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Moody's Corporation : Moody's affirms Kyobo Life's A2 rating with a stable outlook

07/26/2013 | 06:37am US/Eastern
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Hong Kong, July 26, 2013 -- Moody's Investors Service has affirmed the A2 insurance financial strength rating of Kyobo Life Insurance Co Ltd. The outlook is stable.

RATINGS RATIONALE

"The rating affirmation reflects Kyobo Life's strong and sustainable business profile, solid capital levels, and low financial leverage," says Stella Ng, a Moody's Assistant Vice President and Analyst.

Kyobo Life enjoys strong brand recognition and remains the third largest life insurer in Korea, capturing 11.1% of the market in terms of total premium income for the fiscal year ended 31 March 2013 (FY12). The insurer provides a wide range of policies, and is able to maintain a productive and well-established agency distribution force as demonstrated by the good persistency ratio in its portfolio.

The insurer has very low financial leverage and good interest coverage. Its adjusted financial leverage (6.6% as of end-FY12) remains conservative with no financial debt. Its capital position is solid as measured by Moody's metrics and local risk-based capital ratio, given its track record of conservative dividend payout ratios.

"These credit strengths are partially offset by its lower level of profitability and upward trend in high-risk assets, including investments in real estate, equities and project finance loans, relative to its capital position, and potential event risks," says Ng.

Kyobo Life has revealed an interest in acquiring Woori Bank (deposits rating of A1 negative, bank financial strength rating/baseline credit assessment of C-/baa2 negative) after the Korean government announced a plan to privatize Woori Financial Holdings Co., Ltd (issuer rating of A2 positive). The probability of Kyobo Life being successful in acquiring a stake in Woori is difficult to determine at this point and is not directly a rating factor for Kyobo Life at this stage. However, in showing an interest in Woori, Moody's believes that Kyobo Life has revealed a willingness to use some of its current capital buffer to expand inorganically. This does have the effect of limiting upward pressure on its rating.

Kyobo Life's profitability weakened in FY12, compared to that in the previous year. Its earnings are mainly constrained by deteriorated spread gains under low interests environment and sluggish equity markets, despite improvements in mortality/morbidity gains as a result of tightened new business underwriting and claims payments. Challenging macroeconomic conditions may put pressure on its profitability level going forward, although this metric is currently satisfactory.

Kyobo Life's exposure in social overhead capital loans has increased over the past five fiscal years. While most of these loans are backed by the central/local governments with minimum revenue guarantees, Moody's remains cautious on the risks relating to these loans as the insurer is still exposed to the credit risk of construction companies.

Moody's would consider upgrading Kyobo Life's rating if it: (1) maintains its capital adequacy with adjusted capital-to-assets ratio consistently above 7% while risks from the potential M&A activity are conservatively managed; (2) consistently reduces its negative spread; (3) successfully diversifies its distribution channels leading to profitable sales growth; or (4) reduces its holdings of illiquid and risky investments, keeping its high-risk assets at below 75% of shareholders' equity.

On the other hand, the rating could be downgraded if: (1) its adjusted capital-to-asset ratio falls below 5%; or its risk-based capital ratio drops below 150%; (2) its profitability declines significantly such that return on capital is below 8%, and demonstrates high volatility on a consistent basis; (3) its financial leverage is over 25%; or (4) it undertakes M&A in an aggressive way from a financial and execution perspective.

The principal methodology used in this rating was Moody's Global Rating Methodology for Life Insurers published in May 2010. Please see the Credit Policy page on www.moodys.com for a copy of this methodology.

Headquartered in Seoul, Kyobo Life Insurance Co Ltd is the third largest life insurer in Korea by total premiums for the year ended 31 March 2013, offering whole life, savings, annuities, health and investment-linked products. At end-March 2013, Kyobo Life's consolidated assets amounted to KRW75.1 trillion. Its shareholders' equity totaled KRW6.2 trillion.

REGULATORY DISCLOSURES

For ratings issued on a program, series or category/class of debt, this announcement provides certain regulatory disclosures in relation to each rating of a subsequently issued bond or note of the same series or category/class of debt or pursuant to a program for which the ratings are derived exclusively from existing ratings in accordance with Moody's rating practices. For ratings issued on a support provider, this announcement provides certain regulatory disclosures in relation to the rating action on the support provider and in relation to each particular rating action for securities that derive their credit ratings from the support provider's credit rating. For provisional ratings, this announcement provides certain regulatory disclosures in relation to the provisional rating assigned, and in relation to a definitive rating that may be assigned subsequent to the final issuance of the debt, in each case where the transaction structure and terms have not changed prior to the assignment of the definitive rating in a manner that would have affected the rating. For further information please see the ratings tab on the issuer/entity page for the respective issuer on www.moodys.com.

For any affected securities or rated entities receiving direct credit support from the primary entity(ies) of this rating action, and whose ratings may change as a result of this rating action, the associated regulatory disclosures will be those of the guarantor entity. Exceptions to this approach exist for the following disclosures, if applicable to jurisdiction: Ancillary Services, Disclosure to rated entity, Disclosure from rated entity.

Regulatory disclosures contained in this press release apply to the credit rating and, if applicable, the related rating outlook or rating review.

Please see www.moodys.com for any updates on changes to the lead rating analyst and to the Moody's legal entity that has issued the rating.

Please see the ratings tab on the issuer/entity page on www.moodys.com for additional regulatory disclosures for each credit rating.

The first name below is the lead rating analyst for this Credit Rating and the last name below is the person primarily responsible for approving this Credit Rating.

Stella Ng
Asst Vice President - Analyst
Financial Institutions Group
Moody's Investors Service Hong Kong Ltd.
24/F One Pacific Place
88 Queensway
Hong Kong
China (Hong Kong S.A.R.)
JOURNALISTS: (852) 3758 -1350
SUBSCRIBERS: (852) 3551-3077

Stephen Long
MD - Financial Institutions
Financial Institutions Group
JOURNALISTS: (852) 3758 -1350
SUBSCRIBERS: (852) 3551-3077

Releasing Office:
Moody's Investors Service Hong Kong Ltd.
24/F One Pacific Place
88 Queensway
Hong Kong
China (Hong Kong S.A.R.)
JOURNALISTS: (852) 3758 -1350
SUBSCRIBERS: (852) 3551-3077

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