TONG YANG Life maintains stability amidst ownership change

Fitch notes that the transaction could impact business strategy.

TONG YANG Life Insurance Co., Ltd. (TYL) is expected to maintain stable financials despite ongoing uncertainties surrounding its ownership change, assessed Fitch Ratings.

The pending acquisition of a 75.34% stake in TYL by Woori Financial Group, announced in August last year, remains subject to regulatory approvals. 

Fitch notes that the transaction could impact TYL’s credit profile, particularly in terms of business strategy, capital management, and financial flexibility. 

TYL’s capitalisation is expected to remain strong, supported by a solid new business contractual service margin (CSM). 

The company’s solvency capital ratio under the K-Insurance Capital Standard (K-ICS) fell to 160.3% by the end of the third quarter of 2024, down from 193.4% at the end of 2023. 

The decline was primarily due to tightened liability discount rates but remained above the regulatory minimum of 100%. 

Meanwhile, the financial leverage ratio is projected to rise to around 15% following the issuance of $210b (KRW300b) in subordinated debt in October 2024, though still within a level consistent with the rating.

Profitability is expected to improve, driven by steady CSM releases and a continued focus on protection-type products.

The new business CSM increased to $390b (KRW567b) in the third quarter, whilst investment yields remained stable despite market fluctuations. 

Annualised return on equity (ROE) rose to 16% in the first nine months of 2024, up from 7.7% in 2023, supported by higher net profits and reduced shareholders' capital due to regulatory tightening.

Fitch anticipates that TYL will continue to adjust its asset-liability management strategy in response to potential interest rate cuts. 

The company is expected to acquire long-dated domestic bonds to narrow the duration gap between assets and liabilities.

Additionally, TYL’s use of co-insurance for high-legacy products is seen as a proactive measure to manage capitalisation.

($1.00 = KRW1,449.75)