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Fitch Affirms FWD Life Hong Kong at IFS 'A'; Outlook Stable
September 5, 2014 / 7:37 AM / 3 years ago

Fitch Affirms FWD Life Hong Kong at IFS 'A'; Outlook Stable

(The following statement was released by the rating agency) HONG KONG, September 05 (Fitch) Fitch Ratings has affirmed Hong Kong-based FWD Life Insurance Company (Bermuda) Limited's (FWD Life HK) Insurer Financial Strength (IFS) rating at 'A'. The Outlook is Stable. KEY RATING DRIVERS The rating affirmation reflects FWD Life HK's solid solvency position, continued growth in value of in-force business, sound distribution capability and proper asset liability management. Key rating constraints include its moderate market position and keen competition from bank-owned insurers and international insurers with extensive distribution networks. FWD Life HK is prudent in managing its solvency adequacy. It will not pay dividends if the local solvency ratio drops below 250%. The company's solvency ratio was 241% as at end-1H14 (end-2013: 241%), well above the 150% statutory preferred benchmark. Fitch believes FWD Life HK has adequate capital buffers to facilitate its ongoing new business growth and deal with asset volatility. FWD Life HK's exposure to risky assets, such as equities, remains tolerable. Equities exposure accounted for about 6.9% of its invested assets as at end-1H14 (end-2013: 6.7%). About 82% of its invested assets were in good credit quality bonds at end-1H14. Additionally, FWD Life's asset liability management practices are sound, with the duration gap between assets and liabilities steadily reducing to less than two years in 1H14. FWD Life HK recorded an improvement in the margin of its new business value in 1H14 despite a decline in new business sales from the bancassurance channel. A change in product focus from policies with thin margins, such as short-term endowments, to higher-margin protection-type products led to a reduction in premiums written from its banking partners. Nonetheless, business growth from its agency force remained strong in 1H14. While FWD Life HK continued to register strong growth in value of in-force business, the company's market share of new business in terms of annualised premium equivalents declined to about 2.4% in 1H14 from 3.1% in 1H13. The company plans to accelerate its growth by strengthening the scale and productivity of its agency force in 2H14. However, the agency believes insurers with strong distribution coverage will continue to challenge FWD Life HK's ambitions for growth. RATING SENSITIVITIES Downgrade triggers include a decline in FWD Life HK's local solvency ratio to lower than 225% on a prolonged basis, significant deterioration in lapse rates, and a material reduction in mortality profits. The rating could be negatively affected if there is a considerable change in its asset liability management strategy. An upgrade for FWD Life HK is unlikely in the near term. However, over the medium term, the rating could be upgraded if the company manages to widen its market coverage and further improve its financial fundamentals in terms of new business margin and growth of value of in-force business. FWD Life HK has an operating history of about three decades in Hong Kong. Businessman Richard Li, who controls Pacific Century Group, acquired ING Groep's insurance operations in Hong Kong, Macau and Thailand in February 2013. In October 2013, Swiss Re Group became a strategic partner to FWD Limited, the holding entity of FWD Life HK, by acquiring a 12.3% stake. Contact: Primary Analyst Terrence Wong Director +852 2263 9920 Fitch (Hong Kong) Limited 2801, Tower Two, Lippo Centre 89 Queensway, Hong Kong Secondary Analyst Joyce Huang Director +852 2263 9595 Committee Chairperson Jeffrey Liew Senior Director +852 2263 9939 Media Relations: Wai-Lun Wan, Hong Kong, Tel: +852 2263 9935, Email: wailun.wan@fitchratings.com. Additional information is available at www.fitchratings.com. Applicable criteria, "Insurance Rating Methodology", dated 4 September 2014, are available on www.fitchratings.com. Applicable Criteria and Related Research: Insurance Rating Methodology here Additional Disclosure Solicitation Status here ALL FITCH CREDIT RATINGS ARE SUBJECT TO CERTAIN LIMITATIONS AND DISCLAIMERS. PLEASE READ THESE LIMITATIONS AND DISCLAIMERS BY FOLLOWING THIS LINK: here. IN ADDITION, RATING DEFINITIONS AND THE TERMS OF USE OF SUCH RATINGS ARE AVAILABLE ON THE AGENCY'S PUBLIC WEBSITE 'WWW.FITCHRATINGS.COM'. PUBLISHED RATINGS, CRITERIA AND METHODOLOGIES ARE AVAILABLE FROM THIS SITE AT ALL TIMES. FITCH'S CODE OF CONDUCT, CONFIDENTIALITY, CONFLICTS OF INTEREST, AFFILIATE FIREWALL, COMPLIANCE AND OTHER RELEVANT POLICIES AND PROCEDURES ARE ALSO AVAILABLE FROM THE 'CODE OF CONDUCT' SECTION OF THIS SITE. FITCH MAY HAVE PROVIDED ANOTHER PERMISSIBLE SERVICE TO THE RATED ENTITY OR ITS RELATED THIRD PARTIES. DETAILS OF THIS SERVICE FOR RATINGS FOR WHICH THE LEAD ANALYST IS BASED IN AN EU-REGISTERED ENTITY CAN BE FOUND ON THE ENTITY SUMMARY PAGE FOR THIS ISSUER ON THE FITCH WEBSITE.

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