AM Best keeps Inpex captive at A, stable

AM Best has affirmed the A (Excellent) financial strength rating and the “a” long-term issuer credit rating of Inpex Insurance (Bermuda), the single-parent captive of Inpex Corporation, Japan's largest oil and gas exploration and production company, and kept the outlook on both stable.

AM Best's rating story is conventional for a well-run captive: very strong balance-sheet strength, supported by low net underwriting leverage and a conservative, liquid investment portfolio, with risk-adjusted capitalization at the strongest level on its capital adequacy ratio. Operating performance is strong, built on an adjusted five-year average combined ratio below 30 per cent for 2021 to 2025, excluding accrual of the theoretical withdrawal premium tied to Everen, the energy-sector mutual that provides stable reinsurance capacity. Business profile is neutral and enterprise risk management appropriate, leaving reinsurance dependence as the one heavy item on the ledger, partially mitigated by the good credit quality of the panel.

IIL has a distribution plan for accumulated surplus to its parent, and AM Best says the captive should still hold a sufficient capital buffer to support its book — a structure that makes the balance sheet both an insurer and a dividend vehicle. The medium-term math depends on two things: Inpex's new projects, which AM Best expects to generate additional premium income within a few years, and investment income, which should stay strong while the interest rate environment remains favorable, while the Everen theoretical withdrawal premium accrual will add pressure to the bottom line in the meantime.

AM Best has spent the week flagging the collateral gap in offshore annuity reinsurance and pressing Macquarie's InEvo Re on liquidity — stories about capital that has to be available on demand. This one is about capital that is scheduled to leave, and the stable outlook is a bet that the premium pipeline from the parent's projects refills the buffer before the distributions and the Everen accrual consume it.

A captive with a below-30 per cent combined ratio and a conservative portfolio can ship surplus to Japan and still hold its rating, but only if the parent keeps supplying new risk. The number to watch is not the combined ratio but the flow of premium from Inpex's pipeline, because that flow is the only thing that makes the distribution plan and the stable outlook consistent at the same time.