OREANDA-NEWS. Fitch Ratings has affirmed Taikang Life Insurance Co., Ltd.'s (Taikang) Insurer Financial Strength (IFS) Rating at 'A'. The Outlook is Stable.

KEY RATING DRIVERS
The rating reflects Taikang's well-established franchise, strong distribution network, and good profitability. The rating also takes into account its capitalisation, which remains vulnerable to unfavourable capital market movements.

The insurer has a solid market position, with 4.8% of total premiums in China's life insurance market in 2015, making it the eighth-largest life insurer in the country. Its large business scale and margin-focused strategy contributed to its good profitability, with a pre-tax return on assets of 1.9% in 2014 and 1% in 2013.

Taikang's capitalisation is thin relative to the current rating level. Its capital score, as measured by Fitch's Prism Factor-Based Capital Model (FBM), reached 'Adequate' at end-2014, with operating leverage of 14.5x (close to the median ratio for an 'A' IFS Rating). The issuer has issued subordinated debt to support its solvency ratio (161% at end-2014) and had a financial leverage ratio (debt to the sum of debt and equity capital) of 32.7% at end-2014 (including new debt issuances of CNY11bn in 9M15).

Taikang increased alternative investments (mainly linked to property and infrastructure projects) to about 17% of invested assets at end-2014 from 9% at end-2013. This could make its asset quality more vulnerable to an economic downturn. Its capitalisation is also sensitive to stock market volatility given that its significant equity exposures - more than twice its shareholders' equity as of end-2014.

RATING SENSITIVITIES
Key rating triggers for a downgrade include a decline in its capital score as measured by Fitch's Prism FBM at below 'Adequate' on a sustained basis, and an increase in financial leverage above 35% for a prolonged period.

An upgrade is unlikely in the near term because its capitalisation and profitability remain vulnerable to market movements. An upgrade would hinge on a significant improvement in profitability with greater stability and stronger capitalisation. This would be challenging amid ongoing intense market competition.