The Colonial Mutual Life Assurance Society Ltd. Ratings Affirmed At #A+#; Outlook Stable

Stocks and Financial Services Press Releases Wednesday September 13, 2017 17:16
MELBOURNE--13 Sep--S&P Global Ratings

MELBOURNE (S&P Global Ratings) Sept. 13, 2017--S&P Global Ratings today said it has affirmed its 'A+' financial strength and issuer credit ratings on Australian life insurer The Colonial Mutual Life Assurance Society Ltd. (CMLA).

The outlook is stable. The rating affirmation reflects our view of CMLA having a 'a+' stand-alone credit profile (SACP). The SACP primarily reflects the insurer's strong competitive position and extremely strong capital adequacy, according to our measures.

We now view CMLA as a strategically important entity to Commonwealth Bank of Australia (CBA), rather than highly strategically important following the group's announcement that it is reviewing its life operations, which may result in CBA divesting the life insurer.

As such, we no longer consider CMLA as highly unlikely to be sold.

As a strategic entity, CMLA receives no further ratings uplift over its SACP. The 'A' long-term ratings on Colonial Holding Co. Ltd. (CHC) are one notch below CMLA reflecting the heightened credit risk of its obligations as a nonoperating holding company reliant on cash flows from its operating subsidiaries.

Key subsidiaries supporting CHC include CMLA, Colonial First State Group Ltd. (CFS; the group's wealth manager and one of Australia's largest funds managers), Commonwealth Insurance Ltd. (the group's property casualty insurer), and ASB Group (Life) Ltd. (the group's life insurance operation in New Zealand).

The stable outlook on CMLA and CHC reflects CMLA's stand-alone credit strengths, which we expect it will maintain over the next two years.
While the ultimate parent, CBA, currently has a negative outlook, a one-notch downgrade would not affect the ratings on CMLA as this scenario would not affect the SACP.

We expect that CMLA will remain a strategic subsidiary of CBA over at least the next two years. We expect that CMLA and CHC would likely receive indirect extraordinary government support via the wider banking group, if required, because of the bank's systemic importance in the Australian market. Presently, the ratings we assign to CMLA and CHC do not factor in any extraordinary support.

We are unlikely to lower the ratings on CMLA (or CHC), as its strategic group status would prevent a decrease in its financial strength and counterparty credit ratings in the event of a one-notch lowering of the SACP.

This is due to support likely to be provided that would maintain the SACP at one notch below the ratings of the parent.

However, we could lower the SACP on CMLA by one notch if we viewed its competitive position had weakened sufficiently due to a combination of the following: A reduction in market position such that CMLA is no longer a top-five player in three or more significant markets; A deterioration of its brand and reputation to the degree that we consider it has a commercial disadvantage relative to competitors; orA significant deterioration in operating performance that resulted in underperformance relative to peers and our expectations.

A positive rating action is unlikely in the next two years. We could, however, raise the rating if CMLA can leverage its strong competitive position to outperform its peers.
This would be indicated by strong operating performance, and leveraging of its brand, that we view to be sustainable and delivered without a material change to its risk appetite.
We would also consider an upgrade if the group status of CMLA strengthened sufficiently for us to view the insurer as core to the broader group, although we consider this to be highly unlikely.

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