Fitch Affirms Black Gold Re Ltd's IFS Rating at 'BBB+'; Outlook Stable

NEW YORK--()--Fitch Ratings has affirmed Black Gold Re Ltd's (BGRe or the captive) Insurer Financial Strength (IFS) rating at 'BBB+'. The Rating Outlook is Stable.

KEY RATING DRIVERS

The ratings for BGRe consider the full support and rating of its parent, Ecopetrol. The companies are strongly linked, and the captive is considered by Fitch as a 'core' subsidiary of its parent (according to Fitch's Insurance Rating Methodology). BGRe's ratings also reflect its good operating performance, a strong and improving capital base, sound liquidity levels and adequate reinsurance protection.

BGRe's rating is equalized to the rating of its parent because Fitch considers it to be a core subsidiary. BGRe mission and strategic goals are intricately tied to its parent risk management strategy, allowing Ecopetrol to manage risks in a more efficient manner; while a vast majority of its business is derived from the parent. Ecopetrol its rated by Fitch at 'BBB+' (local currency Issuer Default Rating [IDR]) with a Stable Outlook. Ecopetrol's ratings are linked to the credit profile of the Republic of Colombia (local and foreign currency IDRs of 'BBB+' and 'BBB', Stable Outlook), which owns 88.5% of the company's total capital. Ecopetrol conducts business as Grupo Empresarial Ecopetrol (GEE).

In addition to its core status, BGRe's ratings have enjoyed the support of the shareholder in different forms: centralized management of its investment portfolio; the provision of resources for the optimal operation of the reinsurance company; the explicit commitment of support through open notes; and the transference of strong corporate governance practices; all the above on top of a sizable initial capital injection.

BGRe's capital and liquidity position provides strong cushion against the risks faced. Supported by good profitability and net results retention, the captive's capital base maintained a steady growth rate (+9.4% Avg: 2013-2012) and reached USD155.3 million as of Dec. 31, 2013, mainly composed of core capital. Leverage ratios are low and liquidity ratios are high compared with peers. Balance position metrics remain relatively stable and retained premiums-to-capital ratio was 0.05x, the liability/equity ratio was 0.23x and the coverage of liquid assets over reserves was 6.48x.

Based on adequate operating performance the company continues to deliver good profitability ratios, which compare positively with its peers. Closing 2013, BGRe reported a net income of USD11.3 million. The loss ratio is low relative to international standards due to a deep knowledge of the risks. The operating cost structure is efficient and is further augmented by ceded commissions from reinsurers due to the high cession levels.

BGRe's maximum loss per event is at the high end in comparison with its peers, but this exposure is still adequate and it is also offset by the ample capital of the parent. The maximum loss exposure per event is 3.2% of BGR's equity, and the aggregated exposure reached 6.4% of the equity, which Fitch expects to be gradually lower along with capital base growth. Fitch considers BGRe's reinsurance protection adequate. The reinsurance pool is highly fragmented in each business line, with a program composed of internationally recognized reinsurers with high credit quality and expert knowledge in the field of hydrocarbons.

RATING SENSITIVITIES

The Rating Outlook is Stable. Fitch may consider an upgrade of BGRe's rating if:

--Ecopetrol's rating is upgraded due to an upgrade of Colombia's rating; and

--BGRe continues to be considered as a 'core' subsidiary of its parent.

Negative changes to Ecopetrol's ratings or to its ability and willingness to provide support, or if BGRe ceases to be a core captive could result in a downgrade for BGRe. However, Fitch views the latter as unlikely.

Additional information is available at 'www.fitchratings.com'.

Applicable Criteria and Related Research:

--'Insurance Rating Methodology', Nov. 13, 2013.

Applicable Criteria and Related Research:

Insurance Rating Methodology

http://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=723072

Additional Disclosure

Solicitation Status

http://www.fitchratings.com/gws/en/disclosure/solicitation?pr_id=829319

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Contacts

Fitch Ratings
Primary Analyst
Franklin Santarelli
Managing Director
+1 212-908-0500
Fitch Ratings, Inc.
33 Whitehall Street
New York, NY 10004
or
Secondary Analyst
Milena Carrizosa
Director
+57 1 326-9999 ext 1090
or
Committee Chairperson
Julie A. Burke, CPA, CFA
Managing Director
+1 312-368-3158
or
Media Relations
Elizabeth Fogerty, New York, Tel: +1 212-908-0526,
elizabeth.fogerty@fitchratings.com

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Contacts

Fitch Ratings
Primary Analyst
Franklin Santarelli
Managing Director
+1 212-908-0500
Fitch Ratings, Inc.
33 Whitehall Street
New York, NY 10004
or
Secondary Analyst
Milena Carrizosa
Director
+57 1 326-9999 ext 1090
or
Committee Chairperson
Julie A. Burke, CPA, CFA
Managing Director
+1 312-368-3158
or
Media Relations
Elizabeth Fogerty, New York, Tel: +1 212-908-0526,
elizabeth.fogerty@fitchratings.com