Bangkok--8 Nov--Fitch Ratings
Fitch Ratings has affirmed Muang Thai Life Assurance Public Company Limited's (MTL) Insurer Financial Strength (IFS) Rating at 'BBB+' (Good) and National IFS Rating at 'AAA(tha)'. The Outlooks are Stable.
KEY RATING DRIVERS
The affirmations reflect MTL's good business profile, strong capitalisation, manageable investment risk and strong financial performance. However, MTL's IFS is constrained by Thailand's sovereign IDR of 'BBB+' and rated one notch below the insurer's unconstrained IFS rating of 'A-'. Fitch will not rate MTL above the sovereign due to the company's high level of government debt holdings (67% of fixed-income portfolio at end-1Q17) and its limited business diversification outside Thailand.
MTL has a strong business franchise, with Thailand's largest market share of 19.5% by total premiums at end-1H17, up from its second-ranked position of 17.1% market share at end-2016. MTL remains the leader in the bancassurance channel, with 28% market share, supported by the extensive branch network of its major shareholder, KASIKORNBANK Public Company Limited (KBank, BBB+/Stable).
Fitch expects the company to continue its prudent capital-management policy to ensure an adequate buffer, commensurate with its risk profile, against impending higher-risk charges from the forthcoming local second-phase risk-based capital (RBC) framework. The company is well-capitalised, with an RBC ratio of 403% at end-1H17, in excess of the regulatory 140% minimum. MTL retained its 'Strong' score in Fitch's Prism Factor-Based Model (FBM) using end-1Q17 financial results, stable from the previous year's score.
Fitch expects MTL to keep a conservative stance and sound monitoring on its investment activities. The insurer maintained its low-risk investment allocation, with about 85% in fixed-income securities and cash at end-1Q17 and a majority of its bond portfolio invested with Thai government and state-owned enterprises. The overall investment-risk profile is unchanged, with equity making up 10% of the total portfolio. Fitch does not expect MTL to significantly change its investment strategy in the short term.
The insurer's sound operating and investment results have supported its strong profitability, reflected by its return on equity of 21% and pre-tax return on assets of 3% in 2016, which compares well against Fitch's median score for 'A' rated issuers. Fitch believes MTL's solid earnings will be further driven by robust distribution channels and well-designed products and strategies. MTL narrowed its duration gap to strengthen its buffer against interest-rate risk and Fitch expects stringent asset-liability management discipline to be consistently carried out.
RATING SENSITIVITIES
Triggers for a downgrade include:
- A persistent decline in capitalisation as measured by a drop in its RBC ratio to lower than 250% and deterioration in capital under the Prism FBM for an extended period.
- A prolonged weakening in profitability as reflected by a pre-tax return on assets to below 1%.
- A downgrade of Thailand's Long-Term Local-Currency Issuer Default Rating (IDR) of 'BBB+' with Stable Outlook.
An upgrade for MTL'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 corresponds to 'AAA(tha)', the highest rating on the country's National Rating Scale.