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Rating Action:

Moody’s upgrades FTLife’s IFSR to A3; outlook stable

17 January 2020

Hong Kong , January 17, 2020

Moody's Investors Service has upgraded the insurance financial strength rating (IFSR) of FTLife Insurance Company Limited (FTLife) to A3 from Baa1.

Moody's has also upgraded the backed senior unsecured rating to Baa1 from Baa2 of FTL Capital Limited, which is a fully-owned subsidiary of FTLife. The outstanding bonds of FTL Capital are fully and unconditionally guaranteed by FTLife.

At the same time, Moody's has changed the outlook to stable from positive.

RATINGS RATIONALE

The upgrade reflects FTLife's improving distribution strength and profitability over the past few years, while maintaining its solid capital position.

Furthermore, the constraint on FTLife's rating by the weak credit profile of its previous shareholder, Beijing Tongchuangjiuding Investment Management Co., Ltd (JD Group), has also been removed following the completion of the acquisition of the company by NWS Holdings Limited in November 2019.

Moody's expects FTLife will benefit from stronger support from its new shareholder on access to capital, brand recognition and customer reach.

The insurer's standalone credit profile has consistently improved in the past few years, including its profitability, capital, and premium growth. Its annualized return-on-capital (ROC) increased to 6.6% at the end of June 2019 from 4.9% at the end of 2016. This was mainly driven by its strong premium growth, which in turn was supported by the insurer's higher agency productivity and expansion into the Mainland Chinese visitor segments.

FTLife achieved an average new business premium growth of 41% in between 2016 and the first three quarters of 2019, outpacing the industry average of 11%, and delivered increasing new business margins for the same period.

Despite the low interest rate environment, FTLife has maintained a strong statutory solvency of 564% as of the end of November 2019. Its capital base has been strengthened by capital injections over the past years and the disposal of risky assets such as equity investments and non-investment grade bonds after the change of shareholder. Its solvency ratio has also been less volatile in the past two years.

These strengths, however, are partially offset by its relatively small operating scale, causing FTLife's cost efficiency to be lower than its leading domestic competitors. In addition, the insurer's agency productivity is still lower than the leading domestic peers.

The insurer still runs a significant duration mismatch between its assets and liabilities, making its statutory solvency highly sensitive to interest rate movements. However, this risk is mitigated by the insurer's plans to lengthen its asset duration through long-dated bond investments.

The backed senior unsecured debt rating of FTL Capital Limited is one notch below FTLife's IFSR. Although the outstanding bonds of FTL Capital Limited are fully and unconditionally guaranteed by FTLife, the guarantee is junior to the liabilities of the insurance policyholders. The one-notch spread reflects the subordination of debtholders to FTLife's policyholders.

RATING DRIVERS

Moody's could upgrade FTLife's ratings if (1) FTLife's distribution and product capabilities further strengthen and diversify, thereby significantly enhancing its market position; and/or (2) the insurer's profitability consistently improves, such that its ROC rises above 8% on a sustained basis and its value of new business continues to grow strongly.

On the other hand, Moody's could downgrade FTLife's ratings if (1) the insurer adopts aggressive investment or financial policies, or both, while demonstrating a lack of good asset-liability management; (2) its capitalization decreases significantly, with its local statutory solvency ratio falling below 300% on a sustained basis; (3) its market position significantly weakens; and/or (4) there is a sustained decline in its agency productivity or it experiences a large-scale agency turnover.

PRINCIPAL METHODOLOGY

The principal methodology used in these ratings was Life Insurers Methodology published in November 2019. Please see the Rating Methodologies page on www.moodys.com for a copy of this methodology.

FTLife Insurance Company Limited was the eleventh-largest life insurer in Hong Kong for H1 2019 by total in-force premiums. It offers traditional life, participating life, health insurance and investment-linked products. At the end of June 2019, FTLife's total assets amounted to HKD59.3 billion and its shareholders' equity totaled HKD16.0 billion.

REGULATORY DISCLOSURES

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.

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.

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
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

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