November 6, 2017 / 3:22 AM / 4 months ago

Fitch Rates Heungkuk Life's Subordinated Securities Final 'BBB-'

(The following statement was released by the rating agency) SINGAPORE/HONG KONG, November 05 (Fitch) Fitch Ratings has assigned South Korea-based Heungkuk Life Insurance Co., Ltd.'s (HKL; Insurer Financial Strength: BBB+/Stable) USD500 million subordinated securities a final rating of 'BBB-'. The subordinated securities represent HKL's direct, unsecured and subordinated obligations. Net proceeds will be used for general corporate purposes. The assignment of the final rating follows the receipt of documents conforming to the information previously received. The final rating is the same as the expected rating assigned on 24 October 2017. KEY RATING DRIVERS The subordinated securities are rated one notch below HKL's Issuer Default Rating of 'BBB' 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. The securities have an initial maturity period of 30 years; and if not redeemed at the option of the 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. Management has the right to cancel coupon payments, in whole but not in part, at its discretion. Mandatory coupon cancellation will also occur when a capital deficiency event has occurred. Fitch believes the coupon cancellation triggers are unlikely to be activated unless HKL is in extreme distress and on the brink of insolvency. As the 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, HKL's consolidated financial leverage is expected to increase post-issuance, as Fitch treats these securities as 100% debt for purposes of this calculation due to its step-up feature. Fitch estimates HKL's leverage at end-October 2017 to be above 35%, after including the issuance amount. This is within the median guidelines for its rating category. RATING SENSITIVITIES Triggers for a downgrade include: - A significant decline in HKL's capital buffer; specifically, a fall in the local risk-based capital ratio to below 180% over a sustained period; or - A prolonged deterioration in profitability, measured by consolidated pretax return on assets (ROA) to below 0.3% and fixed-charge coverage ratio falling below 3.5x (1H17: 9.8x) Triggers for an upgrade include: - A significant strengthening of HKL's domestic market franchise; - Fitch's Prism Factor-Based Model score maintained at 'Strong' and continued proactive management of HKL's negative spread burden; - Pretax ROA above 0.7% on a sustained basis; and - Financial leverage ratio consistently below 30% Contact: Primary Analyst Christopher Han, CFA, CA Associate Director +65 6796 7224 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 Wan Siew Wai Senior Director +65 6796 7217 Date of Relevant Rating Committee: 12 October 2017 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. 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