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Investing.com -- Moody’s Ratings has upgraded the insurance financial strength rating (IFSR) of Tong Yang Life Insurance (NSE:LIFI) Co., Ltd. (Tong Yang Life) to A3 from Baa1. The rating agency also upgraded Tong Yang Life’s junior subordinated securities rating to Baa2(hyb) from Baa3(hyb), and its dated subordinated securities rating to Baa2 from Baa3. The insurer’s outlook has been changed to stable from positive.
This upgrade follows the Financial Services Commission’s conditional regulatory approval of Woori Financial Group’s (Woori FG) proposed acquisition of a 75.34% stake in Tong Yang Life. The rating action reflects Moody’s expectation that the acquisition will significantly enhance Tong Yang Life’s financial flexibility, supported by the good capitalization and adequate liquidity position of Woori FG and Woori Bank.
The insurer’s improved position is also due to its role as a significant source of non-interest revenue for Woori FG, and its improved profitability over the past few years. The A3 IFSR reflects Tong Yang Life’s market position as the eighth-largest life insurer in Korea, improved profitability, and enhanced financial flexibility as part of Woori FG.
Over the past few years, Tong Yang Life’s profitability has improved, mainly driven by increased sales in whole life and health protection products, along with good investment results. Its one-year average return on capital (ROC) rose to 7.9% in 2024, up from 5.3% in 2023. However, Moody’s expects its ROC to moderately decline over the next 12-18 months, due to intense competition, lower interest rates, and heightened market volatility.
Tong Yang Life’s Korea Insurance Capital Standards (K-ICS) ratio declined to 155.5% in 2024 from 193.4% in 2023, mainly because of tightened capital regulations and lower interest rates. The insurer’s standalone financial leverage increased following the issuance of a large amount of capital securities since 2024 to improve its capitalization.
The insurer has a wider asset-liability duration gap than its domestic rated peers, which makes the insurer’s regulatory solvency ratio more sensitive to interest rate risks. The insurer’s distribution channels are less diverse than those of its major competitors and its control over distribution is limited. However, the insurer has increased the sales of whole life and health protection products through bancassurance channel over the past few years.
The stable outlook reflects Moody’s expectation that Tong Yang Life will maintain good profitability and stable financial leverage over the next 12-18 months, and that Woori FG will provide timely financial support to the insurer in times of need. The change in ownership structure is considered a governance factor, as part of Moody’s environmental, social and governance (ESG) considerations, given its implications for the insurer’s organizational structure, and management credibility and track record.
The ratings could be upgraded if the insurer consistently improves its capital position, narrows its asset-liability duration gap, and significantly improves profitability with its ROC above 8% on a sustained basis. Conversely, the ratings could be downgraded if the insurer’s capitalization significantly deteriorates, its asset-liability duration mismatch further widens, its profitability substantially declines with rising earnings volatility, or if Woori FG’s financial profile significantly weakens, thereby constraining the insurer’s consolidated financial flexibility.
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