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Rating Action:

Moody's revises Fubon Life's outlook to stable from negative; maintains stable outlook for Fubon Financial

 The document has been translated in other languages

25 Jun 2014

Hong Kong, June 25, 2014 -- Moody's Investors Service has affirmed the A3 insurance financial strength (IFS) rating of Fubon Life Insurance Co, Ltd (Fubon Life), and Baa1 issuer rating of Fubon Financial Holding Co Ltd (Fubon Financial).

At the same time, Moody's has changed the outlook on Fubon Life's rating to stable from negative.

The outlook on Fubon Financial's rating remains stable.

The ratings and outlook of Fubon Insurance Co, Ltd (IFS rating of A1 stable), Taipei Fubon Commercial Bank Co Ltd (deposit rating of A2 stable, bank financial strength rating/baseline credit assessment of C-/baa2 stable) and Fubon Securities Co Ltd (issuer rating of Baa2 stable) are not affected by this rating action.

RATINGS RATIONALE

FUBON LIFE

"The revision of the outlook on Fubon Life reflects its improved profitability, given lower cost of liabilities and increase in investment yield," says Stella Ng, a Moody's Assistant Vice President and Analyst.

Fubon Life's profitability has improved in 2013, as demonstrated by its return on capital (ROC). Its ROC increased to 11.2% as of end-2013, from 8.6% as of end-2012. This was largely due to an increase in its realized gains on financial assets. While its mortality and morbidity gains remain consistently solid as business grows, Fubon Life's investment spread is on an improving trend on the back of lowered cost of liabilities, driven by increased sales of its endowment/interest sensitive products, coupled with an improvement in recurring investment returns.

The A3 rating also reflects its well-positioned business profile.

Fubon Life maintains a good franchise, with a stable domestic market presence. The insurer is the second-largest life insurer in Taiwan by total premiums. Being a wholly owned subsidiary of Fubon Financial, Fubon Life benefits from operational synergies within the group for business growth. The insurer sells products through an extensive network of affiliated bank branches and its tied agency force, leveraging the established Fubon brand.

Fubon Life's high-risk assets (mainly equity and real estate investments) leverage ratio trended down to a level of above 230% as of end-May 2014 from 271% as of end-2013, as a result of an increase in shareholders' equity on the back of a decrease in bond yields. However, this ratio remains high compared to global peers and, as a result, Fubon Life's capitalization is relatively exposed to fluctuations in asset prices.

The rating could be upgraded if Fubon Life (1) reduces its exposure to high risk assets, with its high risk assets as a percentage of shareholders' equity at below 150%; and/or (2) consistently improves its capital strength, such that its ratio of adjusted capital to assets stays above 8%.

The rating could be downgraded if (1) the ratio of high-risk assets to adjusted shareholders' equity increases to above 250%; (2) profitability, as measured by ROC, declines to below 8%; and/or (3) its capitalization weakens, such that the ratio of adjusted capital to assets falls below 4%.

FUBON FINANCIAL

"The affirmation of Fubon Financial's rating takes into consideration the financial flexibility that benefits the holding company. Also it reflects the stable credit profile of Fubon Life, the largest subsidiary as measured by assets, shareholders' equity and net income," says Ng.

Fubon Financial's Baa1 is one-notch lower than Fubon Life's IFS rating. This notching considers the structural subordination of obligations at the holding company versus operating subsidiaries. In addition, it is narrower than the standard notching for pure insurance holding companies, considering the financial flexibility that Fubon Financial gains from the diversification in businesses and sources of earnings through its life insurance, non-life insurance, banking and securities subsidiaries.

Moody's sees competitive market conditions in insurance, banking and securities markets. Given limited growth opportunities in Taiwan, Fubon Financial endeavors to expand into the Mainland China and Southeast Asian markets in all of its business lines.

Moody's expects Fubon Financial to prudently manage its dividend policy at both the subsidiary and holding company level in order to maintain adequate capital for further M&A and expansion plans domestically and overseas.

Fubon Financial's stand-alone financial leverage has slightly increased, yet remained low at 17.9% at end-2013 compared to 15.3% at end-2012. Its double leverage ratio was 111.5% at end-March 2014 (108.9% at end-2013). Moody's considers this level of double leverage to be reasonable and expects it to remain below 120%.

Upward pressure on Fubon Financial's rating could develop following an upgrade of its key operating subsidiaries' financial strength ratings.

However, its rating could be downgraded if (1) the financial strength ratings of its key operating subsidiaries are downgraded, mainly Fubon Life or Taipei Fubon Commercial Bank; (2) its financial leverage rises substantially to above 25% and its double leverage to above 120%; and (3) there is reduced diversification, as currently provided by its business mix of life insurance, non-life insurance and banking.

RATINGS LIST

The following rating was affirmed and changed the outlook to stable from negative:

Fubon Life -- IFS rating at A3

The following rating was affirmed and outlook was maintained:

Fubon Financial -- issuer rating at Baa1 with stable outlook

RATING METHODOLOGIES

The principal methodology used in rating Fubon Life Insurance Co Ltd was Global Life Insurers published in December 2013. The principal methodologies used in rating Fubon Financial Holding Co., Ltd. were Global Life Insurers published in December 2013, Global Banks published in May 2013 and Global Property and Casualty Insurers published in December 2013. Please see the Credit Policy page on www.moodys.com for a copy of these methodologies.

Fubon Life Insurance Co Ltd is the second-largest life insurer in Taiwan and offers traditional savings, annuities, accident and investment-linked products. As of 31 December 2013, its total assets stood at TWD2.4 trillion and shareholders' equity was TWD147.8 billion.

Fubon Financial Holding Co Ltd, based in Taiwan, is a diversified financial holding company with subsidiaries including Taipei Fubon Commercial Bank, Fubon Life, Fubon Insurance, Fubon Securities and Fubon Asset Management. As of 31 December 2013, its total assets and shareholders' equity (on a consolidated basis) were TWD4.6 trillion and TWD316.5 billion, respectively.

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.

Stella Ng
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

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 revises Fubon Life's outlook to stable from negative; maintains stable outlook for Fubon Financial
No Related Data.
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