Standard & Poor's (S&P) has downgraded the outlook on its rating for legal expenses underwriter DAS Legal Expenses Insurance Company.
S&P said the outlook had been downgraded from stable to negative to reflect the negative outlook on the company's immediate parent, ERGO Group.
At the same time S&P affirmed the A long-term counterparty credit and insurer financial strength ratings for DAS.
The ratings are driven by the company's strategically important status to ERGO, which is core to Munich Re, its strong working relationship with D.A.S. Deutscher AutomobilSchutz Allgemeine RechtsschutzVers and Munich Re, said the company.
“The ratings also reflect DAS's strong operating performance and strong and defendable competitive position in the niche legal expenses insurance (LEI) market,” said S&P credit analyst Tatiana Grineva.
The ratings agency said these strengths are partly offset by the company's risk concentration in the relatively small LEI market, mainly in the UK, and its dependence on external sources of distribution.
S&P also said the negative outlook also incorporates the following expectations:
· DAS will remain strategically important to ERGO and will maintain its strong working relationship with DASG and Munich Re group companies.
· The company will maintain its strong niche competitive position in the LEI market and grow organically by about 13%-14% per year over the next three years.
· DAS's portfolio mix will not change materially. After-the-event business is not likely to exceed 15% of net premium income in the next three years.
· Operating performance will remain at least strong. The company is expected to post an underwriting profit and to maintain overall profitability in the medium term.
· The capital adequacy ratio will be maintained at least within the 'A' range to support the ratings.
