Fitch Affirms Black Gold Re Ltd's IFS Rating at 'BBB'; Outlook Stable
BOGOTA, Colombia -- November 08, 2012
Fitch Ratings has affirmed the 'BBB' Insurer Financial Strength (IFS) rating
and the 'AAA(col)' National Insurer Financial Strength of Black Gold Re LTD.
The Rating Outlook is Stable.
Black Gold Re's rating (BGRe, or the captive company) continues to reflect the
strong linkage and strategic importance of the captive company to Ecopetrol
(the parent). The rating also reflects its adequate technical performance,
high capitalization, low leverage and strong liquidity ratios.
BGRe's rating is tied to the rating of its shareholder, Empresa Colombiana de
Petroleos - ECOPETROL S.A., which has a Fitch local currency Issuer Default
Rating (IDR) of 'BBB' with a Stable Outlook. Ecopetrol maintains a strong
financial profile with USD18.4 billion of EBITDA, USD6.1 billion of debt and
USD 29.4 billion of shareholders equity as of the LTM ended June 2012.
BGRe maintains its position as a core subsidiary of Ecopetrol, due to its
strategic importance in managing the risks and structuring the insurance
coverage of Grupo Empresarial Ecopetrol (Ecopetrol). The support of the
shareholder is evidenced by its explicit commitment of support through
promissory notes, formal support in managing the investment portfolio of the
captive, providing resources for the optimal operation of the reinsurance
company, and the transference of strong corporate governance practices.
BGRe's operational profitability is adequate for its business profile. As of
Sept. 30, 2012, BGRe reported a positive trend in its combined ratio (-13%
versus -27% as of Sept. 30, 2011 ) and net income of $11.8 million. This
performance benefited from the increase in commissions due to the change in
the placement scheme carried out from 2011, and also by higher surety bond
premiums given the important growth shown by the hydrocarbon sector in the
The quality of the investment portfolio is adequate and the liquidity position
is strong. The company places its investment portfolio in liquid assets mainly
rated with Issuer Default Ratings of 'AA' (87%), 'AAA' (9%) and 'A' (4%).
Black Gold has no exposure to fixed assets and stocks. Its liquidity ratio is
strong at 4.9x as of Sept. 30, 2012.
Black Gold's capital position is strong as a result of adequate profit
generation and earnings retention. As of Sept 30, 2012, the equity of the
captive was USD141 million. Leverage ratios are low. As of Sept. 30, 2012, the
retained premiums-to-capital ratio was 0.1x and the Liability/Equity ratio was
0.25x. The maximum loss exposure per event is 9.0% of the equity, which is
high compared with other similar companies in the region. Black Gold provides
surety bond coverage that very large relative to its capital base.
However,Ecopetrol provides an explicit formal guarantee of these policies.
The Rating Outlook is Stable. Key rating triggers that may lead to a downgrade
include negative changes in availability and willingness of Ecopetrol to
provide support. An upgrade may be considered with positive changes in the
credit profile of the parent.
Additional information is available at 'www.fitchratings.com'. The ratings
above were solicited by, or on behalf of, the issuer, and therefore, Fitch has
been compensated for the provision of the ratings.
Applicable Criteria and Related Research:
--'Insurance Rating Methodology', Oct. 18, 2012.
Applicable Criteria and Related Research:
Insurance Rating Methodology - Amended
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