Tuesday 05, December 2017 by Matthew Amlôt

Moody's places ratings of SA insurance groups on review for downgrade

Moody's Investors Service has 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.

The 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.

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.


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