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A.M. Best Affirms Ratings of Old Mutual plc and Its Subsidiary

The ratings reflect A.M. Best's view that Old Mutual's risk-adjusted capitalisation is satisfactory and that its prospective earnings will continue to be depressed by global economic conditions in the short to medium term. While there has been some improvement in financial markets since 2009, Old Mutual's business profile is likely to remain under pressure, particularly on its European and U.S. business.

In A.M. Best's opinion, Old Mutual's current capitalisation is satisfactory and its prospective capital position remains supportive of its current ratings. Due to the relatively light capital requirements on much of Old Mutual's business, the impact of the recent decline in market conditions on its risk-based capital position has been moderate.

While the presence of some guarantees on some of its business in the U.S. and Bermuda has harmed the group's performance in the past two years, A.M. Best does not anticipate a significant additional impact going forward. This follows a number of risk management initiatives that the company has been undertaking since 2009. Old Mutual reorganized its U.S. life business and closed its Bermuda operations to new business as part of a number of initiatives to simplify and streamline the whole organization and increase capital efficiency. In its 2009 results announcement, Old Mutual indicated its intention to sell its U.S. life business, as well as explore the possibility of a partial initial public offering of its U.S. asset management business. A.M. Best believes that these transactions will improve the group's financial flexibility.

In addition, the increased clarity of risk exposure and improved risk oversight is expected to result in increased stability of earnings, liquidity and risk-adjusted capitalisation in the long term, although it will take some time for the new culture to fully embed within the group. On the other hand, the increased focus on capital efficiency is likely to affect Old Mutual's business retention and growth prospects in light of policyholders' increased preference for guarantees in the current investment climate.

Based on A.M. Best's internal forecasts, it is expected that Old Mutual's 2010 retained profits will increase to around GBP 400 million, reflecting strong performance from its South African banking operations. However, while the projected earnings are better than the past two years' results, in A.M. Best's opinion, Old Mutual's prospective financial performance remains under pressure in the short term due to the impact of low investment returns and low investor confidence on its long term and asset management business.

The FSR of A (Excellent) and ICR of "a" have been affirmed for of Old Mutual Life Assurance Company (South Africa) Ltd.

A debt rating of "bbb+" has been assigned to the following:

Old Mutual plc-
-- GBP 500 million 7.125% senior unsecured notes, due 2016

The debt rating of "bbb" has been affirmed for the following:

Old Mutual plc-
-- GBP 350 million perpetual preferred callable securities
-- USD 750 million 8% guaranteed cumulative perpetual preferred securities
-- GBP 300 million 10-year non-call, 5-year subordinated notes, due 2016

Old Mutual Life Assurance Company (South Africa) Ltd-
-- ZAR 3 billion 8.92% unsecured subordinated callable notes, due 2020

For Best's Credit Ratings, an overview of the rating process and rating methodologies, please visit www.ambest.com/ratings.

The principal methodologies used in determining these ratings, including any additional methodologies and factors that may have been considered, can be found at www.ambest.com/ratings/methodology.

Founded in 1899, A.M. Best Company is a global full-service credit rating organization dedicated to serving the financial and health care service industries, including insurance companies, banks, hospitals and health care system providers. For more information, visit www.ambest.com.

A.M. Best Co.
Analysts:
Pedzi Chindotana, +(44) 20 7626 6264
pedzi.chindotana@ambest.com
or
Carlos Wong Fupuy, +(44) 20 7626 6264
carlos.wong-fupuy@ambest.com
or
Public Relations:
Rachelle Morrow, +(1) 908 439 2200, ext. 5378
rachelle.morrow@ambest.com
or
Jim Peavy, +(1) 908 439 2200, ext. 5644
james.peavy@ambest.com