Hang Seng Insurance #AA-# And #cnAAA# Ratings Affirmed After Hit To Outlook Stable

Stocks and Financial Services Press Releases Friday March 17, 2017 17:34
HONG KONG--17 Mar--S&P Global Ratings

HONG KONG (S&P Global Ratings) March 17, 2017--S&P Global Ratings today said it affirmed its 'AA-' local currency long-term insurer financial strength and counterparty credit ratings on Hang Seng Insurance Co. Ltd. The outlook is stable. We also affirmed our 'cnAAA' long-term Greater China regional scale rating on the Hong Kong-based insurer.

"The affirmation reflects our expectation that Hang Seng Insurance will remain a core subsidiary of The Hongkong and Shanghai Banking Corp. Ltd. (HSBC Asia-Pacific) and maintain its strong competitive position as a top-10 participant in the high-growth Hong Kong life insurance market over the next two years," said S&P Global Ratings credit analyst Michael Vine.

"The affirmation is made despite some capital pressure which we project to continue over the next two years due to the impact of recent losses and continued new business growth. Our reassessment of capital and financial risk has resulted in a 'bbb+' stand-alone credit profile, revised from 'a-'," Mr. Vine said.

Hang Seng Insurance is likely to maintain its strong competitive position as one of the top-tier life insurance companies in Hong Kong, ranked eighth for in-force business in the third quarter of 2016. The insurer benefits from the strong brand and reputation of its direct parent Hang Seng Bank Limited, operating under a bancassurance model. After the insurer's sizable net loss in 2015 due to higher reinsurance usage, interest rate movements and acquisition costs, and a further smaller loss in 2016, we expect earnings to normalize over the next two years, with premium growth initially returning to single-digit rates.

We expect Hang Seng Insurance's capital adequacy, as measured by our capital model, to be lower adequate over the next two years, revised down from upper adequate. Our revised view follows recent losses and the continued influence of goodwill and investment market risk. We note the insurer has raised subordinated debt to support regulatory capital adequacy; however this does not qualify as capital credit under our analysis.

We continue to see enterprise risk management as adequate with strong risk controls and satisfactory management and governance, leveraging from both internal and group expertise and oversight.

In our view, Hang Seng Insurance remains a core subsidiary of HSBC Asia-Pacific, which provides ratings uplift on the basis of highly likely explicit support to Hang Seng Bank and its insurance subsidiary, if needed. Supportive factors include the longstanding use of the bancassurance model in Hong Kong, the value and long-term earnings derived from the insurance operations, and integration as part of the group's wider wealth-management strategy.

The stable outlook on Hang Seng Insurance reflects the outlook on its parent, HSBC Asia Pacific (AA-/Stable/A-1+;cnAAA/-/cnA-1+). This reflects our belief that over the next two years the insurer will remain a core subsidiary of HSBC Asia Pacific.

We may lower the ratings on Hang Seng Insurance if we downgrade HSBC Asia Pacific. We may also lower the ratings if our view of Hang Seng Insurance's strategic importance to the parent has diluted. We may take this view if we perceive that life assurance underwriting in Hong Kong is becoming less integral to the group's strategy. This could arise from: (1) Hang Seng Insurance losing its strong market position in the Hong Kong life insurance industry; or (2) a shift in the parent's strategy. We consider the likelihood of these events to be remote over the next two years.

Conversely, we could raise the ratings on Hang Seng Insurance if we upgrade HSBC Asia Pacific, while maintaining the insurer's status as a core subsidiary.

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