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Rating Action:

Moody's assigns first-time A3 IFSR to Taikang Life, outlook negative; withdraws A3 IFSR for Taikang Insurance Group

 The document has been translated in other languages

Global Credit Research - 04 Dec 2017

Hong Kong, December 04, 2017 -- Moody's Investors Service has assigned an A3 insurance financial strength rating (IFSR) to Taikang Life Insurance Co., Ltd., and withdrawn the A3 IFSR of Taikang Insurance Group Inc.

The rating outlook on Taikang Life is negative.

This is the first time that Moody's has assigned a rating to Taikang Life.

RATINGS RATIONALE

Taikang Life was established in November 2016 as a wholly owned subsidiary of Taikang Insurance Group. Since 31 December 2016, Taikang Insurance Group has been transferring its life insurance-related assets, liabilities and capital to Taikang Life. The transfer is scheduled to complete by the end of 2017, making Taikang Insurance Group a holding company, with businesses in life insurance, asset management, and healthcare and retirement services. Taikang Life, on the other hand, is the main life insurance operating subsidiary of Taikang Insurance Group.

The A3 IFSR on Taikang Life reflects the insurer's good market position and brand recognition, diversified distribution channels and good profitability, because the subsidiary benefits from Taikang Insurance Group's operating history. It is also a pioneer in offering retirement home and healthcare-related services as part of its insurance offering.

The insurer's diversified distribution channels — through an agency force, bancassurance, telemarketing and the Internet — make it less vulnerable to disruptions in any one channel.

Taikang Life's profitability is strong when compared with that of other major players in China, supported by its focus on providing life insurance with protection elements, and with a low cost of liability.

These strengths are partly offset by the insurer's very high exposure to high-risk assets, such as equities and real estate, particularly when compared to its shareholders' equity. Such a result could lead to volatility in Taikang Life's capitalization and profitability levels, if these assets incur losses. In addition, its increasing investments in retirement home and healthcare-related projects, are associated with large capital investments and significant execution risk.

The negative outlook on Taikang Life's IFSR reflects an elevated exposure to risky assets, as the insurer continues investing in equity-type alternative investments and retirement home projects.

The negative outlook also takes into account its weakened capital base after the restructuring, given that some capital was retained at Taikang Insurance Group. While Taikang Life has a profitable in-force book for internal capital generation, its strong business growth and continuously high exposure to risky assets will continue to pressure its capitalization.

Moody's has withdrawn the A3 IFSR for Taikang Insurance Group, because it no longer operates as an insurance company. As of 30 June 2017, all of Taikang Insurance Group's life insurance liabilities had been transferred to Taikang Life.

RATING DRIVERS

Given that the rating outlook is negative, an upgrade of Taikang Life's IFSR is unlikely.

Nevertheless, Moody's could change Taikang Life's rating outlook to stable if: 1) its high-risk assets to shareholders' equity falls consistently below 400%, which could be a result of a fall in its holdings of high-risk assets, and/or a strengthening in the company's capitalization; and 2) profitability remains at a good level, with returns on average assets (ROAA) consistently above 1.5%.

On the other hand, the insurer's rating could be downgraded if: 1) its high risk assets to shareholders' equity ratio stays consistently above 450%; 2) its local solvency margin ratio remains consistently below 150%, or its adjusted shareholders' equity to total assets consistently stays below 2%; 3) there is a substantial increase in the capital needs of and/or significant losses from its retirement home projects and healthcare-related businesses; and (4) its profitability reduces significantly, with its ROAA remaining consistently below 0.8%.

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.

Taikang Life Insurance Co., Ltd. offers life insurance and reinsurance products in China. At 31 December 2016, its total assets and shareholders' equity registered RMB577.4 billion and RMB25.9 billion, respectively.

Taikang Insurance Group Inc. is an insurance holding company. In addition to its principal insurance business, its operations also include asset management, as well as retirement and healthcare management. At 31 December 2016, its total assets and shareholders' equity registered RMB629.4 billion and RMB42.2 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
Client Service: 852 3551 3077

Yat Man Sally Yim
Senior Vice President
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

No Related Data.
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