News Life and Health23 Sep 2022

Hong Kong:FWD units maintained on 'Rating Watch' in wake of IPO plan

| 23 Sep 2022

Fitch Ratings says that it has maintained the 'A' Insurer Financial Strength (IFS) Rating of Hong Kong-based FWD Life Insurance Company (Bermuda) (FWD Life HK) on Rating Watch Evolving (RWE). Fitch has also kept the 'BBB+' Issuer Default Rating (IDR) on parent FWD Limited on RWE.

In addition, Fitch has maintained the 'BBB+' IFS Rating on Japan-based FWD Life Insurance Company (FWD Life Japan) and the 'A(idn)' National IFS Rating of PT FWD Insurance Indonesia (FWD Insurance) on Rating Watch Positive (RWP).

'A' National IFS Ratings denote a strong capacity to meet policyholder obligations relative to all other obligations or issuers in the same country or monetary union, across all industries and obligation types.

IPO

The ratings were first placed on Rating Watch in September 2021, when FWD Limited's parent, FWD Group Holdings, announced its plans to conduct an initial public offering (IPO).

The ratings remain on Rating Watch because FWD Group Holdings has not yet completed its equity funding plan, including an IPO on the Stock Exchange of Hong Kong. The RWE on the ratings of FWD Limited and FWD Life HK reflects the uncertainty over the impact that the equity funding plan will have on the group's overall capital strength, financial leverage, debt servicing capability and operating performance.

The ratings on FWD Limited and FWD Life HK reflect FWD Limited's solid capital buffer, 'Good' financial performance and 'Moderate' company profile. FWD Limited's capitalisation is assessed as 'Very Strong' because FWD Life HK's solvency ratio stood at 295% at end-2021, well above the 100% regulatory minimum. FWD Limited's capital score, as measured by the Fitch Prism model score, was in the 'Extremely Strong' category at end-2021 after capital infusions by shareholders in 2021 and 2020.

FWD Life HK continues to focus on more profitable health and participating products in line with the group's business strategy of value creation. FWD Life HK continued to increase its annualised premium equivalent (APE) and value of new business (VNB) in 2021, despite social distancing measures due to the COVID-19 pandemic that have interrupted the new business sales activities of Hong Kong life insurers. FWD Limited improved its return on equity from 1.4% in 2020 to 5.1% in 2021 although it was still below the guideline for IFS 'A' rated life insurers.

Profile

The company profile of FWD Limited and its core operating subsidiary, FWD Life HK, remains stable given its 'Moderate' operating scale, long operating history, and 'Favourable' business risk profile. Fitch expects the group's company profile to be enhanced as a result of enlarged scale and greater diversification when the listing process is completed.

The RWP on the ratings of FWD Life Japan and FWD Insurance reflects the potential rating uplift from their standalone credit quality upon the application of our group rating criteria. Execution of the equity funding plan and the associated reorganisation of FWD Group Holdings' subsidiaries, if successful, will enable FWD Life Japan and FWD Insurance to be ultimately controlled by FWD Group Holdings, which is better capitalised and will have an enhanced company profile, than their current parent, FWD Group Limited.

The rating on FWD Life Japan reflects, on a standalone basis, the company's 'Good' capitalisation and financial performance, 'Strong' investment and asset risks, and 'Less Favourable' company profile.

FWD Insurance's rating reflects, on a standalone basis, the company's 'Moderate' company profile adequate capitalisation and ongoing net loss, as well as its prudent investment approach.

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