Danajamin Nasional Bhd - 2009

MARC has assigned AAA insurer financial strength rating to Danajamin Nasional Berhad (Danajamin). The rating outlook is stable. The rating and outlook on the rating reflect Danajamin’s important role and status as Malaysia’s first and sole financial guarantee insurer (FGI) and government-sponsored entity, respectively. Licensed under the Insurance Act 1996 and regulated under the Insurance (Financial Guarantee Insurance) Regulations 2001, Danajamin was founded with a broad mission to facilitate market access for investment grade domestic issuers of private debt securities. The prominent role that Danajamin is expected to play in the development of a well functioning domestic bond market, its majority government ownership structure, as well as regulators’ priority to maintain systemic stability are key factors in our assumption of high probability of federal support. Notwithstanding, the business model of Danajamin, in particular, its intended lower risk underwriting strategy which is targeted at the investment grade level, is expected to be supportive of underwriting profitability. It should enable the FGI to grow its claims-paying resources without placing undue reliance on its shareholder for additional capital. The assigned ratings also incorporate its solid capital base, ample liquidity and conservative investment policy. Danajamin is capitalised at RM1.0 billion, giving it reasonable single-risk capacity and considerable liquidity resources as a start-up FGI. The FGI also intends to maintain a low-risk and highly liquid investment portfolio.

Near-term challenges are likely to revolve around executing its business plan, and include assembling a strong core team as well as establishing the infrastructure and capabilities for underwriting, pricing and risk management. Higher observed downward rating momentum for lower-investment grade credits belonging to the single-A and triple-BBB rating categories in the context of the current challenging business environment, poses additional challenges. Key considerations in MARC’s assessment of Danajamin’s credit profile going forward will be the progress made in establishing a sustainable franchise in the financial guarantee market, the observed effect of the legal, regulatory and supervisory framework on its evolving business risk profile and its insured portfolio characteristics and changes, if any, to its strategic focus and direction. 

MARC’s insurer financial strength rating on Danajamin incorporates assessments of willingness to pay as well as timeliness of payment, consistent with its obligation under its insurance policies and contracts to provide unconditional, irrevocable and timely payment of principal and interest on scheduled debt service of insured securities.

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Challenges