Cathay Life Insurance Co. Ltd.

The stable rating outlook reflects our view that Cathay Life will maintain fair capitalization under its 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 Cathay FHC group will maintain prudent capital management including a supportive dividend policy for Cathay Life. We could lower the ratings on Cathay Life if we lower our assessment of the parent group credit profile because we assess Cathay Life's stand-alone credit profile (SACP) has weakened. This could happen if: Cathay Life's capital deficiency weakens significantly due to: (1)

...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 could sustain its competitive advantages for the foreseeable future, in our view. The insurer's significant domestic scale, well-established distribution force, and well-diversified customer base should help the company to secure satisfactory business prospects over the next one to two years. We also believe Cathay Life's very strong control over its distribution channels enables the insurer 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...

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