AM Best has affirmed the financial strength rating of B++ (Good) and the long-term issuer credit rating (long term ICR) of bbb+ (Good) of the Hong-Kong domiciled captive, Shanghai Electric Insurance Limited (SEIL).
The ratings company said the outlook of these credit ratings is stable.
Shanghai Electric, owned by Shanghai Electric Holding Group, is the eighth captive domiciled in China, but this figure is split between those domiciled in Hong Kong and the mainland.
First set equipment insurance accounted for the majority of SEIL’s premiums, and other traditional lines include commercial properties, engineering and liability.
The equipment insurance, however, has been reliant on a government subsidy being available, with changes to the subsidy interrupting underwriting activity in 2021.
“The company stopped underwriting new business of this line following a change in government subsidy scheme in 2021,” stated AM Best.
“In March 2022, the government subsidy resumed, and thereafter, the company restarted to take in business.”
The ratings reflect SEIL’s balance sheet strength, which AM Best assesses as very strong, its adequate operating performance, limited business profile and appropriate enterprise risk management.
Although the company’s capital and surplus decreased during the year due to a net loss and decline in investment revaluation reserves, the captive’s balance sheet strength is at a “very strong level”.
AM Best expects the captive to maintain a sufficient buffer in its risk-adjusted capitalisation, supported by a low net underwriting leverage, appropriate reinsurance arrangements and prudent risk selection.
The company expects first set equipment insurance to be the key contributor to its underwriting profit in the next three years.
AM Best views the captive’s key revenue contributor has demonstrated dependency on the government policy and expects the captive to face increased execution risk in expanding traditional line of business.
AM Best said negative rating actions could occur if there is a deterioration in the operating performance, for example, due to adverse deviation from the underwriting business.
Negative rating actions also could occur if there is a material deterioration in Shanghai Electric Holding Group’s credit profile.