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 well-established and diversified business position of the Sanlam group 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.

Sanlam's wide range of investment, life insurance and other personal finance products to individuals and institutional clients provides revenue diversification. Investment-type business is the main component (2014: 60%, 2013: 61%) of total funds received, and is mainly derived from South Africa.

Fitch considers Sanlam's capital levels as strong. Sanlam Life's statutory capital adequacy requirement (CAR) cover ratio was strong at 5.0x at 30 September 2015 (4.8x at 30 June 2015, 4.5x at end-2014), the highest level in its peer group.

Sanlam reported ZAR4.8bn of discretionary capital, i.e. capital regarded by the group as being in excess of economic capital requirements, at 31 October 2015 (1H15: ZAR4.6bn, end-2014: ZAR3.3bn). The bulk of Sanlam's net ZAR1.9bn investment during 2014 was focused on strategic growth areas in Africa, India and southeast Asia. On 24 November 2015, Sanlam announced its acquisition of a 30% stake in Saham Finances S.A. for USD375m (approximately ZAR5.4bn). Fitch expects the group to continue using the excess capital to increase business from high-growth areas.

Sanlam's normalised headline earnings to 31 October 2015 increased 12% yoy, supported by higher asset-based fee income across most asset management and administration businesses and a strong performance from Santam. Sanlam's earnings generation continues to be strong and compares favourably with that of its leading peers.

The Sanlam Emerging Markets (SEM) business' operating profit weakened 10% to ZAR562m in 1H15, largely as a result of lower contributions from its Indian and Zambian businesses. Operating profit contribution, as a percentage of group operating profit, from the SEM business has been on the decline since 2013. In 1H15 SEM's operating profit comprised 16% of Sanlam's group operating profit, having contributed 18% in 2014 and 19% in 2013. However, Fitch believes that SEM's strategic rationale and growth fundamentals remain sound.

On 4 December 2015, Fitch downgraded South Africa's Long-term foreign currency and local currency ratings to 'BBB-' and 'BBB' respectively. This rating action has no impact on Sanlam's national scale ratings, as its relative credit worthiness to the sovereign remains unchanged in Fitch's view.

RATING SENSITIVITIES
Sanlam's ratings could be upgraded if the insurer becomes more geographically diversified, through 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.

FULL LIST OF RATING ACTIONS

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