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11 April 2017
Notice is hereby given in terms of the Debt Listings Requirements of the JSE Limited that Standard and Poor’s (S&P) has on 7 April 2017 downgraded the ratings of a number of South Africa-based Insurers and Reinsurers following similar action on the South African Sovereign, which was downgraded on 3 April 2017.
On 3 April 2017, S&P lowered its foreign currency sovereign ratings on the Republic of South Africa to ‘BB+/B’ from ‘BBB-/A-3’ and its local currency sovereign ratings to ‘BBB-/A-3’ from ‘BBB/A-2’. As a result, Sanlam Life’s South Africa national scale rating was reduced from ‘zaAAA’ to ‘zaAA-‘, and the ratings of the SLI3 and SLI4 subordinated deferrable debt issued by Sanlam Life from ‘zaAA-‘ to ‘zaA’. The lower ratings reflect S&P’s view that South African insurers face increased exposure to credit risk within asset portfolios following the sovereign downgrade, with the increased risk somewhat mitigated by sound balance sheet resilience. S&P also noted that they believe that the South African insurers would withstand the stress associated with a foreign currency sovereign default, if one was to occur.
Sanlam Life’s solvency position remains sound, as reflected in a Capital Adequacy Requirement (“CAR”) cover ratio of 5.8 times at 31 December 2016. Sanlam Life’s solvency cover ratio under the new Solvency Assessment and Management (“SAM”) regime currently being implemented in South Africa was also a particularly strong 3.1 times at 31 December 2016. The S&P rating actions on the Republic of South Africa and Sanlam Life are not expected to have a significant impact on Sanlam Life’s or the Sanlam Limited Group’s solvency position under the current and future SAM solvency regimes due to the well-diversified nature of the balance sheets. It is therefore also anticipated that the capital allocation to the Sanlam operations, including Sanlam Life, and the level of available discretionary capital will remain unaffected by the rating actions. Sanlam remains well capitalised, with a solid strategy and a track record of delivering value to our clients, shareholders and other stakeholders despite challenging operating conditions, supported by a well-established and mature risk management process.
A sovereign ratings downgrade has been anticipated for some time, with the Sanlam Life balance sheet being well-protected by its approach to closely match the asset and liability profiles of interest-rate sensitive policyholder portfolios, as well as the move towards a de-risked asset allocation strategy initiated for the shareholders’ capital portfolio at the end of 2015. Stress testing is conducted on a regular basis as part of Sanlam Life’s risk management and capital modeling processes to ensure that its capital and liquidity positions remain robust subsequent to a stress event such as a sovereign ratings downgrade. Further risk management actions will be considered proactively as part of this process in response to anticipated developments in the operating environment.
Further details regarding the rating action is available on S&P’s website or in its press release entitled “Various Rating Actions Taken on South Africa-Based Insurers and Reinsurers Following Sovereign Downgrade”.