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Dec 17 (The following statement was released by the rating agency)
Fitch Ratings has affirmed China Taiping Insurance Holdings Co Ltd's (CTIH) Issuer Default Rating (IDR) at 'BBB+'. The agency has also affirmed CTIH's operating companies, Tai Ping Life Insurance Co Ltd (TPL) and Taiping Reinsurance Co Ltd (TPRe), at Insurer Financial Strength (IFS) 'A-' and 'A' respectively. The Outlook on all ratings is Stable. At the same time, CTIH's senior unsecured notes, issued through China Taiping Capital Limited, have been affirmed at 'BBB'.
The rating action follows the announcement by CTIH that its immediate parent, China Taiping Insurance Group (HK) Company Limited (TPG (HK)), has decided to extend USD570m of shareholder's loans to CTIH. The funds will be used to support the business growth of CTIH's operating subsidiaries in China and to finance the group's general working capital.
The loans have an interest rate of 6.03% per annum and will come in two tranches - USD250mn of the loans will mature in 15 years while the remainder will mature in 10 years.
Fitch estimated that CTIH's adjusted financial leverage will be around 46.3% on a pro-forma basis as at end of 1H13 after the injection of the proposed shareholder's loans and the completion of an asset acquisition. In May 2013, CTIH said it would acquire assets for CNY10.6bn from TPG (HK) and its ultimate parent, China Taiping Insurance Group Co. (TPG). CTIH's adjusted financial leverage stood at 40.8% at end-1H13.
KEY RATING DRIVERS
The ratings affirmation reflects CTIH's broad revenue sources, sound financial flexibility and ongoing growth of its subsidiaries in China. The ratings also consider the satisfactory operating performance of its insurance operating subsidiaries in both China and Hong Kong in 1H13.
CTIH intends to lower its adjusted financial leverage to below 40% over time. Fitch believes CTIH has the flexibility to do so by using internal resources after the restructuring.
Negative rating triggers for CTIH and its operating entities include the inability of the company to improve adjusted financial leverage to below 40% over time and lower interest coverage below 4x (FY12: 6.98x) on a consolidated basis for a prolong period.
Negative rating triggers for TPRe include deterioration in underwriting result with a combined ratio consistently greater than 100% (1H13: 86.2%) and significant change in its after-reinsurance catastrophe risk exposure, and for TPL, a reduction in local solvency ratio to below 150% (1H13: 223%) on a sustained basis.
An upgrade of CTIH and its operating entities in the near term is unlikely, given its high financial leverage and moderate capital position.