Dagong Global Credit Rating Co., Ltd. (hereinafter referred to as “Dagong”) has decided to downgrade the issuer credit rating of Anbang Life Insurance Co., Ltd. (hereinafter referred to as “Anbang Life Insurance”) to AA+ from AAA, with a negative outlook, and the bond issue rating of “15 Anbang Life Insurance” to AA from AAA. The debt repayment environment of Anbang Life Insurance is being under pressure, resulting in deterioration of both its wealth creation ability and debt repayment sources. With the supporting conditions for its debt repayment ability weakened, Anbang Life Insurance is seen in a declining credit status.
The primary reasons for downgrading the issuer credit rating of Anbang Life Insurance and the issue credit rating of “15 Anbang Life Insurance” are as follows:
1. Due to adjustment of regulatory policies, the debt repayment environment of Anbang Life Insurance is being under pressure. Measures have been introduced successively to highlight the attention and urgency for financial risk control on the policy level, towards strengthening insurance regulations, cracking down illegal and irregular business activities, and redressing market disorder. As a result, life insurance products with a short- and medium-term duration and financing characteristics are under a more rigorous control, in development as well as sales. Harsher penalties are directed to improper investment behaviors. The examination and approval of bond issuance and capital injection from shareholders have been tightened.
In the meantime, difficulties remain for allocating investment assets in the capital market, compounded with increasing supervision over investment overseas. While changes in the external environment have resulted in a growing pressure on liquidity management, a fall in investment yield, and a restriction on the capital supplement channel for Anbang Life Insurance. Anbang’s existing business model is thus confronted with a major challenge.
2. The expansion of insurance business is hampered, and the wealth creation ability weakens. In May, 2017, due to violation of regulatory provisions, Anbang Life Insurance’s use of two of its products was suspended and its application for new products was suspended for three months starting from the issuance of the relevant regulation letter. Anbang Life Insurance’s acquiring ability for insurance funds is declining, when the change of debt repayment environment further exacerbates its difficulty of obtaining and using funds. Although Anbang Life Insurance’s overall premium scale over the period from January to June, 2017, still ranked in the forefront of the industry thanks to its strong performance in the first quarter, its original premium income and gross premium income decreased substantially in the second quarter. A significant reduction is seen from Anbang Life Insurance’s profitability, reflecting its flagging wealth creation ability.
3. A variety of factors is eroding Anbang Life Insurance’s debt repayment sources. Profit, recurrent revenue, debt financing, realizable assets and external support are the main sources of debt repayment for Anbang Life Insurance. At present, the coverage of Anbang Life Insurance’s immediate realizable investment assets on insurance liabilities and its comprehensive liquidity ratio are still at a high level, yet it experienced net losses over the period from January to June, 2017, due to a marked decline in its recurrent revenue, more limited provision from its debt financing channels, and less shareholder support at a time of increasing risks. All the above factors are contributing to the deterioration of Anbang Life Insurance’s debt repayment sources.
4. Debt burden remains heavy as the supporting conditions have weakened for debt repayment. The insurance liabilities of Anbang Life Insurance generated from previous sales of life insurance products with a short- and medium-term duration and financing characteristics are large, while the debt burden stemming from its overseas investment business based on overseas loans under domestic guarantee is also heavy. Together with a challenging debt repayment environment and a decline in wealth creation ability, the available debt repayment sources that Anbang Life Insurance can use to support its outstanding debt is compromised. Little room is left for it to incur incremental debt. And the supporting conditions for its debt repayment ability are no longer as solid as before.
In the short term, with the beginning of a period of readjustment for the insurance industry, Anbang Life Insurance is facing an uphill battle to improve its wealth creation ability. As unfavorable factors continue to affect its debt repayment sources, the risk exists for it to suffer a further decline in credit status in the future. As a result, Dagong affirms a negative outlook for Anbang Life Insurance. (END)
* The Chinese version of the press release prevails to the extent of any inconsistency between the Chinese and the English versions.