AM Best has affirmed the financial strength rating of A (Excellent) and the long-term issuer credit rating of “a” (Excellent) of Inpex Insurance Ltd, the Bermudian-based single-parent captive of Inpex, the largest oil and gas exploration and production company in Japan.

The outlook of these credit ratings is stable.

The ratings reflect IIL’s balance sheet strength, which AM Best assesses as very strong, as well as its strong operating performance, neutral business profile and appropriate enterprise risk management.

IIL’s risk-adjusted capitalisation is assessed at the strongest level, as measured by Best’s capital adequacy ratio. AM Best expects it to remain at the strongest level over the intermediate term.

The agency said the company’s balance sheet strength is underpinned by its conservative net underwriting leverage and a highly conservative investment portfolio. While capital growth is expected to be modest in future years with the company’s new dividend plan, IIL is viewed to have a sufficient capital buffer to support its growing book of business, following the recent capital injection from its parent in 2022.

Moreover, AM Best said, IIL has secured stable reinsurance capacity and is expected to reduce reliance on other commercial reinsurers as Inpex recently became a member of Bermudian-based Everen Ltd, an energy sector-dedicated mutual insurance company.

The agency said: “IIL has consistently generated robust underwriting results over the last five years with low combined ratio bolstered by a favourable claims experience and low-cost structure. After a notable premium growth in 2022, owing to a large-scale LNG [liquefied natural gas] project led by Inpex, IIL’s net premium income further expanded by 58 per cent in 2023, primarily due to reduced reinsurance premiums.

“Despite additional expense incurred from the required accrual of theoretical withdrawal premium for the new Everen’s membership, IIL continued to report favourable underwriting performance with a net underwriting profit of $6.8 million in 2023.

“The company’s bottom line was further bolstered by a significant increase in investment profits in 2023 due to the recent higher interest-rate environment in the United States. AM Best expects the positive trends in IIL’s fundamental underwriting performance to continue over the medium term with stable profitability.”

As a captive, AM Best said, IIL mainly participates in energy operational risks of which the coverage mainly encompasses property damage, third-party liability and operator’s extra expenses. The company is cautiously venturing into underwriting oil and gas construction risk and operational wind risks of selected projects.

Although there is some product/geographic concentration, AM Best expects that such concentration can be partially mitigated as Inpex continues to expand its global footprint and IIL underwrites new risks.

The agency said negative rating actions could occur if there is a substantial increase in underwriting losses caused by a material shift in risk appetite. In addition, any significant deterioration in Inpex’s credit profile, including its operating profitability, financial leverage and interest coverage levels, could put downward pressure on IIL’s ratings.

Positive rating actions could occur if IIL demonstrates sustained improvement in its balance sheet strength metrics while it consistently delivers exceptional underwriting results.