MOODY’S Investors Service today downgraded the insurance financial strength rating (IFSR) of Old Mutual Life Assurance Company (South Africa) Limited, to Baa1 from A3 and the senior debt rating of Old Mutual Plc to Baa3 from Baa2.
Today’s rating actions follow the weakening of the South African government’s creditworthiness, as captured by Moody’s downgrade of South Africa’s government bond rating to Baa2 (stable) from Baa1 (negative) on 6 November 2014.
David Masters, Vice President – Senior Analyst Financial Institutions Group explained Moody’s Investors Service Ltd. The Old Mutual rating actions also reflect the weaker credit profile of the South African banking system, to which Old Mutual has material exposure.
Moody’s regards OMLAC(SA)’s credit quality as being partially linked to that of the South African sovereign and banking system, and the performance of the country’s economy.
Typically, Moody’s considers that an insurer’s key credit fundamentals (asset quality, capitalisation, profitability and financial flexibility) are correlated with — and thus linked to — the economic and market conditions in the countries where they operate.
OMLAC(SA) is the main life insurance entity of Old Mutual, operating in South Africa, where it has a leading market position. Old Mutual is further exposed to the South African economy through its ownership of Mutual and Federal (a non-rated South African non-life insurer) and, in particular, its majority shareholding in Nedbank Limited (Baa2 stable, standalone bank financial strength rating C-, stable/ baseline credit assessment (BCA) baa2).
The one-notch downgrade of OMLAC(SA)’s IFSR to Baa1 reflects its significant exposure to South African Rand-denominated assets, given the company’s largely domestically-oriented investment exposure (particularly sovereign and banking assets) and its domestic underwriting focus on South Africa.
Following this action, Moody’s continues to rate OMLAC(SA) one-notch higher than the South African sovereign rating. Moody’s says that the one-notch differential continues to reflect the insurer’s flexible product characteristics, which serve to reduce the impact on the group from stress related to credit pressures at the sovereign level.
In particular, this flexibility offers a relatively high ability to share asset losses with policyholders by permitting OMLAC(SA) the right to use the Bonus Smoothing Accounts and/or to make negative bonus declarations to policyholders. The rating positioning also reflects OMLAC(SA)’s very heavy domestic focus.
African Eye News.com
