RAM Ratings reaffirms Danajamin’s insurer financial strength ratings

Moody's outlook on the Korean banking system has been negative since May 2016.

KUALA LUMPUR: RAM Rating Services Bhd has reaffirmed Danajamin Nasional Bhd’s insurer financial strength ratings at AAA/Stable/P1. 

The ratings agency said on Tuesday the reaffirmation was based on its view that Danajamin will continue to benefit from a very high likelihood of extraordinary support from the Government of Malaysia (GoM), given the financial guarantor’s mandate and parentage. 

Danajamin’s policy role to stimulate and deepen the domestic bond and sukuk market. 

Being jointly owned by the Minister of Finance Incorporated and Bank Negara Malaysia via Credit Guarantee Corporation Malaysia Bhd, the government’s commitment is also demonstrated in the company’s access to callable capital of RM1bil, in addition to RM1bil in paid-up capital.

“The ratings are also reflective of Danajamin’s robust capitalisation and strong liquidity. As at end-October 2016, its leverage ratio – defined as net notional value of total sum insured over available capital – stood at 3.8 times. 

“The Company’s leverage is projected to be 3.6 times by end-December 2016, a level that is comfortably within RAM’s benchmark limit for its ratings,” it said. 

RAM Ratings said Danajamin’s capitalisation stayed sturdy with its regulatory capital adequacy ratio (adjusted for concentration risk) well above 300% as at end-June 2016. 

Danajamin’s liquidity profile remained strong with liquid assets of RM1.6bil as at end-June 2016, which are expected to be more than adequate to meet its contractual liabilities and any liquidity needs arising from potential claims. 

Danajamin’s guarantee portfolio by approved value grew 8.6% on-year to RM7.6bil as at end-October 2016 while the outstanding insured amount increased 7.1% to RM6bil. 

“That said, business traction stayed below potential, with an average of just three new transactions per year since 2012. 

“Given its mandate to assist lower-rated but viable companies access the corporate bond and sukuk market, Danajamin’s portfolio naturally entails higher credit risks, although there have been no claims since the company’s inception. 

“That said, we do not rule out future claims, considering the more challenging environment. As a small monoline financial guarantor, Danajamin also faces relatively higher concentration risk. With respect to sector exposure, the Company’s portfolio is concentrated in real estate and property development as well as infrastructure and utilities. 

“Danajamin’s exposure to these sectors as at end-October 2016 remained largely unchanged from last year at a respective 26% and 23% of its portfolio by approved value.

“Negative rating triggers include a reduced likelihood of extraordinary support from the GoM, adverse claims and significant deterioration in leverage and capitalisation. 

“Danajamin’s ability to achieve meaningful portfolio growth and underwriting premiums over the medium to long term is also a rating factor,” said RAM Ratings.