AM Best Affirms Credit Ratings of Shanghai Electric Insurance Limited

HONG KONG–(BUSINESS WIRE)–AM Best has affirmed the Financial Strength Rating of B++ (Good) and the Long-Term Issuer Credit Rating of �bbb+” (Good) of Shanghai Electric Insurance Limited (SEIL) (Hong Kong). The outlook of these Credit Ratings (ratings) is stable.

The ratings reflect SEIL’s balance sheet strength, which AM Best assesses as very strong, as well as its adequate operating performance, limited business profile and appropriate enterprise risk management.

AM Best assesses SEIL’s balance sheet strength at the very strong level, supported by risk-adjusted capitalisation at the strongest level, as measured by Best’s Capital Adequacy Ratio (BCAR). According to unaudited financials as of year-end 2022, although the company’s capital and surplus decreased during the year due to a net loss and decline in investment revaluation reserves, its BCAR remained at a robust 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.

Prior to 2021, SEIL’s underwriting book consisted primarily of the speciality line of first set equipment insurance. The company stopped underwriting new business of this line following a change in government subsidy scheme in 2021. In March 2022, the government subsidy resumed, and thereafter, the company restarted to take in business. The captive’s top-line was boosted significantly to a similar level as 2020, which contributed to underwriting profits in 2022. Going forward, the captive plans to continue with the momentum of first set equipment insurance and meanwhile, gradually build up its traditional lines of business 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.

The company experienced continued headwinds on investments in 2022. Its investment loss was attributable primarily to realised losses from shares investment and was offset partially by interest and dividend income. The company took the initiative to de-risk its equity investments and reallocate to fixed income securities and cash only by the end of 2022. The captive expects its investment return to stabilise and bottom line to revert in 2023. AM Best views that the company has been prudent on asset allocation strategy and maintained a sufficient capital buffer to withstand potential investment loss. In view of its low-frequency, high-severity risk profile, the captive has arranged a reinsurance programme to protect its capital. AM Best expects the captive to maintain a sufficient buffer in its risk-adjusted capitalisation to support its risk profile over the next three years.

SEIL is the eighth professional captive in China and the first of its kind in the equipment manufacturing sector. It serves as the group’s insurance management platform and risk management tool. First set equipment insurance accounted for the vast majority of SEIL’s premiums. Other traditional lines include commercial properties, engineering and liability. The company expects the speciality line to be the key contributor to its underwriting profit in the next three years.

Negative rating actions could occur if there is a material and sustained 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 Co., Ltd.’s credit profile that result in a capital repatriation.

AM Best remains the leading rating agency of alternative risk transfer entities, with more than 200 such vehicles rated throughout the world. For current Best’s Credit Ratings and independent data on the captive and alternative risk transfer insurance market, please visit www.ambest.com/captive.

Ratings are communicated to rated entities prior to publication. Unless stated otherwise, the ratings were not amended subsequent to that communication.

This press release relates to Credit Ratings that have been published on AM Best’s website. For all rating information relating to the release and pertinent disclosures, including details of the office responsible for issuing each of the individual ratings referenced in this release, please see AM Best’s Recent Rating Activity web page. For additional information regarding the use and limitations of Credit Rating opinions, please view Guide to Best’s Credit Ratings. For information on the proper use of Best’s Credit Ratings, Best’s Performance Assessments, Best’s Preliminary Credit Assessments and AM Best press releases, please view Guide to Proper Use of Best’s Ratings & Assessments.

AM Best is a global credit rating agency, news publisher and data analytics provider specialising in the insurance industry. Headquartered in the United States, the company does business in over 100 countries with regional offices in London, Amsterdam, Dubai, Hong Kong, Singapore and Mexico City. For more information, visit www.ambest.com.

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Al Slavin
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