TEXT-Fitch affirms Black Gold Re Ltd's IFS rating at 'BBB'; outlook stable

Thu Nov 8, 2012 9:35am EST

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(The following statement was released by the rating agency)

Nov 08 - Fitch Ratings has affirmed the 'BBB' Insurer Financial Strength (IFS) rating and the 'AAA(col)' National Insurer Financial Strengh of Black Gold Re LTD. The Rating Outlook is Stable.

Black Gold Re's rating (BGRe, or the captive company) continues to reflect the strong linkage and strategic importance of the captive company to Ecopetrol (the parent). The rating also reflects its adequate technical performance, high capitalization, low leverage and strong liquidity ratios.

BGRe's rating is tied to the rating of its shareholder, Empresa Colombiana de Petroleos - ECOPETROL S.A., which has a Fitch local currency Issuer Default Rating (IDR) of 'BBB' with a Stable Outlook. Ecopetrol maintains a strong financial profile with USD18.4 billion of EBITDA, USD6.1 billion of debt and USD 29.4 billion of shareholders equity as of the LTM ended June 2012.

BGRe maintains its position as a core subsidiary of Ecopetrol, due to its strategic importance in managing the risks and structuring the insurance coverage of Grupo Empresarial Ecopetrol (Ecopetrol). The support of the shareholder is evidenced by its explicit commitment of support through promissory notes, formal support in managing the investment portfolio of the captive, providing resources for the optimal operation of the reinsurance company, and the transference of strong corporate governance practices.

BGRe's operational profitability is adequate for its business profile. As of Sept. 30, 2012, BGRe reported a positive trend in its combined ratio (-13% versus -27% as of Sept. 30, 2011 ) and net income of $11.8 million. This performance benefited from the increase in commissions due to the change in the placement scheme carried out from 2011, and also by higher surety bond premiums given the important growth shown by the hydrocarbon sector in the Colombian economy.

The quality of the investment portfolio is adequate and the liquidity position is strong. The company places its investment portfolio in liquid assets mainly rated with Issuer Default Ratings of 'AA' (87%), 'AAA' (9%) and 'A' (4%). Black Gold has no exposure to fixed assets and stocks. Its liquidity ratio is strong at 4.9x as of Sept. 30, 2012.

Black Gold's capital position is strong as a result of adequate profit generation and earnings retention. As of Sept 30, 2012, the equity of the captive was USD141 million. Leverage ratios are low. As of Sept. 30, 2012, the retained premiums-to-capital ratio was 0.1x and the Liability/Equity ratio was 0.25x. The maximum loss exposure per event is 9.0% of the equity, which is high compared with other similar companies in the region. Black Gold provides surety bond coverage that very large relative to its capital base. However,Ecopetrol provides an explicit formal guarantee of these policies.

The Rating Outlook is Stable. Key rating triggers that may lead to a downgrade include negative changes in availability and willingness of Ecopetrol to provide support. An upgrade may be considered with positive changes in the credit profile of the parent.

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