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Rating Action:

Moody’s upgrades AIA Group’s ratings to A1 (snr debt) and affirms Aa2 IFSR of AIA Co and AIA International; outlook stable

14 May 2021


Hong Kong , May 14, 2021

Moody's Investors Service has upgraded AIA Group Limited's (AIA) issuer and senior unsecured rating to A1 from A2 and senior unsecured medium-term note (MTN) program rating to (P)A1 from (P)A2. Moody's has also upgraded AIA's subordinated debt ratings to A2 from A3. The rating action on AIA concludes Moody's review of these ratings initiated on 29 March 2021.

At the same time, Moody's has affirmed the insurance financial strength ratings (IFSR) of AIA Company Limited (AIA Co) and AIA International Limited (AIA International), which are AIA's principal operating entities, at Aa2.

The outlooks on AIA, AIA Co and AIA international are now stable.

A list of all affected ratings is provided at the end of this press release.

RATINGS RATIONALE

AIA's issuer and debt ratings

The upgrade of AIA's issuer and senior unsecured ratings to A1 from A2 follows the Insurance Authority of Hong Kong's (IA) announcement on 14 May 2021 to designate AIA Group Limited as the Designated Insurance Holding Company (DIHC) under the group-wide supervision (GWS) framework implemented on 29 March 2021.

Upon the designation, the framework provides enhanced group supervision on the overall group, which includes key features such as (1) inclusion of the holding company within regulatory oversight, notably through regulatory capital requirements that apply to groups on a consolidated basis in addition to regulatory requirements at the operating company level, and (2) group-wide risk-assessment and risk-reporting requirements.

According to Moody's cross sector methodology "Assigning Instrument Ratings for Insurers" (https://www.moodys.com/researchdocumentcontentpage.aspx?docid=PBC_1093824 ), for insurance holding companies under enhanced group supervision, Moody's applies narrower notching on insurance groups' issuer and senior unsecured ratings. As a result, AIA Group's issuer rating is now two notches below the Aa2 IFSRs of AIA Co and AIA International, as opposed to the three-notch difference under solo regulation before the implementation of GWS.

The narrower notching reflects our view that the increased group-level regulatory oversight and greater deployment of excess capital at the holding company level are likely to reduce the probability of default at the holding company.

The rating action also takes into account governance factors as part of our environmental, social and governance (ESG) considerations. Moody's expects the governance structure across AIA group in terms of capital, risk management and disclosure to strengthen post group designation.

AIA Co's and AIA International's IFSRs

The affirmation of AIA Co's and AIA International's IFSRs reflects AIA's diversified and strong market franchise in Asia Pacific. The recovery of sales in certain markets since 2H20, where pandemic-induced sales disruptions are less severe, such as China, Malaysia, Singapore and Thailand, has partly offset the decline in sales in other markets. Notwithstanding the significant drop in new business sales, AIA's underlying operating profit after tax grew by 5% in 2020, supported by earnings emergence from its profitable and persistent in-force book.

AIA is well capitalized with a preliminary estimated Group Local Capital Summation Method (LCSM) cover ratio of 374% as of the end of 2020, benefiting from strong internal capital generation, indicated by diversified sources of capital remittance across its key business units. The group also maintained strong liquidity and financial flexibility with relatively low Moody's adjusted financial leverage at 12.5% as of the end of 2020.

These strengths are offset by some of AIA's operations being in less-developed countries, which have higher operational risks and volatilities. These operations also led to its material exposure to government bonds in these jurisdictions with relatively lower sovereign ratings, compared to its IFSR.

The stable outlook reflects our expectation that AIA's earnings and capital generation will remain strong despite the risk that sales disruptions may persist in certain markets.

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

AIA's issuer and debt ratings would be upgraded if the IFSRs of AIA Co and AIA International are upgraded.

AIA Co and AIA International's IFSRs are already at very high levels, and the potential for a further upgrade is limited in the near term. Nevertheless, the IFSRs could be upgraded if there is a significant improvement in the operating environments and sovereign ratings of some of the less-developed markets in which they operate, with continued strong business and financial profiles.

AIA's issuer and debt ratings would be downgraded if the IFSRs of AIA Co and AIA International are downgraded.

The IFSRs of AIA Co and AIA International could be downgraded if there is (1) a significant deterioration in the operating environments and sovereign ratings of its key markets; (2) a substantial decline in insurance demand across many of its markets that leads to much weaker earnings and capital generation; for example, such that its return on capital falls consistently below 8%; (3) an increase in the group's adjusted financial leverage to more than 20%; (4) an acquisition that is heavily debt funded or which substantially increases the group's exposure to less-developed markets; (5) a significant reduction in the group's capital adequacy, illustrated by its adjusted capital/assets remaining consistently below 12%.

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.

AIA Group Limited offers a wide variety of life insurance products in 18 markets throughout Asia Pacific. These include traditional individual life, group life and medical, credit life, accident, and health and investment-linked products sold through tied agents, bancassurance, brokers, and direct marketing channels. As of 31 December 2020, AIA Group had total assets and shareholders' equity of USD326.1 billion and USD63.7 billion, respectively. 

LIST OF AFFECTED RATINGS:

..Issuer: AIA Group Limited

.... Long-term Issuer Rating (Foreign Currency and Local Currency), Upgraded to A1 from A2

.... Long-term Senior Unsecured Regular Bond/Debenture (Foreign Currency and Local Currency), Upgraded to A1 from A2

.... Long-term Subordinated Regular Bond/Debenture (Foreign Currency), Upgraded to A2 from A3

.... Long-term Subordinated Regular Bond/Debenture (Foreign Currency), Upgraded to A2 (hyb) from A3 (hyb)

.... Long-term Senior Unsecured Medium-Term Note Program (Foreign Currency), Upgraded to (P)A1 from (P)A2

.... Long-term Subordinated Medium-Term Note Program (Foreign and Local Currency), Upgraded to (P)A2 from (P)A3

....Outlook, Changed to Stable from Ratings Under Review

..Issuer: AIA Company Limited

.... Long-term Insurance Financial Strength Rating (Foreign and Local Currency), Affirmed Aa2

....Outlook, Maintained at Stable

..Issuer: AIA International Limited

.... Long-term Insurance Financial Strength Rating, Affirmed Aa2

....Outlook, Maintained at Stable

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 entities are participating and the rated entities or their agent(s) generally provide 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 http://www.moodys.com/researchdocumentcontentpage.aspx?docid=PBC_1263068 .

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.

Frank Yuen, CFA
VP-Senior 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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