Fitch Affirms Black Gold Re Ltd. at ‘BBB’; Outlook Negative

NEW YORK--(BUSINESS WIRE)-- Fitch Ratings has affirmed Black Gold Re LTD's (BGRe) 'BBB' Insurer Financial Strength (IFS) rating. The Rating Outlook is Negative.

KEY RATING DRIVERS

Keeping with Fitch's methodology for rating core captive reinsurance companies, BGRe's rating is in line with that of its parent, Ecopetrol S.A. Ecopetrol has a National Long-Term Local Currency Rating of 'AAA(col)' and an International Local Currency Rating of 'BBB'/Negative Outlook, aligned to Colombia's sovereign ratings.

The status of BGRe remains as a core captive reinsurance company to Ecopetrol is based on the operational and financial support of its parent to BGRe, and on the fact that 100% of the underwritten risks come from Grupo Empresarial Ecopetrol (GE). In addition, the strategy of the captive reinsurer (BGRe) is aligned with the risk management of GE. The economic value of this activity is reflected in savings in the assurance process to Ecopetrol.

BGRe is a captive reinsurer domiciled in Bermuda that only engages in reinsuring the risks of Ecopetrol and the subsidiaries in which its parent has controlling interest. BGRe works with almost all the subsidiaries of Ecopetrol, confirming that it is a major subsidiary of GE.

The main purpose of BGRe is still the cost optimization of risk transfer, provide value-added services and position itself as the captive of all subsidiaries of GE. As of September 2016, the captive recorded retained earnings of USD100.95 million, attributable to the positive internal generation of resources BGRe has had since inception, which in turn represents savings and benefits produced for GE.

BGRe employs the Ecopetrol treasury department for its investment portfolio management. In addition, Ecopetrol provides technical and operational support for BGRe's optimal performance through risk financing coordination. BGRE's capital has doubled in the last five years to USD180 million due to an internal generation of resources and a conservative policy of maintaining retained earnings.

RATING SENSITIVITIES

The Rating Outlook is Negative.

The Negative Outlook mirrors the outlook on BGRe's parent Ecopetrol, which mirrors the negative outlook on the Colombian sovereign rating. Negative changes to Ecopetrol's ratings or to its ability and willingness to provide support could result in a downgrade for BGRe.

In addition, the rating outlook could be revised to Stable if its parent rating outlook is revised to stable, contingent on changes to Colombia's sovereign rating outlook.

Additional information is available at 'www.fitchratings.com'.

Applicable Criteria

Insurance Rating Methodology (pub. 15 Sep 2016)

https://www.fitchratings.com/site/re/887191

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