OREANDA-NEWS. March 16, 2015. Fitch Ratings has affirmed Mutual & Federal Insurance Company Limited's (M&F) National Insurer Financial Strength (IFS) rating at 'AAA(zaf)'. The Outlook is Stable.

KEY RATING DRIVERS
Fitch considers M&F as "Core" to the Old Mutual group under the agency's insurance group rating methodology, based on its alignment with Old Mutual's strategy and integration of management into the Old Mutual group. As a result M&F's rating is raised three notches from its standalone credit profile, which is weaker than Old Mutual Life Assurance Company (South Africa) Limited's (OMLACSA) IFS rating of 'AAA(zaf)'.

From a standalone perspective, M&F's rating benefits from its conservative investment strategy, well-established business positions in its chosen market segments and strong capitalisation. Fitch views M&F's investment strategy as conservative, with strong liquidity.

M&F has a leading market position as the second-largest general insurer in South Africa by gross written premium (GWP), with a strong domestic franchise. M&F's group GWP improved 2.4% to ZAR10.8m in 2014. Fitch views this low growth rate as consistent with the deteriorating local market conditions in 2014.

M&F declared an underwriting profit of ZAR79m (group basis) in 2014, compared with an underwriting loss of ZAR483m in 2013. This improvement was driven by pricing and claims management interventions and better weather conditions.

Fitch believes that M&F remains adequately capitalised based on the minimum statutory requirement.

RATING SENSITIVITIES
Given Fitch's view that M&F is "Core" to the Old Mutual group, any upgrade or downgrade of OMLACSA's National IFS rating would have a similar impact on that of M&F.

A downgrade could also be triggered by a deterioration in the standalone profile to an extent that Fitch would no longer consider M&F as "Core" to Old Mutual. This could result from sustained weak operating performance, lower levels of capitalisation and/or severe weakening in its market share.