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September 19, 2017

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Moody's ups Cathay Life, Cathay Financial outlook

TAIPEI--Moody's Investors Service has changed its outlook on Cathay Life Insurance Co. (國泰人壽) to "positive" from "stable" on the back of the Taiwan-based insurer's improving financial strength.

At the same time, Moody's has revised its outlook on Cathay Financial Holding Co. (國泰金控), which owns Cathay Life as its flagship operation, to "positive" from "stable," also mainly because of the life insurer's better financial strength.

The ratings agency has affirmed a "Baa2" insurance financial strength rating on Cathay Life, and a "Baa3" insurer rating on Cathay Financial.

"The positive outlook reflects Moody's expectation that Cathay Life's profitability and capital strength will continue to improve," said Stella Ng, a Moody's assistant vice president and analyst, in a statement.

Moody's said that since Cathay Life has adopted the fair value method for evaluating its investment properties, the issuer's capitalization has been strengthened.

According to the ratings agency, Cathay Life posted unrealized gains of NT$124 billion (US$4.13 billion) due to the large amount of real estate the company acquired a long time ago, and these gains have been recognized as non-distributable special reserves and have enhanced shareholders' equity.

New Sales Strategy Does the Trick

Moody's said Cathay Life has shifted its sales focus to traditional life regular-premium and investment-linked products, which have higher profit margins, from the single-premium policies it concentrated on last year. The change in sales strategy has helped the insurer's bottom line by narrowing its negative spread.

According to Moody's, Cathay Life has built a strong brand name in the Taiwan market and continues to maintain its lead over its peers.

Due to its efforts to strengthen its sales team and sales distribution network, Cathay Life had maintained a good and stable 25-month persistency ratio as of the end of 2013.

As for parent Cathay Financial, Moody's said the outlook revision reflects "the increasing upward pressure on the rating of Cathay Life — the group's largest subsidiary as measured by assets, shareholders' equity and net income."

Moody's said it expects that Cathay Financial will prudently manage its shareholder dividend policy in a bid to maintain adequate capital in its subsidiaries and at the holding company level.

Before Moody's revision of Cathay Financial's outlook, Standard & Poor's, another international ratings agency, changed its outlook on the Taiwanese firm to "stable" from "negative" in May 2013.

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