OREANDA-NEWS. Fitch Ratings has assigned China Life Insurance Company Limited's (China Life; Insurer Financial Strength Rating: A+/Stable) proposed subordinated notes due 2075 (which may be extended) an expected rating of 'A-(EXP)' and published the insurer's Issuer Default Rating (IDR) of 'A+'.

China Life expects the issue to be benchmark-sized and denominated in US dollars. The notes are expected to be classified as Core Tier II instruments under China's new solvency regime - China Risk-Oriented Solvency System (C-ROSS). The notes may be effectively perpetual as they may be extended for an additional 60 years each time they become due.

KEY RATING DRIVERS
The notes are rated two notches below China Life's IDR to reflect the notes' poor recovery prospects due to their subordination - the claims under the notes will, in the event of winding-up, be subordinated to the claims of policyholders and general creditors and the holders of any supplemental capital of the issuer. The notes rank senior to junior obligations, such as ordinary shares. No additional notching is applied for non-performance risk, which Fitch views as minimal, as interest deferral is at the issuer's sole discretion.

The notes may be called by the issuer five years from the date of the issuance and every six months thereafter. As there is no increase in initial credit spread when the issuer resets the rate, Fitch considers that the issuer may not have any incentive to redeem the notes, contributing to their perpetual-like character.

According to Fitch's methodology, the notes are classified as 100% capital to reflect their subordination and quasi-perpetual nature, which support balance-sheet loss absorption. Fitch will include 50% of the issue as debt in financial leverage calculations because the need to service the cumulative payments adds a debt-like element. Financial leverage and fixed charge coverage are commensurate with China Life's rating category.

RATING SENSITIVITIES
Any change to China Life's IFS rating is likely to result in a corresponding change in the issuer's IDR and the rating of this debt issue.

The 'A+' IDR and 'A-' debt ratings were established using notching criteria that have been proposed by Fitch, but are not yet final. The outcome would be the same even if the proposed criteria are not made final, and current notching criteria are maintained instead.