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Fitch Revises Outlook on Muang Thai Life Assurance to Negative; Affirms IFS Rating at ‘A-‘

Fitch Ratings - Bangkok/Singapore - 08 May 2020: Fitch
Ratings has revised the Outlook on Muang Thai Life Assurance Public Company
Limited's (MTL) Insurer Financial Strength (IFS) Rating to Negative from Stable
and affirmed the IFS Rating at 'A-' (Strong).

At the same time, Fitch has revised the Outlook on the
insurer's National IFS Rating to Negative from Stable and affirmed the National
IFS Rating at 'AAA(tha)'.

KEY RATING DRIVERS

The rating actions noted above are based on Fitch's
current assessment of the impact of the coronavirus pandemic, including its
economic impact, under a set of rating assumptions described below. These
assumptions were used by Fitch to develop pro forma financial metrics for MTL
that Fitch compared with both ratings guidelines defined in its criteria and
previously established rating sensitivities for MTL.

The Negative Outlook reflects the risks to MTL's
capitalisation and earnings due to the uncertainty of the impact of the
pandemic and the financial-market volatility. The rating affirmation also takes
into consideration MTL's substantive franchise with a large market share, broad
product lines, sound distribution strength and strong brand recognition. Fitch
scores the insurer's business profile as 'Favourable' compared with that of all
other Thai peers, resulting in its business profile ranking of 'a-' under our
credit-factor scoring guidelines.

MTL's pro forma capital score, indicated by Fitch
Prism Model, would drop to the 'Adequate' level under the rating-case scenario,
compared with a 'Strong' Position in 2019. The weaker assumed capitalisation
was driven mainly by potential rising loss exposure of investments susceptible
to the capital-market volatility, which taking into the consideration the MTL's
larger-than-peer stock investment of about 15% of its total investments. We
believe MTL's reasonable non-risk-based capital position will help cushion the
insurer's credit profile against asset and earnings risks. MTL's risk-based
capital-adequacy ratio is still likely to be well above the 140% regulatory
minimum level.

Fitch believes the insurer's pro forma financial
performance will decline, affected by lower investment yields and higher
coronavirus-related claim expenses. MTL's assumed pretax return on assets (ROA)
will fall under the rating-case scenario, but still commensurate with Fitch's
expectation for 'A' IFS-rated insurers. Fitch believes MTL's explicit
commitment on a cautious premium setting to ensure its sound product margin
will continue to support its strong earnings profile.

MTL's investment and asset risk profile will face
pressure from volatile capital markets. The insurer's pro forma risky-asset
ratio could jump materially under the rating case and exceed the guideline
scoring for insurers with 'A' range IFS Ratings, suggesting rising investment
risk exposure to its weaker capitalisation. However, the agency believes MTL
will strictly uphold its prudent long-term investment strategy with the aim of
maintaining stable investment returns with a risk appetite commensurate with
its rating level.

Assumptions for Coronavirus Impact (Rating Case)

Fitch used the following key assumptions, which are
designed to identify areas of vulnerability, in support of the pro forma rating
analysis discussed above:

- Decline in key stock market indices by 35% relative
to 1 January 2020.

- Increase in two-year cumulative high-yield bond
default rate to 16%, applied to current non-investment-grade assets, as well as
12% of 'BBB' assets.

- Both upward and downward pressure on interest rates,
with spreads widening (including high-yield by 400 basis points) coupled with
notable declines in government rates.

- Capital markets access is limited for issuers at
senior debt levels of 'BBB' and below.

- A COVID-19 infection rate of 5% and a mortality rate
(as a percentage of infected) of 1%.

RATING SENSITIVITIES

The ratings remain sensitive to any material change in
Fitch's rating-case assumptions with respect to the coronavirus pandemic.
Periodic updates to our assumptions are possible given the rapid pace of
changes in government action in response to the pandemic, and the pace with
which new information is available on the medical aspects of the outbreak. An
indication of how we expect ratings would be affected under a set of
stress-case assumptions is included at the end of this section to help frame
sensitivities to a severe downside scenario.

Factors that could, individually or collectively, lead
to negative rating action/downgrade:

IFS Rating/ National IFS Rating

- A material adverse change in Fitch's ratings
assumptions with respect to the coronavirus impact.

- A persistent drop in either Fitch's assumed pro
forma, or the company's actual, capitalisation -measured by MTL's risk-based
capital ratio - to below 280% and deterioration in the Fitch Prism Model score
to below 'Strong' for an extended period.

- A prolonged weakening in profitability, indicated by
either Fitch's assumed pro forma, or the company's actual, pretax return on
assets of below 1%.

Factors that could, individually or collectively, lead
to positive rating action/upgrade:

IFS Rating

- MTL's ability to maintain its capitalisation,
indicated by the Fitch Prism Model score, at 'Strong' will lead to a revision
of the Outlook to Stable.

--A material positive change in Fitch's ratings
assumptions with respect to the coronavirus impact.

- A positive rating action is prefaced by Fitch's
ability to reliably forecast the impact of the coronavirus pandemic on the
financial profile of both the Thai life insurance industry and MTL.

- Improvement in MTL's capitalisation level, with
Fitch Prism Model score maintained at well into the 'Strong' level based on
both Fitch's assumed pro forma and MTL's actual result.

- A significant improvement in MTL's operating scale
and business diversification; for instance, the insurer participates in many
business lines, geographies and distribution sources.

National IFS Rating

- MTL's ability to maintain its capitalisation,
indicated by the Fitch Prism Model score, at 'Strong' will lead to a revision
of the Outlook to Stable.

- An upgrade is not possible as its 'AAA(tha)'
National IFS Rating is already the highest score on the National Rating scale.

Stress Case Sensitivity Analysis

- Fitch's stress case assumes the following: a 60%
stock market decline; two-year cumulative high-yield bond default rate of 22%;
high-yield bond spreads widening by 600 basis points and more prolonged
declines in government rates; heightened pressure on capital-market access; a
COVID-19 infection rate of 15%; and mortality rate of 0.75%.

- The implied rating impact under the stress case
would be a downgrade of one-to-two notches.

BEST/WORST CASE RATING SCENARIO

International scale credit ratings of Financial
Institutions issuers have a best-case rating upgrade scenario (defined as the
99th percentile of rating transitions, measured in a positive direction) of
three notches over a three-year rating horizon; and a worst-case rating
downgrade scenario (defined as the 99th percentile of rating transitions,
measured in a negative direction) of four notches over three years. The
complete span of best- and worst-case scenario credit ratings for all rating
categories ranges from 'AAA' to 'D'. Best- and worst-case scenario credit
ratings are based on historical performance. For more information about the
methodology used to determine sector-specific best- and worst-case scenario
credit ratings, visit https://www.fitchratings.com/site/re/10111579.

REFERENCES FOR SUBSTANTIALLY MATERIAL SOURCE CITED AS
KEY DRIVER OF RATING

The principal sources of information used in the
analysis are described in the Applicable Criteria.

ESG CONSIDERATIONS

The highest level of ESG credit relevance, if present,
is a score of 3. This means ESG issues are credit-neutral or have only a
minimal credit impact on the entity(ies), either due to their nature or to the
way in which they are being managed by the entity(ies). For more information on
Fitch's ESG Relevance Scores, visit www.fitchratings.com/esg.

Additional information is available on
www.fitchratings.com

APPLICABLE CRITERIA

National Scale Ratings Criteria (pub. 18 Jul 2018)

Insurance Rating Criteria (pub. 03 Mar 2020)
(including rating assumption sensitivity)

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