OREANDA-NEWS. Fitch Ratings has upgraded South Africa-based Liberty Group Limited's (LGL) National Insurer Financial Strength (IFS) rating to 'AA+(zaf)' from 'AA(zaf)' and its National Long-term rating to 'AA(zaf)' from 'AA-(zaf)'. The Outlooks are Stable. Fitch has also upgraded LGL's subordinated debt issue ratings to 'AA-(zaf)' from 'A+(zaf)'.

The agency has simultaneously withdrawn all ratings. Fitch has chosen to withdraw the ratings of LGL for commercial reasons.

KEY RATING DRIVERS
The upgrade reflects the Liberty group's consistently strong operating performance in line with higher-rated peers, and the maintenance of its strong franchise. The ratings are supported by the group's sound capital position, strong distribution capability and defensive business positioning. These key rating strengths are offset by the group's lower diversification relative to peers.

LGL reported a 4% rise in group headline earnings in 2015 to ZAR4,128m, and net income return on equity remained strong (2015: 19.5%, 5-year average 22.3%). Fitch considers the group's operating result as strong in the context of a low-growth operating environment and volatile investment markets. Operating earnings growth of 7% in 2015 was offset by a decrease in net returns earned on the shareholder investment portfolio (SIP) of 2%. The SIP returns was achieved through an overweight exposure to foreign assets, which offset weak domestic equity and bond market performance.

LGL's lower insurance net customer cash flows of ZAR5,402m in 2015 (2014: ZAR9,870m) was offset by STANLIB's (the group's asset management business) substantially improved net customer cash flows of ZAR8,454m (2014: ZAR-7,321m). Net customer cash flows, although volatile, are becoming an increasingly important revenue driver for South African life insurers due to the relative size of investment-type business sold.

Fitch believes that LGL's market position is strong, but less diversified, compared with its immediate peers. The group's core market is the mid-affluent segment, which broadly represents clients earning more than ZAR25,000 per month. This market remained resilient to difficult market conditions in 2015, and is more defensive in nature than the entry-level/emerging consumer segment.

Fitch considers capital adequacy as strong, both for LGL as an entity and for the Liberty group as a whole. At end-2015, LGL and Liberty had regulatory capital adequacy requirement (CAR) ratios of 3.03x (end-2014: 3.07x, end-2013: 2.56x) and 3.16x (end-2014: 3.26x, end-2013: 2.87x), respectively. From a Prism Factor-based model (FBM) perspective, the group scored 'Extremely Strong' at end-2015.

Fitch estimates LGL's financial leverage at end-2015 at 15.3% (2014: 15.5%, 2013: 15.2%), and considers this level as commensurate with its ratings.

RATING SENSITIVITIES
Not applicable