TEXT-S&P summary: Dhipaya Insurance Public Co. Ltd.

(The following statement was released by the rating agency)

Oct 11 - =============================================================================== Summary analysis -- Dhipaya Insurance Public Co. Ltd. ----------- 11-Oct-2012 =============================================================================== CREDIT RATING: Country: Thailand Local currency BBB/Negative/-- Primary SIC: Fire, Marine, and Casualty Insurance =============================================================================== Credit Rating History: Local currency Foreign currency 24-Sep-2012 BBB/-- --/-- 16-May-2012 BBB+/-- --/-- 30-Dec-2009 A-/-- --/-- =============================================================================== Rationale

The ratings on Dhipaya Insurance Public Co. Ltd. reflect the insurer's good competitive position in Thailand's non-life insurance industry. The insurer's diversified and liquid investment portfolio and its financial flexibility also support the ratings. Dhipaya's weakened capital position due to losses from last year's floods in Thailand and the insurer's rapid growth strategy temper these strengths. Dhipaya's reliance on reinsurance subjects it to increased counterparty credit risks on reinsurance recoverable assets.

We expect Dhipaya's business growth to remain strong in 2012 despite losses related to the Thailand floods in 2011. This is because of good support from shareholders for new business opportunities and the company's continued efforts to expand and develop its sales channels. The insurer has leveraged its historical ties with state enterprises to source a sizable proportion of its business. Dhipaya's increased focus on retail clients through its agents and business partners has led to a strong growth in business from motor, personal accident, and health insurance. Dhipaya ranks second among domestic property and casualty insurers, with a market share in terms of gross premiums written of 10.2% as of April 30, 2012.

Dhipaya has risk exposure to engineering and large projects, which are highly reinsured. We anticipate that premiums in some businesses, particularly in commercial lines, will increase and support the insurer's business profile.

We expect flood-related losses to weaken Dhipaya's underwriting performance in 2012. Nevertheless, we anticipate that the insurer will remain profitable because of the contribution from its investments.

Dhipaya's operating performance has historically been stable, but deteriorated in 2011 due to the floods. Its combined ratio weakened to 109.9% for 2011 from 90.1% a year earlier. Underwriting continued to suffer in the first half of 2012 with the combined ratio at 115.3%. We do not anticipate any further significant increase in flood-related losses because we believe that the company has identified and reserved for most of the losses. However, ultimate losses could still vary from our expectations.

Dhipaya's expense ratio has been declining due to the insurer's increased business volume. Tariffs have historically aided underwriting stability; however a portion of Dhipaya's business is not subject to tariffs. The insurer's increase in retail business and heavy use of reinsurance somewhat buffers the operating performance against volatility.

Dhipaya has a diversified investment portfolio compared to other insurers in Thailand, with comparatively lower concentrations in equities or unit trusts. Dhipaya has only 9.5% invested in equities and 5.2% in property. The remainder of its investments is in government securities (54%), debentures and notes (17%), and cash (15%). In light of the large volume of claims that will be processed in 2012 and 2013, the company's holdings of high quality short duration assets limit the need to liquidate assets at discounted rates. The company's investment income improved to 4.8% in 2011 (2.7% in 2010) with gains from securities trading.

We consider Dhipaya's financial flexibility to be supportive of the rating due to its listed status and high profile state-linked shareholders.

The 2011 floods in Thailand weakened Dhipaya's capitalization and the insurer's rapid growth continues to drag its risk-based capital position. In our view, the company's capital buffer for the current rating category is thin and any shock on earnings or capital due to factors such as reinsurance asset write-downs, reserves strengthening, etc. could exert further pressure on its capitalization.

Enterprise risk management

We consider Dhipaya's enterprise risk management as adequate despite the flood losses from 2011. We consider the company's risk exposure to be simple. Dhipaya has in place processes to monitor and control most areas of risks. Our assessment reflects the insurer's still-developing framework, particularly in strategic risk management. The company's catastrophe risk control as well as its use of risk models could be further developed.

Dhipaya has set up a risk management committee and other committees to report on and monitor all aspects of its operations.

Similar to other Thai companies, we consider Dhipaya's catastrophe risk control as unsophisticated, reflecting the occurrence of flood losses for the company. Dhipaya's other major risk is credit risk due to the high cession ratios of high value property and project businesses. Its reinsurance placement guidelines--that require reinsurers to have good credit quality--mitigate these risks, in our view.


The negative outlook reflects our view that Dhipaya's credit profile could further weaken over the next 12-24 months due to the uncertainty surrounding the extent of flood-related losses. In addition, losses from market agreements (sharing of business with other insurers) and from business interruption claims could further develop and negatively affect the company.

We could lower the ratings if Dhipaya's capitalization weakens from the current reported level because of a lower-than-expected improvement over the next 12-24 months, or if risk-adjusted capital, as measured by our capital model, weakens.

We may revise the outlook to stable if Dhipaya can improve and maintain its capitalization at levels that are commensurate with a 'BBB' rating.

Related Criteria And Research

-- Refined Methodology And Assumptions For Analyzing Insurer Capital Adequacy Using The Risk-Based Insurance Capital Model, June 7, 2010

-- Interactive Ratings Methodology, April 22, 2009

((Bangalore Ratings Team, Hotline: +91 80 4135 5898 swati.ray@thomsonreuters.com,Group id:BangaloreRatings@thomsonreuters.com,Reuters Messaging: swati.ray.thomsonreuters.com@reuters.net))