Fitch Ratings has affirmed Monticello Insurance Pte’s insurer financial strength (IFS) rating at ‘BBB’ with a stable rating outlook.
Monticello is a Singapore-domiciled captive owned by Vale S.A., a Brazilian multinational corporation engaged in metals and mining and is one of the biggest logistics operators in the country.
Fitch considers Monticello a core captive of Vale S.A., meaning its insurer’s rating is linked to the parent’s rating, and its (IFS) rating is equal to the parent’s (issuer default rating) IDR.
Vale has financially supported Monticello when needed, ensuring Monticello’s solvency and viability through revolving loan agreements, letter of credit to fronting insurers, and capital injections.
The last major injections were $241m in 2012 and 2013, but there has since been little need for that amount of support.
The captive is protected from extremely large losses through reinsurance contracts, and the large contracts are well diversified across an adequate number of mostly ‘A’ rated reinsurers.
Due to the nature of the company, the captive writes coverages that tends to be low frequency and high severity, which generally exhibit higher volatility of ultimate losses from year to year and can affect the valuation of reserves.
In 2023, the captive continued to show good profitability, with a return on average equity of 12.7% and a profit of $39.2m in 2023 ($48.7m in 2022), with the loss ratio being the main driver of profitability.
Despite the good performance in 2023, Monticello’s results remain very volatile due to the nature of the risks covered.
Monticello does not have a formal investment policy, while the main investment is in the form of an uncommitted revolving inter affiliate loan facility to Vale, which can be redeemed in the short term and the rest is mainly held in cash.