Fubon Life Insurance's capital and earnings will likely remain satisfactory over the next two years despite sensitivity to capital market volatility, foreign exchange movements, and uncertainties over financial changes as the sector adopts new accounting norms in 2026, says S&P Global Ratings (S&P).
Fubon Life has higher investment leverage and forex risks than regional peers. This is common across Taiwan's life insurance sector.
During 2023 and the first half of 2024, Fubon Life's forex risk rose amid the insurer's efforts to control hedging costs and the persistent strength of the US dollar against the new Taiwan dollar. Fubon Life increased its hedge ratio in the third quarter of 2024 following the appreciation of the new Taiwan dollar against the greenback.
S&P believes Fubon Life will maintain an effective risk management mechanism to prevent material weakening of its capital and earnings, while dynamically managing its forex risk exposure.
Fubon Life is likely to maintain capital redundancy at S&P’s substantial stress scenario or 99.8% confidence level in the next two years, from its earlier expectation of 99.5%. Similar to its peers, Fubon Life's growth in total adjusted capital in 2023 and the first half of 2024 was mainly due to large unrealised gains on equity stock holdings. The insurer's equity stock investment allocation ratio was 16.4% as of June 2024, from 15.6% in 2023.
At the same time, Fubon Life's above-average earnings performance, with a return on average assets of 1.7% for the first half of 2024 (annualised) and 0.61% in 2023, enhanced its capital buffer.
Ratings affirmed
S&P has affirmed Fubon Life’s 'A-' long-term local currency issuer credit rating and financial strength rating. The outlook on the long-term ratings is ‘Stable”.
Capital adequacy
The global credit rating agency believes Fubon Life's enhanced capital adequacy will help it manage the negative impact of market volatility on its capital and earnings. In addition, S&P anticipates the insurer will meet additional capital requirements related to its growth aspiration without materially weakening its capital and earnings. These requirements could include capital outlays to absorb volatility in the insurer's investment valuations, support overseas subsidiaries, and pursue further organic growth. Further, S&P believes the insurer can manage its forex risk by proactively adjusting its hedging, without tempering its capital adequacy.