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Fitch Affirms Black Gold Re Ltd. at 'BBB+'; Outlook StableFitch Ratings has affirmed the 'BBB+' Insurer Financial Strength (IFS) rating of Black Gold Re LTD. The Rating Outlook is Stable. KEY RATING DRIVERS Black Gold Re's rating (BGRe, or the captive company) considers the full support of its parent (Ecopetrol has a local-currency Issuer Default Rating [LC IDR] of 'BBB+' with Stable Outlook), due to the strong linkage and strategic importance of the captive company to Ecopetrol (the parent). The rating also reflects a good and stable operating performance, strong capitalization and liquidity levels and adequate reinsurance protection. BGRe's rating is equalized to its parent's rating, considering that Fitch has categorized this subsidiary as a 'Core Captive'. Ecopetrol's ratings are also linked to the credit profile of the Republic of Colombia (local and foreign currency IDRs of 'BBB' and 'BBB+', respectively, Stable Outlook), who owns 88.5% of the company's total capital. Ecopetrol conducts business as Grupo Ecopetrol (GEE). BGRe is a core subsidiary of Ecopetrol, given its strategic importance for risk management and GEE's insurance coverage. BGRe's support from its parent is evidenced by Ecopetrol's formal support for BGRe's investment portfolio administration, the provision of resources for optimal operation of the reinsurance company, and the explicit commitment through open notes and the transference of strong corporate governance practices as well as the alignment of objectives and strategy. Profitability remained strong and adequate (ROAA of 7.0% Dec-2014; 6.3% Dec-2013). Despite a surge in retained claims (+86.0% Dec-2014/2013) due to adverse events in Sabotage and Terrorism, claims remain modest against base premiums and net results. Gross and net loss ratios are preserved below peer average, which reflects a deep knowledge of the underwritten risks and sound technical pricing. Profitability metrics remained favorable, driven mainly by growing ceding commissions and controlled operating costs. Complementing good technical results, portfolio performance was also positive in line with better conditions in financial markets. BGRe's capital and liquidity position continued to be sound, providing a strong cushion against the risks faced by the reinsurer. As of December 2014, company's equity reached US$169.5 million and has maintained a steady growth rate over the last four years (averag 2014-2010: 9.8%). BGRe's capital base is mainly composed of tier I capital, supported by its highly profitable operation, which influences leverage and liquidity ratios that remain low in comparison with peers. Earned premiums-to-capital ratio was 0.04x, the liability/equity ratio was 0.26x and the coverage of liquid assets over reserves was 6.3x. The maximum loss per event is at the upper end in comparison with peers; however, this exposure is offset by its parent's ample capital and support. The maximum loss exposure per event is 2.95% of BGRe's equity and the aggregated exposures reached 5.90% of the equity, which are gradually decreasing along with capital growth. The accepted aggregated exposure for all surety bond policies may represent 4.72x of BGRe's equity and 2.6% of Ecopetrol's equity in light of the shareholder's explicit formal guarantee of 100% coverage on these policies. The reinsurance pool is highly fragmented in each business line, with a program composed of internationally recognized reinsurers with high credit quality. RATING SENSITIVITIES The Rating Outlook is Stable. Fitch does not anticipate any changes in the rating, as long as there are no any changes in the reinsurer retention policies or ceding structure. It is also expected that the technical performance, liquidity and leverage ratios will remain at appropriate levels. Events that may lead to a downgrade include negative changes in the rating of Ecopetrol and the ability and willingness of the parent to provide support to BGRe, which is deemed by Fitch as a scenario of low probability. Additional information is available at 'www.fitchratings.com'. Applicable Criteria and Related Research: -'Insurance Rating Methodology', Sep. 4, 2014. Applicable Criteria and Related Research: Insurance Rating Methodology http://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=756650 Additional Disclosure Solicitation Status http://www.fitchratings.com/gws/en/disclosure/solicitation?pr_id=984233 ALL FITCH CREDIT RATINGS ARE SUBJECT TO CERTAIN LIMITATIONS AND DISCLAIMERS. PLEASE READ THESE LIMITATIONS AND DISCLAIMERS BY FOLLOWING THIS LINK: HTTP://FITCHRATINGS.COM/UNDERSTANDINGCREDITRATINGS. IN ADDITION, RATING DEFINITIONS AND THE TERMS OF USE OF SUCH RATINGS ARE AVAILABLE ON (News - Alert) THE AGENCY'S PUBLIC WEBSITE 'WWW.FITCHRATINGS.COM'. PUBLISHED RATINGS, CRITERIA AND METHODOLOGIES ARE AVAILABLE FROM THIS SITE AT ALL TIMES. FITCH'S CODE OF CONDUCT, CONFIDENTIALITY, CONFLICTS OF INTEREST, AFFILIATE FIREWALL, COMPLIANCE AND OTHER RELEVANT POLICIES AND PROCEDURES ARE ALSO AVAILABLE FROM THE 'CODE OF CONDUCT' SECTION OF THIS SITE. FITCH MAY HAVE PROVIDED ANOTHER PERMISSIBLE SERVICE TO THE RATED ENTITY OR ITS RELATED THIRD PARTIES. DETAILS OF THIS SERVICE FOR RATINGS FOR WHICH THE LEAD ANALYST IS BASED IN AN EU-REGISTERED ENTITY CAN BE FOUND ON THE ENTITY SUMMARY PAGE FOR THIS ISSUER ON THE FITCH WEBSITE. |
