Hong Kong, June 21, 2017 -- Moody's Investors Service has affirmed the A1 insurance financial strength
rating (IFSR) of Kyobo Life Insurance Co., Ltd. The
outlook is stable.
In addition, Moody's has assigned an A3(hyb) rating to its proposed
issuance of subordinated capital securities.
The rating on the securities is subject to the receipt of final documentation,
the terms and conditions of which are not expected to change in any material
way from the draft documents that Moody's has reviewed.
RATINGS RATIONALE
Kyobo Life's A1 IFSR reflects its strong business profile, solid
capitalization with low financial leverage, and good level of profitability
in 2016, excluding a one-off expense.
Kyobo Life has a strong franchise and good market presence as the third
largest life insurer in Korea. It has established diversified distribution
channels, which include a tied-agency force, direct
sales, bancassurance, and independent financial advisors.
The insurer's capitalization profile is solid, with a local
risk-based capital (RBC) ratio of 234% at the end of 2016.
Its low shareholder dividend payout ratios have enabled it to grow its
shareholders' equity over the years.
The proposed subordinated capital securities issuance will strengthen
its regulatory solvency position and create a buffer against potentially
higher capital requirements stemming from the adoption of International
Financial Reporting Standard (IFRS 17) and proposed new insurance capital
regime in Korea.
Kyobo Life's 2016 profitability weakened because it had to provision
for a large amount of accidental death claims expenses related to legacy
suicidal cases. Nonetheless, we believe the impact of such
claim provisions is largely a one-off expense, and is moderate
for the insurer.
We expect the insurer's profitability to improve over time because
of consistent improvements in its expense gains and its strategic focus
on improving its product mix to enhance its mortality/morbidity gains.
Kyobo Life has been selling more health and protection-type products,
which are more lucrative than short-term savings products.
Nonetheless, these credit strengths are offset by a widening negative
spread because of low domestic interest rates, as well as rising
foreign exchange risks.
The prolonged low state of domestic interest rates will continue to pressure
Kyobo Life's profitability, which undermines in turn the pace of
improvement in its lingering negative spread, which is associated
with its legacy high guarantee policies.
Further, there could be potential earnings volatility due to currency
risk resulting from its increasing overseas investments. In response
to low interest rates at home, Kyobo Life is now holding more overseas
securities for longer asset durations and higher yields, which expose
it to foreign-exchange risks.
The A3(hyb) rating on the subordinated capital securities is two notches
below its A1 IFSR, reflecting the securities' subordination
to claims of all other present and future senior and subordinated creditors,
including, but not limited to, non-perpetual subordinated
creditors of the issuer.
The securities will rank pari passu with any parity obligations and in
priority to claims of holders of the preferred and common shares of the
issuer.
Because of equity-like features contained in the subordinated capital
securities, they will receive partial equity analytic treatment,
based on the subordination, optional and non-cumulative coupon
deferral, and its 30-year rolling perpetuity.
Following the issuance, Kyobo Life's financial and total leverage
will remain low and within Moody's expectations.
RATING DRIVERS
An upgrade of Kyobo Life's rating is unlikely, unless it materially
reduces its negative spread. For the rating to be upgraded,
we would expect its adjusted capital-to-asset ratio above
10%.
On the other hand, Kyobo Life's rating could be downgraded
if : (1) its adjusted capital-to-assets ratio falls
below 6%, or its RBC ratio drops below 150%;
(2) profitability declines consistently, such the return-on-capital
ratio drops to 6%; (3) there is an increase in high-risk
assets to more than 150% of shareholders' equity; and/or (4)
its financial leverage ratio is consistently above 25%.
The principal methodology used in these ratings was Global Life Insurers
published in April 2016. Please see the Rating Methodologies page
on www.moodys.com for a copy of this methodology.
Headquartered in Seoul, Kyobo Life Insurance Co., Ltd
offers life, savings, retirement pension, accident,
and health insurance products in Korea. At end-December
2016, its total assets and shareholders' equity stood at KRW96.7
trillion and KRW7.9 trillion, 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 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.
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.
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
Client Service: 852 3551 3077
Yat Man Sally Yim
Senior Vice President
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
