AM Best has affirmed the financial (FSR) of B++ (Good) and the long-term issuer credit rating (long-term ICR) of “bbb+” (Good) of Kot Insurance Company AG (Kot) (Switzerland). The outlook of the FSR is stable, while the outlook of the long-term ICR is negative. These credit ratings reflect Kot’s balance sheet strength, which AM Best assesses as ‘very strong’, as well as its strong operating performance, neutral business profile and appropriate enterprise risk management. Kot is the captive reinsurer of Petroleos Mexicanos (PEMEX), the Mexican state-owned oil and gas company. Due to its association with PEMEX, the ratings also reflect rating drag. The negative long-term ICR outlook reflects ongoing pressures on PEMEX’s credit profile due to its negative free cash flow, high debt maturities and the resultant liquidity strain. According to AM Best, Kot remains well-integrated within PEMEX and is important to the group as a cost-effective risk management tool. However, as PEMEX’s only reinsurance captive, Kot’s underwritten risks are concentrated in Mexico. Kot’s ‘very strong’ balance sheet is underpinned by its risk-adjusted capitalisation at the strongest level, as measured by Best’s Capital Adequacy Ratio (BCAR). AM Best 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 risks with very high gross limits. The risk associated with this dependence is mitigated partly by a diversified retrocession panel and long-standing relationships with reinsurers of good credit quality, says AM Best.
