September 29, 2017 / 8:36 AM / 3 years ago

Fitch Affirms Korea's Kyobo Life at IFS 'A+'; Outlook Stable

(The following statement was released by the rating agency) SINGAPORE/HONG KONG, September 29 (Fitch) Fitch Ratings has affirmed South Korea-based Kyobo Life Insurance Company Limited's Insurer Financial Strength (IFS) Rating at 'A+' and its Long-Term Issuer Default Rating (IDR) at 'A'. The Outlooks are Stable. Fitch has also affirmed the rating of Kyobo Life's USD500 million subordinated securities due 2047, which may be extended, at 'A-'. The securities are rated one notch below Kyobo Life's IDR to reflect our assumption of below-average recovery prospects in the event of default, given subordination levels. The securities rank senior to junior obligations, including preference shares, but rank junior to Kyobo Life's all other present and future senior and subordinated obligations, other than claims from holders of other parity obligations. There is no additional notching for non-performance risk, as Fitch sees this risk as minimal under its criteria. KEY RATING DRIVERS The affirmation reflects Kyobo Life's sound financial fundamentals, with strongly entrenched market positioning and favourable financial leverage commensurate with its rating category. However, the insurer faces the challenge of developing new growth drivers due to South Korea's mature and highly competitive life insurance market. Kyobo Life is the country's third-largest life insurance company, with a market share of 10.2% by premiums in 2016 (2015: 10.8%). Its pre-tax return on assets was 1% for 1H17 on an annualised basis. The company also maintains capital commensurate with its business profile, with its regulatory risk-based capital (RBC) ratio improving to above 250% as at end July 2017 following the issuance of its USD500 million subordinated securities in July 2017. Kyobo Life's RBC ratio had fallen to 234% in 2016, in excess of the 100% regulatory minimum, from 260% at end-2015, despite no significant deterioration in its business profile. This was due to a tightening of the RBC regime - with the confidence level used to calibrate various risk factors raised to 99% from 95% - which affected the entire life industry. Its capitalisation, as measured by Fitch's Prism Factor-Based Capital Model (FBM), reached 'Strong' in 1H17. Fitch estimates the company's financial leverage ratio at end-July 2017 at below 15%, after including its USD500 million issuance. This is stronger than the median score of 28% for 'A' rated issuers based on Fitch's methodology. Fitch also expects Kyobo Life's interest coverage to remain adequate and commensurate with its rating after considering its subordinated bonds issuance. The company does not plan to issue more debt in the short term. RATING SENSITIVITIES An upgrade of Kyobo Life's ratings in the near-term is unlikely. However, over the longer-term, key rating triggers for an upgrade include improving capitalisation, as measured by Fitch's Prism FBM, to well into 'Very Strong' levels with further international diversification, continued proactive management of its negative spread burden and consistently strong profitability, with pre-tax return on assets above 1.3%. Conversely, triggers for a downgrade include a weakening business franchise and deterioration in capitalisation, with its risk-based capitalisation ratio falling below 210% or its capital, as measured by FBM, falling below 'Strong' levels on a prolonged basis, as well as a sharp decline in its financial performance, with, for example, pre-tax return on assets consistently below 0.7%. Contact: Primary Analyst Wan Siew Wai Senior Director +65 6796 7217 Fitch Ratings Singapore Pte Ltd. One Raffles Quay South Tower #22-11 Singapore 048583 Secondary Analyst Jeffrey Liew Senior Director +852 2263 9939 Committee Chairperson Stephan Kalb Senior Director +49 69 768076118 Media Relations: Leslie Tan, Singapore, Tel: +65 67 96 7234, Email:; Wai-Lun Wan, Hong Kong, Tel: +852 2263 9935, Email: Additional information is available on Applicable Criteria Insurance Rating Methodology (pub. 26 Apr 2017) here Additional Disclosures Dodd-Frank Rating Information Disclosure Form here Solicitation Status here Endorsement Policy 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 WEB SITE AT WWW.FITCHRATINGS.COM. PUBLISHED RATINGS, CRITERIA, AND METHODOLOGIES ARE AVAILABLE FROM THIS SITE AT ALL TIMES. 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