Vale’s captive has outlook raised

Fitch Ratings has revised its outlook on captive insurer Monticello Insurance to positive from stable and has affirmed its BBB financial strength rating. 

Monticello, which is a core captive of Brazilian metal and mining corporation Vale. 

Fitch said the change in the rating reflected its revision of Vale’s rating to positive from stable while affirming its Long-Term Foreign and Local Currency Issuer Default Ratings (IDRs) at 'BBB'.

“The revision of the outlook reflects the lift of a significant overhang on Vale's ratings given more limited environmental uncertainties and litigation risks, following Samarco's recent settlement, as well as its increasing scale and diversification into higher value-added ferrous product mix, enhancing its position within the 'BBB' rating category,” the ratings agency said. 

Fitch said Monticello derived all of its business from its parent and is not a profit centre on its own. Its objective is to improve Vale's efficiency and to support efforts to optimise the parent's operational and financial activities.

It said Vale had given financial support to MIPL as needed and appeared to support its continued solvency and viability through revolving loan agreements and LOCs to fronting insurers and by providing timely capital injections when necessary. The last major injections were $241 million in 2012 and 2013. Since then, there has been no need for such support.

It said Monticello’s main investment consisted of loans to the parent company ensuring quick access to capital while maintaining operational flexibility. 

“As of year-end 2023, Monticello's loans to the parent made up 99% of quick assets, with the balance being held as cash at international banks,” Fitch said. 

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