HONG KONG, September 17, 2021--(BUSINESS WIRE)--AM Best has affirmed the Financial Strength Rating of A (Excellent) and the Long-Term Issuer Credit Rating of "a" (Excellent) of COSCO SHIPPING Captive Insurance Co., Ltd. (COSCO SHIPPING Captive) (China). The outlook of these Credit Ratings (ratings) is stable.
The ratings reflect COSCO SHIPPING Captive’s balance sheet strength, which AM Best assesses as very strong, as well as its adequate operating performance, neutral business profile and appropriate enterprise risk management. The ratings also reflect the wide range of support the company receives from its parent, China COSCO SHIPPING Corporation Limited (COSCO SHIPPING), which AM Best perceives to benefit from strong government support.
COSCO SHIPPING Captive’s risk-adjusted capitalisation remained at the strongest level in 2020, as measured by Best’s Capital Adequacy Ratio (BCAR). Its balance sheet strength is assessed as very strong, underpinned by a very low underwriting leverage and a prudent reinsurance programme. While the captive has expanded its investments into debt, equities and trust schemes since 2019 to enhance yields, its investment portfolio remained liquid with asset risk managed at an appropriate level. With an initial startup capital of RMB 2 billion (USD 286 million), a level much higher than its captive peers in the Asia-Pacific region, AM Best expects the company’s capital base and its risk-adjusted capitalisation to remain sufficient to support business growth.
COSCO SHIPPING Captive achieved a net profit each year from 2017 to 2020 and reported an average return on equity of 4.7% since its inception. The company’s underwriting performance continues to benefit from low distribution costs for group-related business and favourable reinsurance commission income, offset by marginal net loss experience due to a small net earned premium base. Investment yield has been stable with a slightly upward trend in tandem with the enlarged risk appetite. Based on its three-year business plan, the captive expects to maintain a steady premium volume while continuing to deliver a favourable bottom line. Nevertheless, its high-severity, low-frequency product risk profile and small net earned premium base may subject the company’s operating performance to potential volatility risk.
COSCO SHIPPING Captive’s underwriting book primarily consists of marine hull business for the parent group and its affiliates, which is expected to be the company’s key source of premiums over the medium term. Other business lines include liability, commercial property, cargo, motor, accident and health. As a strategically important member of COSCO SHIPPING, the captive insurer receives various implicit and explicit support from its parent in areas of business development, risk management, managerial and capital support.
COSCO SHIPPING Captive has demonstrated a good level of business plan execution over the past few years. As it is still a startup, the company faces pricing and reserving risks due to its lack of long operating history. The company manages these risks through prudent underwriting practices, conservative actuarial assumptions and robust reinsurance programmes.
Negative rating actions could occur if there is a reduced level of support from COSCO SHIPPING or a significant deterioration in COSCO SHIPPING’s financial strength or credit profile. Negative rating actions also could occur if there is a material decline in the captive’s risk-adjusted capitalisation, or if there is a significant adverse deviation in the captive’s operating performance from its business plan.
AM Best remains the leading rating agency of alternative risk transfer entities, with more than 200 such vehicles rated throughout the world. For current Best’s Credit Ratings and independent data on the captive and alternative risk transfer insurance market, please visit www.ambest.com/captive.
Ratings are communicated to rated entities prior to publication. Unless stated otherwise, the ratings were not amended subsequent to that communication.
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