Fitch Ratings has affirmed
Fitch has also affirmed Sanlam Life's parent and the ultimate holding company of the Sanlam group,
Key Rating Drivers
Strong Company Profile: Fitch assesses Sanlam's business profile as 'most favourable' compared with other South African insurers. We view Sanlam as the leading pan-African financial services provider. Sanlam's primary life insurance operating subsidiary, Sanlam Life, remains one of the largest life insurance groups in
Allianz Partnership Supports Expansion: In our view, Sanlam's proposed joint-venture with
Strong Capitalisation and Leverage: Fitch assesses Sanlam's capitalisation as strong, reflected by its 'Strong' score on Fitch's Prism Factor-Based Capital Model (Prism FBM), at end-2021 and 2020. Sanlam's Prism FBM score is driven by high investment risk charges, due to the company's portfolio of equities and non-investment grade bonds. This has been exacerbated by negative rating actions on South African issuers over the past years.
Sanlam's statutory solvency assessment and management (SAM) cover ratio for the group was 174% at end-1H22, broadly stable against the 173% reported at end-2021. Sanlam's financial leverage ratio (FLR) was 11% at end-2021 (2020: 11%), which we view as very strong. Sanlam's low leverage was despite net debt issuances 2021, principally supported by strong growth in equity capital. Fitch estimates the group's FLR to have marginally increased on a pro-forma basis to 12% at end-1H22 due to a reduction in shareholder equity. However, Sanlam's FLR remains well within our guidelines for the ratings and is supportive of our assessment of capitalisation and leverage.
Group Earnings Remain Strong: Sanlam's operating performance remained resilient in 1H22, supported by strong operating performance in its life business due to the normalising mortality claims but offset by weaker non-life performance. The group's net result from financial services (the group's main operating profit measure) improved marginally by 1% yoy to
Weaker Santam Profits: Results at the group's non-life business
Strong Reinsurance at
High Exposure to Risky Assets: Sanlam has a high level of risky assets to shareholders' equity compared with international insurers. This is mainly due to its exposure to interest-bearing investments linked to
Core Group Entities: Fitch assesses Sanlam Life, SDM and
RATING SENSITIVITIES
Factors that could, individually or collectively, lead to positive rating action/upgrade:
The ratings are '
Factors that could, individually or collectively, lead to negative rating action/downgrade:
Substantial and sustained deterioration in capitalisation in terms of Fitch's Prism FBM score, or a decline in Sanlam's SAM cover ratio to below 160%.
Sustained weak operating performance or severe weakening in company profile.
A downgrade of
REFERENCES FOR SUBSTANTIALLY MATERIAL SOURCE CITED AS KEY DRIVER OF RATING
The principal sources of information used in the analysis are described in the Applicable Criteria.
ESG Considerations
Unless otherwise disclosed in this section, the highest level of ESG credit relevance is a score of '3'. This means ESG issues are credit-neutral or have only a minimal credit impact on the entity, either due to their nature or the way in which they are being managed by the entity. For more information on Fitch's ESG Relevance Scores, visit www.fitchratings.com/esg
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