Fitch Affirms South Africa's Metropolitan Life IFS at 'AA-(zaf)'; Outlook Negative
Fitch Ratings-Johannesburg/London-04 December 2009: Fitch Ratings has today affirmed South Africa-based Metropolitan Life Limited's (MetLife) ratings at National Insurer Financial Strength (IFS) 'AA-(zaf)', National Long-term 'A+(zaf)' and its subordinated debt at 'A(zaf)'. The Outlooks on IFS and National Long-term ratings are Negative.
At the same time, the agency has affirmed MetLife's holding company, Metropolitan Holdings Limited (MetHold), at National Long-term 'A(zaf)' with a Negative Outlook.
The affirmation reflects the Metropolitan group's strong and established business position in its chosen market of clients with low-to-mid incomes, good capitalisation levels, its continued focus on expansion within Africa and strong black economic empowerment (BEE) credentials that have contributed to it winning important government business. Partially offsetting factors include the group's lack of affiliation with a bank to distribute its products, ongoing reform discussions in the contractual savings market, strong competitive pressures and a challenging operating environment in the near-term.
The Negative Outlook reflects Fitch's ongoing concern over potential further impacts on earnings and/or capitalisation due to volatility in investment markets, challenging economic conditions, and regulatory and competitive pressures.
At end-H109, capitalisation levels improved, compared to end-2008. The Metropolitan group's statutory capital adequacy requirement (CAR) cover was 3.2x (end-2008: 3.1x) and MetLife's statutory CAR cover was 2.5x (end-2008: 2.1x). While capitalisation remains good, Fitch nonetheless considers the Metropolitan Group's capital level to be relatively sensitive to equity market volatility.
Although the group's financial performance remained under pressure in H109, it has proven to be relatively resilient in face of the difficult operating environment. H109 earnings were adversely affected by a reduction in average investment asset levels, weaker investment performance due to turbulent market conditions, and increased strain on new business which resulted in the group incurring a lower net profit of ZAR199m (H108: ZAR223m) and generating a zero return on embedded value (H108: 2.9%). Fitch expects earnings to remain under pressure for the remainder of 2009 in view of the difficult South African and global investment markets and continued pressure on disposable incomes. Food, fuel and transport inflation remain the biggest challenge to the group's core target market. Any further inflation increases are likely to curtail new business prospects and possibly increase lapse rates.
The Metropolitan group is a financial services group based in South Africa. MetHold, which is listed on the Johannesburg Stock Exchange, is the ultimate holding company of the group, of which MetLife is the primary operating entity representing the bulk of the group's insurance business. The group is the fourth-largest life insurer, in terms of gross premiums written and the largest administrator of closed medical health schemes.
Contacts: Nicole Gibb, Johannesburg, Tel: +27 11 380 0909; Harish Gohil, London, +44 (0) 20 7682 7264.
Media Relations: Hannah Warrington, London, Tel: +44 (0) 207 417 6298, Email: hannah.warrington@fitchratings.com.
Note to Editors: Fitch's National ratings provide a relative measure of creditworthiness for rated entities in countries with relatively low international sovereign ratings and where there is demand for such ratings. The best risk within a country is rated 'AAA' and other credits are rated only relative to this risk. National ratings are designed for use mainly by local investors in local markets and are signified by the addition of an identifier for the country concerned, such as 'AAA(zaf)' for National ratings in South Africa. Specific letter grades are not therefore internationally comparable.
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