This article comes from Moody's Corporation rating.
Moody's Corporation Investor Service Company has maintained the A2 Insurance Financial strength rating (IFSR) of Ping An Insurance Life Insurance Company Limited (Ping an Life Insurance) and Ping An Insurance property Insurance Company Limited (Ping an property Insurance), and the Baa2 issuer rating of Ping An Insurance Insurance overseas (Holdings) Limited (Ping an overseas Holdings). The outlook of the above-mentioned subjects is still stable.
Moody also maintained Ping an Bank Limited (Ping an Bank, 000001.SZ) Baa2/P-2 's long-term and short-term foreign currency deposit ratings, ba2's basic Credit Assessment (BCA) and baa3's adjusted BCA, Baa1 (cr) / Pmae 2 (cr) counterparty risk assessment and Baa1/P-2 's long-term and short-term local and foreign currency counterparty risk ratings. At the same time, Moody's Corporation adjusted Ping an Bank's outlook from stable to positive.
In addition, Moody's Corporation maintains Ping an Life (P) A3's senior unsecured medium-term note plan rating.
Moody's also maintains the Baa2 rating of Ping an overseas Holdings Senior unsecured debt and the company's (P) Baa2/ (P) Pmuri 2 rating of the company's Advanced unsecured medium term Notes Program.
At the same time, Moody's Corporation maintains the (P) Baa2/ (P) Pmur2 rating of the Vigorous Champion International Limited (Vigorous Champion) Advanced unsecured medium-term Notes Program and the Baa2 rating of Senior unsecured debt issued under the medium-term Notes Program. The above medium-term note plan is provided by Ping an overseas Holdings with unconditional and irrevocable guarantee. The outlook of the main body of Vigorous Champion is still stable.
Rating motivation
Ping an Life Insurance
Maintaining Ping an Life's A2 insurance financial strength rating includes:(1) the individual credit status of the company A1 reflects its outstanding market position in the domestic market, a strong agency team with high production capacity and a sound capital level, and (2) a sub-downward adjustment is made to the individual credit status. it reflects that Ping an Life is affected by the potential risk spread of other non-insurance businesses and investments under its parent company Ping an Group. The potential contagion from such businesses and investments could indirectly spread to Ping an Group's insurance business. If the group's insurance companies need to provide support when other associates are in trouble, the insurance business will be more directly affected.
With its high brand awareness, Ping an Life Insurance has maintained its prominent market position as the second largest life insurance company in China, with a market share of 15.0% in terms of original premium income in 2020. In view of its ownership of Ping an Group, a large financial conglomerate, Ping an Life also benefits from an integrated financial product platform that promotes cross-selling.
Although increased competition and social distance restrictions under COVID-19 's epidemic have adversely affected and will continue to adversely affect Ping an Life's new order sales, especially for long-term guaranteed product sales by traditional offline agents, however, its overall premium scale will be supported by renewal premiums, which account for a higher proportion of the premium structure.
Ping an Life has a good track record of profitability and sound capital levels. The company achieved a net profit of 92.1 billion yuan in 2020, an increase of 11% over 2019. Ping an Life's high-value product structure supports its capital endogenous capacity.
As of the end of March 2021, Ping an Life's comprehensive solvency adequacy ratio was 239 per cent, well above the regulatory minimum of 100 per cent. However, it is expected that Ping an Life's core solvency adequacy ratio may decline significantly under the implementation of the second phase of China's risk-oriented solvency system (second generation) in 2022, but will remain above the minimum regulatory requirements. the main reason is that the relevant regulations on the identification of future profits as core capital will be tightened.
The above advantages are restricted by Ping an Life's rising asset risk. Ping an Life's equity and non-standard investments are relatively large relative to capital levels, which may lead to fluctuations in its profits and capital levels. Ping an Life's equity portfolio also faces the risk of a high concentration of a single investment.
In particular, Ping an Life is affected by the credit pressure of Huaxia Happiness Foundation Co., Ltd. (Huaxia Happiness). By the end of 2020, Ping an Life's long-term equity investment in Huaxia Happiness reached 19.3 billion yuan. Ping an Life Insurance announced in 2021 that the total investment of Ping an old-age insurance does not exceed 15.5 billion yuan in Huaxia happiness-related assets. Huaxia happiness-related impairment losses will undermine Ping an Life's profitability in 2021. In addition, Ping an Life recently acquired stakes in six Raffles City projects in China, which will further increase its equity exposure in the real estate sector, making it more vulnerable to the real estate market cycle.
In addition, as part of founder Group's restructuring, Ping an Life plans to acquire a stake in New founder Group, which will further increase the insurance company's equity exposure and may lead to greater fluctuations in its capital level and profits. because the scale of the acquisition is larger than its capital base, the proportion measured by the maximum transfer amount is close to 20%.
Although Ping an Life's agency team still has high production capacity compared with its rated peers, its capacity level is declining due to the epidemic and increased competition to recruit and retain quality agents. Moody's Corporation expects that as the company pushes forward the agent reform, Ping an Life's agent capacity will be gradually improved.
Ping an Life's senior unsecured medium-term note plan rating is (P) A3, one sub-level below the company's A2 insurance financial strength rating. In view of the fact that the order of repayment of the relevant senior unsecured medium-term note plan is lower than its liability to policyholders, a sub-level difference reflects that senior unsecured debt holders have a lower indemnification status than Ping an Life policyholders.
The stable outlook reflects Moody's Corporation's expectation that Ping an Life will continue to maintain its market leading position, strong sales capacity and sound capital adequacy ratio in the next 12-18 months.
Ping an property insurance
Maintaining the insurance financial strength rating of ping an property insurance A2 includes its A1 individual credit status, which reflects the company's always strong brand strength, product range and strong profitability. The above advantages are offset by the large exposure to guarantee insurance and non-standard investment of Ping an property Insurance.
A2's insurance financial strength rating also includes a sub-downward adjustment, reflecting that Ping an property Insurance is affected by the contagion risk of other non-insurance businesses and investments. The potential contagion from such businesses and investments could indirectly spread to Ping an Group's insurance business. If the group's insurance companies need to provide support when other associates are in trouble, the insurance business will be more directly affected.
Moody's Corporation expects that as China's second-largest property insurance company, Ping an property Insurance will maintain its strong market position and business strength despite fierce competition because of its diversified and extensive distribution channels, including its strong online sales capabilities.
Ping an property insurance is also very profitable. Its underwriting profitability is better than most of its domestic counterparts, and the company's comprehensive cost rate is 99.1% in 2020. What supports its underwriting profitability is the company's strict risk underwriting options (especially the car insurance business). The company's strict cost management and risk pricing ability can also alleviate the profit pressure it faces as a result of the auto insurance pricing reform. The profitability of Ping an property Insurance also benefits from technological progress.
However, the above advantages are offset by the large exposure of Ping an property insurance guarantee insurance. Ensure that the credit quality of insurance borrowers is vulnerable to economic shocks. In fact, the line of business turned into an underwriting loss in 2020, mainly because the epidemic slowed economic growth and weakened borrowers' ability to repay loans.
However, Moody's Corporation expects Ping an property Insurance's guarantee insurance business to remain basically unchanged in the next 12-18 months, mainly due to higher capital requirements for such business under the second-generation second-phase project.
Compared with its capital base, the proportion of non-standard investment in Ping an property insurance has decreased year by year, but it is still high, mainly trust plans. Potential impairment losses may weaken the company's capital level. The company implements strict credit risk management and the trust plan involves counterparties, mainly large state-owned enterprises, to some extent.
The stable outlook reflects Moody's Corporation's expectation that the company will maintain a strong capital level and achieve underwriting profits in the next 12-18 months.
Ping an Bank
Maintaining Ping an Bank's rating and evaluation reflects the bank's financial resilience to the negative economic impact of the epidemic.
The outlook changes from a stable adjustment to a positive reflection of Moody's Corporation's prediction.(1) the bank's continued in-depth strategy and business synergy with the Group will enhance growth prospects and the possibility of obtaining a higher level of related party support; (2) robust pre-provision profitability and downside credit costs are expected to restore the bank's profitability; and (3) with the growth of retail deposits and comprehensive financial products, the quality of Ping an Bank's retail business will continue to improve.
Ping an Bank's rating is based on the macro factors of China's "medium +" banking system. The adjusted BCA of Ping an Bank's baa3 takes into account two sub-levels of promotion brought about by related party support. Ping an Group, which owns 58 per cent of Ping an Bank, will support Ping an Bank if necessary because Moody's Corporation believes that the bank's business has become more integrated with other Ping an Group subsidiaries. The embodiment of this business integration is likely to include a higher level of related party support, which will benefit the bank's product range and deposit base.
Moody's Corporation expects Ping an Bank's asset quality to pick up in the next 12-18 months, thanks to the bank's successful measures to resolve historical non-performing loans, improved risk assessment and China's continued economic recovery. As of March 31, 2021, the bank's non-performing loan ratio and provision coverage ratio were 1.1% and 245.2%, respectively, both of which continued to improve from the end of 2018. Nonetheless, the bank's lending is likely to continue to grow rapidly, making it vulnerable to the risk that its assets have not been tested by the business cycle.
Moody's Corporation expects Ping an Bank's pre-provision profitability to remain robust as diversified products and services broaden revenue sources and consolidate pricing power. In addition, the cost of credit, while still high, has fallen, which means that the average return on assets will increase slightly and support the bank's capital levels.
Ping an Bank is in a good liquidity position. The bank increased its reliance on market capital when interbank funding costs were lower than deposits during the outbreak. From 2016 to 2020, the ratio of market capital to tangible bank assets remained in a stable range of 25 per cent and 30 per cent. Its current assets are of high quality, which mainly include cash and deposits of central bank funds and investments in treasury bonds.
There is no operational bank resolution mechanism in China, so Moody's Corporation uses the basic bailout loss method to rate Ping an Bank's debt securities and assumes that the bank will have medium-level support from the Chinese government if necessary. the reason is that the national market share of its deposits was 1.3 per cent as of December 31, 2020. Ping an Bank's deposit rating takes into account one sub-level of government support, while its counterparty risk assessment and counterparty risk rating both include two sub-levels.
The positive outlook reflects Moody's Corporation's expectation that the bank's growing business integration with Ping An Insurance Insurance (Group) Co., Ltd. (Ping an Group) in the next 12-18 months may lead to a higher level of related party support. and support the improvement of the bank's profitability and asset performance.
Ping an overseas holding
Maintaining the issuer rating of Ping an overseas Holdings Baa2 reflects:The company is supported by the strong parent company of Ping an Group and highly integrated with the latter; the stable business growth of the company is supported by the overseas investment needs of Ping an Group and its affiliated companies; in view of its relationship with Ping an Group, ping an overseas Holdings has good brand awareness.
The third-party asset management business of Ping an overseas Holdings has grown strongly in the past few years, and its contribution to the company's overall profits has gradually increased. Its assets under management increased from $15.6 billion at the end of June 2019 to $23.3 billion at the end of June 2021. During the same period, the proportion of assets under management by third parties increased from 13 per cent to 34 per cent. Moody's Corporation expects the company's third-party asset management business to continue to grow and may change the company's business and financial position over time.
In view of the fact that Ping an overseas Holdings is the only directly wholly-owned overseas investment and financing platform under Ping an Group, it is of strategic importance to the Group. The company manages a large number of overseas investments of Ping an Group and its affiliated companies, and provides bridge financing for overseas investments of other subsidiaries of the Group. As of the end of June 2021, 66% of the assets managed by Ping an overseas Holdings came from Ping an Group and its affiliated companies.
Ping an overseas Holdings is also a highly integrated subsidiary within Ping an Group. The management and board of directors of the company are all appointed by the group. The company benefits from operational synergies with Ping an Group in IT systems, financial reporting, investment processes, risk management systems, asset management product distribution channels, etc.
Ping an Group has provided capital injection to Ping an overseas Holdings in the past to support the development of the latter. Due to the close relationship between the Group and Ping an overseas Holdings, Moody's Corporation expects the Group to continue to provide such support if necessary.
In addition, Ping an overseas Holdings holds a large number of stakes in the main operating entities of Ping an Group, including Ping an International Financial Leasing Co., Ltd. (29.2% at the end of 2020) and lufax (15.4% at the end of 2020). Ping an overseas Holdings also holds convertible promissory notes of HK $14.2 billion for lufax. After lufax's listing in October 2020, the diluted income of its equity and the fair value income of lufax convertible notes have improved the liquidity and profitability of Ping an overseas Holdings.
Although it has improved, Ping an overseas Holdings' moderate liquidity and relatively high financial leverage make it dependent on group resources and support. In addition, although the recurrent income of Ping an overseas Holdings' asset management business has been increasing over the past two years, it still accounts for a small share of the income composition.
The stable outlook reflects Moody's Corporation's expectation that Ping an overseas Holdings will maintain stable financial performance and keep its financial leverage ratio at a reasonable level in the next 12-18 months. Moody's Corporation also expects Ping an Group to continue to provide capital and non-capital support to Ping an overseas Holdings. The stable outlook also reflects Moody's Corporation's expectation that Ping an Group's insurance and banking subsidiaries will maintain good profits and stable capital adequacy ratios in the next 12-18 months.
Ping an overseas Holdings' Senior unsecured debt rating and Senior unsecured medium-term Note Program rating are Baa2 and (P) Baa2/ (P) Pmai 2, respectively, at the same level as the company's Baa2 issuer rating, because the notes issued under the medium-term Note Plan have the same status as all other stock of senior unsecured debt of the company.
Vigorous Champion International Limited's rating on the Advanced unsecured medium term Notes Program and the Senior unsecured Bonds issued under the Program are (P) Baa2/ (P) Pmuri 2 and Baa2 respectively. The rating is at the same level as the issuer rating of Ping an overseas Holdings Baa2 because the paper it plans to issue is guaranteed by Ping an overseas Holdings, which has the same status as all other stock of senior unsecured debt of the company. In addition, notes issued under the plan have the same status as all other stock senior unsecured debt of Vigorous Champion International Limited.
Factors that can cause ratings to be upgraded or downgraded
Ping an Life Insurance
The credit status of Ping an Life Insurance is affected by the potential credit risk of Ping an Group's non-insurance business and investment, and there is a risk of contagion or direct support. As a result, unless these exposures fall sharply, it is unlikely that Ping an Life will upgrade its rating.
However, Ping an Life's individual credit assessment may be raised if the following occurs:(1) Ping an Life's capital level continues to improve significantly, and the adjusted capital / asset ratio continues to be higher than 7%, or (2) the company's exposure to high-risk assets and the concentration of single-asset investment have been significantly reduced. Its high-risk assets continue to account for less than 250% of shareholders' equity.
Moody's Corporation may downgrade Ping an Life if the following happens:(1) the capital level continues to weaken, and the adjusted capital / asset ratio remains below 4% or the comprehensive solvency adequacy ratio remains below 150%; (2) the individual financial leverage ratio increases and continues to be higher than 40%, or profit coverage decreases and continues to be less than 5 times; (3) profitability deteriorates sharply, and the return on capital continues to be less than 8%. (4) the asset quality has declined significantly, and the high impairment loss has a significant adverse impact on its profitability and capital level, or (5) it may have to bear the support required by other affiliated companies or investments.
Ping an property insurance
The credit status of Ping an property Insurance is affected by the potential credit risk of Ping an Group's non-insurance business and investment, and there is a risk of risk spread or support. Therefore, unless the above risks fall significantly, it is unlikely that Ping an property insurance will be upgraded.
However, if the following occursMoody's Corporation may raise the individual credit evaluation of Ping an property Insurance:(1) profitability continues to improve, the comprehensive cost ratio decreases and continues to be lower than 94%; (2) the capital level increases, and the total underwriting leverage ratio continues to be less than 3.0 times, or the comprehensive solvency adequacy ratio continues to be higher than 230%; (3) further diversification of the business structure is achieved while maintaining profitability and reserve adequacy, or (4) the proportion of guaranteed insurance is significantly reduced.
However, if the following circumstances occur, Moody's Corporation may downgrade Ping an property Insurance:(1) underwriting profitability deteriorates significantly, and the comprehensive cost ratio continues to exceed 100%; (2) the capital adequacy ratio decreases, and the comprehensive solvency adequacy ratio continues to be less than 150%; (3) the leverage ratio of high-risk assets increases significantly to more than 100%. Or (4) may have to bear the support needed by other affiliated companies or investments.
Ping an Bank
If the degree of business integration between Ping an Bank and the subsidiary companies of Ping an Group and the support ability of the parent company both improve, Moody's Corporation may upgrade Ping an Bank's deposit rating due to the increase in the support of related companies.
Moody's Corporation may raise the BCA of Ping an Bank if the following happens:The bank's capital level has been strengthened, the tangible common stock / risk-weighted asset ratio continues to be above 9%, the profitability has improved, the net profit / tangible asset ratio has remained above 0.8%, and the asset quality has remained stable. The non-performing loan / total loan ratio remains below 1.5%.
If the quality of Ping an Bank's mobile banking resources continues to improve and its proportion of the bank's tangible assets remains at 30% of the bank's tangible assets, its BCA may also be raised.
If the parent company's ability to support Ping an Bank weakens, or if the bank's strategic importance to the parent company decreases, Moody's Corporation may downgrade the bank's deposit rating.
Ping an Bank's BCA may be downgraded if the following occurs:The bank's asset quality and profitability have declined significantly, the non-performing loan / total loan ratio continues to be higher than 3%, and the net profit / tangible assets ratio continues to be lower than 0.6%. The rapid growth of risk-weighted assets has led to a weakening of capital levels. the tangible common stock / risk-weighted asset ratio continues to be below 7.5%, and / or the dependence on market funds is increased, and the market capital / bank tangible assets ratio continues to exceed 40%.
Ping an overseas holding
As Ping an overseas Holdings' rating is closely related to Ping an Group's credit quality, Ping an overseas Holdings' rating may be upgraded if Ping an Group's credit quality is improved. The improvement in the credit quality of Ping an Group is reflected by the upgrading of Ping an Life Insurance, Ping an property Insurance or Ping an Bank.
The rating of the issuer of Ping an overseas Holdings may be downgraded if the following occurs:(1) the company has the support of Ping an Group or its strategic importance to the latter has declined, or Ping an Life, Ping an property Insurance or Ping an Bank has been downgraded; (2) the company is engaged in significantly riskier business, this limits its capital or liquidity, or (3) significant risk management problems or failures occur, resulting in damage to business and management stability.
Ping An Insurance Life Insurance Co., Ltd. (ping an Life Insurance) is the second largest life insurance company in China. Ping an Life offers a variety of insurance products in mainland China, including traditional life insurance, dividend insurance, accident insurance and health insurance. As of December 31, 2020, Ping an Life's total assets and shareholders' equity are RMB 3.5 trillion and RMB 265.5 billion respectively.
Ping An Insurance property Insurance Co., Ltd. (ping an property Insurance) is the second largest property insurance company in China. Ping an property Insurance provides car insurance, property insurance, liability insurance, guarantee insurance, accident and health insurance and other products. As of December 31, 2020, the total assets and shareholders' equity of Ping an property Insurance are RMB 450.7 billion and RMB 103.4 billion respectively.
Ping an Bank Co., Ltd. is a joint-stock bank with a national license in China. As of March 31, 2021, the bank's consolidated assets were 4.6 trillion yuan.
Ping An Insurance Insurance overseas (Holdings) Co., Ltd. (ping an overseas Holdings) is the only overseas investment and financing platform directly controlled by Ping An Insurance Insurance (Group) Co., Ltd. Ping an overseas Holdings operates a wide range of businesses through its subsidiaries, including general insurance, asset and investment management and overseas project investment in the Hong Kong Special Administrative region of China. As of December 31, 2020, the total assets and shareholders' equity of Ping an overseas Holdings were HK $108.9 billion and HK $49.3 billion, respectively.