A.M. Best Co. has affirmed the financial strength rating of A (Excellent) of Bermuda-based Heddington Insurance Ltd., the captive for ChevronTexaco, adding that the company's rating outlook is stable.

In yesterday's release, Best said the rating reflects Heddington's superior capitalisation, consistently positive operating results and the role that the company plays as a captive insurance company for its ultimate parent, ChevronTexaco Corporation.

Best said that the rating was based on the consolidated results of Heddington as well as its subsidiary, Heddington Insurance (U.K.) Ltd., based in London. The release said that the rating further acknowledges risk management programmes and underwriting co-ordination in the design and implementation of insurance policies offered by Heddington, as well as the cost effective manner in which those services are delivered. Heddington gains from its parent's global scope, which provides a favourable geographic distribution of risks assumed, said the release.

"These positive rating factors are partially offset by the company's high net loss exposures as the coverages provided tend to result in claims that are characterised as low frequency but high severity," said the Best release.

"This is somewhat mitigated by its excellent loss history and ChevronTexaco's record of supporting Heddington's strong surplus position."

It went on to add that the majority of its invested assets are in the form of loans to affiliated companies. Although this leads to a concern regarding concentration of risk within the same organisation, the loans are reviewed by and have been authorised as admitted assets by the local regulatory authorities and are deemed secure, added Best.

Another area of concern, it said, was the substantial amount of assets placed in oil and gas exploration activities. These are considered illiquid for purposes of claims payment obligations. But it said that excluding these assets from the total investments, Heddington still has sufficient resources to meet its underwriting related obligations as measured by Best's capital adequacy model.

In its role as a captive insurer, Heddington provides broad and competitive global insurance products for ChevronTexaco and its subsidiaries.

The merger between Texaco Inc. and Chevron was completed on October 9, 2001. The near term insurance needs of Texaco and Chevron are still being supplied through their respective captives (Heddington, Bermaco and Traders) and the commercial market.

"However, much of the insurance arrangements for the parent have been rationalised among the captives to enhance operating efficiencies," said the report. Heddington provides comprehensive coverage above ChevronTexaco's internal retentions, while its reinsurance is placed through a corporate wide plan with the world's significant providers of capacity, resulting in a diversified and balanced distribution of reinsurers.

In 2002, ChevronTexaco Corporation had worldwide revenues of $99.0 billion and net income of $1.1 billion. With the company's 33 years of experience in providing capacity and insurance services to Texaco and its affiliates and now ChevronTexaco, Best said it believes Heddington is in an excellent position to serve as one of ChevronTexaco's insurance and reinsurance capacity providers.