OREANDA-NEWS. 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