Nan Shan Life Insurance Co. Ltd. #A-# Ratings Outlook Stable

Stocks and Financial Services Press Releases Tuesday October 17, 2017 17:41
TAIPEI--17 Oct--S&P Global Ratings

TAIPEI (S&P Global Ratings) Oct. 17, 2017--S&P Global Ratings said today it had affirmed its 'A-' long-term issuer credit rating and financial strength rating on Taiwan-based Nan Shan Life Insurance Co. Ltd. The rating outlook is stable.

"We expect Nan Shan Life Insurance to maintain sound capital adequacy over the coming two to three years," said S&P Global Ratings credit analyst Patty Wang. "The insurer was well capitalized as of the end of 2016 and better than our forecast, due to lower premium and invested asset growth than we had expected, improved capital gains, and value-of-inforce growth."

Nan Shan Life Insurance's capital adequacy moderated in the first half of 2017, albeit still at a sound level. This was due to the insurer's deteriorated earnings amid foreign exchange losses and high hedging costs while growth in its risk-based assets continued to rise.

We forecast Nan Shan Life Insurance's capital adequacy to remain sound over the next one to two years and similar to the level at the end of June 2017. We expect the insurer's premium growth to moderate to a single digit percentage over the coming few years, given the high base in 2016. At the same time, we expect the insurer's invested assets to see double digit growth, similar to its recent track record, with growing allocations in high-dividend-yield equity-related investments.

Nonetheless, we expect improved recurring yields to help lift Nan Shan Life Insurance's earnings slightly in 2018-2019, after deteriorating in 2017. Value-of-inforce is also likely to grow steadily by high single digit, given the insurer's growing regular-pay premiums. We have therefore raised our assessment of Nan Shan Life Insurance's financial risk profile to moderately strong from upper adequate previously.

We believe Nan Shan Life Insurance now has comprehensive risk framework and monitoring mechanisms following improvements over the past years. We have therefore raised our assessment of the insurer's enterprise risk management to adequate with strong risk controls from adequate previously. We view Nan Shan Life Insurance's risk management culture as stringent with the risk department playing an important role in the insurer's decision-making process. Risk controls and monitoring mechanisms are also prudent and comprehensive, in our view. The effectiveness of the company's risk framework is demonstrated through its proactive adjustments to product and investment strategies, active reductions in asset and liability mismatches, and an above average return on average assets over the past years.

The ratings on Nan Shan Life Insurance continue to reflect its strong business risk profile as one of the top three players in Taiwan's life insurance sector by total premiums, high level of controlled distribution network, and good customer retention. The ratings also reflect the insurer's moderately strong financial risk profile with sound capital, manageable investment risk, and strong financial flexibility.

"The stable outlook reflects our view that Nan Shan Life Insurance's capital adequacy will remain sound over the next two years, given the insurer's moderated growth, albeit still active investment allocation," said Ms. Wang. "We expect Nan Shan Life Insurance to generate sufficient actuarial profits and retained earnings to support its likely above-average growth in risk assets. We also expect the insurer to prudently monitor its risk position in investments, particularly to maintain its unhedged foreign exchange ratio at a manageable level, thereby preventing deterioration from the current intermediate risk level."

The stable outlook also reflects our opinion that Nan Shan Life Insurance's operations are likely to remain independent from its two main shareholders, Taiwan-based Ruentex and Pou Chen Corp. groups, under Taiwan's regulatory framework for financial service sectors.


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