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
