Bangkok--29 Oct--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 affirmation reflects the insurer's good business profile, strong capitalisation, and strong financial performance. It also takes into account the company's slightly rising investment risk and a slowdown in premium growth. 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 expects MTL to have a stable business profile over the medium term, supported by its large operating presence as Thailand's second-largest life insurer by total premiums, strong distribution channels, and close operational and technical support received from its major shareholders, KASIKORNBANK Public Company Limited (KBank, BBB+/Stable) and Ageas Insurance International N.V. (A/Stable).
The agency believes the company will maintain reasonable capital to cushion downside risk and meet the higher capital required by Thailand's second-phase risk-based capital (RBC) framework to be implemented in 2019. MTL's healthy capital position is reflected in its RBC ratio of 385%, which is well above the 140% local regulatory minimum, and its 'Strong' result in Fitch's Prism Factor-Based Model (FBM) at end-1H18. These are also underpinned by a moderate asset-risk profile and sound profitability.
A slight increase in risky invested assets is possible over the short term as the insurer seeks higher returns. MTL's stock investments rose to about 11% of total invested assets at end-1H18 (2014: 9%), in line with other local industry peers. The insurer's investment risk should be mitigated by its prudent policies to balance returns, risks, and the required risk charges. The company still holds a quality bond portfolio with 64% of total bond investments in government and state-owned enterprise securities.
Fitch expects MTL to have a sound earnings profile over the medium term, driven by prudent underwriting practices and stable investment income. MTL's three-year (2015-2017) average pretax return on assets of 3.1% is higher than Fitch's expectation for 'A' to 'BBB' rated insurers. MTL's slower premium growth follows its strategic shift towards smaller-ticket protection products and a decline in bancassurance sales, which have been affected by the muted economy and the regulator's stricter supervision over sales procedures.
RATING SENSITIVITIES
Downgrade triggers include:
- A persistent drop in capitalisation measured by a decline in the RBC ratio to below 250% and a deterioration in capital under the Prism FBM for an extended period
- A prolonged weakening in profitability indicated by the company's pretax return on assets below 1%
- A downgrade of Thailand's Long-Term Local-Currency Issuer Default Rating with the Outlook at Stable
Upgrade triggers include:
- 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
- However, should Fitch adopt the criteria proposed in the exposure draft published on 4 October 2018, Fitch will eliminate the 'top-down' sovereign rating constraint and substitute an enhanced 'bottom-up' analysis of country risk. MTL's ratings may be considered for an upgrade, given its existing financial fundamentals and business profile.