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March 20 (The following statement was released by the rating agency)
Fitch Ratings has affirmed South Africa-based Santam Limited's (Santam) National Insurer Financial Strength (IFS) rating at 'AA+(zaf)' and National Long-term rating at 'AA(zaf)'. The Outlooks are Stable. Fitch has simultaneously affirmed Santam's subordinated debt at 'A+(zaf)'.
KEY RATING DRIVERS
The affirmation reflects Santam's "Core" status within the Sanlam group, under Fitch's insurance group rating methodology. The ratings also reflect Santam's standalone credit profile, which is consistent with the IFS rating of Sanlam Life Insurance Limited at 'AA+(zaf)'.
Santam is the largest general insurer in South Africa, with a strong domestic franchise. At end-2013 Santam increased its gross written premiums 6.4% to ZAR20.6bn, having weathered strong competition and a difficult economic environment.
Fitch believes that Santam remains adequately capitalised based on the agency's own risk-adjusted assessment and the regulatory statutory requirement. At end-2013, Santam's regulatory solvency ratio improved to 42% (end-2012: 41%), which is within the company's target range of 35% to 45%. Fitch expects solvency to remain strong in 2014, supported by retained earnings.
Net profit improved 9% to ZAR1.2bn despite a lower, albeit still strong, underwriting result. Santam's underwriting profitability was negatively affected by a second consecutive year of unusually high weather-related claims, reflected in a worsened combined ratio of 97.1% (2012: 96.2%). Santam has a long history of strong underwriting profitability, which compares favourably with peers, with a 10-year average combined ratio of 92.5%.
Given Fitch's view that Santam is "Core" to the Sanlam group any upgrade or downgrade of Sanlam's ratings would have a similar impact on those of Santam.
A downgrade could also be triggered by deterioration in the standalone profile to an extent that Fitch would no longer consider Santam as "Core" to Sanlam. This could result from a sustained poor operating performance and/or severe weakening in Santam's market share.