3 September 2018Analysis

Inpex Bermuda energy captive gets Excellent rating

Ratings agency AM Best has affirmed the financial strength rating of A- (Excellent) of INPEX Insurance (IIL), the Bermuda-based, single-parent captive of Inpex Corporation, the largest oil and gas exploration and production company in Japan.

The captive's ratings reflect its balance sheet strength, which AM Best categorises as very strong, as well as its adequate operating performance, neutral business profile and appropriate enterprise risk management.

IIL provides coverage consisting of property damage, third-party liability and operator’s extra expenses for its parent, its affiliates and joint-venture companies. AM Best pointed out that  types of business written expose the company’s performance to high-severity, low-frequency losses, however IIL has managed this risk through prudent underwriting and a robust reinsurance program with conservative retention levels and limits.

AM Best suggested that IIL’s very strong balance sheet assessment mainly reflects its low underwriting leverage and conservative investment portfolio. 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.

The captive's underwriting results over the most-recent five-year period have been consistently positive, contributing to an average combined ratio of under 40 percent. Despite very strong underwriting margins, loss and combined ratios have been volatile, owing primarily to a relatively small in-force portfolio. AM Best expects IIL’s operating performance to remain profitable, although the company’s underwriting results also likely will remain volatile until the company can achieve much greater scale.