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Rating Action:

Moody's downgrades ratings of South African insurance groups following action on the South African sovereign. Outlook negative.

Global Credit Research - 12 Jun 2017

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

No Related Data.
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