August 19, 2011 / 9:58 AM / 8 years ago

TEXT-Fitch afrms Direct Asia Insurance Singapore IFS at 'BBB-'

(The following statement was released by the ratings agency)

Aug 19 - Fitch Ratings has today affirmed Direct Asia Insurance Singapore’s (DAIS) Insurer Financial Strength (IFS) rating at ‘BBB-‘. The Outlook is Stable.

The rating incorporates DAIS’ experienced management team, prudent reinsurance support, and healthy capitalization commensurate with the company’s projected business profile. However, as with all start-ups, there is execution risk associated with the company’s business plan/model, as well as limited market recognition/branding, amidst intense competition in the non-life insurance market in Singapore.

The Stable Outlook reflects Fitch’s view that possible execution risks inherent in DAIS’ business plan, as with all start-ups, are likely to be mitigated by the company’s prudent management, healthy capital level and conservative approach to underwriting.

DAIS commenced its business as a direct personal lines insurer in Singapore in June 2010. The company’s strategy is to sell directly to its customers, mainly through the internet. The bulk of its business currently pertains to motor insurance. Fitch expects the company to continue to evaluate pricing practices to ensure that products are designed prudently. Pricing discipline is particularly important in the insurer’s initial years of operations when it has yet to develop a reliable internal claims database. Nonetheless, Fitch takes comfort from the company’s prudent reinsurance arrangements with Munich Reinsurance Company. Expected volatility in the underwriting results is also partially mitigated by management’s conservative investment strategy.

Upgrade of DAIS in the near term is unlikely, given that it commenced underwriting in June 2010 and its operations are still in the nascent stage. However, DAIS’ rating may face downward pressure from a significant weakening of its capital level in relation to its business growth - for example, if net premium leverage was to remain consistently higher than 2.5x, a deterioration in operating performance arising from poor underwriting discipline and a poor execution of its business plan.

The rating is assigned based on its standalone profile and with less than five years of audited information available.

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