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Rating Action:

Moody’s places KDB Life on review for downgrade

 The document has been translated in other languages

06 January 2021


Hong Kong , January 6, 2021 - Moody's Investors Service has placed on review for downgrade the Baa2 insurance financial strength rating (IFSR) of KDB Life Insurance Co., Ltd.

The outlook on the rating prior to today's action was stable.

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

The review for downgrade reflects the consideration that KDB Life Insurance Co., Ltd. (KDB Life) will likely no longer benefit from the ownership by and support from its parent Korea Development Bank (KDB, Bank Deposit: Aa2, Senior Unsecured: Aa2, BCA: ba2, stable), which has enhanced KDB Life's branding, capital position and financial flexibility.

This rating action follows the announcement by KDB that it has signed a stock purchase agreement on 31 December 2020 to offload its 92.73% stake in KDB Life to JC Partners, a local private equity firm, for KRW200 billion. Both KDB and Woori Bank (Bank Deposit: A1, Senior Unsecured: A1, BCA: baa1, stable) will participate as financial investors by contributing KRW100 billion each to the private equity fund managed by JC Partners. Upon the transfer of ownership, JC Partners will raise an additional KRW150 billion to support its capitalization.

Currently, KDB Life's Baa2 IFSR incorporates a one-notch uplift from its standalone credit profile of Baa3, reflecting the ownership by and support from KDB.

While there is a possibility that KDB Life will still maintain its relationship with KDB after the sale, the change in ownership to a private equity firm will likely lessen these benefits and synergies, as well as the potential support from the new owner.

Moody's review will focus on (1) the company's business strategy and financial policies going forward under the ownership of a private equity firm; (2) the standalone credit profile of the company including its profitability, asset quality and capitalization; and (3) the level of capital support available from JC Partners to KDB Life, given the insurer's increased capital needs arising from the adoption of IFRS 17 and the Korea Insurance Capital Standards (K-ICS) in 2023.

Moody's regards the change in ownership structure as a consideration of governance, as part of our environmental, social and governance (ESG) considerations, given its implications for the company's organizational structure, and management credibility and track record.

Given that the ratings are on review for downgrade, an upgrade is unlikely.

However, the ratings could be confirmed if (1) KDB Life would continue to benefit from strong capital support under the new ownership; (2) its profitability improves consistently, such that its return on capital (ROC) exceeds 6% on a sustained basis or its earning sources diversify, leading to a significant increase in its underlying profitability as reflected by new business margins; and (3) its financial flexibility improves, such that its financial leverage falls below 40% or earnings coverage increases above 4.0x, both on a sustained basis.

On the other hand, Moody's could downgrade KDB Life's IFSR rating if its (1) business and financial profiles would no longer benefit from support from the new owners; (2) capitalization weakens, such that its risk-based capital (RBC) ratio falls below 150%; (3) profitability deteriorates, such that it records consistent net losses; and/or (4) high-risk assets significantly increase.

RATING METHODOLOGY

The principal methodology used in these ratings was Life Insurers Methodology published in November 2019 and available at https://www.moodys.com/researchdocumentcontentpage.aspx?docid=PBC_1187348 . Alternatively, please see the Rating Methodologies page on www.moodys.com for a copy of this methodology.

Headquartered in Seoul, Korea, KDB Life Insurance Co., Ltd. (KDB Life) was established in 1973 as Donghae Life Insurance. It primarily engages in life insurance and other related insurance services. The company became part of Kumho Asia Group in 2000 and an affiliate of KDB in 2010. Its total assets and shareholders' equity were KRW20 trillion and KRW1.1 trillion, respectively, as of 30 September 2020.

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 at: https://www.moodys.com/researchdocumentcontentpage.aspx?docid=PBC_79004 .

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 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.

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 www.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 www.moodys.com for the Regulatory Disclosures for each credit rating action under the ratings tab on the issuer/entity page and for details of Moody's Policy for Designating Non-Participating Rated Entities.

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://www.moodys.com/researchdocumentcontentpage.aspx?docid=PBC_1243406 .

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 www.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 www.moodys.com.

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.

Young Kim
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

Sally Yim, CFA
MD-Financial Institutions
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

© 2021 Moody’s Corporation, Moody’s Investors Service, Inc., Moody’s Analytics, Inc. and/or their licensors and affiliates (collectively, “MOODY’S”). All rights reserved.

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