Fitch Ratings has assessed that TONG YANG Life Insurance Co., Ltd. (TYL) is likely to maintain stable financials despite the uncertainties surrounding its ongoing ownership change.
The acquisition of a 75.34% stake in TYL by Woori Financial Group, announced in August 2024, remains pending regulatory approval. Fitch acknowledges that this transaction could influence TYL’s credit profile, with particular focus on the company’s business strategy, capital management, and financial flexibility.
Despite the changes, TYL’s capitalization is expected to remain strong, backed by a solid new business contractual service margin (CSM).
However, the company’s solvency capital ratio, calculated under the K-Insurance Capital Standard (K-ICS), declined to 160.3% by the end of the third quarter of 2024, down from 193.4% at the close of 2023. This drop was primarily attributed to tightened liability discount rates, though it still exceeds the regulatory minimum of 100%.
Fitch also projects that TYL’s financial leverage ratio will increase to approximately 15% following the issuance of KRW 300 billion ($210 billion) in subordinated debt in October 2024, but this remains within an acceptable range for its current rating.
The insurer’s profitability is forecast to improve, driven by consistent CSM releases and a continued emphasis on protection-type products. In the third quarter, the new business CSM increased to KRW 567 billion ($390 billion), while investment yields held steady despite market fluctuations.
Additionally, TYL’s annualized return on equity (ROE) rose to 16% in the first nine months of 2024, up from 7.7% during the same period in 2023. This increase is attributed to higher net profits and a reduction in shareholders’ capital due to regulatory changes.
Fitch anticipates that TYL will continue adjusting its asset-liability management strategy in response to potential interest rate cuts. The company is expected to acquire long-dated domestic bonds to reduce the duration gap between assets and liabilities.
As a proactive measure to manage capitalization, TYL is also utilizing co-insurance for its high-legacy products.
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