Bangkok--8 Jul--Fitch Ratings
Fitch Ratings-Bangkok/Singapore—7 July 2011: Fitch Ratings (Thailand) has affirmed American International Assurance Company Limited, Thailand Branch’s (AIA Thailand) National Insurer Financial Strength (IFS) Rating at ‘AAA(tha)’ with a Stable Outlook.
The rating reflects AIA Thailand’s legal status as a branch of American International Assurance Company, Limited (AIA), which is profitable, soundly capitalised, geographically well- diversified and has strong market positions in several Asian countries.
AIA Thailand has a solid market position as the top life insurer in Thailand with a market share of about 30% in 2010, the strongest solvency among domestic peers, a diversified product mix, the largest agency force in Thailand and sound financial performance. The rating also considers its prudent risk management and the technical and operational support provided by AIA.
The Thai market is important in its size and growth for AIA and the branch constitutes a material portion of the insurer’s operations. Key financial performance data published for the branch based on IFRS accounting standard show that it contributed 36% of AIA Group’s net profits in 2010 and represented 22% of the group’s embedded value and 25% of the group’s shareholders’ funds.
AIA Thailand’s well-diversified product strategy, product innovation and its large and productive agency force have all helped the branch maintain its leading market share and premium growth. While its market share has been challenged by major life insurers with strong bancassurance distribution, there remains a wide gap between AIA Thailand and its peers, which Fitch believes would prevail at least in the medium-term.
The branch reported a notable improvement in financial performance in 2010, in line with Fitch’s expectation. Investment income was higher due to an absence of realised loss on investments as well as steady premium growth. Return on average assets increased strongly to 2% in 2010 from 0.7% in 2009, while running yields on its investment portfolio were stable at 5.6% in 2010. Operating expense also remained flat at 5.3% of net premium.
Asset-liability mismatch remains an issue for Thai life insurers due to the scarcity of long-dated bonds, which leads to a wide maturity gap between assets and liabilities. However, the branch has gradually improved this gap by active management of both assets and liabilities. AIA Thailand’s investment strategy remains conservative, with fixed-income securities accounting for 78% of total invested assets, and 16% were invested in equity at end-2010.
The absence of leverage and its capital position, which is the strongest among Thai life insurers, continue to be positive credit factors for AIA Thailand. Its solvency ratio improved further to 1,383% of the local minimum requirement at end-2010. While profit remittance has increased in 2010, its strong capital position is more than adequate to absorb the risk of capital erosion in the medium-term.
The Stable Outlook reflects Fitch’s expectation that AIA will maintain its strong fundamentals over the medium term. A materially weakening of AIA’s credit profile and significant deterioration in capital at AIA may trigger a downgrade of AIA Thailand’s rating.
Contact:
Primary Analyst
Narumol Charnchanavivat
Director
+662 655 4763;
Fitch Ratings (Thailand) Limited
55 Wireless Road
Lumpini, Patumwan
Bangkok 10330
Secondary Analyst
Siew Wai Wan
Senior Director
+65 6796 7217
Committee Chairperson
Harish Gohil
Managing Director
+44 20 3530 1257