Moody's Investors Service has affirmed CNPC Captive Insurance Company’s A2 insurance financial strength rating (IFSR). The outlook remains stable.
CNPC Captive Insurance Company is the wholly-owned captive insurance subsidiary of China National Petroleum Corporation (CNPC). CNPC’s captive insures internal group risks only.
Moody's believes that the CNPC Captive Insurance’s credit profile is closely aligned with that of CNPC.
Moody’s explains: “The affirmation of CNPC Captive Insurance's A2 IFSR reflects the CNPC Captive Insurance strong capitalisation, good level of profitability, offset by the higher product risk and intrinsic volatilities of its underwriting profitability because of its business concentration related to the parent's oil and gas business.”
CNPC Captive Insurance has strong capitalisation to buffer against large claims and support its premium growth, Moody’s notes that due to large registered capital and retained earnings.
It is also highlighted that the captive’s comprehensive solvency ratio was high at 360 per cent as of the end of September 2020, well above the regulatory minimum of 100 per cent.
CNPC Captive Insurance’s profitability is good, supported by a stable level of investment income, Moody’s explains. Its underwriting profitability has also gradually improved because of improving loss experience at its commercial property and liability lines.
However, Moody’s believes CNPC Captive Insurance’s underwriting profitability could be volatile.
Moody’s explains: “CNPC Captive Insurance is exposed to high-severity loss from its parent's oil and gas-related risks, while its use of external reinsurance is limited. As a result, its ability to sustain its underwriting profit remains to be tested.”
In the past two years, CNPC Captive Insurance has significantly raised its investments in debt investment plans and trust plans for yield enhancement, which Moody’s says has weakened liquidity and increased credit risk within its investment portfolio.
The A2 IFSR incorporates a three-notch uplift from its stand-alone credit profile of baa2, reflecting the strong business and capital support from its parent.
The one-notch difference between the ratings of CNPC and CNPC Captive Insurance reflects CNPC Captive Insurance’s modest stand-alone credit profile and the lack of an explicit guarantee from the parent.
The rating firm states that its assessment of support also incorporates the china banking and insurance regulatory commission's requirement for parent companies to inject capital into their captive insurance subsidiaries when the latter fails to meet the regulatory solvency requirement.
The outlook is stable, which reflects Moody's expectation that CNPC Captive Insurance will continue to receive strong support from CNPC.
In addition, Moody's expects the CNPC Captive Insurance to maintain its strong capital position and improve its underwriting profitability as its business grows.
Moody's adds that given that CNPC Captive Insurance's credit profile is highly correlated with that of its parent, Moody's would consider upgrading its rating only if CNPC's rating is upgraded.
There is also limited upward pressure on its stand alone credit profile because of the business concentration related to its parent's oil and gas business, the rating firm explains.
However, CNPC Captive Insurance's rating could see a downgrade if the rating of CNPC is downgraded; there is any indication of a decline in the degree of support from CNPC, and CNPC Captive Insurance starts writing third-party businesses and the CNPC Captive Insurance fails to replenish its capital after significant underwriting losses from industrial events and/or catastrophe losses.
