AM Best affirms ‘A’ rating of COSCO SHIPPING captive
AM Best has affirmed the financial strength rating of A and the long-term issuer credit rating of “a” of COSCO SHIPPING Captive Insurance Co. The outlook of these ratings is stable.
According to AM Best the ratings reflect COSCO SHIPPING Captive’s balance sheet strength, which it 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 2024, 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. COSCO SHIPPING Captive’s capital and surplus has consistently grown at low single-digit rates over the past five years, supported by stable operating performance. The captive insurer is expected to maintain its current dividend payout ratio over the intermediate term and sustain its 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 has consistently delivered positive earnings since 2017 and achieved an average return-on-equity ratio of 5.2% over the past five years (2020-2024). The company’s underwriting performance benefits from stable group-related businesses, low commission expenses, and favourable reinsurance commission income, albeit offset by marginal net loss experience due to a small net earned premium base.
The captive’s investment performance improved moderately with a net investment yield (including capital gains) of 3.6% in 2024. The company is expected to maintain its asset allocation strategy with a focus on fixed-income oriented assets, which provide a stable stream of investment income. Based on its three-year business plan, the captive insurer expects stable premium growth while continuing to achieve a favourable bottom line. Nevertheless, the company’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 remain its key source of premium income over the medium term. Other business lines include liability, commercial property, cargo, motor, accident and health.
However, AM Best added the caveat that 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 also could 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. While deemed unlikely over the short to intermediate term, positive rating actions may occur if the captive insurer demonstrates sustained and favourable operating performance while supporting its current business profile assessment.
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