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Fitch Affirms Sanlam Life & Sanlam Developing Markets at IFS 'AA+(zaf)'; Outlook Stable
March 12, 2015 / 3:42 PM / in 3 years

Fitch Affirms Sanlam Life & Sanlam Developing Markets at IFS 'AA+(zaf)'; Outlook Stable

(The following statement was released by the rating agency) JOHANNESBURG/LONDON, March 12 (Fitch) Fitch Ratings has affirmed Sanlam Life Insurance Limited's (Sanlam Life) National Insurer Financial Strength (IFS) rating at 'AA+(zaf)', National Long-term rating at 'AA(zaf)' and National Short-term rating at 'F1+(zaf)'. Fitch has also affirmed Sanlam Life's subordinated debt at 'A+(zaf)'. Fitch has also affirmed Sanlam Life's parent and the ultimate holding company of the Sanlam group, Sanlam Limited's (Sanlam) National Long-term rating at 'AA-(zaf)'. Concurrently, Fitch has affirmed Sanlam Developing Markets Limited's (SDM) National IFS rating at 'AA+(zaf)' and National Long term rating at 'AA(zaf)'. The Outlooks are Stable. KEY RATING DRIVERS The affirmation of Sanlam's and Sanlam Life's ratings reflects the Sanlam group's well-established and diversified business position in South Africa, its sound and resilient capitalisation and its strong operating performance. SDM's ratings are aligned with those of the primary operating entity within the group, Sanlam Life, as SDM is assessed as "Core" to the Sanlam group under Fitch's insurance group rating methodology. This is because its business, operations and strategy are fully aligned with those of the group. Fitch considers Sanlam's capital levels as strong. Sanlam Life's statutory capital adequacy requirement (CAR) cover ratio was stable at 4.5x at 31 December 2014, the highest level in its peer group. Sanlam reported ZAR3.3bn of discretionary capital, i.e. capital regarded by the group as being in excess of economic capital requirements, at end-2014 (end-2013: ZAR4bn). The bulk of Sanlam's net ZAR1.9bn investment during 2014 was focused on strategic growth areas in Africa, India and southeast Asia. Fitch expects the group to continue using the excess capital to increase business from high-growth areas. Sanlam's operations remain predominantly based in South Africa, although the operating profit contribution from the Sanlam Emerging Markets (SEM) business has shown strong growth in recent years. In 2014 SEM's operating profit improved 23% to ZAR1.2bn or 18% of Sanlam's net operating profit. Sanlam's normalised headline earnings increased by 3% to ZAR8.3bn in 2014 supported by strong operating profit growth from all business divisions (combined growth rate of 27%). This was offset by a 41% decrease in investment return on shareholder funds relative to 2013. Sanlam's earnings generation continues to be strong and compares favourably with that of its leading peers. Total net covered new business margin on a present value of new business premium basis was broadly stable at 3.1% in 2014 (2013: 3.2%, 2012: 3.4%). RATING SENSITIVITIES Sanlam's ratings could be upgraded if it becomes more geographically diversified, reflected in SEM's contribution to group net operating profit improving to above 25%, while maintaining its strong operating performance, capitalisation and leading position in South Africa. Fitch expects Sanlam to continue to improve its market shares in new markets, which could support an upgrade. A substantial and sustained deterioration in capitalisation (based on Fitch's risk-based assessment) or a drop in Sanlam's shareholders' funds of 25% for a sustained period, and/or weak operating performance driven by a significant fall in equity markets, significantly lower new-business margins or a severe weakening of market share could lead to a downgrade. The rating actions are as follows: Sanlam Life Insurance Limited National IFS rating: affirmed at 'AA+(zaf)'; Outlook Stable National Long-term rating: affirmed at 'AA(zaf)'; Outlook Stable National Short-term rating: affirmed at 'F1+(zaf)'; Outlook Stable Subordinated debt: affirmed at 'A+(zaf)' Sanlam Limited National Long-term rating: affirmed at 'AA-(zaf)'; Outlook Stable Sanlam Developing Markets Limited National IFS rating: affirmed at 'AA+(zaf)'; Outlook Stable National Long-term rating: affirmed at 'AA(zaf)'; Outlook Stable Contact: Primary Analyst Willem Loots Director +27 11 290 9402 Fitch Southern Africa (Pty) Ltd 23 Impala Road Sandton 2196 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: elaine.bailey@fitchratings.com. Additional information is available at www.fitchratings.com. (a) No part of the rating was influenced by any other business activities of the credit rating agency; (b) The rating was based solely on the merits of the rated entity, security or financial instrument being rated; (c) Such rating was an independent evaluation of the risks and merits of the rated entity, security or financial instrument. Applicable criteria, 'Insurance Rating Methodology', dated 4 September 2014 are available at www.fitchratings.com. 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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