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Fitch Rates AIA Group's Life Insurers at IFS 'AA'; Outlook Stable
April 25, 2017 / 8:01 AM / 8 months ago

Fitch Rates AIA Group's Life Insurers at IFS 'AA'; Outlook Stable

(The following statement was released by the rating agency) HONG KONG, April 25 (Fitch) Fitch Ratings has published AIA Company Limited's (AIA Co.) Insurer Financial Strength (IFS) Rating of 'AA' and AIA Group Limited's (AIA) Long-Term Issuer Default Rating (IDR) of 'A+'. The Outlook is Stable. At the same time, Fitch has assigned AIA International Limited (AIA International) an IFS Rating of 'AA' with Stable Outlook. KEY RATING DRIVERS The issuer ratings reflect AIA's solid market franchise, sound financial performance, conservative investment mix and strong capitalisation. AIA Co. and AIA International are considered core operating entities of AIA under Fitch's group rating methodology; their IFS ratings are based on Fitch's evaluation of the strength of AIA as a whole. AIA Co., which is directly and 100%-owned by AIA, is the group's primary operating subsidiary. AIA International is a wholly owned subsidiary of AIA Co. and has branches and subsidiaries located in various markets, including Hong Kong, which is the biggest earnings contributor. AIA and its subsidiaries comprise one of the largest life insurance groups in the Asia-Pacific region, with close to 100 years of operating history. The group serves the holders of more than 30 million individual policies and over 16 million participating members of group insurance schemes and has a presence in 18 markets in Aisa-Pacific. An early entrant to several markets, AIA's long-standing record of continuous operations distinguishes it from competitors, while 100% ownership in the significant majority of its operating entities allows AIA to exert control over operations and strategy. Overall persistency remained strong, at 95% for the financial year ended November 2016 (FY16), reflecting a strong and sustained market franchise. Pre-tax operating return on assets remained strong at 2.8% in FY16 and 2.2% in FY15, versus the median of 1.4% for Fitch's 'AAA' rating category. This was attributable to robust insurance underwriting and fee-based profits due to prudent underwriting and successful customer outreach. AIA's quality investment portfolio with moderate equity exposure and a high level of currency matching between assets and liabilities underpins the persistently low earnings volatility. Annualised new premiums (ANP) increased by 31% (on a constant-exchange-rate basis) to USD5.1 billion in FY16, with regular premiums accounting for more than 90% of total ANP. This supported strong 28% (on a constant-exchange-rate basis) expansion in value of new business to USD2.8 billion from FY15. Bond investments accounted for 80% of total invested assets as of FYE16, including a significant portion in government and government agency bonds. The average rating was 'A' for the bond portfolio. Equity exposure remained low at 11% of total investments. Risky assets, including stocks, property, and non-investment-grade and non-rated bonds, represented about 71% of adjusted equity, generally in line with Fitch's median ratio for a 'AA' IFS Rating. AIA Co.'s solvency ratio stayed at 404% at FYE16, higher than the statutory minimum requirement set by the Hong Kong regulator. The group's consolidated capital score, as measured by Fitch's Prism Factor-Based Capital Model, reached "Very Strong" at FYE16, with operating leverage of 4x, well below the median score of 11x for a 'AA' IFS Rating. AIA has secure access to capital markets as a listed company on the Hong Kong Stock Exchange and has established its presence in the bond market through regular note issuance from its MTN programme, with proceeds used for general corporate purposes. Financial leverage was 9% at FYE16, well below the median score of 20% for a 'AA' IFS Rating. RATING SENSITIVITIES Rating downgrade triggers include significant deterioration in financial performance, with pre-tax operating return on assets at below 1%, financial leverage increasing to above 20% on a consolidated basis and below investment-grade bonds/adjusted equity rising to above 40% for an extended period. Fitch sees an upgrade to be unlikely in the near term. Upgrade triggers include a significant improvement in industry profiles and operating environments of the markets AIA penetrates, together with sustained financial performance and strong capitalisation, with Fitch's Prism Factor-Based Capital Model score well into the "Extremely Strong'' category. Contact: Primary Analyst Joyce Huang, CFA Director +852 2263 9595 Fitch (Hong Kong) Limited 19/F Man Yee Building 68 Des Voeux Road Central Hong Kong Secondary Analyst Terrence Wong Director +852 2263 9920 Committee Chairperson Jeffrey Liew Senior Director +852 2263 9939 Media Relations: Wai-Lun Wan, Hong Kong, Tel: +852 2263 9935, Email: Additional information is available on Applicable Criteria Insurance Rating Methodology (pub. 15 Sep 2016) 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. 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