of the group.
Fitch considers Sanlam's capital levels to be strong. Sanlam Life's statutory capital adequacy requirement (CAR) cover ratio was 3.9x at end-HY13 (end-2012: 4.3x), well above the minimum regulatory requirement of 1.0x.
Sanlam reported ZAR3.2bn of discretionary capital, i.e. capital regarded by the group as being in excess of economic capital requirements, at end-HY13 (2012: ZAR 4.2bn). Fitch expects the group to continue using the excess capital within the framework of its strategic focus of increasing business from high-growth areas. In the absence of immediate investment opportunities, Sanlam continues to return excess capital to shareholders via share buy-backs and/or special dividends.
Sanlam's earnings generation continues to be strong and compares favourably to those of its leading peers. Normalised headline earnings increased to ZAR5.8bn in 2012 (2011: ZAR5.0bn), supported by strongly performing investment markets. The positive trend continued in HY13 with normalised headline earnings increasing 36% to ZAR3.5bn (HY12: ZAR2.5bn).
Total life new business margin on a present value of new business premium (PVNBP) basis, remained stable at 3.0% in HY13 (HY12: 3.0%).
If Sanlam achieved successful entry into new markets while maintaining its strong operating performance, capitalisation and leading position in South Africa, this would be positive for ratings. However, an upgrade is unlikely unless Salam gains meaningful market shares in new markets, which Fitch does not expect in the near to medium term.
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, significantly lower new-business margins or a severe weakening of market share could lead to a downgrade.
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