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Rating Action:

Moody’s affirms ICBC-AXA’s A2 IFSR; outlook stable

 The document has been translated in other languages

13 December 2019

Hong Kong , December 13, 2019 - - Moody's Investors Service has affirmed the A2 insurance financial strength rating (IFSR) of ICBC-AXA Assurance Co., Ltd. (ICBC-AXA).

The rating outlook is maintained at stable.

At 30 September 2019, ICBC-AXA was 60% owned by Industrial & Commercial Bank of China Ltd (ICBC, deposits A1 stable, Baseline Credit Assessment [BCA] of baa1) and 27.5% owned by AXA China, a wholly owned subsidiary of AXA (A2, stable). The rest of the company's shares were held by China Minmetals Corporation (Baa1, stable, 2.5%) and Minmetals Capital Holdings Limited (10.0%).

RATINGS RATIONALE

The affirmation of ICBC-AXA's A2 IFSR reflects the insurer's strong distribution capabilities, by leveraging the vast network and well regarded brand of its largest shareholder, ICBC. In addition, the company's capitalization is solid relative to its business volume, supported by regular capital injections from its shareholders.

ICBC-AXA has a wide distribution network throughout China. In H1 2019, the insurer held an absolute market share of 2.0% in the country's life insurance market. More than 90% of premium income for the same period was sourced through ICBC's bancassurance channel, and ICBC-AXA intends to further deepen its partnership in distribution with the bank.

Additionally, ICBC-AXA's capitalization remains solid. At 30 September 2019, its comprehensive solvency ratio was at 206%, well above the minimum regulatory requirement of 100%. Multiple rounds of capital injections from its shareholders have helped the insurer to maintain a strong capital base.

However, these strengths are partially offset by the company's large proportion of single-premium products, reliance on spread gains, as well as a relatively high exposure to alternative assets.

Single-premium products still accounts for a large proportion of ICBC-AXA's product mix, despite its efforts to shift towards longer-term regular-premium products and protection products. As it will take time for the insurer to sell more longer-term regular-premium and protection products through the bancassurance channel, Moody's expects that single-premium products will continue to account for a significant portion of premium income from new policies over the next few years.

In the first 11 months of 2019, single-premium products accounted for 82% of premium income from new policies, up from 73% in 2018 and 82% in 2017, mainly driven by the strong sales of single-premium participating products during the "open-door" sales at the beginning of 2019.

In addition, the current low interest rate environment is pressuring ICBC-AXA's investment yields and profitability, especially because it derives the majority of its profit from spread gains.

Furthermore, although the company has reduced its holdings of alternative investments over the past two years, its investment portfolio still has a relatively high exposure to these assets, in particular trust plans, which generally exhibit lower liquidity and lack transparency. Alternative investments accounted for 36% of its total invested assets as of end-June 2019.

ICBC-AXA's A2 IFSR incorporates a two-notch uplift from its standalone credit profile baa1, reflecting the parental support available to the company, in case of stress. This support reflects the strategic importance of ICBC-AXA to the shareholders and the reputational damage that they would suffer, in particular ICBC, if ICBC-AXA were to fail, because ICBC-AXA sells its products almost exclusively to the bank's customers.

The outlook is stable, reflecting Moody's expectation that the insurer will continue to receive strong support from its shareholders and maintain solid capitalization and good profitability over the next 12-18 months.

RATING DRIVERS

Moody's could adjust ICBC-AXA's standalone credit profile upward if (1) the company achieves a greater scale, leading to a better market position; (2) regular premium and protection products become the majority of products sold; (3) the company's profitability improves on a sustained basis, with returns on capital consistently exceeding 8%.

But Moody's could downgrade the insurer's rating if (1) support from ICBC or AXA diminishes, or if Moody's downgrades ICBC's BCA or rating; (2) ICBC-AXA's capitalization worsens substantially, with its solvency ratio consistently below 150%; (3) profitability deteriorates significantly, with return on capital consistently below 2%.

The principal methodology used in this rating was Life Insurers Methodology published in November 2019. Please see the Rating Methodologies page on www.moodys.com for a copy of this methodology.

Headquartered in Shanghai, ICBC-AXA Assurance Co., Ltd. provides life insurance, and accident and health insurance via its branches located in 21 provinces, autonomous regions and provincial cities in China. As of 31 December 2018, its total assets and shareholders' equity registered RMB118.9 billion and RMB13.3 billion, respectively.

The Local Market analyst for this rating is Qian Zhu, +86 (21) 2057 4098.

REGULATORY DISCLOSURES

For ratings issued on a program, series, category/class of debt or security this announcement provides certain regulatory disclosures in relation to each rating of a subsequently issued bond or note of the same series, category/class of debt, security 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.

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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.

Frank Yuen, CFA
VP-Senior 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

Sally Yim, CFA
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

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