The Cosco Shipping Captive Insurance Company (Cosco Shipping Captive) has had its financial strength rating of A (Excellent) and a long-term issuer credit rating of “a” by A.M. Best.
The outlook assigned to the ratings of the China-based captive is stable.
A newly incorporated single-parent captive of China Cosco Shipping Corporation (Cosco Shipping), Cosco Shipping Captive was incorporated in February 2017, is headquartered in Shanghai and 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 are reflective of the captive’s balance sheet strength, which A.M. Best categorised as very strong, as well as its adequate operating performance, neutral business profile, and appropriate enterprise risk management.
Additionally, the ratings reflect the implicit and explicit support Cosco Shipping Captive receives from its parent company, who A.M. Best perceives to benefit from strong government support.
The captive’s very strong balance street strength is supported by a large injection of RMB 2 billion ($307 million) in start-up capital, and risk-adjusted capitalisation is expected to remain at the strongest level, according to its business plan.
The very low underwriting leverage relative to its peers and its conservative, highly liquid investment portfolio is in further support of this.
The ratings agency expect “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”.
Cosco Shipping Captive plays a strategically important role to the development of both Cosco Shipping and China’s insurance industry, due to its position as the first shipping captive in China and the first financial license within Cosco Shipping group.
It is well-integrated within the group in terms of operations and risk management and receives various support from its parent in terms of capitalisation, business development, managerial and research funding.
Factors that offset the ratings include the captive’s high-severity, low-frequency product risk profile and small net premium base, exposing it to potential volatility in its underwriting result.
Cosco Shipping Captive also faces execution risk in achieving its business plan, as well as an additional layer of pricing and reserving due to lack of operating history.
A.M. Best predicts rating actions are unlikely in the near term but does suggest that negative rating actions could occur as a result of 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.
A reduced level of support from Cosco Shipping or a significant deterioration in the parent company’s financial strength or credit profile could also lead to negative rating actions.