Hong Kong, December 13, 2018 -- Moody's Investors Service has affirmed China Life Insurance Co Ltd's
(China Life) A1 insurance financial strength rating (IFSR) and maintained
its stable outlook.
At the same time, Moody's has affirmed the A3(hyb) rating on the
insurer's Core Tier 2 securities.
RATINGS RATIONALE
China Life's A1 IFSR incorporates its a1 Baseline Credit Assessment
(BCA), which reflects its strong brand, exceptional market
position, strong capitalization and vast distribution network in
the fast-growing Chinese insurance market. In addition,
the insurer does not have a negative spread burden, unlike some
of its regional and local peers.
China Life continues to transform its distribution and product structure
by shifting its product focus towards more long-term and regular
premium products. The insurer cut down its bancassurance sales
of single premium products significantly while agency channel has become
the major contributor to its business growth, representing 76%
of its gross written premiums in the first half of 2018.
Nonetheless, its earnings and capitalization are still largely dependent
on the volatile A-share market's performance, considering
the insurer's sizable equity investment holdings.
Its material equity stake in China Guangfa Bank Co., Ltd.
(CGB, deposits: Baa3 stable, BCA: ba3) also exposes
it to single-name concentration risk.
In addition, given China's slower economic growth, and
China Life's role as the largest life and state-owned insurer,
the insurer will likely increase its allocation to equity and alternative
investments, which are more volatile, in order to support
the economy. But its large capital base will partially mitigate
the higher asset risk, and we expect the insurer to continue to
invest in a prudent manner.
China Life has a stable rating outlook, reflecting Moody's
expectation that the insurer will maintain its leading position in the
Chinese life insurance market, with a strong level of capitalization.
We also expect the insurer's underwriting profitability will improve over
the longer term following the shift in its distribution and product mix.
China Life's rating also incorporates Moody's consideration
of government support, given the effective ownership of the Ministry
of Finance (MoF), which is essentially an arm of the Chinese government
(A1 stable).
Moody's expects a high level of government support for China Life,
if needed, given the insurer's strategic importance to the life
insurance industry and because of its effective government ownership through
the ownership of its majority shareholder, China Life Insurance
(Group) Company, which is wholly owned by the MoF.
However, the insurer's dependence level is high, reflecting
its exposure to the domestic economy and its large holdings of debt securities
issued by the government and government agencies.
Nevertheless, given that China Life's a1 BCA is already at the same
level as China's (A1 stable) sovereign rating, Moody's has
not incorporated any uplift in the final IFSR of the insurer.
This is because most of China Life's insurance business is in China and
its key standalone credit fundamentals (asset quality, capitalization,
profitability and financial flexibility) are partly correlated with,
and thus linked to, the economic and market conditions in China
(where it is domiciled and conducts significant operations). The
rating is, therefore, the same as China's A1 sovereign rating.
The A3(hyb) rating on the insurer's Core Tier 2 securities is two notches
below its a1 BCA, reflecting the securities' subordination to claims
of policyholders, general creditors and the holders of any supplemental
capital of China Life. The securities will rank pari passu with
other Core Tier 2 securities and senior to junior obligations, which
would include any Core Tier 1 capital of the issuer.
RATING DRIVERS
An upgrade is unlikely because the final rating is already at the same
level as the sovereign rating.
However, the BCA could be raised if (1) the insurer's capitalization
and earnings become less sensitive to the performance of the A-share
market, which would reflect the strengthening of the insurer's underwriting
profitability; (2) it successfully diversifies its distribution channels
and product offerings; and/or (3) its risk management continues to
improve.
On the other hand, China Life's ratings could be downgraded if :
(1) the insurer's capitalization significantly and consistently
weakens, with adjusted capital to assets remaining consistently
below 8%; (2) profitability continuously deteriorates,
with its return on capital remaining consistently below 8%,
which could be attributable to its volatile investment income and missteps
in underwriting or regulatory risk; (3) the insurer has a much riskier
investment appetite and that its risky asset exposures substantially increase;
(4) there is a material increase in adjusted financial leverage to more
than 30%, or a significant increase in the holding company's
financial leverage; and/or (5) China's sovereign rating is downgraded,
given the insurer's significant business and asset exposure to the Chinese
economy.
PRINCIPAL METHODOLOGY
The methodologies used in these ratings were Life Insurers published in
May 2018, and Government-Related Issuers published in June
2018. Please see the Rating Methodologies page on www.moodys.com
for a copy of these methodologies.
Headquartered in Beijing, China Life Insurance Co Ltd (China Life)
is the largest life insurance company in China by premium income.
The insurer offers term life, whole life, endowment,
annuities, universal life, and accident and health insurance
products through its agency force, bancassurance and group channel.
The company is 68.37% owned by China Life Insurance (Group)
Company, which is wholly owned by China's Ministry of Finance.
The remaining shares are held by public investors.
The local market analyst for these ratings is Qian Zhu, +86
(21) 2057 4098.
REGULATORY DISCLOSURES
For ratings issued on a program, series or category/class of debt,
this announcement provides certain regulatory disclosures in relation
to each rating of a subsequently issued bond or note of the same series
or category/class of debt or pursuant to a program for which the ratings
are derived exclusively from existing ratings in accordance with Moody's
rating practices. For ratings issued on a support provider,
this announcement provides certain regulatory disclosures in relation
to the credit rating action on the support provider and in relation to
each particular credit rating action for securities that derive their
credit ratings from the support provider's credit rating.
For provisional ratings, this announcement provides certain regulatory
disclosures in relation to the provisional rating assigned, and
in relation to a definitive rating that may be assigned subsequent to
the final issuance of the debt, in each case where the transaction
structure and terms have not changed prior to the assignment of the definitive
rating in a manner that would have affected the rating. For further
information please see the ratings tab on the issuer/entity page for the
respective issuer on www.moodys.com.
For any affected securities or rated entities receiving direct credit
support from the primary entity(ies) of this credit rating action,
and whose ratings may change as a result of this credit rating action,
the associated regulatory disclosures will be those of the guarantor entity.
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if applicable to jurisdiction: Ancillary Services, Disclosure
to rated entity, Disclosure from rated entity.
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Regulatory disclosures contained in this press release apply to the credit
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Please see www.moodys.com for any updates on changes to
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for additional regulatory disclosures for each credit rating.
The first name below is the lead rating analyst for this Credit Rating
and the last name below is the person primarily responsible for approving
this Credit Rating.
Wing Kei Frank Yuen
Asst Vice President - Analyst
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.)
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Yat Man Sally Yim
Associate Managing Director
Financial Institutions Group
JOURNALISTS: 852 3758 1350
Client Service: 852 3551 3077
Releasing Office:
Moody's Investors Service Hong Kong Ltd.
24/F One Pacific Place
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China (Hong Kong S.A.R.)
JOURNALISTS: 852 3758 1350
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