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Rating Action:

Moody's places ratings of South African insurance groups on review for downgrade following action on the South African sovereign

Global Credit Research - 29 Nov 2017

London, 29 November 2017 -- Moody's Investors Service, ("Moody's") has today placed the Insurance Financial Strength (IFS) and related debt and issuer ratings of the following South African insurance groups and related entities on review for downgrade:

- Discovery Limited (Discovery): Ba1 Long term Issuer rating, review for downgrade

- Guardrisk Insurance Company Limited (and related Guardrisk entities): Baa3 Insurance Financial Strength, review for downgrade

- MMI Group Limited (MMIGL): Baa2 Insurance Financial Strength, review for downgrade

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

- Old Mutual Plc: Ba1 Long term issuer rating, review for downgrade

- Standard Insurance Limited (SIL): Baa3 Insurance Financial Strength, review for downgrade

National scale ratings (NSR) have been placed on review for downgrade only in those cases where they could be impacted by a subsequent downgrade of their global scale ratings.

A complete list of ratings affected by this rating action is available at the end of this press release.

Today's rating action follows the review for downgrade of the Baa3 debt rating of the Government of South Africa, which was prompted by a series of recent developments which suggest that South Africa's economic and fiscal challenges are more pronounced than Moody's had previously assumed. For details of Moody's rating action and review of the sovereign rating, please see the related press release: Moody's places South Africa's Baa3 ratings on review for downgrade (https://www.moodys.com/research/--PR_375816).

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 a notional IFS assessment for the group to be one-notch above the sovereign rating of the Government of South Africa, and reflects our view that Discovery's diverse business mix, significant fee income and moderate asset leverage reduces the exposure to South African sovereign risk.

RATINGS RATIONALE

--- Discovery Limited: Ba1 LT Issuer rating and Aa3.za national scale LT Issuer rating placed on review for downgrade

Discovery's Ba1 -- review for downgrade -- 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 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, placed on review for downgrade

The Baa3 -- review for downgrade -- 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. While Guardrisk Insurance and Guardrisk Life are rated both Baa3, review for downgrade, on the global scale, and Aaa.za on the national scale, Guardrisk International is rated Baa3, review for downgrade, 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. However, while Guardrisk International, domiciled in Mauritius (Government of Mauritius, Baa1 stable), operates as an integral part of the group, it is separate from the South African entities in terms of capitalization, governance and regulation. During the review period, we will consider whether to reduce the linkage between Guardrisk International and the rest of the Guardrisk group, and therefore by extension, the South African sovereign.

--- MMI Group Limited: Baa2 IFS rating placed on review for downgrade

MMIGL's Baa2 -- review for downgrade -- 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), 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 placed on review for downgrade

OMLAC(SA)'s Baa2 -- review for downgrade -- 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, review for downgrade), and the largest life insurer in South Africa.

--- Old Mutual Plc: Programme ratings, including Ba1 Long-Term Issuer rating placed on review for downgrade

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, review for downgrade) 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.

The review for downgrade on Old Mutual Plc's Ba1 Issuer rating and associated programme ratings follows the review for downgrade on the Baa2 IFS Rating at OMLAC(SA), the anchor rating for Old Mutual Plc.

--- Standard Insurance Limited: Baa3 global scale and Aa1.za national scale IFS ratings placed on review for downgrade

SIL's Baa3 -- review for downgrade -- global scale, and Aa1.za -- review for downgrade -- 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, review for downgrade) and an affiliate of South Africa's largest bank, by assets, The Standard Bank of South Africa Limited (SBSA, LT Deposits Baa3, review for downgrade, 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.

POTENTIAL REMAPPING WILL IMPACT SOME INSURERS' NSRs

A possible downgrade of the sovereign rating will also change the map used to derive South African insurers' NSRs, given that the sovereign rating acts as an anchor point for the mapping. Moody's NSRs are intended as relative measures of creditworthiness among debt issues and issuers within a country, enabling market participants to better differentiate relative risks.

Accordingly, the South African insurer' NSRs that may be impacted by a potential remapping were placed on review for possible downgrade, in conjunction with the rating review of their global-scale ratings.

WHAT COULD CHANGE THE RATINGS UP/DOWN

As indicated by the review for downgrade on the sovereign rating, any further deterioration in the creditworthiness of South Africa and/or weaker macro profile would likely result in downgrades of the insurers' ratings, in view of their linkage to the sovereign through meaningful direct and indirect (through the banking system) exposure to sovereign debt. In addition, the insurers' ratings are further linked to the sovereign due to their exposure to local operating conditions that could have a direct impact on their financial performance. The rating of Guardrisk International would be confirmed if, as a result of the review, Moody's concluded that the extent of Guardrisk's presence outside of South Africa was sufficient to reduce its linkage to the South African sovereign.

Conversely, there is limited likelihood of an upgrade to the insurers' ratings, because their standalone credit profiles are constrained by the sovereign rating.

LIST OF AFFECTED RATINGS

The following ratings have been placed on review for downgrade:

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 outlooks on all affected issuers were changed to Ratings Under Review from Negative

PRINCIPAL METHODOLOGIES

The principal methodology used in rating Discovery Limited, Guardrisk Life Limited, MMI Group Limited, Old Mutual Plc and Old Mutual Life Assur. Co. (South Africa) Ltd was Global Life Insurers published in April 2016. 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. 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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