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Rating Action:

Moody's affirms Taikang Life's A3 IFSR; outlook stable

 The document has been translated in other languages

06 September 2022


Hong Kong , September 6, 2022 -- Moody's Investors Service has affirmed the insurance financial strength rating (IFSR) of Taikang Life Insurance Co., Ltd. at A3. The outlook remains stable.

RATINGS RATIONALE

The affirmation of Taikang Life's A3 IFSR reflects the insurer's strong market position, diversified distribution mix and product scope, good profitability track record and improved asset and liability management.

Taikang Life's premiums grew solidly by 10% in 2021, outperforming the flat industry premium growth due to Covid-related disruptions. The resilient sales performance was partly driven by the insurer's strong distribution reach and leading position in the retirement homes segment and healthcare-related services. As a result, Taikang Life's market shares continued to increase in 2021.

While Taikang Life's total agency number further declined in H1 2022, the insurer's core and productive agency force remained relatively stable. Therefore, its agency channel share of total premium income has continued to increase to 74% in 2021 from 72% in 2020.

Unlike some peers who shifted their focus to traditional savings products in the bancassurance channel, Taikang Life remained focused on long-term participating products that have higher new business margins and lower guaranteed rates. In response to China's declining interest rate during the first half of 2022, Taikang Life reduced the dividend rate of its key participating products in June.

In addition, Taikang Life has a track record of strong profitability with an average return on capital above 28% for the past five years, driven by stable investment returns and a profitable in-force book. The insurer has been increasing its government bond exposure, which will further support stable investment returns and enhance its asset and liability management.

These strengths, however, are partly offset by Taikang Life's large exposure to high-risk assets— such as in equities, accounting for around 20% of its total investments — which could lead to volatility in the insurer's capitalization and profitability. The insurer also has material single name exposure relative to its shareholders' equity. While its retirement home investments have enhanced Taikang Life's franchise, these investments bring additional property sector exposure and execution risks.

Taikang Life's capital position has been improving over the past four years through internal capital generation with comprehensive C-ROSS (China Risk Oriented Solvency System) ratio over 250% as of end-March 2021. However, its core C-ROSS ratio fell by a fair amount following the implementation of C-ROSS Phase II in the first quarter of 2022. While Taikang Life's comprehensive and core ratios are still significantly higher than minimum regulatory requirements, Moody's expects the insurer will adopt diversified capital management approach, such as debt issuance or higher capital retention, depending on its solvency levels to strengthen its capital position.

The stable outlook reflects Moody's expectation that the insurer will maintain a strong market position with good profitability, while its exposure to high-risk assets will gradually decline relative to its improving capital base.

FACTORS THAT COULD LEAD TO AN UPGRADE OR DOWNGRADE OF THE RATINGS

Moody's could upgrade Taikang Life's rating if (1) its high-risk assets/shareholders' equity remains below 300% on a sustained basis; (2) its comprehensive solvency ratio and core solvency ratio remains above 250% and 150%, respectively, or adjusted shareholders' equity/total assets remains above 5%, both on a sustained basis; (3) the insurer maintains good profitability, with its return on average assets (ROAA) above 1.5% on a sustained basis; and/or (4) its holding company's, Taikang Insurance Group, financial flexibility substantially improve.

On the other hand, Moody's could downgrade Taikang Life's rating if (1) its high-risk assets/shareholders' equity remains above 400% on a sustained basis; (2) its comprehensive solvency ratio remains below 150% or adjusted shareholders' equity/total assets remains below 3%, both on a sustained basis; and/or (3) its ROAA remains below 1.0% on a sustained basis.

PRINCIPAL METHODOLOGY

The principal methodology used in these ratings was Life Insurers Methodology published in August 2022 and available at https://ratings.moodys.com/api/rmc-documents/391815 . Alternatively, please see the Rating Methodologies page on https://ratings.moodys.com for a copy of this methodology.

Taikang Life Insurance Co., Ltd. offers life insurance and reinsurance products in China. As of 31 December 2021, its total assets and shareholders' equity were RMB1,191.5 billion and RMB74.7 billion, respectively.

REGULATORY DISCLOSURES

For further specification of Moody's key rating assumptions and sensitivity analysis, see the sections Methodology Assumptions and Sensitivity to Assumptions in the disclosure form. Moody's Rating Symbols and Definitions can be found on https://ratings.moodys.com/rating-definitions .

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 issuer/deal page for the respective issuer on https://ratings.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.

The ratings have been disclosed to the rated entity or its designated agent(s) and issued with no amendment resulting from that disclosure.

These ratings are solicited. Please refer to Moody's Policy for Designating and Assigning Unsolicited Credit Ratings available on its website https://ratings.moodys.com .

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 entity is participating and the rated entity or its agent(s) generally provides Moody's with information for the purposes of its ratings process. Please refer to https://ratings.moodys.com for the Regulatory Disclosures for each credit rating action, shown on the issuer/deal page, and for Moody's Policy for Designating Non-Participating Rated Entities, shown on https://ratings.moodys.com .

Regulatory disclosures contained in this press release apply to the credit rating and, if applicable, the related rating outlook or rating review.

Moody's general principles for assessing environmental, social and governance (ESG) risks in our credit analysis can be found at https://ratings.moodys.com/documents/PBC_1288235 .

The Global Scale Credit Rating on this Credit Rating Announcement was issued by one of Moody's affiliates outside the EU and is endorsed by Moody's Deutschland GmbH, An der Welle 5, Frankfurt am Main 60322, Germany, in accordance with Art.4 paragraph 3 of the Regulation (EC) No 1060/2009 on Credit Rating Agencies. Further information on the EU endorsement status and on the Moody's office that issued the credit rating is available on https://ratings.moodys.com .

The Global Scale Credit Rating on this Credit Rating Announcement was issued by one of Moody's affiliates outside the UK and is endorsed by Moody's Investors Service Limited, One Canada Square, Canary Wharf, London E14 5FA under the law applicable to credit rating agencies in the UK. Further information on the UK endorsement status and on the Moody's office that issued the credit rating is available on https://ratings.moodys.com .

Please see https://ratings.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 issuer/deal page on https://ratings.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

Chen Huang
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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