Thailand: Muang Thai Life's financial performance set to improve in medium term
Muang Thai Life Assurance Public Company's (MTL) new business value growth is expected to improve in the medium term, says Fitch Ratings.
The growth will be underpinned by robust demand for health-related products, protection and riders in preparation for IFRS17, as well as enhanced market opportunities through its partnership with KBank and efficiency gains from the digital transformation of its distribution networks.
Fitch expects a continued recovery of MTL's recently weakened profitability in the medium term, although its investment portfolio still has large exposure to risky assets.
Modest earnings recovery
MTL has seen a modest earnings recovery, with annualised return on equity rising to 6.8% in 3Q2023, after dipping to below 6.5% in 9M2022 (2021: 10.2%). Its three-year average return on equity over 2021-9M2023 stood at 7.9% (2020-9M2022: 8.9%), which is within the range for its rating category.
Ratings affirmed
Fitch has affirmed MTL’s Insurer Financial Strength (IFS) Rating at 'A-' and Long-Term Issuer Default Rating (IDR) at 'BBB+'. The outlook is ‘Stable’. At the same time, Fitch has affirmed the National IFS Rating at 'AAA(tha)' with a ‘Stable’ outlook and MTL's regulatory compliant Tier 2 subordinated note at 'BBB'.
The affirmation reflects MTL's 'Favourable' company profile and 'Strong' capitalisation.
Apart from earnings recovery, other drivers of MTL’s ratings are:
'Favourable' Company Profile: Fitch ranks MTL's company profile as 'Favourable' as a result of its 'Favourable' business profile and 'Moderate/Favourable' corporate governance compared with other life insurers in Thailand.
MTL has a substantial market share of approximately 11% by total premium income and consistent operational support from its major shareholders, including KASIKORNBANK Public Company and Ageas Insurance International. MTL's product lines, client base and distribution channels offer well-rounded business diversification.
'Strong' Capitalisation: MTL has a strong capital buffer to support its business, underpinned by its 'Strong' Fitch Prism Model score at the end of 3Q2023, inclusive of the benefits from regulatory Tier 2 compliant debt. The company reports its risk-based capital (RBC) ratio at 344% at end-3Q2023, significantly above Thailand's 140% regulatory threshold, with financial leverage declining to approximately 11%, from 14%, after partial repayments of subordinated debt. Fitch expects capitalisation to remain stable in 2024.
High Risky-Asset Ratio: MTL increased its allocation of fixed-income securities to 81% in 3Q2023, up from 77% in 2021. However, despite the increase, its overall risky asset ratio remained unchanged; the three-year average was 241%, similar to 243% at the end of 3Q2023. This can be attributed to a slight rise in the allocation to below-investment-grade bonds, which rose to 95% of capital in 3Q2023, compared to 90% in 2021.
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