TEXT-S&P Assigns 'A-' Rtgs To Nan Shan Life Insurance; Otlk Stable

(The following was released by the rating agency)


-- Taiwan-based life insurer Nan Shan Life has a strongbusiness franchise and a strong liquidity profile with prudentinvestment mix.

-- We are assigning our local currency 'A-' insurerfinancial strength and counterparty credit ratings on Nan ShanLife, as well as our 'cnAA' Greater China regional scale rating.

-- The stable outlook reflects our view that Nan Shan Lifeshould be able to maintain its credit profile and morespecifically its capitalization at the level commensurate withthe ratings despite a difficult operating environment in Taiwan.

Rating Action

On Oct. 8, 2012, Standard & Poor's Ratings Services assignedits local currency 'A-' insurer financial strength andcounterparty credit ratings on Nan Shan Life Insurance Co. Ltd.The outlook on the ratings is stable. At the same time, we alsoassigned our 'cnAA' Greater China regional scale rating.


The ratings on Nan Shan Life Insurance Co. Ltd. reflect theinsurer's strong business franchise in Taiwan, strong liquidityprofile, and prudent investment mix. Counterbalancing factorsinclude the sensitivity of its capitalization to the externalinvestment environment and average operating performance byinternational standards.

Nan Shan Life was established in 1963 and is a top-threeplayer in Taiwan's life industry in terms of total assets andpremiums with a widespread domestic network, despite strongmarket competition. It had total premiums of new Taiwan dollar(NT$) 201.5 billion in the first half of 2012, representingabout 16% share of the domestic market. Taiwan-based Ruentex(not rated) group and Pou Chen (not rated) group currently ownover 90% of Nan Shan Life. The conglomerates' businessoperations include textile, property development, wholesale,medical, education, and footwear. Nonetheless, we expect NanShan Life to operate independently from its parents and othergroup members under Taiwan insurance regulator's supervision.

In our opinion, Nan Shan Life's strong market position andextensive distribution network in the domestic life insurancemarket will continue to support its strong business profile overthe next one to two years. The insurer possesses good talent inits agent channel, which help to bring in good quality business.This is evidenced by Nan Shan Life's consistently above-averagemortality experience and good persistency ratios. The insurerbegan building up its bancassurance channel since August 2011and has achieved a more diversified distributional channel withabout 50% premium contribution from banking channels in thefirst half of 2012.

We view Nan Shan Life's liquidity profile as strong,supported by our opinion of the insurer's good new businessinflow and prudent financial policies. Nan Shan Life's investedassets are of strong liquidity and satisfactory quality, in ouropinion. As of the end of June 2012, cash and bank depositsaccounted for 7% of Nan Shan Life's total invested assets. Theinsurer's fixed income securities, which accounted for 77% oftotal invested assets at the same date, are generally of goodcredit quality. We expect Nan Shan Life to maintain satisfactorygrowth on its new business and this may sustain its liquidityprofile at the current level.

We believe that Nan Shan Life will maintain a prudentinvestment strategy and mix, despite some volatility from itsincreased holdings on equity and property. As of the end of June2012, Nan Shan Life's cash position and holdings of governmentbonds accounted for about 47% of the insurer's total investedassets and most of its remaining fixed-income positions are ofgood credit quality, in our view. Nan Shan Life's stock andproperty holdings could gradually increase from the current 9%of total invested assets in the coming two years; nonetheless,we expect this to remain manageable given the insurer's focus onstocks with lower volatility and prudent investment riskcontrol.

Nan Shan Life's capitalization, albeit slightly better thanthe domestic average, is sensitive to the external investmentenvironment. Global economic uncertainty is likely to exert somevolatility over Nan Shan Life's capitalization considering theinsurer's increasing equity, property, and overseas investments.The lack of long-term investment facilities with reasonableyield in Taiwan has resulted in a significant asset-liabilitymismatch for Taiwan life insurers. Nonetheless, we expect thecompany's continuous effort to narrow the mismatch by changingits business mix to prevent a sharp deterioration in itscapitalization. Nan Shan Life's prudent capital policy with highearnings retention also helps to moderate the risk ofdeteriorating capitalization.

We view Nan Shan Life's operating performance as onlyaverage by international standards, even considering a potentialboost to the company's profits from projected strong businessgrowth in the coming three years. Low interest rates at presentconstrain the returns on Nan Shan Life's new money investmentsand its strong new business growth has also somewhat diluted itsexisting business margin. Under the prevailing low interest rateenvironment, Nan Shan Life inevitably faces obstacles to managethe industry-wide problem of negative spread, wherein theinsurance policy liability rate generally outweighs theinsurer's investment asset return. Nonetheless, Nan Shan Life'sstable underwriting surplus from its in-force book and strongasset liability management and responsive investment adjustmentssomewhat moderate these constraints.


The stable outlook on Nan Shan Life reflects our expectationthat the insurer should be able to maintain its credit profile,and more specifically its capitalization, at a levelcommensurate with the current ratings despite the difficultoperating environment in Taiwan. The rating outlook alsoreflects our expectation that Nan Shan Life's management teamwill adopt a prudent strategy to maintain a stable creditprofile supporting the company's continuous strong businessgrowth. We also believe Nan Shan Life's strong franchise andprudent underwriting control will prevent its business marginfrom dropping sharply during strong business growth. We expectNan Shan Life to maintain a prudent risk appetite on itsinvestments, which should prevent its risk profile fromsignificant deterioration. Moreover, we believe Nan Shan Life'soperations will remain independent from the Ruentex and Pou Chengroups under Taiwan's regulatory framework for financialinstitutions.

We may lower ratings on Nan Shan Life if increasedcompetition weakens the insurer's business momentum orconstrains reasonable new business margins on its businessgrowth. We may also lower the ratings if the insurer'scapitalization weakens beyond our expectation either fromaggressive business growth or external economic volatility.Conversely, we may raise the ratings on Nan Shan Life if its newbusiness strategy achieves continuous new business growth withstable returns and satisfactory margins, as well as improvementin its asset-liability mismatch through changing investmentyield mix with good risk control supporting sustainableimprovement in its capitalization.

Related Criteria And Research

-- Credit FAQ: Greater China Credit Rating Scale Explained,April 27, 2011

-- Refined Methodology And Assumptions For Analyzing InsurerCapital Adequacy Using The Risk-Based Insurance Capital Model,June 7, 2010

-- Interactive Ratings Methodology, April 22, 2009 Ratings List New Rating; Outlook Action Nan Shan Life Insurance Co. Ltd. Counterparty Credit Rating Local Currency A-/Stable/-- Financial Strength Rating Local Currency A-/Stable/-- New Rating Nan Shan Life Insurance Co. Ltd. Counterparty Credit Rating Greater China Regional Scale cnAA/--


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