Hong Kong, December 20, 2018 -- Moody's Investors Service has affirmed the insurance financial strength
rating (IFSR) of FTLife Insurance Company Limited at Baa1.
At the same time, Moody's has affirmed the Baa2 backed senior
unsecured rating of FTL Capital Limited. The outstanding bonds
of FTL Capital are fully and unconditionally guaranteed by FTLife.
The outlook is stable.
FTLife is a wholly-owned subsidiary of Tongchuangjiuding Investment
Management Group Co., Ltd (JD Group), which is an investment
holding company headquartered in Beijing.
RATINGS RATIONALE
The affirmation reflects FTLife's stable profitability trend,
low-risk investment portfolio, and solid solvency ratio,
offset by its smaller operating scale and weaker distribution capabilities
when compared to its major domestic peers, and its significant asset
and liability duration mismatch.
Due to FTLife's effort to strengthen its distribution channels and
product offerings, the insurer's premium growth has outpaced
that of the industry in the past two years, which boosted the strong
growth in value of new business. Its profitability trend has also
been stable, with return-on-capital (ROC) averaging
5.5% for the past five years.
FTLife manages a low-risk investment book, with investment-grade
bonds and deposits accounting for more than 75% of its total investments.
Within its bond portfolio, around 90% of the company's
bonds carried investment grade ratings at end-June 2018.
This resulted in a lower than peers high-risk asset ratio standing
at around 50% as of end-June 2018.
FTLife's statutory solvency ratio has improved in the past few years
and stood at 579% at end-September 2018. The improvement
was mainly because of capital injections from its parent, rising
interest rates and internal capital generation from earnings.
However, these credit strengths were offset by the insurer's
small market position and operating scale, leading to a higher expense
ratio than most of the major domestic peers in Hong Kong. While
FTLife has been developing its broker channel, it remains reliant
on the agency channel and is therefore susceptible to channel disruption
from agency turnover.
In addition, FTLife has increased its allocation to equities in
the past two years to support the higher sales of participating policies
with higher non-guaranteed returns. Although part of these
investment risks could be shared with policyholders, these exposures,
and its significant asset and liability duration mismatch, still
would lead to higher volatility in its earnings and capital position.
Moody's views the tightening control on cross-border investments
by Chinese regulators and the high financial leverage of JD Group as significantly
constraining the parent's capacity to provide support to FTLife
when needed.
On 27 November 2018, JD Group confirmed that it is in talks with
potential strategic investors to sell all or part of its stake in FTLife
so as to redirect its management focus to its core investment businesses.
A stake sale to strong strategic investors would be credit positive for
FTLife because the insurer would benefit from robust capital support or
operating synergy.
Nonetheless, there remains a great deal of uncertainty over the
timing of transaction, the size of a stake to be sold, the
profiles of the potential strategic investors and prospects for regulatory
approval. We will evaluate the impact of such sale to FTLife when
the definitive agreement is signed and announced.
The stable outlook reflects Moody's expectation that FTLife's
capitalization, liquidity profile and investment portfolio will
remain stable over the next 12-18 months.
The backed senior unsecured debt rating of FTL Capital Limited is one
notch below FTLife's IFSR. Although the outstanding bonds of FTL
Capital Limited are fully and unconditionally guaranteed by FTLife,
the guarantee is effectively junior to the liabilities of the insurance
policyholders. The one-notch spread reflects the subordination
of debtholders to FTLife's policyholders.
RATING DRIVERS
Moody's could upgrade FTLife's ratings if: (1) there is a
significant increase in capital or operation support available to FTLife
following the potential change in shareholding structure; (2) FTLife's
distribution and product capabilities are further strengthened and diversified;
and/or (3) the insurer's profitability consistently improves, such
that its ROC is above 6% on a sustained basis.
Moody's could downgrade FTLife's ratings if: (1) the
insurer adopts aggressive investment or financial policies, or both,
while demonstrating a lack of good asset-liability management;
(2) its capitalization decreases significantly, with its local solvency
ratio falling below 200% on a sustained basis; (3) its market
position significantly weakens; and/or (4) there is a sustained decline
in agency productivity or there is a large-scale agency turnover.
PRINCIPAL METHODOLOGY
The principal methodology used in these ratings was Life Insurers published
in May 2018. Please see the Rating Methodologies page on www.moodys.com
for a copy of this methodology.
FTLife Insurance Company Limited was the twelfth-largest life insurer
in Hong Kong by total in-force premiums for H1 2018. It
offers traditional life, participating life, health insurance
and investment-linked products. At the end of 2017,
FTLife's total assets amounted to HKD52.4 billion and its shareholders'
equity totaled HKD15.0 billion.
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.
Exceptions to this approach exist for the following disclosures,
if applicable to jurisdiction: Ancillary Services, Disclosure
to rated entity, Disclosure from rated entity.
Moody's considers a rated entity or its agent(s) to be participating
when it maintains an overall relationship with Moody's. Unless
noted in the Regulatory Disclosures as a Non-Participating Entity,
the rated entities are participating and the rated entities or their agent(s)
generally provide Moody's with information for the purposes of its
ratings process. Please refer to www.moodys.com for
the Regulatory Disclosures for each credit rating action under the ratings
tab on the issuer/entity page and for details of Moody's Policy
for Designating Non-Participating Rated Entities.
Regulatory disclosures contained in this press release apply to the credit
rating and, if applicable, the related rating outlook or rating
review.
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.
Please see the ratings tab on the issuer/entity page on www.moodys.com
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.)
JOURNALISTS: 852 3758 1350
Client Service: 852 3551 3077
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
88 Queensway
Hong Kong
China (Hong Kong S.A.R.)
JOURNALISTS: 852 3758 1350
Client Service: 852 3551 3077
