September 4, 2014 / 12:37 PM / 3 years ago

Fitch Affirms Old Mutual; Outlook Stable

(The following statement was released by the rating agency) LONDON, September 04 (Fitch) Fitch Ratings has affirmed Old Mutual plc's (Old Mutual) Long-term Issuer Default Rating (IDR) at 'BBB', senior unsecured debt at 'BBB-' and subordinated debt at 'BB'. The agency has also affirmed Old Mutual Life Assurance Company (South Africa) Limited's (OMLACSA) subordinated debt at 'AA(zaf)' and National Insurer Financial Strength (IFS) rating at 'AAA(zaf)' and Skandia Life Assurance Company Ltd's (Skandia) IFS rating at 'A-'. The Outlooks on the group's IDRs and IFS ratings are Stable. A full list of rating actions is at the end of this comment. KEY RATING DRIVERS The ratings reflect Old Mutual's position as the market-leading life insurer and largest fund manager in South Africa, its significant presence in the UK savings market, strong risk-adjusted capitalisation and robust earnings. However, the ratings are constrained by South Africa's sovereign rating (BBB+/Negative), reflecting the importance of South African business to the group: approximately 75% of the operating earnings are from South Africa, with the remainder largely from the UK. Fitch views OMLACSA and Skandia as "Core" to the group under its insurance group rating methodology and therefore rates them based on the credit quality of the group as a whole. OMLACSA's national scale ratings reflect its leading position in South Africa, its strong capitalisation (end-1H14 regulatory solvency coverage: 3.2x) relative to peers and its ability to share potential investment losses with policyholders. OMLACSA is well capitalised to withstand significant economic and market-related shocks under, for example, the stress scenarios prescribed by the South African regulator, the Financial Services Board. Skandia is an important contributor to the group's earnings, accounting for 25.2% of the group's operating profits (after tax and non-controlling interests) in 2013, and is strongly capitalised (end-1H14: 3.1x). The group's international scale IFS rating, assigned to Skandia, is one notch higher than the South African local currency sovereign rating, owing to Old Mutual's geographical diversification: a sizeable proportion of earnings are generated in the UK and Europe. The rating also reflects the group's ability to share with policyholders potential investment losses on its investments in the South African financial markets, and the financial flexibility from being listed on the London Stock Exchange. The Stable Outlook reflects the fact that a one-notch downgrade of the South African sovereign would not trigger a downgrade of Old Mutual's ratings. The possibility of Skandia's resources being called upon to support the South African operations is remote, in Fitch's opinion. The holding company's ability to service its non-rand-denominated debt obligations based purely on its non-rand earnings is adequate. Old Mutual reported a significantly improved hard-currency interest cover of 4.6x for 1H14 (2013: 4.2x, 2012: 1.9x), following significant debt reduction in recent years, and maintains significant cash at the holding company (end-1H14: GBP466m). RATING SENSITIVITIES The ratings are unlikely to be upgraded as they are constrained by the South African sovereign ratings, which have a Negative Outlook. OMLACSA's national scale ratings would be downgraded only if its creditworthiness deteriorated materially relative to the South African sovereign and its peers in the South African market. Old Mutual's international scale ratings could be downgraded if there were material reduction in the geographical diversification of earnings or a deterioration in the quality of non-South African earnings, with hard-currency cover falling below 2x (2013: 4.2x). The rating actions are as follows: Old Mutual plc Long-term IDR: affirmed at 'BBB'; Outlook Stable Senior unsecured debt: affirmed at 'BBB-' Subordinated debt: affirmed at 'BB' Short-term IDR and commercial paper: affirmed at 'F3' Old Mutual Life Assurance Company (South Africa) Limited National IFS rating: affirmed at 'AAA(zaf)'; Outlook Stable National Long-term rating: affirmed at 'AAA(zaf)'; Outlook Stable Subordinated debt: affirmed at 'AA(zaf)' Skandia Life Assurance Company Ltd IFS rating: affirmed at 'A-'; Outlook Stable Long-term IDR: affirmed at 'BBB+'; Outlook Stable Contact: Primary Analyst Anna Bender Associate Director +44 20 3530 1671 Fitch Ratings Limited 30 North Colonnade London E14 5GN Secondary Analyst Harish Gohil Managing Director +44 20 3530 1257 Committee Chairperson Chris Waterman Managing Director +44 20 3530 1168 Media Relations: Elaine Bailey, London, Tel: +44 203 530 1153, Email: Additional information is available at Applicable criteria, 'Insurance Rating Methodology', dated 13 November 2013 are available at Applicable Criteria and Related Research: Insurance Rating Methodology here Additional Disclosure Solicitation Status here ALL FITCH CREDIT RATINGS ARE SUBJECT TO CERTAIN LIMITATIONS AND DISCLAIMERS. PLEASE READ THESE LIMITATIONS AND DISCLAIMERS BY FOLLOWING THIS LINK: here. IN ADDITION, RATING DEFINITIONS AND THE TERMS OF USE OF SUCH RATINGS ARE AVAILABLE ON THE AGENCY'S PUBLIC WEBSITE 'WWW.FITCHRATINGS.COM'. PUBLISHED RATINGS, CRITERIA AND METHODOLOGIES ARE AVAILABLE FROM THIS SITE AT ALL TIMES. FITCH'S CODE OF CONDUCT, CONFIDENTIALITY, CONFLICTS OF INTEREST, AFFILIATE FIREWALL, COMPLIANCE AND OTHER RELEVANT POLICIES AND PROCEDURES ARE ALSO AVAILABLE FROM THE 'CODE OF CONDUCT' SECTION OF THIS SITE. FITCH MAY HAVE PROVIDED ANOTHER PERMISSIBLE SERVICE TO THE RATED ENTITY OR ITS RELATED THIRD PARTIES. DETAILS OF THIS SERVICE FOR RATINGS FOR WHICH THE LEAD ANALYST IS BASED IN AN EU-REGISTERED ENTITY CAN BE FOUND ON THE ENTITY SUMMARY PAGE FOR THIS ISSUER ON THE FITCH WEBSITE.

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