Best’s News & Research Service - September 19, 2019 12:23 PM (EDT)
AM Best Affirms Credit Ratings of COSCO SHIPPING Captive Insurance Co., Ltd.
- September 19, 2019 12:23 PM (EDT)
Hong Kong //BestWire// - AM Best has affirmed the Financial Strength Rating of A (Excellent) and the Long-Term Issuer Credit Rating of “a” 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 categorizes 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 capitalization remained at the strongest level in 2018, as measured by Best’s Capital Adequacy Ratio (BCAR), and is supported by very low underwriting leverage, a prudent reinsurance program and a conservative investment portfolio. Due to a large initial injection of RMB 2 billion (USD 283 million) in start-up capital, the captive insurer’s capital and surplus at year-end 2018 amounted to RMB 2.2 billion (USD 311 million), a level much higher than its regional peers. COSCO SHIPPING Captive has generated net operating profits each year since its inception in February 2017, which has contributed to organic growth in its capital and surplus. AM Best expects continued net profits from the company over the medium term, supported by its positive underwriting results and a stable stream of investment income.
COSCO SHIPPING Captive underwrites mainly marine-related business for the group and its affiliates, as well as other risks stemming from the group’s operations including cargo, liability, and commercial property. During fiscal year 2018, the captive achieved RMB 432 million (USD 61 million) in premium income, largely derived from its main line of business, marine hull, which is expected to remain as the company’s key revenue source over the medium term. As a strategically important member of COSCO SHIPPING, the captive receives various implicit and explicit support from its parent including business development, researching funding, managerial and capital support.
Offsetting rating factors include the captive’s small net premium base due to its high reinsurance dependency, as well as a high-severity, low-frequency product risk profile. As a result of the above, the captive is exposed to potential volatility in its underwriting results. However, this is mitigated partly through a robust reinsurance program with a high-quality reinsurer panel. As a start-up company, COSCO SHIPPING Captive faces execution risk in achieving its business plans, although this is mitigated through conservative assumptions and regular experience reviews.
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 capitalization or if there is 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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