A.M. Best has assigned a Financial Strength Rating of A (Excellent) and a Long-Term Issuer Credit Rating of “a” to COSCO SHIPPING Captive Insurance Co., Ltd. (COSCO SHIPPING Captive) (China). The outlook assigned to these Credit Ratings (ratings) is stable.
COSCO SHIPPING Captive is a newly incorporated pure captive of China COSCO SHIPPING Corporation Limited (COSCO SHIPPING). Incorporated in February 2017 and headquartered in Shanghai, COSCO SHIPPING Captive mainly underwrites marine business for the group and its affiliates, as well as other risks stemming from COSCO SHIPPING’s operations including liability, property, cargo, and group accident and health.
The ratings reflect COSCO SHIPPING Captive’s balance sheet strength, which A.M. 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 implicit and explicit support the company receives from its parent, COSCO SHIPPING, who A.M. Best perceives to benefit from strong government support.
COSCO SHIPPING Captive’s very strong balance sheet strength is supported by a large initial injection of RMB 2 billion (USD 307 million) in start-up capital, and risk-adjusted capitalization is expected to remain at the strongest level, according to its business plan. This is further supported by the company’s very low underwriting leverage relative to its peers, as well as its conservative, highly liquid investment portfolio. A.M. Best expects COSCO SHIPPING Captive’s overall operating performance to remain adequate, mainly supported by low distribution costs and a stable stream of investment income that is significant in size compared with its net earned premium. As the first shipping captive in China and the first financial license within COSCO SHIPPING group, COSCO SHIPPING Captive plays a strategically important role to the development of COSCO SHIPPING and China’s insurance industry. It is well-integrated within the group in terms of operations and risk management, and receives various support from its parent in terms of capitalization, business development, managerial and research funding.
Offsetting rating factors include the company’s high-severity, low-frequency product risk profile and small net premium base, exposing it to potential volatility in its underwriting result. The captive also faces execution risk in achieving its business plan, as well as an additional layer of pricing and reserving risk due to lack of operating history.
While positive rating actions are unlikely in the near term, negative rating actions could occur if there is significant adverse deviation in the company’s operating performance from its business plan, or if there is material decline in its risk-adjusted capitalization due to major losses or much faster-than-expected new business growth. Negative rating actions also 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.
