FUBON FINANCIAL HOLDING CO., LTD.
Fitch Ratings has assigned
The Outlook is Stable.
The ratings reflect the insurer's 'Favourable' company profile, 'Strong' capitalisation and financial performance, and high investment risk.
Key Rating Drivers
'Favourable' Company Profile: We rank Fubon Life's company profile as 'Favourable' compared with that of all other local life insurers due to its 'Most Favourable' operating scale, with a market share of 15% by first-year premium in 1Q23, leading business franchise, diversified distribution channels and product lines, and high geographical diversification. This results in a company profile score of 'a' under our credit factor scoring guidelines.
'Strong' Capitalisation: We assess Fubon Life's capital position as 'Strong'. Its risk-based capital ratio was around 300% in
'Strong' Financial Performance: We regard the insurer's financial performance as 'Strong'. Its return on equity averaged at 16% from 2020 to 2022, supported by stable mortality and morbidity gains. Fubon Life has been reducing single-premium policies and will focus on higher protection, foreign currency, retirement and investment-linked products in light of challenges from the transition to IFRS 17 and tighter regulations on savings products.
High Investment Risk: Fubon Life's asset risk remains high due to its sizeable stock holdings and overseas investments. Risky assets, including listed and unlisted stocks, equity-type mutual funds, preferred shares and below-investment-grade bonds, accounted for 165% of equity and reserves at end
The sizeable overseas investments that are not fully backed by foreign-currency policies and are partly unhedged leave the insurer sensitive to foreign-currency risk. We expect the insurer to keep a high share of overseas investments for better returns and to maintain its dynamic hedging approach against the currency mismatch between its assets and liabilities.
RATING SENSITIVITIES
Factors that could, individually or collectively, lead to negative rating action/downgrade:
Failure to maintain a 'Strong' capital score, as measured by the Fitch Prism Model.
Decline in profitability, with return on equity falling to 9% for a sustained period.
Factors that could, individually or collectively, lead to positive rating action/upgrade:
Significant decrease in the risky-assets ratio for a prolonged period.
Improvement in the Fitch Prism Model score well into the 'Strong' category or above on a sustained basis.
Best/Worst Case Rating Scenario
International scale credit ratings of Financial Institutions and Covered Bond issuers have a best-case rating upgrade scenario (defined as the 99th percentile of rating transitions, measured in a positive direction) of three notches over a three-year rating horizon; and a worst-case rating downgrade scenario (defined as the 99th percentile of rating transitions, measured in a negative direction) of four notches over three years. The complete span of best- and worst-case scenario credit ratings for all rating categories ranges from '
Date of Relevant Committee
REFERENCES FOR SUBSTANTIALLY MATERIAL SOURCE CITED AS KEY DRIVER OF RATING
The principal sources of information used in the analysis are described in the Applicable Criteria.
ESG Considerations
Unless otherwise disclosed in this section, the highest level of ESG credit relevance is a score of '3'. This means ESG issues are credit-neutral or have only a minimal credit impact on the entity, either due to their nature or the way in which they are being managed by the entity. For more information on Fitch's ESG Relevance Scores, visit www.fitchratings.com/esg
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