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Rating Action:

Moody’s assigns first-time A1 IFSR to Allianz Taiwan; outlook stable

27 June 2022


Hong Kong , June 27, 2022 -- Moody's Investors Service has assigned an insurance financial strength rating (IFSR) of A1 to Allianz Taiwan Life Insurance Company Ltd. (Allianz Taiwan). The outlook is stable.

This is the first time that Moody's has assigned a rating to Allianz Taiwan.

RATINGS RATIONALE

Allianz Taiwan's A1 IFSR reflects its leading market position in investment-linked products, low product risk profile, strong risk-based capitalization, and support from its controlling shareholder, Allianz SE (IFSR Aa3, stable). These strengths are offset by the insurer's moderate overall market presence, its weak product diversification and moderate level of profitability.

Allianz Taiwan is one of the top three investment-linked product underwriters in Taiwan, China (Aa3 positive) in terms of total premiums in 2021. The insurer benefits from its strong asset management expertise and technology capabilities as part of Allianz SE, and its robust fund options offered to policyholders. Its strong growth in investment-linked products in recent years also anchors its position as the top foreign-owned life insurer in Taiwan.

Allianz Taiwan derived around 85% of total premiums from investment-linked products in 2021, which underpins its lower reliance on spread gains than its domestic peers. Mortality and morbidity gains derived from the sales of health and accident riders attached to investment-linked products and fee income are key contributors to the insurer's operating profit. Its traditional life products also entail low negative spread risks because of limited exposure to high guarantee rate policies following its divestment of most of its traditional life portfolio to China Life Insurance Co., Ltd. in Taiwan in 2018.

The insurer's strong risk-based capitalization benefits from low capital consumption from its investment-linked products and the capital support from Allianz SE. Its risk-based capital (RBC) ratio stood high at over 700% as of the end of 2021. Moody's expects Allianz Taiwan's solid earnings and stringent local regulation in capital repatriation to support a strong solvency buffer above the regulatory minimum of 200% over the next 12-18 months.

In addition, the insurer's economic capitalization and earnings are resilient to equity market and interest rate movements, because of its prudent asset allocation with a very low equity exposure. Its asset and liability are also well-matched, in terms of durations and currencies.

However, Allianz Taiwan is still a medium-size player in the highly competitive and mature Taiwanese life market with a moderate market share of 2.9% in terms of total premiums in 2021.

Further, the insurer's weak product diversification exposes its earnings and premium growth to evolving customer demand and intensifying competition in investment-linked products. Moody's expects weaker product demand amid rising equity market volatility and sales disruptions brought by the resurgence in coronavirus cases to strain the insurer's premiums and fee income growth in 2022.

Allianz Taiwan's underwriting profitability is at a moderate level compared with its rated peers, mainly reflecting the relatively low product margin of its key single-premium investment-linked products. The insurer seeks to improve the margins via growing regular-premium products with a higher uptake of protection riders and interest-sensitive products.

The A1 IFSR incorporates a one-notch uplift from its standalone credit profile of A2 to account for parental support from Allianz SE in times of stress. This considers Allianz SE's controlling ownership in the insurer, and the close integration between the insurer and Allianz SE in terms of underwriting, investments and capital management.

The stable outlook reflects Moody's expectation that the insurer will maintain its strong risk-based capitalization, and a low product risk profile focusing on investment-linked products over the next 12-18 months. Moody's also expects the insurer to continue receiving support from Allianz SE.

Moody's considers governance factor under its environmental, social and governance (ESG) framework, a key rating driver of today's rating action. Allianz Taiwan has a strong corporate governance structure, risk management processes and internal controls, benefiting from the oversight of Allianz SE and the management has a strong track record of achieving its business and financial objectives.

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

Moody's could upgrade Allianz Taiwan's rating if Allianz SE's ratings are upgraded while Allianz Taiwan's standalone credit profile meaningfully improves as demonstrated by: (1) a significant improvement in its market position while maintaining the strong capitalization; (2) an increase in profitability such that its return on capital rises consistently above 12%; and/or (3) an improvement in its product diversification by expanding outside of investment-linked products while keeping a low product risk and asset risk profile.

On the other hand, Moody's could downgrade the rating if: (1) its strong risk-based capitalization meaningfully diminishes, such that its RBC ratio drops below 350% consistently; (2) its profitability meaningfully weakens, such that its return on capital falls consistently below 4%; (3) it significantly increases asset risks, such that its high-risk assets ratio increases or its asset and liability currency mismatches widens materially; and/or (4) Allianz SE's ratings are downgraded or Allianz SE meaningfully reduces its stake in Allianz Taiwan or it becomes much less integrated.

PRINCIPAL METHODOLOGY

The principal methodology used in these ratings was Life Insurers Methodology published in September 2021 and available at https://ratings.moodys.com/api/rmc-documents/74857 . Alternatively, please see the Rating Methodologies page on https://ratings.moodys.com for a copy of this methodology.

Headquartered in Taipei, Allianz Taiwan Life Insurance Company Ltd. is 99.7% owned by Allianz SE. The insurer provides a wide range of life insurance products, including investment-linked insurance, traditional life insurance, health and accident insurance. As of the end of 2021, the insurer's total assets and shareholders' equity totaled TWD409 billion and TWD21 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 .

At least one ESG consideration was material to the credit rating action(s) announced and described above.

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.

Kelvin Kwok, CFA
AVP-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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