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Fitch Assigns New China Life First-Time IFS Rating of 'A'; Outlook Stable
March 29, 2017 / 1:59 AM / 6 months ago

Fitch Assigns New China Life First-Time IFS Rating of 'A'; Outlook Stable

(The following statement was released by the rating agency) HONG KONG, March 28 (Fitch) Fitch Ratings has assigned New China Life Insurance Company Limited (NCI) a first-time Insurer Financial Strength (IFS) Rating of 'A'. The Outlook is Stable. KEY RATING DRIVERS NCI's rating reflects its strong business profile, consistently profitable operating results and stable capital adequacy. The rating recognises the insurer's effort to improve business quality by focusing on the distribution of longer-term regular premium products with more protection features. It also acknowledges investment risks. Fitch assesses NCI's capital at the 'adequate' category using its own Prism factor-based capital model (Prism FBM) at end-June 2016. The company's exposure to alternative fixed-income type investments and equities weighs heavily in Fitch's risk-based capital assessment. NCI expects its capitalisation to improve by end-2016, which should benefit its Prism FBM result. NCI's comprehensive solvency margin ratio at end-1H16, in terms of China's Risk-Oriented Solvency System (C-ROSS) stood at 282%, which exceeded the 100% statutory minimum. NCI's strong franchise, which underpins its rating, allows the company to offer a wide spectrum of life insurance products in China. With a market share of 7.1% in 2015, NCI is one of the country's five largest life insurers. It sources business through agents and bancassurance as well as its service and business development channels nationwide. Business originated through its strong agency channel of about 242,000 increased to 46% of total premiums as of end-1H16 (end-2013: 41%). NCI has lowered its exposure to less profitable single-premium policies from its bancassurance channel. NCI's consistently favourable financial performance partially reflects its strategic focus on underwriting longer-term regular premium life insurance products with higher new business value (NBV) margin. The company's NBV in 1H16 rose by 18% to about CNY4 billion, while its value in-force (VIF) business after cost of required capital grew by 16% in 1H16 to CNY61.7 billion. Fitch expects the agency channel to remain the core driver of NBV growth as NCI further restructures its business mix. NCI has made solid progress in optimising its portfolio mix. New business from regular premium policies with premium payment periods of 10 years or more grew by 26% yoy to CNY7.7 billion in 1H16, while health insurance accounted for about 16% of its total premiums (end-2013: 7%). Fitch expects NCI to steadily increase its mortality gain in the long term, although investment gains will remain its key source of earnings. The insurer's exposure to risky assets, consisting mainly of equities and funds with equity exposure and excluding fixed-income instruments, accounted for about 137% of its capital equity. This ratio is riskier than the median for Fitch 'A' rated insurers. Investment income constitutes a major supplement to premium income, making NCI susceptible to adverse movements in market values. Fitch has not included explicit shareholder support in the rating, but acknowledges the positive operational contribution of Central Huijin Investment Ltd - NCI's largest single shareholder, with a 32.24% stake. Central Huijin is actively involved in NCI's strategy development and key decision making processes through its influence on the NCI's board. Central Huijin is a wholly owned subsidiary of China Investment Corporation, which is China's sovereign wealth fund. RATING SENSITIVITIES Downgrade rating triggers include: - sustained decline in risk-based capitalisation, with its capital score as computed by Fitch's Prism FBM, falling to the low-end of the 'adequate' range or below; - an increased financial leverage ratio to consistently above 35% (end-1H16: 25%); or - significant deterioration in profitability, with pre-tax return on assets declining to below 0.9% (1H16: 1.2% on an annualised basis) on a sustained basis. Upgrade rating triggers include: - strengthened Prism FBM capital score to a level well above the 'strong' category on a sustained basis; and - improved stability and strength of its profitability, with pre-tax return on assets consistently above 1.1%. Contacts: Primary Analyst Terrence Wong Director +852 2263 9920 Fitch (Hong Kong) Limited 19/F Man Yee Building 68 Des Voeux Road, Central, Hong Kong Secondary Analyst Jeffrey Liew Senior Director +852 2263 9939 Committee Chairperson Siew Wai Wan Senior Director +65 6796 7217 Media Relations: Wai-Lun Wan, Hong Kong, Tel: +852 2263 9935, Email: wailun.wan@fitchratings.com. Additional information is available on www.fitchratings.com Applicable Criteria Insurance Rating Methodology (pub. 15 Sep 2016) here Additional Disclosures Dodd-Frank Rating Information Disclosure Form here _id=1021251 Solicitation Status here Endorsement Policy here ALL FITCH CREDIT RATINGS ARE SUBJECT TO CERTAIN LIMITATIONS AND DISCLAIMERS. PLEASE READ THESE LIMITATIONS AND DISCLAIMERS BY FOLLOWING THIS LINK: here. IN ADDITION, RATING DEFINITIONS AND THE TERMS OF USE OF SUCH RATINGS ARE AVAILABLE ON THE AGENCY'S PUBLIC WEB SITE AT WWW.FITCHRATINGS.COM. 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Users of Fitch’s ratings and reports should understand that neither an enhanced factual investigation nor any third-party verification can ensure that all of the information Fitch relies on in connection with a rating or a report will be accurate and complete. Ultimately, the issuer and its advisers are responsible for the accuracy of the information they provide to Fitch and to the market in offering documents and other reports. In issuing its ratings and its reports, Fitch must rely on the work of experts, including independent auditors with respect to financial statements and attorneys with respect to legal and tax matters. Further, ratings and forecasts of financial and other information are inherently forward-looking and embody assumptions and predictions about future events that by their nature cannot be verified as facts. 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