KEY RATING DRIVERS
The rating is driven by AIA Thailand's legal status as a branch of AIA Company Limited (AIA Co., IFS Rating: AA/Stable), a subsidiary of AIA Group Limited (AIA, Long-Term Issuer Default Rating: AA-/Stable). AIA and its subsidiaries are among the largest life insurance groups in the Asia-Pacific region, with a presence in 18 markets and total assets of USD216 billion at end-November 2017 (FY17).
Fitch expects AIA Thailand to maintain very strong business profile and its leading position in Thailand's life insurance market, with support from its locally largest established agency network and wide breadth of insurance-product offerings. In addition, the branch's active agency development programme, which aims to increase the number of licensed agents, and expanding bancassurance distribution channel with Thai commercial banks, should help increase new premiums written in the medium to long term.
AIA Thailand has very strong financial performance and the Thailand market contributed among the highest operating profit after tax (OPAT) of about USD865 million and value of new business (VONB) margins of 74% to the group at end-FY17. At the group level, AIA had stronger OPAT of USD5 billion (FY16: USD4 billion) and VONB margin of 57% (FY16: 53%), underpinned by solid earning sources from underwriting and fees.
Fitch believes AIA will retain its prudent investment strategy. The group maintains a majority of its investments in less risky assets, such as quality government, government agency and corporate bonds.
AIA Thailand reported very strong capitalisation, reflected by its risk-based capital ratio of 407% at end-September 2017; higher than Thailand's 140% regulatory minimum requirement. Its robust capitalisation has been supported by an expanding businesses, sound profitability, prudent capital management and long-time solid operational record.
RATING SENSITIVITIES
AIA Thailand's National IFS Rating is at the top-end of the national rating scale. A rating upgrade is therefore not possible.
A significant deterioration in AIA's credit profile and an unexpectedly weaker financial performance for an extended period could result in negative rating action on AIA Thailand's rating. The triggers include:
- pre-tax operating return on assets at below 1%
- financial leverage ratio increasing to above 20% on a consolidated basis
- below investment grade bond/adjusted equity rising to above 40%