| Mon 21 Nov 2005, 14:37 | | Momentum - Fitch Assigns Momentum of South Africa |
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Momentum - Fitch Assigns Momentum of South Africa IFS Rating of `AA+(zaf)";
Outlook Stable
Momentum Group Limited
Registration number
1904/002186/06
("Momentum")
Fitch Assigns Momentum of South Africa IFS Rating of `AA+(zaf)"; Outlook Stable
Fitch Ratings-London-21 November 2005: Fitch Ratings has today assigned Momentum
Group Limited ("Momentum") a National Insurer Financial Strength Rating of
`AA+(zaf)" and a National Long-term rating of `AA(zaf)". The Outlooks for both
ratings are Stable.
The ratings reflect Momentum"s strong business position in South Africa, solid
capital position, robust new business profit margins and very strong operating
performance. Partially offsetting these factors is its lack of diversification
outside of South Africa and the challenge to defend its business position, amid
a very competitive South African life insurance market.
Fitch believes that Momentum"s capitalisation level is strong; the published
statutory capital adequacy requirement (CAR) cover was 2.2x at YE05, up from
2.0x at YE04. Following the acquisition of Sage Group and the issue of perpetual
preference shares, Fitch expects CAR cover to remain within the target range of
1.8x to 2.0x. Fitch also recognises the company"s ongoing and active capital
management programme, which could include the raising of subordinated debt. Such
a subordinated debt instrument would be expected to receive 100% credit for
regulatory solvency purposes.
Momentum"s recent operating performance has been very strong, with a return on
embedded value of 28% in 2005, up from 16.6% in 2004. The net new business
margin of 18.7% is strong given Momentum"s mix of new business and the
industry"s likely declining trend in margins, as a result of the competitive
environment. Fitch also notes that Momentum has not suffered negative client
cash flows, unlike some of its peers.
Momentum is a wholly-owned subsidiary of FirstRand Limited. FirstRand Limited
also fully owns FirstRand Bank Limited (National Long-term rating: `AA(zaf)")
and has a 63% ownership of Discovery Holdings Limited. Momentum"s ratings
reflect its position within this group as an integrated financial services
provider.
The rulings made by the Pension Funds Adjudicator ("PFA") continue to cause
uncertainty in the South African life industry. In November, Sanlam Life"s
(National Scale Long-term rating: `AA-(AA minus)(zaf)" appeal against the ruling
relating to benefit illustrations was upheld. While this was largely expected,
rulings relating to early termination benefits remain untested. Fitch believes
that compared to peers, Momentum has a relatively low exposure to the PFA
rulings. This is due to its low historical market share of retirement annuities.
Fitch is further comforted by Momentum"s pro-active and responsive attitude and
range of new generation products. At YE05, the impact of intended improvements
to early termination was limited to ZAR100 million. Fitch will continue to
monitor further developments.
Momentum was founded in 1965. Following various mergers and acquisitions, it is
now firmly established as one of the top five life insurance companies in South
Africa, both by new business market share and by assets under management. As at
YE05, it had ZAR269 billion of assets under management shareholder funds of
ZAR5.7bn.
Contact: Sanjeev Shah, London, Tel/email:+44 20 7862
4130/sanjeev.shah@fitchratings.com; Harish Gohil, +44 20 7417
4367/harish.gohil@fitchratings.com
Fitch"s National ratings provide a relative measure of creditworthiness for
rated entities in countries with relatively low international sovereign ratings
and where there is demand for such ratings. The best risk within a country is
rated "AAA" and other credits are rated only relative to this risk. National
ratings are designed for use mainly by local investors in local markets and are
signified by the addition of an identifier for the country concerned, such as
"AAA(zaf)" for National ratings in South Africa. Specific letter grades are not
therefore internationally comparable.
Fitch"s rating definitions and the terms of use of such ratings are available on
the agency"s public site, www.fitchratings.com. Published ratings, criteria and
methodologies are available from this site, at all times. Fitch"s code of
conduct, confidentiality, conflicts of interest, affiliate firewall, compliance
and other relevant policies and procedures are also available from the "Code of
Conduct" section of this site.
Ends
21 November 2005
Contacts:
EB Nieuwoudt, Managing Director
Asokan Naidu, CFO
Gerhard Kruger, Head Capital Management Momentum Group
012 - 673 7211, 082 801 3576
Date: 21/11/2005 02:37:09 PM Produced by the JSE SENS Department
