Tong Yang Life is seen to bag steady profit growth

Thanks to solid investment income and increased sales of high-margin protection products.

Moody's expectation is that Tong Yang Life will sustain robust profitability over the next 12-18 months, driven by solid recurring investment income and increased sales of high-margin protection products, which boost the contractual service margin (CSM). 

The agency also expects the South Korean insurer to reduce the mismatch between its asset and liability durations.

In 2023, Tong Yang Life's profitability improved, with a return on capital (ROC) of 6.1% under IFRS 17, surpassing its peers. 

The new business CSM rose by 34.6% to KRW760.2b, fueled by increased sales of whole life and health protection products. Additionally, the net investment yield rose to 3.8% from 2.7% in 2022 due to a high-interest rate environment.

The affirmation of Tong Yang Life's Baa1 IFSR considers its strong market presence as Korea's eighth-largest life insurer, solid capital position, good asset quality, and low financial leverage. 

However, these strengths are offset by its weaker distribution control, a wider asset-liability duration mismatch compared to major competitors, and uncertainty around its parental ownership.

Tong Yang Life's Korea Insurance Capital Standards (K-ICS) ratio improved to 193.4% as of 31 December 2023, from 162.2% as of 31 March 2023. 

Moody's expects the insurer to maintain its K-ICS ratio above 175% over the next 12-18 months through steady CSM generation and effective risk management.

The insurer's high-risk asset ratio stood at 119.1% as of 31 December 2023. 

Moody's expects stable asset quality over the next 12-18 months, supported by a prudent investment approach and lower risk in overseas real estate exposures, which are mostly in senior tranches with low loan-to-value ratios.

However, Tong Yang Life's distribution channels are less diverse than those of its competitors, with general agency and bancassurance channels making up 56.5% and 21.4% of its total annualised premium equivalent (APE) in 2023, respectively. 

The insurer also has a wider asset-liability duration gap than its peers, but Moody's expects it to acquire more long-term bonds and use bond forwards to narrow this gap while maintaining ample short-term liquidity.

Ownership uncertainty persists as Tong Yang Life's parent, Dajia Insurance Group Co., Ltd., considers selling its overseas subsidiaries, including Tong Yang Life. 

Despite this, the insurer has maintained good standalone financial flexibility over the past five years, with a low Moody-adjusted financial leverage ratio of 9.5% as of 31 December 2023, expected to remain stable over the next 12-18 months.