Bangkok--28 Nov--Fitch Ratings
Fitch Ratings has affirmed Thai Life Insurance Public Company Limited's (TLI) Insurer Financial Strength (IFS) Rating at 'BBB+' (Good) and its National IFS Rating at 'AAA(tha)'. The Outlooks are Stable.
KEY RATING DRIVERS
The affirmation reflects TLI's 'Good' business profile, 'Strong' capitalisation, and 'Good' investment and asset risk. It also takes into consideration the insurer's strong earnings profile, balanced by slowing premium growth. TLI'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 TLI to maintain its good business profile over the medium term, underpinned by a sizeable operating scale and robust tied-agency force. The company kept its market position as the third-largest Thai life insurer by total premiums written at end-1H18 while its agency channel ranked as the second largest in the country. More diversified product lines with sound profitability should further support the insurer's business strength.
The agency expects the insurer's solid capitalisation to continue in light of its healthy profitability, narrowing asset-liability mismatch and moderate asset risk. The robust capital will provide a buffer against possible downside risks and enable TLI to meet the stricter capital requirements of Thailand's second-phase risk-based capital (RBC) regime to be adopted in 2019. TLI's 356% RBC ratio was well above the country's regulatory requirement and the insurer's score was 'Strong' in Fitch's Prism Factor-Based Model (FBM) by end-1H18.
TLI's investment and asset risk remains manageable despite rising stock investments to offset the lower returns of fixed-income securities during the past few years. Its investment portfolio was still mainly made up of quality government and state-owned enterprise bonds, which comprised about 53% of the total bond portfolio, while stock investments were about 11% of total invested assets by end-1H18. TLI's duration gap has been narrowing steadily due to more long-term investments, limiting the insurer's exposure to interest rate volatility.
Fitch believes the insurer's financial performance is sound, reflected by its three-year (2015-2017) average pretax return on assets of 2.3%, which is above Fitch's guideline for 'A' to 'BBB' rated insurers. TLI's slower premium growth in 2017 was mainly due to the weaker underwriting performance of endowment products along with softening demand as a result of the muted domestic economy and the rising indebtedness of local households. TLI expects to strengthen its earnings through the addition of profitable protection insurance and investment-linked products.
RATING SENSITIVITIES
Downgrade triggers include:
- A persistent drop in capitalisation measured by a decline in the RBC ratio to below 250% and deterioration in the Prism FBM score to below 'Strong' for an extended period
- A prolonged weakening in profitability indicated by the company's pretax return on assets to below 1%
- A downgrade of Thailand's Long-Term Local-Currency Issuer Default Rating with the Outlook at Stable
Upgrade triggers include:
- A rating upgrade is unlikely in the near term as TLI's 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, the agency will eliminate the 'top-down' sovereign rating constraint and substitute an enhanced 'bottom-up' analysis of country risk. TLI's ratings may be considered for an upgrade, given its existing financial fundamentals and business profile