October 19, 2017 / 9:39 AM / a year ago

Fitch Revises Outlook on Taikang Life to Negative on Higher Risky-Asset Exposure; Affirms at 'A'

(The following statement was released by the rating agency) HONG KONG, October 19 (Fitch) Fitch Ratings has revised the Outlook on Taikang Life Insurance Co., Ltd.'s Insurer Financial Strength (IFS) Rating to Negative from Stable and has affirmed the insurer's rating at 'A'. At the same time, the agency has revised the Outlook on Taikang Insurance Group Inc.'s Long-Term Issuer Default Rating (IDR) to Negative from Stable and has affirmed its rating at 'A-' and the rating on its USD800 million 3.5% senior unsecured bonds due 2022 at 'BBB+'. The Outlook revision reflects the increased vulnerability of the group's credit strength following a significant increase in risky asset exposure. KEY RATING DRIVERS Taikang Group's risky-asset exposure increased to 27% of invested assets at end-2016, from 20% at end-2015, amounting to 3.6x shareholders' equity. This leaves it capitalisation vulnerable to unfavourable stock market fluctuations and impairments, as the majority of the risky assets are equity-related, including listed and unlisted stocks, preferred shares and equity investment plans, although some of the equity investments are of lower risk with fixed maturities and yields. The remaining risky assets are property investments. The higher risky-asset exposure counters the strengths of Taikang Group and its primary and wholly owned subsidiary, Taikang Life, which include a well-established franchise, strong distribution network, sound profitability and adequate capitalisation. Taikang Group's concentration risk has also increased due to its CNY10.8 billion equity investment in PetroChina Pipelines Company Limited, which accounted for about 26% of Taikang Group's end-2016 capital, and CNY7.2 billion investment in Poly Real Estate Group Company Limited (BBB+/Stable) (17% of Taikang Group's end-2016 capital). Allocation to alternative investments, including debt investment plans and trust schemes (classified as loans or fixed-income investments), are also significant, making up about 16% of Taikang Group's invested assets as of end-2016. Fitch considers these types of investments as less transparent compared with straight bonds, with concentration in the property and infrastructure sectors, and more vulnerable to economic downturns. Taikang Group's capitalisation, as measured by Fitch's PRISM Factor-Based Model (FBM), remained adequate as of end-2016, supported by ongoing internal earnings generation. Its core and comprehensive solvency ratios were 262% and 293%, respectively, under the China Risk-Oriented Solvency System, and still well above the regulatory minimum of 50% and 100%, respectively. Taikang Life has a sound market position, with 4.3% of gross written premiums in China's life insurance market in 1H17, making it the country's seventh-largest life insurer. The group's large business scale and margin-focused strategy contribute to solid profitability, with a pre-tax operating return on assets of 2.0% in 2016 and 2.7% in 2015, as well as a sustained increase in embedded value. Taikang Group's financial leverage increased following the issue of its USD800 million senior bonds and a drawdown of bank borrowings in 1H17. Fitch estimates Taikang Group's leverage at 35% at end-2016, including the new debts. Taikang Group had long-term borrowing of CNY3.2 billion as of end-2016, mainly for the development of retirement homes and communities. Fitch considers these borrowing, which have reasonable loan/value ratios, as operational debts and does not include them in the calculation of financial leverage. RATING SENSITIVITIES Downgrade rating triggers include: - Taikang Group's capitalisation maintained at a Fitch Prism FBM score below the 'Strong' category by end-2018; or - persistently high risky-asset exposure at above 2.5x balance-sheet capital. The Outlook may be revised to 'Stable' if Taikang Group is able to: - strengthen its Fitch Prism FBM score well into the 'Strong' category while maintaining its financial leverage ratio below 35%; and - reduce risky-asset exposure to 2.5x balance-sheet capital or below. Contact: Primary Analyst Joyce Huang, CFA Director +852 2263 9595 Fitch (Hong Kong) Limited 19/F Man Yee Building 68 Des Voeux Road Central, Hong Kong Secondary Analyst Terrence Wong Director +852 2263 9920 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 on www.fitchratings.com 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. 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. DIRECTORS AND SHAREHOLDERS RELEVANT INTERESTS ARE AVAILABLE here. 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. Copyright © 2017 by Fitch Ratings, Inc., Fitch Ratings Ltd. and its subsidiaries. 33 Whitehall Street, NY, NY 10004. Telephone: 1-800-753-4824, (212) 908-0500. Fax: (212) 480-4435. Reproduction or retransmission in whole or in part is prohibited except by permission. All rights reserved. In issuing and maintaining its ratings and in making other reports (including forecast information), Fitch relies on factual information it receives from issuers and underwriters and from other sources Fitch believes to be credible. Fitch conducts a reasonable investigation of the factual information relied upon by it in accordance with its ratings methodology, and obtains reasonable verification of that information from independent sources, to the extent such sources are available for a given security or in a given jurisdiction. The manner of Fitch’s factual investigation and the scope of the third-party verification it obtains will vary depending on the nature of the rated security and its issuer, the requirements and practices in the jurisdiction in which the rated security is offered and sold and/or the issuer is located, the availability and nature of relevant public information, access to the management of the issuer and its advisers, the availability of pre-existing third-party verifications such as audit reports, agreed-upon procedures letters, appraisals, actuarial reports, engineering reports, legal opinions and other reports provided by third parties, the availability of independent and competent third- party verification sources with respect to the particular security or in the particular jurisdiction of the issuer, and a variety of other factors. Users of Fitch’s ratings and reports should understand that neither an enhanced factual investigation nor any third-party verification can ensure that all of the information Fitch relies on in connection with a rating or a report will be accurate and complete. Ultimately, the issuer and its advisers are responsible for the accuracy of the information they provide to Fitch and to the market in offering documents and other reports. In issuing its ratings and its reports, Fitch must rely on the work of experts, including independent auditors with respect to financial statements and attorneys with respect to legal and tax matters. Further, ratings and forecasts of financial and other information are inherently forward-looking and embody assumptions and predictions about future events that by their nature cannot be verified as facts. As a result, despite any verification of current facts, ratings and forecasts can be affected by future events or conditions that were not anticipated at the time a rating or forecast was issued or affirmed. The information in this report is provided “as is” without any representation or warranty of any kind, and Fitch does not represent or warrant that the report or any of its contents will meet any of the requirements of a recipient of the report. A Fitch rating is an opinion as to the creditworthiness of a security. This opinion and reports made by Fitch are based on established criteria and methodologies that Fitch is continuously evaluating and updating. Therefore, ratings and reports are the collective work product of Fitch and no individual, or group of individuals, is solely responsible for a rating or a report. The rating does not address the risk of loss due to risks other than credit risk, unless such risk is specifically mentioned. Fitch is not engaged in the offer or sale of any security. All Fitch reports have shared authorship. Individuals identified in a Fitch report were involved in, but are not solely responsible for, the opinions stated therein. The individuals are named for contact purposes only. A report providing a Fitch rating is neither a prospectus nor a substitute for the information assembled, verified and presented to investors by the issuer and its agents in connection with the sale of the securities. Ratings may be changed or withdrawn at any time for any reason in the sole discretion of Fitch. Fitch does not provide investment advice of any sort. Ratings are not a recommendation to buy, sell, or hold any security. Ratings do not comment on the adequacy of market price, the suitability of any security for a particular investor, or the tax-exempt nature or taxability of payments made in respect to any security. Fitch receives fees from issuers, insurers, guarantors, other obligors, and underwriters for rating securities. Such fees generally vary from US$1,000 to US$750,000 (or the applicable currency equivalent) per issue. In certain cases, Fitch will rate all or a number of issues issued by a particular issuer, or insured or guaranteed by a particular insurer or guarantor, for a single annual fee. Such fees are expected to vary from US$10,000 to US$1,500,000 (or the applicable currency equivalent). The assignment, publication, or dissemination of a rating by Fitch shall not constitute a consent by Fitch to use its name as an expert in connection with any registration statement filed under the United States securities laws, the Financial Services and Markets Act of 2000 of the United Kingdom, or the securities laws of any particular jurisdiction. Due to the relative efficiency of electronic publishing and distribution, Fitch research may be available to electronic subscribers up to three days earlier than to print subscribers. For Australia, New Zealand, Taiwan and South Korea only: Fitch Australia Pty Ltd holds an Australian financial services license (AFS license no. 337123) which authorizes it to provide credit ratings to wholesale clients only. Credit ratings information published by Fitch is not intended to be used by persons who are retail clients within the meaning of the Corporations Act 2001

0 : 0
  • narrow-browser-and-phone
  • medium-browser-and-portrait-tablet
  • landscape-tablet
  • medium-wide-browser
  • wide-browser-and-larger
  • medium-browser-and-landscape-tablet
  • medium-wide-browser-and-larger
  • above-phone
  • portrait-tablet-and-above
  • above-portrait-tablet
  • landscape-tablet-and-above
  • landscape-tablet-and-medium-wide-browser
  • portrait-tablet-and-below
  • landscape-tablet-and-below