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Fitch Rates FWD Limited's Proposed Subordinated Securities 'BB+(EXP)'
January 9, 2017 / 4:43 AM / 8 months ago

Fitch Rates FWD Limited's Proposed Subordinated Securities 'BB+(EXP)'

(The following statement was released by the rating agency) HONG KONG, January 08 (Fitch) Fitch Ratings has assigned an expected rating of 'BB+(EXP)' to Hong Kong-based insurance group FWD Limited's (BBB+/Stable) proposed US dollar-denominated perpetual capital securities. The proposed securities will be FWD Limited's direct, unsecured and subordinated obligations. Net proceeds will be used to strengthen the issuer's liquidity and fund the ongoing growth of its life insurance subsidiary in Hong Kong, if needed. The final rating is contingent on the receipt of final documents conforming to information already received. KEY RATING DRIVERS The proposed securities are rated three notches below FWD Limited's Issuer Default Rating (IDR) due to their subordination status and non-performance risk. The securities are notched down two levels to reflect the poor recovery prospects of subordinated debts issued at a holding company. In the event of winding-up, the rights and claims of security holders rank pari-passu with those of any parity obligations, such as the issuer's preference shares. However, the securities rank senior to junior obligations, including ordinary shares. One additional notch is applied for non-performance risk, which Fitch views as minimal since interest deferral is at the issuer's sole discretion. According to Fitch's methodology, the perpetual securities will be eligible for 50% equity credit in the calculation of Fitch's financial leverage due to their cumulative features. They will also receive full equity credit in the capital adequacy assessment to reflect their subordination and perpetual nature, which support balance-sheet loss absorption. No extra step-up margin will be added to the initial credit spread when the issuer resets the rate, even though FWD Limited has the option to redeem the securities. Fitch considers the absence of a step-up margin as reducing the issuer's incentive to call the securities, which reinforces their perpetual character. Fitch expects financial leverage to be commensurate with FWD Limited's rating category after the issue of the securities. FWD Limited is the ultimate holding entity of FWD Life Insurance Company (Bermuda) Ltd (Insurer Financial Strength: A/Stable) and FWD General Insurance Company Limited (Insurer Financial Strength: A/Stable). Revenue from the life operations accounted for about 97% of FWD Limited's total operating revenues in 1H16 based on unaudited statements. FWD Limited is majority owned by Richard Li, a businessman in Hong Kong. RATING SENSITIVITIES Any change to FWD Life Insurance Company (Bermuda) Ltd's Insurer Financial Strength rating is likely to result in a corresponding change in FWD Limited's IDR and the rating of the proposed perpetual securities. Downgrade rating triggers for FWD Limited and its insurance subsidiaries include: - a decline in FWD Limited's consolidated capital strength, with its capital score persistently below the 'Strong' category as measured by Fitch's Prism Factor-Based Model and the solvency ratio of its main operating entity, FWD Insurance Company (Bermuda) Limited, consistently below 225%; - an increase in FWD Limited's financial leverage to above 30% for a prolonged period; or - a significant deterioration in the operating results of its insurance subsidiaries in terms of lapse rates and mortality profits of its life business and underwriting result of its general insurance business, with its combined ratio persistently in excess of 105%. An upgrade of FWD Limited's IDR and its insurance subsidiaries' Insurer Financial Strength ratings is unlikely in the near term. However, over the medium term, upgrade rating triggers include: - broader distribution coverage - an improvement in FWD Limited's operating profitability, with pre-tax return on assets consistently higher than 1.2%; and - further strengthening in FWD Insurance Company (Bermuda) Limited's operating stability, as measured by new business margin and increased value of in-force business. 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 Mia Yang Analyst +852 2263 9959 Committee Chairperson Jeffrey Liew Senior Director +852 2263 9939 Media Relations: Wai-Lun Wan, Hong Kong, Tel: +852 2263 9935, Email: wailun.wan@fitchratings.com. Additional information is available at www.fitchratings.com Applicable Criteria Insurance Rating Methodology (pub. 15 Sep 2016) here Additional Disclosures Dodd-Frank Rating Information Disclosure Form here _id=1017310 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. PUBLISHED RATINGS, CRITERIA, AND METHODOLOGIES ARE AVAILABLE FROM THIS SITE AT ALL TIMES. FITCH'S CODE OF CONDUCT, CONFIDENTIALITY, CONFLICTS OF INTEREST, AFFILIATE FIREWALL, COMPLIANCE, AND OTHER RELEVANT POLICIES AND PROCEDURES ARE ALSO AVAILABLE FROM THE CODE OF CONDUCT SECTION OF THIS SITE. FITCH MAY HAVE PROVIDED ANOTHER PERMISSIBLE SERVICE TO THE RATED ENTITY OR ITS RELATED THIRD PARTIES. DETAILS OF THIS SERVICE FOR RATINGS FOR WHICH THE LEAD ANALYST IS BASED IN AN EU-REGISTERED ENTITY CAN BE FOUND ON THE ENTITY SUMMARY PAGE FOR THIS ISSUER ON THE FITCH WEBSITE. Copyright © 2017 by Fitch Ratings, Inc., Fitch Ratings Ltd. and its subsidiaries. 33 Whitehall Street, NY, NY 10004. Telephone: 1-800-753-4824, (212) 908-0500. Fax: (212) 480-4435. Reproduction or retransmission in whole or in part is prohibited except by permission. All rights reserved. In issuing and maintaining its ratings and in making other reports (including forecast information), Fitch relies on factual information it receives from issuers and underwriters and from other sources Fitch believes to be credible. Fitch conducts a reasonable investigation of the factual information relied upon by it in accordance with its ratings methodology, and obtains reasonable verification of that information from independent sources, to the extent such sources are available for a given security or in a given jurisdiction. The manner of Fitch's factual investigation and the scope of the third-party verification it obtains will vary depending on the nature of the rated security and its issuer, the requirements and practices in the jurisdiction in which the rated security is offered and sold and/or the issuer is located, the availability and nature of relevant public information, access to the management of the issuer and its advisers, the availability of pre-existing third-party verifications such as audit reports, agreed-upon procedures letters, appraisals, actuarial reports, engineering reports, legal opinions and other reports provided by third parties, the availability of independent and competent third- party verification sources with respect to the particular security or in the particular jurisdiction of the issuer, and a variety of other factors. 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. As a result, despite any verification of current facts, ratings and forecasts can be affected by future events or conditions that were not anticipated at the time a rating or forecast was issued or affirmed. The information in this report is provided "as is" without any representation or warranty of any kind, and Fitch does not represent or warrant that the report or any of its contents will meet any of the requirements of a recipient of the report. A Fitch rating is an opinion as to the creditworthiness of a security. This opinion and reports made by Fitch are based on established criteria and methodologies that Fitch is continuously evaluating and updating. Therefore, ratings and reports are the collective work product of Fitch and no individual, or group of individuals, is solely responsible for a rating or a report. The rating does not address the risk of loss due to risks other than credit risk, unless such risk is specifically mentioned. Fitch is not engaged in the offer or sale of any security. All Fitch reports have shared authorship. Individuals identified in a Fitch report were involved in, but are not solely responsible for, the opinions stated therein. The individuals are named for contact purposes only. A report providing a Fitch rating is neither a prospectus nor a substitute for the information assembled, verified and presented to investors by the issuer and its agents in connection with the sale of the securities. Ratings may be changed or withdrawn at any time for any reason in the sole discretion of Fitch. Fitch does not provide investment advice of any sort. Ratings are not a recommendation to buy, sell, or hold any security. Ratings do not comment on the adequacy of market price, the suitability of any security for a particular investor, or the tax-exempt nature or taxability of payments made in respect to any security. 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Due to the relative efficiency of electronic publishing and distribution, Fitch research may be available to electronic subscribers up to three days earlier than to print subscribers. For Australia, New Zealand, Taiwan and South Korea only: Fitch Australia Pty Ltd holds an Australian financial services license (AFS license no. 337123) which authorizes it to provide credit ratings to wholesale clients only. Credit ratings information published by Fitch is not intended to be used by persons who are retail clients within the meaning of the Corporations Act 2001

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