Negative outlook for Black Gold Re

Moody’s insurance has downgraded the outlook of Bermuda-based captive Black Gold Re. The rating agency affirmed the captive’s insurance financial strength (IFS) rating of Baa3 but changed its outlook from stable to negative.

According to Moody’s, the rating reflects the strength of Black Gold Re’s parent, Ecopetrol, the largest integrated oil and gas company in Colombia.

“The affirmation also reflects Black Gold Re’s adequate capitalisation, consistent earnings generation, and the good credit profile of its investment portfolio,” added.

The captive had adequate profitability and low volatility in earnings, Moody’s found. However, this was “tempered by a market position with a very limited size and scope of operations, with a low level of diversification and exposure to high severity losses which ultimately rely on its parent company, Ecopetrol, and its integration with the group’s risk management activities”, according to its analysis.

“Consequently, Ecopetrol’s credit profile is a critical component in the Company’s financial strength assessment.”

A rating downgrade could result from several factors, according to the agency: a downgrade on Ecopetrol’s rating; divestiture or a reduction in support from its parent; a significant increase in Black Gold Re’s net exposure without a corresponding increase in its capital base; or the captive assuming non-group related risk exposures.

“Given the negative outlook on the company’s rating, an upgrade is unlikely,” Moody’s concluded.