Bangkok Insurance Public 'A-' local currency ratings affirmed

Bangkok Insurance's investments are predominantly in Thailand, with about 65% in listed equities and another 10% in sovereign securities

February 24, 2014 9:02 IST | India Infoline News Service
Standard & Poor's Ratings Services said today that it had affirmed its 'A-' local currency long-term financial strength and issuer credit ratings on Bangkok Insurance Public Co. Ltd. The outlook is stable. At the same time, we affirmed our 'axAA' long-term ASEAN regional scale rating on the Thailand-based insurer. We then removed all the ratings from CreditWatch, where they were placed with negative implications on Nov. 22, 2013.
"We affirmed the rating to reflect our view that Bangkok Insurance's liquidity ratio will exceed 100% and its regulatory capital will remain positive under our hypothetical stress-scenario of a sovereign foreign-currency default," said Standard & Poor's credit analyst Philip Chung.
We apply the sovereign default stress test on insurers that we rate higher than the sovereign that is their domicile. The rating on Bangkok Insurance is higher than the sovereign credit rating on Thailand (foreign currency BBB+/Stable/A-2; local currency A-/Stable/A-2; axAA/axA-1). The insurer is therefore subjected to our sovereign default stress test.
Bangkok Insurance's investments are predominantly in Thailand, with about 65% in listed equities and another 10% in sovereign securities. The insurer has very strong liquidity and capital levels, enabling it to pass our sovereign default test. We do not expect the test results to notably deteriorate for the foreseeable future, given that the insurer's business and investment exposure to Thailand is likely to remain unchanged.
We believe Thailand's industry regulator is unlikely to intervene if the sovereign defaults. The Office of Insurance Commission has taken a practical approach to systemic stresses that affect the insurance industry. For example, in wake of the 2011 floods, the commission allowed some forbearance in capital charge calculations and over the recognition of capital when assessing insurers' capital adequacy. A sovereign default would have a wider economic impact than flooding, and we therefore expect the regulator to maintain its pragmatism.
"The stable outlook reflects our view of Bangkok Insurance's strong competitive position and moderately strong capitalization and earnings over the next 24 months," said Mr. Chung.
We may lower the rating if Bangkok Insurance's financial risk profile deteriorates to lower adequate because of larger-than-expected development of reserves or deterioration in the equity markets. We may also lower the rating if we believe the insurer has increased susceptibility to a sovereign default.
An upgrade is unlikely in the coming one to two years. The rating on Bangkok Insurance is at the same level as the local currency sovereign credit rating on Thailand.

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