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April 28 (The following statement was released by the rating agency)
Fitch Ratings has upgraded Muang Thai Life Assurance Public Company Limited's (MTL) International Insurer Financial Strength (IFS) Rating to 'A-' from 'BBB+' and its National IFS Rating to 'AAA(tha)' from 'AA+(tha)'. The Outlook is Stable.
KEY RATING DRIVERS
The upgrade reflects the company's solid capitalisation commensurate with its business profile, strengthened market franchise in the domestic market as well as improved financial performance.
MTL's capitalisation has been strong by all measures. Its risk-based capital (RBC) ratio was 460% as at end-3Q13, higher than 377% a year earlier and much higher than the regulatory minimum of 140%. It has no leverage and does not have any plans to use debt financing. Fitch expects capitalisation to continue to be strong, supported by firm profitability and prudent capital management.
Profitability further improved with annualised 3Q13 pre-tax return on assets rising to 4.6% from 4.1% in 2012, largely attributable to the company's pricing discipline. The company's pre-tax return on assets has been consistently over 4% since 2009.
MTL has consolidated its market position as the second-largest life insurer in Thailand by total premiums and is closing the gap with the long-term market leader. MTL's total premiums rose 23% in 2013, much faster than the 13% industry growth, supported by its strong distribution via bancassurance and agents.
Consequently, market share increased to 13.6% from 12.5% in 2012. The company also is the market leader in new business premiums with an 18.6% market share. The company benefits from operational support from its major shareholders, Kasikornbank (KBANK; Issuer Default Rating: BBB+/Stable) and Ageas Insurance International N.V. (Ageas; IDR: A-/Stable). KBANK, Thailand's fourth-largest bank by total assets, provides exclusive bancassurance channels while Ageas provides technical expertise where appropriate.
MTL's investment is dominated by fixed income instruments and deposits, which accounted for 85% of invested assets. Investments in equities are maintained at a low proportion - approximately 10% of invested assets. Fitch expects MTL to maintain its equity allocation at about this level as we understand the company is not under pressure to increase risk appetite in return for higher yields.
MTL is exposed to asset/liability mismatch, similar to other Asian life insurers, due to limited long-duration investment assets and the long-duration liability nature of life insurers. Fitch expects that the rising proportion of short-term insurance products and recent regulatory relaxation on investment will support the company in gradually reducing the duration gap.
Key triggers for negative rating action on the International and National IFS Ratings include significant weakening in capitalisation, with the RBC ratio falling below 250% for an extended period. A significant deterioration in market position or profitability could also be negative for ratings.
An upgrade is unlikely in the near term as MTL's International IFS rating is at the same level as Thailand's Long-Term Local-Currency IDR (A-/Stable). MTL's National IFS Rating is already at the highest possible level.