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Fitch Affirms Liberty Group Limited's IFS at 'AA(zaf)'; Outlook Stable
August 12, 2014 / 12:41 PM / in 3 years

Fitch Affirms Liberty Group Limited's IFS at 'AA(zaf)'; Outlook Stable

(The following statement was released by the rating agency) JOHANNESBURG/LONDON, August 12 (Fitch) Fitch Ratings has affirmed South Africa-based Liberty Group Limited's (LGL) National Insurer Financial Strength (IFS) rating at 'AA(zaf)' and its National Long-term rating at 'AA-(zaf)'. The Outlooks are Stable. Fitch has also affirmed LGL's subordinated debt issue ratings at 'A+(zaf)'. As LGL is the main life insurance entity of the Liberty Holdings Limited (Liberty), its ratings are based on a combined group assessment. KEY RATING DRIVERS LGL's ratings are supported by its sound capital position, a well-established franchise and its solid operating performance. In addition, Fitch considers LGL's strong and diversified distribution capability and its successful bancassurance joint venture with the Standard Bank group as key positive rating factors. Offsetting these key rating strengths is the group's earnings exposure to equity markets, which is in line with peers. Fitch considers capital adequacy as strong, both for LGL as an entity and for the Liberty group as a whole. At end-1H14, Liberty and LGL had regulatory capital adequacy ratios (CARs) of 2.85x (end-2013: 2.87x) and 2.58x (end-2013: 2.56x) respectively. IFRS operating earnings in 1H14 were up 12% at ZAR1.2bn. Earnings growth was supported by positive policyholder persistency, favourable demographic experience and cost control. The overall new business margins remained steady in 1H14 at 1.8% despite an increase in the risk discount rate used in the new business margin calculation. Fitch believes that Liberty's market position is strong, but less diversified than its immediate peers. Liberty's core market is the mid-affluent segment, which broadly represents clients earning more than ZAR20,000 per month. The agency believes that life insurers' recurring premium growth rates will come under pressure over the next year, due to a continued difficult operating environment characterised by high unemployment and pressure on disposable income. RATING SENSITIVITIES Key rating triggers that could result in an upgrade include strong gains in earnings, new business margins or market share relative to peers, provided that Liberty at least maintains moderate growth in IFRS operating earnings in its core business, new life business margins of 2% and strong capitalisation. Sustained poor operating performance, weaker new business margins of below 1%, a significant reduction in the group's capitalisation based on Fitch's own assessment, a drop in LGL's regulatory CAR ratio to below 1.7x, or a weakening in the company's market position could lead to a downgrade. Contact: Primary Analyst Willem Loots Director +27 11 290 9402 Fitch Southern Africa (Pty) Ltd 23 Impala Road Sandton 2196 Secondary Analyst Harish Gohil Managing Director +44 20 3530 1257 Committee Chairperson Federico Faccio Senior Director +44 20 3530 1394 Media Relations: Elaine Bailey, London, Tel: +44 203 530 1153, Email: elaine.bailey@fitchratings.com. Additional information is available on www.fitchratings.com (a) No part of the rating was influenced by any other business activities of the credit rating agency; (b) The rating was based solely on the merits of the rated entity, security or financial instrument being rated; (c) Such rating was an independent evaluation of the risks and merits of the rated entity, security or financial instrument. Applicable criteria, Insurance Rating Methodology, dated 13 November 2013, are available at www.fitchratings.com. Applicable Criteria and Related Research: Insurance Rating Methodology here Additional Disclosure Solicitation Status here ALL FITCH CREDIT RATINGS ARE SUBJECT TO CERTAIN LIMITATIONS AND DISCLAIMERS. PLEASE READ THESE LIMITATIONS AND DISCLAIMERS BY FOLLOWING THIS LINK: here. IN ADDITION, RATING DEFINITIONS AND THE TERMS OF USE OF SUCH RATINGS ARE AVAILABLE ON THE AGENCY'S PUBLIC WEBSITE '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.

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