Hong Kong, December 07, 2015 -- Moody's Investors Service has upgraded the insurance financial strength
rating (IFSR) of Kyobo Life Insurance Co., Ltd to A1 from
A2. The rating outlook is stable.
RATINGS RATIONALE
The rating upgrade reflects Kyobo Life's proven track record of
maintaining a good level of profitability, consistently solid capital
strength with low financial leverage, and a strong business profile.
The company's annualized adjusted return on capital ratio was about
10% as of the third quarter ended 30 September 2015 (Q3 2015),
compared to 7.0% in 2014.
Consistently strong mortality/morbidity gains and expense gains are the
key contributors to Kyobo Life's consistently good profitability
levels, despite a relatively stable negative spread over the past
few quarters.
Kyobo Life's capitalization profile is solid, with no financial
debt.
Given its track record of low shareholder dividend payout ratios,
the company has been able to grow its equity organically over the past
five years. Moody's metric of adjusted capital-to-assets
ratio gradually improved to 7.3% at end-September
2015 from 6.5% at end-2010.
In addition, Kyobo Life has narrowed its asset-liability
duration gap by investing more in assets with longer duration --
such as government, quasi-government and longer term overseas
bonds. On the liability side, the company continues to build
up its floating-rate portfolio, which results in a lower
interest rate charge under the risk based capital (RBC) regime.
Its local RBC ratio stood at 270% as of Q3 2015. Its capital
position is expected to remain solid in the coming 12 months, although
Moody's notes that the upcoming and more stringent RBC requirements
for capturing risks in the system that may lower the ratio in the future.
The company has a strong franchise and a stable market presence in Korea.
It remains the third-largest life insurer in Korea, commanding
10.4% of the market by total premium income for the nine
months in 2015 compared with 11.1% in full year 2014.
It maintains a diversified and well-established distribution channel,
including tied agents (generated 54% of the first-year premiums),
banks (18%) and independent financial advisors (10%) as
of Q3 2015. The productivity of its tied agency force remains favorable
as demonstrated by its 13-month and 25-month persistency
ratios.
Moody's expects Kyobo Life's strong business profile to support
its growth organically, against the backdrop of increasing competitiveness
in the local market.
These credit strengths are partially offset by the continued low interest
rate environment, which could challenge the company's profitability
level going forward.
Increasingly competitive underwriting conditions in Korea, and the
prolonged state of the low interest rate conditions will pressure Kyobo
Life's overall profitability and undermine the pace of improvement
in its lingering negative spread, which is associated with its legacy
high guarantee policies.
RATING DRIVERS
An upgrade of Kyobo Life's rating is unlikely, unless it can materially
reduce its negative spreads.
In addition, for the rating to be upgraded, Moody's
would expect to see its adjusted capital-to-asset ratio
above 10%.
Conversely, its rating could be downgraded if: (1) its adjusted
capital-to-assets ratio falls below 6%; or its
risk-based capital ratio drops below 150%; (2) its
profitability declines, such that return on capital drops to 6%;
(3) there is an increase in its high-risk assets to more than 150%
of its shareholders' equity, which could be driven by an increase
in equity investment through significant acquisitions; and/or (4)
its financial leverage rises above 25%.
The principal methodology used in this rating was Global Life Insurers
published in August 2014. Please see the Credit Policy page on
www.moodys.com for a copy of this methodology.
Kyobo Life Insurance Co., Ltd, headquartered in Seoul,
is Korea's third-largest life insurance company. Its
product coverage includes annuities, critical illness insurance,
retirement products, whole life insurance, illness/accident
products, protection-type products and savings products.
At end-December 2014, its total assets and shareholders'
equity stood at KRW85.8 trillion and KRW7.0 trillion.
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 upgrades Kyobo Life's IFSR to A1; outlook stable