AM Best has affirmed the Financial Strength Rating of A- (Excellent) and the Long-Term Issuer Credit Rating of “a-” (Excellent) of China Shipowners Mutual Assurance Association (China P&I or the Club) (China). The outlook of these Credit Ratings (ratings) is stable.
The ratings reflect China P&I’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.
AM Best expects China P&I’s risk-adjusted capitalisation, as measured by Best’s Capital Adequacy Ratio (BCAR), to remain at the strongest level over the short to intermediate term, underpinned by continued growth through full earnings retention and its very low underwriting leverage. The Club’s consolidated capital and surplus declined moderately in 2022, mainly due to the impact of the U.S. dollar strengthening against China P&I’s Chinese Yuan denominated assets. One major long-term listed equity investment, namely China Minsheng Banking Corp., Ltd. (CMBC), accounted for 71% of total invested assets as of year-end 2022. This elevated concentration risk and the higher-than-average investment risk appetite continued to be offsetting factors to the Club’s balance sheet strength. Notwithstanding, AM Best views the Club to be equipped with strong liquidity, a prudent reserving practice and a comprehensive reinsurance programme supported by several International Group P&I clubs.
China P&I has consistently reported net profit over the past five years, underpinned by favourable investment results from the sizeable investment portfolio despite being partially offset by underwriting losses. According to AM Best’s calculations, the Club’s five-year average return-on-equity ratio was 5.8%, which compares favourably against its International Group peers. The net loss ratio has been volatile over the past five years and the expense ratio remains elevated due to its low net premium base, although the net impacts were mitigated by reinsurance to manageable levels. Cash dividends and growth in book value in the domestic currency of the sizeable long-term equity investments in CMBC are expected to remain the backbone of the Club’s investment results going forward.
Established in 1984 as a mutual association, China P&I has become a leading player in China’s P&I market and is one of the major hull insurance providers in the country. The underwriting portfolio remained stable in 2022 with a focus on the domestic market of ocean-going vessels owned by Chinese shipowners. Going forward, the Club plans to explore opportunities in overseas markets such as Southeast Asia to diversify its member base. Moreover, the Club continues to leverage its long-term business partnerships with several International Group clubs in areas such as reinsurance support, loss prevention, claims services, product development and the sharing of local knowledge and a professional network.
Negative rating actions may occur if the Club’s balance sheet strength level no longer supports the current assessment; for example, due to material deterioration in the level of risk-adjusted capitalisation arising from heightened investment risk. Negative rating actions may also occur if the Club’s operating performance demonstrates a sustained and material deteriorating trend; for example, due to continued adverse investment results that significantly become a drag on overall profitability and erode the Club’s capital position. While unlikely over the short term, positive rating actions may occur if China P&I’s balance sheet strength demonstrates material improvement as the capital position (excluding the long-term equity investment in CMBC) gradually strengthens from earnings retention while the risk-adjusted capitalisation maintains at the strongest level.
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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