The Bermuda captive of Colombia’s leading oil and gas producer has had its Moody’s insurance financial strength (IFS) rating affirmed at Baa3, but its outlook changed from stable to negative.

Black Gold Re Limited is the captive reinsurance subsidiary of Ecopetrol S.A. (Ecopetrol, Baa3, negative), the largest integrated oil and gas company in Colombia.

The affirmation of Black Gold Re's IFS rating is primarily based on the support provided by its parent company, Ecopetrol, its integration with the group's global risk-management function and its status of sole captive used in the parent's property insurance worldwide.

The affirmation also reflects Black Gold Re's adequate capitalisation, consistent earnings generation and the good credit profile of its investment portfolio.

The rating outlook of Black Gold Re was changed to negative because of the change of outlook of Ecopetrol, reflecting the very close linkages between its credit profile and that of its parent.

This creates a strong credit alignment reflecting Black Gold Re's status of captive reinsurance subsidiary and its integration with the risk-management functions and oversight of the parent company.

On a stand-alone basis, Black Gold Re has adequate profitability levels with a five-year average return on capital (ROC) of 6 per cent, and a Sharpe Ratio of ROC that accounted for 455 per cent in the past five years, which indicates a low volatility in earnings.

On the capital position the company has a low and stable gross underwriting leverage consistently below 1x, a sign of solid capitalisation levels.

In addition, the company´s asset quality is characterised by an investment portfolio concentrated in investment-grade securities and has limited exposure to intangible assets, which support high-risk assets to shareholders' equity consistently at 0 per cent, the same as goodwill and intangibles below 1 per cent.

Furthermore those strengths are tempered by a market position with a very limited size and scope of operations, with a low level of diversification and exposure to high-severity losses which ultimately rely on its parent company, Ecopetrol, and its integration with the group's risk-management activities.

Consequently, Ecopetrol's credit profile is a critical component in the company's financial strength assessment.

Based in Bermuda, BGRe is a wholly owned subsidiary of Ecopetrol, the leading oil and gas producer in Colombia.

As of August 2021, BGRe reported total assets of $360 million, shareholders' equity of $245 million and net earned premiums of $4.7 million.