Fitch upgrades South African Old Mutual Life's subordinated debt; affirms IFS

Jan 16 (Reuters) - (The following statement was released by the rating agency)

Fitch Ratings has upgraded Old Mutual Life Assurance Company (South Africa) Limited's (OMLACSA) National Long-term rating to 'AAA(zaf)' and its subordinated debt to 'AA(zaf)' and affirmed its National Insurer Financial Strength (IFS (SES: E1:I49.SI - news) ) rating at 'AAA(zaf)'. The agency has also affirmed Skandia Life Assurance Company Ltd's (Skandia) IFS rating at 'A-' and Old Mutual PLC (Other OTC: ODMTY - news) 's (Old Mutual) Long-term Issuer Default Rating (IDR) at 'BBB'. The Outlooks on the group's IDRs and IFS ratings are Stable. A full list of rating actions is at the end of this comment.

KEY RATING DRIVERS

The upgrade of OMLACSA's National Long-term National Ratings solely reflects a recalibration of the higher end of the South African national scale rather than any change in Fitch's assessment of fundamental issuer-specific credit considerations.

Old Mutual's main South African operation, OMLACSA, and its main non-South African operation, Skandia, are "Core (Frankfurt: LJ1.F - news) " to the group under Fitch's insurance group rating methodology and are therefore rated based on the credit quality of the group as a whole.

Old Mutual's ratings are constrained by South Africa's Long-term local currency IDR (BBB+/Stable) and Long-term foreign currency IDR (BBB/Stable), reflecting the importance of the group's South African business for its balance sheet and earnings. Old Mutual derives about 75% of its operating earnings from South Africa.

However, the group's IFS rating is one notch higher than the South African local currency IDR in recognition of Old Mutual's geographical diversification, with about one-quarter of earnings generated in the UK and Europe. The additional notch also reflects the group's ability to share with policyholders potential investment losses on its investments in the South African financial markets, and the financial flexibility from being listed on the London Stock Exchange (Other OTC: LDNXF - news) .

RATING SENSITIVITIES

An upgrade or downgrade of South Africa's Long-term foreign or local currency IDR could trigger a corresponding rating action on Old Mutual.

Old Mutual could be downgraded if there is greater-than-expected earnings pressure on its South African operations from volatile investment markets, weak consumer confidence and recessionary fears. A reduction in the geographical diversification of earnings or a deterioration in the quality of non-South African earnings, with hard-currency cover falling below 2x, could also lead to a downgrade.

The rating actions are as follows:

Old Mutual PLC

Long-term IDR: affirmed at 'BBB'; Outlook Stable

Senior unsecured debt: affirmed at 'BBB-'

Subordinated debt: affirmed at 'BB'

Short-term IDR and commercial paper: affirmed at 'F3'

Old Mutual Life Assurance Company (South Africa) Limited

National IFS rating: affirmed at 'AAA(zaf)'; Outlook Stable

National Long-term rating: upgraded to 'AAA(zaf)'; Outlook Stable

Subordinated debt: upgraded to 'AA(zaf)'

Skandia Life Assurance Company Ltd

IFS rating: affirmed at 'A-'; Outlook Stable

Long-term IDR: affirmed at 'BBB+'; Outlook Stable