HONG KONG (S&P Global Ratings) May 9, 2019--S&P Global Ratings said today that it assigned its 'A+' local currency long-term issuer credit and insurer financial strength rating to CNOOC Insurance Ltd. The outlook is stable. CNOOC Insurance is a Hong Kong-based captive insurer of China National Offshore Oil Corp. (CNOOC).
The ratings on CNOOC Insurance reflect our view that the captive insurer plays a critical role in screening CNOOC's insurance arrangement as a risk manager. S&P also believe the insurer does not plan to write third-party-related business outside of CNOOC, at least in the coming two years. S&P therefore assess CNOOC Insurance as a core subsidiary of CNOOC and equalize the rating on the insurer with that on ultimate parent CNOOC.
CNOOC Insurance benefits from strong commitment of financial and management support from its parent group. The captive insurer's registered capital increased to Hong Kong dollar (HK$) 1.2 billion at end-2018 from HK$2 million when it was established in 2000, through a number of capital injections. S&P expect CNOOC Insurance to benefit from extraordinary support from the Chinese government through CNOOC, in view of the insurer's role as the group's risk management vehicle. CNOOC is the third-largest national oil company in China.
The captive insurer is actively involved in reviewing the insurance arrangements for the parent group's domestic and overseas projects. S&P believe CNOOC Insurance will continue to play an active role in enhancing the parent group's insurance coverage with effective reinsurance cost.
CNOOC Insurance's growth momentum will likely be stable over the next two years. The captive insurer's gross written premium (GWP) increased by 24% to HK$656 million in 2018, as a result of the rebound of investments in new oil construction projects led by the parent group. The increase was in contrast to the volatility in premium incomes over 2014-2017. CNOOC Insurance's portfolio consists of property damage insurance (81% by GWP), marine insurance (18%), and accident and health lines (less than 1%). S&P expect CNOOC Insurance to maintain profitable underwriting given its effective use of reinsurance. The captive insurer's five-year average net combined ratio is around 22%, which also includes impact of gradual reserve releases following claims settlements. A ratio below 100% indicates underwriting profit.
S&P expect CNOOC Insurance to undertake a prudent investment strategy, reflecting the majority allocation toward cash holdings that are deposited in Chinese banks, assess the insurer's capitalization as strong, relative to its risk profile.
The stable outlook on CNOOC Insurance reflects the outlook on CNOOC.
The ratings and outlook on CNOOC Insurance will move in tandem with those on CNOOC. S&P expect CNOOC Insurance to remain a captive insurer of the group over the next 24 months. S&P believe the insurer will continue to underwrite insurance business that the group refers.
S&P may lower the rating on CNOOC Insurance if we downgrade CNOOC.
S&P may also lower the rating if the insurer's role as a captive insurer reduces, diminishing its importance to CNOOC to that of a highly strategic subsidiary or lower.
S&P consider this to be unlikely over the next 24 months.
S&P may upgrade CNOOC Insurance if they raise the rating on CNOOC.
Source: S&P Global Rating
