Fitch Changes Outlook on South Africa's Sanlam Life to Negative; Affirms IFS at 'AA+(zaf)'
Fitch Ratings-London-26 May 2009: Fitch Ratings has today changed the Outlooks on Sanlam Life Insurance Limited's (Sanlam Life) National Insurer Financial Strength (IFS) and National Long-term ratings to Negative from Stable. The Outlook on the National Long-term ratings of Sanlam Limited (Sanlam), the parent of Sanlam Life and the ultimate holding company of the Sanlam group, has also been changed to Negative from Stable. This primarily reflects concern over potential further weakening in earnings and deterioration in capitalisation due to volatility in investment markets as well as the current challenging and uncertain economic climate.
Fitch has affirmed Sanlam Life's National IFS rating at 'AA+(zaf)' and National Long-term rating at 'AA(zaf)'. Its National Short-term rating is affirmed at 'F1+(zaf)' and the company's subordinated debt of ZAR2bn is affirmed at 'AA-(zaf)'.
At the same time, Fitch has affirmed Sanlam at National Long-term 'AA-(zaf)'. The rating of Santam Limited (Santam), a core general insurance subsidiary of Sanlam, has been affirmed at National IFS 'AA+(zaf)', and its Outlook has been changed to Negative from Stable (see separate rating comment for Santam for further details).
The ratings reflect the Sanlam group's solid capital position, strong and diversified business position within the South African financial services market and resilient operating performance.
At end-2008 Sanlam Life reported a capital adequacy ratio cover of 2.7x (FYE07: 3.5x). The decline in the cover ratio results from falls in investment markets as well as a managed reduction of discretionary capital reflecting Sanlam's focus on capital optimisation, although in the current climate the group is more focussed on capital preservation.
Largely as a result of weak investment markets, Sanlam's net profit for 2008 at ZAR2,937m was 54% lower than the prior year. Fitch remains concerned that the current challenging environment due to volatile financial markets and consumer, regulatory and competitive pressures may constrain Sanlam's near-term earnings. Fitch, however, considers that the Sanlam group is well-positioned to remain competitive in the South African financial services market, given its strong relationships with its intermediaries, product innovation and customer focus.
Overall new life business margins (on a present value of new business basis) have continued to improve to 2.7% in 2008 from 2.4% in 2007, notwithstanding the intensely competitive market. Fitch believes that Sanlam's new business margins now compare favourably with peers. The underwriting margin (as a percentage of net earned premiums) in its general insurance business was broadly stable at 6.4% in 2008 (2007: 6.2%), supported by broadly stable claims and expense ratios. The Sanlam group has broadly maintained its market share in its South African life operations and maintained its market-leading position in the South African general insurance market through Santam.
Sanlam is the holding company for a well-diversified South African financial services group comprising life and general insurance and investment management operations. At end-2008, the group had funds under management of ZAR409bn and equity shareholders' funds of ZAR28bn.
Contact: Alan Ng, London, Tel/email : +44 20 7682 7467, alan.ng@fitchratings.com; Harish Gohil, +44 20 7682 7264, harish.gohil@fitchratings.com.
Media Relations: Hannah Warrington, London, Tel: +44 (0) 207 417 6298, Email: hannah.warrington@fitchratings.com.
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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