Ratings agency AM Best last week awarded Cosco Shipping Captive a Financial Strength Rating of A (Excellent). AM Best characterised as very strong reflecting the company’s performance, neutral business profile and the support from its parent, China Cosco Shipping Corp.
CSC’s strong balance sheet strength has been boosted by a huge capital input of RMB2bn (US$291m). The first shipping captive in China, CSC was established in 2017. It is headquartered in Shanghai. It is also holder of the first financial licence within the Cosco Shipping conglomerate.
The core business of CSP is marine business for the group and its subsidiaries, as well as risks originating from Cosco Shipping’s operations including liability, property, cargo and group accident and health.
Going forward AM Best forecasts that the captive’s performance should continue as adequate due largely to low distribution costs and a firm stream of investment income that is significant compared with net earned premium.
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.
While positive rating actions are unlikely in the near term, negative rating actions could occur if there is significant adverse deviation in the company’s operating performance from its business plan, or if there is material decline in its risk-adjusted capitalization due to major losses or much faster-than-expected new business growth. Negative rating actions also could occur if there is a reduced level of support from Cosco Shipping or a significant deterioration in Cosco Shipping’s financial strength or credit profile.