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March 20 (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
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
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%).
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.