Moody's has affirmed the “Baa3” insurance financial strength (IFS) rating and changed the outlook to negative from stable for Monticello Insurance Limited, the captive reinsurance subsidiary of Brazil-based mining company, Vale S.A.
The change in Monticello's outlook follows the decision by Moody's to change Vale's rating outlook to negative on 12 May.
The rating agency said the affirmation of Monticello's “Baa3” rating is based primarily on the support provided by Vale and on Monticello's integration with the global risk management function of the group.
Monticello is a core part of Vale's risk-management programme and is the sole insurance captive used in Vale's property insurance and business interruption programme worldwide.
Explicit support from Vale to Monticello, which has been provided through capital injections totalling $240 million over the past three years, and ongoing financial support to cover losses is a key driver of Monticello's credit rating, without which Monticello's rating would be lower.
The rating agency has stated that it expects that Monticello will continue to receive extensive parental support from Vale, including its willingness to backstop Monticello's obligations to its fronting insurance carriers, and to provide additional capital to Monticello in the event that it has insufficient funds to meet its obligations under the reinsurance assumed.
Moody’s has stated Monticello's rating is constrained by its product risk concentration and significant risk exposures which has resulted in earnings volatility, as the company reported a net loss in 2012, as well as the weak sovereign credit profile and operating environment of Barbados, where Monticello is domiciled.
