Repsol captive assigned A- rating
Spanish energy company Repsol's Luxembourg-based captive insurer has been assigned an A- financial strength rating from AM Best.
Gaviota Re is based in Luxembourg and provides property and liability cover for Repsol, which is engaged in worldwide upstream, downstream and low carbon generation activities.
AM Best said the majority of the captive's premiums were for property risks, but the book is well-diversified by geography, reflecting the international scope of the parent’s operations.
The ratings reflect Gaviota’s balance sheet strength, which AM Best assessed as very strong, as well as its adequate operating performance, neutral business profile and appropriate enterprise risk management.
Gaviota’s balance sheet strength is underpinned by its risk-adjusted capitalisation comfortably above the threshold for a strongest assessment, as measured by Best’s Capital Adequacy Ratio (BCAR), and expected to remain at this level prospectively.
An offsetting factor in the balance sheet strength assessment is Gaviota’s high level of reinsurance dependence to write large risks, which is mitigated partially by the company’s long-standing relationships with reinsurers of excellent credit quality.
Gaviota has exposure to credit risk driven by inter-company loans with the Repsol group, which also acts as a partially offsetting factor in the assessment. As of December 31, 2023, the funds Gaviota allocated to the inter-company loans with Repsol represented 58% of the company’s total assets.
The ratings agency said Gaviota had produced a five-year (2019-2023) weighted average return on equity of 5.4%, as calculated by AM Best.
In 2023, Gaviota reported after-tax profits of 29.9 million, supported by a strong underwriting performance and robust investment results due to favourable market conditions.
Prospective performance is subject to volatility due to potential large losses arising from Gaviota’s property business. However, underwriting volatility should be moderated by the captive’s comprehensive retrocession programme.
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