Fubon Insurance Co. Ltd. #A-# Ratings Outlook Stable

Stocks and Financial Services Press Releases Tuesday October 31, 2017 16:50
TAIPEI--31 Oct--S&P Global Ratings

TAIPEI (S&P Global Ratings) Oct. 31, 2017--S&P Global Ratings said today it had affirmed its 'A-' long-term issuer credit rating and financial strength rating on Taiwan-based Fubon Insurance Co. Ltd. The outlook is stable.

"The affirmation reflects our view that Fubon Insurance's credit profile remains hindered by its obligation to support weaker group members under the group's highly integrated structure," said S&P Global Ratings credit analyst Patty Wang. "The affirmation also reflects our view that Fubon Insurance will maintain its very strong business risk profile, with a leading market position and franchise in Taiwan's property and casualty market, good controlled distribution channels, and slightly above-average operating performance."

We also expect Fubon Insurance to remain strongly capitalized with manageable investment risks despite our view that the insurer's capital and earnings is likely to weaken to very strong from extremely strong over the coming two to three years.

Fubon Insurance's capital adequacy as of the end of 2016 was slightly lower than we expected due to increased un-reinsured catastrophe exposures, for which we applied a 100% risk charge in our capital model. Nonetheless, the insurer remains strongly capitalized, in our view. Fubon Insurance announced in August 2017 that it would invest New Taiwan dollar (NT$) 1.8 billion in affiliate company Fubon Financial Holding Venture Capital Corp. It plans to inject a further Chinese renminbi (RMB) 60 million capital into its China subsidiary in the coming year.

We also expect Fubon Insurance to grow organically in the coming two to three years and maintain its very strong competitive position and good market share in the Taiwan property and casualty market. In our base case scenario, we forecast the insurer's total premiums will grow by a high single digit annually in the coming two to three years, slightly higher than our forecast for the industry average growth (at a mid-single digit). We also believe Fubon Insurance will maintain its good underwriting and operating performance compared with the industry average. This is despite the high likelihood that the insurer will maintain its high cash dividend policy to its parent group, given the insurer's well capitalized position.

"The stable outlook on Fubon Insurance reflects our expectation that the insurer will remain an integral part of the wider Fubon Financial Holding Co. Ltd. (Fubon FHC) group, and may provide resources to weaker group members in times of need," added Ms. Wang. "As a core group entity, the ratings on Fubon Insurance will move in tandem with the group's consolidated credit profile."

We expect the consolidated group credit profile of the Fubon FHC group to remain unchanged over the next two years with very strong competitive position and lower adequate capital and earnings relative to its risk profile.

We may lower the ratings on Fubon Insurance if the group's risk position deteriorates. The risk position is particularly sensitive to the large invested asset pool of the group's life insurance unit, Fubon Life Insurance Co. Ltd., which accounts for a large proportion of the group's total assets. A downgrade may occur if Fubon Life's foreign exchange risk exposure, net of effective hedging, materially and consistently exceeds 10% of the company's total liabilities including shareholders equity. A downgrade may also occur if Fubon Life's investment concentration, particularly in the financial sector, exceeds 30% of its total invested assets.

In addition, we may lower the ratings if the group's capital and earnings deteriorates to a less-than-adequate level. This is likely if the group overly expands its investment assets as well as grows through mergers and acquisitions that exceed our expectation or if the group's operating performance drops below the industry average. This is also likely if the growth in Fubon Life's value of in-force (VIF) is materially lower than our forecast, because VIF accounts for a large part of the group's total adjusted capital.

We view an upgrade as remote over the next two years. We may raise the ratings on Fubon Insurance if the Fubon FHC group can enhance its capital and earnings to a strong level, which will require a substantial increase of capital strength and is not likely in the next one to two years.


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