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Research Update:

China Taiping Insurance HoldingsUpgraded To 'BBB+' And CoreSubsidiaries To 'A' On GovernmentSupport; Outlook Stable

Primary Credit Analyst:

Connie Wong, Singapore (65) 6239-6353; [email protected]

Secondary Contacts:

Terry Sham, CFA, FRM, Hong Kong (852) 2533-3590; [email protected]

Xiaohong Chen, Beijing (86) 10-6569-2925; [email protected]

Table Of Contents

Overview

Rating Action

Rationale

Outlook

Rating Score Snapshot

Related Criteria And Research

Ratings List

WWW.STANDARDANDPOORS.COM/RATINGSDIRECT SEPTEMBER 26, 2013 1

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Research Update:

China Taiping Insurance Holdings Upgraded To'BBB+' And Core Subsidiaries To 'A' OnGovernment Support; Outlook Stable

Overview

We now view the Hong Kong-based CTIH group as a government-relatedentity, and assess the likelihood of timely and sufficient extraordinarysupport from the Chinese government as "high."

We are therefore raising our long-term issuer credit rating on CTIH to'BBB+' from 'BBB' and affirming the 'A-2' short-term rating.

We are also raising the local currency long-term insurer financialstrength and issuer credit ratings on CTIH's core subsidiaries to 'A'from 'A-'.

The stable outlook reflects our view that CTIH's financial risk profilewill remain moderately strong over the next 24 months while the groupcontinues to grow. However, we also anticipate volatility in theinvestment and bancassurance market, and for its reinsurance operations.

Rating Action

On Sept. 26, 2013, Standard & Poor's Ratings Services raised its long-termissuer credit rating on China Taiping Insurance Holdings Co. Ltd. (CTIH) to'BBB+' from 'BBB'. The outlook is stable. At the same time, we affirmed our'A-2' short-term rating. We also raised the long-term Greater China regionalscale rating on CTIH to 'cnA+' from 'cnA' and the short-term rating to 'cnA-1'from 'cnA-2'. CTIH is a Hong Kong-based insurer that operates predominantly inChina and Hong Kong.

We also raised the ratings on the following Hong Kong-based subsidiaries ofCTIH:

To FromTaiping Reinsurance Co. Ltd. (TPRe)China Taiping Insurance (HK) Co. Ltd. (CTPI (HK))Insurer financial strengthLocal currency A/Stable/-- A-/Stable/--Counterparty credit ratingLocal currency A/Stable/-- A-/Stable/--Greater China regional scale cnAA+/-- cnAA/--

In addition, we raised our issue rating on the senior unsecured notes thatCTIH's special purpose vehicles issued and CTIH guarantees to 'BBB+' from'BBB'. Similarly, we raised the Greater China regional scale rating on these


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notes to 'cnA+' from 'cnA'.

Rationale

We raised the ratings because we now consider the CTIH group to be agovernment-related entity. We expect the Chinese government to remain amajority shareholder and maintain its influence on CTIH. We see a "high"likelihood that the group will receive timely and sufficient extraordinarysupport from the Chinese government as needed.

We have raised the group credit profile by one notch to 'a', given thepotential for government support. The rating on CTIH is two notches below thegroup credit profile to reflect the insurer's structural subordination as aholding company.

In accordance with our criteria for government-related entities, our view of a"high" likelihood of extraordinary government support is based on ourassessment of CTIH group's following characteristics:

"Important" role to the Chinese government. CTIH is one of the fewinsurance groups in which the central government owns a majority share.The group maintains a meaningful market share in both life and nonlifeinsurance segments in China. In addition, it plays a special role inconducting insurance business overseas and serving the national strategyof increasing the overseas presence of SOEs. We believe a credit stressor default of CTIH could significantly weaken market confidence in thecentral government's supervision capability and willingness to supportSOEs in general. This would have a negative impact on the Chineseinsurance sector and threaten overall financial stability.

"Very strong" linkage to the government. The Chinese government hasultimate ownership of CTIH through China Taiping Insurance Group Ltd.(TPG), which the Ministry of Finance 100% owns. The government hasinfluence over the appointment of CTIH's senior management and thegroup's strategic direction. TPG intends to raise its shareholding inCTIH to 68.96% from 53.27%, and inject its unlisted assets into thecompany.

Our assessment of the group credit profile is based on an anchor of 'a-'. Weview the group's business risk profile as strong because of its goodcompetitive position, which is attributable to its geographical and businessdiversity. We see intermediate risks, based on our overall industry andcountry risk assessment, given that life and nonlife insurance businesses inChina account for most of its business.

The group's upper-adequate capital and earnings, strong financial flexibility,and an intermediate risk position underpin its moderately strong financialrisk profile. We expect the group's total adjusted capital to stay slightlyabove our target capital for upper-adequate level over the next two years,based on our capital assessment. We consider the group's financial flexibility


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Research Update: China Taiping Insurance Holdings Upgraded To 'BBB+' And Core Subsidiaries To 'A' OnGovernment Support; Outlook Stable

to be strong, reflecting its various funding channels stemming from itslisting status, debt issuance, bank loans, and reinsurance. The company has arecord of raising capital and debt over the years. We also expect debtleverage to return to below 40% over the next two years, improving itsfinancial flexibility. Our assessment of an intermediate risk positionreflects the group's limited risks in foreign exchange and investmentconcentration.

Our combined assessment of enterprise risk management and corporate governanceand management is neutral to the group credit profile. The group's enterpriserisk management is adequate, in our view, based on its evolving ERMdevelopment. CTIH has been tightening its risk management controls and isdeveloping a more holistic approach toward risk management among its groupmembers. The group's management is satisfactory, in our opinion. Consistentstrategy over the years has translated into sustainable and continued growth,with a satisfactory operating performance.

The group's liquidity is strong, in our view, reflecting its strong cash flow,which is backed by high-quality and liquid assets.

The ratings on TPRe and CTPI (HK) reflect our view that these entities arecore subsidiaries of the group. We believe they are likely to benefit from thehigh likelihood of support from the Chinese government via the group. Ourrecognition of these entities' core status is based on their significantprofit contributions and the size of their capital relative to the widergroup. Also, the two entities share the group's strategy and are wellintegrated in terms of resources. TPRe is focused on reinsurance while CTPI(HK) underwrites property and casualty in Hong Kong.

Outlook

The stable outlook reflects our view of the CTIH group's potential governmentsupport, its strong business risk profile, and its moderately strong financialrisk profile. The group credit profile is supported by CTIH's geographicallydiversified businesses, satisfactory market positions in the China and HongKong markets, and diversified business lines. In addition, the group hasupper-adequate capital and earnings and strong financial flexibility. At thesame time, we expect financial leverage to return and stay slightly below 40%,which is our threshold for "neutral" financial leverage.

We may raise the rating if we believe CTIH's capital is going to improve to astrong level, as measured by our capital model, while the business continuesto grow and diversify, supporting a more stable earnings stream.

However, we may lower the ratings if we consider potential government supportto CTIH reduces. Alternatively, we could downgrade CTIH if both its financialand business risk profiles deteriorate, which we do not currently expect. Thefinancial risk profile could weaken if the group's consolidated capitalizationdeteriorates substantially due to unexpected market movements or catastrophe


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losses, and if we expect the company's financial leverage to be consistentlyabove 40%. The business risk profile could weaken if unexpected eventsthreaten the group's reputation or operating performance, triggering itscompetitive position to deteriorate.

The outlooks on TPRe and CTPHK are stable to reflect the group's outlook.

Rating Score Snapshot

China Taiping Insurance Holdings Co. Ltd.Issuer Credit Rating BBB+/Stable/A-2GCP aBRP/FRP Anchor a-

Business Risk Profile StrongIICRA Intermediate riskCompetitive Position Strong

Financial Risk Profile Moderately strongCapital and Earnings Upper adequateRisk Position Intermediate riskFinancial Flexibility Strong

Modifiers 0ERM and Management 0Enterprise Risk Management AdequateManagement and Governance SatisfactoryComparative Analysis 0Liquidity Strong

Support 1Group Support 0Government Support 1

Related Criteria And Research

Insurers: Rating Methodology, May 7, 2013 Group Rating Methodology, May 7, 2013 Enterprise Risk Management, May 7, 2013 Methodology For Linking Short-Term And Long-Term Ratings For Corporate,Insurance, And Sovereign Issuers, May 7, 2013

Methodology: Management And Governance Credit Factors For CorporateEntities And Insurers, Nov. 13, 2012

Rating Government-Related Entities: Methodology And Assumptions, Dec. 9,2010

Refined Methodology And Assumptions For Analyzing Insurer Capital


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Adequacy Using The Risk-Based Insurance Capital Model, June 7, 2010

Ratings List

UpgradedTo From

China Taiping Insurance Holdings Co. Ltd.Counterparty Credit Rating BBB+/Stable/A-2 BBB/Stable/A-2Greater China Regional Scale cnA+/--/cnA-1 cnA/--/cnA-2

China Taiping Insurance (HK) Co. Ltd.Taiping Reinsurance Co. Ltd.Counterparty Credit RatingLocal Currency A/Stable/-- A-/Stable/--Greater China Regional Scale cnAA+/--/-- cnAA/--/--Financial Strength RatingLocal Currency A/Stable/-- A-/Stable/--

CIIH (BVI) Ltd.Senior Unsecured BBB+ BBBSenior Unsecured cnA+ cnA

China Taiping Capital Ltd.Senior Unsecured BBB+ BBBSenior Unsecured cnA+ cnA

Complete ratings information is available to subscribers of RatingsDirect atwww.globalcreditportal.com and at www.spcapitaliq.com. All ratings affected bythis rating action can be found on Standard & Poor's public Web site atwww.standardandpoors.com. Use the Ratings search box located in the leftcolumn.


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