KEY RATING DRIVERS
The ratings reflect MTL's strong capital position, sustained solid financial performance, robust market position and acceptable investment risks. The ratings also reflect support from its major shareholders, KASIKORNBANK Public Company Limited (KBANK; Issuer Default Rating: BBB+/Stable), Thailand's fourth-largest bank by total assets, and Ageas Insurance International N.V. (Ageas; IDR: A/Stable). The company benefits from exclusive bancassurance distribution by KBANK and receives technical and operational support from Ageas.
MTL is graded 'Strong' on Fitch Ratings' Prism Factor-Based Model, based on end-2015 results, which is one level lower than the previous grade based on its 2014 financial results. The reduction was mainly due to the increase in insurance liabilities outpacing returns in a lower interest-rate environment. Nevertheless, the company is still well-capitalised and has no external debt. Its capital ratio based on risk-based capital (RBC) was 443% at end-2Q16 and 449% at end-2015, which were well above the regulatory minimum of 140%.
Fitch expects MTL to maintain its sound financial performance with its vigilant pricing policy and good investment income. The company's profitability has improved consistently, with three-year (2013-2015) compound annual growth rate of gross premiums at 20.8%, which beat the industry's three-year CAGR of 10.2%. In addition, the average pre-tax return on assets for 2013-2015 of 3.8% compares well with its regional peers.
MTL is Thailand's second-largest life insurer by total premiums, with an 18.6% market share at end-2Q16. The company also has the highest market share in new business premiums written with 22.9% in the same period, supported by its extensive bancassurance distribution. MTL is the market leader in premiums written through bancassurance channels with a 27% market share in 2015.
MTL maintains its conservative investment portfolio, mainly fixed-income instruments, which accounted for 85% of invested assets at end-2Q16. The majority of its fixed-income investments are issued by governments and state enterprises. Investments in equities and trusts made up 9% of invested assets at end-2Q16.
RATING SENSITIVITIES
Key triggers that could lead to a downgrade include a drop in MTL's RBC ratio to below 250% for an extended period or if its capitalisation, as measured by Fitch's Prism FBM, deteriorates. In addition, a decline in profitability as reflected in MTL's pre-tax return on assets sustained at below 1% could trigger a rating downgrade.
If Thailand's Long-Term Local-Currency IDR of 'BBB+' with a Stable Outlook were downgraded, MTL's IFS rating would likely be lowered.
An upgrade is unlikely in the near term as MTL's International IFS rating is at the same level as Thailand's Long-Term Local-Currency IDR. MTL's National IFS rating is already at the highest possible level.