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Fitch Downgrades Old Mutual Plc's IDR to 'BBB'; Outlook Stable
April 12, 2017 / 2:31 PM / 8 months ago

Fitch Downgrades Old Mutual Plc's IDR to 'BBB'; Outlook Stable

(The following statement was released by the rating agency) LONDON, April 12 (Fitch) Fitch Ratings has downgraded Old Mutual Plc's (Old Mutual) Long-Term Issuer Default Rating (IDR) to 'BBB' from 'BBB+'. Fitch simultaneously affirmed Old Mutual Wealth Life Assurance Company Limited's (OMWL) Insurer Financial Strength Rating (IFS) at 'A'. The Outlooks are Stable. Fitch has also downgraded the IFS Rating of Mutual & Federal Insurance Company Limited (M&F) to 'BB+' from 'BBB-'. The Outlook is Stable. A full list of rating actions is at the end of this commentary. The rating actions follow the downgrade of South Africa's Long-Term Local-Currency IDR to 'BB+' from 'BBB-' (see 'Fitch Downgrades South Africa to 'BB+'; Outlook Stable' dated 7 April 2017 on The actions reflect that Old Mutual's ratings are constrained by South Africa's sovereign local currency rating, and the standalone credit quality of Old Mutual Emerging Markets (OMEM). OMLACSA's and M&F's National scale ratings have not been affected by the sovereign downgrade, as the relative creditworthiness of South African insurance groups remains unchanged, in Fitch's view. KEY RATING DRIVERS Old Mutual Plc Old Mutual's IDR is mainly driven by the credit quality of the Old Mutual Wealth (OMW) business unit, including its contribution to group hard-currency interest coverage. However, Old Mutual's ratings are constrained by South Africa's Long-Term IDR, reflecting the group's balance sheet and earnings exposure to South Africa. Old Mutual Wealth Life Assurance Company Limited We expect that the OMW business unit will operate as a standalone UK/European insurance business under a new holding company. On a standalone basis, OMW benefits from low balance sheet risk and its strong business position in the UK. However, uncertainty around future financial flexibility and profitability are rating weaknesses. Old Mutual Emerging Markets OMEM is one of South Africa's largest insurance groups, with a strong market position in most segments. Old Mutual Life Assurance Company South Africa (OMLACSA), OMEM's main operating entity, is strongly capitalised and, for participating business, has the ability to share potential investment losses with policyholders. We do not expect OMEM's operations to be materially disrupted by the group's restructuring plans. OMLACSA, M&F and Mutual & Federal Risk Financing Limited (M&F RF) will continue to operate as "Core" entities under OMEM. Their ratings and Outlooks reflect OMEM's current and expected standalone credit profile, as the largest profit contributor to the existing Old Mutual group, and a market-leading life insurer and fund manager in South Africa. M&F's IFS rating, as well as the implied international IFS rating for OMEM's South African operations, is constrained by the South African sovereign local currency rating. This is a result of OMEM's exposure to the South African operating environment and investment exposure to government and other local securities. RATING SENSITIVITIES A further downgrade of the South African local currency sovereign rating could trigger a corresponding action on Old Mutual's IDR and M&F's IFS rating. OMW may be downgraded if net income fails to recover or market share deteriorates as a result of further operational difficulties in deploying its new investment platform. An improvement in OMW's profitability, as measured by net income return on equity above 9% on a sustained basis, could lead to an upgrade. A change to the South African sovereign ratings is unlikely to affect the National Ratings of OMLACSA and M&F, as the relativity of these ratings to that of the best credits in South Africa is expected to remain unaffected. The National Ratings of OMLACSA, M&F and M&F RF would be downgraded if OMEM's creditworthiness deteriorates materially relative to the South African sovereign and its peers in the South African market. FULL LIST OF RATING ACTIONS Old Mutual plc Long-Term IDR: downgraded to 'BBB' from 'BBB+'; Outlook Stable Subordinated debt: downgraded to 'BB' from 'BB+' Short-Term IDR and commercial paper: downgraded to 'F3' from 'F2' Old Mutual Wealth Life Assurance Limited IFS rating: affirmed at 'A'; Outlook Stable Long-Term IDR: affirmed at 'A-'; Outlook Stable Mutual & Federal Insurance Company Limited (M&F) National IFS rating: affirmed at 'AAA(zaf)'; Outlook Stable IFS rating: downgraded to 'BB+' from 'BBB-'; Outlook Stable Mutual & Federal Risk Financing Limited National IFS rating: affirmed at 'AAA(zaf)'; Outlook Stable Old Mutual Life Assurance Company (South Africa) Limited National IFS rating: affirmed at 'AAA(zaf)'; Outlook Stable National Long-Term rating: affirmed at 'AAA(zaf)'; Outlook Stable Subordinated debt: affirmed at 'AA(zaf)' Contact: Primary Analyst Willem Loots Director +44 20 3530 1808 Fitch Ratings Limited 30 North Colonnade London E14 5GN Secondary Analyst Harish Gohil Managing Director +44 20 3530 1257 Committee Chairperson Chris Waterman Managing Director +44 20 3530 1168 Media Relations: Athos Larkou, London, Tel: +44 203 530 1549, Email: Additional information is available on Applicable Criteria Insurance Rating Methodology (pub. 15 Sep 2016) here Additional Disclosures Dodd-Frank Rating Information Disclosure Form here Solicitation Status here#solicitation Endorsement Policy here ALL FITCH CREDIT RATINGS ARE SUBJECT TO CERTAIN LIMITATIONS AND DISCLAIMERS. 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