Moody's confirms CNPC Captive's A1 IFSR
Moody's Investors Service has confirmed the A1 insurance financial strength rating (IFSR) of CNPC Captive Insurance Company. The outlook on the rating is negative, in line with the negative outlook of China National Petroleum Corporation (CNPC). CNPC Captive Insurance is a sole captive insurance subsidiary of CNPC, which insures only internal group risks. Moody's views the insurer's credit profile as being highly correlated with the issuer rating of its parent company, CNPC. The rating action concludes the review for downgrade announced by Moody's on February 17, 2016. The confirmation of CNPC Captive Insurance's rating reflects the recent confirmation of the Aa3 issuer rating of CNPC on March 30, 2016 with a negative outlook. CNPC's ratings reflects Moody's expectation that its credit metrics will stay within the tolerance levels for its Baseline Credit Assessment (BCA) of a1, despite its assumption of weak oil prices. Its Aa3 issuer rating incorporates Moody's assessment of the likelihood of a very high level of support from the Chinese government (Aa3, negative) if required under Moody’s joint default analysis approach for government related issuers. In addition, CNPC Captive Insurance's A1 IFSR reflects its solid levels of capital and its very liquid investment portfolio, according to Moody’s. It said: “These strengths are somewhat offset by potentially volatile nature of its business profile and underwriting risk with limited use of external reinsurance. Its concentration in insuring property damage and engineering risks in the oil & gas sector could result in volatile claims experience due to potential large risks to occur.” CNPC Captive Insurance's rating is also supported by the close alignment of risk management and the expected timely financial support provided by its parent when needed. Moody’s believes that the parent will continue providing both operational and financial resources. The one-notch gap between the ratings of CNPC and CNPC Captive Insurance reflects the modest standalone credit profile of the insurer subsidiary, and the lack of explicit guarantee from the parent, according to the rating firm. Moody’s assessment of support also incorporates expectations of the regulator, the China Insurance Regulatory Commission, that a parent company should always ensure its captiveinsurance subsidiary maintains adequate levels of capital. Parent companies are required to inject capital into their captive insurance subsidiary whenever such a subsidiary fails to meet the regulatory solvency requirement. The outlook would likely return back to stable if the outlook of CNPC revises to stable. Given that the credit profile of CNPC Captive Insurance is highly linked to that of its parent, Moody's would consider upgrading CNPC Captive Insurance's rating only if CNPC's rating is upgraded. Similarly, CNPC Captive Insurance's rating could be downgraded if CNPC were to be downgraded. In addition, the insurer could be downgraded.