The ratings reflect its 'Favourable' company profile, solid capital and 'Strong' financial performance with sound new business value (NBV) margin. However, the rating strength is offset by moderate asset and investment risk.
KEY RATING DRIVERS
'Favourable' Company Profile: Fitch assesses TLI's company profile as 'Favourable' compared with those of all other life insurance companies in Thailand due to its moderate operating scale, substantive business franchise, and 'Moderate/Favourable' corporate governance ranking. Accordingly, Fitch scores TLI's company profile at 'a-' under our credit-factor scoring guidelines.
TLI is the second-largest life insurer in Thailand with a share that was maintained at about 14% by total premium income in 2022. It has comprehensive products for protection, savings, healthcare and investment-linked. Its established distribution channels include more than 24,000 tied agents, bancassurance through multiple local banks, and brokers. Around 70% of total premiums were from agents in 2022, 20% from bancassurance, and 10% from other channels.
Robust Capitalisation: TLI's risk-based capital (RBC) ratio was 420% at end-2022, well above the regulatory requirement of 140%. We estimate TLI's Prism Model score improved to the 'Extremely Strong' category by end-2022, which is above Fitch's expectation for its rating category, from 'Very Strong' in 2021.
Sustained Earnings: The company continues to focus on less interest-rate sensitive businesses with sustainable profit margins. Its return on equity (ROE) was 10% in 2022, in line with its three-year average from 2020-2022. The profitability is supported by sound margins in protection and health-related products, the lower contribution of high-guarantee savings products in its product mix with a gradual shift towards new participating products, as well as an effective product repricing strategy.
Decline in Risky-Asset Ratio: TLI's 'risky-asset' ratio improved to 187% by end-2022, from 212% at end-2021, as a result of a larger equity base from the IPO in July 2022 with additional capital of THB13.3 billion. Risky assets consist mainly of equities and bonds rated below investment grade on the international scale, including its material exposure to sovereign bonds, which are scaled at 15% under Fitch's criteria. However, the metric remains higher than the guideline for the IFS 'A' rating category, and indicates its moderate asset and investment risk.
Adequate Liquidity: TLI has maintained adequate liquidity with liquid assets, including fixed-income securities and bank deposits, accounting for over 80% of the total portfolio at end-2022. Its duration gap also narrowed to below one year by end-2022 from effective asset and liability management, which should help to minimise interest-rate risk.
RATING SENSITIVITIES
Factors that could, individually or collectively, lead to negative rating action/downgrade:
IFS and National IFS
- A persistent drop in capitalisation, measured by a decline in the RBC ratio below 280% and deterioration in the Fitch Prism Model score below 'Strong' for an extended period;
- A prolonged weakening in profitability, indicated by ROE that is below 6.5% and a sustained material decline in the value of new business.
Factors that could, individually or collectively, lead to positive rating action/upgrade:
IFS
- A significant improvement in TLI's operating scale and business diversification; for instance, the insurer participates in many business lines, geographies and distribution sources; and
- Maintenance of TLI's robust capital adequacy.
National IFS
- An upgrade for TLI's National IFS is not possible as the 'AAA(tha)' National IFS Rating is already the highest score on the National Rating scale.
BEST/WORST CASE RATING SCENARIO
International scale credit ratings of Financial Institutions and Covered Bond issuers have a best-case rating upgrade scenario (defined as the 99th percentile of rating transitions, measured in a positive direction) of three notches over a three-year rating horizon; and a worst-case rating downgrade scenario (defined as the 99th percentile of rating transitions, measured in a negative direction) of four notches over three years. The complete span of best- and worst-case scenario credit ratings for all rating categories ranges from 'AAA' to 'D'. Best- and worst-case scenario credit ratings are based on historical performance. For more information about the methodology used to determine sector-specific best- and worst-case scenario credit ratings, visit https://www.fitchratings.com/site/re/10111579
REFERENCES FOR SUBSTANTIALLY MATERIAL SOURCE CITED AS KEY DRIVER OF RATING
The principal sources of information used in the analysis are described in the Applicable Criteria.
ESG CONSIDERATIONS
Unless otherwise disclosed in this section, the highest level of ESG credit relevance is a score of '3'. This means ESG issues are credit-neutral or have only a minimal credit impact on the entity, either due to their nature or the way in which they are being managed by the entity. For more information on Fitch's ESG Relevance Scores, visit www.fitchratings.com/esg
Additional information is available on www.fitchratings.com
Source: Fitch Ratings