OREANDA-NEWS. Fitch Ratings has assigned Taiwan Life Insurance Co., Ltd. (Taiwan Life) an Insurer Financial Strength (IFS) Rating of 'A' and National IFS Rating at 'AA+(twn)'. The Outlook is Negative, which is consistent with the Outlook of its 100% owner, CTBC Financial Holding Co., Ltd. (CTBC Holding, A/Negative).

KEY RATING DRIVERS

Taiwan Life's IFS ratings take into account the high possibility of capital or liquidity support from CTBC Holding if needed. Fitch views Taiwan Life as a core subsidiary of the group, in light of CTBC Holding's ambitions to penetrate the life insurance market and its commitment to maintain the insurer's regulatory risk-based capital (RBC) ratio at above 250%. CTBC Holding is also legally obliged to assist Taiwan Life if it falls into financial difficulty under Taiwan's Financial Holding Company Act. CTBC Holding will inject TWD12bn of capital into Taiwan Life by end-2015 to support its future business growth and capitalisation.

CTBC Holding completed the acquisition of Taiwan Life in October 2015. It plans to merge Taiwan Life and its other life subsidiary, CTBC Life Insurance Co., Ltd. (CTBC Life, IFS 'A'/Negative) on 1 January 2016 under the Taiwan Life brand name. The RBC ratio on a pro forma basis would be above 300% as of end-1H15.

Taiwan Life's 5,500 agents will complement CTBC Life's distribution channels, which now comprise a sales force of 1,900, together with bancassurance, insurance broker and telemarketing channels. The pro forma market share would be 8.4% in 1H15 in terms of first-year premiums, ranking it fourth out of 26 life insurers in Taiwan, while the combined total assets of TWD955bn (a 5% market share) as of end-1H15 would be the sixth-largest among peers.

Fitch expects the combined entity to maintain a high share in overseas investments (mainly fixed income) for better returns, while profitability is likely to remain sensitive to investment performance. Bond investments accounted for 74% of total invested assets at end-1H15 on a pro forma basis, while exposure to stocks and properties represented less than 10% of total investments. The majority of its bonds were investment grade and the insurer has been actively using currency swaps and non-deliverable forwards to manage currency risk of foreign investments (about 56% of total investments).

RATING SENSITIVITIES

Taiwan Life's ratings are underpinned by strong support from its parent CTBC Holding. A weakening of that support would be a key trigger for a ratings downgrade. Any ratings action on CTBC Holding would trigger a similar move on Taiwan Life.