News Non-Life08 Oct 2018

China:Shipping insurance captive expected to have very strong risk-adjusted capitalisation

| 08 Oct 2018

Cosco Shipping Captive Insurance's risk-adjusted capitalisation is expected to remain at the strongest level, in line with its business plan, says A.M. Best which last week assigned a Financial Strength Rating of A (Excellent) and a Long-Term Issuer Credit Rating of "a" to the captive insurer. The outlook assigned to these credit ratings is stable.

The ratings reflect Cosco Shipping Captive’s balance sheet strength, which A.M. Best categorises 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, China Cosco Shipping Corporation, which A.M. Best perceives to benefit from strong government support.

The international credit agency also says that Cosco Shipping Captive's very strong balance sheet strength is supported by a large initial injection of CNY2bn ($291m) in start-up capital.

The captive insurer's capital position is further supported by the company’s very low underwriting leverage relative to its peers, as well as its conservative, highly liquid investment portfolio.

The captive insurer was incorporated in February 2017 and is headquartered in Shanghai. It is the first shipping captive in China and holds the first financial licence within the Cosco Shipping group.

Cosco Shipping Captive mainly underwrites marine business for the group and its affiliates, as well as other risks stemming from the Cosco Shipping group's operations including liability, property, cargo, and group accident and health.

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.

The captive insurer plays a strategically important role in the development of the group 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 capitalisation, business development, managerial and research funding, notes A.M. Best.

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.


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