SA insurers downgraded, as knock-on effect of sovereign downgrade continues

Cape Town - Ratings agency S&P Global on Thursday lowered the credit ratings of a number of South African insurers and reinsurers, in the wake of its downgrade of the country's sovereign debt last week. 

“We think that economic conditions in South Africa have led to increased asset risks in domestic insurers' balance sheets,” said S&P in a ratings announcement. “We are therefore lowering our ratings on various South Africa-based insurers and reinsurers.”

The ratings actions affect South African insurers and reinsurers in different ways, as the insurance groups have different credit ratings, ranging from investment grade to junk.  

Some of the insurers who had their global scale ratings lowered (with the new credit scores in brackets) include Old Mutual Life Assurance South Africa (BB+), AIG Life South Africa (BB+), Allianz Global Corporate and Specialty South Africa (BB+) and Hannover Life Reassurance Africa (A-). 

General Reinsurance Africa was lowered to A-, Munich Reinsurance of Africa was downgraded to A- and SCOR Africa was placed at A-.

GIC Re South Africa was affirmed at BB+. 

Santam, meanwhile, was lowered to BB+, while Santam Structured Insurance was downgraded to BB.

LINK: Full list of S&P ratings actions for SA-based insurers and reinsurers

The downgrades for locally-based life insurers were not unexpected. 

S&P and its rival international ratings agency Moody’s have either downgraded, or placed in downgrade review, a number of South African entities in the wake of their sovereign credit announcement for South Africa last week. 

Just after 21:00 on Friday S&P downgraded South Africa's long-term local currency rating to BB+, or junk, from BBB- with a stable outlook. Moody's, meanwhile, placed the country on review to be downgraded.

S&P also further lowered South Africa's long-term foreign currency debt to BB from BB+, meaning this debt is now on the second rung of non-investment grade.

Decline in financial strength

"Lowering [SA's] sovereign ratings to speculative-grade indicates that the asset quality in the country has weakened,” said S&P on Thursday. 

“Hence, the sovereign downgrade has directly weakened the credit quality of the investments of those insurers that hold most of their assets in South Africa. Consequently, their balance sheets are more vulnerable. By extension, the financial strength of many of the rated insurers has declined."

The ratings agency has also lowered the long-term credit rating of power utility Eskom.