Hong Kong, October 12, 2012 -- Moody's Investors Service has affirmed the Aa3 insurance financial
strength rating of American International Assurance Co (Bermuda) Ltd (AIA
Bermuda), with a stable outlook.
The affirmation follows AIA Group Limited's (AIA Group, unrated)
statement that it has agreed to acquire ING Management Holdings (Malaysia)
Sdn. Bhd. (ING Malaysia).
On 11 October, the AIA Group said it will acquire the entire share
capital of ING Malaysia via its wholly-owned subsidiary,
American International Assurance Co Ltd, for EUR1.34 billion
(USD1.73 billion) in cash.
AIA Group plans to pay the amount after the completion of the deal,
which is likely to close by the end of first quarter of 2013 and is subject
to approvals from Bank Negara Malaysia, the Ministry of Finance
of Malaysia, and the Securities Commission of Malaysia, as
well as a statement of no objection from the Dutch Central Bank.
RATINGS RATIONALE
This all-cash transaction will increase modestly the AIA Group's
financial leverage. Furthermore, since the consideration
represents 2x the book value of ING Malaysia, it will involve a
substantial amount of goodwill thereby negatively affecting AIA Group's
tangible equity. By making this acquisition in Malaysia,
whose Moody's sovereign rating is A3, the AIA Group has further
increased its exposure to sovereign environments that are rated materially
lower than AIA Bermuda's Aa3 rating.
Nonetheless, the negative impact on the AIA Group's financial
profile is not material enough to warrant a lowering of AIA Bermuda's
rating. Moody's views that AIA Group will continue to be
very well capitalized after the transaction and the likely increase in
financial leverage will be well within our expectations for the rating.
Moreover, if the transaction is completed, it will further
strengthen AIA's franchise and scale in Malaysia where it would
become, on a pro forma basis, market leader by premiums.
It will also improve the distribution mix between agency and bancassurance
channels. While AIA is paying a significant amount of goodwill
for this purchase, Moody's views the acquisition as having
a sound strategic logic.
The rated entity AIA Bermuda is a fully owned subsidiary of the entity
that will make this acquisition and is therefore only indirectly affected
by the purchase. Nonetheless, Moody's rating approach
to AIA Bermuda places a significant weight on the overall AIA Group credit
profile.
Moody's does not view there to be a strong likelihood of an upgrade
to AIA Bermuda's ratings in the medium-term. This
transaction will modestly erode some of the cushion in its Aa3 rating
and Moody's will wish to assess the execution of this acquisition
as well as considering the Group's future risk appetite before considering
an upgrade. The rating could eventually be raised if the Group
manages its growth prudently and if it reduces its high-risk assets
to below 50% of shareholders equity on a sustainable basis.
On the other hand, the rating could be pressured if adjusted financial
leverage increases to more than 15%, its capital-to-assets
ratio declines to below 10% and/or intangible assets such as goodwill
relative to shareholders' equity increases significantly on a Group
basis. Another negative rating driver would be if the exposure
to countries whose sovereigns are rated below AIA Bermuda's own
rating continues to increase materially.
AIA Bermuda makes up about 35% of the Group's assets and
operates mostly in Hong Kong and Korea. AIA Bermuda is an important
component of AIA Group. The Group has common management,
operations and strategic direction.
While the rating does incorporate an assessment of AIA Bermuda as a legal
entity, Moody's analysis takes into account the broader AIA
Group, given the way the Group manages its capital, with a
high degree of fungibility among its different operating entities.
ABOUT AIA
AIA Bermuda is an indirectly wholly-owned subsidiary of AIA Group,
also an operating company offering life insurance through its branches
in Hong Kong, Macau, Korea, New Zealand, and Taiwan
as well as its subsidiaries in Indonesia and Vietnam, and its 26%-owned
joint venture in India.
AIA Group offers a wide variety of life insurance products in 15 jurisdictions
throughout Asia Pacific. These include traditional individual life,
group life and medical, credit life, accident, and health
and investment-linked products sold through tied agents,
bancassurance, brokers, and direct marketing channels.
For the six months ended 31 May 2012, AIA Group reported net income
attributable to shareholders of USD1.4 billion. Shareholders'
equity was USD23.1 billion at 31 May 2012.
RATING METHODOLOGIES
The principal methodology used in this rating was Moody's Global Rating
Methodology for Life Insurers published in May 2010. Please see
the Credit Policy page on www.moodys.com for a copy of this
methodology.
REGULATORY DISCLOSURES
The Global Scale Credit Ratings on this press release that are issued
by one of Moody's affiliates outside the EU are endorsed by Moody's
Investors Service Ltd., One Canada Square, Canary Wharf,
London E 14 5FA, UK, in accordance with Art.4 paragraph
3 of the Regulation (EC) No 1060/2009 on Credit Rating Agencies.
Further information on the EU endorsement status and on the Moody's
office that has issued a particular Credit Rating is available on www.moodys.com.
Please see Moody's Rating Symbols and Definitions on the Rating
Process page on www.moodys.com for further information on
the meaning of each rating category and the definition of default and
recovery.
Please see ratings tab on the issuer/entity page on www.moodys.com
for the last rating action and the rating history. The date on
which some ratings were first released goes back to a time before Moody's
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Consequently, Moody's provides a date that it believes is
the most reliable and accurate based on the information that is available
to it. Please see the ratings disclosure page on our website www.moodys.com
for further information.
Please see www.moodys.com for any updates on changes to
the lead rating analyst and to the Moody's legal entity that has
issued the rating.
Sally Yim
VP - Senior Credit Officer
Financial Institutions Group
Moody's Investors Service Hong Kong Ltd.
24/F One Pacific Place
88 Queensway
Hong Kong
China (Hong Kong S.A.R.)
JOURNALISTS: (852) 3758 -1350
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Stephen Long
MD - Financial Institutions
Financial Institutions Group
JOURNALISTS: (852) 3758 -1350
SUBSCRIBERS: (852) 3551-3077
Releasing Office:
Moody's Investors Service Hong Kong Ltd.
24/F One Pacific Place
88 Queensway
Hong Kong
China (Hong Kong S.A.R.)
JOURNALISTS: (852) 3758 -1350
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Moody's affirms AIA Bermuda's Aa3 rating; outlook stable