COSCO SHIPPING Captive Insurance has had its ‘A’ (Excellent) financial strength rating and long-term issuer credit rating (ICR) of ‘a’ (Excellent) affirmed by AM Best, both of which have been assigned a ‘stable’ outlook. The agency says these ratings are indicative of the captive’s ‘very strong’ balance sheet, in conjunction with its adequate operating performance, neutral business profile, and appropriate enterprise risk management. Moreover, Best says the ratings are reflective of the captive insurer’s position as a strategically important member of its parent company, China COSCO SHIPPING, in addition to the range of support provided by the company in areas such as business development, risk management, and managerial and capital support. Best’s capital adequacy ratio (BCAR) assessed the captive’s risk-adjusted capitalisation as remaining at the strongest level, with its balance sheet strength underpinned by a very low underwriting leverage, and a prudent reinsurance programme. Furthermore, the COSCO SHIPPING captive has had its capital and surplus continually grow, albeit at single-digit rates, over the past five years, with support from a stable operating performance. The captive has also consistently delivered positive earnings since 2017, according to Best, achieving an average return-on-equity ratio of 5.2 per cent between 2020 and 2024. As such, its underwriting performance has benefitted from stable group-related business, low commission expenses, and favourable reinsurance commission income, despite being offset by marginal net loss experience caused by a small net earned premium base. Best underscores the captive’s increased exposure to fixed-income investments and equities over the past five years — intended on improving investment results and a more diversified portfolio — as significant in its 3.6 per cent 2024 net investment yield, which the agency says is a moderate improvement. Despite a high-severity, low-frequency product risk profile and small net earned premium base, potentially subjecting the captive to volatility risk, based on its three-year business plan, Best expects it to have stable premium growth while continuing to achieve a favourable bottom line. The majority of COSCO SHIPPING Captive’s business consists of marine hull insurance for its parent group and affiliates, for which Best expects it to remain a pivotal source of premium income over the medium term, with additional business lines including liability, commercial property, cargo, motor, accident, and health. Best outlines the potential for negative ratings if the captive suffers a “significant adverse deviation” in its business plan’s operating performance, a reduced level of support from COSCO SHIPPING, or a significant deterioration in its parent’s financial strength or credit profile. The agency also deems the prospect of positive rating actions over the short to intermediate term unlikely, although they would be possible if the captive were to demonstrate a “sustained and favourable” operating performance while continuing to support its current business profile assessment.
