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July 2 (The following statement was released by the rating agency)
Fitch Ratings has affirmed AIA Company Limited, Thailand Branch's (AIA Thailand) National
Insurer Financial Strength (IFS) rating at 'AAA(tha)'. The Outlook is Stable.
Key Rating Drivers
The rating reflects AIA Thailand's legal status as a branch of AIA Company
Limited (AIACL), and is based on AIACL's strong credit profile. AIACL is the
leading life insurer in Asia, with above 25 million in-force polices, and
250,000-strong agency force, and an established presence in 16 markets across
Asia. It has a solid market franchise and distribution platform, sustained
strong financial performance, and sound capital levels. The Stable Outlook is
based on Fitch's view that AIACL would maintain its strong credit profile in the
Thailand is one of AIACL's core markets. AIA Thailand contributed 23% of the
group's total operating profit before tax (OPBT) in 2012, and 19% of AIACL's
embedded value (EV).
Fitch expects AIA Thailand to maintain leadership in the Thai life insurance
market, based on its large number of policies in-force and its leading position
in agency channel. However, its number-one market share in premiums is being
trailed closely by major domestic peers particularly those with strong
bancassurance distributions. Moreover, competition in agency channel has become
Fitch believes that AIACL and AIA Thailand would be able to maintain their
strong profitability, supported by their solid franchise in various Asian
markets, as well as by steady growth in life premium in Thailand. AIACL's
profitability has improved further, with pre-tax return on assets increasing to
3% for FY12 (ending 30 November) from 2% for FY11. AIA Thailand's total premium
increased in 2012 to THB102.2bn from THB94.7bn in 2011, while pre-tax return on
assets remained strong at 3.9%.
AIACL and AIA Thailand have maintained strong capital, as well as conservative
investments and liquidity. AIACL's consolidated solvency ratio at 353% as at
November 2012 was among the highest in the industry. AIA Thailand's capital
ratio based on risk-based capital was also strong at 661% at end-2012, the
highest among Thai major peers, due to its long-time profit accumulation and
restriction in profit remittance. Asset allocation of AIACL and AIA Thailand is
weighted heavily in cash & deposits and fixed income with low equity proportion.
Their balance sheets contain various liquid assets which should support
Negative rating trigger for AIA Thailand could be a material deterioration in
AIACL's credit profile. This could include an unexpected significant
deterioration in financial performance, i.e. pre-tax return on assets falling to
below 1%, debt to total capital rising above 20%, and speculative-grade bonds to
total equity rising above 40% for an extended period. However, Fitch does not
expect these risks to materialise in the medium term.