Old Mutual ‘still strong, despite downgrade’

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OLD Mutual said on Tuesday it was business as usual for its South African unit after Moody’s this week announced its decision to downgrade the firm’s insurance financial strength rating, in line with downgrades slapped on the big banks.

Report by Business Day

Moody’s said it had cut by two notches Old Mutual SA’s financial strength to A3 from A1 with a negative outlook.

It also downgraded the senior debt rating of UK-based parent Old Mutual to Baa2 from Baa1 with a negative outlook.

“The two-notch downgrade of Old Mutual SA’s financial strength to A3, negative outlook, reflects … significant exposure to South African rand-denominated assets, including sovereign debt, given the company’s largely domestically-oriented investment exposure (particularly sovereign and banking assets) and its domestic underwriting focus on South Africa,” said Moody’s in a note.

Moody’s action follows its downgrade of South Africa’s sovereign credit rating after the recent wave of labour unrest, among other negative factors, on the economic growth prospects of Africa’s largest economy. South Africa’s gross domestic product output has been progressively cut from estimates as high as 3.4% at the beginning of the year to less than 2.4%.

Moody’s has already downgraded the biggest five South African banks but their executives have said this would not affect offshore costs of raising capital as they had already raised it locally.

Old Mutual said its business was fundamentally strong and the group had achieved its debt-reduction goal well ahead of target as part of a strategy supervised by group CEO Julian Roberts to restructure its once unwieldy global business.

Even though Moody’s insisted Old Mutual SA faced a worsening of downside risks to asset values, the insurer said it remained one of the highest-rated companies in South Africa.

“In its press release, Moody’s states that (Old Mutual SA) remains one of the highest-rated institutions within South Africa. That the credit rating for (Old Mutual SA) is above that of South Africa’s reflects their view in the continued financial strength of (Old Mutual SA) and the continued security of (its) customers’ benefits,” Old Mutual spokesman William Baldwin-Charles said.

“We also note that (Old Mutual’s) national insurance financial strength rating issued by Fitch remains unchanged at AAA (the strongest possible rating) and that this rating is higher than our principal South African competitors,” he said. Baldwin-Charles said Old Mutual had met its debt-reduction target of £1.5bn for this year, having paid it on September 24 with another £200million expected to be paid “in due course”.

It managed to accelerate debt repayment after the insurer got a cash windfall of £2bn from the sale of its Nordic businesses, and also declared a special dividend of R1bn.

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