AM Best has affirmed the Financial Strength Rating of A (Excellent) and the Long-Term Issuer Credit Rating of “a” (Excellent) of COSCO SHIPPING Captive Insurance Co., Ltd. (COSCO SHIPPING Captive) (China). The outlook of these Credit Ratings (ratings) is stable.

The ratings reflect COSCO SHIPPING Captive’s balance sheet strength, which AM Best assesses as very strong, as well as its adequate operating performance, neutral business profile and appropriate enterprise risk management. The ratings also reflect the captive insurer being a strategically important member of its parent, China COSCO SHIPPING Corporation Limited (COSCO SHIPPING), and the wide range of support provided by COSCO SHIPPING in areas such as business development, risk management, and managerial and capital support.

COSCO SHIPPING Captive’s risk-adjusted capitalisation remained at the strongest level in 2023, as measured by Best’s Capital Adequacy Ratio (BCAR). The company’s balance sheet strength assessment is underpinned by a very low underwriting leverage and a prudent reinsurance programme. The captive insurer’s capital and surplus has consistently grown at low- to mid-single digit rates, supported by stable operating performance. While the dividend payout ratio has increased over the past few years, it is expected to remain stable over the short to intermediate term and continue to support the captive’s abundant capital buffer through profit accumulation.

COSCO SHIPPING Captive has gradually increased its exposure to fixed-income investments and equities over the past five years, with an aim to improve investment results and build a diversified portfolio. The company’s investment portfolio remains liquid with asset risk managed at an appropriate level.

COSCO SHIPPING Captive achieved a net profit each year since 2017 and has an average return-on-equity ratio of 5.0% over the past five years (2019-2023). The company’s underwriting performance continues to benefit 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. Investment performance has moderately improved with a net investment yield (including capital gains) of 2.6%. The company will continue to focus on fixed-income oriented assets, which are expected to provide a stable stream of investment income. COSCO SHIPPING Captive has demonstrated good execution of its business plan over the past few years. Based on its three-year business plan, the company expects stable premium growth while continuing to deliver a favourable bottom line. Nevertheless, the captive’s high-severity, low-frequency product risk profile and small net earned premium base may subject its operating performance to potential volatility risk.

COSCO SHIPPING Captive’s underwriting book primarily consists of marine hull business for the parent group and its affiliates, which is expected to be its key source of premium income over the medium term. Other business lines include liability, commercial property, cargo, motor, accident and health.

Negative rating actions could occur if there is a significant adverse deviation in COSCO SHIPPING Captive’s operating performance from its business plan. Negative rating actions could also arise if there is a reduced level of support from COSCO SHIPPING or a significant deterioration in COSCO SHIPPING’s financial strength or credit profile. Positive rating actions could occur if COSCO SHIPPING Captive demonstrates sustained and favourable operating performance while supporting its current business profile assessment.

AM Best remains the leading rating agency of alternative risk transfer entities, with more than 200 such vehicles rated throughout the world. For current Best’s Credit Ratings and independent data on the captive and alternative risk transfer insurance market, please visit www.ambest.com/captive.

Ratings are communicated to rated entities prior to publication. Unless stated otherwise, the ratings were not amended subsequent to that communication.

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