HANWHA LIFE INSURANCE CO., LTD.
Fitch Ratings has affirmed
The Outlook is Stable.
The ratings affirmation reflects HWL's 'Strong' capital strength, ongoing growth of quality new business, 'Favourable' company profile and active asset-liability management (ALM).
Key Rating Drivers
'Strong' Capital Buffer: Fitch views HWL's capital strength as 'Strong', despite the implementation of a more stringent capital regime, the Korean Insurance Capital Standard (K-ICS), in 2023. HWL's regulatory capital ratio, as measured by K-ICS, stood at 184.3% in 3Q23, well above the 100% minimum standard. The insurer did not apply for transitional measures for its implementation of the K-ICS capital regime.
We estimate that HWL's capital score, as measured by the Fitch Prism Model, would be at a level well above the 'Strong' category at end-3Q23 when both assets and liabilities are valued on an economic basis under the IFRS 17 and IFRS 9 standards. The company's consolidated financial leverage would also decrease in 2023 if its contractual service margin (CSM) net of tax is included as part of equity capital, from about 42% at end-2022 under the original accounting standards.
Sustained New Business Growth: HWL reported strong growth in new business CSM in 2023, as protection-type policies remain its key product focus. New business CSM rose by 48.6% in 9M23 to
Solid Business Franchise: HWL's company profile is assessed as 'Favourable' based on its 'Favourable' business profile and 'Moderate/Favourable' corporate governance compared with other life insurers in
Asset Risks Affected Earnings: HWL's risky-asset ratio increased in 2022 as a result of a decline in equity capital. Risky assets include stocks, below-investment-grade bonds and equity-related investment funds. Nonetheless, some of its beneficiary certificates, which are included as risky assets, are associated with social overhead projects that produce steady incomes. We expect a reduced ratio in 2023 due to higher equity capital after the adoption of the new accounting standard.
HWL recorded impairment losses in 9M23 of about
Focus on ALM: HWL faces a negative spread burden from legacy high-guarantee policies sold in the 1990s. It continued to adopt a proactive approach to ALM after the launch of the IFRS 17 standard and K-ICS capital framework. The insurer has consistently stressed the importance of distributing higher-margin protection-type polices and re-adjusted its policy crediting rate in response to changing interest rates. Its crediting rates were sustained at 3.6%-3.7% in 9M23, notwithstanding high market interest rates.
RATING SENSITIVITIES
Factors that Could, Individually or Collectively, Lead to Negative Rating Action/Downgrade:
Sustained decline in HWL's capital strength, as measured by the Fitch Prism Model;
Consistent weakening in financial performance;
Sharp increase in consolidated financial leverage.
Factors that Could, Individually or Collectively, Lead to Positive Rating Action/Upgrade:
Further strengthening in capitalisation, as measured by the Fitch Prism Model;
Improvement in operating results on a sustained basis.
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
The highest level of ESG credit relevance is a score of '3', unless otherwise disclosed in this section. A score of '3' 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. Fitch's ESG Relevance Scores are not inputs in the rating process; they are an observation on the relevance and materiality of ESG factors in the rating decision. For more information on Fitch's ESG Relevance Scores, visit https://www.fitchratings.com/topics/esg/products#esg-relevance-scores.
(C) 2024 Electronic News Publishing, source
