Moody’s Investors Service, (“Moody’s”) has placed the A1.za national scale insurance financial strength (IFS) rating of Standard Insurance Limited (SIL) on review for downgrade.
Today’s rating action follows the review for downgrade of the Baa2 debt rating of the Government of South Africa, which reflects the deterioration in the credit profile of the sovereign. The SIL rating action also reflects the weaker credit profile of the South African banking system following the rating of the sovereign being placed on review for downgrade. For details of Moody’s rating action and review of the sovereign rating, please see the related press release: Moody’s places South Africa’s Baa2 ratings on review for downgrade (https://www.moodys.com/research/–PR_344855).
SIL is a wholly-owned subsidiary of the Standard Bank Group (SBG, Baa3, review for downgrade) and an affiliate of South Africa’s largest bank, by assets, Standard Bank of South Africa (SBSA, deposits Baa2, review for downgrade). SIL’s rating does not incorporate any implicit or explicit support from SBG, primarily due to the sovereign constraint on the group’s ratings such that no company in the group is rated above SIL. However, in the event of deterioration in SIL’s credit profile relative to SBG, we believe it is likely that the group would provide support.
RATINGS RATIONALE
The review for downgrade of SIL’s A1.za IFS rating reflects the deterioration in South Africa’s credit profile and the company’s meaningful link to the South African sovereign (Government of South Africa, Baa2, review for downgrade) and banking system. The primary reasons for this link include, the significant majority of the company’s invested assets being held in domestic securities, including deposits with domestic banks, and sensitivity of SIL’s operating performance to the South African economy and financial markets.
The A1.za national scale IFS rating reflects SIL’s (i) established market position as a mid-tier short-term insurer in the South African market, (ii) brand recognition and credibility afforded by its affiliation with Standard Bank, (iii) strong and consistent profitability, partly due to lower acquisition costs resulting from a bancassurance arrangement, and (iv) strong capitalization relative to regulatory capital requirements. These strengths are partially offset by (i) its investment portfolio’s concentrated exposure to the South African economy and banking system, (ii) high gross modeled natural catastrophe exposure relative to capital, and (iii) limited product and geographic diversification, with high concentration in residential property exposure. Given its exposure to the South African market, SIL’s IFS rating is constrained by South Africa’s government debt rating.
WHAT COULD CHANGE THE RATING UP OR DOWN
Given the review for downgrade, upward pressure on SIL’s ratings is unlikely in the near term, however, Moody’s stated that a confirmation of the ratings would likely result from a confirmation of South Africa’s government debt rating at Baa2.
Conversely, Moody’s stated that the following factors could lead to a downgrade of SIL’s rating: (i) a downgrade of South Africa’s government debt rating and/or a downgrade of the South African banks, (ii) inability to maintain a minimum of 1.5x coverage of regulatory capital requirements, (iii) meaningful reduction in reinsurance limits and capacity, including reinstatements, relative to modeled natural catastrophe exposures, and (iv) termination of the bancassurance agreement with SBSA.
LIST OF AFFECTED RATINGS
The following national scale insurance financial strength rating was placed on review for downgrade:
Standard Insurance Limited at A1.za
PRINCIPAL METHODOLOGY
The principal methodology used in this rating was Global Property and Casualty Insurers published in December 2015. Please see the Ratings Methodologies page on www.moodys.com for a copy of this methodology.
Moody’s National Scale Credit Ratings (NSRs) are intended as relative measures of creditworthiness among debt issues and issuers within a country, enabling market participants to better differentiate relative risks. NSRs differ from Moody’s global scale credit ratings in that they are not globally comparable with the full universe of Moody’s rated entities, but only with NSRs for other rated debt issues and issuers within the same country. NSRs are designated by a “.nn” country modifier signifying the relevant country, as in “.za” for South Africa. For further information on Moody’s approach to national scale credit ratings, please refer to Moody’s Credit rating Methodology published in June 2014 entitled “Mapping Moody’s National Scale Ratings to Global Scale Ratings”.
REGULATORY DISCLOSURES
For ratings issued on a program, series or category/class of debt, this announcement provides certain regulatory disclosures in relation to each rating of a subsequently issued bond or note of the same series or category/class of debt or pursuant to a program for which the ratings are derived exclusively from existing ratings in accordance with Moody’s rating practices. For ratings issued on a support provider, this announcement provides certain regulatory disclosures in relation to the credit rating action on the support provider and in relation to each particular credit rating action for securities that derive their credit ratings from the support provider’s credit rating. For provisional ratings, this announcement provides certain regulatory disclosures in relation to the provisional rating assigned, and in relation to a definitive rating that may be assigned subsequent to the final issuance of the debt, in each case where the transaction structure and terms have not changed prior to the assignment of the definitive rating in a manner that would have affected the rating. For further information please see the ratings tab on the issuer/entity page for the respective issuer on www.moodys.com.
For any affected securities or rated entities receiving direct credit support from the primary entity(ies) of this credit rating action, and whose ratings may change as a result of this credit rating action, the associated regulatory disclosures will be those of the guarantor entity. Exceptions to this approach exist for the following disclosures, if applicable to jurisdiction: Ancillary Services, Disclosure to rated entity, Disclosure from rated entity.
Regulatory disclosures contained in this press release apply to the credit rating and, if applicable, the related rating outlook or rating review.
Please see www.moodys.com for any updates on changes to the lead rating a’s legal entity that has issued the rating.
Please see the ratings tab on the issuer/entity page on www.moodys.com for additional regulatory disclosures for each credit rating.
Brandan Holmes
Vice President – Senior Analyst
Financial Institutions Group
Moody’s Investors Service, Inc.
250 Greenwich Street
New York, NY 10007
U.S.A.
JOURNALISTS: 212-553-0376
SUBSCRIBERS: 212-553-1653
Antonello Aquino
Associate Managing Director
Financial Institutions Group
JOURNALISTS: 44 20 7772 5456
SUBSCRIBERS: 44 20 7772 5454
Releasing Office:
Moody’s Investors Service, Inc.
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U.S.A.
JOURNALISTS: 212-553-0376
SUBSCRIBERS: 212-553-1653
