Jan 15 - Fitch Ratings has downgraded Old Mutual PLC's (Old
Mutual) Long-term Issuer Default Rating (IDR) to 'BBB' from 'A-', senior
unsecured debt to 'BBB-' from 'BBB+' and subordinated debt to 'BB' from 'BBB-'.
The agency has also downgraded Old Mutual Life Assurance Company (South Africa)
Limited's subordinated debt to 'AA-(zaf)' from 'AA(zaf) and affirmed its
National IFS rating at 'AAA(zaf)'. The Outlooks on the group's IDRs and IFS
ratings are Stable. A full list of ratings actions is at the end of this
The rating actions follow the downgrade of South Africa's Long-term foreign
currency IDR to 'BBB'/Stable from 'BBB+'/Negative and Long-term local currency
IDR to 'BBB+'/Stable from 'A'/Negative (see "Fitch Downgrades South Africa to
'BBB'; Outlook Stable", dated 10 January 2013 at www.fitchratings.com). The bulk
of Old Mutual's IFRS group operating earnings come from South Africa, with the
remainder largely from the UK.
The two-notch downgrade of the group's non-South African operation Skandia Life
Assurance Company Ltd reflects the change in Fitch's view of the credit quality
of the Old Mutual group as a whole, which is driven by its South African
The group's IFS rating is one notch higher than the South African local currency
sovereign rating in recognition of Old Mutual's geographical diversification,
with a sizeable proportion of earnings generated in the UK and Europe. The
additional notch also reflects the group's ability to share with policyholders
potential investment losses on its investments in the South African financial
markets, and the financial flexibility from being listed on the London Stock
RATING OUTLOOK - STABLE
The Stable Outlook on the group's ratings reflects the Stable Outlook on South
Africa's Long-term foreign and local currency IDR.
A change in South Africa's Long-term foreign or local currency IDR could trigger
a corresponding rating action on Old Mutual.
Old Mutual could be downgraded if there is greater than expected earnings
pressure on its South African operations from volatile investment markets, weak
consumer confidence and recessionary fears. Further reduction in the
geographical diversification of earnings, or a deterioration in the quality of
international earnings, could also lead to a downgrade.
Fitch assesses Old Mutual's hard-currency cover to measure its ability to
service its non-rand-denominated debt obligations based purely on its non-rand
earnings. The agency expects this ratio to be about 2.5x to 3x in 2013. Although
failure to achieve this level was a potential downgrade trigger at the previous
rating level, there is more tolerance at the new rating level and provided the
metric remains above 2x, a downgrade triggered solely by hard-currency cover is
The rating actions are as follows:
Old Mutual plc
Long-term IDR: downgraded to 'BBB' from 'A-'; Outlook Stable
Senior unsecured debt: downgraded to 'BBB-' from 'BBB+'
Lower Tier 2 subordinated debt:
GBP500m 8% subordinated notes due 2021 (XS0632932538): downgraded to 'BB' from
Upper Tier 2 subordinated debt:
EUR500m 5% subordinated notes undated (XS0234284668): downgraded to 'BB' from
Tier 1 subordinated debt:
GBP350m 6.376% perpetual callable securities (XS0215556142): downgraded to 'BB'
Short-term IDR and commercial paper: downgraded to 'F3' from 'F2'
Old Mutual Life Assurance Company (South Africa) Limited
National IFS rating: affirmed at 'AAA(zaf)'; Outlook Stable
National Long-term rating: downgraded to 'AA+(zaf)' from 'AAA(zaf)'; Outlook
Subordinated debt: ZAR3bn callable notes (ZAG000026816): downgraded to
'AA-(zaf)' from 'AA(zaf)'
Skandia Life Assurance Company Ltd
IFS rating: downgraded to 'A-' from 'A+'; Outlook Stable
Long-term IDR: downgraded to 'BBB+' from 'A'; Outlook Stable