London, 12 June 2017 -- Moody's Investors Service, ("Moody's") has
today downgraded the global scale Insurance Financial Strength (IFS) and
related debt ratings of South African insurance groups and related entities,
and assigned a negative outlook. In the same rating action,
Moody's affirmed the insurers' national scale ratings.
The rating actions conclude the review for downgrade that commenced on
4 April 2017.
The South African insurers included in this rating action are:
- Old Mutual Life Assurance Company (South Africa) Ltd, (OMLAC(SA)):
IFS rating downgraded to Baa2 from Baa1, with negative outlook
- MMI Group Limited (MMIGL): IFS rating downgraded to Baa2
from Baa1, with negative outlook. National scale IFS rating
affirmed at Aaa.za
- The Guardrisk group of entities (Guardrisk Insurance Company
Limited and related entities): IFS ratings downgraded to Baa3 from
Baa2, with negative outlook. National scale IFS ratings affirmed
at Aaa.za.
- Standard Insurance Limited (SIL): IFS rating downgraded
to Baa3 from Baa2, with negative outlook. National scale
IFS rating affirmed at Aa1.za
Today's rating actions on the above South African insurers follow Moody's
downgrade of the long-term issuer and senior unsecured ratings
of the government of South Africa to Baa3 from Baa2, with negative
outlook. The sovereign downgrade reflects Moody's view that recent
political developments suggest a weakening of the country's institutional
strength which casts doubt over the strength and sustainability of the
recovery in growth and the stabilization of the debt-to-GDP
ratio over the near-term. For details of Moody's rating
action and review of the sovereign rating, please see the related
press release: Moody's downgrades South Africa's rating
to Baa3 and assigns negative outlook (Moody's downgrades South Africa's
rating to Baa3 and assigns negative outlook; https://www.moodys.com/research/--PR_367769).
Moody's considers the above 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 one notch
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.
A complete list of ratings affected by this rating action is available
at the end of this press release.
RATINGS RATIONALE
--- Old Mutual Life Assurance Company (South Africa)
Ltd: Baa2 IFS rating with negative outlook
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 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, negative), and the largest life insurer in South Africa.
--- Old Mutual Plc: Ba1 Long-Term Issuer
rating with negative outlook
Old Mutual Plc is a London based holding company for a diversified financial
services group that includes life assurance, 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 negative) due to the substantial
operations and investment exposure in South Africa.
On 11 March, 2016, the group announced a new strategy to separate
its four key underlying businesses, Old Mutual Emerging Markets
(OMEM, unrated), Old Mutual Wealth (OMW, unrated),
Old Mutual Wealth Life Assurance Limited (A2 negative), Nedbank
Limited (LT Deposits Baa3 negative, BCA baa3) and OM Asset Management
plc (OMAM, LT Issuer rating Baa2, stable). The group
expects the separation to be substantially complete by the end of 2018,
by which time the group stated it would cease to exist in its current
structure.
Old Mutual Plc's Ba1 Issuer rating and associated debt ratings,
are anchored on the Baa2 IFS rating at OMLAC(SA), the group's
lead life insurance entity. Old Mutual Plc's Long-Term
Issuer rating and other debt ratings continue to reflect (i) our expectation
of increased holding company liquidity relative to debt in the event of
individual businesses being sold, and as a result of the more conservative
dividend policy, and (ii) the company's previously stated intent
to materially reduce holding company debt before returning excess capital
to shareholders. Higher liquidity at the holding company,
or accelerated debt repayments over the course of the managed separation,
will offset the negative credit impact of lower diversification benefits
following the separation of individual businesses. We note Old
Mutual Plc has meaningfully reduced holding company debt since March 2016,
and, as announced in its AGM statement on 25 May 2017, is
considering all its options with regard to its cash, debt and contingent
liabilities, taking into account the cash proceeds from disposals
and requirements of the standalone balance sheets of the subsidiaries.
--- MMI Group Limited: Baa2 IFS rating with
negative outlook
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 lower insurance profit
margins relative to peers.
MMIGL is the primary life insurance subsidiary of MMI Holdings Limited
(MMI, unrated), 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.
--- Guardrisk Group: Baa3 IFS rating of rated
subsidiaries with negative outlook
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, including meaningfully lower capital coverage
expected for Guardrisk Insurance Company Limited, absent the regulator
agreeing to transitional measures or an additional capital contribution
from the parent, MMI Holdings Limited.
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, LT Issuer rating Baa1,
stable). While Guardrisk Insurance and Guardrisk Life are rated
both Baa3 on the global scale, and Aaa.za on the national
scale, 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. We consider Guardrisk's entities to be closely related,
the South African entities benefiting from a common operating platform
and management structure. In addition, the three rated entities
form part of Guardrisk's overall platform and integrated service offering
to clients, allowing it to offer a variety of risk transfer solutions
to clients.
--- Standard Insurance Limited: Baa3 IFS rating
with negative outlook
SIL's Baa3 global scale and Aa1.za national scale IFS ratings reflect
the insurer's (i) established market position as a mid-tier
short-term insurer in the South African market, (ii) good
brand recognition and credibility afforded by its affiliation with Standard
Bank, (iii) strong and consistent profitability, partly due
to lower acquisition costs resulting from the sales and distribution arrangement
with its parent, and (iv) strong capitalization relative to regulatory
capital requirements. These strengths are partially offset by (i)
its investment portfolio's concentrated exposure to the South African
economy and banking system, (ii) very high gross modelled natural
catastrophe exposure relative to capital, and (iii) 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 negative) and an affiliate of South Africa's
largest bank, by assets, The Standard Bank of South Africa
Limited (SBSA, LT Deposits Baa3 negative, BCA baa3).
While SIL benefits from the Standard Bank name, and to a large extent
services a subset of SBSA's customers, the rating does not incorporate
any support from SBG.
OUTLOOK
The negative outlook for the South African insurers reflects the negative
outlook on the South African sovereign, and the linkage between
the insurers and South Africa. The negative outlook on the South
African sovereign reflects Moody's view that the risks to growth and fiscal
strength arising from the political outlook are tilted to the downside.
For Old Mutual Plc, the negative outlook reflects its indirect link
to the South African sovereign, through its main subsidiary,
Old Mutual Life Assurance Company (South Africa) Ltd. In addition,
the negative outlook also reflects (i) execution risk and uncertainty
related to the managed separation strategy, including the timing
and sequence of the respective separations and debt repayments,
and (ii) potential for increased pressure to return capital to shareholders
as individual businesses are separated. We believe the aforementioned
risks related to the managed separation remain, although the group's
steady progress in divesting of assets and repaying debt do alleviate
these concerns somewhat.
WHAT COULD CHANGE THE RATINGS UP/DOWN
--- Old Mutual Life Assurance Company (South Africa)
Ltd
Given the negative outlook for the South African sovereign, there
is limited upward pressure on OMLAC(SA)'s IFS rating. Moody's
would likely stabilize OMLAC(SA)'s outlook if the outlook on South
Africa was stabilized.
Conversely, downward pressure on OMLAC(SA)'s rating could
result from: (i) a downgrade of the rating of the South African
sovereign, (ii) meaningful reduction in the proportion of its flexible
liability products relative to its overall non-unit linked liabilities,
(iii) failure to maintain regulatory capital levels, under the upcoming
SAM regulations, comfortably above management's minimum target level,
(iv) meaningful challenges that arise from the group's strategy of managed
separation, including erosion of the company's market position due
to uncertainty around the separation from the group.
--- Old Mutual Plc
Given the negative outlook for the South African sovereign, there
is limited upward pressure on Old Mutual Plc's ratings. Old
Mutual Plc's outlook would only be returned to stable if the outlook
for South Africa was returned to stable and the level of uncertainty and
execution risk around Old Mutual Plc's managed separation had reduced
meaningfully.
Conversely, downward pressure on Old Mutual Plc's ratings
could result from: (i) a downgrade of the rating of the South African
sovereign, (ii) material deterioration in the creditworthiness of
the group's subsidiaries, including OMLAC(SA), OMW and Nedbank
Limited, (iii) a meaningful reduction in the Group's business and
geographic diversification, absent a related increase in holding
company liquidity, or debt repayment, (iv) meaningful return
of capital to shareholders ahead of debt redemption, (v) failure
to sustain hard interest coverage of at least 2x.
--- MMI Group Limited
Given the negative outlook for the South African sovereign, there
is limited upward pressure on MMIGL's IFS rating. Moody's
would likely stabilize MMIGL's outlook if the outlook on South Africa
was stabilized.
Conversely, downward pressure on MMIGL's rating could result
from: (i) a downgrade of the rating of the South African sovereign,
(ii) meaningful reduction in the proportion of its flexible liability
products relative to its overall non-unit linked liabilities,
(iii) failure to maintain regulatory capital levels, under the upcoming
SAM regulations, comfortably above management's minimum target level.
--- Guardrisk Group
Given the negative outlook for the South African sovereign, there
is limited upward pressure on the respective Guardrisk IFS ratings.
Moody's would likely stabilize Guardrisk's outlook if the outlook
on South Africa was stabilized.
Conversely, downward pressure on the respective Guardrisk ratings
could result from: (i) a downgrade of the rating of the South African
sovereign, (ii) failure to attain regulatory compliance, including
a transitional dispensation, under the upcoming SAM regulations.
--- Standard Insurance Limited
Given the negative outlook for the South African sovereign, there
is limited upward pressure on SIL's IFS rating. Moody's would
likely stabilize SIL's outlook if the outlook on South Africa was
stabilized.
Conversely, downward pressure on SIL's rating could result
from: (i) a downgrade of the rating of the South African sovereign,
(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 modelled natural catastrophe exposures,
(iv) termination of the sales and distribution agreement with SBSA.
LIST OF AFFECTED RATINGS
The following ratings have been downgraded:
Issuer: Old Mutual Life Assurance Company (South Africa) Ltd
...Insurance Financial Strength Rating to Baa2 from
Baa1
Issuer: Old Mutual Plc
Senior Unsecured MTN program to (P)Ba1 from (P)Baa3
Long-term Issuer rating to Ba1 from Baa3
Subordinate MTN program to (P)Ba2 from (P)Ba1
Subordinated debt to Ba2(hyb) from Ba1(hyb)
Commercial paper to Not Prime from P-3
Other Short-Term to (P)Not Prime from (P)P-3
Issuer: MMI Group Limited
Insurance financial strength to Baa2 from Baa1
Long-term Issuer rating to Baa3 from Baa2
Subordinated debt to Ba1 from Baa3
Subordinated MTN programme to (P)Ba1 from (P)Baa3
Issuer: Guardrisk Insurance Company Limited
...Insurance Financial Strength Rating to Baa3 from
Baa2
Issuer: Guardrisk Life Limited
...Insurance Financial Strength Rating to Baa3 from
Baa2
Issuer: Guardrisk International Limited PCC
...Insurance Financial Strength Rating to Baa3 from
Baa2
Issuer: Standard Insurance Limited
...Insurance Financial Strength Rating to Baa3 from
Baa2
The following national scale ratings have been affirmed:
Issuer: MMI Group
National scale Insurance Financial Strength at Aaa.za
National scale long-term Issuer rating at Aaa.za
National scale subordinated debt at Aa2.za
National scale subordinated MTN programme at Aa2.za
Issuer: Guardrisk Insurance Company Limited
...National scale Insurance Financial Strength Rating
at Aaa.za
Issuer: Guardrisk Life Limited
...National scale Insurance Financial Strength Rating
at Aaa.za
Issuer: Standard Insurance Limited
National scale Insurance Financial Strength Rating at Aa1.za
The outlooks on all affected issuers were changed to Negative from Ratings
Under Review
The principal methodology used in rating Guardrisk Insurance Company Limited,
Guardrisk International Limited PCC and Standard Insurance Limited was
Global Property and Casualty Insurers published in May 2017. The
principal methodology used in rating Guardrisk Life Limited, MMI
Group Limited, Old Mutual Life Assurance Company (South Africa)
Ltd and Old Mutual Plc was Global Life Insurers published in April 2016.
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_1060333.
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
