TONG YANG LIFE INSURANCE CO., LTD.
Fitch Ratings has upgraded
The Outlook is Stable. Fitch has also upgraded the rating of TYL's
The upgrade of TYL's ratings reflects its improvement in profitability, its entrenched company profile and the maintenance of a capital buffer to support its business operations. The improved profitability will help it build up capital buffers to offset market volatility. Fitch also expects that TYL's capital buffer is likely to remain adequate to support asset volatility and premium growth if both asset and liabilities are valued on an economic basis.
Key Rating Drivers
Favourable Margins Improve Profitability: TYL's return on equity improved to 10% in 2021, from about 5% in 2020, and amounted to 10% on an annualised basis in 9M22. The improvement in profitability stems from its continued underwriting focus to sell more profitable protection-type policies. Ongoing business expansion has supported favourable growth in risk and loading margins as well as new business value (NBV). The company continues to optimise its product mix to sustain profitability.
Capitalisation to Remain 'Strong': TYL maintains a healthy capital buffer to support its business. We estimate that its capitalisation, measured by the Fitch Prism Model score, was 'Strong' at end-2021 and end-3Q22. This is despite its weaker accounting and regulatory capital positions in 2022 due to unrealised valuation losses from its fixed-income investments, given rising interest rates. Its regulatory risk-based capital ratio fell to 176% by
We believe TYL is likely to report a stronger capital buffer if its insurance liabilities are measured on an economic basis. Current standards require life insurers to value insurance liabilities at historical interest rates, while financial assets - classified at fair value through profit or loss - and available-for-sale instruments are determined based on market value. Higher interest rates will reduce TYL's insurance liabilities, as it prepares its financial statements since 2023 in accordance with IFRS 17 and K-ICS standards, which use marked-to-market valuations of insurance liabilities.
Strongly Entrenched Market Franchise: Fitch ranks TYL's company profile as 'Moderate' as a result of a 'Moderate' business profile and 'Moderate/Favourable' corporate governance relative to all other Korean life insurance companies. This takes into account its 'Moderate' business-risk profile and 'Moderate' operating scale. Fitch therefore scores TYL's company profile at 'a-' under our credit-factor scoring guidelines. TYL is
Rated on Standalone Fundamentals: TYL's rating reflects Fitch's view that its credit profile as a standalone South Korean insurer is not directly affected by that of the parent,
The regulatory and governance framework under which TYL operates ringfences its capitalisation and protects policyholders through restrictions on its minimum capital position and board supervision. The regulation requires the board of directors to have a majority of external directors.
RATING SENSITIVITIES
Factors that could, individually or collectively, lead to positive rating action/upgrade:
An improvement in financial fundamentals; for instance, with return on equity consistently above 8% with stable NBV margins;
Sustained improvement in company profile, with better operating scale and market franchise;
Maintenance of the Fitch Prism Model score well into the 'Strong' category for a sustained period.
Factors that could, individually or collectively, lead to negative rating action/downgrade:
A significant decline in capitalisation, with its Fitch Prism Model score falling consistently in the 'Adequate' category;
A sustained weakening in TYL's financial performance; for instance, with return on equity persistently below 4% with a sharp reduction in NBV margins;
Significant, prolonged deterioration in company profile in terms of market franchise and operating scale.
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 '
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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