Fitch Ratings has affirmed the Insurer Financial Strength (IFS) rating of Aviva-COFCO Life Insurance Company at A-, with a stable outlook.
The affirmation is based on the company’s robust capitalization and financial performance, along with a moderate company profile. However, Fitch also noted an increase in asset risk due to a rise in equity-type investments.
As of the end of the first half of 2023, the company’s risk-based capitalization, measured using the Fitch Prism Model, remained strong. However, the capital buffer narrowed due to increased exposure to equity-type investments, offsetting the improvement in shareholder equity attributed to higher other comprehensive income.
The comprehensive solvency ratio declined from 254% at the end of 2022 to 241% at the end of 1H23. Conversely, the financial leverage ratio improved from 24.3% to 22.5% due to an enlarged capital base.
Aviva-COFCO has strategically increased its investments in government bonds to reduce its duration gap. Simultaneously, it has expanded its equity-type investments, primarily in stocks, aiming to boost investment returns amid market volatility.
Risky assets, adjusted for loss sharing of the participating life business, accounted for 150% of shareholder equity at the end of 1H23, up from 141% at the end of 2022, surpassing the guideline for ‘A’ IFS rated life insurers. It is anticipated that the exposure to risky assets will not significantly decrease in the near term.
The insurer’s strategic focus on long-term regular-paid products has bolstered its underwriting profitability. The surge in market demand for saving-type life products, driven by the expectation of lower pricing rates, led to a 104% increase in new business value in 1H23 compared to 1H22. Additionally, Aviva-COFCO effectively capitalized on investment returns amid a volatile capital market, supporting an average return on equity of 11.9% during 2020-2022 (2022: 11.9%).
Aviva-COFCO’s company profile is also assessed as moderate in comparison to other life insurers in China, considering a moderate business profile and a moderate/favourable corporate governance framework. The company operates at a moderate scale, with a 0.38% market share in gross premiums during 1H23. The report said that it offers diversified life insurance products through a well-balanced distribution channel mix, comprising agents, brokers, bancassurance, and digital markets. This diversification is anticipated to sustain sales amid fluctuating market conditions.
Elsewhere for the ratings agency, Fitch, alongside Moody’s Investors Service, recently assigned FWD Group Holdings Limited its inaugural investment grade credit ratings.
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