Fitch Affirms FWD Limited and Insurance Subsidiary; Removes Rating Watch Evolving; Outlook Stable

(The following statement was released by the rating agency)

Fitch Ratings-Hong Kong-05 February 2021:

Fitch Ratings has affirmed the Insurer Financial Strength (IFS) Ratings of Hong Kong-based FWD Life Insurance Company (Bermuda) Limited (FWD Life HK) at 'A' (Strong) and the Long-Term Issuer Default Rating (IDR) of parent, FWD Limited, at 'BBB+'. The two entities' ratings have been removed from Rating Watch Evolving, on which they were placed on 3 July 2019. The Outlook is Stable.

Key Rating Drivers

The removal of FWD Limited's ratings from Rating Watch Evolving reflects Fitch's view that there will be no significant change in FWD Limited's credit profile following the company's acquisitions of MetLife Hong Kong and Vietcombank-Cardif Life Insurance (VCLI).

The ratings of FWD Limited and its insurance subsidiary reflect the group's 'Very Strong' capitalisation and leverage, 'Good' financial performance and 'Moderate' business profile.

Fitch's 'Very Strong' assessment of FWD Limited's capitalisation reflects a Fitch Prism Model score that was well into the 'Very Strong' category at end-1H20. The score was supported by significant amount of capital injections by shareholders to fund the company's two recent acquisitions and to add a capital buffer, as well as disposal of FWD General Insurance Company Limited (IFS: BBB+/Stable). FWD Limited's financial leverage ratio also improved from 20% at end-2019 to 13% by end-1H20.

FWD Limited's overall financial performance is 'Good'. Fitch estimates that there was a marginal improvement in financial performance in 2020. FWD Life HK continues to focus on the more profitable health and participating products, in line with its business strategy of value creation. However, high new business growth and market volatility have strained operating profitability.

Fitch ranks FWD Limited's business profile as 'Moderate' compared with all other Hong Kong insurance companies. FWD Life HK has an 'Adequate' business franchise within Hong Kong's life insurance sector, supported by its tied agent, broker and bancassurance channels. FWD Life HK's operations had about 3% market share by annualised premium equivalent in 9M20. The group also has a 'Favourable' business risk profile and 'Well Diversified' business portfolio. This results in Fitch scoring FWD Limited's business profile at 'a-' under its credit-factor scoring guidelines.

RATING SENSITIVITIES

Factors that could, individually or collectively, lead to negative rating action/downgrade:

- A material adverse change in Fitch's ratings assumptions with respect to the coronavirus impact.

- Failure to maintain FWD Limited's capital score at a level well into the 'Strong' category, as measured by the Fitch Prism Model

- An increase in FWD Limited's financial leverage ratio to above 30% for a prolonged period.

- Dramatic weakening in the operating performance of FWD Limited's insurance subsidiaries in terms of pre-tax return on assets and the value of the new business margin of its life business.

Factors that could, individually or collectively, lead to positive rating action/upgrade:

- A material positive change in Fitch's ratings assumptions with respect to the coronavirus impact.

- A positive rating action that is prefaced by Fitch's ability to reliably forecast the impact of the pandemic on the financial profile of Hong Kong's insurance industry and FWD Limited's insurance subsidiary.

- An improvement in FWD Limited's operating profitability, with pre-tax return on assets higher than 0.7% consistently.

- An improvement in FWD Limited's Fitch Prism Model score to well into 'Very Strong' or above on a sustained basis.

- An improvement in business profile, including operating scale, broader distribution coverage and more diversified profitable business lines.

Best/Worst Case Rating Scenario

International scale credit ratings of Financial Institutions and Covered Bond issuers have a best-case rating upgrade scenario (defined as the 99th percentile of rating transitions, measured in a positive direction) of three notches over a three-year rating horizon; and a worst-case rating downgrade scenario (defined as the 99th percentile of rating transitions, measured in a negative direction) of four notches over three years. The complete span of best- and worst-case scenario credit ratings for all rating categories ranges from 'AAA' to 'D'. Best- and worst-case scenario credit ratings are based on historical performance. For more information about the methodology used to determine sector-specific best- and worst-case scenario credit ratings, visit [https://www.fitchratings.com/site/re/10111579]

REFERENCES FOR SUBSTANTIALLY MATERIAL SOURCE CITED AS KEY DRIVER OF RATING The principal sources of information used in the analysis are described in the Applicable Criteria.
ESG Considerations

Unless otherwise disclosed in this section, the highest level of ESG credit relevance is a score of '3'. This means ESG issues are credit-neutral or have only a minimal credit impact on the entity, either due to their nature or the way in which they are being managed by the entity. For more information on Fitch's ESG Relevance Scores, visit www.fitchratings.com/esg

FWD Life Insurance Company (Bermuda) Limited; Insurer Financial Strength; Affirmed; A; Rating Outlook Stable
FWD Limited; Long Term Issuer Default Rating; Affirmed; BBB+; Rating Outlook Stable
----senior unsecured; Long Term Rating; Affirmed; BBB; Rating Watch Off
----subordinated; Long Term Rating; Affirmed; BB+; Rating Watch Off

Contacts:
Primary Rating Analyst
Anthony Lam, CFA
Associate Director
+852 2263 9631
Fitch (Hong Kong) Limited
19/F Man Yee Building 60-68 Des Voeux Road Central
Hong Kong

Secondary Rating Analyst
Terrence Wong,
Senior Director
+852 2263 9920

Committee Chairperson
Jeffrey Liew,
Senior Director
+852 2263 9939

Media Relations: Alanis Ko, Hong Kong, Tel: +852 2263 9953, Email: alanis.ko@thefitchgroup.com
Wai Lun Wan, Hong Kong, Tel: +852 2263 9935, Email: wailun.wan@thefitchgroup.com

Additional information is available on www.fitchratings.com
Applicable Model
Numbers in parentheses accompanying applicable model(s) contain hyperlinks to criteria providing description of model(s).
Prism Factor-Based Capital Model, v1.7.2 (1)

Additional Disclosures
Dodd-Frank Rating Information Disclosure Form
Solicitation Status
Additional Disclosures For Unsolicited Credit Ratings
Endorsement Status
Endorsement Policy

ALL FITCH CREDIT RATINGS ARE SUBJECT TO CERTAIN LIMITATIONS AND DISCLAIMERS. PLEASE READ THESE LIMITATIONS AND DISCLAIMERS BY FOLLOWING THIS LINK: HTTPS://WWW.FITCHRATINGS.COM/UNDERSTANDINGCREDITRATINGS. IN ADDITION, THE FOLLOWING HTTPS://WWW.FITCHRATINGS.COM/RATING-DEFINITIONS-DOCUMENT DETAILS FITCH’S RATING DEFINITIONS FOR EACH RATING SCALE AND RATING CATEGORIES, INCLUDING DEFINITIONS RELATING TO DEFAULT. PUBLISHED RATINGS, CRITERIA, AND METHODOLOGIES ARE AVAILABLE FROM THIS SITE AT ALL TIMES. FITCH'S CODE OF CONDUCT, CONFIDENTIALITY, CONFLICTS OF INTEREST, AFFILIATE FIREWALL, COMPLIANCE, AND OTHER RELEVANT POLICIES AND PROCEDURES ARE ALSO AVAILABLE FROM THE CODE OF CONDUCT SECTION OF THIS SITE. DIRECTORS AND SHAREHOLDERS RELEVANT INTERESTS ARE AVAILABLE AT HTTPS://WWW.FITCHRATINGS.COM/SITE/REGULATORY. FITCH MAY HAVE PROVIDED ANOTHER PERMISSIBLE SERVICE TO THE RATED ENTITY OR ITS RELATED THIRD PARTIES. DETAILS OF THIS SERVICE FOR RATINGS FOR WHICH THE LEAD ANALYST IS BASED IN AN EU-REGISTERED ENTITY CAN BE FOUND ON THE ENTITY SUMMARY PAGE FOR THIS ISSUER ON THE FITCH RATINGS WEBSITE.

Copyright © 2021 by Fitch Ratings, Inc., Fitch Ratings Ltd. and its subsidiaries. 33 Whitehall Street, NY, NY 10004. Telephone: 1-800-753-4824, (212) 908-0500. Fax: (212) 480-4435. Reproduction or retransmission in whole or in part is prohibited except by permission. All rights reserved. In issuing and maintaining its ratings and in making other reports (including forecast information), Fitch relies on factual information it receives from issuers and underwriters and from other sources Fitch believes to be credible. Fitch conducts a reasonable investigation of the factual information relied upon by it in accordance with its ratings methodology, and obtains reasonable verification of that information from independent sources, to the extent such sources are available for a given security or in a given jurisdiction. The manner of Fitch's factual investigation and the scope of the third-party verification it obtains will vary depending on the nature of the rated security and its issuer, the requirements and practices in the jurisdiction in which the rated security is offered and sold and/or the issuer is located, the availability and nature of relevant public information, access to the management of the issuer and its advisers, the availability of pre-existing third-party verifications such as audit reports, agreed-upon procedures letters, appraisals, actuarial reports, engineering reports, legal opinions and other reports provided by third parties, the availability of independent and competent third- party verification sources with respect to the particular security or in the particular jurisdiction of the issuer, and a variety of other factors. Users of Fitch's ratings and reports should understand that neither an enhanced factual investigation nor any third-party verification can ensure that all of the information Fitch relies on in connection with a rating or a report will be accurate and complete. Ultimately, the issuer and its advisers are responsible for the accuracy of the information they provide to Fitch and to the market in offering documents and other reports. In issuing its ratings and its reports, Fitch must rely on the work of experts, including independent auditors with respect to financial statements and attorneys with respect to legal and tax matters. Further, ratings and forecasts of financial and other information are inherently forward-looking and embody assumptions and predictions about future events that by their nature cannot be verified as facts. As a result, despite any verification of current facts, ratings and forecasts can be affected by future events or conditions that were not anticipated at the time a rating or forecast was issued or affirmed.
The information in this report is provided "as is" without any representation or warranty of any kind, and Fitch does not represent or warrant that the report or any of its contents will meet any of the requirements of a recipient of the report. A Fitch rating is an opinion as to the creditworthiness of a security. This opinion and reports made by Fitch are based on established criteria and methodologies that Fitch is continuously evaluating and updating. Therefore, ratings and reports are the collective work product of Fitch and no individual, or group of individuals, is solely responsible for a rating or a report. The rating does not address the risk of loss due to risks other than credit risk, unless such risk is specifically mentioned. Fitch is not engaged in the offer or sale of any security. All Fitch reports have shared authorship. Individuals identified in a Fitch report were involved in, but are not solely responsible for, the opinions stated therein. The individuals are named for contact purposes only. A report providing a Fitch rating is neither a prospectus nor a substitute for the information assembled, verified and presented to investors by the issuer and its agents in connection with the sale of the securities. Ratings may be changed or withdrawn at any time for any reason in the sole discretion of Fitch. Fitch does not provide investment advice of any sort. Ratings are not a recommendation to buy, sell, or hold any security. Ratings do not comment on the adequacy of market price, the suitability of any security for a particular investor, or the tax-exempt nature or taxability of payments made in respect to any security. Fitch receives fees from issuers, insurers, guarantors, other obligors, and underwriters for rating securities. Such fees generally vary from US$1,000 to US$750,000 (or the applicable currency equivalent) per issue. In certain cases, Fitch will rate all or a number of issues issued by a particular issuer, or insured or guaranteed by a particular insurer or guarantor, for a single annual fee. Such fees are expected to vary from US$10,000 to US$1,500,000 (or the applicable currency equivalent). The assignment, publication, or dissemination of a rating by Fitch shall not constitute a consent by Fitch to use its name as an expert in connection with any registration statement filed under the United States securities laws, the Financial Services and Markets Act of 2000 of the United Kingdom, or the securities laws of any particular jurisdiction. Due to the relative efficiency of electronic publishing and distribution, Fitch research may be available to electronic subscribers up to three days earlier than to print subscribers.
For Australia, New Zealand, Taiwan and South Korea only: Fitch Australia Pty Ltd holds an Australian financial services license (AFS license no. 337123) which authorizes it to provide credit ratings to wholesale clients only. Credit ratings information published by Fitch is not intended to be used by persons who are retail clients within the meaning of the Corporations Act 2001
Fitch Ratings, Inc. is registered with the U.S. Securities and Exchange Commission as a Nationally Recognized Statistical Rating Organization (the "NRSRO"). While certain of the NRSRO's credit rating subsidiaries are listed on Item 3 of Form NRSRO and as such are authorized to issue credit ratings on behalf of the NRSRO (see https://www.fitchratings.com/site/regulatory), other credit rating subsidiaries are not listed on Form NRSRO (the "non-NRSROs") and therefore credit ratings issued by those subsidiaries are not issued on behalf of the NRSRO. However, non-NRSRO personnel may participate in determining credit ratings issued by or on behalf of the NRSRO.