(The following statement was released by the rating agency)
June 28 – Fitch Ratings has affirmed South Africa-based Liberty Group Limited’s
(LGL) National Insurer Financial Strength (IFS) rating at ‘AA(zaf)’ and National Long-term
rating at ‘AA-(zaf)’. The Outlooks are Stable. Fitch has simultaneously affirmed LGL’s
subordinated debt issue rating at ‘A+(zaf)’.
LGL’s ratings continue to be supported by its well established franchise, enhanced risk
management, sound capital position and its solid operating performance. In addition, Fitch
considers LGL’s strong and diversified distribution capability and successful bancassurance
joint venture with the Standard Bank group as key positive rating factors. Offsetting these key
rating drivers is some earnings volatility stemming from the group’s exposure to investment
markets, which is in line with peers, and the continued tough South African economic
environment.
The group reported a solid performance with headline earnings up 3% at ZAR2,597m (2010:
ZAR2,522m) with the return on embedded value for the South African covered business improving to
13.9% (2010: 12.6%). Earnings were supported by strong performances from the core South African
insurance and asset management businesses. New life business margin on a present value of new
business premiums basis strengthened to 1.4% in 2011 (2010: 1.2%) driven mainly by the improved
withdrawal experience in the core South African insurance business. Fitch expects the margin to
continue to improve towards the group’s medium-term target of 2.0%.
LGL and the group had regulatory capital adequacy requirement (CAR) cover ratios of 2.9x and
2.4x, respectively at end-2011. Fitch considers Liberty to be well-capitalised based on its own
risk adjusted assessment and on its regulatory CAR cover ratios. LGL does have some sensitivity
to equity market volatility, but it is in line with leading peers. Fitch expects Liberty to
maintain its strong capital position.
Although Fitch considers an upgrade as unlikely in the near term, the key rating drivers
that could result in an upgrade in the medium term include continued improvement in
profitability relative to higher rated peers, an improvement in life new business margin towards
the group’s medium-term target of 2.0%, continued growth in new business volumes, sustained
capitalisation at strong levels as well as continued maintenance of market share.
The key rating triggers that could result in a downgrade include sustained poor operating
performance driven by lower new business margins, a significant and sustained reduction in the
group’s capitalisation based on Fitch’s own assessment or a drop in LGL’s regulatory CAR cover
ratio to below 1.7x, and a weakening in the company’s market position.
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