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Rating Action:

Moody's confirms ratings of South African insurance groups following action on the South African sovereign and changes the outlook to stable

27 Mar 2018

London, 27 March 2018 -- Moody's Investors Service, ("Moody's") has today confirmed the Insurance Financial Strength (IFS) and related debt ratings as well as the issuer ratings of the following South African insurance groups and changed the outlooks to stable from ratings under review:

- Discovery Limited (Discovery): Ba1 Long term Issuer rating

- Guardrisk Insurance Company Limited (and related Guardrisk entities): Baa3 Insurance Financial Strength

- MMI Group Limited (MMIGL): Baa2 Insurance Financial Strength

- Old Mutual Life Assurance Company (South Africa) Ltd, (OMLAC(SA)): Baa2 Insurance Financial Strength

- Old Mutual Plc: Ba1 Long term issuer rating

- Standard Insurance Limited (SIL): Baa3 Insurance Financial Strength

All the national scale ratings (NSR) that were placed on review for downgrade on 29 November 2017 have also been confirmed at their current levels, given the current mapping between the global scale ratings and Moody's NSR.

The rating actions conclude the review for downgrade that commenced on 29 November 2017. A complete list of ratings affected by this rating action is available at the end of this press release.

RATINGS RATIONALE

Today's rating action follows the confirmation of the Baa3 debt rating of the Government of South Africa, with stable outlook. The confirmation of South Africa's ratings reflects Moody's view that the previous weakening of South Africa's institutions will gradually reverse under a more transparent and predictable policy framework. The recovery of the country's institutions will, if sustained, gradually support a corresponding recovery in its economy, along with a stabilization of fiscal strength. For details of Moody's rating action and confirmation of the sovereign rating, please see the related press release: Moody's confirms South Africa's Baa3 rating and changes the outlook to stable (https://www.moodys.com/research/--PR_381164).

Moody's considers these insurance groups' key credit fundamentals (asset quality, capitalisation, profitability and financial flexibility) to be partly correlated with -- and thus linked to -- the economic and market conditions in South Africa, where they are domiciled and have significant operations. Moody's also notes that the IFS ratings of OMLAC(SA) and MMIGL remain above the sovereign rating, reflecting their solid capitalization and the flexible liability profile of some of their products. In particular, the products' flexibility offers a relatively high ability to share asset losses with policyholders by permitting OMLAC(SA) and MMIGL the right to retract non-vested policyholder bonuses, or to utilize funds in the bonus stabilisation accounts and/or make lower future bonus declarations to policyholders. Similarly, for Discovery, we consider its notional IFS assessment for the group to be one-notch above the sovereign rating of the Government of South Africa, and it reflects our view that Discovery's diverse business mix, significant fee income and moderate asset leverage reduces the exposure to South African sovereign risk.

--- Discovery Limited: Ba1 LT Issuer rating and Aa3.za national scale LT Issuer rating confirmed

Discovery's Ba1 LT Issuer rating reflects the group's very strong franchise in South Africa and its growing global footprint, its strong profitability and significant non-insurance fee income from Discovery Health, moderate exposure to local investments because of the capital-light nature of its business, and good capitalization on both a regulatory and economic basis. These strengths are partially offset by the group's substantial business exposure to South Africa and the still challenging operating environment, complexity inherent in its shared value insurance model, and ambitious expansion initiatives that present execution risk and require significant amounts of external funding.

--- Guardrisk Group: Baa3 IFS rating of rated subsidiaries, confirmed

The Baa3 global scale IFS ratings assigned to entities in the Guardrisk group - as well as the Aaa.za national scale IFS ratings assigned to the South African entities - reflect (i) its good market position as the largest cell captive insurer in the South African market, (ii) low underwriting risk due to its fee based model, (iii) diverse product mix across life insurance and short-tailed non-life insurance lines, and (iv) strong profitability. These strengths are partially offset by (i) its investment portfolio's concentrated exposure to the South African economy and banking system, which is somewhat correlated with the credit risk of cell owners and (ii) the uncertainty around the level of its capital coverage under the upcoming SAM regulations.

The rated entities included in the Guardrisk group, collectively referred to as Guardrisk, include Guardrisk Insurance Company Limited (Guardisk Insurance), Guardrisk Life Limited (Guardrisk Life) and Guardrisk International Limited PCC (Guardrisk International), incorporated in Mauritius (Government of Mauritius, Baa1 stable). Guardrisk Insurance and Guardrisk Life are rated both Baa3 on the global scale, and Aaa.za on the national scale, while Guardrisk International is rated Baa3 on the global scale only. Additionally, while Guardrisk is comprised of various regulated entities, we consider Guardrisk's various entities to be a single analytic unit, and, as such rate them at the same level, including Guardrisk International, which although it is regulated, capitalised and increasingly managed separately from the broader Guardrisk group, remains an integral part of the group and therefore the analytic unit.

--- MMI Group Limited: Baa2 IFS rating confirmed

MMIGL's Baa2 global scale, and Aaa.za national scale, IFS ratings reflect the insurer's top tier market position in South Africa, its solid capital position and its flexible product characteristics which serve to reduce the impact on the group from stress related to credit pressures at the sovereign level. These strengths are partially offset by the group's exposure to South Africa, both in the form of its invested assets and revenues, which are susceptible to the pressure on the domestic economy, and challenges meeting profitability and strategic objectives in recent years. In addition, MMI has experienced meaningful turnover of senior management in early 2018 that we expect might delay the group's ability to accelerate execution of some of its strategic and business objectives. More positively, MMI recently raised its target dividend cover to 2.5x core headline earnings, from 1.5x to 1.7x core headline earnings, which will assist the group in maintaining its capital buffer while continuing investment in new business initiatives.

MMIGL is the primary life insurance subsidiary of MMI Holdings Limited (MMI), a leading insurance group in South Africa, that was formed in 2010 following the merger of two long established life insurance and investment groups, Momentum and Metropolitan. MMI's primary focus is life insurance and investment products for the South African market, although the group has been expanding into other developing markets and building its presence in the non-life insurance sector, including its 2014 acquisition of the Guardrisk Group.

--- Old Mutual Life Assurance Company (South Africa) Ltd: Baa2 IFS rating confirmed

OMLAC(SA)'s Baa2 IFS rating reflects the company's very well established and strong market position in South Africa, its solid capitalization relative to economic and regulatory capital requirements, the flexible liability profile of some of its products, that allows it to share investment losses with policyholders, and its sophisticated information technology, asset management and product design capabilities. These strengths are partly offset by the company's dependence on the highly competitive South African life insurance market, its material exposure to South Africa -- in terms of both invested assets and earnings -- which constrains the company's credit profile, and still subdued economic conditions in South Africa, that could depress earnings over the short to medium-term.

OMLAC(SA) is a wholly owned subsidiary of Old Mutual Plc (LT Issuer rating Ba1), and the largest life insurer in South Africa. As part of Old Mutual Plc's strategy of managed separation, OMLAC(SA) will be part of a new, South African holding company, Old Mutual Limited that is expected to list on the London and Johannesburg stock exchanges during the course of 2018.

--- Old Mutual Plc: Programme ratings, including Ba1 Long-Term Issuer rating confirmed

Old Mutual Plc is a London based holding company for a diversified financial services group that includes life assurance, wealth and asset management, banking, non-life insurance and other financial services operations. The group has a particularly strong franchise in South Africa, through OMLAC(SA). The group's debt ratings are partially constrained by the credit quality of South Africa sovereign (Government of South Africa, LT Issuer rating Baa3, stable) due to the substantial operations and investment exposure in South Africa.

The group is currently in the process of separating its four key underlying businesses, which it expects to be substantially complete by the end of 2018, by which time the group stated it would cease to exist in its current structure. On completion of the managed separation, Old Mutual Plc will become a subsidiary of Old Mutual Limited, the new South African holding company for Old Mutual. To the extent that Old Mutual Plc has debt outstanding at this time, the company will be required to hold high quality liquid assets that match the match the maturity profile of the outstanding debt.

The confirmation of Old Mutual Plc's Ba1 Issuer rating and associated programme ratings follows the confirmation of the Baa2 IFS Rating at OMLAC(SA), the anchor rating for Old Mutual Plc. The stable outlook for Old Mutual Plc, and continued application of narrower notching between the Baa2 anchor rating and Old Mutual Plc's Ba1 Issuer rating reflects Moody's expectation of Old Mutual Plc holding a substantial balance of high quality liquid investments in support of debt repayment, even as its sources of future cashflow wind down post-managed separation.

--- Standard Insurance Limited: Baa3 global scale and Aa1.za national scale IFS ratings confirmed

SIL's Baa3 global scale, and Aa1.za national scale, IFS ratings reflects the insurer's established market position as a mid-tier short-term insurer in the South African market, good brand recognition and credibility afforded by its affiliation with Standard Bank, strong and consistent profitability, partly due to lower acquisition costs resulting from the sales and distribution arrangement with its parent, and strong capitalization relative to regulatory capital requirements. These strengths are partially offset by its investment portfolio's concentrated exposure to the South African economy and banking system, very high gross modelled natural catastrophe exposure relative to capital, and limited product and geographic diversification, with high concentration in residential property exposure.

SIL is a wholly-owned subsidiary of the Standard Bank Group Limited (SBG, LT Issuer rating Ba1 stable) and an affiliate of South Africa's largest bank, by assets, The Standard Bank of South Africa Limited (SBSA, LT Deposits Baa3, stable, BCA baa3). While SIL benefits from the Standard name, and to a large extent services a subset of SBSA's customers, the rating does not incorporate any support from SBG.

WHAT COULD CHANGE THE RATINGS UP/DOWN

--- Discovery Limited

Moody's noted that the following factors could lead to upward pressure on the ratings: (i) an upgrade of the rating of the South African sovereign, (ii) diversification of the group's geographic footprint as concerns its invested assets and earnings that meaningfully reduces is exposure to South Africa, or other highly correlated regions.

Conversely, the following factors could lead to downward pressure on the ratings: (i) negative rating action on the South African sovereign or banking sector, (ii) failure to maintain regulatory capital levels under the upcoming SAM regulations, comfortably above management's minimum target level, (iii) material uncertainty about the sustainability of the fee income generated by Discovery Health, including loss of the management contract with Discovery Health Medical Scheme (DHMS), or material deterioration in expected earnings due to implementation of National Health Insurance in South Africa, (iv) sustained increase in the group's financial leverage, meaningfully beyond its 28% Financial Leverage Metric, (v) rapid growth in banking assets that decreases the group's resilience to sovereign-related stress scenarios, (vi) material weakening in the group's franchise, including evidence that casts doubt on the viability of the "Shared Value Insurance Model".

--- Guardrisk Group

Moody's noted that the following factors could lead to upward pressure on the ratings: (i) an upgrade of the rating of the South African sovereign, (ii) explicit support from a higher rated entity within the MMI group, and (iii) Diversification of the group's geographic footprint as concerns its invested assets and earnings that meaningfully reduces is exposure to South Africa, or other highly correlated regions.

Conversely, the following factors could lead to downward pressure on the ratings: (i) negative rating action on the South African sovereign or banking sector, (ii) failure to maintain regulatory capital levels under the upcoming SAM regulations, comfortably above management's minimum target, and (iii) material weakening in the Guardrisk's franchise, including regulatory or market changes that limit the appeal of the cell captive insurance model in South Africa.

--- MMI Group Limited

Moody's noted that the following factors could lead to upward pressure on the ratings: (i) an upgrade of the rating of the South African sovereign, (ii) diversification of the group's geographic footprint as concerns its invested assets and earnings that meaningfully reduces is exposure to South Africa, or other highly correlated regions.

Conversely, the following factors could lead to downward pressure on the ratings: (i) negative rating action on the South African sovereign or banking sector, (ii) failure to maintain regulatory capital levels under the upcoming SAM regulations, comfortably above management's minimum target level, (iii) meaningful reduction in the proportion of its flexible liability products relative to its overall non-unit linked liabilities.

--- Old Mutual Life Assurance Company (South Africa) Ltd

Moody's noted that the following factors could lead to upward pressure on the ratings: (i) an upgrade of the rating of the South African sovereign, (ii) diversification of the group's geographic footprint as concerns its invested assets and earnings that meaningfully reduces is exposure to South Africa, or other highly correlated regions.

Conversely, the following factors could lead to downward pressure on the ratings: (i) negative rating action on the South African sovereign or banking sector, (ii) failure to maintain regulatory capital levels under the upcoming SAM regulations, comfortably above management's minimum target level, (iii) meaningful reduction in the proportion of its flexible liability products relative to its overall non-unit linked liabilities.

--- Old Mutual Plc

Given Old Mutual's current strategy of managed separation Moody's noted that upward pressure on the rating was unlikely aside from the event of an upgrade of the rating of the South African sovereign in conjunction with an upgrade of the IFS rating of OMLAC(SA).

Conversely, the following factors could lead to downward pressure on the ratings: (i) material deterioration in the creditworthiness of the group's subsidiaries, including OMLAC(SA) and Nedbank, and/or negative rating action on the South African sovereign or banking sector , and (ii) any indication that outstanding debt would not be repaid following the completion of the managed separation and/or would not be supported by high quality liquid assets after completion of the managed separation.

--- Standard Insurance Limited

Moody's noted that the following factors could lead to upward pressure on the ratings: (i) an upgrade of the rating of the South African sovereign, (ii) diversification of the group's geographic footprint as concerns its invested assets and earnings that meaningfully reduces is exposure to South Africa, or other highly correlated regions.

Conversely, Moody's noted that the following factors could lead to a downgrade of the group's ratings: (i) a downgrade of South Africa's government debt rating and/or a downgrade of the South African banks, (ii) failure to maintain regulatory capital levels under the upcoming SAM regulations, comfortably above management's minimum target level , (iii) meaningful reduction in reinsurance limits and capacity, including reinstatements, relative to modeled natural catastrophe exposures, and (iv) termination of the bancassurance agreement with SBSA.

LIST OF AFFECTED RATINGS

The following ratings have been confirmed:

Issuer: Discovery Limited

Long term Issuer Rating at Ba1

National scale Long term Issuer rating at Aa3.za

Issuer: Guardrisk Insurance Company Limited

...Insurance Financial Strength Rating at Baa3

Issuer: Guardrisk Life Limited

...Insurance Financial Strength Rating at Baa3

Issuer: Guardrisk International Limited PCC

...Insurance Financial Strength Rating at Baa3

Issuer: MMI Group Limited

Insurance financial strength at Baa2

Long-term Issuer rating at Baa3

National scale Long term Issuer rating at Aaa.za

Subordinated debt at Ba1

National scale subordinated debt at Aa2.za

Subordinated MTN program at (P)Ba1

National scale subordinated MTN program at Aa2.za

Issuer: Old Mutual Life Assurance Company (South Africa) Ltd

...Insurance Financial Strength Rating at Baa2

Issuer: Old Mutual Plc

Long term Issuer rating at Ba1

Senior Unsecured MTN program at (P)Ba1

Subordinate MTN program at (P)Ba2

Subordinated debt at Ba2(hyb)

Issuer: Standard Insurance Limited

...Insurance Financial Strength Rating at Baa3

National scale Insurance Financial Strength Rating at Aa1.za

The following ratings have been affirmed:

Issuer: Old Mutual Plc

..Affirmations:

....Other Short Term, affirmed (P)NP

....Commercial Paper, affirmed NP

The outlooks on all affected issuers were changed to stable from ratings under review.

PRINCIPAL METHODOLOGIES

The principal methodology used in rating Old Mutual Life Assur. Co. (South Africa) Ltd, Old Mutual Plc, Discovery Limited, MMI Group Limited and Guardrisk Life Limited was Global Life Insurers published in April 2016. The principal methodology used in rating Standard Insurance Limited, Guardrisk Insurance Company Limited and Guardrisk International Limited PCC was Global Property and Casualty Insurers published in May 2017. Please see the Rating Methodologies page on www.moodys.com for a copy of these methodologies.

Moody's National Scale Credit Ratings (NSRs) are intended as relative measures of creditworthiness among debt issues and issuers within a country, enabling market participants to better differentiate relative risks. NSRs differ from Moody's global scale credit ratings in that they are not globally comparable with the full universe of Moody's rated entities, but only with NSRs for other rated debt issues and issuers within the same country. NSRs are designated by a ".nn" country modifier signifying the relevant country, as in ".za" for South Africa. For further information on Moody's approach to national scale credit ratings, please refer to Moody's Credit rating Methodology published in May 2016 entitled "Mapping National Scale Ratings from Global Scale Ratings". While NSRs have no inherent absolute meaning in terms of default risk or expected loss, a historical probability of default consistent with a given NSR can be inferred from the GSR to which it maps back at that particular point in time. For information on the historical default rates associated with different global scale rating categories over different investment horizons, please see https://www.moodys.com/researchdocumentcontentpage.aspx?docid=PBC_1113601.

REGULATORY DISCLOSURES

For ratings issued on a program, series or category/class of debt, this announcement provides certain regulatory disclosures in relation to each rating of a subsequently issued bond or note of the same series or category/class of debt or pursuant to a program for which the ratings are derived exclusively from existing ratings in accordance with Moody's rating practices. For ratings issued on a support provider, this announcement provides certain regulatory disclosures in relation to the credit rating action on the support provider and in relation to each particular credit rating action for securities that derive their credit ratings from the support provider's credit rating. For provisional ratings, this announcement provides certain regulatory disclosures in relation to the provisional rating assigned, and in relation to a definitive rating that may be assigned subsequent to the final issuance of the debt, in each case where the transaction structure and terms have not changed prior to the assignment of the definitive rating in a manner that would have affected the rating. For further information please see the ratings tab on the issuer/entity page for the respective issuer on www.moodys.com.

For any affected securities or rated entities receiving direct credit support from the primary entity(ies) of this credit rating action, and whose ratings may change as a result of this credit rating action, the associated regulatory disclosures will be those of the guarantor entity. Exceptions to this approach exist for the following disclosures, if applicable to jurisdiction: Ancillary Services, Disclosure to rated entity, Disclosure from rated entity.

Regulatory disclosures contained in this press release apply to the credit rating and, if applicable, the related rating outlook or rating review.

Please see www.moodys.com for any updates on changes to the lead rating analyst and to the Moody's legal entity that has issued the rating.

Please see the ratings tab on the issuer/entity page on www.moodys.com for additional regulatory disclosures for each credit rating.

Brandan Holmes
Vice President - Senior Analyst
Financial Institutions Group
Moody's Investors Service Ltd.
One Canada Square
Canary Wharf
London E14 5FA
United Kingdom
JOURNALISTS: 44 20 7772 5456
Client Service: 44 20 7772 5454

Antonello Aquino
Associate Managing Director
Financial Institutions Group
JOURNALISTS: 44 20 7772 5456
Client Service: 44 20 7772 5454

Releasing Office:
Moody's Investors Service Ltd.
One Canada Square
Canary Wharf
London E14 5FA
United Kingdom
JOURNALISTS: 44 20 7772 5456
Client Service: 44 20 7772 5454

No Related Data.
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Additional terms for Japan only: Moody's Japan K.K. (“MJKK”) is a wholly-owned credit rating agency subsidiary of Moody's Group Japan G.K., which is wholly-owned by Moody’s Overseas Holdings Inc., a wholly-owned subsidiary of MCO. Moody’s SF Japan K.K. (“MSFJ”) is a wholly-owned credit rating agency subsidiary of MJKK. MSFJ is not a Nationally Recognized Statistical Rating Organization (“NRSRO”). Therefore, credit ratings assigned by MSFJ are Non-NRSRO Credit Ratings. Non-NRSRO Credit Ratings are assigned by an entity that is not a NRSRO and, consequently, the rated obligation will not qualify for certain types of treatment under U.S. laws. MJKK and MSFJ are credit rating agencies registered with the Japan Financial Services Agency and their registration numbers are FSA Commissioner (Ratings) No. 2 and 3 respectively.

MJKK or MSFJ (as applicable) hereby disclose that most issuers of debt securities (including corporate and municipal bonds, debentures, notes and commercial paper) and preferred stock rated by MJKK or MSFJ (as applicable) have, prior to assignment of any credit rating, agreed to pay to MJKK or MSFJ (as applicable) for credit ratings opinions and services rendered by it fees ranging from JPY100,000 to approximately JPY550,000,000.

MJKK and MSFJ also maintain policies and procedures to address Japanese regulatory requirements.