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FOR IMMEDIATE RELEASE
HONG KONG - SEPTEMBER 16, 2022 10:00 AM (EDT)
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 2021, as measured by Best’s Capital Adequacy Ratio (BCAR). The company’s balance sheet strength is assessed as very strong, underpinned by a very low underwriting leverage and a prudent reinsurance programme. Since inception in 2017, the company’s capital and surplus has consistently grown at low- to mid-single digit rates, supported by partial earnings retention. Since 2019, the company has gradually shifted its investments toward debt and equities, away from a conservative risk appetite focused solely on cash and cash equivalents. The company’s investment portfolio remains liquid with asset risk managed at an appropriate level. AM Best expects the company’s risk-adjusted capitalisation to remain sufficient to support business growth over the short to intermediate term.
COSCO SHIPPING Captive achieved a net profit each year from 2017 to 2021 and has an average return on equity of 4.7% since 2017. The company’s underwriting performance continues to benefit from low distribution costs for group-related business and favourable reinsurance commission income, albeit offset by marginal net loss experience due to a small net earned premium base. The investment yield has been stable as fixed-income securities continue to form the backbone of the investment portfolio. Based on its three-year business plan, the captive expects stable premium growth 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 good execution of its business plan over the past few years. As the company was established in 2017, it faces pricing and reserving risks due to its lack of 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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AM Best is a global credit rating agency, news publisher and data analytics provider specialising in the insurance industry. Headquartered in the United States, the company does business in over 100 countries with regional offices in London, Amsterdam, Dubai, Hong Kong, Singapore and Mexico City.