China Life Insurance (Overseas) Co. Ltd. #A# Rating Outlook Off CreditWatch

Stocks and Financial Services Press Releases Thursday November 30, 2017 18:57
HONG KONG--30 Nov--S&P Global Ratings

HONG KONG (S&P Global Ratings) Nov. 30, 2017--S&P Global Ratings affirmed its long-term insurer financial strength and issuer credit ratings on Hong Kong-based China Life Insurance (Overseas) Co. Ltd. (China Life Overseas) at 'A'. The outlook is negative. At the same time, we affirmed our 'A-' long-term issue rating on China Life Overseas' outstanding notes.

We removed all ratings from CreditWatch, where we had placed them with negative implications on Sept. 22, 2017.

We affirmed the ratings on China Life Overseas following our affirmation of China Life Insurance Co. Ltd., the China-based core operating subsidiary of China Life (Group) Co., (China Life Group). We continue to assess China Life Overseas as a highly strategically important subsidiary of the China Life Group, reflecting its strategic role to support the group's expansion into overseas insurance markets.

We anticipate that the very high likelihood of extraordinary government support to the China Life Group in the event of distress would flow through to China Life Overseas. While the insurer's contribution to the group's asset base and profitability remains small, China Life Overseas benefits from continued capital and management personnel support. In our view, China Life Overseas plays an important role in the group's overseas strategy and as such, the group is highly unlikely to sell off its interest in the insurer.

China Life Overseas is one of the largest players in Hong Kong's life insurance market, supported by its strong brand name. While the insurer's market share of the special administrative region's weighted new premiums has declined in 2017, this reflects China Life Overseas' deliberate strategic shift. This took place amid a decline in the industry's new business premiums during the same period. The insurer is slowing its sales of short-term endowment insurance products and shifting its focus toward higher-margin products. China Life Overseas accounts for 18% of the weighted new premiums written in Hong Kong as of June 30, 2017 (2016: 27%). The insurer distributes its products predominantly through bancassurance channels, benefiting from its solid relationships with banks operating in Hong Kong.

We view the insurer's capitalization as a moderating factor to its credit profile. This comes on the back of very strong new business growth and focused sales on high guaranteed-rate savings policies (which we consider as thin margin). The company's regulatory solvency stood at 174% as of end 2016. In July 2017, the insurer issued a US$250 million subordinated bond to improve its regulatory solvency position.

The negative outlook reflects the rating outlook on China Life Insurance, which is a core operating entity of China Life Group. China Life Insurance and China Life Overseas have the same parent, the China Life Group.

We may downgrade China Life Overseas if we believe the credit quality of China Life Group is or is likely to deteriorate. We may also lower the ratings on the insurer if we assess its strategic role within the wider group will weaken, however the likelihood of this happening over the next two years is remote.

We may revise the outlook on China Life Overseas to stable if the credit quality of China Life Group recovers over the next two years following an improvement in China Life Insurance's capital position.

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