Insurance Public Company Limited's (TLI) Insurer Financial Strength (IFS)
Rating at 'A-' (Strong) and its National IFS Rating at 'AAA(tha)'. The Outlooks
are Stable.
KEY RATING DRIVERS
The rating affirmation indicates TLI's
'Favourable' business profile, 'Strong' financial performance and 'Strong'
capitalisation. However, the rating strength is offset by rising pressure on
the insurer's investment and earnings profile from the prolonged low-yield
environment and capital market volatility.
Fitch considers TLI's domestic business
franchise substantive, despite a moderate operating scale compared with
regional insurers, as the company has retained its position as one of the
leading players in the Thai market. Its product lines are comprehensive and its
distribution strength is improving from greater bancassurance capacity in
addition to its robust agency channel. We therefore rank TLI's business profile
as 'Favourable' compared with that of all other Thai peers. This ranking
results in Fitch scoring TLI's business profile at 'a-' under our credit-factor
scoring guidelines.
We expect TLI's sound capitalisation to
provide an adequate buffer against risk from lower interest rates, thinner
profit and short-term stock market volatility. TLI estimates its risk-based
capital (RBC) ratio at end-2019 was not materially different from the 409%
reported at end-3Q19. Its prudent investment strategy and profitability should
place TLI's capital in a solid position to meet regulatory levels. TLI's score
in Fitch's Prism Factor-Based Model (FBM) was 'Strong' at end-3Q19 and
end-2018, underpinned by the insurer's reasonable asset and insurance risks.
The insurer's earnings are being tested by
the challenging operating environment as it faces slowing new business growth
with compressed business margins and subdued investment yields. We expect the
company to revise its product offerings with stricter focus on profitability to
mitigate risks and help TLI maintain stable earnings metrics over the longer
term. TLI reports its three-year (2016-2018) average pretax return on assets
(ROA) of 2.2% and its annualised pretax ROA of 1.9% at end-3Q19, supporting our
view on the insurer's 'Strong' profitability in line with Fitch's expectation
for 'A' rated insurers.
Fitch believes TLI's allocation of its
invested assets is reasonably cautious even though the insurer has gradually
added riskier assets to its portfolio to compensate for persistently lower bond
returns. TLI held 12% of its total investments in equity securities at
end-3Q19, slightly above its 2016-2018 average of 11%. The company's bond
holdings were steady at 79% of total invested assets although it increased
investments in corporate bonds, rather than government-related securities, to
raise yields.
RATING SENSITIVITIES
Downgrade sensitivities include:
Fitch is developing updated assumptions to
support a review of the insurance companies it rates, focused on the
significant uncertainties created by the onset of the global COVID-19 pandemic.
Assumptions will be put in place for interest rate levels; declines in the
market values of stocks, bonds, derivatives and other capital market instruments
typically owned/traded by insurance companies; market liquidity; and the
magnitude of COVID-19-related claim/benefit exposures. Fitch plans to conduct
pro-forma analysis for individual companies to reflect these assumptions, and
compare the pro-forma results to current rating sensitivities. Fitch expects to
place ratings on Rating Watch-Negative or downgrade ratings, if sensitivities
are notably breached. TLI will be part of this review.
IFS Rating
A persistent drop in capitalisation, measured by a decline in the RBC ratio, to below 280% and deterioration in the Prism FBM score to below 'Strong' for an extended period; orA prolonged weakening in profitability, indicated by a pretax ROA that is below 1%.
National IFS Rating
A persistent drop in capitalisation, measured by a decline in the RBC ratio, to below 280% and deterioration in the Prism FBM score to below 'Strong' for an extended period; orA prolonged weakening in profitability, indicated by a pretax ROA that is below 1%.
Upgrade sensitivities include:
IFS Rating
Maintenance of TLI's capital adequacy well into the 'Strong' level on a sustained basis, as measured by Fitch's Prism FBM score; andA significant improvement in TLI's operating scale and business diversification, for instance, the insurer participates in many business lines, geographies and distribution sources.
National IFS Rating
An upgrade for TLI's National IFS is not possible as its 'AAA(tha)' National IFS Rating is already the highest score on the National Rating scale.
Additional information is available on
www.fitchratings.com