October 9, 2017 / 9:14 AM / a year ago

Fitch Affirms FTLife's IFS Rating at 'A-'; Outlook Stable

(The following statement was released by the rating agency) HONG KONG, October 09 (Fitch) Fitch Ratings has affirmed Hong Kong-based FTLife Insurance Company Limited's Insurer Financial Strength (IFS) Rating at 'A-' (Strong) and its Long-Term Issuer Default Rating (IDR) at 'BBB+'. The Outlooks are Stable. The senior unsecured debt issued through FTL Capital Limited has also been affirmed at 'BBB+'. KEY RATING DRIVERS The ratings reflect FTLife's strong capitalisation, despite on-going duration mismatches between assets and liabilities, and strong financial performance. The ratings also take into account its good business profile and rising investment risks. Fitch expects FTLife to maintain a sufficient capital buffer based on the relatively low levels of equities and credit risk in its investment portfolio. FTLife's statutory solvency ratio has been affected by a duration mismatch between its assets and liabilities. FTLife expects its solvency ratio to recover to around 390% at end-September 2017, after its parent injected HKD1.5 billion of cash. The company is also looking into reinsurance arrangements to mitigate volatility in its solvency ratio. FTLife became a wholly owned subsidiary of China's Tongchuangjiuding Investment Management Group Co., Ltd (JD Capital) in May 2016. The new management projects higher growth for FTLife over the next three years, by focusing on expanding its reach within Hong Kong and mainland China through the launch of new products. Fitch estimates FTLife's market share will remain small, even with its higher growth forecasts. FTlife was the 14th-largest individual life insurer in Hong Kong by annualised premium equivalent, with a 1.0% market share at end-2016. FTLife's risky assets to adjusted equity increased to 36% at end-June 2017 from 5% at end-2015. The rise in the ratio was largely due to investments in bonds issued by its parent, and to a lesser extent, shifts in investments towards risky assets to achieve higher investment returns. Nevertheless, the risky assets to adjusted equity ratio is better than the median 90% for 'A' rated issuers, based on Fitch's methodology. The company expects a further gradual shift towards risky assets. FTLife is likely to maintain strong operating performance based on stable investment returns and a favourable mortality ratio. The company's pre-tax ROA was 3% at end-June 2017. Fitch considers FTLife's asset-liability management as good. The company's statutory based asset-and-liability duration mismatch is large, partly due to conservative lapse assumptions used to calculate reserves. However, Fitch views the average investment guarantee of the company's liabilities as low. RATING SENSITIVITIES An upgrade of FTLife is unlikely in the near term, given its small market position in Hong Kong. Key rating triggers that could lead to a downgrade include: - A fall in the local solvency ratio to below 250%, on a sustained basis - An increase in the risky assets, measured by risky assets to adjusted equity ratio, to above 90% - A sustained deterioration in profitability, specifically a decline in pre-tax ROA to below 1%. Contact: Primary Analyst Akane Nishizaki Associate Director +852 2263 9942 Fitch (Hong Kong) Limited 19/F Man Yee Building 68 Des Voeux Road Central Hong Kong Secondary Analyst Joyce Huang Director +852 2263 9595 Committee Chairperson Willem Loots Senior Director +44 203 5530 1808 Media Relations: Wai-Lun Wan, Hong Kong, Tel: +852 2263 9935, Email: wailun.wan@fitchratings.com. 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