Financial News for a long time, 16 DecemberMoody's CorporationconfirmChina life insurance(overseas) Co., Ltd. (China Life Insurance (Overseas) Company Ltd., referred to as "China Life Insurance Company Limited (overseas)") has an insurance financial strength rating of "A1".
China Life Insurance Company Limited (overseas) looks forward to maintaining "stability".
Rating motivation
China Life Insurance Company Limited (overseas)'s "A1" insurance financial strength rating includes its A3 basic credit rating (BCA); strong government support, reflecting its full government ownership and links with China Life Insurance (Group) Company, or China Life Insurance Company Limited (Group); and moderate dependence, reflecting its exposure to the Chinese government (A1 stability) and state-owned enterprises.
Moody's Corporation confirmed that China Life Insurance Company Limited (overseas)'s strength rating and outlook for the insurance company were "stable", reflecting the company's strong market position, low financial leverage and improved capital position of its shareholders after the capital injection in October 2020.
Still, these advantages are offset by the company's relatively weak profitability and exposure to risky assets.
After the capital injection, as of October 2020, the solvency ratio of the insurance company had increased to more than 240%, offsetting the low growth of new business in the past few years.interest rateAnd the impact of capital consumption. In addition, the insurance company has also taken a series of management measures, such as reducing the product guarantee interest rate and shorteningAssetsBe in debtTerm mismatch to improve and stabilize its solvency ratio.
The market position of the insurance company remained strong in the first nine months of 2020, making it the third largest life insurer in Hong Kong, China. The company is the largest life insurer in Macau, China, in terms of gross premiums in the first half of 2020. Although business disruptions caused by COVID-19 's epidemic led to a 43 per cent drop in new business sales in the first nine months of 2020 compared with the same period in 2019, the continuing impact on claims and direct finance is manageable.
However, due to fluctuations in investment income and pressure on new business, the insurer's past profits were moderate and fluctuating. Although the company has a diversified product mix, the new business profit margin value of the insurance company is still lower than that of its leading local peers because of its high reliance on savings products and bancassurance channels. Moody's Corporation predicts that the current low interest rate environment will further depress the insurance company.Rate of return on investmentAnd profitability, especially because most of the company's profits come from spreads.
In addition, the insurer has a high exposure to risky assets relative to capital, including unit trusts, bonds below investment grade and equity related to its capital. The company's large holdings of corporate bonds have also made it more sensitive to widening credit spreads. Nonetheless, Moody's Corporation expects the company's exposure to risky assets to decline gradually as the company plans to reduce its exposure to unrated bonds and bonds below investment grade to control credit risk.
The prospect of "stability" reflects Moody's Corporation's expectation that the insurance company will maintain a stable market position and capital, gradually reduce its exposure to risky assets, and continue to receive strong support from China Life Insurance Company Limited (Group).
Factors that may lead to an upgrade or downgrade of the rating
Given that China Life Insurance Company Limited (overseas) is already at the same level as China's sovereign rating, there is limited room for upgrading.
Nevertheless, if the company (1) combines its high-risk assets with the adjustmentShareholders' rights and interestsCompared with a significant reduction to less than 200%; (2) improve the product portfolio to achieve diversification and balance of sources of income, for example, guarantee products account for more than 25% of their premiums; and / or (3) further diversify sales channels, Moody's Corporation may upgrade her BCA.
Moody's Corporation may downgrade China Life Insurance Company Limited (overseas) if (1) the Chinese government's assumption of potential support for the insurer is lowered; and / or (2) its BCA rating is downgraded.
Moody's Corporation may downgrade the company's BCA under the following circumstances: (1) the profitability of the insurance company fluctuates or decreases significantly, and the return on capital remains below 4%; (2) there is a negative interest spread due to a decline in the rate of return on investment or an increase in the cost of debt; (3) its local solvency ratio continues to fall below 200%, which may be due to a sharp increase in capital demand as a result of overseas expansion. And / or (4) its bancassurance distribution channel has been seriously interrupted.
China Life Insurance (overseas) Co., Ltd. provides life insurance products and escrow services to customers in Hong Kong and Macao, China. The company is incorporated in Shenzhen and has operations in Singapore and Indonesia. It is a wholly owned subsidiary of China Life Insurance (Group) Company. At the end of 2019, its total assets and shareholders' equity were HK $461.5 billion and HK $16.9 billion, respectively.