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Rating Action:

Moody's upgrades BOC Life's IFSR to A1; outlook stable

22 Nov 2018

Hong Kong, November 22, 2018 -- Moody's Investors Service has upgraded the insurance financial strength rating (IFSR) of BOC Group Life Assurance Co. Ltd (BOC Life) to A1 from A2.

The outlook is stable.

BOC Life is 51% owned by BOC Hong Kong (Holdings) Limited and 49% owned by Bank of China Group Insurance Company Limited, which are both ultimately owned by Bank of China Limited (BOC, deposits A1 stable, BCA baa1).

RATINGS RATIONALE

The upgrade reflects BOC Life's track record of good profitability and solid capitalization that have supported its self-sustained growth in the past few years. The insurer has also gradually diversified and penetrated into new and existing distribution channels, leading to an expansion in product scope and margins. It also reflects BOC Life's continued strong franchise and brand in the Hong Kong life insurance market.

BOC Life has delivered good profitability with an average return on capital (ROC) of 14.8% between 2013 and 2017. Its Sharpe ratio of ROC increased to 259% in 2017 from 155% in 2014, indicating more stable profitability, thanks to stable new business growth and good control of operating expenses.

Although a weaker level of investment income from unrealized losses in the bond portfolio will impact its full-year 2018 earnings, Moody's expects the lower investment income will be offset by the reduction insurance liabilities and dividend reserves for participating funds.

The insurer's stable local solvency ratio has remained stable well above 200% since 2015. Its solvency level has also exhibited a low level of interest rate sensitivity, owing to its relatively well-matched asset and liability durations. While BOC Life has been able to support its premium growth with capital generated through its own earnings, Moody's expects capital support from the parent will be readily available in times of need.

Moody's expects gradually rising interest rates will also be conducive to the insurer's earnings and capitalization.

In addition, BOC Life has continued diversifying its distribution channels by developing its tied agency, broker and direct channels to lower its reliance on the bancassurance channel. The premium contribution from its non-bank channels increased to 14% for H1 2018 from 11% for H1 2017.

Within the bancassurance channel, the insurer has also expanded into the corporate and private customer segments. This has boosted the value of new business (VONB) growth as gross written premiums almost tripled in this segment in 2017, delivering high product margins when compared to those of the retail banking segment.

These strengths, however, are partially offset by its high reliance on savings-type products, which carry lower margins than the long-term protection-type products that some of its larger peers sell in Hong Kong. Moreover, the insurer has significant exposure to corporate bonds, leaving it more sensitive to widening credit spreads.

BOC Life's rating incorporates a one-notch uplift from its a2 standalone credit profile, reflecting Moody's assessment of a high probability of shareholder support in times of stress, owing in turn to the extensive bancassurance partnership and shared branding with Bank of China (Hong Kong) Limited (deposits Aa3 negative, BCA a2).

The stable outlook reflects Moody's expectation that the insurer will maintain its stable market position with solid profitability and capitalization.

RATING DRIVERS

Upward rating pressure is limited, as BOC Life's IFSR is already at the same level as the deposit rating of its ultimate parent, BOC.

Nevertheless, Moody's could raise the company's standalone credit profile if: (1) it further diversifies its distribution channels, resulting in an expanded product scope and improved profitability; (2) its profitability -- as measured by ROC -- rises above 15%; (3) its high-risk asset exposure relative to shareholders' equity falls below 100%; and/or (4) its risk-adjusted capitalization rises above 8% or its local solvency ratio stays above 275% on a sustained basis.

On the other hand, Moody's could downgrade BOC Life's rating if: (1) its profitability deteriorates, with its ROC below 12% on a sustained basis; (2) its capital adequacy weakens, with its local solvency ratio consistently falling below 200%, or its risk-adjusted capital-to-assets ratio remaining below 5.5% on a sustained basis; and/or (3) there is a deterioration in the level of capacity and/or willingness of its shareholders and affiliates to provide support.

PRINCIPAL METHODOLOGY

The principal methodology used in this rating was Life Insurers published in May 2018. Please see the Rating Methodologies page on www.moodys.com for a copy of this methodology.

Headquartered in Hong Kong, BOC Group Life Assurance Co. Ltd was the sixth-largest life insurer in Hong Kong in H1 2018 by total in-force premiums. It offers endowment, traditional life, universal life, and health insurance products. At the end of 2017, BOC Life's total assets amounted to HKD130.6 billion and its shareholders' equity totaled HKD8.8 billion.

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.

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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
Associate Managing Director
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.
© 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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