INPEX Corporation’s single-parent captive, INPEX Insurance (IIL), has had its financial strength rating of A- (Excellent) and the long-term issuer credit rating of “a-” affirmed by A.M. Best.
As the single-parent of INPEX, Japan’s largest oil and gas exploration and production company, IIL primarily provides coverage on property damage, third-party liability and operator’s extra expenses for its parent, its affiliates and joint-venture companies.
Those types of business expose the company’s performance to high-severity, low-frequency losses.
IIL has, however, managed this risk through prudent underwriting and a robust reinsurance programme with conservative retention levels and limits.
The captive’s ratings reflect its “very strong” balance sheet strength, in addition to its adequate operating performance, neutral business profile and appropriate enterprise risk management.
The strength of the balance sheet primarily reflects its low underwriting leverage and conservative investment portfolio.
A.M. Best added: “Given the volume of risks that the company currently writes and retains, the capital required to support its current book of business is relatively modest.”
IIL’s underwriting results over the last five years have been consistently positive, contributing to an average combined ratio of under 40 percent.
Despite extremely strong underwriting margins, loss and combined ratios have been volatile, due mainly to a relatively small in-force portfolio.
The ratings agency expects the captive’s operating performance to remain profitable, although the company’s underwriting results are also likely to remain volatile until the company can achieve much greater scale.
The outlook of the Bermuda-based captive’s ratings are is stable, based on A.M. Best’s expectation that IIL will continue to deliver consistently positive operating results, supported by a return to growth with strong underwriting margins and stable investment yields.
If the captive continues to sustain very strong balance sheet strength, along with more stable underwriting and operating results, positive ratings could occur.
Negative ratings could occur if there is a substantial increase in losses caused by a material shift in risk appetite, significant erosion of capital, or deterioration in INPEX’s credit profile.