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Rating Action:

Moody’s affirms PICC Life’s A2 IFSR with a stable outlook

 The document has been translated in other languages

29 November 2019

Hong Kong , November 29, 2019 - - Moody's Investors Service has affirmed the A2 insurance financial strength rating (IFSR) of PICC Life Insurance Company Limited.

The rating outlook is stable.

RATINGS RATIONALE

The affirmation of PICC Life's A2 IFSR incorporates its baseline credit assessment of baa1, and two notches of uplift, reflecting Moody's assumption of a strong level of support from the Government of China (A1 stable), given the government's effective 59.8% stake through the Ministry of Finance and Social Security Fund and a high level of dependence, reflecting the company's exposure to the domestic economy and its large holdings of debt securities issued by the government and government agencies. This also reflects the parental support from the People's Insurance Company (Group) of China Limited (PICC Group) as PICC Life is a strategically important subsidiary within the group. Over the past few years, PICC Life has become a more integral part of the group, given its increasing contribution to the group's assets and earnings.

The affirmation of PICC Life's baa1 BCA reflects the insurer's good market position, solid capitalization and the gradual improvement in its product mix and profitability.

PICC Life has strong brand recognition as the life insurance arm of the PICC Group. While its premium growth has lagged that of the top industry players' in the past three years resulting in a decline in market share to 3.8% at the end of June 2019 from 5.6% at the end of 2015, its product mix has gradually improved. Renewal premiums and first-year regular premiums as a share of total premium income increased to 42% and 21% from 9% and from 7%, respectively, over the same period.

This product mix enhancement has led to a gradual improvement in PICC Life's profitability. Its value of new business rose by 26% in H1 2019, outpacing most of its listed industry peers. Nevertheless, its overall new business margin is relatively low, reflecting its still material exposure to single premium products when compared to most of its leading domestic peers.

PICC Life has maintained good capital adequacy, with its comprehensive solvency ratio standing at 244% at the end of September 2019, supported by the issuance of subordinated debt in 2018 and moderate asset growth over the past few years.

However, these strengths are offset by the company's high equity investments relative to its capital as well as its concentration in a single equity investment in Industrial Bank Co., Ltd. (Industrial Bank, deposits Baa2 stable, BCA ba2), which could result in significant volatility in earnings and capital.

Its relatively high reliance on the bancassurance channel and small agency force when compared to leading peers may also constrain its ability to sell higher margin protection products amid intense market competition, thus slowing down improvement in both market shares and profitability.

RATING DRIVERS

Moody's could upgrade PICC Life's rating if (1) it reduces its equity investment and its high-risk assets to below 150% of shareholders' equity; (2) it maintains its adjusted capital to total asset ratio above 7% and local solvency ratio above 200% consistently; (3) it achieves an adjusted return on capital consistently above 7%; and/or (4) it successfully diversifies its distribution channels and product offerings. At the same time, PICC Group's adjusted financial leverage would stay below 30%.

On the other hand, PICC Life's rating could be downgraded if (1) its standalone financial leverage rises above 40%; (2) the company consistently reports net losses; (3) its local solvency ratio drops below 150%; (4) its market position continues to decline, which could result from disruptions in its distribution channels; (5) there is a weakening in PICC Group's capability to provide support to PICC Life, or a decrease in the company's strategic importance to PICC Group; and/or (6) there is a significant decline in Moody's assessment of the level of potential support from the Chinese government.

The methodologies used in these ratings were Life Insurers Methodology published in November 2019, 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, PICC Life Insurance Company Limited offers life insurance products, including traditional life and health insurance, participating life insurance, universal life insurance and accidental injury and short-term health insurance. At the end of 2018, its total assets and shareholders' equity were RMB392 billion and RMB31 billion, respectively.

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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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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