AM Best has affirmed COSCO SHIPPING Captive Insurance Co., Ltd. (COSCO SHIPPING Captive)’s Financial Strength Rating of A (Excellent) and Long-Term Issuer Credit Rating of “a” (Excellent). The outlook for these ratings is stable.
AM Best notes that COSCO SHIPPING Captive’s underwriting performance is benefiting “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.” With this, the captive insurer has recorded net profits yearly since 2017 and posted a 5.0% average return-on-equity ratio from 2019 to 2023.
The captive’s very low underwriting leverage and prudent reinsurance arrangements has also supported the captive’s balance sheet strength assessment.
AM Best then highlighted the insurer’s good execution of its business plan for the past few years. Given its three-year plan, COSCO SHIPPING Captive is expecting stable growth in premiums as it continues to deliver a favourable bottom line. However, the ratings agency notes that the company’s operating performance may be subjected to potential volatility risk due to its “high-severity, low-frequency product risk profile and small net earned premium base.”
The captive’s risk-adjusted capitalisation stayed at the strongest level in 2023, based on Best’s Capital Adequacy Ratio (BCAR). Its capital and surplus have also seen consistent growth recorded at low- to mid-single-digit rates, which is underpinned by a stable operating performance.
When it comes to dividend payout, COSCO SHIPPING Captive’s ratio has gone up over the past few years, but the ratings agency states that it is expected to stay stable in the short to intermediate term. It will also continue to support the company’s large capital buffer via profit accumulation.
Meanwhile, COSCO SHIPPING Captive’s investment performance has also seen moderate improvement, with 2.6% net investment yield (including capital gains). The company, according to the ratings agency, is set to continue focusing on fixed-income oriented assets that are expected to provide stable investment income.
Seeking to improve investment results and build a diversified portfolio, the captive has slowly increased exposure to fixed income investments and equities in the last five years.
About COSCO SHIPPING Captive
Established as China’s first captive shipping insurance firm by the China COSCO SHIPPING Corporation, the company was formed to insure the risks of COSCO’s shipping fleet and affiliated businesses. The company’s portfolio primarily focuses on marine hull insurance for its parent company and its affiliates, but it also covers other areas such as liability, cargo, motor, and property insurance.
The ratings reflect the captive’s “very strong” balance sheet strength, “adequate” operating performance, neutral business profile, and appropriate enterprise risk management. It also showcases the captive insurer’s strategic importance to its parent company.
