AM Best Assigns Credit Ratings to China Shipowners Mutual Assurance Association

HONG KONG--(BUSINESS WIRE)--AM Best has assigned a Financial Strength Rating of A- (Excellent) and a Long-Term Issuer Credit Rating of “a-” (Excellent) to China Shipowners Mutual Assurance Association (China P&I or the Club) (China). The outlook assigned to 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.

China P&I’s risk-adjusted capitalisation is assessed as being at the strongest level as of year-end 2021, as measured by Best’s Capital Adequacy Ratio (BCAR), and is expected to remain so over the short to intermediate term, underpinned by continued growth through full earnings retention and a very low underwriting leverage. The Club’s consolidated capital and surplus has grown at a compound annual growth rate of 9.6% over the past five years and reached a sizeable USD 3.2 billion as of year-end 2021. AM Best views the Club to possess strong liquidity and is well-protected by a comprehensive reinsurance programme arranged with several members of International Group of P&I Clubs (International Group), as well as other reinsurers of sound financial strength. Notwithstanding, the major offsetting factors of the balance sheet strength is the Club’s higher-than-average investment risk appetite and elevated concentration risk. As of year-end 2021, the Club continues to hold a long-term investment in listed equities of China Minsheng Banking Corp., Ltd. (CMBC), which accounted for 72% of the Club’s total invested assets.

China P&I has reported net profits consistently over the past five years, with an average return on equity of 7.3% during the period, which compares favourably against its International Group peers. Cash dividends and growth in book value of the aforementioned investment in CMBC continued to form the backbone of the favourable investment results, which contributed to offset the negative and volatile underwriting performance over the past five years as the net underwriting leverage remained at low single digit. AM Best expects investment results to continue to be a major driver of the Club’s overall profitability over the short to intermediate term.

China P&I was established in 1984 as a mutual association. Since then, the Club has continued to build close relationships with its members and maintain an extensive global network of business partners. The Club has a dominant market share in China’s P&I insurance market and is one of the major hull insurance providers in the country. While the current underwriting portfolio focuses on domestic market of ocean-going vessels owned by Chinese shipowners, the Club targets to explore opportunities in overseas markets such as Southeast Asia to diversify its member base going forward. In addition, the Club has benefited from long-term business partnerships with several International Group clubs in areas such as reinsurance support, loss prevention know-how, claims services, and the sharing of local knowledge and professional network. The Club also benefits from supportive government initiatives including tax preference, recognition of guarantees issued by the Club and other financial incentives.

China P&I is well-positioned at the current rating level. Negative rating actions may occur if the Club’s balance sheet strength 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 arise if the Club’s operating performance demonstrates a sustained and material deteriorating trend, for example, due to continued adverse investment results that significantly drag on overall profitability and erode its capital position.

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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