RPT-Fitch Affirms Sanlam Life & Sanlam Developing Markets at IFS 'AA+(zaf)'; Outlook Stable

Thu Mar 20, 2014 5:49am EDT

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March 20 (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)'. 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)'. Concurrently, Fitch has affirmed Sanlam Developing Markets Limited's (SDM) National IFS rating at 'AA+(zaf)' and National Long-term rating at 'AA(zaf)'.

All the Outlooks are Stable.

KEY RATING DRIVERS

The affirmation of Sanlam's and Sanlam Life's ratings reflects the Sanlam group's well-established and diversified business position in South Africa, its sound 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 assessed as "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 as strong. Sanlam Life's statutory capital adequacy requirement (CAR) cover ratio was 4.5x at 31 December 2013 (2012: 4.3x), the highest level in its peer group.

Sanlam reported ZAR4bn of discretionary capital, i.e. capital regarded by the group as being in excess of economic capital requirements, at end-2013 (end-2012: ZAR4.2bn). The bulk of Sanlam's ZAR1.8bn investments in 2013 was focused on strategic growth areas in Africa, India and Southeast Asia. Fitch expects the group to continue using the excess capital to increase business from high-growth areas.

Sanlam's earnings generation continues to be strong and compares favourably with that of its leading peers. Normalised headline earnings increased to ZAR8.1bn in 2013 (2012: ZAR5.9bn), supported by strong investment performance and increased contributions from growth markets.

Total net covered new business margin on a present value of new business premium (PVNBP) basis was broadly stable at 3.1% in 2013 (2012: 3.2%).

RATING SENSITIVITIES

If Sanlam achieves 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 Sanlam 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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