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 very low underwriting leverage and sustained capital growth through earnings retention. The Club’s consolidated capital and surplus increased moderately in 2023, driven by improved operating results and profit retention. China P&I continues to hold its long-term equity investment in China Minsheng Banking Corp., Ltd. (CMBC), which accounts for approximately 70% of total invested assets. This investment concentration risk remains an offsetting factor to China P&I’s balance sheet strength, alongside the higher-than-average investment allocation to equities and sizeable gross losses of protection and indemnity (P&I) insurance that the Club is potentially exposed to. Conversely, supportive factors in AM Best’s balance sheet strength assessment include the Club’s prudent reserving practices in view of the long-tail nature of P&I insurance and its comprehensive reinsurance programme.

China P&I reported improved operating results in 2023, mainly driven by a combination of narrower underwriting losses and favourable investment income. The Club has consistently recorded net profit over the past five years. Based on AM Best’s calculations, the Club’s five-year average return-on-equity ratio was 5.3% (2019-2023). Robust growth in premium revenue, coupled with better claims experience, has contributed to a declining loss ratio over the past three years, and partially alleviated the pressure from elevated levels of operating expenses due to the small net premium base. The Club continued to report favourable investment returns in 2023, with a net investment yield (including capital gains or losses) of 5.3%, mainly supported by a consistent track record of dividends and growth in the CMBC investment’s book value.

Established in 1984 as a mutual association, the Club has become a leading player in China’s P&I market and is one of the major hull insurance providers in the country. The Club’s underwriting portfolio has remained stable with a focus on the domestic market of ocean-going vessels owned by Chinese shipowners. China P&I continues to explore opportunities in overseas markets such as Southeast Asia to diversify its member base. Additionally, the Club continues to leverage its long-term business partnerships with several International Group of P&I clubs in areas such as reinsurance support, loss prevention, claims services, product development, sharing local knowledge and its professional network.

Negative rating actions may occur if China P&I’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 risks. Negative rating actions may also arise if the Club’s operating performance demonstrates a persistent deteriorating trend, for example, due to sustained and material investment losses that significantly weigh down the Club’s profitability or erode its capital position. Positive rating actions may occur if China P&I demonstrates organic and sustained capital growth through earnings retention while maintaining its risk-adjusted capitalisation at the strongest level with manageable equity risks, excluding the impact of the Club’s investment in CMBC.

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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Madison Fan Financial Analyst +852 2827 3416 madison.fan@ambest.com

Christopher Sharkey Associate Director, Public Relations +1 908 882 2310 christopher.sharkey@ambest.com

James Chan Director, Analytics +852 2827 3418 james.chan@ambest.com

Al Slavin Senior Public Relations Specialist +1 908 882 2318 al.slavin@ambest.com