Moody's Investors Service has affirmed China Railway Captive Insurance A3 insurance financial strength rating (IFSR). The outlook remains stable. China Railway Captive Insurance is a wholly-owned captive insurance subsidiary of the state-owned China State Railway Group (CSRGC). The insurer underwrites both internal group risks and third-party risks mainly for railway-related companies. Moody's views the insurer's credit profile as being closely aligned with that of CSRGC. The rating firm suggests that the affirmation of China Railway Captive Insurance's A3 IFSR reflects the insurer's “strong capitalisation and its short tail-focused product mix”, which is offset by its volatile underwriting profitability. The insurer has strong capitalisation relative to its risk underwritten, due to large registered capital and retained earnings. Its comprehensive solvency ratio was high at 725 per cent as of the end of September 2020, well above the regulatory minimum of 100 per cent. Motor and personal accident insurance are the insurer's key business lines, which collectively represented over 80 per cent of its gross premiums in H1 2020. These business lines are short tail and entail low reserving risk. However, the insurer's underwriting profitability is volatile because of its concentrated exposure to its parent's railway operations. Moody’s says this volatility could intensify as the insurer grows the high-severity engineering and liability insurance with limited use of external reinsurance. Moody’s explains that the insurer's A3 IFSR also incorporates uplift from its stand alone credit profile, reflecting parental support from CSRGC because of the insurer's captive status. The rating company says it expects CSRGC to continue to provide operational and timely capital support for the insurer's business growth. Moody's assessment of support also incorporates the China banking and insurance regulatory commission's requirement for parent companies to inject capital into their captive insurance subsidiaries when the latter fail to meet the regulatory solvency requirement. Reflecting on Moody’s expectation that the insurer's capitalisation will remain strong to support its likely business growth in the next 12 to 18 months, and that CSRGC will continue to provide strong support to the insurer. Given that the credit profile of China Railway Captive Insurance is closely aligned with that of its parent, Moody's says it will consider upgrading the insurer's rating if CSGRC's credit profile improves significantly. In addition, Moody’s adds that a rating upgrade is likely if the insurer substantially reduces its risks underwritten from third parties. However, a downgrade could occur if CSRGC's credit profile deteriorates significantly; support from CSRGC weakens; the insurer takes on sizable additional third-party risks, which could diminish its linkage with CSRGC; and/or; and the insurer fails to replenish its capital after significant underwriting losses from industrial events and/or catastrophe losses.
