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30 July 2014
Hong Kong
Reporter Stephen Durham

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China's first captive gets thumbs up

Moody's Investors Service has assigned a first-time A1 insurance financial strength (IFS) rating to CNPC Captive Insurance Company (CNPC Captive Insurance). The rating outlook is stable.

CNPC Captive Insurance was established in December 2013 as the first captive insurance company in China.

The company is 51 percent owned by China National Petroleum Corporation (CNPC, Aa3 stable), and 49 percent owned by PetroChina Company Limited (unrated). PetroChina is 86.51 percent owned by CNPC.

CNPC is the largest oil and gas company in China. It is wholly owned by the Chinese government and is one of the largest state-owned enterprises directly supervised by the central state-owned Assets Supervision and Administration Commission of the state council.

PetroChina is the main operating arm of CNPC, engaged in exploration and production, refinery and chemical, pipeline and marketing businesses. The company is listed in Hong Kong, New York and Shanghai.

"The A1 IFS rating primarily reflects Moody's view that CNPC Captive Insurance's credit profile is highly correlated to that of CNPC," says Stella Ng, a Moody's assistant vice president and analyst.

In addition to benefiting from operational and financial support from CNPC, the rating reflects the insurer's integration with the risk management function of the group, providing insurance coverage for internal group risks. Currently, CNPC Captive Insurance co-insures affiliated risks with external insurance companies.

"We expect the captive insurer's capitalisation relative to its risk exposures to be strong in the coming 12 to 18 months and for any future increases in its risk retention to be supported by CNPC," adds Ng.

The one-notch difference between the ratings of CNPC and CNPC Captive Insurance reflects the very limited track record of the latter and the lack of explicit guarantee from the parent.

Also, partially offsetting CNPC Captive Insurance's strengths are its limited external reinsurance protection and focus on property risk in the oil and gas sector, which Moody's claims is intrinsically volatile.

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