Workers clean windows outside the Cape Town headquarters of Anglo-South African financial services company Old Mutual.
Durban - International rating agencies have lowered South Africa’s Old Mutual Life Assurance long-term rating to zaAA- from zAAA, while its short-term rating was affirmed at zaA-1.

At the same time, its long-term South Africa national scale issue rating on the subordinated deferrable debt was lowered to zaA from zaAA-.

The rating actions on Old Mutual subsidiary follow Standard and Poor’s and Fitch recent rating action on South Africa.

South Africa was downgraded to junk status last week.

Old Mutual said the risk of further downgrade below investment grade status remained for 2017 as a result of constrained growth and political risk.

It said US interest rate hikes could also put pressure on inflation and interest rates.

“We are exposed to the risk of a short-term spike in interest rates following a South African sovereign downgrade, which could result in temporary liquidity strain arising from hedging collateral calls in Old Mutual Emerging Markets,” chief executive Bruce Hemphill said on Tuesday.

Read also: Old Mutual sticks with South Sudan unit

The group is also facing another challenge in South Sudan. It said it would continue to back its businesses in war-torn South Sudan even after profit plunged last year because the economy shrank and customers had scaled back operations.

“Though we are not expanding as fast as we would like to, we continue to maintain and increase our presence in the country,” Patrick Waweru, head of business development and marketing of Old Mutual’s UAP Insurance South Sudan, said in an interview.

Tallest building

London-listed Old Mutual, which runs insurance and property management businesses in South Sudan, has just finished constructing the oil-producing nation’s tallest building, a 15-floor tower in the capital, Juba, at a cost of more than $20 million (R277 million).

It is also spending $6 million on high-end apartments in the city as it seeks to complete work started shortly after the country gained independence in 2011 and before a civil war two years later that has dimmed its prospects.

Old Mutual has a 60 percent share of the South Sudanese insurance market. The company’s directors have supported the business and remain positive about the outlook for South Sudan, added Waweru.

Old Mutual last month reported net income of £570 million (R9.79 billion) for 2016 and gross earned premiums of £3.87 billion.

Old Mutual controls the South Sudanese business through its 61 percent stake in Nairobi-based UAP Insurance Kenya, which started operating in the country in July 2006.

“The political instability and the dollar crunch has really affected us and our clients’ numbers,” said Waweru.

Old Mutual shares rose 1.01 percent on the JSE to close at R33.03.

- With Bloomberg

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