NOTE: On January 18 2013, the press release was revised as follows: In the final paragraph of the Fubon Insurance sub-section of the Ratings Rationale section, corrected “improves” to “increases”. Revised release follows:
Hong Kong, January 17, 2013 -- Moody's Investors Service has affirmed the A1 insurance financial
strength (IFS) rating on Fubon Insurance Co, Ltd (Fubon Insurance),
the A3 IFS rating on Fubon Life Insurance Co, Ltd (Fubon Life),
and the Baa1 issuer rating on Fubon Financial Holding Co Ltd (Fubon Financial).
At the same time, Moody's has changed the outlook of Fubon
Insurance to stable from negative, and changed the outlook of Fubon
Life to negative from stable.
The outlook of Fubon Financial remains stable.
The ratings and outlook of Taipei Fubon Commercial Bank Co Ltd and Fubon
Securities Co Ltd are not affected in this rating action.
RATINGS RATIONALE
FUBON INSURANCE
The A1 rating of Fubon Insurance reflects its leadership position in the
Taiwan non life insurance market, very strong Fubon franchise,
good product diversification, profitable business growth and solid
level of capitalization.
Moody's expects Fubon Insurance's combined ratio to improve
in 2012 compared to that in 2011, largely driven by the improvement
in the loss ratio of its personal motor business as well as a reduction
in the expense ratio. Moreover, Moody's anticipates
its underwriting profitability in 2013 to remain stable relative to 2012
level, despite competition in the industry and the continued liberalization
of premium rates in Taiwan.
Moody's considers that Fubon Insurance's capital strength
continues to support its A1 rating, as reflected by its gross underwriting
leverage. We estimate the leverage ratio will measure about 1.3x
in 2012 on the back of its expected business growth and will be barely
weaker than the 1.2x level of 2011 despite a capital reduction
of TWD5 billion to Fubon Financial in 1H 2012 to support business growth
at Fubon Life.
In addition, organic earnings growth supports Fubon Insurance's
capital position. The company has lowered its dividend payout ratio
to 53% in 2012 from 81% in 2011 to build its capital buffer.
Moody's believes high retention of earnings is essential for the
rating stability of the company.
"The stable outlook is reflective of Fubon Insurance's improved
underwriting profitability and stable level of capital adequacy,"
says Stella Ng, a Moody's Assistant Vice President and Analyst.
On the other hand, the company's high-risk assets (mainly
equity and real estate investments) have increased. Its ratio of
high-risk assets to adjusted shareholders' equity (including special
reserves) increased to 71% in 1H 2012 from below 60% in
2011, indicating a moderate level of risk in its investment portfolio.
In 1H 2012, equity investments represented more than 30%
of its invested assets, and its equity portfolio is somewhat concentrated
in certain large Taiwanese corporates.
Fubon Insurance's credit strength is correlated to and somewhat
constrained by that of Fubon Financial due to the linkages between the
group and its fellow subsidiaries' credit profiles in terms of franchise
and financial flexibility. Therefore, upward pressure on
Fubon Insurance's rating is unlikely unless the ratings of other
key subsidiaries within the group are raised.
However, the rating could be downgraded if: (1) gross underwriting
leverage is consistently above 2x; (2) profitability deteriorates,
such that its adjusted return on capital falls below 8%,
or its combined ratio significantly increases; and/or (3) its dividend
payout ratio remains high, perhaps as a result of supporting the
capital needs of other Fubon Group companies.
FUBON LIFE
The affirmation of Fubon Life's A3 rating reflects its well-positioned
business profile and good financial flexibility.
Moody's considers Fubon Life's market position to be strong,
as it is the second-largest life insurer in Taiwan by premium income.
Given that it is a wholly owned subsidiary of Fubon Financial and is affiliated
with group companies in the banking, securities and non-life
insurance sectors, Fubon Life enjoys operational synergies through
its business growth and risk-management practices.
The company cross-sells products to a wide customer base through
an extensive network of branches and sales forces, taking advantage
of the group's diversified financial services offerings under the
Fubon brand.
It also benefits from financial support from its parent Fubon Financial
-- one of the largest financial holding companies in Taiwan --
in case of need. For example, it received a capital injection
of TWD5 billion from its parent in 1H 2012 for the purposes of supporting
its business growth.
However, Moody's has changed the outlook to negative from
stable reflecting Fubon Life's weakened capital strength and increasing
high-risk assets exposure.
Its capital adequacy, as measured by Moody's ratio of adjusted
capital to total assets, has weakened to 4.1% at 1H
2012 from 6.3% at end-2009. The company's
capital strength will continue to be pressured during volatile periods
in global financial markets. Profitability is hindered by the ongoing
negative spread in its legacy high-guarantee policies because of
persistently low interest rates.
Fubon Life's equity and real estate investments somewhat increased
in 2012, compared to 2011, and the ratio of high-risk
assets relative to its adjusted shareholders' equity is high when
compared to its global peers. Its increased holdings of high-risk
assets could expose its earnings to potential volatility under a stress
scenario.
For the outlook to return to stable, Fubon Life will have to:
(1) significantly reduce its holding of high-risk assets as well
as its concentration in large equity exposures; (2) consistently
improve its capital adequacy, such that its ratio of adjusted capital
to assets stays above 8%; and/or (3) further diversify its
distribution channels.
In contrast, the rating could be downgraded if: (1) the ratio
of high-risk assets to shareholders' equity increases substantially;
(2) its capitalization deteriorates, such that the ratio of adjusted
capital to assets slips below 4%; and/or (3) profitability,
as measured by return on capital, weakens to below 8%.
FUBON FINANCIAL
The affirmation of Fubon Financial's Baa1 issuer rating with a stable
outlook takes into consideration the financial flexibility that benefits
the holding company. This is due to the group's business diversification,
sources of earnings and cash flows from the life insurance, non
life insurance, and banking and securities operations. Fubon
Financial has a well-established brand name, reflecting the
strong market positions for its main operating subsidiaries in their respective
markets.
In addition, the rating reflects Moodys' expectation that
the proposed acquisition of First Sino Bank, headquartered in Shanghai,
China, will not materially change the credit profile of Fubon Financial.
This is because 1) First Sino will be a very small part of Fubon group
(~5% of total assets, capital and earnings); 2) First
Sino's capital and asset quality are sound; and 3) the financing
is largely equity-funded which would not significantly raise the
leverage of Fubon Financial.
Taipei Fubon Bank will acquire 51% of the stakes in Fist Sino Bank
and Fubon Financial will acquire the other 29%. Total consideration
of the transaction is RMB6.45 billion (TWD30.6 billion),
which includes a capital injection of RMB0.8 billion to First Sino
Bank. In addition to internal cash resources, Fubon Financial
will issue new shares of TWD20-25 billion to pay for the transaction,
of which about TWD10-15 billion will be injected into Taipei Fubon
Bank. The transaction is subject to regulatory approvals of Taiwan's
Financial Supervisory Commission, Investment Commission of the Ministry
of Economic Affairs and the China Banking Regulatory Commission.
It is expected to close in the second quarter of 2013.
Moody's notes that the affirmation of Fubon Financial's rating is dependent
on the new share issuance being successful. If Fubon Financial
is not able to raise capital successfully from the equity market,
Moody's will revisit the rating of Fubon Financial should the transaction
be funded by other sources, such as debt.
The rating could be upgraded if there is an upgrade of the financial strength
ratings of its key operating subsidiaries.
However, a rating downgrade could emerge if there is: (1)
a downgrade of the financial strength ratings of key operating subsidiaries;
(2) a substantial increase in financial leverage to above 25% and
in double leverage above 120%; (3) a reduction in the diversification
currently provided by the mix of business among life, non life and
banking sectors; (4) aggressive expansion or acquisition plans that
could raise overall risk, namely financial leverage and fixed-charge
needs.
RATINGS LIST
The following rating has been affirmed with outlook changed to stable
from negative
Fubon Insurance -- IFS rating at A1
The following rating has been affirmed with outlook changed to negative
from stable:
Fubon Life -- IFS rating at A3
The following rating has been affirmed with stable outlook
Fubon Financial -- issuer rating at Baa1
RATING METHODOLOGIES
The principal methodologies used in rating Fubon Financial Holding Co.,
Ltd. were Moody's Consolidated Global Bank Rating published
in June 2012, and Global Securities Industry Methodology published
in December 2006. The principal methodology used in rating Fubon
Life Insurance Co Ltd was Moody's Global Rating Methodology for Life Insurers
published in May 2010. The principal methodology used in rating
Fubon Insurance Co., Ltd. was Moody's Global Rating
Methodology for Property and Casualty Insurers published in May 2010.
Please see the Credit Policy page on www.moodys.com for
a copy of these methodologies.
Fubon Insurance Co Ltd, headquartered in Taipei, is the largest
property & casualty insurance company in Taiwan. The company
underwrites various businesses lines including motor, fire,
accident and health, and marine. As of 30 June 2012,
its consolidated assets were TWD68.7 billion and shareholders'
equity was TWD19.5 billion.
Fubon Life Insurance Co Ltd is the second-largest life insurer
in Taiwan and offers traditional savings, annuities, accident
and investment-linked products. As of 30 June 2012,
its total assets stood at TWD2.0 trillion and shareholders'
equity was TWD112.5.6 billion.
Fubon Financial Holding Co Ltd, based in Taiwan, is a diversified
financial holding company with subsidiaries, including Taipei Fubon
Bank, Fubon Life, Fubon Insurance, Fubon Securities
and Fubon Asset Management. As of June 30, 2012, its
total assets and shareholders' equity (on a consolidated basis) were TWD3.9
trillion and TWD241.2 billion, respectively.
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 rating action on the support provider and in relation to each particular
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 rating action, and
whose ratings may change as a result of this 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.
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.
Stella Ng
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
SUBSCRIBERS: (852) 3551-3077
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
SUBSCRIBERS: (852) 3551-3077
Moody's affirms Fubon Financial and its insurance subsidiaries
