According to Fitch Ratings, Singapore Life Holdings' (SLH) underlying profitability is anticipated to gradually improve over time with cautious management.
According to the international credit rating agency, the engagement of a financial reinsurance arrangement (FR) during the first half of 2022 was the main reason for SLH's consolidated return on equity (ROE), which was 33% (2021: -6%) in 1H2022. By receiving money from the reinsurer up front in the form of reinsurance commission and then repaying the reinsurer over the specified contractual period at a specified interest rate, this is conceptually comparable to taking out a loan, though the extent and pace of repayment will depend on future experience and cash flows from the reinsured portfolio.
Given the existence of reserves and expenses associated to the merger, the underlying financial fundamentals haven't changed significantly despite the FR's impact. Its ROE, excluding the FR, was -14.9% on an annualized basis in the first half of 2022.
rating confirmation
SLH's Long-Term Issuer Default Rating (IDR) of "BBB+" (Good) with a "Stable" outlook has been confirmed by Fitch. The 'BBB-' rating of SLH's S$550 million ($390 million) Tier 2 subordinated securities issued in November 2020 has also been confirmed by Fitch.
Its "Moderate" company profile, "Strong" capitalization, and "Good" financial performance on a consolidated basis are reflected in the affirmation. The assessment also takes into account the difficulties it encounters in maintaining business growth and improving operating performance in the face of fierce market competition.
crucial grading factors
Other than financial success, the following factors contribute to SLH's rating:
Notched from merged operating entity: Fitch's evaluation of the Insurer Financial Strength Rating of its core insurance operating entities is used to derive SLH's Long-Term IDR. It is done so by utilizing the notching principles of its Insurance Rating Criteria. Singapore Life (SL) and Singlife Financial, the two operating companies of SLH, a new holding company founded in July 2020, are 100% owned by SLH (SF). Once the tax disputes with the pertinent authorities are resolved, SL and SF are completing the merger procedure.
The ratings are predicated on combined financials and Fitch's belief that the merger will be successfully completed in due course. Fitch anticipates that the combined operations will provide the market a broad choice of items and superior service quality by fusing SL's seasoned product knowledge with SF's cutting-edge and digitally oriented skills.
'Strong' capitalization: On a consolidated basis, the capital position is consistent with the rating category, and Fitch anticipates that the situation will remain stable notwithstanding the ongoing COVID-19 epidemic. Based on the combined data for 2021 and the first half of 2022, the score in Fitch's Prism model is far into the "Strong" range. By the end of the first quarter of 2022 (2021: 234%), the company's consolidated regulatory risk-based capital ratio was 237%.
'Moderate' firm profile: In comparison to all other Singaporean life insurers, Fitch rates the combined company profile as 'Moderate. Its business risk profile is rated as "Moderate," its business portfolio as "Somewhat Diversified," and its corporate governance is rated as "Moderate/Favorable." As a result, the agency receives a "a" under Fitch's credit-factor scoring standards for its company profile.
Mid-sized insurer: As of 2021, the combined business had a market share of about 4% by total assets and was Singapore's sixth-largest life insurer. With a well-established market franchise and brand value, it provides a variety of savings, annuity, and protection-type products. Additionally, it keeps some variety in its distribution methods by relying on direct digital channels, group or affinity marketing, and financial advising services on a consolidated basis.
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