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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 medium-to-long term.
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 increasingly intense.
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 insurance claims.
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.