The profitability of Muang Thai Life Assurance Public Co (MTL) remains robust despite a muted economic environment, said Fitch Ratings.
The Thai life insurer posted an annualised return on equity of 11.5% at the end of the 3Q last year, which was above Fitch's expectation for insurers with 'A' IFS ratings. The ratings agency also expects MTL's continued expansion in protection and health insurance to improve its overall earnings profile over time.
Fitch has affirmed the Insurer Financial Strength (IFS) Rating on MTL at 'A-' and the Long-Term Issuer Default Rating (IDR) at 'BBB+'. The Outlook on the ratings is Stable.
At the same time, the ratings agency has affirmed the National IFS Rating at 'AAA(tha)' with Stable Outlook and affirmed the rating on MTL's US$400 million regulatory compliant Tier-2 subordinated note at 'BBB'.
The affirmation reflects MTL's 'Favourable' company profile, 'Strong' capitalisation, and 'Strong' underwriting performance and liquidity risk. It also takes into consideration MTL's material exposure to risky assets in its investment portfolio and ongoing challenges in the operating environment due to the pandemic.
Fitch ranks MTL's company profile as 'Favorable' because of the 'Favorable' business profile and 'Moderate/Favourable' corporate governance compared with that of all other Thai life insurers.
MTL has maintained a substantive franchise with large market share of 12%-13% by total premium income and receives consistent operational support from its major shareholders, Kasikornbank Public Company and Ageas Insurance International.
MTL also has sound business diversification considering its comprehensive product lines, client base and balanced distribution channels. Fitch scores MTL's company profile at 'a-' under the agency's credit-factor scoring guidelines.
The ratings agency said MTL maintains a strong capital buffer against asset volatility and downside risks. Its risk-based capital (RBC) ratio stood at 316% at the end of the 3Q last year, well above the 120% regulatory minimum in Thailand. Its capital score under the Fitch Prism model is estimated to be close to 'Strong' at end-3Q21 as it is weighed down by high exposure to risky assets. Nevertheless, the ratings agency expects MTL’s capitalisation to remain robust, with the RBC ratio above 300%. MTL expects its capitalisation to be enhanced by the issuance of regulatory Tier-2 compliant debt in October 2021. The ratings agency also expects the company's leverage to be below 25%, well within the median guidelines for its rating category.
MTL's exposure to Fitch-defined risky assets remained high in line with the company's strategy to support overall investment yield. The risky-asset ratio stood at 258% at end-3Q21 (2020: 249%), which was much higher than the guideline for IFS 'A' rated insurers. The ratio is driven by MTL's investments in equities and bonds rated below investment grade on the international scale, as well as exposure to sovereign bonds, which are scaled at 15% per Fitch's criteria. MTL's sovereign investments-to-capital ratio was 306% at the end of the 3Q last year.