S&P takes negative rating actions on South Africa-based Insurers

S&P Global Ratings has taken various rating actions on the insurers exposed to the South African market.

The actions follow S&P’s November 22 revision to negative from stable of its outlook on the foreign and local currency sovereign rating on South Africa.

“Our outlook on South Africa indicates that South Africa's fiscal metrics are rapidly worsening as a result of low GDP growth, upwardly revised fiscal deficits, and the growing debt burden,” said S&P. “These factors could weigh on the quality of assets and earnings prospects of the domestic insurance sector.

“We are therefore revising our outlook on various global scale ratings and lowering various South Africa national scale ratings on nonoperating holding companies (NOHC) and two operating companies, as well as deferrable debt ratings on some domestic insurers.”

S&P affirmed its ratings on Old Mutual Life Assurance Co (OMLACSA) at 'BB+' and revised the outlook to negative. It capped its global scale rating on OMLACSA at the 'BB+' local currency ratings on South Africa.

S&P affirmed the national scale ratings on Sanlam Life Insurance (Sanlam Life) and Liberty Group at 'zaAAA' and capped its ratings on these players at the level of the local currency rating.

S&P lowered its national scale ratings on Sanlam Capital Markets Proprietary to 'zaAA' and

lowered the national scale rating Sanlam (NOHC) to 'zaA+', below the rating on Sanlam Life, because of the structural subordination that comes from its NOHC status.

S&P affirmed its ratings on South African insurer Santam at 'BB+' and its national scale ratings at 'zaAAA'. It capped its global scale rating on Santam at the level of its local currency sovereign ratings on South Africa.

S&P confirmed its BB global scale rating on the three entities collectively known as Santam SI Investments but lowered its national scale rating on Santam Structured Insurance to 'zaAA'.

For AIG South Africa and AIG Life South Africa (collectively known as AIG SA)

S&P confirmed its 'BB+' global scale and our 'zaAAA' national scale ratings.

S&P affirmed its ratings on Allianz Global Corporate and Specialty South Africa (AGCSSA)

at 'BBB-' and its national scale ratings at 'zaAAA'.

Issue credit ratings included a lowering of the national scale ratings on the deferrable debt issued by Liberty, OMLACSA, Sanlam Life, and Santam to reflect the increased payment risk of the issuers.

S&P’s negative outlook on AIG SA, AGCSSA, OMLACSA and Santam including Santam SI reflect its negative outlook on the sovereign.

“Over the next 12 months, the most likely trigger for further rating actions, positive or negative, would be a similar action on the sovereign,” said S&P.

“For Santam, we could also lower the rating if it were to fail our sovereign stress test and we see signs that it is not executing its risk-mitigation plan, or if the insurer's capital and earnings were to weaken below the current levels.”

Commenting on its ratings actions, S&P said: “We took these rating actions after revising to negative our outlook on South Africa. Once again, South Africa's economic performance has disappointed, depressed by low investment, power shortages, dry weather, and limited reform momentum.

“We expect real GDP growth for this year to come in at 0.6 percent, down from our expectation of 1 percent in May. Unemployment is at a 16-year high of 29 percent. As a result, asset quality in the domestic insurance sector is likely to come under additional pressure. Furthermore, the insurance market's growth and earnings prospects could deteriorate from current levels. We therefore see their balance sheets as being more vulnerable.”