Fitch Affirms Thai Life Insurance at #BBB+#; Outlook Stable

Stocks and Financial Services Press Releases Friday December 8, 2017 16:14
Bangkok--8 Dec--Fitch Ratings
Fitch Ratings has affirmed Thai Life Insurance Public Company Limited's (TLI) Insurer Financial Strength (IFS) Rating at 'BBB+' (Good) and National IFS Rating at 'AAA(tha)'. The Outlooks are Stable.

The affirmation takes into account TLI's strong capitalisation and financial performance, good business profile and manageable investment risk. However, TLI's IFS rating is constrained by Thailand's sovereign Issuer Default Rating (IDR) of 'BBB+' and rated one notch below the insurer's unconstrained IFS rating of 'A-'. Fitch will not rate TLI above the sovereign due to the company's high level of government debt holdings (52% of fixed-income portfolio at end-1Q17) and its limited overseas business diversification.

Fitch expects TLI's capitalisation to be supported by vigilant capital management. Its capital is well above the regulatory minimum of 140%, providing a solid buffer against higher risk charges that will be imposed in the second phase of a local risk-based capital (RBC) regime. This is despite the drop in its RBC ratio to 314% at end-1H17 from 376% at end-2015 due to lower interest rates and an increase in equity investments. TLI's Prism Factor-Based Capital Model (FBM) score dropped to 'Strong' from 'Very Strong' due to the company's higher exposure to stock and corporate bond investments, based on end-1Q17 results. The score remains in line with its rating category.

Fitch believes a larger and more competent agency force as well as an increase in bancassurance and non-agency channels will fortify TLI's business profile. TLI kept its third-rank position among Thailand's life insurers, with 13% market share by total premiums at end-1H17. TLI benefits from having Japan-based Meiji Yasuda Life Insurance Company (A/Stable) as a shareholder for technical and operational support.

Fitch expects TLI's management to regularly monitor the insurer's equity investment strategy as well as risks and returns. TLI's investments have stayed largely unchanged, with fixed-income securities - mainly Thai government and state-owned enterprise bonds - accounting for 79% of total investments at end-1Q17. Equity exposure rose to 11% of the total portfolio, from 7% in 2015, to offset pressure from the low-yield environment.

Fitch believes low interest rates and the insurer's long-term products have prevented it from significantly shortening its duration gap. However, TLI still reasonably follows asset and liability management discipline, as reflected by its narrowing duration gap. The insurer's profitability remains stable with three-year average (2014-2016) return on equity of 13.1% and pre-tax return on assets of 2.3%. Fitch expects a diverse product mix and higher non-agency channel sales to improve long-term profitability.

Triggers for a downgrade include:
  • A prolonged weakening in capitalisation as evidenced by a drop in the RBC ratio to lower than 250% and a deterioration in capital under Fitch's Prism FBM for an extended period.
  • A persistent decline in profitability as reflected by a pre-tax return on assets of below 1%.
  • A downgrade of Thailand's Long-Term Local-Currency IDR of 'BBB+' with a Stable Outlook.

An upgrade for TLI's rating is unlikely in the near term, as its IFS Rating is at the same level as Thailand's Long-Term Local-Currency IDR of 'BBB+' and correlates with 'AAA(tha)', the highest rating on the country's National Rating Scale.

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