Several South African insurers have had their financial strength ratings downgraded by Moody’s because of the weakening credit profile of the South African government and banking system.

Moodys South Africa

Guardrisk Insurance, Guardrisk Life and Guardrisk International have all had their financial strength ratings downgraded to Ba2 from Ba1.

Momentum Metropolitan Life Limited has seen its financial strength rating downgraded to Ba1 from Baa3.

Standard Insurance Limited has had its financial strength rating downgraded to Ba2 from Ba1.

And Discovery has seen its issuer credit rating lowered to Ba3 from Ba2.

The rating agency said it had lowered its ratings on the insurers due to a “sizeable balance sheet exposure to government debt securities and cash and short-term instruments issued by local banks”.

Moody’s said it expects the increasingly challenging operating environment to place pressure on insurers’ profitability, asset quality and capitalisation.

The rating agency said these insurers’ key credit fundamentals were partly correlated to the economic and market conditions in South Africa, where they are domiciled and have significant operations.

Moody’s said the four insurers generate the vast majority of their profits locally at present, despite efforts to diversify operations outside South Africa.

“The significant majority of these insurers’ invested assets are held in local assets, including South African government debt, local corporate debt and equity securities and real estate, while the insurers’ cash and short-term investments are held with the large South African banks,” the rating agency said.

The downgrades represent another blow for South African insurers following defeat in recent Covid-19 court cases, which could open the doors to widespread payouts for business interruption claims among domestic insurers.