Cathay Life Insurance Co. Ltd.

The stable outlook reflects our view that Cathay Life will remain the flagship entity and a core member of the Cathay FHC group and therefore dominate the group credit profile over the next few years. We expect the insurer's capital adequacy to remain modest over the period, given its domestic and overseas growth strategies. Nonetheless, we expect the group to maintain prudent capital management including a supportive dividend policy for Cathay Life. We also expect Cathay Life to maintain its investment asset allocation strategy, an operating performance consistent with our base-case assumptions of return on average assets of 0.5%-0.6%, and a very strong competitive position in Taiwan's life insurance sector. Moreover, we believe the insurer will maintain its sound risk

...We believe Cathay Life has very strong business prospects, given its ability to effectively deploy product strategies via its distribution channels. As the largest player in the domestic life insurance market, Cathay Life Insurance Co. Ltd. has the largest direct agency force and is likely to sustain its competitive advantages for the foreseeable future. The insurer's significant scale, well-established distribution force, and well-diversified customer base should help it to secure satisfactory (slightly above-average) business prospects for the next one to two years. We also believe the insurer's very strong control over its distribution channels enables it to exploit slightly above-average growth from its targeted product lines. Cathay Life's earnings level is similar to other domestic life insurers'. Structural weaknesses in Taiwan's life insurance sector constrain market conditions resulting in a longer time needed to solve the legacy issue of negative spread that affects most insurers,...

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