Fubon Life maintains stable outlook: Fitch Ratings

The insurer could use overseas instruments as risk mitigation leverage.

Fubon Life Insurance's outlook is seen to remain stable, thanks to improved capital adequacy, bolstered by issuing TW$25b ($0.775b) in subordinated securities, leading to a more stable capital base less affected by investment asset fluctuations, said Fitch Ratings.

The financial leverage ratio remains sound despite the new debt. The rating also reflects an enhanced company profile, stable financial performance, and high investment risk.

The capital position was enhanced by the TW$25b ($775m) subordinated securities issued in the second half of 2023, regarded as available capital under Taiwan's risk-based capital (RBC) regime and Fitch's Prism Model.

The RBC ratio increased to 336% by the end of 2023 from 315% at the end of 2022. The net worth ratio improved to 9.8% from 5.67% over the same period. The Prism score remained 'Strong' at the end of 2023.

Total capital, including a portion of reserves, rose to TW$506b ($15.7b) by the end of 2023 from TW$305b ($9.4b) a year earlier, partly due to reclassifying some assets from fair value to amortised cost, reducing the impact of unrealised losses.

This reclassification, adopted by many peers, is expected to make Fubon Life's capital less sensitive to market volatility. The financial leverage ratio was steady at 13% in 2023 (from 14% in 2022).

Fubon Life's profile improved due to its sizable market share (15% by premium income in 2023), leading franchise, diversified distribution channels, and geographical diversification with subsidiaries in South Korea, Hong Kong, and Vietnam.

The company's lower business risk appetite, due to a smaller legacy book with high guaranteed rates, also contributed to the improvement.

Fubon Life's return on equity averaged 14% from 2021 to 2023, supported by stable mortality and morbidity gains.

The insurer has been shifting focus to regular-paid policies and protection-type policies with higher contractual service margins, while reducing investment-linked products.

Despite a reduction in risky assets to 168% of total capital by the end of 2023 from 236% a year earlier, due to an increased capital base, Fubon Life's risky-assets ratio remains higher than the guideline range for the IFS rating.

The company's substantial stock holdings and overseas investments contribute to this risk. Investments not fully backed by foreign-currency policies and partially unhedged expose the insurer to foreign-currency risk.

Fubon Life is expected to maintain a significant proportion of overseas investments for better returns while using dynamic hedging to manage currency mismatch risks.

($1.00 = TW$32.39)