Hanwha Life’s IFSR upgraded to A1 by Moody’s Ratings, outlook stable

Investing.com -- Moody’s Ratings has upgraded the insurance financial strength rating (IFSR) of Hanwha Life Insurance (NSE:LIFI) Co., Ltd. (Hanwha Life) to A1 from A2 on May 23, 2025. The subordinated securities rating of the company has also been elevated to A3 from Baa1. The outlook for Hanwha Life has been revised to stable from positive.

The upgrade of Hanwha Life’s ratings is a reflection of the company’s improved product mix and distribution capabilities. The company has seen consistent growth in sales of protection products through its general agency subsidiary, and a steady decrease in high-guaranteed rate policies. Hanwha Life, the second-largest life insurer in Korea by insurance revenue, has used its strong brand and franchise to increase insurance sales through its subsidiary, Hanwha Life Financial Service Co., Ltd. (HLFS), the largest general agency force in the country.

The company’s average return on capital (ROC) rose to 3.4% in 2024 from 3.2% in 2023. This increase is expected to sustain steady underwriting results and partially offset the industry-wide decline in profit margins for key products.

Moody’s Ratings also took into account Hanwha Life’s robust capitalization and effective asset-liability management (ALM) practices. Despite a decrease in the Korea Insurance Capital Standards (K-ICS) solvency ratio to 163.7% at the end of 2024 from 183.8% a year earlier, the company’s capitalization remains solid, driven by its more capital-generative product mix and large amount of capital securities issued since 2024.

The company’s financial leverage increased after the issuance of a significant amount of capital securities since 2024. This leverage is expected to stay between 25%-30% over the next 12-18 months. The insurer’s adjusted high-risk asset ratio rose to 123.0% at the end of 2024 from 97.4% a year earlier, primarily due to a substantial decline in shareholders’ equity and a moderate increase in high-risk assets.

The stable outlook reflects the expectation that Hanwha Life will maintain good profitability and solid capitalization over the next 12-18 months, with a minimal asset-liability duration gap. The A3 rating on the subordinated capital securities is two notches below Hanwha Life’s A1 IFSR, which follows the standard notching guidance for subordinated capital securities issued by operating insurance companies.

An upgrade of Hanwha Life’s ratings is unlikely unless the insurer enhances its capitalization through a steady increase in contractual service margins (CSM), improves profitability with reduced earnings volatility so that its ROC consistently exceeds 8%, and further expands its general agency force while maintaining strong agent productivity and significantly improving long-term persistency rates.

On the other hand, Hanwha Life’s ratings could be downgraded if the insurer’s capitalization significantly deteriorates on a sustained basis, its profitability substantially weakens with rising earnings volatility, its adjusted financial leverage consistently exceeds 30%, or its asset quality significantly deteriorates, with its high-risk asset ratio rising above 150% on a sustained basis.

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