African Reinsurance Corp. (South Africa) Ltd. Rating Affirmed At #A-#; Outlook Stable

Stocks and Financial Services Press Releases Monday February 12, 2018 19:05
JOHANNESBURG--12 Feb--S&P Global Ratings

JOHANNESBURG (S&P Global Ratings) Feb. 12, 2018--S&P Global Ratings said today that it affirmed its 'A-' insurer financial strength rating (FSR) on South Africa-based African Reinsurance Corp. (South Africa) Ltd. (ARCSA). The outlook is stable. The rating reflects our A-/Stable/-- rating and outlook on the parent and guarantor, African Re Group.

At the same time, we lowered our long-term local currency issuer credit rating (ICR) on ARCSA to 'BBB+' from 'A-'.

We removed the FSR and ICR from CreditWatch with negative implications, where we placed them on Nov. 30, 2017, see "Various Rating Actions Taken On South Africa-Based Insurers And Reinsurers Following Sovereign Downgrade," published on RatingsDirect.

We subsequently withdrew the ICR on ARCSA at the issuer'srequest. The outlook was stable at the time of the withdrawal.

We affirmed the FSR to reflect our view of the unconditional and irrevocable guarantee that parent, African Reinsurance Group, has provided to cover the policyholder obligations of South Africa-based ARCSA. The guarantee exclusively covers reinsurance policyholder obligations. We had previously limited the level of the rating to three notches above the local currency rating on South Africa, under our group rating methodology, as we consider the entity to be core to the group.

According to our group rating methodology, the FSRs on subsidiaries benefiting from a policyholder guarantee that meets our criteria can exceed, by up to six notches, a local currency long-term sovereign credit rating that is at 'BBB-' or higher, or by four notches if the sovereign rating is 'BB+' or lower. We believe the guarantee ensures that the Africa Re Group will also support ARCSA policyholders in the event of a sovereign stress scenario.

We lowered the ICR on ARCSA because the parental guarantee doesn't extend to general obligations. We therefore limit the ICR at three notches above the level of the long-term local currency sovereign credit rating on South Africa, which we downgraded on Nov. 24, 2017 (see "South Africa Ratings Lowered On Weakening Economic And Fiscal Trajectory; Outlook Stable."

The stable outlook on ARCSA reflects the outlook on African Reinsurance Group, and our expectation that the parent's guarantee will remain in force. We therefore expect the FSR and outlook to remain aligned with those on the parent. Should we lower the rating on the parent or the local currency long-term sovereign rating to 'BB', then we could also lower the FSR on ARCSA, in order to maintain the maximum four notches above the sovereign rating, which is not our current expectation.


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