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Fitch Assigns 'A-(EXP)' Expected Rating to Kyobo Life's Proposed Subordinated Securities
June 21, 2017 / 3:26 AM / in 5 months

Fitch Assigns 'A-(EXP)' Expected Rating to Kyobo Life's Proposed Subordinated Securities

(The following statement was released by the rating agency) SINGAPORE/HONG KONG, June 20 (Fitch) Fitch Ratings has assigned an expected rating of 'A-(EXP)' to South Korea-based Kyobo Life Insurance Company Limited's (Kyobo Life; A+/Stable) proposed subordinated securities. The agency has simultaneously published Kyobo Life's Long-Term Issuer Default Rating (IDR) at 'A' with a Stable Outlook. The proposed securities will be Kyobo Life's direct, unsecured and subordinated obligations. Net proceeds will be used for general corporate purposes. The final rating is contingent on the receipt of final documents conforming to information already received. KEY RATING DRIVERS The proposed securities are rated one notch below Kyobo Life's IDR to reflect Fitch's assumption of 'below-average' recovery prospects in the event of a default, given the level of subordination. The securities rank senior to junior obligations, including preference shares, but rank junior to all other present and future senior and subordinated obligations of the issuer, other than the claims of the holders of other parity obligations. The securities initially have a maturity period of 30 years; and if not redeemed at the option of issuer on the first and subsequent maturity dates, they will be automatically extended for another 30 years from each such date. They are callable after five years, alongside a 100bp coupon step-up feature after 10 years. There is no additional notching for non-performance risk, as Fitch views this risk as 'minimal' under the agency's criteria. With regards to optional cancellation of distributions, management has the right to cancel payments, in whole but not in part, at its discretion. The mandatory capital ratio trigger occurs when the issuer is deemed to be insolvent. Fitch considers that the coupon cancellation triggers are unlikely to be triggered unless the company is under an extremely distressed situation on the brink of insolvency. As the proposed securities are afforded equity credit for regulatory solvency purposes, Fitch applies its 'regulatory override' and therefore classifies these securities as 100% equity capital within the agency's assessment of risk-based capital adequacy. However, these securities are classified as 100% debt for the agency's financial leverage calculations. Hybrids with coupon step-ups on call dates are typically treated as 100% debt by Fitch. The issuance will increase Kyobo Life's financial leverage. Fitch estimates its leverage at end-March 2017 to be below 15%, after including its planned issuance of USD500 million. This is stronger than the median score of 28% for 'A' rated issuers based on Fitch's methodology. Fitch also expects Kyobo Life's interest coverage to remain adequate and commensurate with its existing rating, after this subordinated bonds issuance. RATING SENSITIVITIES An upgrade of Kyobo Life's ratings in the near term is unlikely. However, over the longer-term, key rating triggers for an upgrade include a stronger market franchise and better positioning, with further international diversification, sustaining its regulatory risk-based capitalisation ratio above 350%, continued proactive management of its negative spread burden and consistently strong profitability, with pre-tax return on assets above 1.3%. Conversely, key rating triggers for a downgrade include a weakening business franchise, deterioration in capitalisation, with its risk-based capitalisation ratio falling below 250% on a prolonged basis and a sharp decline in its financial performance, with, for example, pre-tax return on assets consistently below 0.7%. Contact: Primary Analyst Wan Siew Wai Senior Director +65 6796 7217 Fitch Ratings Singapore Pte Ltd. One Raffles Quay, South Tower #22-11 Singapore 048583 Secondary Analyst Jeffrey Liew Senior Director +852 2263 9939 Committee Chairperson Harish Gohil Managing Director +4420 3530 1257 Media Relations: Leslie Tan, Singapore, Tel: +65 67 96 7234, Email:; Wai-Lun Wan, Hong Kong, Tel: +852 2263 9935, Email: Additional information is available on Applicable Criteria Insurance Rating Methodology (pub. 26 Apr 2017) here Additional Disclosures Dodd-Frank Rating Information Disclosure Form here Solicitation Status here#solicitation 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. DIRECTORS AND SHAREHOLDERS RELEVANT INTERESTS ARE AVAILABLE here. 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. Fitch receives fees from issuers, insurers, guarantors, other obligors, and underwriters for rating securities. Such fees generally vary from US$1,000 to US$750,000 (or the applicable currency equivalent) per issue. In certain cases, Fitch will rate all or a number of issues issued by a particular issuer, or insured or guaranteed by a particular insurer or guarantor, for a single annual fee. Such fees are expected to vary from US$10,000 to US$1,500,000 (or the applicable currency equivalent). The assignment, publication, or dissemination of a rating by Fitch shall not constitute a consent by Fitch to use its name as an expert in connection with any registration statement filed under the United States securities laws, the Financial Services and Markets Act of 2000 of the United Kingdom, or the securities laws of any particular jurisdiction. 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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