Cathay Life Insurance Co. Ltd.

The stable rating outlook reflects our view that Cathay Life could maintain its current capitalization under the insurer's proactive asset liability management and a likely reduction in capital consumption along with slower growth in invested assets. We believe the life insurer will remain the group's flagship entity and continue to dominate the group credit profile over the next few years. We also believe the group will maintain prudent capital management including a supportive dividend policy for Cathay Life. We could lower the long-term ratings on Cathay Life if the parent group credit profile weakens due to weakening in Cathay Life's stand-alone credit profile. This could happen if: Cathay Life's capital deficiency weakens significantly due to: (1) unexpected financial market volatility

...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 biggest direct agency force and is likely to sustain its competitive advantages for the foreseeable future. The insurer's significant scale in domestic market, well-established distribution force, and well-diversified customer base should help it to secure satisfactory 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 extract slightly above-average growth from its targeted product lines. Cathay Life's earnings are similar to other domestic life insurers. Structural weaknesses in Taiwan's life insurance sector constrain market conditions resulting in greater time needed to solve the legacy issue of negative spread that affects most insurers, given the...

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