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Rating Action:

Moody's assigns A2 IFSR and Baa3(hyb) Core Tier 2 capital debt rating to CCB Life

 The document has been translated in other languages

07 Apr 2017

Hong Kong, April 07, 2017 -- Moody's Investors Service ("Moody's") has assigned an A2 insurance financial strength rating (IFSR) to CCB Life Insurance Company Limited (CCB Life) and a Baa3(hyb) rating to its proposed issuance of Core Tier 2 capital securities. The rating outlook is negative.

This is the first time that Moody's has assigned ratings to CCB Life.

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.

CCB Life, which is 51%-owned by China Construction Bank Corporation (CCB, deposit A1 negative, baseline credit assessment baa2), provides life insurance, accident and health insurance. Its other shareholders include China Life Insurance Co Ltd. (Taiwan) (unrated, 19.9% stake), National Council for Social Security Fund (unrated, 14.3%), China Jianyin Investment Limited (unrated, 5.1%), Shanghai Jin Jiang International Investment and Management Limited. (unrated 4.9%) and Shanghai China-Sunlight Investment Co. Ltd. (unrated, 4.9%).

RATINGS RATIONALE

CCB Life's A2 IFSR reflects its strong distribution capabilities by leveraging CCB's vast network and brand. Since CCB became the largest shareholder in 2011, the company was able to grow substantially over the past few years, becoming the 11th largest life insurer in China with an absolute market share of 2.1% by premium income at end-2016.

In addition, benefitting from its close integration into CCB's operations and IT systems, the company is able to keep its comprehensive expense ratio below peers and support its steady improvement in its profitability.

However, the company's product mix is heavily skewed towards single-premium products with a relatively high average cost of liability. This results in a less profitable in-force portfolio and low value of new business.

While CCB Life pursues a multi-distribution strategy that includes bancassurance, internet sale and tied agents, it heavily relies on CCB for its distribution, making it sensitive to CCB's strategic priorities regarding life insurance cross-selling.

In addition, the company's comprehensive solvency ratio under China's Risk-Oriented Solvency System (C-ROSS) declined to 158% at end-September 2016 from 201% at end-2015, pressured by its fast premium growth and the low profitability of its bancassuarance product portfolio. As such, the company relies on external capital replenishment such as capital injection by shareholders and/or issuance of capital supplement debts to support its capital needs.

CCB Life's rating benefits from a two-notch uplift from its baa1 standalone credit profile, indicating our assumption of a high probability of shareholder support from CCB in times of stress. This reflects the strategic importance of CCB Life to CCB and the reputational damage that the bank would suffer in the event of a failure, as CCB Life sells its products almost exclusively to the bank's customers and carries the same logo of CCB.

The outlook on CCB Life is negative, reflecting the fact that the rating incorporates support from CCB, whose rating also carries a negative outlook.

The Baa3(hyb) rating on the Core Tier 2 securities is two notches below the baa1 standalone credit profile of CCB Life, reflecting the securities' subordination to claims of policyholders, general creditors and the holders of any supplemental capital of CCB Life. The securities will rank pari passu with other Core Tier 2 securities, and senior to junior obligations, which would include any Core Tier 1 capital of the issuer. Moody's does not assume any government support through the parent CCB would be extended to these Core Tier 2 securities, as they are deeply subordinated in the capital structure.

Because of equity-like features contained in the Core Tier 2 capital securities, the security will receive partial equity analytic treatment, based on the subordination, optional and cumulative coupon deferral, and its very long-dated tenure.

Following the proposed issuance, CCB Life's financial and total leverage remains within Moody's expectations.

RATING DRIVERS

Given the negative outlook, CCB Life's rating is unlikely to be upgraded. However, the standalone credit profile could be adjusted upward if: (1) profitability consistently improves, with return-on-capital consistently exceeding 8%; (2) capitalization substantially improves, with its solvency margin ratio consistently above 250%

On the other hand, CCB Life's rating could be downgraded if : (1) there is a deterioration in the support level from or a downward adjustment of the rating/BCA of CCB; (2) capitalization substantially deteriorates, with its solvency margin ratio consistently stay below 150%; (3) profitability deteriorates substantially, with return-on-capital consistently below 1%.

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 Shanghai, CCB Life Insurance Company Limited offers traditional, participating, and accident and health insurance products in China. As of 31 December 2015, its total assets and shareholders' equity were RMB69.2 billion and RMB8.8 billion, respectively.

The Local Market analyst for these ratings is Qian Zhu, +86 (21) 2057 4014.

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.

Wing Kei Frank Yuen
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

Yat Man Sally Yim
Senior Vice President
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

No Related Data.
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