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05 October 2020
Switzerland
Reporter Maria Ward-Brennan

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Petroleos Mexicanos captive assigned ‘good’ ratings

A.M. Best has assigned a financial strength rating of B++ (Good) and a long-term issuer credit rating of “bbb+” to Kot Insurance Company AG (Kot), based in Switzerland.

The outlook assigned to these credit ratings is stable.

Kot is a captive reinsurer of Petroleos Mexicanos (PEMEX), the Mexican state-owned oil and gas company.

The ratings reflect Kot’s balance sheet strength, which A.M. Best categorises as very strong, as well as its strong operating performance, neutral business profile and appropriate enterprise risk management. Additionally, the ratings also reflect a rating drag due to Kot’s ownership by PEMEX, reflecting the weaker credit profile of the parent.

A.M. Best stated that Kot’s very strong balance sheet is underpinned by risk-adjusted capitalisation at the strongest level, as measured by Best’s Capital Adequacy Ratio (BCAR).

It expects Kot to maintain a buffer over the minimum requirements for the strongest BCAR assessment in the medium term, supported by its relatively low net underwriting leverage and conservative investment strategy.

“An offsetting rating factor in the balance sheet strength assessment is Kot’s dependence on reinsurance to write large risks; however, the risks associated with this dependence are mitigated partly by long-standing relationships with reinsures of good credit quality”, A.M. Best explained.

A.M. Best suggested the captive’s operating performance will remain supportive of a strong assessment, although prospective results are exposed to some degree of volatility stemming from low frequency, high severity losses.

Kot is well-integrated within PEMEX and is important to the group as a cost-effective risk management tool. However, as PEMEX’s single reinsurance captive, Kot’s underwritten risks are concentrated in Mexico.

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