OREANDA-NEWS. Fitch Ratings has affirmed Old Mutual plc's (Old Mutual) Long-Term Issuer Default Rating (IDR) at 'BBB+' and Old Mutual Wealth Life Assurance Company Limited's (OMW) Insurer Financial Strength Rating (IFS) at 'A-'. The Outlooks are Evolving.

At the same time, Fitch has downgraded Mutual & Federal Insurance Company Limited's (M&F) IFS rating to 'BBB-' from 'BBB'. The Outlook is Stable.

The rating actions follow the downgrade of South Africa's Long-Term Local Currency IDR to 'BBB-' from 'BBB' (see 'Fitch Applies Criteria Changes to Global Sovereign Ratings' dated 22 July 2016 on www. fitchratings. com). A full list of rating actions is at the end of this commentary.

KEY RATING DRIVERS

OMW's affirmation reflects Fitch's view that under the group's reorganisation plans, it will operate as a standalone UK/European insurance business. As a result, Fitch does not apply a South Africa sovereign constraint to OMW's ratings. However, the Evolving Outlook reflects material uncertainty around OMW's future standalone credit profile.

Old Mutual's IDR is mainly driven by OMW's credit quality. Old Mutual reported hard currency interest cover, which excludes earnings from Old Mutual Emerging Markets (OMEM) and Nedbank Group Limited, of 4.8x as at end-2015. The Evolving Outlook reflects uncertainty over the development of Old Mutual plc under the group's new strategy.

OMEM remains a significant contributor to Old Mutual's earnings (around 34% of group business unit pre-tax operating profit in 2015) and therefore any material weakness in OMEM's credit quality could negatively weigh on Old Mutual's ratings. Old Mutual plc will ultimately cease to exist in its current form. The group previously announced a new capital management policy, with the intention of materially reducing group holding company debt and a phased reduction of central costs.

The downgrade of M&F's IFS rating, as well as the implied international IFS rating for OMEM's South African operations, reflects the constraint of the South African sovereign local currency rating on OMEM. This is a result of OMEM's exposure to the South African operating environment and investment exposure to government securities.

Old Mutual Life Assurance Company's (South Africa) (OMLACSA) and M&F's National scale ratings have not been affected by the sovereign downgrade, as the relative creditworthiness of South African insurance groups and the main industry-wide risk factors to South African insurers' ratings both remain broadly unchanged, in Fitch's view.

On 17 March 2016, Fitch revised its approach to rating the entities of the Old Mutual group from a group basis to a standalone basis, where the inherent credit strength of the major business units is assessed separately (see 'Fitch Revises Outlook of Old Mutual Plc's IDR to Evolving; Downgrades M&F's IFS to 'BBB'' on www. fitchratings. com).

RATING SENSITIVITIES

A one-notch downgrade of the South African sovereign rating would trigger a corresponding action on M&F's IFS rating and Old Mutual plc's IDR. We may take action on Old Mutual plc's ratings as further reorganisation announcements are made, including further details on debt reduction.

We may take action on OMW's ratings once Fitch has assessed the company's standalone profile, based on more information regarding the proposed reorganisation, including the ultimate ownership of OMW.

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: affirmed at 'BBB+'; Outlook Evolving

Senior unsecured debt: affirmed at 'BBB'

Subordinated debt: affirmed at 'BB+'

Short-term IDR and commercial paper: affirmed at 'F2'

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)'

Old Mutual Wealth Life Assurance Limited

IFS rating: affirmed at 'A-'; Outlook Evolving

Long-term IDR: affirmed at 'A-'; Outlook Evolving

Mutual & Federal Insurance Company Limited (M&F)

National IFS rating: affirmed at 'AAA(zaf)'; Outlook Stable

IFS rating: downgraded to 'BBB-' from 'BBB'; Outlook Stable

Mutual & Federal Risk Financing Limited

National IFS rating: affirmed at 'AAA(zaf)'; Outlook Stable