OREANDA-NEWS. Fitch Ratings has affirmed South Africa-based Santam Limited's (Santam) 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 Santam's subordinated debt at 'A+(zaf)'.

KEY RATING DRIVERS
The affirmation reflects Santam's "Core" status within the Sanlam group, under Fitch's insurance group rating methodology. The ratings also reflect its standalone credit profile, which is consistent with the IFS rating of Sanlam Life Insurance Limited at 'AA+(zaf)' (see 'Fitch Affirms Sanlam Life & Sanlam Developing Markets at IFS 'AA+(ZAF)'; Outlook Stable' published on 10 December 2015 on www.fitchratings.com).

Santam is the largest general insurer in South Africa, with a strong domestic franchise and a market share of 22%. It writes all classes of business and has a well-known brand in both commercial and personal lines. Santam's geographic revenue diversification remains limited despite an increasing portion of premiums generated outside South Africa.

Santam is adequately capitalised based on Fitch's own risk-adjusted assessment and the minimum statutory requirement. At end-June 2015, Santam's solvency ratio (net premiums written divided by equity) fell to 43% (end-2014: 46%), as a result of a specific share buy-back transaction completed on 30 June 2015. Fitch expects Santam's solvency ratio to remain within its long-term target range of 35%-45%.

Santam has a long history of underwriting profitability, and in 2014 reported a strongly improved combined ratio of 90.7% (2013: 96.9%). Motor and crop insurance were the main drivers of a 213% improvement in Santam's underwriting result in 2014. In 1H15, Santam's underwriting margin remained strong at 8.9% (1H14: 7.4%). Fitch expects Santam's underwriting margin to moderate in 2H15 as margins for motor are set to weaken due to a summer hail storm in November 2015. The dry summer weather experienced thus far could also reduce crop margins in 1H16.

Santam pursues a conservative investment strategy that is well-diversified by asset mix. Of the total investment portfolio, 75% are invested in cash, money market instruments and bonds. The credit quality of financial assets is considered robust, with 90% comprising money market funds and bonds rated 'BBB' or higher on an international scale.

On 4 December2015, Fitch downgraded South Africa's Long-term foreign currency and local currency ratings to 'BBB-' and 'BBB' respectively. This rating action has no impact on Santam's national scale ratings, as its relative credit worthiness to the sovereign remains unchanged in Fitch's view.

RATING SENSITIVITIES
Given Fitch's view that Santam is "Core" to the Sanlam group any upgrade or downgrade of Sanlam's ratings would have a similar impact on those of Santam.

A downgrade could also be triggered by deterioration in the standalone profile to an extent that Fitch would no longer consider Santam as "Core" to Sanlam. This could result from a sustained poor operating performance and/or severe weakening in Santam's market share.