AM BEST DOWNGRADES SHANGHAI ELECTRIC INSURANCE LIMITED CREDIT RATINGS

KUALA LUMPUR, Feb 24 (Bernama) -- Global credit rating agency, AM Best has downgraded the Financial Strength Rating to B++ (Good) from A- (Excellent) and the Long-Term Issuer Credit Rating to ‘bbb+’ (Good) from ‘a-’ (Excellent) of Shanghai Electric Insurance Limited (SEIL) Hong Kong. The outlook of these Credit Ratings (ratings) is stable.

According to a statement, the ratings reflect SEIL’s balance sheet strength, which United States-headquartered AM Best assesses as very strong, as well as its adequate operating performance, limited business profile and appropriate enterprise risk management.

The rating downgrades reflect the revision of SEIL’s business profile assessment from neutral to limited. SEIL is a single-parent captive of Shanghai Electric (Group) Corporation, which is wholly owned by the Shanghai municipal government and is one of the largest power generation and industrial equipment manufacturing enterprises in China.

SEIL, incorporated in Hong Kong in 2018, and serving as the group’s risk management and insurance arm, mainly assumes premiums from the group and affiliates through inward arrangements with onshore and offshore insurers and reinsurers.

Going forward, SEIL plans to grow its traditional lines of business and meanwhile underwrite risks from the group’s overseas engineering projects. AM Best views the change in business strategy as a material deviation from its original business plan, and expects the captive to face an increased level of execution risk in rolling out new plans for its underwriting portfolio strategy.

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). The captive’s risk-adjusted capitalisation is underpinned by its very low underwriting leverage and liquid investment portfolio.

SEIL has a moderate exposure in non-investment-grade bonds, which enhance yield. In view of its low-frequency, high-severity risk profile, the captive has arranged a reinsurance programme to protect its capital in 2022. 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.

In terms of investment performance, SEIL reported a net investment loss in 2021 as a result of unfavourable market conditions. The captive expects its investment return to recover gradually and stabilise going forward due to its liquid and fixed income-oriented asset portfolio.

As the captive represents a fairly small business of the wider group, AM Best views the estimated loss for the group’s annual results for 2021 as having a limited negative impact to SEIL and unlikely to result in a capital repatriation; no rating drag has been applied thus far.

For more information, visit www.ambest.com.

-- BERNAMA