OREANDA-NEWS. Fitch Ratings has affirmed South Africa-based Santam Limited's (Santam) National Insurer Financial Strength (IFS) rating at 'AA+(zaf)' and National Long-term rating at 'AA(zaf)'. The Outlooks are Stable. Fitch has simultaneously affirmed Santam's subordinated debt at 'A+(zaf)'.

KEY RATING DRIVERS
The ratings reflect Santam's "Core" status within the Sanlam group, under Fitch's insurance group rating methodology. The ratings also reflect its standalone credit profile, which is consistent with Sanlam Life Insurance Limited's IFS rating of 'AA+(zaf)'.

Santam is the largest general insurer in South Africa, with a strong domestic franchise. At end-2014 Santam increased its gross written premiums by 10% to ZAR22.7bn, having weathered strong competition and a difficult economic environment.

Fitch believes that Santam remains adequately capitalised based on the agency's own risk-adjusted assessment and the regulatory statutory requirement. At end-2014, Santam's solvency ratio improved to 46% (end-2013: 42%; end-2012: 41%), which is above the company's target range of 35% to 45%.

Santam has foregone the payment of a special dividend in 1H15 in order to maintain a degree of capital headroom in anticipation of the implementation of Solvency Assessment and Management (SAM) on 1 January 2016. Fitch views this conservative approach positively.

Net profit improved 42% to ZAR1,667m in 2014, supported by an improved underwriting result and higher interest rates. Santam's improved combined ratio of 91.3% (2013: 97.2%) was mainly attributed to a turnaround in the crop insurance business and the absence of hail-related catastrophe events in 4Q14. Santam has a long history of strong underwriting profitability, with a 10-year average combined ratio of 93.7%, which compares favourably with peers.

RATING SENSITIVITIES
Given Fitch's view that Santam is "Core" to the Sanlam group any upgrade or downgrade of Sanlam's ratings would have a similar impact on those of Santam.

A downgrade could also be triggered by deterioration in the standalone profile to an extent that Fitch would no longer consider Santam as "Core" to Sanlam. This could result from a sustained weak operating performance and/or severe weakening in Santam's market share.