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Rating Action:

Moody's assigns A3 rating to AIA Group and Aa3 IFS rating to AIA Co

 The document has been translated in other languages

21 Feb 2014

Hong Kong, February 21, 2014 -- Moody's Investors Service has assigned a first-time A3 issuer rating to AIA Group Limited (AIA Group) and a Aa3 insurance financial strength rating (IFS) to AIA Company Limited (AIA Co). In addition, Moody's has assigned a (P)A3 senior unsecured rating to AIA Group's USD3 billion Global Medium-Term Note Programme. The outlook of the ratings is stable.

At the same time, Moody's has also affirmed the Aa3 IFS rating of AIA International Ltd with a stable outlook.

RATINGS RATIONALE

The Aa3 IFS ratings for AIA Co and AIA International are based on AIA Group's leading position in a number of Asian markets--Hong Kong (including Macau), Singapore (including Brunei), Thailand, Malaysia and the Philippines--and its strong profitability, which is driven by the solid underwriting and investment performance. The Group has a strong level of free surplus (defined as the excess of adjusted net worth over required capital), and its individual branches and subsidiaries have comfortably met their respective regulatory solvency requirements, indicating strong levels of capital adequacy.

In addition, AIA Group has a significant and diversified geographic footprint within Asia, a region with some of the world's fastest growing insurance markets. The Group also has a large agency force whose productivity has consistently improved since its IPO as a result of the Group's various initiatives.

AIA Group has good financial flexibility due to low financial leverage, as well as good access to the capital markets.

Nonetheless, AIA Group has significant operations in countries such as Thailand and Malaysia whose sovereign ratings are several notches below the current Aa3 IFS ratings of AIA Co and AIA International. Should there be any negative developments in these sovereigns, it could have a negative impact on AIA Group's operations and investment performance. As the Group continues to expand in these countries, which are providing good growth opportunities, it will also be increasingly exposed to the operating risks of these emerging markets; that is, a more volatile operating environment when compared to more mature markets such as Hong Kong and Singapore.

The issuer rating and senior unsecured MTN programme rating of AIA Group is A3 and (P)A3, respectively, which are three notches below the Aa3 IFS ratings of AIA Co and AIA International. The rating is consistent with the standard notching practice we have for insurance holding companies relative to their operating subsidiaries' IFS ratings. This reflects the structural subordination faced by creditors of AIA Group compared to the policyholders of AIA Co Ltd that would likely result in a much higher loss given default at the AIA Group level given that AIA Co Ltd is its sole direct subsidiary of substance.

The rating outlook is stable, reflecting Moody's expectation that AIA Group's earnings and capitalization will remain strong, and its financial leverage would remain below 20%.

Unless the credit strength of the sovereigns in which AIA Group operates in substantially improves, the possibility of an upgrade of AIA Group, AIA Co and AIA International's rating is remote in the next 12-18 months as the Group's growth drivers will unlikely be from countries that are highly rated.

On the other hand, the ratings could be downgraded if 1) there is an acquisition that is heavily debt-funded and substantially increases the Group's exposure to emerging markets; 2) the Group's capital adequacy decreases significantly (for example, adjusted capital-to-assets ratio of less than 10%); 3) the Group's intangible assets (namely goodwill) relative to shareholders' equity increases significantly; 4) the Group's profitability deteriorates significantly (for example, return-on-capital consistently below 10% and/or 5) the Group's adjusted financial leverage increases to more than 20%.

RATING METHODOLOGY

The principal methodology used in these ratings was Global Life Insurers published in December 2013. Please see the Credit Policy page on www.moodys.com for a copy of this methodology.

AIA Group offers a wide variety of life insurance products in 17 jurisdictions throughout Asia Pacific. These include traditional individual life, group life and medical, credit life, accident, and health and investment-linked products sold through tied agents, bancassurance, brokers, and direct marketing channels. For the year ended 30 November 2013, AIA Group reported net income attributable to shareholders of USD2.8 billion. Shareholders' equity was USD24.7 billion at 30 November 2013.

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 rating action on the support provider and in relation to each particular 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 rating action, and whose ratings may change as a result of this 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.

Sally Yim
VP - Senior Credit Officer
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

Stephen Long
MD - Financial Institutions
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

Moody's assigns A3 rating to AIA Group and Aa3 IFS rating to AIA Co
No Related Data.
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