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 categorises 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 2019, as measured by Best’s Capital Adequacy Ratio (BCAR). The company’s very strong balance sheet strength is supported by its very low underwriting leverage, low investment risk and a prudent reinsurance programme. Although liquidity remains strong, the captive tapped into bonds, stocks and trust scheme investments in 2019 to diversify its investment portfolio and enhance yield. With initial start-up capital of RMB 2 billion (USD 286 million), a level much higher than its captive peers in Asia Pacific, AM Best expects the company to maintain an abundant buffer in its risk-adjusted capitalisation to support its risk profile.
COSCO SHIPPING Captive has achieved net profits each year since its inception in 2017, which has contributed to organic growth in its capital and surplus. The company’s underwriting performance is characterised by minimal distribution costs involving group-related business, favourable commission income from ceded premiums and marginal loss experience due to small net premium base. Investment performance has been stable thanks to its liquid portfolio. AM Best expects continued net profits from the company over the next three years. Nevertheless, its high-severity, low-frequency product risk profile 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.
As a start-up company, COSCO SHIPPING Captive faces pricing and reserving risks, as well as execution risk in achieving its business plans. The company manages these risks through prudent underwriting practices, conservative actuarial 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 capitalisation or if there is a significant adverse deviation in the captive’s operating performance from its business plan.
Source: AM Best