Announcements

GCR affirms Mutual and Federal Insurance Company’s Rating of AA+(ZA); withdraws rating

Johannesburg, 01 October 2014 — Global Credit Ratings has today affirmed Mutual and Federal Insurance Company Limited’s national scale claims paying ability rating of AA+(ZA), with the outlook accorded as Stable. At the same time, GCR has withdrawn the rating. The withdrawal of the credit rating of Mutual and Federal Insurance Company Limited is at the client’s request.

SUMMARY RATING RATIONALE

Global Credit Ratings (“GCR”) has accorded the above credit rating to Mutual and Federal Insurance Company Limited (“M&F”) based on the following key criteria:

M&F’s competitive position as the second largest insurer in the market remains supportive of the rating. The insurer’s strong market presence is expected to be sustained going forward, supported by substantial underwriting capacity and an expansive distribution network. M&F’s rating profile benefits from the implied support from the 100% ownership by ultimate shareholder Old Mutual Plc. The latter reflects an international scale foreign currency rating of BBB and market capitalisation in excess of R160bn.

The rating takes into account the insurer’s strong capitalisation, which is expected to be maintained at an adequate level for the current rating. This is complemented by the limited investment risk exposure. Furthermore, with a sizeable 63% of the investment portfolio invested in cash and equivalents, M&F reflects sound liquidity metrics.

Profitability has registered at subdued levels relative to competitors, while also recording a higher level of volatility. As such, earnings capacity represents a relative weakness to the current rating. In this regard, the evolving competitive environment continues to pressure market share, suppress rates and threaten quality blocks of risk. This is primarily attributable to the increasing prominence of direct players and more flexible companies that can adapt quickly to market developments.

NATIONAL SCALE RATINGS HISTORY

Initial rating (Sept 2000)
Claims paying ability: AAA(ZA)
Outlook: Stable

Last rating (Nov 2013)
Claims paying ability: AA+(ZA)
Outlook: Stable

ANALYTICAL CONTACTS

Primary Analyst
Susan Hawthorne
Analyst
(011) 784-1771
Susanh@globalratings.net

Committee Chairperson
Marc Chadwick
Sector Head: Insurance
(011) 784-1771
Chadwick@globalratings.net

SALIENT FEATURES OF ACCORDED RATINGS

GCR affirms that a.) no part of the rating was influenced by any other business activities of the credit rating agency; b.) the rating was based solely on the merits of the rated entity, security or financial instrument being rated; c.) such rating was an independent evaluation of the risks and merits of the rated entity, security or financial instrument; and d.) the validity of the rating is for a maximum of 12 months, or earlier as indicated by the applicable credit rating document.

Mutual and Federal Insurance Company Limited participated in the rating process via written correspondence. Furthermore, the quality of information received was considered adequate and has been independently verified where possible.

The credit rating has been disclosed to Mutual and Federal Insurance Company Limited with no contestation of the rating.

The information received from Mutual & Federal Insurance Company Limited and other reliable third parties to accord the credit rating included the latest available audited annual financial statements to December 2013 (plus four years of audited comparative numbers), full year budgeted financial statements to December 2014, year to date financial results summary to June 2014, the quantitative statutory return to December 2013, the quarterly statutory return to June 2014 and other relevant documents.

The ratings above were solicited by, or on behalf of, the rated client, and therefore, GCR has been compensated for the provision of the ratings.

GCR affirms Mutual and Federal Insurance Company’s Rating of AA+(ZA); withdraws rating

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