Bangkok--1 Apr--Fitch Ratings
Fitch Ratings-Bangkok/Singapore-01 April 2019: Fitch Ratings has upgraded Muang Thai Life Assurance Public Company Limited's (MTL) Insurer Financial Strength (IFS) Rating to 'A-' (Strong) from 'BBB+' (Good), and affirmed the National IFS Rating at 'AAA(tha)'. The Outlooks are Stable. The Under Criteria Observation status on the ratings has also been removed.
KEY RATING DRIVERS
The rating action follows the revision of Fitch's global master insurance criteria titled Insurance Rating Criteria in January 2019. The IFS rating on MTL was previously capped by Thailand's Long-Term Local-Currency Issuer Default Rating (IDR) of 'BBB+' with a Stable Outlook. The new criteria remove the top-down sovereign constraint and Fitch assesses MTL's country risk in each criteria factor under a bottom-up analysis.
The IFS rating takes into the consideration MTL's favourable business profile, 'Strong' capitalisation, and 'Strong' financial performance. These factors mitigate MTL's exposure in risky assets and the high sovereign investment concentration risk within its portfolio.
Fitch ranks MTL's business profile as favourable compared with all other Thai life insurance companies. MTL has a substantive business franchise with the second-largest domestic market share by total premiums written, supported by close operational and technical support from its major shareholders. MTL's well-diversified portfolio relative to its local peers and its focus on profitable product underwriting will help counterbalance its large distribution source concentration in the bancassurance channel and small international business. Given this ranking, Fitch scores MTL's business profile at 'a-' under its credit-factor scoring guideline.
The insurer's capitalisation remains solid as reflected by its risk-based capital (RBC) ratio of 379% at end-3Q18, which was slightly lower than the 398% at end-2017 but still well over the 140% local regulatory minimum. MTL's 'Strong' result in Fitch's Prism Factor-Based Model (FBM) at end-1H18 is supported by a moderate asset-risk profile and healthy profitability. Fitch believes the insurer will keep sufficient capital to cushion downside risk and meet the stricter capital requirement of Thailand's second-phase RBC regime to be implemented in 2019.
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 by end-1H18 (2014: 9%) in line with other local industry peers. The insurer's investment risk will be mitigated by its prudent policies to balance returns, risks, and the required risk charges; for instance, MTL will maintain its quality bond investments with a clear limit for each particular risky asset class. MTL's exposure to Thai sovereign debt was high at about 390% of its capital at end-3Q18.
Fitch expects MTL's robust financial performance to continue over the medium term, underpinned by prudent underwriting practices and steady investment income. The insurer's annualised pretax return on assets of 2.7% at end-3Q18 was still higher than Fitch's expectation for 'A' rated insurers. MTL's slower premium growth follows its strategic shift towards smaller-ticket protection policies 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
An upgrade for MTL's National IFS is not possible as its 'AAA(tha)' National IFS Rating is already the highest score on the National Rating scale.
Downgrade sensitivities include:
- A persistent drop in capitalisation measured by a decline in the RBC ratio to below 280% and deterioration in the Prism FBM score to below 'Strong' for an extended period; or
- A prolonged weakening in profitability indicated by the company's pretax return on assets below 1%.
Upgrade sensitivities include:
- Improvement of MTL's capitalisation level, with Fitch's Prism FBM score maintained at well into the 'Strong' level; and
- A significant improvement in MTL's operating scale and business diversification; for instance, the insurer participates in many business lines, geographies and distribution sources.